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TIDEWATER INC - Quarter Report: 2019 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission file number: 1-6311

Tidewater Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

72-0487776

(State of incorporation)

 

(I.R.S. Employer Identification No.)

6002 Rogerdale Road, Suite 600

Houston, Texas 77072

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:     (713) 470-5300

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

TDW

New York Stock Exchange

Series A Warrants to purchase shares of common stock

TDW.WS.A

New York Stock Exchange

Series B Warrants to purchase shares of common stock

TDW.WS.B

New York Stock Exchange

Warrants to purchase shares of common stock

TDW.WS

NYSE American

 

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.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a 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.

 

Large accelerated filer  

 

 

Accelerated filer  

Non-accelerated filer  

Emerging Growth Company

 

 

Smaller reporting company 

 

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      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  

39,231,039 shares of Tidewater Inc. common stock $0.001 par value per share were outstanding on November 4, 2019. 

 

 

 


 

PART I.  FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

TIDEWATER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value data)

 

 

 

September 30,

 

 

December 31,

 

ASSETS

 

2019

 

 

2018

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

359,332

 

 

 

371,791

 

Restricted cash

 

 

3,300

 

 

 

25,953

 

Trade and other receivables, net

 

 

123,133

 

 

 

111,266

 

Due from affiliates

 

 

124,757

 

 

 

132,951

 

Marine operating supplies

 

 

21,303

 

 

 

29,505

 

Other current assets

 

 

13,116

 

 

 

11,836

 

Total current assets

 

 

644,941

 

 

 

683,302

 

Investments in, at equity, and advances to unconsolidated companies

 

 

 

 

 

1,039

 

Properties and equipment, net

 

 

1,022,786

 

 

 

1,089,857

 

Deferred drydocking and survey costs

 

 

49,025

 

 

 

22,215

 

Other assets

 

 

37,269

 

 

 

31,326

 

Total assets

 

$

1,754,021

 

 

 

1,827,739

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,672

 

 

 

31,939

 

Accrued costs and expenses

 

 

54,792

 

 

 

61,784

 

Due to affiliates

 

 

41,676

 

 

 

34,972

 

Current portion of long-term debt

 

 

9,689

 

 

 

8,568

 

Other current liabilities

 

 

30,024

 

 

 

21,092

 

Total current liabilities

 

 

159,853

 

 

 

158,355

 

Long-term debt

 

 

419,905

 

 

 

430,436

 

Other liabilities

 

 

96,499

 

 

 

94,025

 

 

 

 

 

 

 

 

 

 

Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock of $0.001 par value, 125,000,000 shares authorized,

   39,110,938 and 36,978,280 shares issued and outstanding

   at September 30, 2019 and December 31, 2018, respectively

 

 

39

 

 

 

37

 

Additional paid-in capital

 

 

1,365,872

 

 

 

1,352,388

 

Accumulated deficit

 

 

(292,673

)

 

 

(210,783

)

Accumulated other comprehensive income

 

 

2,194

 

 

 

2,194

 

Total stockholders’ equity

 

 

1,075,432

 

 

 

1,143,836

 

Noncontrolling interests

 

 

2,332

 

 

 

1,087

 

Total equity

 

 

1,077,764

 

 

 

1,144,923

 

Total liabilities and equity

 

$

1,754,021

 

 

 

1,827,739

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

2


 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel revenues

 

$

117,173

 

 

 

97,011

 

 

$

360,476

 

 

 

288,679

 

Other operating revenues

 

 

2,592

 

 

 

2,181

 

 

 

7,296

 

 

 

7,607

 

Total revenues

 

 

119,765

 

 

 

99,192

 

 

 

367,772

 

 

 

296,286

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel operating costs

 

 

80,619

 

 

 

65,237

 

 

 

243,261

 

 

 

194,613

 

Costs of other operating revenues

 

 

534

 

 

 

1,681

 

 

 

1,884

 

 

 

4,797

 

General and administrative

 

 

30,474

 

 

 

25,546

 

 

 

81,310

 

 

 

73,536

 

Depreciation and amortization

 

 

25,735

 

 

 

13,390

 

 

 

73,705

 

 

 

38,192

 

Loss (gain) on asset dispositions, net

 

 

(270

)

 

 

1,571

 

 

 

(1,047

)

 

 

(1,686

)

Asset impairments

 

 

5,224

 

 

 

16,853

 

 

 

5,224

 

 

 

24,254

 

Total operating costs and expenses

 

 

142,316

 

 

 

124,278

 

 

 

404,337

 

 

 

333,706

 

Operating loss

 

 

(22,551

)

 

 

(25,086

)

 

 

(36,565

)

 

 

(37,420

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain (loss)

 

 

173

 

 

 

1

 

 

 

(324

)

 

 

(1,349

)

Equity in net earnings (losses) of unconsolidated

   companies

 

 

(468

)

 

 

56

 

 

 

(435

)

 

 

(14,993

)

Interest income and other, net

 

 

1,579

 

 

 

2,709

 

 

 

5,908

 

 

 

5,495

 

Interest and other debt costs, net

 

 

(7,468

)

 

 

(7,585

)

 

 

(22,786

)

 

 

(22,731

)

Total other expense

 

 

(6,184

)

 

 

(4,819

)

 

 

(17,637

)

 

 

(33,578

)

Loss before income taxes

 

 

(28,735

)

 

 

(29,905

)

 

 

(54,202

)

 

 

(70,998

)

Income tax expense

 

 

15,071

 

 

 

1,278

 

 

 

26,443

 

 

 

10,396

 

Net loss

 

$

(43,806

)

 

 

(31,183

)

 

$

(80,645

)

 

 

(81,394

)

Less: Net income attributable to noncontrolling interests

 

 

394

 

 

 

(287

)

 

 

1,245

 

 

 

(386

)

Net loss attributable to Tidewater Inc.

 

$

(44,200

)

 

 

(30,896

)

 

$

(81,890

)

 

 

(81,008

)

Basic loss per common share

 

$

(1.15

)

 

 

(1.16

)

 

$

(2.17

)

 

 

(3.23

)

Diluted loss per common share

 

$

(1.15

)

 

 

(1.16

)

 

$

(2.17

)

 

 

(3.23

)

Weighted average common shares outstanding

 

 

38,537

 

 

 

26,615

 

 

 

37,767

 

 

 

25,073

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average common shares

 

 

38,537

 

 

 

26,615

 

 

 

37,767

 

 

 

25,073

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(43,806

)

 

 

(31,183

)

 

$

(80,645

)

 

 

(81,394

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on available for sale securities,

   net of tax of $0, $0, $0 and $0

 

 

 

 

 

 

 

 

 

 

 

(256

)

Total comprehensive loss

 

$

(43,806

)

 

 

(31,183

)

 

$

(80,645

)

 

 

(81,650

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(80,645

)

 

 

(81,394

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

57,629

 

 

 

33,949

 

Amortization of deferred drydocking and survey costs

 

 

16,076

 

 

 

4,243

 

Amortization of debt premium and discounts

 

 

(1,562

)

 

 

(1,371

)

Provision for deferred income taxes

 

 

759

 

 

 

 

Gain on asset dispositions, net

 

 

(1,047

)

 

 

(1,686

)

Asset impairments

 

 

5,224

 

 

 

24,254

 

Changes in investments in, at equity, and advances

   to unconsolidated companies

 

 

435

 

 

 

28,087

 

Compensation expense - stock-based

 

 

16,599

 

 

 

9,967

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

(11,796

)

 

 

(10,744

)

Changes in due to/from affiliate, net

 

 

14,898

 

 

 

28,290

 

Accounts payable

 

 

(8,267

)

 

 

1,719

 

Accrued costs and expenses

 

 

(10,574

)

 

 

(10,857

)

Cash paid for deferred drydocking and survey costs

 

 

(43,701

)

 

 

(17,088

)

Other, net

 

 

9,268

 

 

 

14,861

 

Net cash provided by (used in) operating activities

 

 

(36,704

)

 

 

22,230

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of assets

 

 

25,092

 

 

 

16,499

 

Additions to properties and equipment

 

 

(13,931

)

 

 

(9,116

)

Net cash provided by investing activities

 

 

11,161

 

 

 

7,383

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payments on long-term debt

 

 

(6,458

)

 

 

(4,020

)

Payments to General Unsecured Creditors

 

 

 

 

 

(8,377

)

Taxes on share based awards

 

 

(3,112

)

 

 

 

Other

 

 

1

 

 

 

(1,997

)

Net cash used in financing activities

 

 

(9,569

)

 

 

(14,394

)

Net change in cash, cash equivalents and restricted cash

 

 

(35,112

)

 

 

15,219

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

397,744

 

 

 

453,335

 

Cash, cash equivalents and restricted cash at end of period

 

$

362,632

 

 

 

468,554

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

24,482

 

 

 

24,218

 

Income taxes

 

$

10,386

 

 

 

13,679

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Non

 

 

 

 

 

 

 

Common

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

deficit

 

 

loss

 

 

interest

 

 

Total

 

Balance at June 30, 2019

 

$

38

 

 

 

1,359,842

 

 

 

(248,473

)

 

 

2,194

 

 

 

1,938

 

 

 

1,115,539

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(44,200

)

 

 

 

 

 

394

 

 

 

(43,806

)

Issuance of common stock from exercise of warrants

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization/cancellation of restricted stock units

 

 

 

 

 

6,031

 

 

 

 

 

 

 

 

 

 

 

 

6,031

 

Balance at September 30, 2019

 

$

39

 

 

 

1,365,872

 

 

 

(292,673

)

 

 

2,194

 

 

 

2,332

 

 

 

1,077,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

$

26

 

 

 

1,064,039

 

 

 

(89,378

)

 

 

(403

)

 

 

1,242

 

 

 

975,526

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(30,896

)

 

 

 

 

 

(287

)

 

 

(31,183

)

Issuance of common stock

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Amortization of restricted stock units

 

 

 

 

 

(436

)

 

 

 

 

 

 

 

 

 

 

 

(436

)

Balance at September 30, 2018

 

$

27

 

 

 

1,063,603

 

 

 

(120,274

)

 

 

(403

)

 

 

955

 

 

 

943,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Non

 

 

 

 

 

 

 

Common

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

deficit

 

 

loss

 

 

interest

 

 

Total

 

Balance at December 31, 2018

 

$

37

 

 

 

1,352,388

 

 

 

(210,783

)

 

 

2,194

 

 

 

1,087

 

 

 

1,144,923

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(81,890

)

 

 

 

 

 

1,245

 

 

 

(80,645

)

Issuance of common stock from exercise of warrants

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Amortization/cancellation of restricted stock units

 

 

 

 

 

13,484

 

 

 

 

 

 

 

 

 

 

 

 

13,484

 

Balance at September 30, 2019

 

$

39

 

 

 

1,365,872

 

 

 

(292,673

)

 

 

2,194

 

 

 

2,332

 

 

 

1,077,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

22

 

 

 

1,059,120

 

 

 

(39,266

)

 

 

(147

)

 

 

2,215

 

 

 

1,021,944

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(81,008

)

 

 

(256

)

 

 

(386

)

 

 

(81,650

)

Issuance of common stock

 

 

5

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

3

 

Amortization of restricted stock units

 

 

 

 

 

5,611

 

 

 

 

 

 

 

 

 

 

 

 

5,611

 

Acquisition of non-controlling interests

 

 

 

 

 

(1,126

)

 

 

 

 

 

 

 

 

(874

)

 

 

(2,000

)

Balance at September 30, 2018

 

$

27

 

 

 

1,063,603

 

 

 

(120,274

)

 

 

(403

)

 

 

955

 

 

 

943,908

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


 

(1)

INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements for the interim periods presented herein have been prepared in conformity with United States generally accepted accounting principles and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the unaudited condensed consolidated financial statements at the dates and for the periods indicated as required by Rule 10-01 of Regulation S‑X of the Securities and Exchange Commission (SEC). Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.

