SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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☑QUARTERLY REPORT PURSUANT TO SECTION 13 |
For the quarterly period ended September 30, 2017
or
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☐TRANSITION REPORT PURSUANT TO SECTION 13 |
For the transition period from__________ to__________
Commission File NumberNumber: 001-32936
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
(281) 618–0400
(Registrant'sRegistrant’s telephone number, including area code)
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 | | HLX | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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 | Smaller reporting company | Emerging growth 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).
As of October 20, 2017, 147,720,399April 22, 2021, 150,723,988 shares of common stock were outstanding.
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| | Condensed Consolidated Statements of Cash Flows (Unaudited) – | |
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2
Item 1.
Financial StatementsHELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(in thousands)
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 356,889 | $ | 356,647 | |||
Accounts receivable: | |||||||
Trade, net of allowance for uncollectible accounts of $2,752 and $1,778, respectively | 90,480 | 101,825 | |||||
Unbilled revenue and other | 45,816 | 10,328 | |||||
Current deferred tax assets | — | 16,594 | |||||
Other current assets | 38,172 | 37,388 | |||||
Total current assets | 531,357 | 522,782 | |||||
Property and equipment | 2,612,407 | 2,450,890 | |||||
Less accumulated depreciation | (878,248 | ) | (799,280 | ) | |||
Property and equipment, net | 1,734,159 | 1,651,610 | |||||
Other assets, net | 100,974 | 72,549 | |||||
Total assets | $ | 2,366,490 | $ | 2,246,941 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 91,412 | $ | 60,210 | |||
Accrued liabilities | 60,761 | 58,614 | |||||
Income tax payable | 1,756 | — | |||||
Current maturities of long-term debt | 108,611 | 67,571 | |||||
Total current liabilities | 262,540 | 186,395 | |||||
Long-term debt | 395,345 | 558,396 | |||||
Deferred tax liabilities | 154,158 | 167,351 | |||||
Other non-current liabilities | 42,736 | 52,985 | |||||
Total liabilities | 854,779 | 965,127 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock, no par, 240,000 shares authorized, 147,713 and 120,630 shares issued, respectively | 1,281,747 | 1,055,934 | |||||
Retained earnings | 302,326 | 322,854 | |||||
Accumulated other comprehensive loss | (72,362 | ) | (96,974 | ) | |||
Total shareholders’ equity | 1,511,711 | 1,281,814 | |||||
Total liabilities and shareholders’ equity | $ | 2,366,490 | $ | 2,246,941 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 204,802 | | $ | 291,320 |
Restricted cash | |
| 65,579 | |
| — |
Accounts receivable, net of allowance for credit losses of $1,665 and $3,469, respectively | |
| 132,314 | |
| 132,233 |
Other current assets | |
| 86,242 | |
| 102,092 |
Total current assets | |
| 488,937 | |
| 525,645 |
Property and equipment | |
| 2,956,804 | |
| 2,948,907 |
Less accumulated depreciation | |
| (1,197,712) | |
| (1,165,943) |
Property and equipment, net | |
| 1,759,092 | |
| 1,782,964 |
Operating lease right-of-use assets | |
| 136,210 | |
| 149,656 |
Other assets, net | |
| 37,510 | |
| 40,013 |
Total assets | | $ | 2,421,749 | | $ | 2,498,278 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 55,148 | | $ | 50,022 |
Accrued liabilities | |
| 76,486 | |
| 87,035 |
Current maturities of long-term debt | |
| 36,478 | |
| 90,651 |
Current operating lease liabilities | |
| 50,321 | |
| 51,599 |
Total current liabilities | |
| 218,433 | |
| 279,307 |
Long-term debt | |
| 299,560 | |
| 258,912 |
Operating lease liabilities | |
| 88,576 | |
| 101,009 |
Deferred tax liabilities | |
| 100,655 | |
| 110,821 |
Other non-current liabilities | |
| 3,105 | |
| 3,878 |
Total liabilities | |
| 710,329 | |
| 753,927 |
Redeemable noncontrolling interests | |
| 3,960 | |
| 3,855 |
Shareholders’ equity: | |
|
| |
|
|
Common stock, 0 par, 240,000 shares authorized, 150,715 and 150,341 shares issued, respectively | |
| 1,286,380 | |
| 1,327,592 |
Retained earnings | |
| 468,087 | |
| 464,524 |
Accumulated other comprehensive loss | |
| (47,007) | |
| (51,620) |
Total shareholders’ equity | |
| 1,707,460 | |
| 1,740,496 |
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | | $ | 2,421,749 | | $ | 2,498,278 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Net revenues | $ | 163,260 | $ | 161,245 | |||
Cost of sales | 142,119 | 121,061 | |||||
Gross profit | 21,141 | 40,184 | |||||
Selling, general and administrative expenses | (16,374 | ) | (18,714 | ) | |||
Income from operations | 4,767 | 21,470 | |||||
Equity in losses of investment | (153 | ) | (122 | ) | |||
Net interest expense | (3,615 | ) | (6,843 | ) | |||
Gain on early extinguishment of long-term debt | — | 244 | |||||
Other income (expense), net | (551 | ) | 830 | ||||
Other income (expense) – oil and gas | 303 | (468 | ) | ||||
Income before income taxes | 751 | 15,111 | |||||
Income tax provision (benefit) | (1,539 | ) | 3,649 | ||||
Net income | $ | 2,290 | $ | 11,462 | |||
Earnings per share of common stock: | |||||||
Basic | $ | 0.02 | $ | 0.10 | |||
Diluted | $ | 0.02 | $ | 0.10 | |||
Weighted average common shares outstanding: | |||||||
Basic | 145,958 | 113,680 | |||||
Diluted | 145,958 | 113,680 |
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Net revenues | | $ | 163,415 | | $ | 181,021 | |
Cost of sales | |
| 148,791 | |
| 179,011 | |
Gross profit | |
| 14,624 | |
| 2,010 | |
Goodwill impairment | |
| — | |
| (6,689) | |
Selling, general and administrative expenses | |
| (15,179) | |
| (16,348) | |
Loss from operations | |
| (555) | |
| (21,027) | |
Net interest expense | |
| (6,053) | |
| (5,746) | |
Other income (expense), net | |
| 1,617 | |
| (10,427) | |
Royalty income and other | |
| 2,057 | |
| 2,179 | |
Loss before income taxes | |
| (2,934) | |
| (35,021) | |
Income tax provision (benefit) | |
| 116 | |
| (21,093) | |
Net loss | |
| (3,050) | |
| (13,928) | |
Net loss attributable to redeemable noncontrolling interests | |
| (172) | |
| (1,990) | |
Net loss attributable to common shareholders | | $ | (2,878) | | $ | (11,938) | |
| | | | | | | |
Loss per share of common stock: | |
|
| |
|
| |
Basic | | $ | (0.02) | | $ | (0.09) | |
Diluted | | $ | (0.02) | | $ | (0.09) | |
| | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
Basic | |
| 149,935 | |
| 148,863 | |
Diluted | |
| 149,935 | |
| 148,863 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands, except per share amounts)
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Net revenues | $ | 418,117 | $ | 359,551 | |||
Cost of sales | 379,434 | 330,639 | |||||
Gross profit | 38,683 | 28,912 | |||||
Loss on disposition of assets, net | (39 | ) | — | ||||
Selling, general and administrative expenses | (46,532 | ) | (47,493 | ) | |||
Loss from operations | (7,888 | ) | (18,581 | ) | |||
Equity in losses of investment | (457 | ) | (366 | ) | |||
Net interest expense | (15,480 | ) | (25,007 | ) | |||
Gain (loss) on early extinguishment of long-term debt | (397 | ) | 546 | ||||
Other income (expense), net | (619 | ) | 4,018 | ||||
Other income – oil and gas | 3,196 | 2,500 | |||||
Loss before income taxes | (21,645 | ) | (36,890 | ) | |||
Income tax provision (benefit) | (1,117 | ) | (9,858 | ) | |||
Net loss | $ | (20,528 | ) | $ | (27,032 | ) | |
Loss per share of common stock: | |||||||
Basic | $ | (0.14 | ) | $ | (0.25 | ) | |
Diluted | $ | (0.14 | ) | $ | (0.25 | ) | |
Weighted average common shares outstanding: | |||||||
Basic | 145,057 | 109,135 | |||||
Diluted | 145,057 | 109,135 |
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Net loss | | $ | (3,050) |
| $ | (13,928) | |
Other comprehensive income (loss), net of tax: | |
|
|
| |
| |
Net unrealized loss on hedges arising during the period | |
| — |
| | (96) | |
Reclassifications into earnings | |
| — |
| | 427 | |
Income taxes on hedges | |
| — |
| | (66) | |
Net change in hedges, net of tax | |
| — |
| | 265 | |
Foreign currency translation gain (loss) | |
| 4,613 |
| | (33,587) | |
Other comprehensive income (loss), net of tax | |
| 4,613 |
| | (33,322) | |
Comprehensive income (loss) | |
| 1,563 |
| | (47,250) | |
Less comprehensive loss attributable to redeemable noncontrolling interests: | |
|
|
| |
| |
Net loss | |
| (172) |
| | (1,990) | |
Foreign currency translation gain (loss) | |
| 36 |
| | (228) | |
Comprehensive loss attributable to redeemable noncontrolling interests | |
| (136) |
| | (2,218) | |
Comprehensive income (loss) attributable to common shareholders | | $ | 1,699 |
| $ | (45,032) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Net income | $ | 2,290 | $ | 11,462 | |||
Other comprehensive income, net of tax: | |||||||
Unrealized gain on hedges arising during the period | 2,297 | 4,418 | |||||
