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, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-6311
Tidewater Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-0487776
(State of incorporation)
(I.R.S. Employer Identification No.)
6002 Rogerdale Road, Suite 600
Houston, Texas 77072
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (713) 470-5300
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.001 par value per share
TDW
New York Stock Exchange
Series A Warrants to purchase shares of common stock
TDW.WS.A
Series B Warrants to purchase shares of common stock
TDW.WS.B
Warrants to purchase shares of common stock
TDW.WS
NYSE American
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Emerging Growth Company ☐
Smaller reporting company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
38,298,540 shares of Tidewater Inc. common stock $0.001 par value per share were outstanding on July 26, 2019.
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
2019
2018
Current assets:
Cash and cash equivalents
$
369,549
371,791
Restricted cash
13,614
25,953
Trade and other receivables, net
121,155
111,266
Due from affiliates
121,959
132,951
Marine operating supplies
29,141
29,505
Other current assets
14,460
11,836
Total current assets
669,878
683,302
Investments in, at equity, and advances to unconsolidated companies
658
1,039
Properties and equipment, net
1,041,054
1,089,857
Deferred drydocking and survey costs
41,029
22,215
Other assets
39,651
31,326
Total assets
1,792,270
1,827,739
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
24,170
31,939
Accrued costs and expenses
56,675
61,784
Due to affiliates
39,060
34,972
Current portion of long-term debt
10,002
8,568
Other current liabilities
24,442
21,092
Total current liabilities
154,349
158,355
Long-term debt
424,911
430,436
Other liabilities
97,471
94,025
Contingencies (Note 9)
Equity:
Common stock of $0.001 par value, 125,000,000 shares authorized,
37,845,158 and 36,978,280 shares issued and outstanding
at June 30, 2019 and December 31, 2018, respectively
38
37
Additional paid-in capital
1,359,842
1,352,388
Accumulated deficit
(248,473
)
(210,783
Accumulated other comprehensive income
2,194
Total stockholders’ equity
1,113,601
1,143,836
Noncontrolling interests
1,938
1,087
Total equity
1,115,539
1,144,923
Total liabilities and equity
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
Six Months Ended
June 30, 2019
June 30, 2018
Revenues:
Vessel revenues
123,641
104,174
243,303
191,668
Other operating revenues
2,218
1,427
4,705
5,426
Total revenues
125,859
105,601
248,008
197,094
Costs and expenses:
Vessel operating costs
80,439
68,012
162,642
129,376
Costs of other operating revenues
586
642
1,350
3,116
General and administrative
23,696
24,425
50,836
47,990
Depreciation and amortization
25,038
12,785
47,970
24,802
Loss (gain) on asset dispositions, net
494
(1,338
(776
(3,257
Asset impairments
—
1,215
7,401
Total operating costs and expenses
130,253
105,741
262,022
209,428
Operating loss
(4,394
(140
(14,014
(12,334
Other income (expense):
Foreign exchange gain (loss)
11
(1,002
(497
(1,350
Equity in net earnings (losses) of unconsolidated companies
95
390
33
(15,049
Interest income and other, net
1,859
2,914
4,329
2,786
Interest and other debt costs, net
(7,582
(7,547
(15,318
(15,146
Total other expense
(5,617
(5,245
(11,453
(28,759
Loss before income taxes
(10,011
(5,385
(25,467
(41,093
Income tax expense
5,542
5,797
11,372
9,118
Net loss
(15,553
(11,182
(36,839
(50,211
Less: Net income attributable to noncontrolling interests
406
(242
851
(99
Net loss attributable to Tidewater Inc.
(15,959
(10,940
(37,690
(50,112
Basic loss per common share
(0.42
(0.44
(1.01
(2.09
Diluted loss per common share
Weighted average common shares outstanding
37,571
25,654
37,369
23,989
Dilutive effect of stock options and restricted stock
Adjusted weighted average common shares
3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Other comprehensive income:
Unrealized losses on available for sale securities,
net of tax of $0, $0, $0 and $0
43
(256
Total comprehensive loss
(11,139
(50,467
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments to reconcile net loss to net cash used in operating
activities:
38,582
22,572
Amortization of deferred drydocking and survey costs
9,388
2,230
Amortization of debt premium and discounts
(1,019
(900
Provision for deferred income taxes
6
Gain on asset dispositions, net
Changes in investments in, at equity, and advances
to unconsolidated companies
381
27,881
Compensation expense - stock-based
9,215
6,139
Changes in assets and liabilities, net:
Trade and other receivables
(10,921
(15,097
Changes in due to/from affiliate, net
15,080
19,869
(7,769
1,709
(4,977
(6,652
Cash paid for deferred drydocking and survey costs
(28,688
(13,394
Other, net
(2,386
18,693
Net cash provided by (used in) operating activities
(20,723
16,983
Cash flows from investing activities:
Proceeds from sales of assets
20,566
12,968
Additions to properties and equipment
(8,873
(5,775
Net cash provided by investing activities
11,693
7,193
Cash flows from financing activities:
Principal payments on long-term debt
(3,792
(2,637
Payments to General Unsecured Creditors
(8,377
Taxes on share based awards
(1,760
Other
1
(1,998
Net cash used in financing activities
(5,551
(13,012
Net change in cash, cash equivalents and restricted cash
(14,581
11,164
Cash, cash equivalents and restricted cash at beginning of period
397,744
453,335
Cash, cash equivalents and restricted cash at end of period
383,163
464,499
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized
16,293
16,134
Income taxes
7,754
10,083
5
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Accumulated
Additional
other
Non
Common
paid-in
comprehensive
controlling
stock
capital
deficit
loss
interest
Total
Balance at March 31, 2019
1,356,436
(232,514
1,532
1,127,685
Issuance of common stock from exercise of warrants
Amortization/cancellation of restricted stock units
3,406
Balance at June 30, 2019
Balance at March 31, 2018
24
1,061,983
(78,438
(446
2,358
985,481
Issuance of common stock
(2
Amortization of restricted stock units
3,184
Acquisition of non-controlling interests
(1,126
(874
(2,000
Balance at June 30, 2018
26
1,064,039
(89,378
(403
1,242
975,526
Balance at December 31, 2018
7,453
Balance at December 31, 2017
22
1,059,120
(39,266
(147
2,215
1,021,944
6,047
(1)
INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements for the interim periods presented herein have been prepared in conformity with United States generally accepted accounting principles and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the unaudited condensed consolidated financial statements at the dates and for the periods indicated as required by Rule 10-01 of Regulation S‑X of the Securities and Exchange Commission (SEC). Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.
The unaudited condensed consolidated financial statements include the accounts of Tidewater Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation. We use the equity method to account for equity investments over which we exercise significant influence but do not exercise control and are not the primary beneficiary. Unless otherwise specified, all per share information included in this document is on a diluted earnings per share basis.
On November 15, 2018 (the Merger Date), we completed our business combination with GulfMark Offshore, Inc. (GulfMark) pursuant to the Agreement and Plan of the Merger dated July 15, 2018. GulfMark’s balances and results are included in our consolidated financial statements and disclosures beginning on the Merger Date. Therefore, our balances and results for the three and six months ended June 30, 2019 include GulfMark’s operations while our balances and results for the three and six months ended June 30, 2018 do not include GulfMark’s operations.
(2)
ACCOUNTING PRONOUNCEMENTS
We adopted Accounting Standards Update (ASU) No. 2016-02 - Leases (Topic 842), as amended, as of January 1, 2019. We adopted this guidance retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. We applied the practical expedient available in this guidance, which allows us not to restate prior year balances. Adoption of the new standard resulted in the recording of right of use assets and lease liabilities as of January 1, 2019 of approximately $5.0 million and $5.4 million, respectively. The adoption of the new standard did not result in an adjustment to retained earnings. The standard did not impact our consolidated net earnings and had no impact on cash flows. We elected not to reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing lease and (iii) initial direct costs for existing leases. Refer to Note (4) for further details.
