Annual Statements Open main menu

TIDEWATER INC - Quarter Report: 2020 June (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 June 30, 2020

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

Preferred stock purchase rights

N/A

New York Stock Exchange

 

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  

40,362,158 shares of Tidewater Inc. common stock $0.001 par value per share were outstanding on July 24, 2020. 

 

 


 

PART I.  FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

TIDEWATER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value data)

 

 

 

June 30,

 

 

December 31,

 

ASSETS

 

2020

 

 

2019

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

203,119

 

$

 

218,290

 

Restricted cash

 

 

19,880

 

 

 

5,755

 

Trade and other receivables, less allowance for credit losses of $556 as of June 30, 2020 and less allowance for doubtful accounts of $70 as of  December 31, 2019.

 

 

115,008

 

 

 

110,180

 

Due from affiliate less allowance for credit losses of $71,959 as of June 30, 2020 and less due from affiliate allowance of $20,083 as of December 31, 2019

 

 

65,766

 

 

 

125,972

 

Marine operating supplies

 

 

20,580

 

 

 

21,856

 

Assets held for sale

 

 

29,064

 

 

 

39,287

 

Prepaid expenses and other current assets

 

 

20,350

 

 

 

15,956

 

Total current assets

 

 

473,767

 

 

 

537,296

 

Net properties and equipment

 

 

839,912

 

 

 

938,961

 

Net deferred drydocking and survey costs

 

 

74,585

 

 

 

66,936

 

Other assets

 

 

27,411

 

 

 

36,335

 

Total assets

$

 

1,415,675

 

$

 

1,579,528

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

 

17,111

 

$

 

27,501

 

Accrued costs and expenses

 

 

60,993

 

 

 

74,000

 

Due to affiliates

 

 

48,803

 

 

 

50,186

 

Current portion of long-term debt

 

 

9,437

 

 

 

9,890

 

Other current liabilities

 

 

25,815

 

 

 

24,100

 

Total current liabilities

 

 

162,159

 

 

 

185,677

 

Long-term debt

 

 

273,215

 

 

 

279,044

 

Other liabilities

 

 

90,301

 

 

 

98,397

 

 

 

 

 

 

 

 

 

 

Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

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

40,335,963 and 39,941,327 shares issued and outstanding

at June 30, 2020 and December 31, 2019, respectively

 

 

40

 

 

 

40

 

Additional paid-in capital

 

 

1,369,645

 

 

 

1,367,521

 

Accumulated deficit

 

 

(481,757

)

 

 

(352,526

)

Accumulated other comprehensive income (loss)

 

 

581

 

 

 

(236

)

Total stockholders’ equity

 

 

888,509

 

 

 

1,014,799

 

Noncontrolling interests

 

 

1,491

 

 

 

1,611

 

Total equity

 

 

890,000

 

 

 

1,016,410

 

Total liabilities and equity

$

 

1,415,675

 

$

 

1,579,528

 

 

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

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel revenues

 

$

100,975

 

 

$

123,641

 

 

$

212,949

 

 

$

243,303

 

Other operating revenues

 

 

1,369

 

 

 

2,218

 

 

 

5,763

 

 

 

4,705

 

 

 

 

102,344

 

 

 

125,859

 

 

 

218,712

 

 

 

248,008

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel operating costs

 

 

64,774

 

 

 

80,439

 

 

 

143,599

 

 

 

162,642

 

Costs of other operating revenues

 

 

171

 

 

 

586

 

 

 

2,844

 

 

 

1,350

 

General and administrative

 

 

17,597

 

 

 

23,696

 

 

 

39,017

 

 

 

50,836

 

Depreciation and amortization

 

 

28,144

 

 

 

25,038

 

 

 

55,251

 

 

 

47,970

 

Long-lived asset impairments

 

 

55,482

 

 

 

 

 

 

65,689

 

 

 

 

Affiliate credit loss impairment expense

 

 

53,581

 

 

 

 

 

 

53,581

 

 

 

 

Affiliate guarantee obligation

 

 

2,000

 

 

 

 

 

 

2,000

 

 

 

 

(Gain) loss on asset dispositions, net

 

 

(1,660

)

 

 

494

 

 

 

(6,991

)

 

 

(776

)

 

 

 

220,089

 

 

 

130,253

 

 

 

354,990

 

 

 

262,022

 

Operating loss

 

 

(117,745

)

 

 

(4,394

)

 

 

(136,278

)

 

 

(14,014

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain (loss)

 

 

(2,076

)

 

 

11

 

 

 

(1,212

)

 

 

(497

)

Equity in net earnings of unconsolidated companies

 

 

 

 

 

95

 

 

 

 

 

 

33

 

Dividend income from unconsolidated company

 

 

17,150

 

 

 

 

 

 

17,150

 

 

 

 

Interest income and other, net

 

 

696

 

 

 

1,859

 

 

 

812

 

 

 

4,329

 

Interest and other debt costs, net

 

 

(5,959

)

 

 

(7,582

)

 

 

(12,101

)

 

 

(15,318

)

 

 

 

9,811

 

 

 

(5,617

)

 

 

4,649

 

 

 

(11,453

)

Loss before income taxes

 

 

(107,934

)

 

 

(10,011

)

 

 

(131,629

)

 

 

(25,467

)

Income tax (benefit) expense

 

 

2,730

 

 

 

5,542

 

 

 

(2,441

)

 

 

11,372

 

Net loss

 

$

(110,664

)

 

$

(15,553

)

 

$

(129,188

)

 

$

(36,839

)

Net income (loss) attributable to noncontrolling interests

 

 

(41

)

 

 

406

 

 

 

(120

)

 

 

851

 

Net loss attributable to Tidewater Inc.

 

$

(110,623

)

 

$

(15,959

)

 

$

(129,068

)

 

$

(37,690

)

Basic loss per common share

 

$

(2.74

)

 

$

(0.42

)

 

$

(3.21

)

 

$

(1.01

)

Diluted loss per common share

 

$

(2.74

)

 

$

(0.42

)

 

$

(3.21

)

 

$

(1.01

)

Weighted average common shares outstanding

 

 

40,306

 

 

 

37,571

 

 

 

40,203

 

 

 

37,369

 

Adjusted weighted average common shares

 

 

40,306

 

 

 

37,571

 

 

 

40,203

 

 

 

37,369

 

 

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

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Net loss

 

$

(110,664

)

 

$

(15,553

)

 

$

(129,188

)

 

$

(36,839

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in pension plan and supplemental pension plan liability, net of tax of $0.2 million and $0.2 million, respectively

 

 

448

 

 

 

 

 

$

817

 

 

 

 

Total comprehensive loss

 

$

(110,216

)

 

$

(15,553

)

 

$

(128,371

)

 

$

(36,839

)

 

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)

 

 

 

Six Months

 

 

Six Months

 

 

 

Ended

 

 

Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

$

 

(129,188

)

 

$

(36,839

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

34,271

 

 

 

38,582

 

Amortization of deferred drydocking and survey costs

 

 

20,980

 

 

 

9,388

 

Amortization of debt premium and discounts

 

 

1,357

 

 

 

(1,019

)

Provision for deferred income taxes

 

 

206

 

 

 

6

 

Gain on asset dispositions, net

 

 

(6,991

)

 

 

(776

)

Affiliate credit loss impairment expense

 

 

53,581

 

 

 

 

Affiliate guarantee obligation

 

 

2,000

 

 

 

 

Long-lived asset impairments

 

 

65,689

 

 

 

 

Changes in investments in unconsolidated companies

 

 

 

 

 

381

 

Compensation expense - stock-based

 

 

2,736

 

 

 

9,215

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

Trade and other receivables

 

 

(4,991

)

 

 

(10,921

)

Changes in due to/from affiliate, net

 

 

3,242

 

 

 

15,080

 

Accounts payable

 

 

(10,390

)

 

 

(7,769

)

Accrued costs and expenses

 

 

(13,007

)

 

 

(4,977

)

Cash paid for deferred drydocking and survey costs

 

 

(28,964

)

 

 

(28,688

)

Other, net

 

 

(3,354

)

 

 

(2,386

)

Net cash used in operating activities

 

 

(12,823

)

 

 

(20,723

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of assets

 

 

20,906

 

 

 

20,566

 

Additions to properties and equipment

 

 

(4,075

)

 

 

(8,873

)

Net cash provided by investing activities

 

 

16,831

 

 

 

11,693

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payments on long-term debt

 

 

(4,742

)

 

 

(3,792

)

Taxes on share based awards

 

 

(612

)

 

 

(1,760

)

Other

 

 

 

 

 

1

 

Net cash used in financing activities

 

 

(5,354

)

 

 

(5,551

)

Net change in cash, cash equivalents and restricted cash

 

 

(1,346

)

 

 

(14,581

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

227,608

 

 

 

397,744

 

Cash, cash equivalents and restricted cash at end of period (A)

$

 

226,262

 

 

$

383,163

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

$

 

10,734

 

 

 

16,293

 

Income taxes

$

 

6,461

 

 

 

7,754

 

 

(A)

Cash, cash equivalents and restricted cash at June 30, 2020 includes $3.3 million in long-term restricted cash.