Reclassification adjustments for loss on hedges included in net income | 3,383 | 3,157 | |||||
Income taxes on unrealized gain on hedges | (1,992 | ) | (2,683 | ) | |||
Unrealized gain on hedges, net of tax | 3,688 | 4,892 | |||||
Foreign currency translation gain (loss) | 5,513 | (3,611 | ) | ||||
Other comprehensive income, net of tax | 9,201 | 1,281 | |||||
Comprehensive income | $ | 11,491 | $ | 12,743 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Net loss | $ | (20,528 | ) | $ | (27,032 | ) | |
Other comprehensive income (loss), net of tax: | |||||||
Unrealized gain on hedges arising during the period | 4,141 | 5,450 | |||||
Reclassification adjustments for loss on hedges included in net loss | 10,822 | 9,651 | |||||
Income taxes on unrealized gain on hedges | (5,256 | ) | (5,236 | ) | |||
Unrealized gain on hedges, net of tax | 9,707 | 9,865 | |||||
Foreign currency translation gain (loss) arising during the period | 14,905 | (24,827 | ) | ||||
Reclassification adjustment for translation loss realized upon liquidation | — | 289 | |||||
Foreign currency translation gain (loss) | 14,905 | (24,538 | ) | ||||
Other comprehensive income (loss), net of tax | 24,612 | (14,673 | ) | ||||
Comprehensive income (loss) | $ | 4,084 | $ | (41,705 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | |
| |
| | | | | | | | | | Other | | Total | | Redeemable | |||
| | Common Stock | | Retained | | Comprehensive | | Shareholders’ | | Noncontrolling | |||||||
|
| Shares |
| Amount |
| Earnings |
| Loss |
| Equity |
| Interests | |||||
Balance, December 31, 2020 |
| 150,341 | | $ | 1,327,592 | | $ | 464,524 | | $ | (51,620) | | $ | 1,740,496 |
| $ | 3,855 |
Net loss |
| — | |
| — | |
| (2,878) | |
| — | |
| (2,878) |
| | (172) |
Cumulative-effect adjustments upon adoption of ASU No. 2020-06 |
| — | |
| (41,456) | |
| 6,682 | |
| — | |
| (34,774) |
| | — |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| 4,613 | |
| 4,613 |
| | 36 |
Accretion of redeemable noncontrolling interests |
| — | |
| — | |
| (241) | |
| — | |
| (241) |
| | 241 |
Activity in company stock plans, net and other |
| 374 | |
| (1,600) | |
| — | |
| — | |
| (1,600) |
| | — |
Share-based compensation |
| — | |
| 1,844 | |
| — | |
| — | |
| 1,844 |
| | — |
Balance, March 31, 2021 |
| 150,715 | | $ | 1,286,380 | | $ | 468,087 | | $ | (47,007) | | $ | 1,707,460 |
| $ | 3,960 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | |
| |
| | | | | | | | | | Other | | Total | | Redeemable | |||
| | Common Stock | | Retained | | Comprehensive | | Shareholders’ | | Noncontrolling | |||||||
|
| Shares |
| Amount |
| Earnings |
| Loss |
| Equity |
| Interests | |||||
Balance, December 31, 2019 |
| 148,888 | | $ | 1,318,961 | | $ | 445,370 | | $ | (64,740) | | $ | 1,699,591 |
| $ | 3,455 |
Net loss |
| — | |
| — | |
| (11,938) | |
| — | |
| (11,938) |
| | (1,990) |
Credit losses recognized in retained earnings upon adoption of ASU No. 2016-13 |
| — | |
| — | |
| (620) | |
| — | |
| (620) |
| | — |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| (33,587) | |
| (33,587) |
| | (228) |
Unrealized gain on hedges, net of tax |
| — | |
| — | |
| — | |
| 265 | |
| 265 |
| | — |
Accretion of redeemable noncontrolling interests |
| — | |
| — | |
| (2,086) | |
| — | |
| (2,086) |
| | 2,086 |
Activity in company stock plans, net and other |
| 1,074 | |
| (4,730) | |
| — | |
| — | |
| (4,730) |
| | — |
Share-based compensation |
| — | |
| 2,170 | |
| — | |
| — | |
| 2,170 |
| | — |
Balance, March 31, 2020 |
| 149,962 | | $ | 1,316,401 | | $ | 430,726 | | $ | (98,062) | | $ | 1,649,065 |
| $ | 3,323 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (20,528 | ) | $ | (27,032 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 82,670 | 84,846 | |||||
Amortization of debt discount | 3,487 | 4,655 | |||||
Amortization of debt issuance costs | 5,238 | 6,430 | |||||
Share-based compensation | 7,613 | 4,351 | |||||
Deferred income taxes | (3,019 | ) | (6,726 | ) | |||
Equity in losses of investment | 457 | 366 | |||||
Loss on disposition of assets, net | 39 | — | |||||
(Gain) loss on early extinguishment of long-term debt | 397 | (546 | ) | ||||
Unrealized gain and ineffectiveness on derivative contracts, net | (4,291 | ) | (9,282 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | (21,709 | ) | (27,346 | ) | |||
Other current assets | (12,145 | ) | (10,853 | ) | |||
Income tax receivable | 2,742 | 20,576 | |||||
Accounts payable and accrued liabilities | 30,675 | (1,794 | ) | ||||
Other non-current, net | (40,303 | ) | (22,201 | ) | |||
Net cash provided by operating activities | 31,323 | 15,444 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (131,428 | ) | (79,353 | ) | |||
Distribution from equity investment | — | 1,200 | |||||
Proceeds from sale of equity investment | — | 25,000 | |||||
Proceeds from sale of assets | 10,000 | 10,887 | |||||
Net cash used in investing activities | (121,428 | ) | (42,266 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from term loan | 100,000 | — | |||||
Repayment of term loan | (193,508 | ) | (30,500 | ) | |||
Repayment of Nordea Q5000 Loan | (26,786 | ) | (26,786 | ) | |||
Repayment of MARAD Debt | (6,222 | ) | (5,926 | ) | |||
Repurchase of Convertible Senior Notes due 2032 | — | (13,400 | ) | ||||
Debt issuance costs | (3,694 | ) | (1,230 | ) | |||
Net proceeds from issuance of common stock | 219,504 | 94,538 | |||||
Payments related to tax withholding for share-based compensation | (1,306 | ) | (187 | ) | |||
Proceeds from issuance of ESPP shares | 432 | 708 | |||||
Net cash provided by financing activities | 88,420 | 17,217 | |||||
Effect of exchange rate changes on cash and cash equivalents | 1,927 | (2,481 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 242 | (12,086 | ) | ||||
Cash and cash equivalents: | |||||||
Balance, beginning of year | 356,647 | 494,192 | |||||
Balance, end of period | $ | 356,889 | $ | 482,106 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
| | |
|
Net loss | | $ | (3,050) | | $ | (13,928) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
|
|
Depreciation and amortization | |
| 34,566 | |
| 31,598 |
Goodwill impairment | |
| — | |
| 6,689 |
Amortization of debt discounts | |
| — | |
| 1,633 |
Amortization of debt issuance costs | |
| 810 | |
| 833 |
Share-based compensation | |
| 1,904 | |
| 2,259 |
Deferred income taxes | |
| (892) | |
| (6,517) |
Unrealized gain on derivative contracts, net | |
| — | |
| (601) |
Unrealized foreign currency (gain) loss | |
| (951) | |
| 9,237 |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable, net | |
| (463) | |
| (25,375) |
Income tax receivable | |
| 6,256 | |
| (17,033) |
Other current assets | |
| 9,361 | |
| (5,475) |
Accounts payable and accrued liabilities | |
| (4,881) | |
| 15,563 |
Other, net | |
| (2,791) | |
| (16,105) |
Net cash provided by (used in) operating activities | |
| 39,869 | |
| (17,222) |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Capital expenditures | |
| (1,329) | |
| (12,389) |
Net cash used in investing activities | |
| (1,329) | |
| (12,389) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Repayment of Term Loan | |
| (875) | |
| (875) |
Repayment of Nordea Q5000 Loan | |
| (53,572) | |
| (8,929) |
Repayment of MARAD Debt | |
| (3,734) | |
| (3,556) |
Debt issuance costs | |
| (43) | |
| (212) |
Payments related to tax withholding for share-based compensation | |
| (1,878) | |
| (5,150) |
Proceeds from issuance of ESPP shares | |
| 217 | |
| 331 |
Net cash used in financing activities | |
| (59,885) | |
| (18,391) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | |
| 406 | |
| (2,834) |
Net decrease in cash and cash equivalents and restricted cash | |
| (20,939) | |
| (50,836) |
Cash and cash equivalents and restricted cash: | |
|
| |
|
|
Balance, beginning of year | |
| 291,320 | |
| 262,561 |
Balance, end of period | | $ | 270,381 | | $ | 211,725 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix” or the “Company”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”), and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. GAAPdollars and are consistent in all material respects with those applied in our 20162020 Annual Report on Form 10-K (“2016(our “2020 Form 10-K”) with the exception of the impact of early adopting Accounting Standards Update (“ASU”) No. 2020-06 on a modified retrospective basis beginning January 1, 2021 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, (which werewhich, unless otherwise disclosed, are of normal recurring adjustments)nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), and statements of cash flows, as applicable. The operating results for the three- and nine-month periodsthree-month period ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021. Our balance sheet as of December 31, 20162020 included herein has been derived from the audited balance sheet as of December 31, 20162020 included in our 20162020 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual audited consolidated financial statements and notes thereto included in our 20162020 Form 10-K.