The unaudited condensed consolidated financial statements include the accounts of Tidewater Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation. We use the equity method to account for equity investments over which we exercise significant influence but do not exercise control and are not the primary beneficiary. Unless otherwise specified, all per share information included in this document is on a diluted earnings per share basis.

 

On November 15, 2018 (the Merger Date), we completed our business combination with GulfMark Offshore, Inc. (GulfMark) pursuant to the Agreement and Plan of the Merger dated July 15, 2018. GulfMark’s balances and results are included in our consolidated financial statements and disclosures beginning on the Merger Date.  Therefore, our balances and results for the three and nine months ended September 30, 2019 include GulfMark’s operations while our balances and results for the three and nine months ended September 30, 2018 do not include GulfMark’s operations.

 

(2)

ACCOUNTING PRONOUNCEMENTS

 

We adopted Accounting Standards Update (ASU) No. 2016-02 - Leases (Topic 842), as amended, as of January 1, 2019.  We adopted this guidance retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. We applied the practical expedient available in this guidance, which allows us not to restate prior year balances.  Adoption of the new standard resulted in the recording of right of use assets and lease liabilities as of January 1, 2019 of approximately $5.0 million and $5.4 million, respectively. The adoption of the new standard did not result in an adjustment to retained earnings. The standard did not impact our consolidated net earnings and had no impact on cash flows. We elected not to reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing lease, and (iii) initial direct costs for existing leases. Refer to Note (4) for further details.

 

As a lessor, our recognition of vessel and other operating revenues remains consistent with previous guidance under Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606).  In July 2018, the FASB issued guidance codified in Accounting Standards Update 2018-11, Leases – Targeted Improvements (ASU 2018-11).  ASU 2018-11 provides a practical expedient, which allows lessors to combine the lease component with the related non-lease component if both the timing and pattern of transfer are the same for the lease and non-lease component and if the lease component would be classified as an operating lease.  The single combined component is accounted for under the leasing standard if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. The lease component is the vessels leased to our customers. The non-lease components consist of the services provided by the crews manning the vessels.

 

(3)

REVENUE RECOGNITION

 

Refer to Note (13) for the amount of revenue by segment and in total for the worldwide fleet.

 

Contract Balances

 

At September 30, 2019, we had $3.9 million and $0.5 million of deferred mobilization costs included within other current assets and other assets, respectively, and we had $0.4 million of deferred mobilization revenue related to unsatisfied performance obligations included within other current liabilities, of which $0.4 million will be recognized during the quarter ended December 31, 2019.

7


 

 

 

(4)

LEASES

 

We have operating leases primarily for office space, temporary residences, automobiles and office equipment. Contracts containing assets that we benefit from and control are recognized on our balance sheet. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. We combine the lease and non-lease components for all of our lease agreements.

 

Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to ten years.  The exercise of lease renewal options is at our sole discretion, and lease renewal options are not included in our lease terms if they are not reasonably certain to be exercised. Our lease agreements do not contain any residual value guarantees or restrictive covenants or options to purchase the leased property.

 

Leases (In thousands)

 

Classification

 

September 30, 2019

Assets:

 

 

 

 

 

 

 

Operating

 

Other assets

 

$

4,400

 

 

Liabilities:

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Operating

 

Other current liabilities

 

 

698

 

 

Noncurrent

 

 

 

 

 

 

 

Operating

 

Other liabilities

 

 

4,135

 

 

Total lease liabilities

 

 

 

$

4,833

 

 

 

 

Maturity of lease liabilities (In thousands)

 

Operating leases

2019

 

$

496

 

 

2020

 

 

1,202

 

 

2021

 

 

1,165

 

 

2022

 

 

975

 

 

2023

 

 

729

 

 

After 2023

 

 

1,140

 

 

Total lease payments

 

$

5,707

 

 

Less: Interest

 

 

874

 

 

Present value of lease liabilities

 

$

4,833

 

 

 

As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019 for operating leases that began prior to that date.

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

Lease costs (In thousands)

 

Classification

 

September 30, 2019

 

September 30, 2018

Operating lease costs

 

General and administrative

 

$

589

 

 

 

 

1,779

 

 

Short-term leases

 

General and administrative

 

 

469

 

 

 

 

1,552

 

 

Variable lease costs

 

General and administrative

 

 

407

 

 

 

 

1,011

 

 

Sublease income

 

General and administrative

 

 

 

 

 

 

(3

)

 

Net lease cost

 

 

 

$

1,465

 

 

 

 

4,339

 

 

 

Our variable lease payments consist primarily of shared operating costs recognized over the term of the lease.

 

 

Lease term and discount rate

 

September 30, 2019

Weighted average remaining lease term in years

 

 

4.0

 

 

 

 

 

 

 

 

Weighted average discount rate

 

 

7.0

 

%

 

8


 

The cash paid for operating leases included in operating cash flows and in the measurement of lease liabilities for the three and nine months ended September 30, 2019 was $0.3 million and $0.8 million, respectively. Right-of-use assets obtained in exchange for operating lease obligations were $0.0 million and $0.5 million, for the three and nine months ended September 30, 2019, respectively.

 

Future minimum rental commitments as of December 31, 2018 are as follows:

 

 

 

Minimum

Year ending (In thousands)

 

rental commitments

2019

 

$

3,511

 

 

2020

 

 

2,804

 

 

2021

 

 

2,501

 

 

2022

 

 

2,455

 

 

2023

 

 

1,734

 

 

After 2023

 

 

2,495

 

 

Total lease payments

 

$

15,500

 

 

 

(5)

STOCKHOLDERS' EQUITY AND DILUTIVE EQUITY INSTRUMENTS

Accumulated Other Comprehensive Income (Loss)

 

The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the condensed consolidated statement of operations for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Affected line item in the condensed

(In thousands)

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

 

consolidated statements of operations

Balance at

   beginning of

   period

 

$

2,194

 

 

 

(403

)

 

 

2,194

 

 

 

(147

)

 

 

Losses

   recognized

   in OCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(660

)

 

 

Realized gains

   on available

   for sale

   securities

 

 

 

 

 

 

 

 

 

 

 

404

 

 

Interest income and other, net

Net period OCI

 

 

 

 

 

 

 

 

 

 

 

(256

)

 

 

Tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gains for

   the period,

   net of tax

 

 

 

 

 

0

 

 

 

 

 

 

(256

)

 

 

Balance at end of

   period

 

$

2,194

 

 

 

(403

)

 

 

2,194

 

 

 

(403

)

 

 

 

Dilutive Equity Instruments

 

We had 3,397,110 and 5,143,206 incremental "in-the-money" warrants and restricted stock awards and units at September 30, 2019 and 2018, respectively.

 

 

 

9


 

Common shares and creditor warrants and the sum of common shares and creditor warrants outstanding at September 30, 2019 and 2018 were as follows:

 

Total shares outstanding including warrants

 

September 30, 2019

 

 

September 30, 2018

 

Common shares outstanding

 

 

39,110,938

 

 

 

26,815,991

 

New Creditor Warrants (strike price $0.001 per common share)

 

 

1,329,884

 

 

 

3,512,416

 

GulfMark Creditor Warrants (strike price $0.01 per common share)

 

 

1,300,359

 

 

 

 

Total

 

 

41,741,181

 

 

 

30,328,407

 

 

We also had 5,923,399 and 5,062,089 “out-of-the-money” warrants outstanding at September 30, 2019 and 2018, respectively. Included in these “out-of-the-money” warrants are Series A Warrants, Series B Warrants and GLF Equity Warrants which have exercise prices of $57.06, $62.28 and $100, respectively.

 

 

(6)

INCOME TAXES

 

We use a discrete effective tax rate method to calculate taxes for interim periods instead of applying the annual effective tax rate to an estimate of the full fiscal year due to the level of volatility and unpredictability of earnings in our industry, both overall and by jurisdiction.

 

Income tax expense for the three and nine months ended September 30, 2019, reflects tax liabilities in various jurisdictions that are either based on revenue (deemed profit regimes) or pre-tax profits.

 

The tax liabilities for uncertain tax positions are primarily attributable to permanent establishment issues related to a foreign joint venture, subpart F income inclusions and withholding taxes on foreign services. Penalties and interest related to income tax liabilities are included in income tax expense. Income tax payable is included in other current liabilities.

 

As of December 31, 2018, our balance sheet reflected approximately $104.9 million of net deferred tax assets with a valuation allowance of $106.4 million. As of September 30, 2019, we had net deferred tax assets of approximately $116.3 million prior to a valuation allowance analysis.

 

Management assesses all available positive and negative evidence to estimate the company’s ability to generate sufficient future taxable income of the appropriate character, and in the appropriate taxing jurisdictions, to permit use of existing deferred tax assets. A significant piece of objective negative evidence is a cumulative loss incurred over a three-year period in a taxing jurisdiction. Prevailing accounting practice is that such objective evidence would limit the ability to consider other subjective evidence, such as projections for future growth.

 

On the basis of this evaluation, a valuation allowance of $118.6 million has been recorded against net deferred tax assets which are more likely than not to be unrealized.  The amount of deferred tax assets considered realizable could be adjusted if future estimates of U.S. taxable income change, or if objective negative evidence in the form of cumulative losses is no longer present and subjective evidence, such as financial projections for future growth and tax planning strategies, are given additional weight.

 

With limited exceptions, we are no longer subject to tax audits by U.S. federal, state, local or foreign taxing authorities for years prior to 2013. We are subject to ongoing examinations by various foreign tax authorities and do not believe that the results of these examinations will have a material adverse effect on our financial position, results of operations, or cash flows.

 

10


 

(7)

AFFILIATES BALANCES

 

We maintained the following balances with our unconsolidated affiliates:

 

(In thousands)

 

September 30, 2019

 

 

December 31, 2018

 

Due from related parties:

 

 

 

 

 

 

 

 

Sonatide (Angola)

 

$

91,801

 

 

 

109,176

 

DTDW (Nigeria)

 

 

32,956

 

 

 

23,775

 

 

 

 

 

 

 

 

 

 

Due to related parties:

 

 

 

 

 

 

 

 

Sonatide (Angola)

 

$

27,141

 

 

 

29,347

 

DTDW (Nigeria)

 

 

14,535

 

 

 

5,625

 

 

 

 

 

 

 

 

 

 

Due from related parties, net of due to related parties

 

$

83,081

 

 

 

97,979

 

 

Amounts due from Sonatide

 

Amounts due from Sonatide represent cash received by Sonatide from customers and due to us, amounts due from customers that are expected to be remitted to us by Sonatide and costs incurred by us on behalf of Sonatide.