As a lessor our recognition of vessel and other operating revenues remains consistent with previous guidance under Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606). In July 2018, the FASB issued guidance codified in Accounting Standards Update 2018-11, Leases – Targeted Improvements (ASU 2018-11). ASU 2018-11 provides a practical expedient, which allows lessors to combine the lease component with the related non-lease component if both the timing and pattern of transfer are the same for the lease and non-lease component and if the lease component would be classified as an operating lease. The single combined component is accounted for under the leasing standard if the lease component is the predominant component and is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and expect to account for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. The lease components are the vessels leased to our customers. The non-lease components consist of the services provided by the crews manning the vessels. These initial conclusions will continue to be assessed on an ongoing basis for future revenue contracts with customers.
(3)
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, 2019, we had $2.6 million and $0.6 million of deferred mobilization costs included within other current assets and other assets, respectively. At June 30, 2019 we had $0.1 million of deferred mobilization revenue related to unsatisfied performance obligations included within other current liabilities, all of which is expected to be recognized during the quarter ended September 30, 2019.
7
(4)
LEASES
We have operating leases primarily for office space, temporary residences, automobiles and office equipment. Contracts containing assets that we benefit from and control are recognized on our balance sheet. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. We combine the lease and non-lease components for all of our lease agreements.
Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to ten years. The exercise of lease renewal options is at our sole discretion, and lease renewal options are not included in our lease terms if they are not reasonably certain to be exercised. Our lease agreements do not contain any residual value guarantees or restrictive covenants or options to purchase the leased property.
Leases (In thousands)
Classification
Assets:
Operating
4,651
Liabilities:
Current
710
Noncurrent
4,420
Total lease liabilities
5,130
Maturity of lease liabilities (In thousands)
Operating leases
794
2020
1,221
2021
1,182
2022
990
2023
740
After 2023
1,187
Total lease payments
6,114
Less: Interest
984
Present value of lease liabilities
As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019 for operating leases that began prior to that date.
Lease costs (In thousands)
Operating lease costs
528
1,190
Short-term leases
629
1,083
Variable lease costs
270
604
Sublease income
(1
(3
Net lease cost
1,426
2,874
Our variable lease payments consist primarily of shared operating costs recognized over the term of the lease.
Lease term and discount rate
Weighted average remaining lease term in years
4.2
Weighted average discount rate
7.0
%
8
The cash paid for operating leases included in operating cash flows and in the measurement of lease liabilities for the three and six months ended June 30, 2019 was $0.2 million and $0.5 million, respectively. Right-of-use assets obtained in exchange for operating lease obligations were $0.0 million and $0.5 million, for the three and six months ended June 30, 2019, respectively.
Future minimum rental commitments under these leases as of December 31, 2018 are as follows:
Minimum
Year ending (In thousands)
rental commitments
3,511
2,804
2,501
2,455
1,734
2,495
15,500
(5)
STOCKHOLDERS' EQUITY AND DILUTIVE EQUITY INSTRUMENTS
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the condensed consolidated statement of operations for the three and six months ended June 30, 2019 and 2018:
Affected line item in the condensed
consolidated statements of operations
Balance at beginning of period
Losses recognized in OCI
(660
Realized gains on available for sale securities
404
Net period OCI
Tax effect
Total gains for the period, net of tax
Balance at end of period
Dilutive Equity Instruments
We had 3,997,084 and 4,521,727 incremental "in-the-money" warrants and restricted stock awards and units at June 30, 2019 and 2018, respectively.
Basic weighted average shares outstanding includes 0 and 108,044 shares issuable upon the exercise of New Creditor Warrants if such New Creditor Warrants had been held by U.S. citizens at June 30, 2019 and 2018, respectively.
Common shares and creditor warrants and the sum of common shares and creditor warrants outstanding at June 30, 2019 and 2018 were as follows:
Total shares outstanding including warrants
Common shares outstanding
37,845,158
26,085,274
New Creditor Warrants (strike price $0.001 per common share)
2,034,235
3,924,441
GulfMark Creditor Warrants (strike price $0.01 per common share)
1,683,147
41,562,540
30,009,715
We also had 5,923,399 and 5,062,089 “out-of-the-money” warrants outstanding at June 30, 2019 and 2018, respectively. Included in these “out-of-the-money” warrants are Series A Warrants, Series B Warrants and GLF Equity Warrants which have exercise prices of $57.06, $62.28 and $100, respectively
9
(6)
INCOME TAXES
We use a discrete effective tax rate method to calculate taxes for interim periods instead of applying the annual effective tax rate to an estimate of the full fiscal year due to the level of volatility and unpredictability of earnings in our industry, both overall and by jurisdiction.
Income tax expense for the three and six months ended June 30, 2019, reflects tax liabilities in various jurisdictions that are either based on revenue (deemed profit regimes) or pre-tax profits.
The tax liabilities for uncertain tax positions are primarily attributable to permanent establishment issues related to a foreign joint venture, subpart F income inclusions and withholding taxes on foreign services. Penalties and interest related to income tax liabilities are included in income tax expense. Income tax payable is included in other current liabilities.
As of December 31, 2018, our balance sheet reflected approximately $104.9 million of net deferred tax assets with a valuation allowance of $106.4 million. As of June 30, 2019, we had net deferred tax assets of approximately $112.1 million prior to a valuation allowance analysis of $113.6 million.
Management assesses all available positive and negative evidence to estimate the company’s ability to generate sufficient future taxable income of the appropriate character, and in the appropriate taxing jurisdictions, to permit use of existing deferred tax assets. A significant piece of objective negative evidence is a cumulative loss incurred over a three-year period in a taxing jurisdiction. Prevailing accounting practice is that such objective evidence would limit the ability to consider other subjective evidence, such as projections for future growth.
On the basis of this evaluation, a valuation allowance of $113.6 million has been recorded against net deferred tax assets which are more likely than not to be unrealized. The amount of deferred tax assets considered realizable could be adjusted if future estimates of U.S. taxable income change, or if objective negative evidence in the form of cumulative losses is no longer present and subjective evidence, such as financial projections for future growth and tax planning strategies, are given additional weight.
With limited exceptions, we are no longer subject to tax audits by U.S. federal, state, local or foreign taxing authorities for years prior to 2013. We are subject to ongoing examinations by various foreign tax authorities and do not believe that the results of these examinations will have a material adverse effect on our financial position, results of operations, or cash flows.
(7)
AFFILIATES BALANCES
We maintained the following balances with our unconsolidated affiliates:
December 31, 2018
Due from related parties:
Sonatide (Angola)
94,140
109,176
DTDW (Nigeria)
27,819
23,775
Due to related parties:
27,450
29,347
11,610
5,625
Due from related parties, net of due to related parties
82,899
97,979
10
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
Due from Sonatide at December 31, 2018
Revenue earned by the company through Sonatide
29,650
Less amounts received from Sonatide
(35,699
Less amounts used to offset Due to Sonatide obligations (A)
(7,982
(1,005
Total due from Sonatide at June 30, 2019
(A)
We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture.
The amounts due from Sonatide is denominated in U.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas. We and Sonangol, our partner in Sonatide, have had discussions regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared.
After offsetting the amounts due to Sonatide, the net amount due from Sonatide at June 30, 2019 was approximately $67.0 million. Sonatide had approximately $51.0 million of cash on hand (approximately $15.0 million denominated in Angolan kwanzas) at June 30, 2019 plus approximately $19.0 million of net trade accounts receivable to satisfy the net due from Sonatide. Given prior discussions with our partner regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared, we continue to evaluate our net amount due from Sonatide balance for potential impairment based on available liquidity held by Sonatide.