 

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

 

 

 

 

income (loss)

 

 

 

 

interest

 

 

 

 

Total

 

Balance at March 31, 2020

 

 

 

$

40

 

 

 

 

 

1,368,325

 

 

 

 

 

(371,134

)

 

 

 

 

133

 

 

 

 

 

1,532

 

 

 

 

 

998,896

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(110,623

)

 

 

 

 

448

 

 

 

 

 

(41

)

 

 

 

 

(110,216

)

Amortization/cancellation of restricted stock units

 

 

 

 

 

 

 

 

 

1,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,320

 

Balance at June 30, 2020

 

 

 

$

40

 

 

 

 

 

1,369,645

 

 

 

 

 

(481,757

)

 

 

 

 

581

 

 

 

 

 

1,491

 

 

 

 

 

890,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

 

$

37

 

 

 

 

 

1,356,436

 

 

 

 

 

(232,514

)

 

 

 

 

2,194

 

 

 

 

 

1,532

 

 

 

 

 

1,127,685

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,959

)

 

 

 

 

 

 

 

 

 

406

 

 

 

 

 

(15,553

)

Issuance of common stock from exercise of warrants

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Amortization/cancellation of restricted stock units

 

 

 

 

 

 

 

 

 

3,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,406

 

Balance at June 30, 2019

 

 

 

$

38

 

 

 

 

 

1,359,842

 

 

 

 

 

(248,473

)

 

 

 

 

2,194

 

 

 

 

 

1,938

 

 

 

 

 

1,115,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

Non

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

paid-in

 

 

 

 

Accumulated

 

 

 

 

comprehensive

 

 

 

 

controlling

 

 

 

 

 

 

 

 

 

 

 

stock

 

 

 

 

capital

 

 

 

 

deficit

 

 

 

 

income (loss)

 

 

 

 

interest

 

 

 

 

Total

 

Balance at December 31, 2019

 

 

 

$

40

 

 

 

 

 

1,367,521

 

 

 

 

 

(352,526

)

 

 

 

 

(236

)

 

 

 

 

1,611

 

 

 

 

 

1,016,410

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(129,068

)

 

 

 

 

817

 

 

 

 

 

(120

)

 

 

 

 

(128,371

)

Adoption of credit loss accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(163

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(163

)

Amortization/cancellation of restricted stock units

 

 

 

 

 

 

 

 

 

2,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,124

 

Balance at June 30, 2020

 

 

 

$

40

 

 

 

 

 

1,369,645

 

 

 

 

 

(481,757

)

 

 

 

 

581

 

 

 

 

 

1,491

 

 

 

 

 

890,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

 

$

37

 

 

 

 

 

1,352,388

 

 

 

 

 

(210,783

)

 

 

 

 

2,194

 

 

 

 

 

1,087

 

 

 

 

 

1,144,923

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,690

)

 

 

 

 

 

 

 

 

 

851

 

 

 

 

 

(36,839

)

Issuance of common stock from exercise of warrants

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Amortization/cancellation of restricted stock units

 

 

 

 

 

 

 

 

 

7,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,453

 

Balance at June 30, 2019

 

 

 

$

38

 

 

 

 

 

1,359,842

 

 

 

 

 

(248,473

)

 

 

 

 

2,194

 

 

 

 

 

1,938

 

 

 

 

 

1,115,539

 

 

 

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, 2019, filed with the SEC on March 2, 2020.

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.

 

(2)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

 

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance to simplify the accounting for income taxes.  The guidance is effective for annual and interim periods beginning after December 15, 2020 with early adoption permitted.  We are currently evaluating the effect the standard may have in our consolidated financial statements.

 

In August 2018 the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, which modifies the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. This ASU removes certain disclosures that no longer are considered cost beneficial, clarifies the specific requirements of certain other disclosures, and adds disclosure requirements identified as relevant.  The guidance is effective for annual and interim periods beginning after December 15, 2020 with early adoption permitted.  We are currently evaluating the effect the standard may have on our consolidated financial statement disclosures.

 

(3)

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement: - Changes to The Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. We adopted this standard on January 1, 2020 and it did not have any impact on our financial position, net earnings or cash flow.  However, we have incorporated the modified disclosure requirements of ASU 2018-13 into note 15 of our financial statements.

 

On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses, which introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. This model applies to: (i) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (ii) loan commitments and certain other off-balance sheet credit exposures, (iii) debt securities and other financial assets measured at fair value through other comprehensive income and (iv) beneficial interests in securitized financial assets.

 

Expected credit losses are recognized on the initial recognition of our trade accounts receivable and contract assets.  In each subsequent reporting period, even if a loss has not yet been incurred, credit losses are recognized based on the history of credit losses and current conditions, as well as reasonable and supportable forecasts affecting collectability.  We developed an expected credit loss model applicable to our trade accounts receivable and contract assets that considers our historical performance and the economic environment, as well as the credit risk and its expected development for each group of customers that share similar risk characteristics.  We segmented our trade accounts receivable and contract assets by type of client, except for individual account balances that have deteriorated in credit quality, which are evaluated individually.  We then determined, for each of these client asset groups, the average expected credit loss utilizing our actual credit loss experience over the last five years, which was adjusted as discussed above, and was applied to the balance attributable to each segment in our trade accounts receivable and contract asset balances.  This standard was adopted through a cumulative-effect adjustment to the accumulated deficit as of January 1,

7


 

2020, which is the beginning of the first period in which this guidance is effective.  Periods prior to the adoption date that are presented for comparative purposes are not adjusted.  Adopting this standard on January 1, 2020 increased the allowance for expected credit losses by approximately $0.2 million.

 

Activity in the allowance for credit losses for the six months ended June 30, 2020 is as follows:

 

 

 

Trade

 

 

Due

 

 

 

and

 

 

from

 

(In thousands)

 

Other Receivables

 

 

Affiliate

 

Balance at January 1, 2020

 

$

70

 

 

$

20,083

 

Cumulative effect adjustment upon adoption of standard

 

 

163

 

 

 

 

Current period provision for expected credit losses

 

 

323

 

 

 

53,581

 

Other

 

 

 

 

 

(1,705

)

Balance at June 30, 2020

 

$

556

 

 

$

71,959

 

 

 

(4)

REVENUE RECOGNITION

 

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

 

Contract Balances

 

At June 30, 2020, we had $5.7 million and $0.6 million of deferred mobilization costs included within other current assets and other assets, respectively.

 

At June 30, 2020 we have $0.5 million of deferred mobilization revenue, included within other current liabilities, related to unsatisfied performance obligations of which $0.1 million will be recognized during the remainder of 2020, $0.2 million will be recognized during 2021 and the remainder recognized during 2022.

 

 

(5)

STOCKHOLDERS' EQUITY AND DILUTIVE EQUITY INSTRUMENTS

Accumulated Other Comprehensive Income (Loss) (OCI)

 

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ended June 30, 2020 and 2019 are as follows:

 

 

 

Three months ended June 30, 2020

 

 

Three months ended June 30, 2019

 

 

 

Balance

 

 

Gains/(losses)

 

 

 

 

Remaining

 

 

Balance

 

 

Gains/(losses)

 

 

 

Remaining

 

 

 

at

 

 

recognized

 

 

 

 

balance

 

 

at

 

 

recognized

 

 

 

balance

 

(In thousands)

 

3/31/20

 

 

in OCI

 

 

 

 

6/30/20

 

 

3/31/2019

 

 

in OCI

 

 

 

6/30/19

 

Pension benefits

 

$

133

 

 

 

448

 

 

 

 

 

581

 

 

$

2,194

 

 

 

 

 

 

 

2,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2020

 

 

For the six months ended June 30, 2019

 

 

 

Balance

 

 

Gains/(losses)

 

 

 

 

Remaining

 

 

Balance

 

 

Gains/(losses)

 

 

 

Remaining

 

 

 

at

 

 

recognized

 

 

 

 

balance

 

 

at

 

 

recognized

 

 

 

balance

 

(In thousands)

 

12/31/19

 

 

in OCI

 

 

 

 

6/30/20

 

 

12/31/18

 

 

in OCI

 

 

 

6/30/19

 

Pension benefits

 

 

(236

)

 

 

817

 

 

 

 

 

581

 

 

 

2,194

 

 

 

 

 

 

 

2,194

 

 

 

Dilutive Equity Instruments

 

We had 2,402,241 and 3,997,084 incremental "in-the-money" warrants and restricted stock units at June 30, 2020 and 2019, respectively, which are as follows:

 

 

8


 

 

Total shares outstanding including warrants and restricted stock units

 

June 30, 2020

 

 

June 30, 2019

 

Common shares outstanding

 

 

40,335,963

 

 

 

37,845,158

 

New creditor warrants (strike price $0.001 per common share)

 

 

817,742

 

 

 

2,034,235

 

GulfMark creditor warrants (strike price $0.01 per common share)

 

 

952,154

 

 

 

1,683,147

 

Restricted stock units

 

 

632,345

 

 

 

279,702

 

Total

 

 

42,738,204

 

 

 

41,842,242

 

 

We also had 5,923,399 shares of “out-of-the-money” warrants outstanding at June 30, 2020 and 2019, 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 $100.00, respectively.

 

Tax Benefits Preservation Plan

On April 13, 2020, we adopted a Tax Benefits Preservation Plan (the “Plan”) as a measure to protect our existing net operating loss carryforwards and foreign tax credits (“Tax Attributes”) and to reduce our potential future tax liabilities.  Use of our Tax Attributes will be substantially limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code (“Section 382”).

While the Plan is in effect, any person or group that acquires beneficial ownership of 4.99% or more of our common stock then outstanding without approval from our Board of Directors (the Board) or without meeting certain customary exceptions would be subject to significant dilution in their ownership interest in our company. Stockholders who currently own 4.99% or more of our outstanding common stock will not trigger the Plan unless they acquire 0.5% or more additional shares of common stock.

Pursuant to the Plan, one right will be distributed to our stockholders for each share of our common stock owned of record at the close of business on April 24, 2020. Each right would initially represent the right to purchase from the Company one one-thousandth of a share of our Series A Junior Participating Preferred Stock, no par value (the “Preferred Stock”) at a purchase price of $38.00 per one one-thousandth of a share. The preferred stock will entitle the holder to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of preferred stock. The Board may redeem the rights in whole, but not in part, for $0.001 per right (subject to adjustment) at any time prior to the close of business on the tenth business day after the first date of public announcement that any person or group has triggered the Plan.

 

The rights will expire on the earliest of (i) the close of business on April 13, 2023, (ii) the time at which the rights are redeemed or exchanged, or (iii) the time at which the Board determines that the Tax Attributes are fully utilized, expired, no longer necessary or become limited under Section 382.

 

 

(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 quarter and six months ended June 30, 2020, 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, 2019, our balance sheet reflected approximately $101.3 million of net deferred tax assets with a valuation allowance of $103.5 million. As of June 30, 2020, we had net deferred tax assets of approximately $105.7 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

9


 

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 $108.1 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.

 

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act includes several significant business tax provisions, that are available to the Company, that, among other things, would allow businesses to carry back net operating losses arising after 2017 to the five prior tax years.  Considering the available carryback, we have recorded a tax benefit of $6.9 million related to the realization of net operating loss deferred tax assets on which a valuation allowance was previously recorded.

 

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 2014. 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.

 

(7)

AFFILIATES BALANCES

 

We maintained the following balances with our unconsolidated affiliates:

 

(In thousands)

 

June 30, 2020

 

 

December 31, 2019

 

Due from related parties:

 

 

 

 

 

 

 

 

Sonatide (Angola)

 

$

47,353

 

 

$

89,246

 

DTDW (Nigeria)

 

 

18,413

 

 

 

36,726

 

 

 

 

65,766

 

 

 

125,972

 

Due to related parties:

 

 

 

 

 

 

 

 

Sonatide (Angola)

 

$

30,390

 

 

$

31,475

 

DTDW (Nigeria)

 

 

18,413

 

 

 

18,711

 

 

 

 

48,803

 

 

 

50,186

 

Due from related parties, net of due to related parties

 

$

16,963

 

 

$

75,786

 

 

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.