 

 

 

Nine Months

 

 

 

Ended

 

(In thousands)

 

September 30, 2019

 

Due from Sonatide at December 31, 2018

 

$

109,176

 

Revenue earned by the company through Sonatide

 

 

41,184

 

Less amounts received from Sonatide

 

 

(45,393

)

Less amounts used to offset Due to Sonatide obligations (A)

 

 

(10,551

)

Other

 

 

(2,615

)

Total due from Sonatide at September 30, 2019

 

$

91,801

 

 

 

(A)

We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture.

 

The amounts due from Sonatide is denominated in U.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas. We and Sonangol, our partner in Sonatide, have had discussions regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared.

 

After offsetting the amounts due to Sonatide, the net amount due from Sonatide at September 30, 2019 was approximately $64.7 million. Sonatide had approximately $52.2 million of cash on hand (approximately $14.4 million denominated in Angolan kwanzas) at September 30, 2019 plus approximately $18.4 million of net trade accounts receivable to satisfy the net due from Sonatide. Given prior discussions with our partner regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared, we continue to evaluate our net amount due from Sonatide balance for potential impairment based on available liquidity held by Sonatide.

 

11


 

Amounts due to Sonatide

 

Amounts due to Sonatide represent commissions payable and other costs paid by Sonatide on behalf of us.

 

 

 

Nine Months

 

 

 

Ended

 

(In thousands)

 

September 30, 2019

 

Due to Sonatide at December 31, 2018

 

$

29,347

 

Plus additional commissions payable to Sonatide

 

 

3,914

 

Plus amounts paid by Sonatide on behalf of the company

 

 

7,342

 

Less commissions paid to Sonatide during the period

 

 

(5,961

)

Less amounts used to offset Due from Sonatide obligations (A)

 

 

(10,551

)

Other

 

 

3,050

 

Total due to Sonatide at September 30, 2019

 

$

27,141

 

 

 

(A)

We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture.

 

Sonatide Operations

 

Sonatide’s principal earnings are from the commissions paid by us to the joint venture for company vessels chartered in Angola. In addition, Sonatide owns three vessels (one of which is currently stacked) that may generate operating income and cash flow.

 

Company operations in Angola

 

Vessel revenues generated by our Angolan operations, percent of consolidated vessel revenues, average number of company owned vessels and average number of stacked company owned vessels of our Angolan operations for the periods indicated were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Revenues of Angolan operations (in thousands)

 

$

11,534

 

 

 

15,154

 

 

 

41,194

 

 

 

43,874

 

Percent of consolidated vessel revenues

 

 

10

%

 

 

16

%

 

 

11

%

 

 

15

%

Number of company owned vessels in Angola

 

 

31

 

 

 

36

 

 

 

33

 

 

 

38

 

Number of stacked company owned vessels in

   Angola

 

 

14

 

 

 

16

 

 

 

14

 

 

 

16

 

 

(8)

EMPLOYEE BENEFIT PLANS

U.S. Defined Benefit Pension Plan

We have a defined benefit pension plan (pension plan) that covers certain U.S. citizen employees and other employees who are permanent residents of the United States. The Board of Directors amended the pension plan to discontinue the accrual of benefits once the plan was frozen on December 31, 2010. We contributed $1.1 million to the pension plan during the nine months ended September 30, 2019.

Supplemental Executive Retirement Plan

We also support a non-contributory and non-qualified defined benefit supplemental executive retirement plan (supplemental plan) that provided pension benefits to certain employees in excess of those allowed under our tax-qualified pension plan. Effective March 4, 2010, the supplemental plan was closed to new participants. We contributed $2.1 million and $2.9 million during the three and nine months ended September 30, 2019, respectively. We contributed immaterial amounts to the supplemental plan during the three and nine months ended September 30, 2018. We expect to contribute $0.4 million to the supplemental plan during the remaining quarter of 2019. Our obligations under the supplemental plan were $19.3 million and $21.4 million as of September 30, 2019 and December 31, 2018, respectively, and are included in “accrued costs and expenses” and “other liabilities” on the consolidated balance sheet.

12


 

 

Other Defined Benefit Pension Plans

 

We also have defined benefit pension plans that cover certain Norwegian citizen employees and other employees who are permanent residents of Norway. Benefits are based on years of service and employee compensation. We contributed an immaterial amount to the Norwegian defined benefit pension plans during the three and nine months ended September 30, 2019 and 2018 and contributions during the remainder of calendar year 2019 are expected to be immaterial.

 

Net Periodic Benefit Costs

The net periodic benefit cost for our defined benefit pension plans and supplemental plan (referred to collectively as “Pension Benefits”) is comprised of the following components:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Pension Benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

316

 

 

 

47

 

 

 

328

 

 

 

118

 

Interest cost

 

 

1,006

 

 

 

872

 

 

 

2,853

 

 

 

2,656

 

Expected return on plan assets

 

 

(711

)

 

 

(481

)

 

 

(1,787

)

 

 

(1,446

)

Administrative expenses

 

 

83

 

 

 

3

 

 

 

90

 

 

 

6

 

Settlement loss recognized

 

 

(46

)

 

 

 

 

 

46

 

 

 

335

 

Net periodic pension cost

 

$

648

 

 

 

441

 

 

$

1,530

 

 

 

1,669

 

 

(9)

DEBT

 

The following is a summary of all debt outstanding:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Secured notes:

 

 

 

 

 

 

 

 

8.00% Senior secured notes due August 2022 (Secured Notes) (A) (B)

 

$

349,793

 

 

 

349,954

 

Troms Offshore borrowings (C):

 

 

 

 

 

 

 

 

NOK denominated notes due May 2024

 

 

10,751

 

 

 

12,241

 

NOK denominated notes due January 2026

 

 

19,934

 

 

 

22,988

 

USD denominated notes due January 2027

 

 

20,273

 

 

 

22,116

 

USD denominated notes due April 2027

 

 

22,851

 

 

 

24,157

 

 

 

$

423,602

 

 

 

431,456

 

Debt premiums and discounts, net

 

 

5,992

 

 

 

7,548

 

Less: Current portion of long-term debt

 

 

(9,689

)

 

 

(8,568

)

Total long-term debt

 

$

419,905

 

 

 

430,436

 

 

 

(A)

As of September 30, 2019 and December 31, 2018 the fair value (Level 2) of the Secured Notes was $357.9 million and $359.4 million, respectively.  

 

 

(B)

In January 2019 and July 2019, we repurchased $160,000 and $747, respectively, of the Secured Notes in accordance with a tender offer obligation under our Indenture. The $3.3 million restricted cash on the balance sheet at September 30, 2019, represents proceeds from asset sales since the date of the July 2019 tender offer and is restricted as of that date by the terms of the Indenture.

 

(C)

We pay principal and interest on these notes semi-annually.  As of September 30, 2019 and December 31, 2018, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $73.7 million and $81.5  million, respectively. The weighted average interest rate of the Troms Offshore borrowings as of September 30, 2019 was 5.0%. 

 

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers, redemptions,

13


 

one or more additional offers, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

(10)

COMMITMENTS AND CONTINGENCIES

 

Currency Devaluation and Fluctuation Risk

 

Due to our international operations, we are exposed to foreign currency exchange rate fluctuations and exchange rate risks on all charter hire contracts denominated in foreign currencies. For some of our international contracts, a portion of the revenue and local expenses are incurred in local currencies with the result that we are at risk for changes in the exchange rates between the U.S. dollar and foreign currencies. We generally do not hedge against any foreign currency rate fluctuations associated with foreign currency contracts that arise in the normal course of business, which exposes us to the risk of exchange rate losses. To minimize the financial impact of these items, we attempt to contract a significant majority of our services in U.S. dollars. In addition, we attempt to minimize the financial impact of these risks by matching the currency of our operating costs with the currency of our revenue streams when considered appropriate. We continually monitor the currency exchange risks associated with all contracts not denominated in U.S. dollars.  

 

Arbitral Award for the Taking of Our Venezuelan Operations

 

Committees formed under the rules of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) have awarded two of our subsidiaries compensation for the expropriation of the investments of the two subsidiaries by the Bolivarian Republic of Venezuela. The nature of the investments expropriated and the progress of the ICSID proceeding were previously reported by us in prior filings.  The final aggregate award is $59.9 million as of September 30, 2019 and accrues interest at approximately $0.6 million per quarter. The committees’ decisions are not subject to any further ICSID review, appeal or other substantive proceeding or any stay of enforcement.

 

We are committed to taking appropriate steps to enforce and collect the award, which is enforceable in any of the 150 member states that are party to the ICSID Convention, but we recognize that collection of the award presents significant practical challenges. We will record any gain in future periods if and when the contingency is resolved.

 

Legal Proceedings

 

Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on our financial position, results of operations, or cash flows.

 

(11)

FAIR VALUE MEASUREMENTS

Other Financial Instruments

Our primary financial instruments consist of cash and cash equivalents, restricted cash, trade receivables and trade payables with book values that are considered to be representative of their respective fair values. We periodically utilize derivative financial instruments to hedge against foreign currency denominated assets and liabilities, currency commitments, or to lock in desired interest rates. These transactions are generally spot or forward currency contracts or interest rate swaps that are entered into with major financial institutions. Derivative financial instruments are intended to reduce our exposure to foreign currency exchange risk and interest rate risk. We enter into derivative instruments only to the extent considered necessary to address our risk management objectives and do not use derivative contracts for speculative purposes. The derivative instruments are recorded at fair value using quoted prices and quotes obtainable from the counterparties to the derivative instruments.

Cash Equivalents.  Our cash equivalents, which are securities with maturities less than 90 days, are held in money market funds, commercial paper or time deposit accounts with highly rated financial institutions. The carrying value for cash equivalents is considered to be representative of its fair value due to the short duration and conservative nature of the cash equivalent investment portfolio.  

Spot Derivatives. Spot derivative financial instruments are short-term in nature and generally settle within two business days. The fair value of spot derivatives approximates the carrying value due to the short-term nature of this instrument, and as a result, no gains or losses are recognized. We had no material spot derivatives outstanding as of September 30, 2019 or December 31, 2018.

14


 

 

 

(12)

OTHER CURRENT ASSETS, PROPERTIES AND EQUIPMENT, OTHER ASSETS, ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES          

A summary of other current assets is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Deposits

 

$

1,267

 

 

 

1,413

 

Prepaid expenses and other

 

 

11,849

 

 

 

10,423

 

 

 

$

13,116

 

 

 

11,836

 

  

A summary of properties and equipment is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Properties and equipment:

 

 

 

 

 

 

 

 

Vessels and related equipment

 

$

1,132,307

 

 

 

1,144,028

 

Other properties and equipment

 

 

8,267

 

 

 

7,455

 

 

 

 

1,140,574

 

 

 

1,151,483

 

Less accumulated depreciation and amortization

 

 

117,788

 

 

 

61,626

 

Properties and equipment, net

 

$

1,022,786

 

 

 

1,089,857

 

 

Our property and equipment consist primarily of our 220 vessels located around the world.  Subsequent to September 30, 2019, we sold two of our vessels, one in the Americas and one in West Africa, for a combined total of $3.6 million and will record a net gain on the asset sales in the fourth quarter of 2019.