Amounts due to Sonatide
Amounts due to Sonatide represent commissions payable and other costs paid by Sonatide on behalf of us.
Due to Sonatide at December 31, 2018
Plus additional commissions payable to Sonatide
2,828
Plus amounts paid by Sonatide on behalf of the company
5,093
Less commissions paid to Sonatide during the period
(5,961
Less amounts used to offset Due from Sonatide obligations (A)
4,125
Total due to Sonatide at June 30, 2019
Sonatide Operations
Sonatide’s principal earnings are from the commissions paid by us to the joint venture for company vessels chartered in Angola. In addition, Sonatide owns three vessels (one of which is currently stacked) that may generate operating income and cash flow.
Company operations in Angola
Vessel revenues generated by our Angolan operations, percent of consolidated vessel revenues, average number of company owned vessels and average number of stacked company owned vessels of our Angolan operations for the periods indicated were as follows:
Revenues of Angolan operations (in thousands)
14,272
14,550
29,670
28,719
Percent of consolidated vessel revenues
12
14
15
Number of company owned vessels in Angola
32
34
Number of stacked company owned vessels in Angola
13
16
17
(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. Benefits are based on years of service and employee compensation. The Board of Directors amended the pension plan to discontinue the accrual of benefits once the plan was frozen on December 31, 2010. We did not contribute to the pension plan during the three and six months ended June 30, 2019 and 2018, and are not required to contribute to the pension plan during the remaining quarters of calendar year 2019; however, we may, at our discretion, make contributions to the plan in order to manage our plan expenses.
Supplemental Executive Retirement Plan
We also support a non-contributory, defined benefit supplemental executive retirement plan (supplemental plan) that provided pension benefits to certain employees in excess of those allowed under our tax-qualified pension plan. Effective March 4, 2010, the supplemental plan was closed to new participants. The supplemental plan is a non-qualified plan. We contributed $0.4 million and $0.8 million during the three and six months ended June 30, 2019, respectively. We contributed an immaterial amount to the supplemental plan during the three and six months ended June 30, 2018. We expect to contribute $2.3 million to the supplemental plan during the remaining quarters of 2019. Our obligations under the supplemental plan were $20.5 million and $21.4 million as of June 30, 2019 and December 31, 2018, 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. We did not contribute to the Norwegian defined benefit pension plans during the three and six months ended June 30, 2019 and 2018 and we do not expect to make any contributions during the remainder of calendar year 2019.
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:
Pension Benefits:
Service cost
(44
41
71
Interest cost
914
882
1,847
1,784
Expected return on plan assets
(513
(482
(1,076
(964
Administrative expenses
Settlement loss recognized
21
335
92
Net periodic pension cost
375
778
1,229
(9)DEBT
The following is a summary of all debt outstanding:
Secured notes:
8.00% Senior secured notes due August 2022 (Secured Notes) (A) (B)
349,794
349,954
Troms Offshore borrowings (C):
NOK denominated notes due May 2024
11,497
12,241
NOK denominated notes due January 2026
22,734
22,988
USD denominated notes due January 2027
21,502
22,116
USD denominated notes due April 2027
22,851
24,157
428,378
431,456
Debt premiums and discounts, net
6,535
7,548
Less: Current portion of long-term debt
(10,002
(8,568
Total long-term debt
As of June 30, 2019 and December 31, 2018 the fair value (Level 2) of the Secured Notes was $362.1 million and $359.4 million, respectively.
(B)
In December 2018, we commenced an offer to repurchase up to $25.4 million of the Secured Notes. In January 2019, we repurchased $160,000 of the Secured Notes in accordance with this tender offer obligation. On June 14, 2019, we commenced an offer to repurchase $13.6 million of the Secured Notes with an expiration of July 12, 2019. In July 2019, we repurchased $747 of the Secured Notes in accordance with this tender obligation. The $13.6 million restricted cash on the balance sheet at June 30, 2019, represents proceeds from asset sales since the date of the December 2018 tender offer and is restricted as of that date by the terms of the Indenture.
(C)
We pay principal and interest on these notes semi-annually. As of June 30, 2019 and December 31, 2018, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $78.6 million and $81.5 million, respectively. The weighted average interest rate of the Troms Offshore borrowings as of June 30, 2019 was 4.99%.
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 and exchange rate risks on all charter hire contracts denominated in foreign currencies. For some of our international contracts, a portion of the revenue and local expenses are incurred in local currencies with the result that we are at risk for changes in the exchange rates between the U.S. dollar and foreign currencies. We generally do not hedge against any foreign currency rate fluctuations associated with foreign currency contracts that arise in the normal course of business, which exposes us to the risk of exchange rate losses. To minimize the financial impact of these items, we attempt to contract a significant majority of our services in U.S. dollars. In addition, we attempt to minimize the financial impact of these risks by matching the currency of our operating costs with the currency of our revenue streams when considered appropriate. We continually monitor the currency exchange risks associated with all contracts not denominated in U.S. dollars.
Arbitral Award for the Taking of Our Venezuelan Operations
Committees formed under the rules of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) have awarded two of our subsidiaries compensation for the expropriation of the investments of the two subsidiaries by the Bolivarian Republic of Venezuela. The nature of the investments expropriated and the progress of the ICSID proceeding
were previously reported by us in prior filings. The final aggregate award is $59.3 million as of June 30, 2019 and accrues interest at approximately $0.6 million per quarter. The committees’ decisions are not subject to any further ICSID review, appeal or other substantive proceeding or any stay of enforcement.
We are committed to taking appropriate steps to enforce and collect the award, which is enforceable in any of the 150 member states that are party to the ICSID Convention. As initial steps, we have had the award recognized and entered as a judgment by each of (a) the United States District Court for the District of Columbia and (b) the High Court of Justice of England and Wales. In April 2019, we had the District of Columbia judgment entered in the United States District Court for the District of Delaware. Even with the recognition by the courts in the United States and the United Kingdom, we recognize that collection of the award presents significant practical challenges. We are accounting for this matter as a gain contingency, and will record any such gain in future periods if and when the contingency is resolved.
Legal Proceedings
Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on our financial position, results of operations, or cash flows.
(11)
FAIR VALUE MEASUREMENTS
Other Financial Instruments
Our primary financial instruments consist of cash and cash equivalents, restricted cash, trade receivables and trade payables with book values that are considered to be representative of their respective fair values. We periodically utilize derivative financial instruments to hedge against foreign currency denominated assets and liabilities, currency commitments, or to lock in desired interest rates. These transactions are generally spot or forward currency contracts or interest rate swaps that are entered into with major financial institutions. Derivative financial instruments are intended to reduce our exposure to foreign currency exchange risk and interest rate risk. We enter into derivative instruments only to the extent considered necessary to address our risk management objectives and do not use derivative contracts for speculative purposes. The derivative instruments are recorded at fair value using quoted prices and quotes obtainable from the counterparties to the derivative instruments.
Cash Equivalents. Our cash equivalents, which are securities with maturities less than 90 days, are held in money market funds, commercial paper or time deposit accounts with highly rated financial institutions. The carrying value for cash equivalents is considered to be representative of its fair value due to the short duration and conservative nature of the cash equivalent investment portfolio. As of June 30, 2019 and December 31, 2018, we had $322.1 and $327.5 million of cash equivalents.
Spot Derivatives. Spot derivative financial instruments are short-term in nature and generally settle within two business days. The fair value of spot derivatives approximates the carrying value due to the short-term nature of this instrument, and as a result, no gains or losses are recognized. We had no material spot derivatives outstanding as of June 30, 2019 or December 31, 2018.