 

 

 

Six Months

 

 

 

Ended

 

(In thousands)

 

June 30, 2020

 

Due from Sonatide at December 31, 2019

$

 

89,246

 

Revenue earned by the company through Sonatide

 

 

23,910

 

Less amounts received from Sonatide

 

 

(16,501

)

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

 

 

(8,145

)

Affiliate credit loss impairment expense

 

 

(41,500

)

Other

 

 

343

 

Total due from Sonatide at June 30, 2020

$

 

47,353

 

 

 

(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 are denominated in U.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas.  In late 2019, we were informed that, as part of a broad privatization program, Sonangol, our partner in Sonatide, intends to seek to divest itself from the Sonatide joint venture.

10


 

 

In the second quarter of 2020 Sonatide declared a $35.0 million dividend.  On June 22, 2020, Sonangol received $17.9 million and we received $17.1 million.  All of our share of the dividend is reflected as dividend income from unconsolidated company in the consolidated statement of operations because (i) our investment in the Sonatide joint venture had previously been written down to zero, (ii) the distributions are not refundable and (iii) we are not liable for the obligations of or committed to provide financial support to the Sonatide joint venture.  In addition, as a result of the aforementioned dividend payment, the cash balances of the joint venture were significantly reduced and we determined that, as a result, a significant portion of our net due from Sonatide balance was compromised.

 

After offsetting the amounts due to Sonatide, the net amount due from Sonatide at June 30, 2020 was approximately $17.0 million. Sonatide had approximately $6.9 million of cash on hand (approximately $1.2 million denominated in Angolan kwanzas) at June 30, 2020 plus approximately $18.6 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 due from Sonatide balance for possible additional impairment in future periods based in part on available liquidity held by Sonatide. On June 30, 2020, we recorded a $41.5 million credit loss impairment expense.

 

Amounts due to Sonatide

 

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

 

 

 

Six Months

 

 

 

Ended

 

(In thousands)

 

June 30, 2020

 

Due to Sonatide at December 31, 2019

$

 

31,475

 

Plus additional commissions payable to Sonatide

 

 

2,265

 

Plus amounts paid by Sonatide on behalf of the company

 

 

4,843

 

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

 

 

(8,145

)

Other

 

 

(48

)

Total due to Sonatide at June 30, 2020

$

 

30,390

 

 

 

(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 two vessels 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

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Revenues of Angolan operations (in thousands)

 

$

12,289

 

 

$

14,272

 

 

$

24,426

 

 

$

29,670

 

Percent of consolidated vessel revenues

 

 

12

%

 

 

12

%

 

 

11

%

 

 

12

%

Number of company owned vessels in Angola

 

 

26

 

 

 

32

 

 

 

27

 

 

 

34

 

Number of stacked company owned vessels in

   Angola

 

 

9

 

 

 

13

 

 

 

10

 

 

 

14

 

 

Amounts due from DTDW (Nigeria)

 

We own 40% of the DTDW joint venture in Nigeria.  Our partner, who owns 60%, is a Nigerian national.  DTDW owns one offshore service vessel and has long term debt of $5.6 million which is secured by the vessel and guarantees from the DTDW partners. We also operate company owned vessels in Nigeria for which our partner receives a commission.  As of

11


 

June 30, 2020, we had only one company owned vessel operating in Nigeria and the DTDW owned vessel was not employed.  At the beginning of 2020 we had expected that we would be operating numerous vessels in Nigeria, but in the second quarter of 2020 the Covid pandemic and resulting oil price reduction caused our primary customer in Nigeria to eliminate all planned operations for 2020.  As a result, the near term cash flow projections indicate that DTDW does not have sufficient funds to meet its obligations to us or to the holder of its long term debt.  In the June 2020 DTDW board meeting neither of the DTDW partners indicated willingness to contribute additional funds to DTDW to meet its obligations.  Therefore, we have recorded affiliate credit loss impairment expense for the entire net due from DTDW balance as of June 30, 2020 totaling $12.1 million.  In addition, based on our analysis we have determined that DTDW will be unable to pay its debt obligation and the debt will not be satisfied by liquidating the vessel and, as a result, we recorded additional impairment expense of $2.0 million for our expected share of the obligation guarantee.

 

(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 pension plan was frozen during 2010.  We did not contribute to the pension plan during the three and six months ended June 30, 2020 and 2019, and we are not required to contribute to the pension plan during the remaining quarters of calendar year 2020; however, we may, at our discretion, make contributions to the pension plan in order to manage our plan expenses.  Actuarial valuations are performed annually and an assessment of the future pension obligations and market value of the assets will determine if contributions are made in the future.

Supplemental Executive Retirement Plan

We also support a non-contributory and non-qualified defined benefit supplemental executive retirement plan (supplemental plan) which was closed to new participants during 2010, that provided pension benefits to certain employees in excess of those allowed under our tax-qualified pension plan.  We contributed $0.4 million and $0.8 million during the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019, respectively. We expect to contribute $0.8 million to the supplemental plan during the remainder of 2020. Our obligations under the supplemental plan were $21.2 million and $21.4 million as of June 30, 2020 and December 31, 2019, respectively, and are included in “accrued costs and expenses” and “other liabilities” on the consolidated balance sheet.

 

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. Our contributions to the Norwegian defined benefit pension plans during 2020 and 2019, were immaterial and we expect that any contributions for the remainder of calendar year 2020 will be immaterial. Substantially, all of our Norwegian employees were transferred from our defined benefit pension plans into a defined contribution plan during the first quarter of 2020.

 

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

 

 

Six Months Ended

 

(In thousands)

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Pension Benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

 

(26

)

$

 

(44

)

$

 

14

 

$

 

12

 

Interest cost

 

 

2,273

 

 

 

914

 

 

 

2,498

 

 

 

1,847

 

Expected return on plan assets

 

 

(2,058

)

 

 

(513

)

 

 

(2,094

)

 

 

(1,076

)

Administrative expenses

 

 

(11

)

 

 

(3

)

 

 

12

 

 

 

7

 

Settlement loss

 

 

323

 

 

 

21

 

 

 

831

 

 

 

92

 

Amortization of net actuarial losses

 

 

35

 

 

 

 

 

 

(9

)

 

 

 

Net periodic pension cost

$

 

536

 

$

 

375

 

$

 

1,252

 

$

 

882

 

 

12


 

(9)

DEBT

 

The following is a summary of all debt outstanding:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Secured notes:

 

 

 

 

 

 

 

 

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

 

$

224,793

 

 

$

224,793

 

Troms Offshore borrowings (C):

 

 

 

 

 

 

 

 

NOK denominated notes due May 2024

 

 

8,410

 

 

 

10,260

 

NOK denominated notes due January 2026

 

 

17,533

 

 

 

20,788

 

USD denominated notes due January 2027

 

 

19,044

 

 

 

20,273

 

USD denominated notes due April 2027

 

 

20,239

 

 

 

21,545

 

 

 

$

290,019

 

 

$

297,659

 

Debt premiums and discounts, net

 

 

(7,367

)

 

 

(8,725

)

Less: Current portion of long-term debt

 

 

(9,437

)

 

 

(9,890

)

Total long-term debt

 

$

273,215

 

 

$

279,044

 

 

 

(A)

As of June 30, 2020 and December 31, 2019 the fair value (Level 2) of the Secured Notes was $202.3 million and $237.6 million, respectively.  

 

(B)

The $19.9 million restricted cash on the balance sheet at June 30, 2020, represents approximately 65% of net proceeds from asset dispositions since the date of the last tender offer and is restricted by the terms of the Indenture.

 

(C)

We pay principal and interest on these notes semi-annually.  As of June 30, 2020 and December 31, 2019, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $65.2 million and $72.9 million, respectively. The weighted average interest rate of the Troms Offshore borrowings as of June 30, 2020 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, 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 against the U.S. dollar. 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.  

 

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.

13


 

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.  As of June 30, 2020 and December 31, 2019, we had $226.3 and $227.6 million of cash equivalents.

 

(12)

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

Our property and equipment consist primarily of 146 active vessels, which excludes the 46 vessels we have classified as held for sale, located around the world.

 

A summary of properties and equipment at June 30, 2020 and December 31, 2019 is as follows:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Properties and equipment:

 

 

 

 

 

 

 

 

Vessels and related equipment

 

$

969,360

 

 

$

1,051,558

 

Other properties and equipment

 

 

16,234

 

 

 

13,119

 

 

 

 

985,594

 

 

 

1,064,677

 

Less accumulated depreciation and amortization

 

 

145,682

 

 

 

125,716

 

Properties and equipment, net

 

$

839,912

 

 

$

938,961

 

 

 

A summary of accrued cost and expenses is as follows:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Payroll and related payables

 

$

16,229

 

 

$

16,351

 

Accrued vessel expenses

 

 

22,462

 

 

 

38,383

 

Accrued interest expense

 

 

4,485

 

 

 

4,570

 

Other accrued expenses

 

 

17,817

 

 

 

14,696

 

 

 

$

60,993

 

 

$

74,000

 

 

A summary of other current liabilities at June 30, 2020 and December 31, 2019 is as follows:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Taxes payable

 

$

19,498

 

 

$

18,661

 

Other

 

 

6,317

 

 

 

5,439

 

 

 

$

25,815

 

 

$

24,100

 

 

A summary of other liabilities at June 30, 2020 and December 31, 2019 is as follows:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Pension liabilities

 

$

30,688

 

 

$

32,545

 

Liability for uncertain tax positions

 

 

44,377

 

 

 

48,577

 

Deferred tax liability

 

 

2,791

 

 

 

2,571

 

Other

 

 

12,445

 

 

 

14,704

 

 

 

$

90,301

 

 

$

98,397

 

 

14


 

 

 

(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 six months ended June 30, 2020 and 2019. Vessel revenues and operating costs relate to vessels owned and operated by us while other operating revenues relate to other miscellaneous marine-related businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

(In thousands)

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

34,044

 

 

$

35,199

 

 

$

65,903

 

 

$

70,477

 

Middle East/Asia Pacific

 

 

23,983

 

 

 

20,449

 

 

 

48,811

 

 