A summary of other assets is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Recoverable insurance losses

 

$

3,985

 

 

 

4,056

 

Investments held for supplemental savings plan accounts

 

 

5,002

 

 

 

4,807

 

Long-term deposits

 

 

17,870

 

 

 

16,848

 

Deferred tax asset

 

 

381

 

 

 

395

 

Right of use asset (A)

 

 

4,400

 

 

 

 

Other

 

 

5,631

 

 

 

5,220

 

 

 

$

37,269

 

 

 

31,326

 

 

 

(A)

Refer to Note (4).

 

 

A summary of accrued cost and expenses is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Payroll and related payables

 

$

18,589

 

 

 

17,447

 

Commissions payable (B)

 

 

1,877

 

 

 

1,990

 

Accrued vessel expenses

 

 

25,069

 

 

 

29,534

 

Accrued interest expense

 

 

5,596

 

 

 

5,985

 

Other accrued expenses

 

 

3,661

 

 

 

6,828

 

 

 

$

54,792

 

 

 

61,784

 

 

 

(B)

Excludes $25.9 million and $28.0 million of commissions due to Sonatide at September 30, 2019 and December 31, 2018, respectively. These amounts are included in amounts due to affiliate.

15


 

A summary of other current liabilities is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Taxes payable

 

$

23,561

 

 

 

13,167

 

Lease liability - operating (C)

 

 

698

 

 

 

 

Accrued property and liability losses

 

 

2,352

 

 

 

2,726

 

Other

 

 

3,413

 

 

 

5,199

 

 

 

$

30,024

 

 

 

21,092

 

 

 

(C)

Refer to Note (4).

 

A summary of other liabilities is as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Pension liabilities

 

$

29,884

 

 

 

33,124

 

Liability for uncertain tax positions

 

 

49,553

 

 

 

43,790

 

Deferred tax liability

 

 

2,658

 

 

 

1,913

 

Lease liability - operating (D)

 

 

4,135

 

 

 

 

Accrued property and liability losses

 

 

1,107

 

 

 

4,123

 

Other

 

 

9,162

 

 

 

11,075

 

 

 

$

96,499

 

 

 

94,025

 

 

 

(D)

Refer to Note (4).

16


 

 

 

(13)

SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS

 

The following table provides a comparison of segment revenues, vessel operating profit (loss), depreciation and amortization, and additions to properties and equipment for the three and nine months ended September 30, 2019 and 2018. Vessel revenues and operating costs relate to vessels owned and operated by us while other operating revenues relate to brokered vessels and other miscellaneous marine-related businesses.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

33,147

 

 

 

28,039

 

 

 

103,624

 

 

 

86,721

 

Middle East/Asia Pacific

 

 

22,765

 

 

 

19,927

 

 

 

63,670

 

 

 

60,721

 

Europe/Mediterranean Sea

 

 

30,946

 

 

 

12,566

 

 

 

94,531

 

 

 

35,546

 

West Africa

 

 

30,315

 

 

 

36,479

 

 

 

98,651

 

 

 

105,691

 

Other operating revenues

 

 

2,592

 

 

 

2,181

 

 

 

7,296

 

 

 

7,607

 

 

 

$

119,765

 

 

 

99,192

 

 

 

367,772

 

 

 

296,286

 

Vessel operating profit (loss) (A):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

(168

)

 

 

1,212

 

 

 

1,702

 

 

 

11,804

 

Middle East/Asia Pacific

 

 

(809

)

 

 

(701

)

 

 

(4,098

)

 

 

(2,329

)

Europe/Mediterranean Sea

 

 

(276

)

 

 

(2,056

)

 

 

(768

)

 

 

(6,753

)

West Africa

 

 

678

 

 

 

3,912

 

 

 

11,891

 

 

 

3,867

 

Other operating profit

 

 

2,052

 

 

 

485

 

 

 

5,381

 

 

 

2,767

 

 

 

 

1,477

 

 

 

2,852

 

 

 

14,108

 

 

 

9,356

 

Corporate expenses (A) (B)

 

 

(19,074

)

 

 

(9,514

)

 

 

(46,496

)

 

 

(24,208

)

Gain (loss) on asset dispositions, net

 

 

270

 

 

 

(1,571

)

 

 

1,047

 

 

 

1,686

 

Asset impairments (C)

 

 

(5,224

)

 

 

(16,853

)

 

 

(5,224

)

 

 

(24,254

)

Operating loss

 

$

(22,551

)

 

 

(25,086

)

 

 

(36,565

)

 

 

(37,420

)

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

6,929

 

 

 

3,858

 

 

 

19,706

 

 

 

10,700

 

Middle East/Asia Pacific

 

 

5,685

 

 

 

2,939

 

 

 

15,454

 

 

 

8,552

 

Europe/Mediterranean Sea

 

 

7,436

 

 

 

2,313

 

 

 

22,623

 

 

 

6,356

 

West Africa

 

 

5,335

 

 

 

4,176

 

 

 

14,876

 

 

 

12,269

 

Other

 

 

5

 

 

 

5

 

 

 

15

 

 

 

16

 

Corporate

 

 

345

 

 

 

99

 

 

 

1,031

 

 

 

299

 

 

 

$

25,735

 

 

 

13,390

 

 

 

73,705

 

 

 

38,192

 

Additions to properties and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

326

 

 

 

564

 

 

 

967

 

 

 

2,831

 

Middle East/Asia Pacific

 

 

594

 

 

 

568

 

 

 

4,231

 

 

 

2,064

 

Europe/Mediterranean Sea

 

 

1,847

 

 

 

 

 

 

3,070

 

 

 

134

 

West Africa

 

 

684

 

 

 

54

 

 

 

2,267

 

 

 

35

 

Corporate

 

 

1,632

 

 

 

2,155

 

 

 

3,396

 

 

 

4,052

 

 

 

$

5,083

 

 

 

3,341

 

 

 

13,931

 

 

 

9,116

 

 

 

(A)

Prior to January 1, 2019, we allocated the costs of certain marine operations related to general and administrative functions, such as marine management, engineering, supply chain management, risk management, fleet human resources and health and safety to the segment general and administrative expenses.  Beginning on January 1, 2019 our management elected to modify that process in order to better analyze costs and better align the policies of the two combined companies such that all costs related to those previously allocated functions will remain as corporate general and administrative expenses. This change explains the significant increase in corporate expenses that is reflected in the table above for the three and nine months ended September 30, 2019.   

 

 

(B)

Included in corporate expenses for the nine months ended September 30, 2019 was a $5.0 million charge for  integration costs related to the business combination with GulfMark. 

 

 

(C)

Refer to Note (14) for additional information regarding asset impairment charges.

17


 

 

The following table provides a comparison of total assets at September 30, 2019 and December 31, 2018:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2019

 

 

2018

 

Total assets:

 

 

 

 

 

 

 

 

Americas

 

$

352,594

 

 

 

380,168

 

Middle East/Asia Pacific

 

 

268,754

 

 

 

233,611

 

Europe/Mediterranean Sea

 

 

382,094

 

 

 

316,524

 

West Africa

 

 

392,109

 

 

 

483,234

 

Other

 

 

4,238

 

 

 

7,440

 

Investments in, at equity, and advances to unconsolidated companies

 

 

0

 

 

 

1,039

 

Corporate

 

 

354,232

 

 

 

405,723

 

 

 

$

1,754,021

 

 

$

1,827,739

 

  

(14)

ASSET IMPAIRMENTS

The below table summarizes impairments during the three and nine months ended September 30, 2019 and 2018, along with the amount of impairment.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Number of vessels impaired in the period

 

 

 

 

 

15

 

 

 

 

 

 

30

 

Amount of impairment incurred

 

$

5,224

 

 

 

16,853

 

 

$

5,224

 

 

 

24,254

 

 

As of September 30, 2019, we performed an evaluation to determine whether conditions existed that would indicate potential impairment in the value of our assets. Our evaluation did not indicate any indicators of impairment that would require us to perform additional analyses and, consequently, we have recorded no vessel impairment charges in the three and nine months ended September 30, 2019. We did evaluate our inventory as of September 30, 2019 and charged $5.2 million to impairment expense for obsolete marine service and vessel supplies and parts inventory. We considered this valuation approach to be a Level 3 fair value measurement due to the level of estimation involved in valuing obsolete inventory.

 

(15)

RESTRUCTURING CHARGES

 

In the fourth quarter of 2018, we finalized plans to abandon duplicate office facilities with lease terms expiring between 2023 and 2026 in St. Rose and New Orleans, Louisiana, Houston, Texas and Aberdeen, Scotland.  These closures resulted in $7.3 million and $5.9 million, respectively, lease exit and severance charges in the fourth quarter of 2018 and the first three quarters of 2019. These charges are included in general and administrative expense in our consolidated statements of operations.

 

 

Activity for the lease exit and severance liabilities for the nine months ended September 30, 2019 was as follows:

 

 

 

Lease Exit Costs

 

 

Severance

 

 

 

 

 

(In thousands)

 

Europe/

Mediterranean

 

Corporate

 

 

Europe/

Mediterranean

 

Corporate

 

 

Total

 

Balance at December 31, 2018

 

$

2,005

 

 

4,463

 

 

 

 

 

285

 

 

 

6,753

 

Charges

 

 

97

 

 

154

 

 

 

829

 

 

4,805

 

 

 

5,885

 

Cash payments

 

 

(271

)

 

(1,689

)

 

 

(691

)

 

(3,529

)

 

 

(6,180

)

Balance at September 30, 2019

 

$

1,831

 

 

2,928

 

 

 

138

 

 

1,561

 

 

 

6,458

 

 

 

18


 

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENT

 

In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, this Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain forward-looking statements which reflect our current view with respect to future events and future financial performance. Forward-looking statements are all statements other than statements of historical fact. All such forward-looking statements are subject to risks and uncertainties, and our future results of operations could differ materially from our historical results or current expectations reflected by such forward-looking statements. Some of these risks include, without limitation, the risk that the cost savings and any other synergies from the business combination with GulfMark Offshore, Inc. (the “business combination”) may not be fully realized or may take longer to realize than expected; disruptions from the business combination making it more difficult to maintain relationships with customers, employees or suppliers; the possibility of litigation related to the business combination; the diversion of management’s time from day-to-day operations due to the business combination; the incurrence of substantial transaction-related costs associated with the business combination; the possibility of unanticipated costs being incurred to effectuate the integration; new accounting policies and our consolidation activities; fluctuations in worldwide energy demand and oil and natural gas prices, and continuing depressed levels of oil and natural gas prices without a clear indication of if, or when, prices will recover to a level to support renewed offshore exploration activities; fleet additions by competitors and industry overcapacity; our limited capital resources available to replenish our asset base, including through acquisitions or vessel construction, and to fund our capital expenditure needs; uncertainty of global financial market conditions and potential constraints in accessing capital or credit if and when needed with favorable terms, if at all; changes in decisions and capital spending by customers in the energy industry and the industry expectations for offshore exploration, field development and production; consolidation of our customer base; loss of a major customer; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; rapid technological changes; delays and other problems associated with vessel construction and maintenance; the continued availability of qualified personnel and our ability to attract and retain them; the operating risks normally incident to our lines of business, including the potential impact of liquidated counterparties; our ability to comply with covenants in our indentures and other debt instruments; acts of terrorism and piracy; the impact of potential information technology, cybersecurity or data security breaches; integration of acquired businesses and entry into new lines of business; disagreements with our joint venture partners; significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation or enforcement of customs or other laws that are not well developed or consistently enforced; the risks associated with our international operations, including local content, local currency or similar requirements especially in higher political risk countries where we operate; interest rate and foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight; changes in laws governing the taxation of foreign source income; retention of skilled workers; enforcement of laws related to the environment, labor and foreign corrupt practices; the potential liability for remedial actions or assessments under existing or future environmental regulations or litigation; the effects of asserted and unasserted claims and the extent of available insurance coverage; and the resolution of pending legal proceedings.