(12)
OTHER CURRENT ASSETS, PROPERTIES AND EQUIPMENT, OTHER ASSETS, ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES
A summary of other current assets is as follows:
Deposits
1,303
1,413
Prepaid expenses and other
13,157
10,423
A summary of properties and equipment is as follows:
Properties and equipment:
Vessels and related equipment
1,131,893
1,144,028
Other properties and equipment
8,110
7,455
1,140,003
1,151,483
Less accumulated depreciation and amortization
98,949
61,626
A summary of other assets is as follows:
Recoverable insurance losses
5,088
4,056
Investments held for supplemental savings plan accounts
5,035
4,807
Long-term deposits
18,594
16,848
Deferred tax asset
395
Right of use asset (A)
5,888
5,220
Refer to Note (4).
A summary of accrued cost and expenses is as follows:
Payroll and related payables
18,204
17,447
Commissions payable (B)
2,375
1,990
Accrued vessel expenses
27,050
29,534
Accrued interest expense
5,610
5,985
Other accrued expenses
3,436
6,828
Excludes $24.8 million and $28.0 million of commissions due to Sonatide at June 30, 2019 and December 31, 2018, respectively. These amounts are included in amounts due to affiliate.
A summary of other current liabilities is as follows:
Taxes payable
17,802
13,167
Lease liability - operating (C)
Accrued property and liability losses
583
2,726
5,347
5,199
A summary of other liabilities is as follows:
Pension liabilities
33,295
33,124
Liability for uncertain tax positions
44,676
43,790
Deferred tax liability
1,919
1,913
Lease liability - operating (D)
3,500
4,123
9,661
11,075
(D)
(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, 2019 and 2018. Vessel revenues and operating costs relate to vessels owned and operated by us while other operating revenues relate to brokered vessels and other miscellaneous marine-related businesses.
Vessel revenues:
Americas
35,199
32,601
70,477
58,682
Middle East/Asia Pacific
20,449
22,406
40,905
40,794
Europe/Mediterranean Sea
35,027
13,357
63,585
22,980
West Africa
32,966
35,810
68,336
69,212
Vessel operating profit (loss) (A):
2,900
5,681
1,870
10,592
(2,127
625
(3,289
(1,628
2,824
(1,142
(493
(4,696
3,099
1,705
11,214
(48
Other operating profit
1,625
3,330
2,284
8,321
7,647
12,632
6,504
Corporate expenses (A) (B)
(12,221
(7,910
(27,422
(14,694
Gain (loss) on asset dispositions, net
(494
1,338
776
3,257
Asset impairments (C)
(1,215
(7,401
Depreciation and amortization:
6,515
3,530
12,776
6,843
5,319
2,844
9,769
5,613
7,741
2,239
15,187
4,043
5,100
4,067
9,543
8,093
Corporate
358
100
685
200
Additions to properties and equipment:
206
1,230
2,267
2,180
1,073
3,639
1,496
601
135
722
1,340
1,583
1,430
1,659
2,325
1,876
5,757
4,097
8,873
5,775
Prior to January 1, 2019, we allocated the costs of certain marine operations related to general and administrative functions, such as marine management, engineering, supply chain management, risk management, fleet human resources and health and safety to the segment general and administrative expenses. Beginning on January 1, 2019 our management elected to modify that process in order to better analyze costs and better align the policies of the two combined companies such that all costs related to those previously allocated functions will remain as corporate general and administrative expenses. This explains the significant increase in corporate expenses that is reflected in the table above for the three and six months ended June 30, 2019.
Included in corporate expenses for both the three and six months ended June 30, 2019 was $0.5 million and $4.2 million, respectively, of integration costs related to the business combination with GulfMark.
Refer to Note (14) for additional information regarding asset impairment charges.
The following table provides a comparison of total assets at June 30, 2019 and December 31, 2018:
Total assets:
375,087
380,168
238,283
233,611
415,409
316,524
400,876
483,234
4,960
7,440
356,997
405,723
(14)
ASSET IMPAIRMENTS
The below table summarizes impairments during the three and six months ended June 30, 2019 and 2018, along with the amount of impairment.
(Dollars in thousands)
Number of vessels impaired in the period
Amount of impairment incurred
As of June 30, 2019, we performed an evaluation to determine whether conditions existed that would indicate potential impairment in the value of our assets. Our evaluation did not indicate any indicators of impairment that would require us to perform additional analyses and, consequently, we have recorded no impairment charges in the three and six months ended June 30, 2019.
(15)RESTRUCTURING CHARGES
In the fourth quarter of 2018, we finalized plans to abandon duplicate office facilities with lease terms expiring between 2023 and 2026 in St. Rose and New Orleans, Louisiana, Houston, Texas and Aberdeen, Scotland. These closures resulted in a $5.5 million lease exit charge in the fourth quarter of 2018 and $1.8 million and $3.8 million, respectively, severance charges for employees at these duplicate locations in the fourth quarter of 2018 and the first quarter of 2019. These charges are included in general and administrative expense in our consolidated statements of operations.
Activity for the lease exit and severance liabilities for the six months ended June 30, 2019 was as follows:
Lease Exit Costs
Severance
Europe/ Mediterranean
2,005
4,463
285
6,753
Charges
98
868
2,968
3,945
Cash payments
(158
(1,268
(663
(3,253
(5,342
Balance at June 30 2019
1,858
3,293
205
5,356
18
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT
In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, this Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain forward-looking statements which reflect our current view with respect to future events and future financial performance. Forward-looking statements are all statements other than statements of historical fact. All such forward-looking statements are subject to risks and uncertainties, and our future results of operations could differ materially from our historical results or current expectations reflected by such forward-looking statements. Some of these risks are discussed in this Quarterly Report on Form 10-Q including in Item 1A. “Risk Factors” and include, without limitation, the risk that the cost savings and any other synergies from the business combination with GulfMark Offshore, Inc. (the “business combination”) may not be fully realized or may take longer to realize than expected; disruptions from the business combination making it more difficult to maintain relationships with customers, employees or suppliers; the possibility of litigation related to the business combination; the diversion of management’s time from day-to-day operations due to the business combination; incurrence of substantial transaction-related costs associated with the business combination; the possibility of unanticipated costs being incurred to effectuate the integration; new accounting policies and our consolidation activities; fluctuations in worldwide energy demand and oil and natural gas prices, and continuing depressed levels of oil and natural gas prices without a clear indication of if, or when, prices will recover to a level to support renewed offshore exploration activities; fleet additions by competitors and industry overcapacity; our limited capital resources available to replenish our asset base, including through acquisitions or vessel construction, and to fund our capital expenditure needs; uncertainty of global financial market conditions and potential constraints in accessing capital or credit if and when needed with favorable terms, if at all; changes in decisions and capital spending by customers in the energy industry and the industry expectations for offshore exploration, field development and production; consolidation of our customer base; loss of a major customer; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; rapid technological changes; delays and other problems associated with vessel construction and maintenance; the continued availability of qualified personnel and our ability to attract and retain them; the operating risks normally incident to our lines of business, including the potential impact of liquidated counterparties; our ability to comply with covenants in our indentures and other debt instruments; acts of terrorism and piracy; the impact of potential information technology, cybersecurity or data security breaches; integration of acquired businesses and entry into new lines of business; disagreements with our joint venture partners; significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation or enforcement of customs or other laws that are not well developed or consistently enforced; the risks associated with our international operations, including local content, local currency or similar requirements especially in higher political risk countries where we operate; interest rate and foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight; changes in laws governing the taxation of foreign source income; retention of skilled workers; enforcement of laws related to the environment, labor and foreign corrupt practices; the potential liability for remedial actions or assessments under existing or future environmental regulations or litigation; the effects of asserted and unasserted claims and the extent of available insurance coverage; and the resolution of pending legal proceedings.