 

40,905

 

Europe/Mediterranean

 

 

20,620

 

 

 

35,027

 

 

 

50,111

 

 

 

63,585

 

West Africa

 

 

22,328

 

 

 

32,966

 

 

 

48,124

 

 

 

68,336

 

Other operating revenues

 

 

1,369

 

 

 

2,218

 

 

 

5,763

 

 

 

4,705

 

 

 

$

102,344

 

 

$

125,859

 

 

$

218,712

 

 

$

248,008

 

Vessel operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

4,505

 

 

$

2,900

 

 

$

3,341

 

 

$

1,870

 

Middle East/Asia Pacific

 

 

599

 

 

 

(2,127

)

 

 

(257

)

 

 

(3,289

)

Europe/Mediterranean

 

 

(1,750

)

 

 

2,824

 

 

 

(203

)

 

 

(493

)

West Africa

 

 

(3,984

)

 

 

3,099

 

 

 

(8,847

)

 

 

11,214

 

Other operating profit

 

 

1,198

 

 

 

1,625

 

 

 

2,919

 

 

 

3,330

 

 

 

$

568

 

 

$

8,321

 

 

$

(3,047

)

 

$

12,632

 

Corporate expenses

 

 

(8,910

)

 

 

(12,221

)

 

 

(18,952

)

 

 

(27,422

)

Long-lived asset impairments

 

 

(55,482

)

 

 

(494

)

 

 

(65,689

)

 

 

776

 

Affiliate credit loss impairment expense

 

 

(53,581

)

 

 

 

 

 

(53,581

)

 

 

 

Affiliate guarantee obligation

 

 

(2,000

)

 

 

 

 

 

(2,000

)

 

 

 

Gain on asset dispositions, net

 

 

1,660

 

 

 

 

 

 

6,991

 

 

 

 

Operating loss

 

$

(117,745

)

 

$

(4,394

)

 

$

(136,278

)

 

$

(14,014

)

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

8,073

 

 

$

6,515

 

 

$

15,569

 

 

$

12,776

 

Middle East/Asia Pacific

 

 

5,645

 

 

 

5,319

 

 

 

11,172

 

 

 

9,769

 

Europe/Mediterranean

 

 

6,793

 

 

 

7,741

 

 

 

13,612

 

 

 

15,187

 

West Africa

 

 

6,750

 

 

 

5,100

 

 

 

13,154

 

 

 

9,543

 

Corporate

 

 

883

 

 

 

363

 

 

 

1,744

 

 

 

695

 

 

 

$

28,144

 

 

$

25,038

 

 

$

55,251

 

 

$

47,970

 

Additions to properties and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

 

 

$

206

 

 

$

 

 

$

604

 

Middle East/Asia Pacific

 

 

503

 

 

 

2,180

 

 

 

1,183

 

 

 

3,639

 

Europe/Mediterranean

 

 

486

 

 

 

601

 

 

 

926

 

 

 

722

 

West Africa

 

 

(73

)

 

 

1,340

 

 

 

678

 

 

 

1,583

 

Corporate

 

 

710

 

 

 

1,430

 

 

 

1,288

 

 

 

2,325

 

 

 

$

1,626

 

 

$

5,757

 

 

$

4,075

 

 

$

8,873

 

 

The following table provides a comparison of total assets at June 30, 2020 and December 31, 2019:

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Total assets:

 

 

 

 

 

 

 

 

Americas

 

$

350,376

 

 

$

375,297

 

Middle East/Asia Pacific

 

 

243,519

 

 

 

270,413

 

Europe/Mediterranean

 

 

327,827

 

 

 

358,943

 

West Africa

 

 

280,018

 

 

 

376,087

 

Corporate

 

 

213,935

 

 

 

198,788

 

 

 

$

1,415,675

 

 

$

1,579,528

 

  

 

15


 

(14)

RESTRUCTURING CHARGES

 

In the fourth quarter of 2018, we finalized plans and made accruals of expected costs to abandon the duplicate office facilities in St. Rose and New Orleans, Louisiana, Houston, Texas and Aberdeen, Scotland with the final lease agreement ending in October 2026. Activity for the lease exit and severance liabilities for the six months ended June 30, 2020 and 2019 was as follows:

 

 

 

Lease

 

 

 

 

 

 

 

 

 

(In thousands)

 

Exit Costs

 

 

Severance

 

 

Total

 

Balance at December 31, 2019

 

$

4,109

 

 

$

272

 

 

$

4,381

 

General and administrative charges

 

 

135

 

 

 

250

 

 

 

385

 

Cash payments

 

 

(459

)

 

 

(416

)

 

 

(875

)

Balance at June 30, 2020

 

$

3,785

 

 

$

106

 

 

$

3,891

 

 

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

 

 

 

Lease

 

 

 

 

 

 

 

 

 

(In thousands)

 

Exit Costs

 

 

Severance

 

 

Total

 

Balance at December 31, 2018

 

$

6,468

 

 

$

285

 

 

$

6,753

 

General and administrative charges

 

 

109

 

 

 

3,836

 

 

 

3,945

 

Cash payments

 

 

(1,426

)

 

 

(3,916

)

 

 

(5,342

)

Balance at June 30, 2019

 

$

5,151

 

 

$

205

 

 

$

5,356

 

 

(15)ASSET DISPOSITIONS, ASSETS HELD FOR SALE AND ASSET IMPAIRMENTS

 

 In the fourth quarter of 2019, we evaluated our fleet for vessels to be considered for disposal and identified 46 vessels to be classified as held for sale.  In the second quarter of 2020, we identified 22 additional vessels to be sold.  The second quarter determination was largely a result of a worldwide downturn in the oil and gas industry precipitated by a global pandemic.  In the first quarter of 2020, we sold 8 vessels that were held for sale and revalued the remaining 38 vessels to estimated net realizable value recording additional impairment expense of $10.2 million.  In the second quarter of 2020, we sold 14 vessels that were held for sale and revalued the remaining 24 vessels to net realizable value recording additional impairment expense of $5.6 million.  At June 30, 2020, when we identified the additional 22 vessels to be reclassified as assets held for sale, we recognized impairment expense of $49.9 million associated with those vessels.  See the following table for activity in our assets held for sale account:

 

(in thousands, except for number of vessels data)

Number of Vessels

 

Three Months Ended  March 31, 2020

 

 

Number of Vessels

 

Three Months Ended  June 30, 2020

 

 

Number of Vessels

 

Six Months Ended  June 30, 2020

 

Beginning balance

 

46

 

$

39,287

 

 

 

38

 

$

26,142

 

 

 

46

 

$

39,287

 

Additions

 

 

 

 

 

 

 

22

 

 

15,930

 

 

 

22

 

 

15,930

 

Sales

 

(8

)

 

(2,938

)

 

 

(14

)

 

(7,407

)

 

 

(22

)

 

(10,345

)

Additional impairment

 

 

 

(10,207

)

 

 

 

 

(5,601

)

 

 

 

 

(15,808

)

Ending balance

 

38

 

$

26,142

 

 

 

46

 

$

29,064

 

 

 

46

 

$

29,064

 

 

We consider the valuation approach for our assets held for sale to be a Level 3 fair value measurement due to the level of estimation involved in valuing assets to be scrapped or sold.  We determined the fair value of the vessels held for sale using three methodologies depending on the vessel and on our planned method of disposition.  We designated certain vessels to be scrapped and valued those vessels using scrap yard pricing schedules based on dollars per ton.  Other vessels were valued based on sales agreements or using comparative sales in the marketplace reduced by 10% to factor in the effects of completing a quick sale within the next twelve months.  We do not separate our asset impairment expense by segment because of the significant movement of our assets between segments.

 

In 2020, we have sold 25 vessels, 22 of which were classified as assets held for sale and three of which were sold from the active fleet.  We recognized gains on the asset sales of $5.3 million in the first quarter, $1.7 million in the second quarter and $7.0 million combined for the six months ended June 30, 2020.

 

In early 2020, it became evident that a novel coronavirus originating in Asia (COVID-19) could become a pandemic with worldwide reach.  By mid-March, when the World Health Organization declared the outbreak to be a pandemic (the “COVID-19 pandemic”), much of the industrialized world had initiated severe measures to lessen its impact.  The ongoing COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption during the first quarter of 2020.  With respect to our particular sector, the COVID-19 pandemic has resulted in a much lower demand for oil as national, regional,

16


 

and local governments impose travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread.  During this same time period, oil-producing countries have struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices. Combined, these conditions have adversely affected our operations and business beginning in the latter part of the first quarter of 2020 and continuing throughout the second quarter of 2020.  We expect our operations and business in the remainder of 2020 to continue to be negatively impacted. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of the virus on offshore operations. Further, these conditions, separately or together, are expected to continue to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general.

 

We consider these events to be indicators that the value of our active offshore vessel fleet may be impaired.  As a result, as of March 31, 2020 and June 30, 2020, we performed Step 1 evaluations of our active offshore fleet under FASB Accounting Standards Codification 360, which governs the methodology for identifying and recording impairment of long-lived assets to determine if any of our asset groups have net book value in excess of undiscounted future net cash flows. Our evaluations did not indicate impairment of any of our asset groups.  We will continue to monitor the expected future cash flows and the fair market value of our asset groups for impairment.

 

 

17


 

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, many of which are beyond the control of the Company, 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 and uncertainties include, without limitation, the risks related to 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 as needed, 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 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 regional or global public health crises or pandemics; 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; natural disasters or 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, discussed in this Quarterly Report on Form 10-Q, and discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, 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.

18


 

 

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, 2019, filed with the SEC on March 2, 2020.

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.

At June 30, 2020, we owned 192 vessels (excluding 3 joint venture vessels), 146 of which are available to serve the global energy industry and 46 of which are available for immediate sale. The average age of our 146 active vessels at June 30, 2020 is 10.1 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, 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.

 

Insurance 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.  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

19


 

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 (Angola)

 

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.  The amounts due from Sonatide are 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.  In late 2019, we were informed that, as part of a broad privatization program, Sonangol intends to seek to divest itself from the Sonatide joint venture.

 

In the second quarter of 2020, Sonatide declared a $35.0 million dividend.  On June 22, 2020, Sonangol received $17.9 million and we received $17.1 million.  All of our share of the dividend is reflected as dividend income from unconsolidated company in the consolidated statement of operations because (i) our investment in the Sonatide joint venture had previously been written down to zero, (ii) the distributions are not refundable and (iii) we are not liable for the obligations of or committed to provide financial support to the Sonatide joint venture.  In addition, as a result of the aforementioned dividend payment, the cash balances of the joint venture were significantly reduced and we determined that, as a result, a significant portion of our net due from Sonatide balance was compromised.  On June 30, 2020, we recorded a $41.5 million affiliate credit loss impairment expense.