 

Forward-looking statements, which can generally be identified by the use of such terminology as “may,” “can,” “potential,” “expect,” “project,” “target,” “anticipate,” “estimate,” “forecast,” “believe,” “think,” “could,” “continue,” “intend,” “seek,” “plan,” and similar expressions contained in this Quarterly Report on Form 10-Q, are not guarantees or assurances of future performance or events. Any forward-looking statements are based on our assessment of current industry, financial and economic information, which by its nature is dynamic and subject to rapid and possibly abrupt changes, which we may or may not be able to control.  Further, we may make changes to our business plans that could or will affect our results. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments that affect us will be those that we anticipate and have identified. The forward-looking statements should be considered in the context of the risk factors listed above and discussed in Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (SEC) on February 28, 2019, as updated by subsequent filings with the SEC. Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events or developments.

 

In certain places in this Quarterly Report on Form 10-Q, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information.

19


 

 

The following information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and related disclosures and our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.

About Tidewater

 

Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production. These services include towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction and seismic and subsea support; and a variety of specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships. We are also one of the most experienced international operators in the offshore energy industry with a history spanning over 60 years.

 

On July 31, 2017, we successfully emerged from Chapter 11 bankruptcy proceedings and adopted fresh-start accounting. Refer to Notes (4) and (5) of Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018 for further details on our Chapter 11 bankruptcy and emergence and the adoption of fresh-start accounting.

On November 15, 2018 (the “Merger Date”), we completed our merger with GulfMark Offshore, Inc. (“GulfMark”) pursuant to the Agreement and Plan of the Merger dated July 15, 2018. GulfMark’s balances and results are included in our consolidated financial statements and disclosures beginning on the Merger Date.  Therefore, our balances and results for the three and nine months ended September 30, 2019 include GulfMark’s operations while our balances and results for the three and nine months ended September 30, 2018 do not include GulfMark’s operations.

At September 30, 2019, we owned 220 vessels with an average age of 10.1 years (excluding four joint venture vessels, but including 60 stacked vessels) available to serve the global energy industry. The average age of our 160 active vessels at September 30, 2019 is 9.3 years.

Principal Factors That Drive Our Results

Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers’ business activity, in turn, is dependent on current and expected crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce crude oil and natural gas reserves.

Our revenues in all segments are driven primarily by our fleet size, vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.

 

Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs and loss reserves, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors which affect overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies, though a weaker offshore energy market should somewhat mitigate any potential inflation of crew costs.

 

Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking that are not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel’s useful life or increase the vessel’s functionality are capitalized and depreciated.

 

20


 

Insurance and loss reserves costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss resulting from marine casualties, adverse weather conditions, mechanical failure, collisions, and property losses to the vessel. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.

 

Fuel and lube costs can also fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices. We also incur vessel operating costs that are aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, including commissions paid to unconsolidated joint venture companies, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers’ commissions are incurred primarily in our non-United States operations where brokers sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.

 

Sonatide Joint Venture

 

We previously disclosed the significant financial and operational challenges that we confront with respect to operations in Angola, as well as steps that we have taken to address or mitigate those risks. Most of our attention has been focused in three areas: (i) reducing the net receivable balance due from Sonatide, our Angolan joint venture with Sonangol, for vessel services; (ii) reducing the foreign currency risk created by virtue of provisions of Angolan law that require that payment for a  portion of the services provided by Sonatide be paid in Angolan kwanza; and (iii) optimizing opportunities, consistent with Angolan law, for services provided by us to be paid for directly in U.S. dollars.

 

Refer to Note (7) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on the Sonatide joint venture.

Industry Conditions and Outlook

 

Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices. In addition, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand.  In particular, the oil price is significantly influenced by actions of the Organization of Petroleum Exporting Countries, or OPEC.  Prices are subject to significant uncertainty and, as a result, are extremely volatile. Beginning in late 2014, the oil and gas industry experienced a significant decline in the price of oil. Beginning in late 2014, oil prices declined significantly from levels of over $100 per barrel and continued to decline throughout 2015 and into 2016 causing an industry-wide downturn. Prices reached a low of less than $30 per barrel in the first quarter of 2016 and then began a partial recovery into the $50 to $60 per barrel range. Currently, prices are ranging between $50 and $65 per barrel. Although prices have been more stable since 2016, they are still at levels that are not expected to sustain significant increases in exploration and production activities, and consequently continue to adversely affect the drilling and support service industry. Commodity prices at these levels have negatively impacted our revenues, earnings and cash flows, and further sustained reduced levels of oil and natural gas prices could have a material adverse effect on our liquidity.

 

Deepwater activity is a significant segment of the global offshore crude oil and natural gas markets, and a significant component of our business. Development typically involves significant capital investment and multi-year development plans. Such projects are generally underwritten by the participating exploration, field development and production companies using relatively conservative crude oil and natural gas pricing assumptions. Although these projects are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas, deepwater exploration and development projects can be more costly relative to other onshore and offshore exploration and development. As a result, generally depressed crude oil prices have caused, and may continue to cause, many of our customers and potential customers to reevaluate their future capital expenditures in regards to deepwater projects.

Results of Operations – Three Months Ended September 30, 2019 compared to September 30, 2018

 

Revenues for the quarters ended September 30, 2019 and 2018, were $119.8 million and $99.2 million, respectively. Quarterly revenues have increased as compared to the comparable quarter of the prior year primarily as a result of the business combination with GulfMark. Incremental revenues as a result of this business combination for the quarter ended September 30, 2019 were $25.9 million.

21


 

 

Vessel operating costs for the quarters ended September 30, 2019 and 2018, were $80.6 million and $65.2 million, respectively. Incremental vessel operating costs as a result of the GulfMark business combination for the quarter ended September 30, 2019 were $17.9 million.

 

Depreciation and amortization expense for the quarters ended September 30, 2019 and 2018, was $25.7 million and $13.4 million, respectively. Depreciation and amortization expense were higher in the current quarter because of a $7.8 million increase as a result of the business combination with GulfMark and a $4.7 million increase in amortization of deferred drydocking and survey costs.

 

General and administrative expenses for the quarters ended September 30, 2019 and 2018, were $30.5 million and $25.5 million, respectively. General and administrative expenses increased during the quarter ended September 30, 2019 as compared to the comparable period of the prior year due to incremental GulfMark general and administrative costs of $2.9 million and termination benefits of $6.1 million with each of three executive officers (the chief executive officer, the chief operating officer and the chief legal officer). Each termination triggered benefits to be paid to the former officer, primarily related to stock compensation.  These one-time charges were partially offset by our continuing efforts to further streamline shore based-operations.

 

Included in loss (gain) on asset dispositions, net for the quarter ended September 30, 2019, are $0.3 million of net gains from the disposal of 3 vessels and other assets. During the quarter ended September 30, 2018, we recognized net losses of $1.6 million related to the disposal of seven vessels and other assets. During the quarter ended September 30, 2019, we impaired certain inventory assets and recognized losses approximating $5.2 million.  In the quarter ended September 30, 2018, we impaired 15 vessels and recognized $16.9 million in impairment expense.

 

During the quarters ended September 30, 2019 and 2018 we recognized de minimis foreign exchange gains.

 

In addition, our income tax expense increased $13.8 million in the third quarter of 2019 compared to the third quarter of 2018 primarily due to recognition of discrete tax expense associated with uncertain tax positions and writeoffs of certain assets in our international operations.

Results of Operations – Nine Months Ended September 30, 2019 compared to September 30, 2018

 

Revenues earned for the nine months ended September 30, 2019 and September 30, 2018, were $367.8 million and $296.3 million, respectively. Revenues have increased as compared to the comparable period of the prior year primarily as a result of the business combination with GulfMark. Incremental revenues as a result of this business combination for the nine months ended September 30, 2019 were $76.1 million.

 

Vessel operating costs for the nine months ended September 30, 2019 and 2018, were $243.3 million and $194.6 million, respectively. Incremental vessel operating costs as a result of the GulfMark business combination for the nine months ended September 30, 2019 were $52.9 million.

 

Depreciation and amortization expense for the nine months ended September 30, 2019 and 2018, was $73.7 million and $38.2 million, respectively. Depreciation and amortization expense was higher in the current period because of a $23.5 million increase as a result of the business combination with GulfMark and a $11.8 million increase in amortization of deferred drydocking and survey costs.

 

General and administrative expenses for the nine months ended September 30, 2019 and 2018, were $81.3 million and $73.5 million, respectively. General and administrative expenses increased during the nine months ended September 30, 2019 as compared to the comparable period of the prior year due to: (i) incremental GulfMark general and administrative costs of $10.2 million; (ii) severance and lease costs of $4.3 million related to the integration of the two companies and (iii) termination benefits of $6.1 million with three executive officers discussed previously, which were partially offset by our continuing efforts to further streamline shore based-operations.

 

Included in gain on asset dispositions, net for the nine months ended September 30, 2019, are $1.0 million of net gains from the sale of 37 vessels and other assets. During the nine months ended September 30, 2018, we recognized net gains of $1.7 million related to the sale of 30 vessels and other assets.

 

22


 

During the nine months ended September 30, 2019 and 2018, we recognized foreign exchange losses of $0.3 million and $1.3 million, respectively. These foreign exchange losses were primarily the result of the revaluation of Brazilian-reais denominated balances to our U.S. dollar reporting currency.

 

In addition, our income tax expense increased $16.0 million in the nine months ended September 30, 2019 compared to nine months ended September 30, 2018 primarily due to recognition of discrete tax expense associated with uncertain tax positions and writeoffs of certain assets in our international operations.