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
New accounting standards
In May 2014,August 2020, the Financial Accounting Standards Board (the “FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-09, “Revenue from2020-06, “Accounting for Convertible Instruments and Contracts with Customers (Topic 606).” This ASU provides a five-step approach to account for revenue arising from contracts with customers. The ASU requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflectsEntity's Own Equity,” which simplifies the consideration to which the entity expects to be entitled in exchange for those goods or services. This revenue standard was originally effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods, and was subsequently deferred by one year to annual reporting periods beginning after December 15, 2017. The FASB also issued several subsequent updates containing implementation guidance on principal versus agent considerations (gross versus net revenue presentation), identifying performance obligations and accounting for licensescertain financial instruments with characteristics of intellectual property.liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, this ASU removes from GAAP the requirement to separate certain convertible instruments, such as our Convertible Senior Notes Due 2022, Convertible Senior Notes Due 2023 and Convertible Senior Notes Due 2026 (Note 5), into liability and equity components. Consequently, those convertible instruments will be accounted for in their entirety as liabilities measured at their amortized cost. We elected to early adopt ASU No. 2020-06 on a modified retrospective basis beginning January 1, 2021. The adoption of this ASU increased our long-term debt and decreased our common stock by $44.1 million and $41.5 million, respectively, as we reclassified the conversion features associated with our various outstanding convertible senior notes from equity to long-term debt. The adoption of this ASU also increased our retained earnings and decreased deferred tax liabilities by $6.7 million and $9.3 million, respectively. Subsequent to its adoption, the ASU is also expected to reduce our interest expense as there will no longer be debt discounts to amortize associated with our outstanding convertible senior notes. Additionally, these updates provide narrow-scope improvementsthe ASU no longer permits the treasury stock method for convertible instruments and practical expedients as well as technical corrections and improvementsinstead requires the application of the if-converted method to calculate the guidance. The new revenue standard permits companies to either apply the requirements retrospectively to all prior periods presented or apply the requirements in the yearimpact of adoption through a cumulative adjustment. Our assessment at this stage is that weour convertible senior notes on diluted earnings per share (“EPS”).
We do not expect the new revenue standardany other recently issued accounting standards to have a material impact on our consolidated financial statements upon adoption. We continue working on expanded disclosure requirements and documentationposition, results of new policies, procedures and controls. We currently intend on adopting this guidance using the modified retrospective method.operations or cash flows when they become effective.
8
Note 2 — Company Overview
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We seek to provideTraditionally, our services and methodologies thathave covered the lifecycle of an offshore oil or gas field. In recent years, we believe are critical to maximizing production economics.have seen an increasing demand for our services from the offshore renewable energy market. We provide services primarily in deepwater in the U.S. Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions,regions. Our North Sea operations are subject to seasonal changes in demand, which generally peaks in the summer months and have expanded our operations into Brazil withdeclines in the commencement of operations of the
Our Well Intervention segment includesprovides services enabling our vessels and equipment usedcustomers to performsafely access offshore wells for the purpose of performing well enhancement or decommissioning operations. Our well intervention services primarily invessels include the U.S. Gulf of Mexico, North SeaQ4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and Brazil.2 chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. Our Well Intervention segment alsowell intervention equipment includes intervention riser systems (“IRSs”), some of which we rent out on a stand-alone basis, and subsea intervention lubricators (“SILs”). and the Riserless Open-water Abandonment Module (“ROAM”), some of which we provide on a stand-alone basis.
Our Robotics segment provides offshore construction, cable trenching, seabed clearance, inspection, repair and maintenance services to both the oil and gas and the renewable energy markets globally. Our Robotics services also complement well intervention vessels include the
Our Production Facilities segment includes the
Helix ProducerI (the “HPOther current assets consist of the following (in thousands):
September 30, 2017 | December 31, 2016 | ||||||
Note receivable (1) | $ | — | $ | 10,000 | |||
Prepaid insurance | 2,432 | 4,426 | |||||
Other prepaids | 10,021 | 9,547 | |||||
Deferred costs (2) | 20,704 | 7,971 | |||||
Spare parts inventory | 1,598 | 2,548 | |||||
Income tax receivable | — | 880 | |||||
Value added tax receivable | 2,169 | 1,345 | |||||
Other | 1,248 | 671 | |||||
Total other current assets | $ | 38,172 | $ | 37,388 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Contract assets (Note 7) | | $ | 360 |
| $ | 2,446 |
Prepaids | |
| 15,289 |
| | 15,904 |
Deferred costs (Note 7) | |
| 18,717 |
| | 23,522 |
Income tax receivable | |
| 13,847 |
| | 20,787 |
Other receivable (Note 11) | |
| 30,052 |
| | 29,782 |
Other | |
| 7,977 |
| | 9,651 |
Total other current assets | | $ | 86,242 |
| $ | 102,092 |
Other assets, net consist of the following (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Deferred recertification and dry dock costs, net | | $ | 19,073 |
| $ | 21,464 |
Deferred costs (Note 7) | |
| 916 |
| | 861 |
Charter deposit (1) | |
| 12,544 |
| | 12,544 |
Intangible assets with finite lives, net | |
| 3,756 |
| | 3,809 |
Other | |
| 1,221 |
| | 1,335 |
Total other assets, net | | $ | 37,510 |
| $ | 40,013 |
September 30, 2017 | December 31, 2016 | ||||||
Note receivable, net (1) | $ | 3,129 | $ | 2,827 | |||
Prepaids | 8,112 | 6,418 | |||||
Deferred dry dock costs, net | 14,260 | 14,766 | |||||
Deferred costs (2) | 57,934 | 30,738 | |||||
Deferred financing costs, net (3) | 2,814 | 3,745 | |||||
Charter fee deposit (4) | 12,544 | 12,544 | |||||
Other | 2,181 | 1,511 | |||||
Total other assets, net | $ | 100,974 | $ | 72,549 |
(1) |
9
September 30, 2017 | December 31, 2016 | ||||||
�� | |||||||
Accrued payroll and related benefits | $ | 29,682 | $ | 20,705 | |||
Deferred revenue | 8,664 | 8,911 | |||||
Accrued interest | 2,997 | 3,758 | |||||
Derivative liability (Note 14) | 9,927 | 18,730 | |||||
Taxes payable excluding income tax payable | 1,209 | 1,214 | |||||
Other | 8,282 | 5,296 | |||||
Total accrued liabilities | $ | 60,761 | $ | 58,614 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Accrued payroll and related benefits | | $ | 20,327 |
| $ | 24,768 |
Accrued interest | | | 3,010 | | | 7,098 |
Deferred revenue (Note 7) | |
| 9,614 |
| | 8,140 |
Asset retirement obligations (Note 11) | |
| 30,961 |
| | 30,913 |
Other | |
| 12,574 |
| | 16,116 |
Total accrued liabilities | | $ | 76,486 |
| $ | 87,035 |
Other non-current liabilities consist of the following (in thousands):
September 30, 2017 | December 31, 2016 | ||||||
Investee losses in excess of investment (Note 5) | $ | 8,845 | $ | 10,238 | |||