 

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.

 

DTDW Joint Venture (Nigeria)

 

We own 40% of the DTDW joint venture in Nigeria.  Our partner, who owns 60%, is a Nigerian national.  DTDW owns one offshore service vessel and has long term debt of $5.6 million which is secured by the vessel and guarantees from the DTDW partners. We also operate company owned vessels in Nigeria for which our partner receives a commission.  As of June 30, 2020, we had only one company owned vessel operating in Nigeria and the DTDW owned vessel was not employed.  At the beginning of 2020 we had expected that we would be operating numerous vessels in Nigeria, but in the second quarter of 2020 the Covid pandemic and resulting oil price reduction caused our primary customer in Nigeria to eliminate all planned operations for 2020.  As a result, the near term cash flow projections indicate that DTDW does not have sufficient funds to meet its obligations to us or to the holder of its long term debt.  In the June 2020 DTDW board meeting neither of the DTDW partners indicated willingness to contribute additional funds to DTDW to meet its obligations.  Therefore, we have recorded an affiliate credit loss impairment expense for the entire net due from DTDW balance as of June 30, 2020 totaling $12.1 million.  In addition, based on our analysis we have determined that DTDW will be unable to pay its debt obligation and the debt will not be satisfied by liquidating the vessel and, as a result, we recorded additional impairment expense of $2.0 million for our expected share of the obligation guarantee.

 

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 Nigeria 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. The industry experienced a severe downturn beginning in late 2014 that lasted through 2018 with prices falling into the high $20’s per barrel before recovering to average between $50.00 and $65.00 per barrel in 2019.  We had expected to begin to experience consistent operating cash flow in 2020.

20


 

In early 2020, it became evident that a novel coronavirus originating in Asia (COVID-19) could become a pandemic with worldwide reach.  By mid-March, when the World Health Organization declared the outbreak to be a pandemic (the “COVID-19 pandemic”), much of the industrialized world had initiated severe measures to lessen its impact.  The ongoing COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption during the first half of 2020.  

With respect to our particular sector, the COVID-19 pandemic has resulted in a much lower demand for oil as national, regional, and local governments impose travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread.  During this same time period, oil-producing countries have struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices.

Combined, these conditions adversely affected our operations and business beginning in late March 2020 and continuing through the second quarter of 2020 and we expect our operations and business during the remainder of 2020 to be negatively impacted. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of the virus on offshore operations. Further, these conditions, separately or together, are expected to continue to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general.

As the pandemic has spread throughout the world, its impact on one or more of our locations, including our vessels, has affected our operations.  We have implemented various protocols for both onshore and offshore personnel in efforts to limit this impact, but there is no assurance that those efforts will be fully successful. The spread of COVID-19 to our onshore workforce could prevent us from supporting our offshore operations, we may experience reduced productivity as our onshore personnel continue to work remotely, and any spread to our key management personnel may disrupt our business. Any outbreak on our vessels may result in the vessel, or some or all of a vessel crew, being quarantined and therefore impede the vessel’s ability to generate revenue.  We have experienced challenges in connection with our offshore crew changes due to health and travel restrictions related to COVID-19, and those challenges and/or restrictions are expected to continue despite our efforts at mitigating them.  To the extent the COVID-19 pandemic adversely affects our operations and business, it may also have the effect of heightening many of the other risks set forth in our SEC filings.

The effect on our business includes lockdowns of shipyards where we have vessels performing drydocks which will delay vessels returning to service and the cancellation and/or temporary delay of certain revenue vessel contracts allowed either under the contract provisions or by mutual agreement with our customers. These cancellations and delays affect approximately 19% of our 2020 contracts with durations in excess of three months which typically comprise over 90% of our contractual revenue.  It is possible that there will be additional cancellations or delays.

 

As a company, we have undertaken the following temporary measures to assist us in weathering the COVID 19 pandemic and allow us to recover as soon as possible:

 

 

Planned capital and dry dock expenditures tied to contracts referenced above will be temporarily delayed or cancelled.  As a result of the ongoing contract cancellations and delays we have postponed drydocks expected to cost approximately $28.0 million in 2020.  It is possible that additional planned drydocks will be cancelled or delayed due to contract cancellations or delays.  We cannot predict the number or cost of any additional cancellations or delays.

 

We have the ability to rapidly respond to contract cancellations and delays.  We have or will remove the crews and shut down all operations, depending on contract terms, on vessels associated with cancelled or delayed contracts.  We are also in the process of evaluating our general and administrative costs to reflect the current demand for our offshore support vessels.

The full impact of the COVID-19 pandemic is unknown and is rapidly evolving. The extent to which it impacts our business and operations will depend on the severity, location, and duration of the effects and spread of the pandemic itself, the actions undertaken by national, regional, and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.  As we cannot predict the duration or scope of this pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated but could be both material and long-lasting.

21


 

We consider these events to be indicators that the value of our offshore vessel fleet may be impaired.  As a result, in the first quarter of 2020 we performed a Step 1 evaluation of our offshore fleet under FASB Accounting Standards Codification 360, which governs the methodology for identifying and recording impairment of long-lived assets to determine if any of our asset groups have net book value in excess of undiscounted future net cash flows. Our evaluation did not indicate impairment of any of our asset groups.  Our evaluation did, however, identify one asset group with a net book value of approximately $40.0 million where the undiscounted future net cash flows total was within 10% of the net book value of that asset group as of March 31, 2020. In the second quarter of 2020, we identified 22 vessels in our active fleet that were designated as assets held for sale.  Several of the identified vessels were in the asset group that had indications of potential impairment at March 31, 2020.  In conjunction with reclassifying the vessels to assets held for sale and revaluing the vessels’ carrying value to net realizable value, we recorded $49.9 million of impairment expense. In addition, at June 30, 2020, we performed another Step 1 impairment evaluation of our offshore fleet and did not identify any asset groups that had carrying values in excess of undiscounted future net cash flows. We also did not identify any asset group that had undiscounted future net cash flows within 10% of the net book value of that asset group. The eventual impact of the oil price reduction and the COVID 19 pandemic on our future operations is not known.  Depending on the severity of the impact, our expected cash flows in future periods could indicate impairment of one or more asset groups in our vessel fleet. We will continue to monitor the expected future cash flows and the fair market value of our asset groups for impairment.

Results of Operations – Three Months Ended June 30, 2020 compared to June 30, 2019

 

Revenues for the quarters ended June 30, 2020 and 2019, were $102.3 million and $125.9 million, respectively.  The decrease in revenue is primarily due to decreases in our West Africa segment, with 8 less active vessels and our Europe/Mediterranean segment, with 14 less active vessels. Both segments were significantly affected by the decrease in demand caused by the pandemic.  Overall, we had 25 less average active vessels in the second quarter of 2020 than in the second quarter of 2019.  Active utilization decreased from 79.3% in 2019 compared to 74.5% in 2020.

 

Vessel operating costs for the quarters ended June 30, 2020 and 2019, were $64.8 million and $80.4 million, respectively. The decrease is primarily due to a decrease in vessel activity, as we have 25 less active vessels in our fleet in the first quarter 2020 largely due to the downturn caused by the pandemic.

 

Depreciation and amortization expense for the quarters ended June 30, 2020 and 2019, was $28.1 million and $25.0 million, respectively. The decrease in depreciation from the sale in 2019 of over 40 vessels and the reclassification of an additional 46 vessels at year end 2019 from property and equipment to assets held for sale was more than offset by the increase in amortization expense related to deferred drydock expenditures.

 

General and administrative expenses for the quarters ended June 30, 2020 and 2019, were $17.6 million and $23.7 million, respectively.  The decrease is primarily due to decreased personnel and benefit costs related to the significant restructuring of our executive management and corporate administrative functions in 2019 and cost cutting measures being implemented due to the current downturn.

 

Included in gain on asset dispositions, net for the quarter ended June 30, 2020, are $1.7 million of net gains from the disposal of 16 vessels and other assets. During the quarter ended June 31, 2019, we recognized losses of $0.5 million related to the disposal of 18 vessels and other assets.

 

In the three months ended June 30, 2020 we recorded $55.5 million of impairment expense related to valuation of our assets held for sale, $53.6 million affiliate credit loss impairment expense relating to the valuation of our net receivables from our joint ventures in Africa and $2.0 million of impairment related to a guarantee of long term debt of one of our African joint ventures.  

 

We recorded $17.1 million of dividend income from one of our African joint ventures in the three months ended June 30, 2020.

 

In November 2019, we paid down $125.0 million of our Senior Notes.  This reduced our interest expense by $1.6 million for the three months ended June 30. 2020 compared to the three months ended June 30, 2019.  In addition, the reduction in cash plus a reduction in interest rates received on our cash balances reduced our interest income by $1.2 million for the same period.  

 

During the quarter ended June 30, 2020 we recognized foreign exchange losses of $2.0 million and during the quarter ended June 30, 2019 we recognized de minimis foreign exchange gains.

22


 

The tax expense for the three months ending June 30, 2020 was $2.7 million compared to $5.5 million for the three months ending June 30,2019.  The decrease is due to lower income.

Results of Operations – Six Months Ended June 30, 2020 compared to June 30, 2019

 

Revenues for the six months ended June 30, 2020 and 2019, were $218.7 million and $248.0 million, respectively.  The decrease in revenue is primarily due to decreases in our West Africa segment, with 9 less active vessels and our Europe/Mediterranean segment, with 10 less active vessels. Both segments were significantly affected by the decrease in demand caused by the pandemic. Overall, we had 20 less average active vessels in the six months ended June 30, 2020 than in the six months ended June 30, 2019.  Active utilization decreased from 79.9% in 2019 compared to 76.6% in 2020.

 

Vessel operating costs for the six months ended June 30, 2020 and 2019, were $143.6 million and $162.6 million, respectively. decrease is primarily due to a decrease in vessel activity, as we have 20 less active vessels in our fleet in the six months of 2020.

 

Depreciation and amortization expense for the six months ended June 30, 2020 and 2019, was $55.3 million and $48.0 million, respectively. The decrease in depreciation from the sale in 2019 of over 40 vessels and the reclassification at year end 2019 of an additional 46 vessels from property and equipment to assets held for sale was more than offset by the increase in amortization expense related to deferred drydock expenditures.