 

23


 

The following table compares vessel revenues and vessel operating costs by geographic segment for our owned and operated vessel fleet and the related percentage of vessel revenue for the periods indicated:

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

Nine Months

Ended

 

 

Nine Months

Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Vessel revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

33,147

 

 

 

28

%

 

 

28,039

 

 

 

29

%

 

 

103,624

 

 

 

29

%

 

 

86,721

 

 

 

30

%

Middle East/Asia Pacific

 

 

22,765

 

 

 

19

%

 

 

19,927

 

 

 

21

%

 

 

63,670

 

 

 

18

%

 

 

60,721

 

 

 

21

%

Europe/Mediterranean Sea

 

 

30,946

 

 

 

26

%

 

 

12,566

 

 

 

13

%

 

 

94,531

 

 

 

26

%

 

 

35,546

 

 

 

12

%

West Africa

 

 

30,315

 

 

 

26

%

 

 

36,479

 

 

 

38

%

 

 

98,651

 

 

 

27

%

 

 

105,691

 

 

 

37

%

Total vessel revenues

 

$

117,173

 

 

 

100

%

 

 

97,011

 

 

 

100

%

 

$

360,476

 

 

 

100

%

 

 

288,679

 

 

 

100

%

Vessel operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

15,108

 

 

 

46

%

 

 

12,169

 

 

 

43

%

 

 

48,215

 

 

 

47

%

 

 

32,420

 

 

 

37

%

Repair and maintenance

 

 

3,061

 

 

 

9

%

 

 

2,571

 

 

 

9

%

 

 

9,009

 

 

 

9

%

 

 

5,830

 

 

 

7

%

Insurance and loss reserves

 

 

305

 

 

 

1

%

 

 

(488

)

 

 

(2

%)

 

 

(72

)

 

 

(0

%)

 

 

(7

)

 

 

(<1

%)

Fuel, lube and supplies

 

 

1,919

 

 

 

6

%

 

 

2,081

 

 

 

7

%

 

 

6,479

 

 

 

6

%

 

 

5,491

 

 

 

6

%

Other

 

 

2,461

 

 

 

7

%

 

 

1,787

 

 

 

7

%

 

 

8,003

 

 

 

8

%

 

 

4,983

 

 

 

6

%

 

 

 

22,854

 

 

 

69

%

 

 

18,120

 

 

 

64

%

 

 

71,634

 

 

 

69

%

 

 

48,717

 

 

 

56

%

Middle East/Asia Pacific:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

9,243

 

 

 

41

%

 

 

8,412

 

 

 

42

%

 

 

26,856

 

 

 

42

%

 

 

25,115

 

 

 

41

%

Repair and maintenance

 

 

2,317

 

 

 

10

%

 

 

1,859

 

 

 

9

%

 

 

5,571

 

 

 

9

%

 

 

4,916

 

 

 

8

%

Insurance and loss reserves

 

 

356

 

 

 

2

%

 

 

(458

)

 

 

(2

)%

 

 

1,131

 

 

 

2

%

 

 

(225

)

 

 

(<1

%)

Fuel, lube and supplies

 

 

2,431

 

 

 

11

%

 

 

1,394

 

 

 

7

%

 

 

7,116

 

 

 

11

%

 

 

5,955

 

 

 

10

%

Other

 

 

1,318

 

 

 

6

%

 

 

2,203

 

 

 

11

%

 

 

4,896

 

 

 

8

%

 

 

7,523

 

 

 

12

%

 

 

 

15,665

 

 

 

69

%

 

 

13,410

 

 

 

67

%

 

 

45,570

 

 

 

72

%

 

 

43,284

 

 

 

71

%

Europe/Mediterranean Sea:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

12,974

 

 

 

42

%

 

 

5,642

 

 

 

45

%

 

 

39,034

 

 

 

41

%

 

 

16,410

 

 

 

46

%

Repair and maintenance

 

 

3,307

 

 

 

11

%

 

 

1,837

 

 

 

15

%

 

 

9,798

 

 

 

10

%

 

 

5,398

 

 

 

15

%

Insurance and loss reserves

 

 

503

 

 

 

2

%

 

 

116

 

 

 

1

%

 

 

1,756

 

 

 

2

%

 

 

473

 

 

 

1

%

Fuel, lube and supplies

 

 

1,614

 

 

 

5

%

 

 

1,195

 

 

 

9

%

 

 

4,819

 

 

 

5

%

 

 

4,141

 

 

 

12

%

Other

 

 

2,658

 

 

 

9

%

 

 

1,838

 

 

 

15

%

 

 

8,555

 

 

 

9

%

 

 

4,903

 

 

 

14

%

 

 

 

21,056

 

 

 

68

%

 

 

10,628

 

 

 

85

%

 

 

63,962

 

 

 

68

%

 

 

31,325

 

 

 

88

%

West Africa:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

8,868

 

 

 

29

%

 

 

11,392

 

 

 

31

%

 

 

27,423

 

 

 

28

%

 

 

34,262

 

 

 

32

%

Repair and maintenance

 

 

3,282

 

 

 

11

%

 

 

2,367

 

 

 

6

%

 

 

8,201

 

 

 

8

%

 

 

8,172

 

 

 

8

%

Insurance and loss reserves

 

 

863

 

 

 

3

%

 

 

(876

)

 

 

(2

)%

 

 

2,140

 

 

 

2

%

 

 

(827

)

 

 

(1

)%

Fuel, lube and supplies

 

 

2,817

 

 

 

9

%

 

 

3,310

 

 

 

9

%

 

 

8,163

 

 

 

8

%

 

 

9,587

 

 

 

9

%

Other

 

 

5,214

 

 

 

17

%

 

 

6,886

 

 

 

19

%

 

 

16,168

 

 

 

16

%

 

 

20,093

 

 

 

19

%

 

 

 

21,044

 

 

 

69

%

 

 

23,079

 

 

 

63

%

 

 

62,095

 

 

 

63

%

 

 

71,287

 

 

 

67

%

Vessel operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

46,193

 

 

 

39

%

 

 

37,615

 

 

 

39

%

 

 

141,528

 

 

 

39

%

 

 

108,207

 

 

 

37

%

Repair and maintenance

 

 

11,967

 

 

 

10

%

 

 

8,634

 

 

 

9

%

 

 

32,579

 

 

 

9

%

 

 

24,316

 

 

 

8

%

Insurance and loss reserves

 

 

2,027

 

 

 

2

%

 

 

(1,706

)

 

 

(2

)%

 

 

4,955

 

 

 

1

%

 

 

(586

)

 

 

(<1

%)

Fuel, lube and supplies

 

 

8,781

 

 

 

7

%

 

 

7,980

 

 

 

8

%

 

 

26,577

 

 

 

7

%

 

 

25,174

 

 

 

9

%

Other

 

 

11,651

 

 

 

10

%

 

 

12,714

 

 

 

13

%

 

 

37,622

 

 

 

10

%

 

 

37,502

 

 

 

13

%

Total vessel operating

   costs

 

$

80,619

 

 

 

69

%

 

 

65,237

 

 

 

67

%

 

 

243,261

 

 

 

67

%

 

 

194,613

 

 

 

67

%

 

Prior to January 1, 2019, we allocated the costs of certain marine operations related to general and administrative functions, such as marine management, engineering, supply chain management, risk management, fleet human resources and health and safety to the segment general and administrative expenses.  Beginning on January 1, 2019, our management elected to modify that process in order to better analyze costs and better align the policies of the two

24


 

combined companies such that all costs related to those previously allocated functions would instead be charged to corporate general and administrative expenses.  This change is reflected in the tables below for the three and nine months ended September 30, 2019. .  As a result, the segment general and administrative expenses for the three and nine months ended September 30, 2019 and 2018 are not comparable.

The following table presents general and administrative expenses in our four geographic segments both individually and in total and the related general and administrative expenses as a percentage of the vessel revenues of each segment and in total for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Segment general and

   administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

3,532

 

 

 

11

%

 

 

4,849

 

 

 

17

%

 

$

10,583

 

 

 

10

%

 

 

15,500

 

 

 

18

%

Middle East/Asia Pacific

 

 

2,224

 

 

 

10

%

 

 

4,279

 

 

 

21

%

 

 

6,745

 

 

 

11

%

 

 

11,214

 

 

 

18

%

Europe/Mediterranean Sea

 

 

2,731

 

 

 

9

%

 

 

1,681

 

 

 

13

%

 

 

8,715

 

 

 

9

%

 

 

4,618

 

 

 

13

%

West Africa

 

 

3,257

 

 

 

11

%

 

 

5,312

 

 

 

15

%

 

 

9,787

 

 

 

10

%

 

 

18,268

 

 

 

17

%

Total segment general and

   administrative expenses

 

$

11,744

 

 

 

10

%

 

 

16,121

 

 

 

17

%

 

$

35,830

 

 

 

10

%

 

 

49,600

 

 

 

17

%

 

The following table presents segment depreciation expense by our four geographic segments, the related segment vessel depreciation expense as a percentage of segment vessel revenues, total segment depreciation expense and the related total segment depreciation expense as a percentage of total vessel revenues for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Segment depreciation expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

6,929

 

 

 

21

%

 

$

3,858

 

 

 

14

%

 

$

19,706

 

 

 

19

%

 

$

10,700

 

 

 

12

%

Middle East/Asia Pacific

 

 

5,685

 

 

 

25

%

 

 

2,939

 

 

 

15

%

 

 

15,454

 

 

 

24

%

 

 

8,552

 

 

 

14

%

Europe/Mediterranean Sea

 

 

7,436

 

 

 

24

%

 

 

2,313

 

 

 

18

%

 

 

22,623

 

 

 

24

%

 

 

6,356

 

 

 

18

%

West Africa

 

 

5,335

 

 

 

18

%

 

 

4,176

 

 

 

11

%

 

 

14,876

 

 

 

15

%

 

 

12,269

 

 

 

12

%

Total segment depreciation

   expense

 

$

25,385

 

 

 

22

%

 

 

13,286

 

 

 

14

%

 

$

72,659

 

 

 

20

%

 

 

37,877

 

 

 

13

%

 

25


 

The following table compares operating loss and other components of loss and its related percentage of total revenue for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Vessel operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

(168

)

 

 

(<1

%)

 

$

1,212

 

 

 

1

%

 

$

1,702

 

 

 

<1

%

 

$

11,804

 

 

 

4

%

Middle East/Asia Pacific

 

 

(809

)

 

 

(1

%)

 

 

(701

)

 

 

(1

%)

 

 

(4,098

)

 

 

(1

%)

 

 

(2,329

)

 

 

(1

%)

Europe/Mediterranean Sea

 

 

(276

)

 

 

(<1

%)

 

 

(2,056

)

 

 

(2

%)

 

 

(768

)

 

 

(<1

%)

 

 

(6,753

)

 

 

(2

%)

West Africa

 

 

678

 

 

 

1

%

 

 

3,912

 

 

 

4

%

 

 

11,891

 

 

 

3

%

 

 

3,867

 

 

 

1

%

Other operating profit (loss)

 

 

2,052

 

 

 

2

%

 

 

485

 

 

 

1

%

 

 

5,381

 

 

 

1

%

 

 

2,767

 

 

 

1

%

 

 

 

1,477

 

 

 

1

%

 

 

2,852

 

 

 

3

%

 

 

14,108

 

 

 

4

%

 

 

9,356

 

 

 

3

%

Corporate expenses  (A)

 

 

(19,074

)

 

 

(16

%)

 

 

(9,514

)

 

 

(10

%)

 

 

(46,496

)

 

 

(13

%)

 

 

(24,208

)

 

 

(8

%)

Gain (loss) on asset dispositions, net

 

 

270

 

 

 

(<1

%)

 

 

(1,571

)

 

 

(2

%)

 

 

1,047

 

 

 

1

%

 

 

1,686

 

 

 

1

%

Asset impairments

 

 

(5,224

)

 

 

(4

%)

 

 

(16,853

)

 

 

(17

%)

 

 

(5,224

)

 

 

(1

%)

 

 

(24,254

)

 

 

(8

%)

Operating loss

 

$

(22,551

)

 

 

(19

%)

 

 

(25,086

)

 

 

(25

%)

 

$

(36,565

)

 

 

(9

%)

 

 

(37,420

)

 

 

(13

%)

 

 

(A)

Included in corporate expenses for the nine months ended September 30, 2019, was $5.0 million of integration costs related to the business combination with GulfMark. 