Forward-looking statements, which can generally be identified by the use of such terminology as “may,” “can,” “potential,” “expect,” “project,” “target,” “anticipate,” “estimate,” “forecast,” “believe,” “think,” “could,” “continue,” “intend,” “seek,” “plan,” and similar expressions contained in this Quarterly Report on Form 10-Q, are not guarantees or assurances of future performance or events. Any forward-looking statements are based on our assessment of current industry, financial and economic information, which by its nature is dynamic and subject to rapid and possibly abrupt changes, which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments that affect us will be those that we anticipate and have identified. The forward-looking statements should be considered in the context of the risk factors listed above and discussed in Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (SEC) on February 28, 2019, as updated by subsequent filings with the SEC. Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events or developments.
In certain places in this Quarterly Report on Form 10-Q, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information.
19
The following information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and related disclosures and our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.
About Tidewater
Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production. These services include towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction and seismic and subsea support; and a variety of specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships. We are also one of the most experienced international operators in the offshore energy industry with over 60 years of international experience.
On July 31, 2017, we successfully emerged from Chapter 11 bankruptcy proceedings and adopted fresh-start accounting. Refer to Notes (4) and (5) of Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018 for further details on our Chapter 11 bankruptcy and emergence and the adoption of fresh-start accounting.
At June 30, 2019, we owned 223 vessels with an average age of 10.1 years (excluding four joint venture vessels, but including 60 stacked vessels) available to serve the global energy industry. The average age of our 163 active vessels at June 30, 2018 is 9.4 years.
On November 15, 2018 (the “Merger Date”), we completed our merger with GulfMark Offshore, Inc. (“GulfMark”) pursuant to the Agreement and Plan of the Merger dated July 15, 2018. GulfMark’s balances and results are included in our consolidated financial statements and disclosures beginning on the Merger Date. Therefore, our balances and results for the three and six months ended June 30, 2019 include GulfMark’s operations while our balances and results for the three and six months ended June 30, 2018 do not include GulfMark’s operations.
Principal Factors That Drive Our Results
Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers’ business activity, in turn, is dependent on current and expected crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce crude oil and natural gas reserves.
Our revenues in all segments are driven primarily by our fleet size, vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.
Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs and loss reserves, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors which affect overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies, though a weaker offshore energy market should somewhat mitigate any potential inflation of crew costs.
Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking that are not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel’s useful life or increase the vessel’s functionality are capitalized and depreciated.
20
Insurance and loss reserves costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss resulting from marine casualties, adverse weather conditions, mechanical failure, collisions, and property losses to the vessel. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.
Fuel and lube costs can also fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices. We also incur vessel operating costs that are aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, including commissions paid to unconsolidated joint venture companies, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers’ commissions are incurred primarily in our non-United States operations where brokers sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.
Sonatide Joint Venture
We previously disclosed the significant financial and operational challenges that we confront with respect to operations in Angola, as well as steps that we have taken to address or mitigate those risks. Most of our attention has been focused in three areas: (i) reducing the net receivable balance due from Sonatide, our Angolan joint venture with Sonangol, for vessel services; (ii) reducing the foreign currency risk created by virtue of provisions of Angolan law that require that payment for a portion of the services provided by Sonatide be paid in Angolan kwanza; and (iii) optimizing opportunities, consistent with Angolan law, for services provided by us to be paid for directly in U.S. dollars.
Refer to Note (7) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on the Sonatide joint venture.
Industry Conditions and Outlook
Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices. In addition, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. In particular, the oil price is significantly influenced by actions of the Organization of Petroleum Exporting Countries, or OPEC. Prices are subject to significant uncertainty and, as a result, are extremely volatile. Beginning in late 2014, the oil and gas industry experienced a significant decline in the price of oil. Beginning in late 2014, oil prices declined significantly from levels of over $100 per barrel and continued to decline throughout 2015 and into 2016 causing an industry-wide downturn. Prices reached a low of less than $30 per barrel in the first quarter of 2016 and then began a partial recovery into the $50 to $60 per barrel range. Currently, prices are ranging between $55 and $65 per barrel. Although prices have been more stable since 2016, they are still at levels that are not expected to sustain significant increases in exploration and production activities, and consequently continue to adversely affect the drilling and support service industry. Commodity prices at these levels have negatively impacted our revenues, earnings and cash flows, and further sustained reduced levels of oil and natural gas prices could have a material adverse effect on our liquidity.
Deepwater activity is a significant segment of the global offshore crude oil and natural gas markets, and a significant component of our business. Development typically involves significant capital investment and multi-year development plans. Such projects are generally underwritten by the participating exploration, field development and production companies using relatively conservative crude oil and natural gas pricing assumptions. Although these projects are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas, deepwater exploration and development projects can be more costly relative to other onshore and offshore exploration and development. As a result, generally depressed crude oil prices have caused, and may continue to cause, many of our customers and potential customers to reevaluate their future capital expenditures in regards to deepwater projects.
Results of Operations – Three Months Ended June 30, 2019 compared to June 30, 2018
Revenues earned for the quarters ended June 30, 2019 and 2018 were $125.9 million and $105.6 million, respectively. Quarterly revenues have increased as compared to the comparable quarter of the prior year primarily as a result of the business combination with GulfMark. Incremental revenues as a result of this business combination for the quarter ended June 30, 2019 were $26.2 million.
Vessel operating costs for the quarters ended June 30, 2019 and 2018, were $80.4 million and $68.0 million, respectively. Incremental vessel operating costs as a result of the GulfMark business combination for the quarter ended June 30, 2019 were $16.8 million.
Depreciation expense for the quarters ended June 30, 2019 and 2018, was $25.0 million and $12.8 million, respectively. Depreciation expense was higher in the current quarter because of a $7.8 million increase as a result of the GulfMark business combination and a $3.2 million increase in amortization of deferred drydocking and survey costs.
General and administrative expenses for the quarters ended June 30, 2019 and 2018, were $23.7 million and $24.4 million, respectively. General and administrative expenses increased during the quarter ended June 30, 2019 as compared to the comparable period of the prior year due to incremental GulfMark general and administrative costs of $3.5 million and severance and similar costs of $0.5 million related to the integration of the two companies which were partially offset by our continuing efforts to further streamline shore based-operations.
Included in loss on asset dispositions, net for the quarter ended June 30, 2019, are $0.5 million of net losses from the disposal of 18 vessels and other assets. During the quarter ended June 30, 2018, we recognized net gains of $1.3 million related to the disposal of three vessels and other assets.
During the quarter ended June 30, 2019 we recognized de minimis foreign exchange gains. During the quarter ended June 30, 2018, we recognized foreign exchange losses of $1.0 million which were primarily the result of the revaluation of Brazilian-reais denominated balances to our U.S. dollar reporting currency.
Results of Operations – Six Months Ended June 30, 2019 compared to June 30, 2018
Revenues earned for the six months ended June 30, 2019 and June 30, 2018 were $248.0 million and $197.1 million, respectively. Revenues have increased as compared to the comparable quarter of the prior year primarily as a result of the business combination with GulfMark. Incremental revenues as a result of this business combination for the six months ended June 30, 2019 were $51.7 million.
Vessel operating costs for the six months ended June 30, 2019 and 2018, were $162.6 million and $129.4 million, respectively. Incremental vessel operating costs as a result of the GulfMark business combination for the six months ended June 30, 2019 were $35.0 million.
Depreciation expense for the six months ended June 30, 2019 and 2018 was $48.0 million and $24.8 million, respectively. Depreciation expense was higher in the current quarter because of a $15.8 million increase as a result of the GulfMark business combination and a $7.2 million increase in amortization of deferred drydocking and survey costs.