Deferred gain on sale of property (1) | 5,910 | 5,761 | |||||
Deferred revenue | 8,827 | 8,598 | |||||
Derivative liability (Note 14) | 9,663 | 20,191 | |||||
Other | 9,491 | 8,197 | |||||
Total other non-current liabilities | $ | 42,736 | $ | 52,985 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Deferred revenue (Note 7) | | $ | 1,333 |
| $ | 1,869 |
Other | |
| 1,772 |
| | 2,009 |
Total other non-current liabilities | | $ | 3,105 |
| $ | 3,878 |
Note 4 — StatementLeases
We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. We also sublease some of Cash Flow Information
The following table provides supplemental cash flow informationdetails the components of our lease cost (in thousands):
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Interest paid, net of interest capitalized | $ | 9,002 | $ | 17,970 | |||
Income taxes paid | $ | 3,967 | $ | 4,674 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Operating lease cost | | $ | 16,216 |
| $ | 16,323 |
Variable lease cost | |
| 3,484 |
| | 3,212 |
Short-term lease cost | |
| 1,732 |
| | 7,174 |
Sublease income | |
| (349) |
| | (279) |
Net lease cost | | $ | 21,083 |
| $ | 26,430 |
Maturities of our operating lease liabilities as of September 30, 2017 and $10.1 millionMarch 31, 2021 are as follows (in thousands):
| | | | | | | | | |
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | 52,620 | | $ | 5,825 |
| $ | 58,445 |
One to two years | |
| 52,105 | |
| 5,249 |
| | 57,354 |
Two to three years | |
| 24,203 | |
| 4,637 |
| | 28,840 |
Three to four years | |
| — | |
| 4,205 |
| | 4,205 |
Four to five years | |
| — | |
| 1,591 |
| | 1,591 |
Over five years | |
| 0 | |
| 3,884 |
| | 3,884 |
Total lease payments | | $ | 128,928 | | $ | 25,391 |
| $ | 154,319 |
Less: imputed interest | |
| (11,088) | |
| (4,334) |
| | (15,422) |
Total operating lease liabilities | | $ | 117,840 | | $ | 21,057 |
| $ | 138,897 |
| | | | | | | | | |
Current operating lease liabilities | | $ | 45,598 | | $ | 4,723 |
| $ | 50,321 |
Non-current operating lease liabilities | |
| 72,242 | |
| 16,334 |
| | 88,576 |
Total operating lease liabilities | | $ | 117,840 | | $ | 21,057 |
| $ | 138,897 |
10
| | | | | | | | | |
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | 54,621 | | $ | 6,028 |
| $ | 60,649 |
One to two years | |
| 52,106 | |
| 5,435 |
| | 57,541 |
Two to three years | |
| 34,580 | |
| 4,649 |
| | 39,229 |
Three to four years | |
| 2,470 | |
| 4,374 |
| | 6,844 |
Four to five years | |
| — | |
| 2,340 |
| | 2,340 |
Over five years | |
| — | |
| 4,054 |
| | 4,054 |
Total lease payments | | $ | 143,777 | | $ | 26,880 |
| $ | 170,657 |
Less: imputed interest | |
| (13,352) | |
| (4,697) |
| | (18,049) |
Total operating lease liabilities | | $ | 130,425 | | $ | 22,183 |
| $ | 152,608 |
| | | | | | | | | |
Current operating lease liabilities | | $ | 46,748 | | $ | 4,851 |
| $ | 51,599 |
Non-current operating lease liabilities | |
| 83,677 | |
| 17,332 |
| | 101,009 |
Total operating lease liabilities | | $ | 130,425 | | $ | 22,183 |
| $ | 152,608 |
The following table presents the weighted average remaining lease term and discount rate:
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 | | 2020 | ||
Weighted average remaining lease term |
| 3.0 | years | | 3.1 | years |
Weighted average discount rate |
| 7.53 | % | | 7.53 | % |
The following table presents other information related to our operating leases (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash paid for operating lease liabilities | | $ | 16,502 |
| $ | 16,472 |
ROU assets obtained in exchange for new operating lease obligations | |
| 113 |
| | — |
Scheduled maturities of our long-term debt outstanding as of September 30, 2017March 31, 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Term | | 2022 | | 2023 | | 2026 | | MARAD | | |
| |||||
|
| Loan |
| Notes |
| Notes |
| Notes |
| Debt |
| Total | ||||||
Less than one year | | $ | 28,875 | | $ | — | | $ | — | | $ | — | | $ | 7,746 |
| $ | 36,621 |
One to two years | |
| — | |
| 35,000 | |
| — | |
| — | |
| 8,133 |
| | 43,133 |
Two to three years | |
| — | |
| — | |
| 30,000 | |
| — | |
| 8,539 |
| | 38,539 |
Three to four years | |
| — | |
| — | |
| — | |
| — | |
| 8,965 |
| | 8,965 |
Four to five years | |
| — | |
| — | |
| — | |
| 200,000 | |
| 9,412 |
| | 209,412 |
Over five years | |
| — | |
| — | |
| — | |
| — | |
| 9,881 |
| | 9,881 |
Gross debt | |
| 28,875 | |
| 35,000 | |
| 30,000 | |
| 200,000 | |
| 52,676 |
| | 346,551 |
Unamortized debt issuance costs (1) | |
| (143) | |
| (206) | |
| (445) | |
| (6,792) | |
| (2,927) |
| | (10,513) |
Total debt | |
| 28,732 | |
| 34,794 | |
| 29,555 | |
| 193,208 | |
| 49,749 |
| | 336,038 |
Less current maturities | |
| (28,732) | |
| — | |
| — | |
| — | |
| (7,746) |
| | (36,478) |
Long-term debt | | $ | — | | $ | 34,794 | | $ | 29,555 | | $ | 193,208 | | $ | 42,003 |
| $ | 299,560 |
Term Loan (1) | 2022 Notes | 2032 Notes (2) | MARAD Debt | Nordea Q5000 Loan | Total | ||||||||||||||||||
Less than one year | $ | 6,250 | $ | — | $ | 60,115 | $ | 6,532 | $ | 35,714 | $ | 108,611 | |||||||||||
One to two years | 11,250 | — | — | 6,858 | 35,714 | 53,822 | |||||||||||||||||
Two to three years | 81,250 | — | — | 7,200 | 98,215 | 186,665 | |||||||||||||||||
Three to four years | — | — | — | 7,560 | — | 7,560 | |||||||||||||||||
Four to five years | — | 125,000 | — | 7,937 | — | 132,937 | |||||||||||||||||
Over five years | — | — | — | 40,913 | — | 40,913 | |||||||||||||||||
Total debt | 98,750 | 125,000 | 60,115 | 77,000 | 169,643 | 530,508 | |||||||||||||||||
Current maturities | (6,250 | ) | — | (60,115 | ) | (6,532 | ) | (35,714 | ) | (108,611 | ) | ||||||||||||
Long-term debt, less current maturities | 92,500 | 125,000 | — | 70,468 | 133,929 | 421,897 | |||||||||||||||||
Unamortized debt discount (3) | — | (14,555 | ) | (1,052 | ) | — | — | (15,607 | ) | ||||||||||||||
Unamortized debt issuance costs (4) | (1,815 | ) | (2,427 | ) | (92 | ) | (4,635 | ) | (1,976 | ) | (10,945 | ) | |||||||||||
Long-term debt | $ | 90,685 | $ | 108,018 | $ | (1,144 | ) | $ | 65,833 | $ | 131,953 | $ | 395,345 |
(1) |
Debt issuance costs are amortized to interest expense over the term of the applicable debt agreement. See Note 1 for accounting changes as a result of the adoption of ASU No. 2020-06. |
11
Credit Agreement
We have a credit agreement (and the amendments made thereafter, collectively the “Credit Agreement”) with a group of lenders led by Bank of America, N.A. (“Bank of America”). The amended and restated credit facilityCredit Agreement is comprised of a $100Term Loan with a remaining balance of $28.9 million term loan (the “Term Loan”)as of March 31, 2021 and a revolving credit facility (the “RevolvingRevolving Credit Facility”)Facility with a maximum availability of up to $150 million (the “Revolving Loans”).$175 million. The Credit Agreement expires and the Term Loan matures on December 31, 2021. The Revolving Credit Facility permits the Companyus to obtain letters of credit up to a sublimit of $25 million. Pursuant to the Credit Agreement, subject to existing lender participation and/or the participation of new lenders, and subject to standard conditions precedent, we may request aggregate commitments of up to $100 million with respect to an increase in the Revolving Credit Facility, additional term loans, or a combination thereof. The $100 million proceeds from the Term Loan as well as cash on hand were used to repay the approximately $180 million term loan then outstanding under the credit facility prior to its June 2017 amendment and restatement. At September 30, 2017,Facility. As of March 31, 2021, we had no0 borrowings under the Revolving Credit Facility, and our available borrowing capacity under that facility, based on the applicable leverage ratio covenant,ratios, totaled $69.9$172.2 million, net of $4.0$2.8 million of letters of credit issued under that facility.