 

Results for three months ended September 30, 2019 compared to September 30, 2018

 

Americas Segment Operations. Vessel revenues in the Americas segment increased 18%, or $5.1 million, during the quarter ended September 30, 2019, as compared to the quarter ended September 30, 2018. This increase is primarily the result of the ten average active additional vessels added to the fleet resulting from the GulfMark business combination. Overall Americas segment utilization increased from 46.1% during the third quarter of 2018 to 56.9% during the third quarter of 2019; however, average day rates during these same periods decreased 15%, generally due to a greater portion of the segment’s vessels being hired at current prevailing day rates which are lower than those experienced during the third quarter of 2018.    

 

Vessel operating loss for the Americas segment for the quarter ended September 30, 2019 was $0.2 million, which was $1.4 million less than operating profit for the quarter ended September 30, 2018. The decrease is primarily related to the increase in vessel operating costs primarily related to requirements for increased local crewing on vessels operating in Brazil and additional vessels working in the U.S. Gulf, some of which required additional repairs and maintenance.

 

For the quarter ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Americas fleet included vessel operating expenses of $4.8 million, depreciation of $2.3 million and general and administrative expenses of $0.6 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

Middle East/Asia Pacific Segment Operations.  Vessel revenues in the Middle East/Asia Pacific segment increased 14%, or $2.8 million, during the quarter ended September 30, 2019, as compared to the quarter ended September 30, 2018. Middle East/Asia Pacific segment utilization for the quarter ended September 30, 2019 was increased from 62.4% to 63.6% and average day rates increased six percent. Vessel operating loss for the Middle East/Asia Pacific segment for the quarter ended September 30, 2019, was $0.8 million as compared to $0.7 million for the quarter ended September 30, 2018. The increase in revenue was offset by the increase in operating costs and depreciation expenses.  There was minimal impact from the GulfMark merger on operations in this segment.

 

For the quarter ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Middle East/Asia Pacific vessel fleet included vessel operating expenses of $0.6 million, depreciation of $0.6 million and general and administrative expenses of $0.1 million. Overall reductions to general and administrative expenses were primarily attributable to our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

 

26


 

Europe/Mediterranean Sea Segment Operations.  Vessel revenues in the Europe/Mediterranean Sea segment increased 146%, or $18.4 million, during the quarter ended September 30, 2019, as compared to the quarter ended September 30, 2018. The Europe/Mediterranean Sea vessel fleet increased by 14 active vessels on a net basis, all of which were incrementally added to the area as a result of the business combination with GulfMark. Europe/Mediterranean Sea segment utilization decreased from 67.0% during the quarter ended September 30, 2018 to 61.4% during the quarter ended September 30, 2019.  Average day rates during these same periods increased 31% because of increasing demand for vessels in the North Sea and Mediterranean. Vessel operating loss for the Europe/Mediterranean Sea segment was $0.3 million for the quarter ended September 30, 2019 as compared to a vessel operating loss of $2.1 million for the quarter ended September 30, 2018.  

 

For the quarter ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Europe/Mediterranean Sea vessel fleet included vessel operating expenses of $12.5 million, depreciation of $4.8 million and general and administrative expenses of $1.5 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment decreased 17%, or $6.2 million, during the quarter ended September 30, 2019, as compared to the quarter ended September 30, 2018. The West Africa vessel fleet decreased by seven active vessels during the comparative periods. West Africa segment utilization decreased slightly from 51.4% during the third quarter of 2018 to 50.9% during the third quarter of 2019, and average day rates decreased 1% during these same periods. The decrease in revenue was generally due to the decrease in active vessels in the region.

 

Vessel operating profit for the West Africa segment decreased from $3.9 million for the quarter ended September 30, 2018 to $0.7 million in the quarter ended September 30, 2019 primarily due to lower revenue.

 

Results for nine months ended September 30, 2019 compared to September 30, 2018

 

Americas Segment Operations. Vessel revenues in the Americas segment increased 19%, or $16.9 million, during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. This increase is the result of the eleven average active additional vessels added to the fleet resulting primarily from the GulfMark business combination. Overall Americas segment utilization increased from 45.7% during the nine months ended September 30, 2018 to 52.9% during the nine months ended September 30, 2019; however, average day rates during these same periods decreased 20%, which is generally due to a greater portion of the segment’s vessels being hired at current prevailing day rates which are lower than those experienced during 2018.    

 

Operating profit for the Americas segment for the nine months ended September 30, 2019, was $10.1 million less than operating profit for the nine months ended September 30, 2018. The decrease is primarily related to the increase in vessel operating costs primarily related to requirements for increased local crewing on vessels operating in Brazil and additional vessels working in the U.S. Gulf, some of which required additional repairs and maintenance during 2019.

 

For the nine months ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Americas fleet included vessel operating expenses of $17.0 million, depreciation of $7.2 million and general and administrative expenses of $1.2 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

Middle East/Asia Pacific Segment Operations.  Vessel revenues in the Middle East/Asia Pacific segment increased $2.9 million during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. The Middle East/Asia Pacific vessel fleet count was 2 less for the nine months ended September 30, 2019 than for the nine months ended September 30, 2018; although, four active vessels were incrementally added to the area as a result of the business combination with GulfMark. Middle East/Asia Pacific segment utilization increased from 55.9% to 62.2% and average day rates decreased by 3%. Operating loss for the Middle East/Asia Pacific segment increased $1.8 million largely related to higher depreciation expense primarily related to the additional incremental GulfMark vessels and the amortization of deferred dry docking costs.  

 

27


 

For the nine months ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Middle East/Asia Pacific vessel fleet included vessel operating expenses of $2.7 million, depreciation of $1.7 million and general and administrative expenses of $0.7 million. Overall reductions to general and administrative expenses were primarily attributable to our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

Europe/Mediterranean Sea Segment Operations.  Vessel revenues in the Europe/Mediterranean Sea segment increased 166%, or $59.0 million, during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. The Europe/Mediterranean Sea vessel fleet increased by 16 active vessels on a net basis, 15 of which were incrementally added to the area as a result of the business combination with GulfMark. Europe/Mediterranean Sea segment utilization decreased slightly from 65.0% to 61.4% and average day rates increased by 30%. These increases in utilization and average day rates are due to the increasing demand for vessels in the North Sea and Mediterranean. Operating loss for the Europe/Mediterranean Sea segment decreased 89%, or $6.0 million, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

For the nine months ended September 30, 2019, incremental increases related to the addition of GulfMark vessels to the Europe/Mediterranean Sea vessel fleet included vessel operating expenses of $33.2 million, depreciation of $14.1 million and general and administrative expenses of $4.8 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment decreased 7%, or $7.0 million, during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. The West Africa vessel fleet decreased by four active vessels during the comparative periods. West Africa segment utilization increased from 48.3% to 50.8% and average day rates increased by 2%. The decreases in revenue were generally due to the mix of higher specification vessels working in the segment and more spot market activity in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

 

Operating profit for the West Africa segment was $11.9 million for the nine months ended September 30, 2019, as compared to $3.9 million for the nine months ended September 30, 2018. This increase in profitability is due to decreases in vessel costs, primarily as a result of the devaluation of a currency which was used to pay a portion of crew costs, and general and administrative expenses. The reductions to general and administrative expenses are primarily the result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.

 

Other Items.

 

Asset Impairments. The table below summarizes the number of vessels impaired and the amount of the impairment incurred.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Number of vessels impaired in the period

 

 

 

 

 

15

 

 

 

 

 

 

30

 

Amount of impairment incurred

 

$

5,224

 

 

 

16,853

 

 

 

5,224

 

 

 

24,254

 

 

As of September 30, 2019, we performed an evaluation to determine whether conditions existed that would indicate potential impairment in the value of our assets. Our evaluation did not indicate any indicators of impairment that would require us to perform additional analyses and, consequently, we have recorded no vessel impairment charges in the three and nine months ended September 30, 2019. We did evaluate our inventory as of September 30, 2019 and charged $5.2 million to impairment expense for obsolete inventory.

Vessel Utilization and Average Day Rates by Segment

Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created largely through the level of offshore exploration, field development and production spending by energy companies relative to the supply of offshore support vessels. Specifications of available equipment and the scope of service provided may also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of days a vessel works during a reporting period by the number of days the vessel is available to work in the reporting period. As such, stacked vessels depress utilization rates because stacked vessels are considered available to work, and are included in the calculation of utilization rates. Average day rates are calculated by dividing the revenue a vessel earns during a reporting period by the number of days the vessel worked in the reporting period.

28


 

Vessel utilization and average day rates are calculated on all vessels in service (which includes stacked vessels and vessels in drydock) but do not include vessels owned by joint ventures (four and eight vessels at September 30, 2019 and 2018, respectively).

The following tables compare day-based utilization percentages, average day rates and average total, active and stacked vessels by segment for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

SEGMENT STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

56.9

%

 

 

46.1

%

 

 

52.9

%

 

 

45.7

%

Average vessel day rates

 

$

11,783

 

 

$

13,924

 

 

$

11,843

 

 

$

14,841

 

Average total vessels

 

 

54

 

 

 

47

 

 

 

61

 

 

 

47

 

Average stacked vessels

 

 

(17

)

 

 

(20

)

 

 

(23

)

 

 

(20

)

Average active vessels

 

 

37

 

 

 

27

 

 

 

38

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Middle East/Asia Pacific fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

63.6

%

 

 

62.4

%

 

 

62.2

%

 

 

55.9

%

Average vessel day rates

 

$

7,520

 

 

$

7,123

 

 

$

7,343

 

 

$

7,545

 

Average total vessels

 

 

52

 

 

 

49

 

 

 

51

 

 

 

53

 

Average stacked vessels

 

 

(11

)

 

 

(9

)

 

 

(10

)

 

 

(12

)

Average active vessels

 

 

41

 

 

 

40

 

 

 

41

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe/Mediterranean Sea fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

61.4

%

 

 

67.0

%

 

 

61.4

%

 

 

65.0

%

Average vessel day rates

 

$

12,147

 

 

$

9,302

 

 

$

12,050

 

 

$

9,266

 

Average total vessels

 

 

45

 

 

 

22

 

 

 

47

 

 

 

22

 

Average stacked vessels

 

 

(13

)

 

 

(4

)

 

 

(13

)

 

 

(4

)

Average active vessels

 

 

32

 

 

 

18

 

 

 

34

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West Africa fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

50.9

%

 

 

51.4

%

 

 

50.8

%

 

 

48.3

%

Average vessel day rates

 

$

9,174

 

 

$

9,291

 

 

$

9,421

 

 

$

9,272

 

Average total vessels

 

 

70

 

 

 

83

 

 

 

75

 

 

 

86

 

Average stacked vessels

 

 

(22

)

 

 

(28

)

 

 

(25

)

 

 

(32

)

Average active vessels

 

 

48

 

 

 

55

 

 

 

50

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

57.5

%

 

 

54.5

%

 

 

55.9

%

 

 

51.4

%

Average vessel day rates

 

$

10,021

 

 

$

9,616

 

 

$

10,087

 

 

$

9,911

 

Average total vessels

 

 

221

 

 

 

201

 

 

 

234

 

 

 

208

 

Average stacked vessels

 

 

(63

)

 

 

(61

)

 

 

(71

)

 

 

(68

)

Average active vessels

 

 

158

 

 

 

140

 

 

 

163

 

 

 

140

 

 

Average active vessels exclude stacked vessels. We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is being performed on the vessel. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are included in the calculation of utilization statistics.