 

General and administrative expenses for the six months ended June 30, 2020 and 2019, were $39.0 million and $50.8 million, respectively.  The decrease is primarily due to decreased personnel and benefit costs related to the significant restructuring of our executive management and corporate administrative functions in 2019 and cost cutting measures being implemented due to the current downturn.

 

Included in gain on asset dispositions, net for the six months ended June 30, 2020, are $7.0 million of net gains from the disposal of 25 vessels and other assets. During the six months ended June 31, 2019, we recognized net gains of $0.8 million related to the disposal of 34 vessels and other assets.

 

In the six months ended June 30, 2020 we recorded $65.7 million of impairment expense related to valuation of our assets held for sale, $53.6 million affiliate credit loss impairment expense relating to the valuation of our net receivables from our joint ventures in Africa and $2.0 million of impairment related to a guarantee of long term debt of one of our African joint ventures.  

 

We recorded $17.1 million of dividend income from one of our African joint ventures in the six months ended June 30, 2020.

 

In November 2019, we paid down $125.0 million of our Senior Notes.  This reduced our interest expense by $3.2 million for the six months ended June 30. 2020 compared to the six months ended June 30, 2019.  In addition, the reduction in cash plus a reduction in interest rates received on our cash balances reduced our interest income by $3.5 million for the same period.

 

During the six months ended June 30, 2020 we recognized foreign exchange losses of $1.2 million and during the six months ended June 30, 2019 we recognized foreign exchange losses of $0.5 million.

 

The tax benefit for the six months ending June 30, 2020 was $2.4 million compared to a tax expense of $11.4 million for the six months ending June 30,2019.  The decrease in expense is related to changes in tax laws (primarily Cares Act refund) and also change in income.  

 

 

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

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Vessel revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

34,044

 

 

 

34

%

 

$

35,199

 

 

 

28

%

 

$

65,903

 

 

 

31

%

 

$

70,477

 

 

 

29

%

Middle East/Asia Pacific

 

 

23,983

 

 

 

24

%

 

 

20,449

 

 

 

17

%

 

 

48,811

 

 

 

23

%

 

 

40,905

 

 

 

17

%

Europe/Mediterranean

 

 

20,620

 

 

 

20

%

 

 

35,027

 

 

 

28

%

 

 

50,111

 

 

 

24

%

 

 

63,585

 

 

 

26

%

West Africa

 

 

22,328

 

 

 

22

%

 

 

32,966

 

 

 

27

%

 

 

48,124

 

 

 

23

%

 

 

68,336

 

 

 

28

%

Total vessel revenues

 

$

100,975

 

 

 

100

%

 

$

123,641

 

 

 

100

%

 

$

212,949

 

 

 

100

%

 

$

243,303

 

 

 

100

%

Vessel operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

13,138

 

 

 

39

%

 

$

16,008

 

 

 

45

%

 

$

27,324

 

 

 

41

%

 

$

33,107

 

 

 

47

%

Repair and maintenance

 

 

1,703

 

 

 

5

%

 

 

2,328

 

 

 

7

%

 

 

3,874

 

 

 

6

%

 

 

5,948

 

 

 

8

%

Insurance

 

 

427

 

 

 

1

%

 

 

(1,118

)

 

 

(3

)%

 

 

844

 

 

 

1

%

 

 

(378

)

 

 

(1

)%

Fuel, lube and supplies

 

 

1,373

 

 

 

4

%

 

 

2,115

 

 

 

6

%

 

 

3,988

 

 

 

6

%

 

 

4,561

 

 

 

7

%

Other

 

 

1,956

 

 

 

6

%

 

 

2,772

 

 

 

8

%

 

 

4,629

 

 

 

7

%

 

 

5,543

 

 

 

8

%

 

 

$

18,597

 

 

 

55

%

 

$

22,105

 

 

 

63

%

 

$

40,659

 

 

 

62

%

 

$

48,781

 

 

 

69

%

Middle East/Asia Pacific:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

8,726

 

 

 

36

%

 

$

8,986

 

 

 

44

%

 

$

18,811

 

 

 

39

%

 

$

17,613

 

 

 

43

%

Repair and maintenance

 

 

2,196

 

 

 

9

%

 

 

1,673

 

 

 

8

%

 

 

4,782

 

 

 

10

%

 

 

3,254

 

 

 

8

%

Insurance

 

 

739

 

 

 

3

%

 

 

186

 

 

 

1

%

 

 

1,330

 

 

 

3

%

 

 

776

 

 

 

2

%

Fuel, lube and supplies

 

 

1,405

 

 

 

6

%

 

 

2,350

 

 

 

12

%

 

 

4,070

 

 

 

8

%

 

 

4,685

 

 

 

11

%

Other

 

 

2,412

 

 

 

10

%

 

 

1,844

 

 

 

9

%

 

 

4,108

 

 

 

8

%

 

 

3,577

 

 

 

9

%

 

 

$

15,478

 

 

 

55

%

 

$

15,039

 

 

 

74

%

 

$

33,101

 

 

 

68

%

 

$

29,905

 

 

 

73

%

Europe/Mediterranean :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

9,707

 

 

 

47

%

 

$

13,001

 

 

 

37

%

 

$

21,403

 

 

 

43

%

 

$

26,060

 

 

 

41

%

Repair and maintenance

 

 

1,278

 

 

 

6

%

 

 

3,914

 

 

 

11

%

 

 

4,419

 

 

 

9

%

 

 

6,491

 

 

 

10

%

Insurance

 

 

420

 

 

 

2

%

 

 

693

 

 

 

2

%

 

 

851

 

 

 

2

%

 

 

1,253

 

 

 

2

%

Fuel, lube and supplies

 

 

924

 

 

 

4

%

 

 

1,314

 

 

 

4

%

 

 

2,022

 

 

 

4

%

 

 

3,205

 

 

 

5

%

Other

 

 

1,547

 

 

 

8

%

 

 

2,902

 

 

 

8

%

 

 

4,069

 

 

 

8

%

 

 

5,897

 

 

 

9

%

 

 

$

13,876

 

 

 

67

%

 

$

21,824

 

 

 

62

%

 

$

32,764

 

 

 

65

%

 

$

42,906

 

 

 

67

%

West Africa:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

7,120

 

 

 

32

%

 

$

9,196

 

 

 

28

%

 

$

15,640

 

 

 

32

%

 

$

18,555

 

 

 

27

%

Repair and maintenance

 

 

1,479

 

 

 

7

%

 

 

2,996

 

 

 

9

%

 

 

4,179

 

 

 

9

%

 

 

4,919

 

 

 

7

%

Insurance

 

 

424

 

 

 

2

%

 

 

989

 

 

 

3

%

 

 

770

 

 

 

2

%

 

 

1,277

 

 

 

2

%

Fuel, lube and supplies

 

 

2,681

 

 

 

12

%

 

 

2,672

 

 

 

8

%

 

 

6,055

 

 

 

13

%

 

 

5,346

 

 

 

8

%

Other

 

 

5,119

 

 

 

23

%

 

 

5,618

 

 

 

17

%

 

 

10,431

 

 

 

22

%

 

 

10,953

 

 

 

16

%

 

 

$

16,823

 

 

 

75

%

 

$

21,471

 

 

 

65

%

 

$

37,075

 

 

 

77

%

 

$

41,050

 

 

 

60

%

Vessel operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crew costs

 

$

38,691

 

 

 

38

%

 

$

47,191

 

 

 

38

%

 

$

83,178

 

 

 

39

%

 

$

95,335

 

 

 

39

%

Repair and maintenance

 

 

6,656

 

 

 

7

%

 

 

10,911

 

 

 

9

%

 

 

17,254

 

 

 

8

%

 

 

20,612

 

 

 

9

%

Insurance

 

 

2,010

 

 

 

2

%

 

 

750

 

 

 

1

%

 

 

3,795

 

 

 

2

%

 

 

2,928

 

 

 

1

%

Fuel, lube and supplies

 

 

6,383

 

 

 

6

%

 

 

8,451

 

 

 

7

%

 

 

16,135

 

 

 

8

%

 

 

17,797

 

 

 

7

%

Other

 

 

11,034

 

 

 

11

%

 

 

13,136

 

 

 

10

%

 

 

23,237

 

 

 

11

%

 

 

25,970

 

 

 

11

%

Total vessel operating costs

 

$

64,774

 

 

 

64

%

 

$

80,439

 

 

 

65

%

 

$

143,599

 

 

 

67

%

 

$

162,642

 

 

 

67

%

 

24


 

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 six months ended June 30, 2020 and 2019:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Segment general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

2,869

 

 

 

8

%

 

$

3,679

 

 

 

10

%

 

$

6,334

 

 

 

10

%

 

$

7,051

 

 

 

10

%

Middle East/Asia Pacific

 

 

2,261

 

 

 

9

%

 

 

2,218

 

 

 

11

%

 

 

4,795

 

 

 

10

%

 

 

4,521

 

 

 

11

%

Europe/Mediterranean

 

 

1,700

 

 

 

8

%

 

 

2,638

 

 

 

8

%

 

 

3,938

 

 

 

8

%

 

 

5,984

 

 

 

9

%

West Africa

 

 

2,741

 

 

 

12

%

 

 

3,297

 

 

 

10

%

 

 

6,742

 

 

 

14

%

 

 

6,529

 

 

 

10

%

Total segment general and administrative expenses

 

$

9,571

 

 

 

9

%

 

$

11,832

 

 

 

10

%

 

$

21,809

 

 

 

10

%

 

$

24,085

 

 

 

10

%

 

The following table presents segment depreciation and amortization expense by our four geographic segments, the related segment vessel depreciation and amortization expense as a percentage of segment vessel revenues, total segment depreciation and amortization expense and the related total segment depreciation and amortization expense as a percentage of total vessel revenues for the three and six months ended June 30, 2020 and 2019:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Segment depreciation and amortization expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

8,073

 

 

 

24

%

 

$

6,515

 

 

 

19

%

 

$

15,569

 

 

 

24

%

 

$

12,776

 

 

 

18

%

Middle East/Asia Pacific

 

 

5,645

 

 

 

24

%

 

 

5,319

 

 

 

26

%

 

 

11,172

 

 

 

23

%

 

 

9,769

 

 

 

24

%

Europe/Mediterranean

 

 

6,793

 

 

 

38

%

 

 

7,741

 

 