Borrowings under the Revolving Loans (together, the “Loans”),Credit Agreement bear interest, at our election, bear interestat either in relation to Bank of America’s base rate, the LIBOR or to a LIBOR rate.comparable successor rate, or a combination thereof. The Term Loan or portions thereof bearing interest at the base rate will bear interest at a per annum rate equal to theBank of America’s base rate plus 3.25%a margin of 2.25%. The Term Loan or portions thereof bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin of 4.25%3.25%. The interest rate on the Term Loan was 3.36% as of March 31, 2021. Borrowings under the Revolving Loans or portions thereofCredit Facility bearing interest at the base rate will bear interest at a per annum rate equal to theBank of America’s base rate plus a margin ranging from 1.75%1.50% to 3.25%2.50%. TheBorrowings under the Revolving Loans or portions thereofCredit Facility bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin ranging from 2.75%2.50% to 4.25%3.50%. A letter of credit fee is payable by us equal to itsthe applicable margin for LIBOR rate Loans timesloans multiplied by the daily amount available to be drawn under the applicable letter of credit. Margins on borrowings under the Revolving LoansCredit Facility will vary in relation to the consolidated total leverage ratioConsolidated Total Leverage Ratio (as defined below) as provided for in the Credit Agreement. We also pay a fixed commitment fee of 0.50% per annum on the unused portion of ourthe Revolving Credit Facility.
The Term Loan principal is required to be repaid in quarterly installments of 5% in the first loan year,
Our obligations under the Credit Agreement, and those of our subsidiary guarantors under their guarantee, are secured by (i) most of the assets of the parent company, (ii) the shares of our domestic subsidiaries (other than Cal Dive I – Title XI, Inc.) and of Helix Robotics Solutions Limited and (iii) most of the assets of our domestic subsidiaries (other than Cal Dive I – Title XI, Inc.) and of Helix Robotics Solutions Limited. In addition, these obligations are secured by pledges of up to 66% of the shares of certain foreign subsidiaries (restricted subsidiaries).
The Credit Agreement and the other documents entered into in connection with the Credit Agreement include terms and conditions, including covenants, whichthat we consider customary for this type of transaction. The covenants include certain restrictions on our and certain of our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and make capital expenditures. In addition, the Credit Agreement obligates us to meet minimum financial ratio requirements of EBITDA to interest charges (“Consolidated(Consolidated Interest Coverage Ratio”) andRatio), funded debt to EBITDA (“Consolidated(Consolidated Total Leverage Ratio”),Ratio) and provided that if there are no Loans outstanding, thesecured funded debt ratio requirement permits us to offset a certain amount of cash against the funded debt used in the calculation (“Consolidated Net Leverage Ratio”). After the initial Term Loan is repaid in full, if there are any Loans outstanding including unreimbursed draws under letters of credit issued under the Revolving Credit Facility, we are also required to ensure that the ratio of our total secured indebtedness to EBITDA (“Consolidated(Consolidated Secured Leverage Ratio”) does not exceed the maximum permitted ratio. The Credit Agreement also obligates us to maintain certain cash levels depending on the type of indebtedness outstanding. These financial covenant requirements are detailed as follows:
We may from time to time designate one or more of our new foreign subsidiaries as subsidiaries which are not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”), provided that we meet certain liquidity requirements.. The Unrestricted Subsidiaries are not pledged as collateral under the Credit Agreement, and the debt and EBITDA of the Unrestricted Subsidiaries, with the exception of Helix Q5000 Holdings, S.à r.l., a wholly owned Luxembourg subsidiary of Helix Vessel Finance S.à r.l., are not included in the calculations of our financial covenants except for the debt and EBITDA of Helix Q5000 Holdings, S.a.r.l., a wholly owned subsidiary incorporated in Luxembourg (“Q5000 Holdings”). Our obligations under the Credit Agreement are guaranteed by our domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, a wholly owned Scottish subsidiary, and our obligations under the Credit Agreement and of such guarantors under their guarantee are secured by most of our assets of the parent, our domestic subsidiaries (other than Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, as well as pledges of up to two-thirds of the shares of certain foreign subsidiaries.
12
Convertible Senior Notes Due 2022
The 2022 Notes bear interest at a coupon interest rate of 4.25% per annum and are payable semi-annually in arrears on November 1 and May 1 of each year beginning on May 1, 2017.until maturity. The 2022 Notes mature on May 1, 2022 unless earlier converted, redeemed or repurchased. During certain periods and subject to certain conditions (as described in the Indenture governing the 2022 Notes) therepurchased by us. The 2022 Notes are convertible by thetheir holders into shares of our common stockat any time beginning February 1, 2022 at an initial conversion rate of 71.9748 shares of our common stock per $1,000 principal amount, (whichwhich currently represents 2,519,118 potentially convertible shares at an initial conversion price of approximately $13.89 per share of common stock), subject to adjustment in certain circumstances as set forth in the Indenture governing the 2022 Notes. Westock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to February 1, 2022, holders of the 2022 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2022 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2022 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the intentiontime remaining to settle any such future conversions in cash.
Prior to November 1, 2019, the 2022 Notes arewere not redeemable. On or after November 1, 2019, we may redeem all or any portion of the 2022 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our option, subjectredemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2022 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2022 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2022 Notes).
The indenture governing the 2022 Notes contains customary terms and covenants, including that upon certain conditions,events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a subsidiary, the principal amount of the 2022 Notes together with any accrued interest will become immediately due and payable.
The 2022 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the maturity date of the 2022 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2022 Notes totaled $1.5 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2022 Notes (Note 1). As of March 31, 2021, unamortized debt issuance costs related to the 2022 Notes were $0.2 million.
The effective interest rate for the 2022 Notes prior to the adoption of ASU No. 2020-06 was 7.3%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 4.8%. For the three-month period ended March 31, 2021, total interest expense related to the 2022 Notes was $0.4 million primarily from coupon interest expense. For the three-month period ended March 31, 2020, total interest expense related to the 2022 Notes was $2.3 million, with coupon interest expense of $1.4 million and the amortization of debt discount and issuance costs of $0.9 million.
13
Convertible Senior Notes Due 2023 (“2023 Notes”)
The 2023 Notes bear interest at a coupon interest rate of 4.125% per annum payable semi-annually in arrears on March 15 and September 15 of each year until maturity. The 2023 Notes mature on September 15, 2023 unless earlier converted, redeemed or repurchased by us. The 2023 Notes are convertible by their holders at any time beginning March 15, 2023 at an initial conversion rate of 105.6133 shares of our common stock per $1,000 principal amount, which currently represents 3,168,399 potentially convertible shares at an initial conversion price of approximately $9.47 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to March 15, 2023, holders of the 2023 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2023 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2023 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 47.5260 shares of our common stock per $1,000 principal amount.
Prior to March 15, 2021, the 2023 Notes were not redeemable. On or after March 15, 2021, we may redeem all or any portion of the 2023 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption pricenotice. Any redemption would be payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” with a value equal tocalculated as the present value of theall remaining scheduled interest payments of the 2022 Notes to be redeemed through May 1, 2022.payments. Holders of the 20222023 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2023 Notes may also require us to repurchase the notes following a “fundamental change,” aswhich includes a change of control or a termination of trading of our common stock (as defined in the 2022 Notes documentation.