General and administrative expenses for the six months ended June 30, 2019 and 2018, were $50.8 million and $48.0 million, respectively. General and administrative expenses increased during the six months ended June 30, 2019 as compared to the comparable period of the prior year due to incremental GulfMark general and administrative costs of $7.3 million and severance and similar costs of $4.2 million related to the integration of the two companies which were partially offset by our continuing efforts to further streamline shore based-operations.
Included in gain on asset dispositions, net for the six months ended June 30, 2019, are $0.8 million of net gains from the sale of 34 vessels and other assets. During the six months ended June 30, 2018, we recognized net gains of $3.3 million related to the sale of 23 vessels and other assets.
During the six months ended June 30, 2019 and 2018, we recognized foreign exchange losses of $0.5 million and $1.4 million, respectively. These foreign exchange losses were primarily the result of the revaluation of Brazilian-reais denominated balances to our U.S. dollar reporting currency.
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:
28
31
29
27
35
36
Total vessel revenues
Vessel operating costs:
Americas:
Crew costs
16,008
45
11,158
33,107
47
20,251
Repair and maintenance
2,328
1,529
5,948
3,259
Insurance and loss reserves
(1,118
%)
1,031
(378
480
Fuel, lube and supplies
2,115
1,792
4,561
3,410
2,772
2,790
5,543
3,196
22,105
63
18,300
56
48,781
69
30,596
52
Middle East/Asia Pacific:
8,986
44
8,596
17,613
16,704
1,673
1,594
3,254
3,057
186
383
233
2,350
2,221
4,685
4,560
1,844
2,578
3,577
5,320
15,039
74
15,372
29,905
73
29,874
Europe/Mediterranean Sea:
13,001
5,777
26,060
10,768
3,914
1,983
6,491
3,561
693
247
1,253
357
1,314
1,136
3,205
2,946
2,902
1,459
5,897
3,065
21,824
62
10,602
79
42,906
67
20,697
90
West Africa:
9,196
10,837
30
18,555
22,869
2,996
2,872
4,919
5,805
989
530
1,277
50
<1
2,672
3,032
5,346
6,277
5,618
6,467
10,953
13,208
21,471
65
23,738
66
41,050
60
48,209
70
47,191
36,368
95,335
39
70,592
10,911
7,978
20,612
15,682
750
2,191
2,928
1,120
8,451
8,181
17,797
17,193
13,136
13,294
25,970
24,789
Total vessel operating costs
23
Prior to January 1, 2019, we allocated the costs of certain marine operations related to general and administrative functions, such as marine management, engineering, supply chain management, risk management, fleet human resources and health and safety to the segment general and administrative expenses. Beginning on January 1, 2019, our management elected to modify that process in order to better analyze costs and better align the policies of the two combined companies such that all costs related to those previously allocated functions will remain as corporate general and administrative expenses. This change is reflected in the tables below for the three and six months ended June 30, 2019.
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, 2019 and 2018:
Segment general and administrative expenses:
3,679
5,090
7,051
10,651
3,565
4,521
6,935
2,638
1,658
5,984
2,936
3,297
6,300
6,529
12,958
Total segment general and administrative expenses
11,832
16,613
24,085
33,480
The following table presents segment depreciation expense by our four geographic segments, the related segment vessel depreciation expense as a percentage of segment vessel revenues, total segment depreciation expense and the related total segment depreciation expense as a percentage of total vessel revenues:
Segment depreciation expense:
Total segment depreciation expense
24,675
12,680
47,275
24,592
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, 2019 and 2018:
Vessel operating profit (loss):
(<1
Other operating profit (loss)
Corporate expenses (A)
(10
(7
(11
(4
(6
Included in corporate expenses for the three and six months ended June 30, 2019, were $0.5 million and $4.2 million, respectively, of integration costs related to the business combination with GulfMark.
Results for three months ended June 30, 2019 compared to June 30, 2018
Americas Segment Operations. Vessel revenues in the Americas segment increased 8%, or $2.6 million, during the quarter ended June 30, 2019, as compared to the quarter ended June 30, 2018. This increase is primarily the result of the ten average active additional vessels added to the fleet resulting from the GulfMark business combination. Overall Americas segment utilization increased from 48.3% during the second quarter of 2018 to 54.5% during the second quarter of 2019; however, average day rates during these same periods decreased 23%, which is generally reflective of a greater portion of the segment’s vessels contracted at current prevailing day rates which are lower than those experienced during the second quarter of 2018.
Operating profit for the Americas segment for the quarter ended June 30, 2019, was $2.8 million less than operating profit for the quarter ended June 30, 2018. The decrease in operating income is primarily related to the increase in vessel operating costs primarily related to requirements for increased local crewing on vessels operating in Brazil and additional vessels working in the U.S. Gulf, some of which required additional repairs and maintenance during the second quarter of 2019. For the quarter ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Americas fleet included vessel operating expenses of $5.4 million, depreciation of $2.5 million and general and administrative expenses of $0.5 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Middle East/Asia Pacific Segment Operations. Vessel revenues in the Middle East/Asia Pacific segment decreased 9%, or $2.0 million, during the quarter ended June 30, 2019, as compared to the quarter ended June 30, 2018. Middle East/Asia Pacific segment utilization for the quarter ended June 30, 2019 was comparable to the quarter ended June 30, 2018; however, average day rates during these same periods decreased three percent. Operating loss for the Middle East/Asia Pacific segment for the quarter ended June 30, 2019, was $2.1 million as compared to operating profit for the quarter ended June 30, 2018 of $0.6 million. The operating loss in the quarter ended June 30, 2019 was primarily related to the decrease in revenues and increase in depreciation.
For the quarter ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Middle East/Asia Pacific vessel fleet included vessel operating expenses of $0.9 million, depreciation of $0.6 million and general and administrative expenses of $0.2 million. Overall reductions to general and administrative expenses were primarily attributable to our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Europe/Mediterranean Sea Segment Operations. Vessel revenues in the Europe/Mediterranean Sea segment increased 162%, or $21.7 million, during the quarter ended June 30, 2019, as compared to the quarter ended June 30, 2018. The Europe/Mediterranean Sea vessel fleet increased by 16 active vessels on a net basis, 14 of which were incrementally added to the area as a result of the business combination with GulfMark. Europe/Mediterranean Sea segment utilization decreased
25
from 70.3% during the quarter ended June 30, 2018 to 62.7% during the quarter ended June 30, 2019, and average day rates during these same periods increased 37%. The increases in vessels and average day rates were due to the increasing demand for vessels in the North Sea and Mediterranean. Operating profit for the Europe/Mediterranean Sea segment was $2.8 million for the quarter ended June 30, 2019 as compared to an operating loss of $1.1 million for the quarter ended June 30, 2018.
For the quarter ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Europe/Mediterranean Sea vessel fleet included vessel operating expenses of $10.5 million, depreciation of $4.7 million and general and administrative expenses of $1.4 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
West Africa Segment Operations. Vessel revenues in the West Africa segment decreased 8%, or $2.8 million, during the quarter ended June 30, 2019, as compared to the quarter ended June 30, 2018. The West Africa vessel fleet decreased by five active vessels during the comparative periods. West Africa segment utilization increased slightly from 51.9% during the second quarter of 2018 to 52.3% during the second quarter of 2019, and average day rates increased 4% during these same periods. The decrease in revenue was generally due to the decrease in active vessels in the region in the quarter ended June 30, 2019 as compared to the quarter ended June 30, 2018.
Operating profit for the West Africa segment increased 82%, or $1.4 million for the quarter ended June 30, 2019, as compared to the quarter ended June 30, 2018. This increase in profitability is due to decreases in vessel costs, primarily as a result of the devaluation of a currency which was used to pay a portion of crew costs, and general and administrative expenses. The reductions to general and administrative expenses are primarily the result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Results for six months ended June 30, 2019 compared to June 30, 2018
Americas Segment Operations. Vessel revenues in the Americas segment increased 20%, or $11.8 million, during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. This increase is the result of the twelve average active additional vessels added to the fleet resulting primarily from the GulfMark business combination. Overall Americas segment utilization increased from 45.5% during the six months ended June 30, 2018 to 51.1% during the six months ended June 30, 2019, however, average day rates during these same periods decreased 23%, which is generally reflective of a greater portion of the segment’s vessels contracted at current prevailing day rates which are lower than those experienced during 2018.