 

 

29


 

The following is a summary of net properties and equipment at September 30, 2019 and December 31, 2018:

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Number

 

 

Carrying

 

 

Number

 

 

Carrying

 

 

 

of Vessels

 

 

Value

 

 

of Vessels

 

 

Value

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

(In thousands)

 

Owned vessels in active service

 

 

160

 

 

$

897,583

 

 

 

165

 

 

$

914,044

 

Stacked vessels

 

 

60

 

 

 

120,010

 

 

 

92

 

 

 

169,037

 

Marine equipment and other assets under

   construction

 

 

 

 

 

 

246

 

 

 

 

 

 

 

795

 

Other property and equipment

 

 

 

 

 

 

4,947

 

 

 

 

 

 

 

5,981

 

Totals

 

 

220

 

 

$

1,022,786

 

 

 

257

 

 

$

1,089,857

 

 

Vessel Dispositions

We seek opportunities to sell and/or scrap our older vessels when market conditions warrant and opportunities arise. The majority of our vessels are sold to buyers who do not compete with us in the offshore energy industry. The following is a summary of the number of vessels disposed of by segment:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Number of vessels disposed of by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

2

 

 

 

 

 

 

20

 

 

 

8

 

Middle East/Asia Pacific

 

 

 

 

 

5

 

 

 

1

 

 

 

7

 

Europe/Mediterranean Sea

 

 

1

 

 

 

 

 

 

6

 

 

 

 

West Africa

 

 

 

 

 

2

 

 

 

10

 

 

 

15

 

Total

 

 

3

 

 

 

7

 

 

 

37

 

 

 

30

 

 

Liquidity, Capital Resources and Other Matters

 

Availability of Cash

 

At September 30, 2019, we had $362.6 million in cash and cash equivalents (including $3.3 million of restricted cash), of which $96.4 million was held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held in U.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints, partner and tax related matters, prior to the cash being made available for remittance to our domestic accounts. We currently intend that earnings by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and intercompany) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the United States because cash on hand, cash generated from our domestic businesses and the repayment of intercompany liabilities from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our operations in the United States.

 

Our objective in financing our business is to maintain adequate financial resources and access to sufficient levels of liquidity. We do not have a revolving credit facility. Cash and cash equivalents and future net cash provided by operating activities provide us, in our opinion, with sufficient liquidity to meet our liquidity requirements.

Debt

 

Refer to Note (9) of Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our indebtedness.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

30


 

 

Operating Activities

 

Net cash provided by (used in) operating activities for any period will fluctuate according to the level of business activity for the applicable period and for the nine months ended September 30, 2019 and 2018, was $(36.7) million and $22.2 million, respectively.

 

Net cash used in operations for the nine months ended September 30, 2019, reflects a net loss of $80.6 million, which includes non-cash depreciation and amortization of $73.7 million, asset impairments of $5.2 million, stock-based compensation expense of $16.6 million and approximately $1.0 million of gains on asset sales. Cash paid for drydocking used $43.7 million and combined changes in operating assets and liabilities and in amounts due to/due from affiliate, net, used $6.5 million of cash.

 

Net cash provided by operations for the nine months ended September 30, 2018 reflects a net loss of $81.4 million, which includes non-cash asset impairments of $24.3 million, non-cash depreciation and amortization of $38.2 million, gain on asset dispositions, net, of $1.7 million and stock-based compensation expense of $10.0 million. Changes in investments in, at equity, and advances to unconsolidated companies decreased by $28.1 million, which primarily reflects foreign exchange losses recognized by the company’s 49% owned Sonatide joint venture. Changes in due from/due to related parties, net during the nine months ended September 30, 2018 of $28.3 million generally reflect collections from Sonatide. Change in operating assets and liabilities used $5.0 million of cash in the nine months ended September 30, 2018.

 

Investing Activities

 

Net cash provided by investing activities for the nine months ended September 30, 2019 and 2018, was $11.2 million and $7.4 million, respectively.

 

Net cash provided by investing activities for the nine months ended September 30, 2019 primarily reflects the receipt of $25.1 million related to the disposal of 37 vessels. Additions to properties and equipment were comprised of approximately $13.9 million in capitalized upgrades to existing vessels and equipment and property and equipment purchases. 

 

Net cash provided by investing activities for the nine months ended September 30, 2018 was $7.4 million, reflecting the receipt of proceeds from the sale of assets of $16.5 million related to the disposal of 30 vessels. Additions to properties and equipment were comprised of approximately $5.0 million in capitalized upgrades to existing vessels and equipment and $4.1 million for the construction of offshore support vessels. 

 

Financing Activities

 

Net cash used in financing activities for the nine months ended September 30, 2019 and 2018, was $9.6 million and $14.4 million, respectively.

 

Net cash used in financing activities for the nine months ended September 30, 2019 was a result of $6.3 million of scheduled semiannual principal payments on Troms offshore debt, $3.1 million of taxes paid related to share based compensation and the repurchase of $0.2 million of New Secured Notes resulting from a recent tender offer.

 

Financing activities for the nine months ended September 30, 2018 used $14.4 million of cash, as a result of payments made to creditors pursuant to the plan of reorganization of $8.4 million, $4.0 million of scheduled semiannual principal payments on Troms offshore debt, a $2.0 million payment to acquire the remaining noncontrolling interest in a consolidated joint venture and the repurchase of $46,023 of New Secured Notes resulting from a tender offer.

 

Other Liquidity Matters

 

Contractual Obligations and Other Contingent Commitments

 

We did not have any material changes in our contractual obligations and commercial commitments since the end of fiscal year 2018. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2018, for information regarding our contractual obligations and other contingent commitments.

 

31


 

Application of Critical Accounting Policies and Estimates

 

Our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019, describes the accounting policies that are critical to reporting our financial position and operating results and that require management’s most difficult, subjective or complex judgments. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2018, regarding these critical accounting policies.

 

New Accounting Pronouncements

 

For information regarding the effect of new accounting pronouncements, refer to Note (2) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There were no material changes in the nine months ended September 30, 2019 to the market risk disclosures contained in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4.       CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed with the objective of ensuring that all information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. However, any control system, no matter how well conceived and followed, can provide only reasonable, and not absolute, assurance that the objectives of the control system are met.

We evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September30, 2019.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32


 

PART II. OTHER INFORMATION

 

Refer to Note (10) of Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our Arbitral Award for the Taking of our Venezuelan Operations.

 

Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on our financial position, results of operations, or cash flows. Information related to various commitments and contingencies, including legal proceedings, is disclosed in Note (10) of Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

ITEM 1A.       RISK FACTORS

 

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019.

 

ITEM 6.       EXHIBITS

 

 

Exhibit

Number

 

Description

 

 

 

2.1

 

Joint Prepackaged Chapter 11 Plan of Reorganization of Tidewater Inc. and its Affiliated Debtors dated May 11, 2017 (filed with the Commission as Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).

 

 

 

2.2

 

Disclosure Statement for Joint Prepackaged Chapter 11 Plan of Reorganization of Tidewater Inc. and its Affiliated Debtors dated May 11, 2017 (filed with the Commission as Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).

 

 

 

2.3

 

Second Amended Joint Prepackaged Chapter 11 Plan of Tidewater Inc. and Its Affiliated Debtors dated July 13, 2017 (filed with the Commission as Exhibit 2.1 to the company’s current report on Form 8-K filed on July 18, 2017, File No. 1-6311).

 

 

 

2.4

 

Agreement and Plan of Merger by and between Tidewater Inc. and GulfMark Offshore, Inc., dated as of July 15, 2018 (filed with the Commission as Exhibit 2.1 to the company’s current report on Form 8-K filed on July 16, 2018, File No. 1-6311).

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Tidewater Inc. dated July 31, 2017 (filed with the Commission as Exhibit 3.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).

 

 

 

3.2

 

Second Amended and Restated By-Laws of Tidewater Inc. dated November 15, 2018 (filed with the Commission as Exhibit 3.2 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).

 

 

 

4.1

 

Indenture for 8.00% Senior Secured Notes due 2022 among Tidewater Inc., each of the Guarantors party thereto, and Wilmington Trust, National Association, as Trustee and Collateral Agent dated as of July 31, 2017 (filed with the Commission as Exhibit 4.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).

 

 

 

10.1

 

Restructuring Support Agreement, dated May 11, 2017 (filed with the Commission as Schedule 1 to Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).

 

 

 

10.2

 

Amendment and Restatement Agreement No. 4 to the Troms Facility Agreement, dated May 11, 2017 (filed with the Commission as Exhibit C to Schedule 1 to Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).

 

 

 

33


 

Exhibit

Number

 

Description

10.3

 

Creditor Warrant Agreement between Tidewater Inc., as Issuer and Computershare Inc. and Computershare Trust Company, N.A., collectively as Warrant Agent dated July 31, 2017 (filed with the Commission as Exhibit 10.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).

 

 

 

10.4

 

Existing Equity Warrant Agreement between Tidewater Inc., as Issuer and Computershare Inc. and Computershare Trust Company, N.A., collectively as Warrant Agent dated July 31, 2017 (filed with the Commission as Exhibit 10.2 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).

 

 

 

10.5

 

Equity Warrant Agreement, dated as of November 14, 2017, between GulfMark Offshore, Inc. and American Stock Transfer & Trust Company, LLC, as Warrant Agent (filed with the Commission as Exhibit 4.1 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).

 

 

 

10.6

 

Assignment, Assumption and Amendment Agreement, dated as of and effective November 15, 2018, by and among GulfMark Offshore, Inc., Tidewater Inc. and American Stock Transfer & Trust Company, LLC, as Warrant Agent (filed with the Commission as Exhibit 4.2 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).

 

 

 

10.7

 

Noteholder Warrant Agreement, dated as of November 14, 2017, between GulfMark Offshore, Inc. and American Stock Transfer & Trust Company, LLC, as Warrant Agent (filed with the Commission as Exhibit 4.1 to the company's current report on Form 8-K filed on November 16, 2018, File No. 1-6311).

 

 

 

10.8

 

Assignment, Assumption and Amendment Agreement – Jones Act Warrants, dated as of and effective November 15, 2018, by and among GulfMark Offshore, Inc., Tidewater Inc. and American Stock Transfer & Trust Company, LLC, as Warrant Agent (filed with the Commission as Exhibit 4.2 to the company’s current report on Form 8-K filed on November 16, 2018, File No. 1-6311).

 

 

 

10.9+*

 

Amendment, dated September 3, 2019, to Amended and Restated Employment Agreement with Quintin V. Kneen

 

 

 

10.10+

 

Form of Separation and Consulting Agreement between Tidewater Inc. and certain officers, dated September 23, 2019 (filed with the Commission as Exhibit 10.1 to the company’s current report on Form 8-K filed on September 27, 2019, File No. 1-6311).

 

 

 

31.1*

 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

32.1**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

*

Filed with this quarterly report on Form 10-Q.

 

**

Furnished with the quarterly report on Form 10-Q.

 

+

Indicates a management contract or compensatory plan or arrangement

34


 

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

 

 

TIDEWATER INC.

 

(Registrant)

 

 

Date:  November 12, 2019

 /s/ Samuel R. Rubio

 

Samuel R. Rubio

 

Vice President, Chief Accounting Officer and Controller

 

(Principal Accounting Officer and authorized signatory)

 

35