The indenture governing the 2023 Notes contains customary terms and covenants, including that upon certain events of default, occurring and continuing, either the trustee under the Indenture or the holders of not less than 25% in aggregate principal amount then outstanding under the 2022 Notes may declare the entire principal amount of alland any accrued interest on the notes and the interest accrued on such notes, if any, tomay be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a principalsignificant subsidiary, the principal amount of the 20222023 Notes together with any accrued and unpaid interest thereon will automatically be and become immediately due and payable.
The 2023 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the maturity date of the 2023 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2023 Notes totaled $3.1 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2023 Notes (Note 1). As of March 31, 2021, unamortized debt issuance ofcosts related to the 20222023 Notes we recorded a debt discount of $16.9 million as required under existing accounting rules. To arrive at this discount amount, we estimated the fair value of the liability component of the 2022 Notes as of October 26, 2016 using an income approach. To determine this estimated fair value, we used borrowing rates of similar market transactions involving comparable liabilities at the time of pricing and an expected life of 5.5 years. were $0.4 million.
The effective interest rate for the 20222023 Notes is 7.3% after consideringprior to the effectadoption of ASU No. 2020-06 was 7.8%. The effective interest rate subsequent to the accretionadoption of ASU No. 2020-06 decreased to 4.8%. For the related debt discount that represented the equity component of the 2022 Notes at their inception. We recorded $11.0 million, net of tax,three-month period ended March 31, 2021, total interest expense related to the carrying amount2023 Notes was $0.4 million, with coupon interest expense of $0.3 million and the equity componentamortization of issuance costs of $0.1 million. For the 2022 Notes. The remaining unamortized amountthree-month period ended March 31, 2020, total interest expense related to the 2023 Notes was $2.3 million, with coupon interest expense of $1.3 million and the amortization of debt discount and issuance costs of the 2022 Notes was $14.6 million at September 30, 2017 and $16.5 million at December 31, 2016.$1.0 million.
14
Convertible Senior Notes Due 2032
The 20322026 Notes bear interest at a coupon interest rate of 3.25%6.75% per annum and are payable semi-annually in arrears on MarchFebruary 15 and SeptemberAugust 15 of each year, beginning on SeptemberFebruary 15, 2012.2021 until maturity. The 20322026 Notes mature on MarchFebruary 15, 20322026 unless earlier converted, redeemed or repurchased.repurchased by us. The 20322026 Notes are convertible in certain circumstances and during certain periodsby their holders at any time beginning November 17, 2025 at an initial conversion rate of 39.9752143.3795 shares of our common stock per $1,000 principal amount, (whichwhich currently represents 28,675,900 potentially convertible shares at an initial conversion price of approximately $25.02$6.97 per share of common stock), subject to adjustment in certain circumstances as set forth in the Indenture governing the 2032 Notes. Westock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to November 17, 2025, holders of the 2026 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2026 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2026 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the intentiontime remaining to settle any such future conversions in cash.
Prior to March 20, 2018,August 15, 2023, the 20322026 Notes are not redeemable. On or after March 20, 2018,August 15, 2023, we at our option, may redeem someall or allany portion of the 20322026 Notes in cash, at any time uponif the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 days’ notice, at a priceconsecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest (including contingentand a “make-whole premium” calculated as the present value of all remaining scheduled interest if any) up to but excluding the redemption date. In addition, the holderspayments. Holders of the 20322026 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2026 Notes may also require us to purchaserepurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in cash somethe indenture governing the 2026 Notes).
The indenture governing the 2026 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or all of their 2032 Notes atreorganization relating to us or a repurchase price equal to 100% ofsignificant subsidiary, the principal amount of the 20322026 Notes plustogether with any accrued interest will become immediately due and unpaid interest (including contingent interest, if any) up to but excludingpayable.
The 2026 Notes were initially separated between the applicable repurchase date, on March 15, 2018, March 15, 2022equity component recognized in shareholders’ equity and March 15, 2027, or, subject to specified exceptions, at any time prior to the 2032 Notes’ maturity following a Fundamental Change (either a Change of Control or a Termination of Trading,debt component, which was presented as those terms are defined in the Indenture governing the 2032 Notes). We elected to repurchase $7.3 million, $7.6 million and $125 million, respectively, in aggregate principal amountlong-term debt, net of the 2032 Notes in June, Julyunamortized debt discount and Novemberdebt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the maturity date of 2016, respectively. For the three-2026 Notes. As of December 31, 2020, unamortized debt discount and nine-month periods ended September 30, 2016, we recognized gainsdebt issuance costs related to the repurchase2026 Notes totaled $47.3 million. As a result of the 2032 Notesadoption of $0.2 million and $0.5 million, respectively, which are presented as “Gain on early extinguishment of long-term debt” in the accompanying consolidated statements of operations.
The effective interest rate for the 20322026 Notes is 6.9% after consideringprior to the effectadoption of ASU No. 2020-06 was 12.4%. The effective interest rate subsequent to the accretionadoption of ASU No. 2020-06 decreased to 7.6%. For the related debt discount that represented the equity component of the 2032 Notes at their inception. We recorded $22.5 million, net of tax,three-month period ended March 31, 2021, total interest expense related to the carrying amount2026 Notes was $3.7 million, with coupon interest expense of $3.4 million and the amortization of debt issuance costs of $0.3 million.
In connection with the 2026 Notes offering, we entered into capped call transactions (the “2026 Capped Calls”) with three separate option counterparties. The 2026 Capped Calls are separate transactions from the 2026 Notes and do not change the holders' rights under the 2026 Notes. Holders of the equity component2026 Notes do not have any rights with respect to the 2026 Capped Calls.
15
The 2026 Capped Calls are for an aggregate of 28,675,900 shares of our common stock, which corresponds to the shares into which the 2026 Notes are initially convertible. The capped call shares are subject to certain anti-dilution adjustments. Each capped call option has an initial strike price of approximately $6.97 per share, which corresponds to the initial conversion price of the 2032 Notes.2026 Notes, and an initial cap price of approximately $8.42 per share. The remaining unamortized amountstrike and cap prices are subject to certain adjustments. The 2026 Capped Calls are intended to offset some or all of the debt discountpotential dilution to Helix common shares caused by any conversion of the 20322026 Notes was $1.1up to the cap price. The 2026 Capped Calls can be settled in either net shares or cash at our option in components commencing December 15, 2025 and ending February 12, 2026, which could be extended under certain circumstances.
The 2026 Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting Helix, including a merger, tender offer, nationalization, insolvency or delisting. In addition, certain events may result in a termination of the 2026 Capped Calls, including changes in law, insolvency filings and hedging disruptions. The 2026 Capped Calls are recorded at their aggregate cost of $10.6 million at September 30, 2017 and $2.6 million at December 31, 2016.
MARAD Debt
This U.S. government guaranteedgovernment-guaranteed financing (the “MARAD Debt”), pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, was used to finance the construction of the
Other
We previously had a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) in anto finance the construction of the Q5000. The loan was secured by the Q5000 and its charter earnings. As of December 31, 2020, the remaining principal amount of up to $250 million. Thethe Nordea Q5000 Loan was funded in$53.6 million, reflecting the amount of $250 million in April 2015 at the time the
In accordance with ourthe Credit Agreement, the 2022 Notes, the 20322023 Notes, the 2026 Notes and the MARAD Debt agreements, and the Nordea Credit Agreement, we are required to comply with certain covenants, including with respect to the Credit Agreement, certain financial ratios such as a consolidated interest coverage ratio, a consolidated total leverage ratio and variousa consolidated secured leverage ratios,ratio, as well as the maintenance of minimum cash balance, net worth, working capital and debt-to-equity requirements. As of September 30, 2017,March 31, 2021, we were in compliance with these covenants.
The following table details the components of our net interest expense (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Interest expense | | $ | 6,112 |
| $ | 7,394 | |
Capitalized interest | |
| — |
| | (1,182) | |
Interest income | |
| (59) |
| | (466) | |
Net interest expense | | $ | 6,053 |
| $ | 5,746 | |
16
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest expense | $ | 8,336 | $ | 10,745 | $ | 30,183 | $ | 34,224 | |||||||
Interest income | (792 | ) | (833 | ) | (2,056 | ) | (1,713 | ) | |||||||
Capitalized interest | (3,929 | ) | (3,069 | ) | (12,647 | ) | (7,504 | ) | |||||||
Net interest expense | $ | 3,615 | $ | 6,843 | $ | 15,480 | $ | 25,007 |
Note 76 — Income Taxes
We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain, anduncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.