Operating profit for the Americas segment for the six months ended June 30, 2019, was $8.7 million less than operating profit for the six months ended June 30, 2018. The decrease is primarily related to the increase in vessel operating costs primarily related to requirements for increased local crewing on vessels operating in Brazil and additional vessels working in the U.S. Gulf, some of which required additional repairs and maintenance during the first quarter of 2019. For the six months ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Americas fleet included vessel operating expenses of $12.2 million, depreciation of $4.9 million and general and administrative expenses of $0.6 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Middle East/Asia Pacific Segment Operations. Vessel revenues in the Middle East/Asia Pacific segment increased $0.1 million during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. The Middle East/Asia Pacific vessel fleet count was comparable for the six months ended June 30, 2019 and the six months ended June 30, 2018, although, three active vessels were incrementally added to the area as a result of the business combination with GulfMark. Middle East/Asia Pacific segment utilization increased from 53.0% during the six months ended June 30, 2018 to 61.5% during the six months ended June 30, 2019, and average day rates during these same periods decreased 7%. Operating loss for the Middle East/Asia Pacific segment increased 102%, or $1.7 million, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018. The increase in the operating loss was primarily related to higher depreciation expense primarily related to the additional incremental GulfMark vessels and the amortization of deferred dry docking costs.
For the six months ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Middle East/Asia Pacific vessel fleet included vessel operating expenses of $2.1 million, depreciation of $1.3 million and general and administrative expenses of $0.6 million. Overall reductions to general and administrative expenses were primarily attributable to our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Europe/Mediterranean Sea Segment Operations. Vessel revenues in the Europe/Mediterranean Sea segment increased 177%, or $40.6 million, during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. The Europe/Mediterranean Sea vessel fleet increased by 18 active vessels on a net basis, 15 of which were incrementally added to the area as a result of the business combination with GulfMark. Europe/Mediterranean Sea segment utilization decreased slightly from 63.9% during the six months ended June 30, 2018 to 61.4% during the six months ended June 30, 2019; however, average day rates during these same periods increased 30%. These increases in vessels and average day rates are due to the increasing demand for vessels in the North Sea and Mediterranean. Operating loss for the Europe/Mediterranean Sea segment decreased 90%, or $4.2 million, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
For the six months ended June 30, 2019, incremental increases related to the addition of GulfMark vessels to the Europe/Mediterranean Sea vessel fleet included vessel operating expenses of $20.7 million, depreciation of $9.6 million and general and administrative expenses of $3.3 million. Offsetting these expense increases is a reduction to general and administrative expenses as a result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
West Africa Segment Operations. Vessel revenues in the West Africa segment decreased 1%, or $0.9 million, during the six months ended June 30, 2019, as compared to the six months ended June 30, 2018. The West Africa vessel fleet decreased by two active vessels during the comparative periods. West Africa segment utilization increased from 46.8% during the six months ended June 30, 2018 to 50.8% during the six months ended June 30, 2019, and average day rates increased 3% during these same periods. The increases in revenue were generally due to the mix of higher specification vessels working in the segment and more spot market activity in the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
Operating profit for the West Africa segment was $11.2 million for the six months ended June 30, 2019, as compared to an operating loss of less than $0.1 million for the six months ended June 30, 2018. This increase in profitability is due to decreases in vessel costs, primarily as a result of the devaluation of a currency which was used to pay a portion of crew costs, and general and administrative expenses. The reductions to general and administrative expenses are primarily the result of our new policy beginning on January 1, 2019 to discontinue the allocation of certain corporate general and administrative expenses.
Other Items.
Asset Impairments. The table below summarizes the number of vessels impaired and the amount of the impairment incurred.
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.
Vessel utilization and average day rates are calculated on all vessels in service (which includes stacked vessels and vessels in drydock) but do not include vessels owned by joint ventures (four and eight vessels at June 30, 2019 and 2018, respectively).
The following tables compare day-based utilization percentages, average day rates and average total, active and stacked vessels by segment for the three and six months ended June 30, 2019 and 2018:
SEGMENT STATISTICS:
Americas fleet:
Utilization
54.5
48.3
51.1
45.5
Average vessel day rates
12,341
15,995
11,871
15,323
Average total vessels
58
46
64
Average stacked vessels
(20
(19
(26
Average active vessels
Middle East/Asia Pacific fleet:
61.6
61.5
53.0
7,293
7,554
7,249
7,770
53
51
55
(9
(12
(14
Europe/Mediterranean Sea fleet:
62.7
70.3
61.4
63.9
13,010
9,489
12,004
9,246
48
(13
West Africa fleet:
52.3
51.9
50.8
46.8
9,439
9,050
9,535
9,262
84
78
88
(23
(29
(34
54
Worldwide fleet:
57.0
55.5
55.2
49.9
10,442
10,047
10,119
10,068
228
241
211
(65
(64
(75
(72
163
141
166
139
Average active vessels exclude stacked vessels. We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is being performed on the vessel. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are included in the calculation of utilization statistics.
The following is a summary of net properties and equipment at June 30, 2019 and December 31, 2018:
Number
Carrying
Of Vessels
Value
of Vessels
Owned vessels in active service
905,746
165
914,044
Stacked vessels
126,083
169,037
Marine equipment and other assets under construction
3,646
795
Other property and equipment
5,579
5,981
Totals
223
257
Vessel Dispositions
We seek opportunities to sell and/or scrap our older vessels when market conditions warrant and opportunities arise. The majority of our vessels are sold to buyers who do not compete with us in the offshore energy industry. The following is a summary of the number of vessels disposed of by segment:
Number of vessels disposed by segment:
Liquidity, Capital Resources and Other Matters
Availability of Cash
At June 30, 2019, we had $383.2 million in cash and cash equivalents (including $13.6 million of restricted cash), of which $97.2 million was held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held in U.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints, partner and tax related matters, prior to the cash being made available for remittance to our domestic accounts. We currently intend that earnings by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and intercompany) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the United States because cash generated from our domestic businesses and the repayment of intercompany liabilities from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our operations in the United States.
Our objective in financing our business is to maintain adequate financial resources and access to sufficient levels of liquidity. We do not have a revolving credit facility. Cash and cash equivalents and future net cash provided by operating activities provide us, in our opinion, with sufficient liquidity to meet our liquidity requirements.
Debt
Refer to Note (9) of Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our indebtedness.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Operating Activities
Net provided by (cash used in) operating activities for any period will fluctuate according to the level of business activity for the applicable period and for the six months ended June 30, 2019 and 2018, was $(20.7) million and $17.0 million, respectively.
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, stock-based compensation expense of $9.2 million and approximately $0.8 million of gains on asset sales. Combined changes in operating assets and liabilities and in amounts due to/due from affiliate, net, and cash paid for drydocking used $37.3 million of cash.
Net cash provided by operations for the six months ended June 30, 2018 reflects a net loss of $50.2 million, which includes non-cash asset impairments of $7.4 million, non-cash depreciation and amortization of $23.9 million, gain on asset dispositions, net, of $3.3 million and stock-based compensation expense of $6.1 million. Changes in investments in, at equity, and advances to unconsolidated companies decreased by $27.9 million, which primarily reflects foreign exchange losses recognized by the company’s 49% owned Sonatide joint venture. Changes in due from/due to related parties, net during the six months ended June 30, 2018 of $19.9 million generally reflect collections from Sonatide, net of an approximate $5 million dollar increase in the due from/due to our Nigeria joint venture, DTDW. Change in operating assets and liabilities used $1.3 million of cash in the six months ended June 30, 2018.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2019 and 2018, was $11.7 million and $7.2 million, respectively.