 

22

%

 

 

13,612

 

 

 

27

%

 

 

15,187

 

 

 

24

%

West Africa

 

 

6,750

 

 

 

24

%

 

 

5,100

 

 

 

15

%

 

 

13,154

 

 

 

27

%

 

 

9,543

 

 

 

14

%

Total segment depreciation and amortization expense

 

$

27,261

 

 

 

27

%

 

$

24,675

 

 

 

20

%

 

$

53,507

 

 

 

25

%

 

$

47,275

 

 

 

19

%

 

The following table compares operating loss and other components of loss and its related percentage of total revenue for the three and six months ended June 30, 2020 and 2019:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

(In thousands)

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

Vessel operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

4,505

 

 

 

4

%

 

$

2,900

 

 

 

2

%

 

$

3,341

 

 

 

2

%

 

$

1,870

 

 

 

1

%

Middle East/Asia Pacific

 

 

599

 

 

 

1

%

 

 

(2,127

)

 

 

(1

)%

 

 

(257

)

 

 

0

%

 

 

(3,289

)

 

 

(1

)%

Europe/Mediterranean

 

 

(1,750

)

 

 

(2

%)

 

 

2,824

 

 

 

2

%

 

 

(203

)

 

 

0

%

 

 

(493

)

 

 

0

%

West Africa

 

 

(3,984

)

 

 

(4

%)

 

 

3,099

 

 

 

3

%

 

 

(8,847

)

 

 

(4

%)

 

 

11,214

 

 

 

5

%

Other operating profit

 

 

1,198

 

 

 

1

%

 

 

1,625

 

 

 

1

%

 

 

2,919

 

 

 

1

%

 

 

3,330

 

 

 

1

%

 

 

 

568

 

 

 

1

%

 

 

8,321

 

 

 

7

%

 

 

(3,047

)

 

 

(1

%)

 

 

12,632

 

 

 

5

%

Corporate expenses

 

 

(8,910

)

 

 

(9

%)

 

 

(12,221

)

 

 

(10

)%

 

 

(18,952

)

 

 

(9

%)

 

 

(27,422

)

 

 

(11

)%

Gain on asset dispositions, net

 

 

1,660

 

 

 

2

%

 

 

(494

)

 

 

0

%

 

 

6,991

 

 

 

3

%

 

 

776

 

 

 

0

%

Affiliate credit loss impairment expense

 

 

(53,581

)

 

 

(52

%)

 

 

 

 

 

0

%

 

 

(53,581

)

 

 

(24

%)

 

 

 

 

 

0

%

Affiliate guarantee obligation

 

 

(2,000

)

 

 

(2

%)

 

 

 

 

 

0

%

 

 

(2,000

)

 

 

(1

%)

 

 

 

 

 

0

%

Long-lived asset impairments

 

 

(55,482

)

 

 

(54

%)

 

 

 

 

 

0

%

 

 

(65,689

)

 

 

(30

%)

 

 

 

 

 

0

%

Operating loss

 

$

(117,745

)

 

 

(115

%)

 

$

(4,394

)

 

 

(3

%)

 

$

(136,278

)

 

 

(62

%)

 

$

(14,014

)

 

 

(6

%)

 

 

25


 

Results for three months ended June 30, 2020 compared to June 30, 2019

 

Americas Segment Operations. Vessel revenues in the Americas segment decreased 3%, or $1.2 million, during the quarter ended June 30, 2020, as compared to the quarter ended June 30, 2019. This decrease is primarily the result of less demand due to the pandemic.  We had 5 less active vessels in the quarter ended March 31, 2020 than the comparable prior year period.

 

Vessel operating profit for the Americas segment for the quarter ended June 30, 2020 was $4.5 million, which was $1.6 million more than the operating profit for the quarter ended June 30, 2019. The higher operating profit was due to a $3.5 million decrease in operating expenses, resulting from intensive cost saving measures taken in the second quarter of 2020 in response to the effect of the pandemic and a $0.8 million reduction in general and administrative costs primarily due to our ongoing cost saving initiatives as we react to the current downturn.

 

Middle East/Asia Pacific Segment Operations.  Vessel revenues in the Middle East/Asia Pacific segment increased 17%, or $3.5 million, during the quarter ended June 30, 2020, as compared to the quarter ended June 30, 2019. Active utilization for the quarter ended June 30, 2020 increased to 75.9% from 74.7%, average day rates increased almost 10% and average active vessels in the segment increased by two vessels.

 

The Middle East/Asia Pacific segment reported an operating profit of $0.6 million for the quarter ended June 30, 2020, compared to an operating loss of $2.1 million for the quarter ended June 30, 2019 primarily due to increased revenue.  The current downturn to this point has not impacted this segment’s results.

 

 

Europe/Mediterranean Segment Operations.  Vessel revenues in the Europe/Mediterranean segment decreased 41%, or $14.4 million, during the quarter ended June 30, 2020, as compared to the quarter ended June 30, 2019.  The decreased revenue was primarily attributable to 14 less active vessels.  Average day rates during these same periods decreased 2% because of decreased demand, effected by the pandemic, for vessels in the North Sea and Mediterranean. Active utilization increased two percentage points during the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019.

 

The Europe/Mediterranean segment reported an operating loss of $1.8 million for the quarter ended June 30, 2020, compared to an operating profit of $2.8 million for the quarter ended June 30, 2019 due to decreased revenue partially offset by $7.9 million in decreased operating costs, primarily due to lower personnel and repair and maintenance costs.

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment decreased 32% or $10.6 million, during the quarter ended June 30, 2020, as compared to the quarter ended June 30, 2019. The West Africa active vessel fleet decreased by 8 vessels during the comparative periods. West Africa segment active utilization decreased as well from 76% during the second quarter of 2019 to 55% during the second quarter of 2020. Average day rates increased 13 percent due to the change in the mix of remaining contracts.  The decreases in revenue are almost entirely the result of lower demand caused by the effect of the pandemic.

 

Vessel operating profit for the West Africa segment decreased from $3.1 million for the quarter ended June 30, 2019 to an operating loss of $4.0 million in the quarter ended June 30, 2020 primarily due to decreased revenue, partially offset by lower operating costs.

 

Results for six months ended June 30, 2020 compared to June 30, 2019

 

Americas Segment Operations. Vessel revenues in the Americas segment decreased 6%, or $4.6 million, during the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. This decrease is primarily the result of lower demand caused by the effect of the pandemic.  The segment has four less vessels operating in the first six months of 2020 compared to the same period in 2019.

 

Vessel operating profit for the Americas segment for the six months ended June 30, 2020 was $3.3 million, which was $1.5 million more than the operating profit for the six months ended June 30, 2019.  This was primarily due to $8.1 million less operating costs resulting from the decrease in vessel activity due to the pandemic and $0.7 million lower general and administrative costs due to ongoing cost saving efforts.

 

Middle East/Asia Pacific Segment Operations.  Vessel revenues in the Middle East/Asia Pacific segment increased 19%, or $7.9 million, during the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. This segment had three more vessels operating in the first six months of 2020 compared to the same period in 2019. Active

26


 

utilization for the six months ended June 30, 2020 increased from 75.6% to 76.8%, and average day rates increased by nine percent.

 

The Middle East/Asia Pacific segment reported an operating loss of $0.3 million for the six months ended June 30, 2020, compared to an operating loss of $3.3 million for the six months ended June 30, 2019 primarily due to increased revenue.

 

 

Europe/Mediterranean Segment Operations.  Vessel revenues in the Europe/Mediterranean segment decreased 21%, or $13.5 million, during the six months ended June 30, 2020, as compared to the six months ended June 30, 2019.  The segment has 10 less vessels operating in the first six months of 2020 compared to the same period in 2019. The reduction is due mainly to the effects of the pandemic.  Average day rates during these same periods increased 5% and active utilization increased three percentage points during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

 

The Europe/Mediterranean segment reported an operating loss of $0.2 million for the six months ended June 30, 2020, compared to an operating loss of $0.5 million for the six months ended June 30, 2019.  This is due mainly to the lower revenue offset somewhat with lower operating costs associated with the lower vessel activity and lower general and administrative costs resulting from our ongoing cost reduction efforts.

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment decreased 30% or $20.2 million, during the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. The West Africa active vessel fleet decreased by 9 vessels during the comparative periods. West Africa segment active utilization decreased as well from 76.4% to 61.5% primarily due to the effects of the pandemic, but day rates increased by five percent due to the change in the mix of contracts.

 

The West Africa segment reported an operating loss of $8.8 million for the six months ended June 30, 2020 compared to an operating profit of $11.2 million in the six months ended June 30, 2019 primarily due to decreased revenue. This segment had the most negative impact from the pandemic due to significant contract cancellations.

 

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.

27


 

Total vessel utilization is calculated on all vessels in service (which includes stacked vessels, vessels held for sale and vessels in drydock) but do not include vessels owned by joint ventures (3 and 4 vessels at June 30, 2020 and 2019, respectively). Active utilization is calculated on active vessels (which excludes vessels held for sale).  Average day rates are calculated based on total vessel days worked.