For the three-month period ended March 31, 2021, our estimated annual effective tax rate, adjusted for discrete tax items, is applied to our pre-tax loss as we have determined that the use of the annual effective tax rate method is appropriate. We used the discrete effective tax rate method for recording income taxes for the three-month period ended March 31, 2020. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. For the three-month period ended March 31, 2020, we believed using the discrete method was more appropriate than the annual effective tax rate method because of the high degree of uncertainty in estimating annual pretax earnings created at the time by uncertainty in future market conditions caused by the ongoing COVID-19 pandemic as well as uncertainty in the oil and gas market.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicable in the relevant carryback year. As a result of these changes, in the three-month period ended March 31, 2020 we recognized an estimated $5.8 million net tax benefit, consisting of a $15.9 million current tax benefit and a $10.1 million deferred tax expense. This $5.8 million net tax benefit resulted from our deferred tax assets related to our net operating losses in the U.S. being utilized at the previous higher income tax rate applicable to the carryback periods.
During the three-month period ended March 31, 2020, we migrated 2 of our foreign subsidiaries into our U.S. consolidated tax group. Subsequent to the migration, these subsidiaries are disregarded and no longer subject to certain branch profits taxes. Consequently, we recognized net deferred tax benefits of $8.3 million due to the reduction in the overall tax rate associated with these subsidiaries.
Income taxes are provided at the U.S. statutory rate and at the local statutory rate for each foreign jurisdiction and adjusted for items that are permanent differences for Federal and foreign income tax reporting purposes, but not for book purposes. The effective tax rates for the three- and nine-monththree-month periods ended September 30, 2017March 31, 2021 and 2020 were (204.9)(4.0)% and 5.2%, respectively. The effective tax rates for the three- and nine-month periods ended September 30, 2016 were 24.1% and 26.7%60.2%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and a change inas well as our carrying back certain net operating losses to prior periods with higher income tax position related to our foreign taxes.
17
The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our effective rateactual income tax provision (benefit) are as follows:
| | | | | | | | | | | | |
| | Three Months Ended |
| | ||||||||
| | March 31, |
| | ||||||||
|
| 2021 |
| 2020 |
| | ||||||
Taxes at U.S. statutory rate | | $ | (616) |
| 21.0 | % | $ | (7,355) |
| 21.0 | % | |
Foreign tax provision | |
| (938) |
| 32.0 | |
| 1,051 |
| (3.0) | | |
CARES Act | |
| — |
| — | |
| (5,814) |
| 16.6 | | |
Subsidiary restructuring | |
| — |
| — | |
| (8,333) |
| 23.8 | | |
Other | |
| 1,670 |
| (57.0) | |
| (642) |
| 1.8 | | |
Income tax provision (benefit) (1) | | $ | 116 |
| (4.0) | % | $ | (21,093) |
| 60.2 | % | |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
U.S. statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||
Foreign provision | (241.5 | ) | (10.8 | ) | 2.8 | (8.8 | ) | ||||
Change in tax position (1) | — | — | (29.3 | ) | — | ||||||
Other | 1.6 | (0.1 | ) | (3.3 | ) | 0.5 | |||||
Effective rate | (204.9 | )% | 24.1 | % | 5.2 | % | 26.7 | % |
(1) |
Disaggregation of 26,450,000 sharesRevenue
Our revenues are primarily derived from short-term and long-term service contracts with customers. Our service contracts generally contain either provisions for specific time, material and equipment charges that are billed in accordance with the terms of our common stock atsuch contracts (dayrate contracts) or lump sum payment provisions (lump sum contracts). We record revenues net of taxes collected from customers and remitted to governmental authorities. Contracts are classified as long-term if all or part of the contract is to be performed over a public offering price of $8.65 per share. The net proceedsperiod extending beyond 12 months from the Offering approximated $220 million, after deducting underwriting discounts and commissions and estimated offering expenses. We usedeffective date of the net proceeds fromcontract. Long-term contracts may include multi-year agreements whereby the Offeringcommitment for general corporate purposes, including debt repayment, capital expenditures, working capital and investmentsservices in our subsidiaries.
| | | | | | | | | | | | | | | |
| | Well | | | | Production | | Intercompany | | Total | |||||
|
| Intervention |
| Robotics |
| Facilities |
| Eliminations (1) |
| Revenue | |||||
Three months ended March 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Short-term | | $ | 49,217 | | $ | 9,407 | | $ | 0 | | $ | 0 | | $ | 58,624 |
Long-term | |
| 84,551 | |
| 12,749 | |
| 16,447 | |
| (8,956) | |
| 104,791 |
Total | | $ | 133,768 | | $ | 22,156 | | $ | 16,447 | | $ | (8,956) | | $ | 163,415 |
| | | | | | | | | | | | | | | |
Three months ended March 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
Short-term | | $ | 82,324 | | $ | 22,441 | | $ | 0 | | $ | 0 | | $ | 104,765 |
Long-term | |
| 58,328 | |
| 12,817 | |
| 15,541 | |
| (10,430) | |
| 76,256 |
Total | | $ | 140,652 | | $ | 35,258 | | $ | 15,541 | | $ | (10,430) | | $ | 181,021 |
September 30, 2017 | December 31, 2016 | ||||||
Cumulative foreign currency translation adjustment | $ | (64,048 | ) | $ | (78,953 | ) | |
Unrealized loss on hedges, net (1) | (8,314 | ) | (18,021 | ) | |||
Accumulated other comprehensive loss | $ | (72,362 | ) | $ | (96,974 | ) |
(1) |
Contract Balances
Accounts receivable are recognized when our right to consideration becomes unconditional. Accounts receivable that have been billed to customers are recorded as trade accounts receivable while accounts receivable that have not been billed to customers are recorded as unbilled accounts receivable.
18
Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3). Contract assets were $0.4 million at March 31, 2021 and $2.4 million at December 31, 2020. We had 0 credit losses on our contract assets for the three-month periods ended March 31, 2021 and 2020.
Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets (Note 3). Contract liabilities totaled $10.9 million at March 31, 2021 and $10.0 million at December 31, 2020. Revenue recognized for the three-month periods ended March 31, 2021 and 2020 included $2.5 million and $3.4 million, respectively, that were included in the contract liability balance at the beginning of each period.
We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
Performance Obligations
As of March 31, 2021, $358.4 million related to unsatisfied performance obligations was expected to be recognized as revenue in the future, with $238.7 million in 2021, $84.4 million in 2022 and $35.3 million in 2023 and thereafter. These amounts include fixed consideration and estimated variable consideration for both wholly and partially unsatisfied performance obligations, including mobilization and demobilization fees. These amounts are derived from the specific terms of our contracts, and the expected timing for revenue recognition is based on the estimated start date and duration of each contract according to the information known at March 31, 2021.
For the three-month periods ended March 31, 2021 and 2020, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
Contract Fulfillment Costs
Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3). Our deferred contract costs totaled $19.6 million at March 31, 2021 and $24.4 million at December 31, 2020. For the three-month periods ended March 31, 2021 and 2020, we recorded $10.4 million and $9.2 million, respectively, related to amortization of these deferred contract costs. There were no associated impairment losses for any period presented.
For additional information regarding revenue recognition, see Notes 2 and 12 to our 2020 Form 10-K.
19
We have shares of restricted stock issued and outstanding that are currently unvested. HoldersBecause holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock, we are required to compute basic and diluted EPS under the shares of restricted stock are thus considered participating securities.two-class method in periods in which we have earnings. Under applicable accounting guidance, the undistributed earningstwo-class method, net income or loss attributable to common shareholders for each period areis allocated based on the participation rights of both the common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. Because both the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, we are required to compute earnings per share (“EPS”) amounts under the two class method in periods in which we have earnings. For periods in which we have a net loss we do not use the two classtwo-class method as holders of our restricted shares are not obligated to share in such losses.