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 disposal 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.
Net cash provided by investing activities for the six months ended June 30, 2018 was $7.2 million, reflecting the receipt of proceeds from the sale of assets of $13.0 million related to the disposal of 23 vessels, 16 of which were scrapped. Additions to properties and equipment were comprised of approximately $3.9 million in capitalized upgrades to existing vessels and equipment and $1.9 million for the construction of offshore support vessels.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2019 and 2018, was $5.6 million and $13.0 million, respectively.
Net cash used in financing activities for the six months ended June 30, 2019 was a result of $3.6 million of scheduled semiannual principal payments on Troms offshore debt, $1.8 million of taxes paid related to share based compensation and the repurchase of $0.16 million of New Secured Notes resulting from a recent tender.
Financing activities for the six months ended June 30, 2018 used $13.0 million of cash, as a result of payments made to creditors pursuant to the Plan of $8.4 million, $2.6 million of scheduled semiannual principal payments on Troms offshore debt, a $2.0 million payment to acquire the remaining noncontrolling interest in a consolidated joint venture and the repurchase of $46,023 of New Secured Notes resulting from a recent tender offer.
Other Liquidity Matters
Contractual Obligations and Other Contingent Commitments
We did not have any material changes in our contractual obligations and commercial commitments since the end of fiscal year 2018. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2018, for information regarding our contractual obligations and other contingent commitments.
Application of Critical Accounting Policies and Estimates
Our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019, describes the accounting policies that are critical to reporting our financial position and operating results and that require management’s most difficult, subjective or complex judgments. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2018, regarding these critical accounting policies.
New Accounting Pronouncements
For information regarding the effect of new accounting pronouncements, refer to Note (2) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the six months ended June 30, 2019 to the market risk disclosures contained in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed with the objective of ensuring that all information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. However, any control system, no matter how well conceived and followed, can provide only reasonable, and not absolute, assurance that the objectives of the control system are met.
We evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
LEGAL PROCEEDINGS
Refer to Note (10) of Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our Arbitral Award for the Taking of our Venezuelan Operations.
Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on our financial position, results of operations, or cash flows. Information related to various commitments and contingencies, including legal proceedings, is disclosed in Note (10) of Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A.
RISK FACTORS
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019.
ITEM 6.
EXHIBITS
EXHIBIT INDEX
Exhibit
Description
2.1
Joint Prepackaged Chapter 11 Plan of Reorganization of Tidewater Inc. and its Affiliated Debtors dated May 11, 2017 (filed with the Commission as Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).
2.2
Disclosure Statement for Joint Prepackaged Chapter 11 Plan of Reorganization of Tidewater Inc. and its Affiliated Debtors dated May 11, 2017 (filed with the Commission as Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).
2.3
Second Amended Joint Prepackaged Chapter 11 Plan of Tidewater Inc. and Its Affiliated Debtors dated July 13, 2017 (filed with the Commission as Exhibit 2.1 to the company’s current report on Form 8-K filed on July 18, 2017, File No. 1-6311).
2.4
Agreement and Plan of Merger by and between Tidewater Inc. and GulfMark Offshore, Inc., dated as of July 15, 2018 (filed with the Commission as Exhibit 2.1 to the company’s current report on Form 8-K filed on July 16, 2018, File No. 1-6311).
3.1
Amended and Restated Certificate of Incorporation of Tidewater Inc. dated July 31, 2017 (filed with the Commission as Exhibit 3.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).
3.2
Second Amended and Restated By-Laws of Tidewater Inc. dated November 15, 2018 (filed with the Commission as Exhibit 3.2 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).
4.1
Indenture for 8.00% Senior Secured Notes due 2022 among Tidewater Inc., each of the Guarantors party thereto, and Wilmington Trust, National Association, as Trustee and Collateral Agent dated as of July 31, 2017 (filed with the Commission as Exhibit 4.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).
10.1
Restructuring Support Agreement, dated May 11, 2017 (filed with the Commission as Schedule 1 to Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).
10.2
Amendment and Restatement Agreement No. 4 to the Troms Facility Agreement, dated May 11, 2017 (filed with the Commission as Exhibit C to Schedule 1 to Exhibit A to Exhibit T3E.1 to the company’s application for the qualification of indentures on Form T-3 filed on May 12, 2017, File No. 22-29043).
10.3
Creditor Warrant Agreement between Tidewater Inc., as Issuer and Computershare Inc. and Computershare Trust Company, N.A., collectively as Warrant Agent dated July 31, 2017 (filed with the Commission as Exhibit 10.1 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).
10.4
Existing Equity Warrant Agreement between Tidewater Inc., as Issuer and Computershare Inc. and Computershare Trust Company, N.A., collectively as Warrant Agent dated July 31, 2017 (filed with the Commission as Exhibit 10.2 to the company’s current report on Form 8-K filed on July 31, 2017, File No. 1-6311).
10.5
Equity Warrant Agreement, dated as of November 14, 2017, between GulfMark Offshore, Inc. and American Stock Transfer & Trust Company, LLC, as warrant agent (filed with the Commission as Exhibit 4.1 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).
10.6
Assignment, Assumption and Amendment Agreement, dated as of and effective November 15, 2018, by and among GulfMark Offshore, Inc., Tidewater Inc. and American Stock Transfer & Trust Company, LLC, as warrant agent (filed with the Commission as Exhibit 4.2 to the company’s registration statement on Form 8-A filed on November 15, 2018, File No. 1-6311).
10.7
Noteholder Warrant Agreement, dated as of November 14, 2017, between GulfMark Offshore, Inc. and American Stock Transfer & Trust Company, LLC, as warrant agent (filed with the Commission as Exhibit 4.1 to the company's current report on Form 8-K filed on November 16, 2018, File No. 1-6311).
10.8
Assignment, Assumption and Amendment Agreement – Jones Act Warrants, dated as of and effective November 15, 2018, by and among GulfMark Offshore, Inc., Tidewater Inc. and American Stock Transfer & Trust Company, LLC, as warrant agent (filed with the Commission as Exhibit 4.2 to the company’s current report on Form 8-K filed on November 16, 2018, File No. 1-6311).
10.9+
Tidewater Inc. Short-Term Incentive Plan (effective for performance periods beginning January 1, 2019) (filed with the Commission as Exhibit 10.1 to the company’s current report on Form 8-K filed on April 19, 2019. File No. 1-6311).
10.10+
Amendment No. 1 to the Tidewater Inc. Legacy GLF Management Incentive Plan, effective April 30, 2019 (filed with the Commission as Exhibit 10.10 to the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019 filed on May 6, 2019. File No. 1-6311).
10.11+
Amendment No. 1 to the Tidewater Inc. 2017 Stock Incentive Plan, effective April 30, 2019. (filed with the Commission as Exhibit 10.11 to the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019 filed on May 6, 2019. File No. 1-6311).
10.12*
Officer Form of Agreement for the Grant of Restricted Stock Units under either the Tidewater Inc 2017 Stock Incentive Plan or the Tidewater Inc Legacy GLF Management Incentive Plan (for use with 2019 annual grants).
10.13*
Director Stock Election Program
31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
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*
XBRL Taxonomy Extension Schema.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase.
101.LAB*
XBRL Taxonomy Extension Label Linkbase.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase.
*
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
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
(Registrant)
Date: August 9, 2019
/s/ Samuel R. Rubio
Samuel R. Rubio
Vice President, Chief Accounting Officer and Controller
(Principal Accounting Officer and authorized signatory)