The following tables compare day-based utilization percentages, average day rates and average total, active and stacked vessels by segment for the three and six months ended June 30, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

SEGMENT STATISTICS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

58.3

%

 

 

54.5

%

 

 

57.7

%

 

 

51.1

%

Active utilization

 

 

88.6

%

 

 

82.3

%

 

 

87.1

%

 

 

84.8

%

Average vessel day rates

 

 

12,865

 

 

 

12,341

 

 

 

12,355

 

 

 

11,871

 

Average total vessels

 

 

50

 

 

 

58

 

 

 

51

 

 

 

64

 

Average stacked vessels

 

 

(17

)

 

 

(20

)

 

 

(17

)

 

 

(26

)

Average active vessels

 

 

33

 

 

 

38

 

 

 

34

 

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Middle East/Asia Pacific fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

63.0

%

 

 

61.6

%

 

 

63.0

%

 

 

61.5

%

Active utilization

 

 

75.9

%

 

 

74.7

%

 

 

76.8

%

 

 

75.6

%

Average vessel day rates

 

 

8,009

 

 

 

7,293

 

 

 

7,934

 

 

 

7,249

 

Average total vessels

 

 

52

 

 

 

50

 

 

 

54

 

 

 

51

 

Average stacked vessels

 

 

(9

)

 

 

(9

)

 

 

(10

)

 

 

(10

)

Average active vessels

 

 

43

 

 

 

41

 

 

 

44

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe/Mediterranean fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

48.6

%

 

 

62.7

%

 

 

56.5

%

 

 

61.4

%

Active utilization

 

 

88.6

%

 

 

86.5

%

 

 

87.8

%

 

 

85.3

%

Average vessel day rates

 

 

12,689

 

 

 

13,010

 

 

 

12,586

 

 

 

12,004

 

Average total vessels

 

 

37

 

 

 

47

 

 

 

39

 

 

 

48

 

Average stacked vessels

 

 

(17

)

 

 

(13

)

 

 

(14

)

 

 

(13

)

Average active vessels

 

 

20

 

 

 

34

 

 

 

25

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West Africa fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

36.5

%

 

 

52.3

%

 

 

41.2

%

 

 

50.8

%

Active utilization

 

 

55.0

%

 

 

76.0

%

 

 

61.5

%

 

 

76.4

%

Average vessel day rates

 

 

10,711

 

 

 

9,439

 

 

 

10,049

 

 

 

9,535

 

Average total vessels

 

 

63

 

 

 

73

 

 

 

64

 

 

 

78

 

Average stacked vessels

 

 

(21

)

 

 

(23

)

 

 

(21

)

 

 

(26

)

Average active vessels

 

 

42

 

 

 

50

 

 

 

43

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide fleet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

50.9

%

 

 

57.0

%

 

 

53.7

%

 

 

55.2

%

Active utilization

 

 

74.5

%

 

 

79.3

%

 

 

76.6

%

 

 

79.9

%

Average vessel day rates

 

 

10,799

 

 

 

10,442

 

 

 

10,513

 

 

 

10,119

 

Average total vessels

 

 

202

 

 

 

228

 

 

 

208

 

 

 

241

 

Average stacked vessels

 

 

(64

)

 

 

(65

)

 

 

(62

)

 

 

(75

)

Average active vessels

 

 

138

 

 

 

163

 

 

 

146

 

 

 

166

 

 

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

28


 

of utilization statistics. We had 63 and 60 stacked vessels at June 30, 2020 and 2019, respectively.  Total stacking costs for the three and six months ended June 30, 2020 were $4.8 million and $8.7 million, respectively.

 

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. Vessels sales in 2020 included 22 vessels that were classified as assets held for sale and 3 vessels from our active fleet.

 

Liquidity, Capital Resources and Other Matters

 

Availability of Cash

 

At June 30, 2020, we had $206.4 million in cash and cash equivalents (excluding $19.9 million of restricted cash), including amounts 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, or partner or 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 U. S. because 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   U. S. Restricted cash of $19.9 million represents the portion of proceeds from vessel sales reserved for a cash tender of Senior Notes that may be required if certain conditions in the underlying indenture are satisfied.

 

During the first quarter of 2020, the industry was impacted by a world-wide pandemic that had the effect of isolating people across the world and significantly reducing the demand and price for crude oil.  See a detailed discussion under “Industry Conditions and Outlook” above.  The reduced oil price will impact our industry in the near term and if it is prolonged could impact us beyond this year.  We have significant cash on hand and the substantial portion of our debt is not due until 2022. As a company, we have undertaken the following temporary measures to assist us in weathering the pandemic and allow us to recover as soon as possible:

 

 

Planned capital and dry dock expenditures tied to contracts referenced in “Industry Conditions and Outlook” above will be temporarily delayed or cancelled. As a result of the ongoing contract cancellations and delays we have postponed drydocks expected to cost approximately $28.0 million in 2020.  It is possible that additional planned drydocks will be cancelled or delayed due to contract cancellations or delays.  We cannot predict the number or cost of such possible cancellations or delays.

 

 

We have the ability to rapidly respond to contract cancellations and delays.  We have or will remove the crews and shut down all operations, depending on contract terms on vessels associated with cancelled or delayed contracts.  We continue to dispose of vessels and their related stacking cost. We have also been reducing our general and administrative costs to reflect the current demand for our offshore support vessels.

 

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 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

29


 

exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

Operating Activities

 

Net cash used in operating activities for the six months ended June 30, 2020 and 2019, was $12.8 million and $20.7 million, respectively.

 

Net cash used in operations for the six months ended June 30, 2020, reflects a net loss of $129.4 million, which includes non-cash depreciation and amortization of $55.3 million, net gains on asset dispositions of $7.0 million, an affiliate credit loss impairment expense of $53.6 million and long-lived asset impairments of $65.7 million.  Combined changes in operating assets and liabilities and in amounts due to/from affiliate, net used $28.3 million in cash and cash paid for deferred drydocking and survey costs was $29.0 million.

 

Net cash used in operations for the six months ended June 30, 2019 reflects a net loss of $36.8 million, which includes non-cash depreciation and amortization of $48.0 million, gain on asset dispositions, net of $0.8 million and stock-based compensation expense of $9.2 million.  Combined charges in operating assets and liabilities and in amounts due to/from affiliate, net, used $11.0 million of cash and cash paid for deferred drydock and survey costs of $28.7 million.

 

Investing Activities

 

Net cash provided by in investing activities for the six months ended June 30, 2020 and 2019, was $16.8 million and $11.7 million, respectively. Net cash provided by investing activities for the six months ended June 30, 2020 primarily reflects the receipt of $20.9 million related to the sale or scrapping of 25 vessels.  Additions to properties and equipment were comprised of approximately $2.8 million in capitalized upgrades to existing vessels and equipment and $1.3 million for other property and equipment purchases.

 

Net cash provided by investing activities for the six months ended June 30, 2019 primarily reflects the receipt of $20.6 million related to the sale or scrapping of 34 vessels. Additions to properties and equipment were comprised of approximately $8.0 million in capitalized upgrades to existing vessels and equipment and $0.8  million for other property and equipment purchases. 

 

Financing Activities

 

Net cash used in financing activities for the six months ended June 30, 2020 and 2019, was $5.4 million and $5.6 million, respectively.  Net cash used in financing activities for the six months ended June 30, 2020 included $4.7 million of scheduled semiannual principal payments on Troms offshore debt and $0.6 million of taxes paid to related share-based compensation.

 

Net cash used in financing activities for the six months ended June 30, 2019 included $3.6 million of scheduled semiannual principal payments on Troms offshore debt, $1.8 million of taxes paid to related share-based compensation and the repurchase of $0.2 million 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 2019. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019, for information regarding our contractual obligations and other contingent commitments.

 

Application of Critical Accounting Policies and Estimates

 

Our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, 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, 2019, regarding these critical accounting policies.

 

30


 

New Accounting Pronouncements

 

For information regarding the effect of new accounting pronouncements, refer to Notes (2) and (3) 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 quarter ended June 30, 2020 to the market risk disclosures contained in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2019.

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 SEC 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 June 30, 2020.

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 June 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

31


 

PART II. OTHER INFORMATION

 

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

 

The significant factors known to us that could materially adversely affect our business, financial condition, or operating results are described in Item 2 of Part I of this Quarterly Report on Form 10-Q and in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, except for the addition of the following risk factors.

 

Risks Related to our Business

The COVID-19 pandemic has adversely affected and may, in the future, have a material negative impact on our operations and business.  In early 2020, it became evident that a novel coronavirus originating in Asia (COVID-19) could become a pandemic with worldwide reach.  By mid-March, when the World Health Organization declared the outbreak to be a pandemic (the “COVID-19 pandemic”), much of the industrialized world had taken severe measures to lessen its impact.  The ongoing COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption during the first six months of 2020.

The spread of COVID-19 to one or more of our locations, including our vessels, could significantly impact our operations.  While we have implemented various protocols for both onshore and offshore personnel in efforts to limit the impact of COVID-19, there is no assurance that those efforts will be fully successful. The spread of COVID-19 to our onshore workforce could prevent us from supporting our offshore operations, we may experience reduced productivity as our onshore personnel works remotely, and any spread to our key management personnel may disrupt our business. Any outbreak on our vessels may result in the vessel, or some or all of a vessel crew, being quarantined and therefore impede the vessel’s ability to generate revenue.  We have experienced challenges in connection with our offshore crew changes due to health and travel restrictions related to COVID-19, and those challenges and/or restrictions may continue or worsen despite our efforts at mitigating them.  To the extent the COVID-19 pandemic adversely affects our operations and business, it may also have the effect of heightening many of the other risks set forth in our SEC filings, such as those relating to our financial performance and debt obligations.

The full impact of the COVID-19 pandemic is unknown and is rapidly evolving. The extent to which it impacts our business and operations and ability to preserve our liquidity will depend on the severity, location, and duration of the effects and spread of the pandemic itself, the actions undertaken by national, regional, and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.  As we cannot predict the duration or scope of this pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated but could be both material and long-lasting.

Recent disruptions in the global market for oil and natural gas, which have led to market oversupply and depressed commodity prices, have adversely affected our operations and may, in the future, materially disrupt our operations and adversely impact our business and financial results.  With respect to our particular sector, the COVID-19 pandemic has resulted in a much lower demand for oil as national, regional, and local governments impose travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread.  During this same time period, oil-producing countries have struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices.

Combined, these conditions have adversely affected our operations and business beginning with the latter part of the first fiscal quarter of 2020 and we do expect our operations and business in 2020 to be negatively impacted. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of the virus on offshore operations. Further, these conditions, separately or together, may

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continue to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general. Although, as of the date of this filing, oil-producing countries have reached a tentative agreement regarding future output, oil prices will remain depressed as long as the market is oversupplied and demand will remain depressed until global economic conditions improve.

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).

 

 

 

3.3

 

Certificate of Designations of Series A Junior Participating Preferred Stock of Tidewater Inc. (filed with the Commission as Exhibit 3.1 to the company’s current report on Form 8-K filed on April 14, 2020, 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).

 

 

 

4.2

 

Tax Benefits Preservation Plan by and between the Company and Computershare Trust Company, N.A., a federally chartered trust company, as Rights Agent, dated as of April 13, 2020, which includes the Form of Certificate of Designations as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C. (filed with the Commission as Exhibit 3.1 to the company’s current report on Form 8-K filed on April 14, 2020, 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).

 

 

 

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).

 

 

 

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Exhibit

Number

 

Description

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).

 

 

 

31.1*

 

Certification of the Chief Executive and Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification of the Chief Executive and Financial Officer 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:  July 30, 2020

/s/ Samuel R. Rubio

 

Samuel R. Rubio

 

Vice President, Chief Accounting Officer and Controller

 

(Principal Accounting Officer and authorized signatory)

 

35