Basic EPS amounts on the face of the accompanying condensed consolidated statements of operations is computed by dividing net income or loss available to common shareholders by the weighted average shares of our common stock outstanding. The calculation of diluted EPS is similar to that for basic EPS, except that the denominator includes dilutive common stock equivalents and the income included in the numerator excludes the effects of the impact of dilutive common stock equivalents, if any. The computations of the numerator (income) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations for the three-month periods ended September 30, 2017 and 2016 are as follows (in thousands):
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | ||||||||||||
Income | Shares | Income | Shares | ||||||||||
Basic: | |||||||||||||
Net income | $ | 2,290 | $ | 11,462 | |||||||||
Less: Undistributed earnings allocated to participating securities | (27 | ) | (160 | ) | |||||||||
Undistributed earnings allocated to common shares | $ | 2,263 | 145,958 | $ | 11,302 | 113,680 | |||||||
Diluted: | |||||||||||||
Undistributed earnings allocated to common shares | $ | 2,263 | 145,958 | $ | 11,302 | 113,680 | |||||||
Effect of dilutive securities: | |||||||||||||
Share-based awards other than participating securities | — | — | — | — | |||||||||
Undistributed earnings reallocated to participating securities | — | — | — | — | |||||||||
Net income | $ | 2,263 | 145,958 | $ | 11,302 | 113,680 |
| | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||
| | March 31, 2021 | | March 31, 2020 | ||||||
|
| Income |
| Shares |
| Income |
| Shares | ||
Basic and Diluted: |
| |
|
|
|
| |
|
|
|
Net loss attributable to common shareholders | | $ | (2,878) | | |
| $ | (11,938) |
|
|
Less: Accretion of redeemable noncontrolling interests | |
| (241) | | |
| | (2,086) |
|
|
Net loss available to common shareholders | | $ | (3,119) | | 149,935 | | $ | (14,024) |
| 148,863 |
We had net losses for the nine-monththree-month periods ended September 30, 2017March 31, 2021 and 2016.2020. Accordingly, our diluted EPS calculation for these periods was equivalent to our basic EPS calculation since diluted EPS excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods. Shares that otherwise would have been included in the diluted per share calculations assuming we had earnings are as follows (in thousands):
Nine Months Ended September 30, | |||||
2017 | 2016 | ||||
Diluted shares (as reported) | 145,057 | 109,135 | |||
Share-based awards | 364 | 308 | |||
Total | 145,421 | 109,443 |
| | | | | |
| | Three Months Ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 | |
Diluted shares (as reported) |
| 149,935 |
| 148,863 | |
Share-based awards |
| 1,093 |
| 722 | |
Total |
| 151,028 |
| 149,585 | |
The following potentially dilutive shares related to the 2022 Notes, the 2023 Notes and the 20322026 Notes were excluded from the diluted EPS calculation because we have the right and the intention to settle any such future conversions in cash (Note 6)as they were anti-dilutive (in thousands):
| | | | | |
| | Three Months Ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 | |
2022 Notes |
| 2,519 |
| 8,997 | |
2023 Notes |
| 3,168 |
| 13,202 | |
2026 Notes |
| 28,676 |
| — | |
20
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
2022 Notes | 8,997 | — | 8,997 | — | |||||||
2032 Notes | 2,403 | 7,493 | 2,403 | 7,814 |
Long-Term Incentive Stock-Based Plan
As of September 30, 2017,March 31, 2021, there were 2.46.0 million shares of our common stock available for issuance under our long-term incentive stock-based plan, the 2005 Long-Term Incentive Plan, as amended and restated January 1, 2017 (the “2005 Incentive Plan”). During the nine-monththree-month period ended September 30, 2017,March 31, 2021, the following grants of share-based awards were made under the 2005 Incentive Plan:
| | | | | | | |
| | | | Grant Date | | | |
| | | | Fair Value | | | |
Date of Grant |
| Shares/Units |
| Per Share/Unit |
| Vesting Period | |
January 1, 2021 (1) |
| 452,381 | | $ | 4.20 |
| 33% per year over three years |
January 4, 2021 (2) |
| 452,381 | | $ | 5.33 |
| 100% on January 4, 2024 |
January 4, 2021 (3) |
| 14,249 | | $ | 4.20 |
| 100% on January 1, 2023 |
Date of Grant | Shares | Grant Date Fair Value Per Share | Vesting Period | ||||||||||
January 3, 2017 (1) | 671,771 | $ | 8.82 | 33% per year over three years | |||||||||
January 3, 2017 (2) | 671,771 | $ | 12.64 | 100% on January 1, 2020 | |||||||||
January 3, 2017 (3) | 9,956 | $ | 8.82 | 100% on January 1, 2019 | |||||||||
April 3, 2017 (3) | 8,004 | $ | 7.77 | 100% on January 1, 2019 | |||||||||
July 3, 2017 (3) | 14,018 | $ | 5.64 | 100% on January 1, 2019 |
(1) | Reflects grants of restricted stock units (“RSUs”) to our executive |
(2) | Reflects grants of performance share units (“PSUs”) to our executive |
(3) | Reflects grants of restricted stock to certain independent members of our Board of Directors |
Compensation cost for restricted stock is the product of the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting periodsperiod on a straight-line basis. We elected to account for forfeitures whenForfeitures are recognized as they occur upon the adoption of the new guidance for employee share-based payment accounting (Note 1).occur. No restricted stock awards were granted in 2021. All outstanding unvested restricted stock awards were granted in 2020 and 2019. For the three- and nine-monththree-month periods ended September 30, 2017, $1.7March 31, 2021 and 2020, $0.8 million and $5.4$1.1 million, respectively, were recognized as share-based compensation related to restricted stock. For
Our existing PSUs that were granted prior to 2021 are to be settled solely in shares of our common stock and are accounted for as equity awards. Those PSUs contain a service condition and a market condition. PSUs granted in 2021 may be settled in either cash or shares of our common stock upon vesting at the three-discretion of the Compensation Committee of our Board and nine-month periods ended September 30, 2016, $1.4 millionare initially accounted for as equity awards. The PSUs granted in 2021 consist of 2 components: (i) 50% based on the performance of our common stock against peer group companies, which contains a service condition and $4.3 million, respectively, were recognizeda market condition, and (ii) 50% based on cumulative total FCF, which contains a service condition and a performance condition. FCF is calculated as share-based compensation related to restricted stock.
Compensation cost for PSUs that have a service condition and a market condition and are accounted for as equity awards is measured based on the grant date estimated fair value of PSUsand recognized over the vesting period on a straight-line basis. The grant date estimated fair value is determined using a Monte Carlo simulation model. Compensation cost for PSUs that have a service condition and a performance condition and are accounted for as equity awards is initially measured based on the estimated grant date fair value and recognized over the vesting period on a straight-line basis. PSUs that are accounted for as liability awards are measured based on the estimated fair value at the balance sheet date and changes in fair value of the awards are recognized in earnings.value. Cumulative compensation cost for vested liability PSU awards equalsis subsequently adjusted at the actual cash payout amount upon vesting. The 2017 awards are accounted for as equity awards whereas awards made priorend of each reporting period to 2017 are accounted for as liability awards.reflect the current estimation of achieving the performance condition. For the three- and nine-monththree-month periods ended September 30, 2017, $4.0March 31, 2021 and 2020, $1.0 million and $5.8$1.1 million, respectively, were recognized as share-based compensation related to equity PSUs. In January 2021, based on the performance of our common stock price as compared to our performance peer group over a three-year period, 368,038 equity PSUs granted in 2018 vested at 200%, representing 736,075 shares of our common stock with a total market value of $3.1 million.
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RSUs granted in 2021 have been accounted for as liability awards. Liability RSUs are measured at their estimated fair value at each balance sheet date, and subsequent changes in the fair value of the awards are recognized in earnings for the portion of the award for which the requisite service period has elapsed. Cumulative compensation cost for vested liability RSUs equals the actual payout value upon vesting. For the three-three-month period ended March 31, 2021, $0.2 million was recognized as compensation cost.
In 2021 and nine-month2020, we granted fixed-value cash awards of $3.4 million and $4.7 million, respectively, to select management employees under the 2005 Incentive Plan. The value of these cash awards is recognized on a straight-line basis over a vesting period of three years. For the three-month periods ended September 30, 2016, $2.5March 31, 2021 and 2020, $1.0 million and $5.3$1.2 million, respectively, were recognized as share-based compensation related to PSUs. The liability balancecost.
Defined Contribution Plan
We sponsor a defined contribution 401(k) retirement plan. We suspended our discretionary contributions for unvested PSUs was $10.2 million at September 30, 2017 and $7.1 million at December 31, 2016. We paid $0.6 million in cash to settle the 2014 grant of PSUs when they vested inan indefinite period beginning January 2017.
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”). The ESPP has 1.5 million shares authorized for issuance,As of which 0.6March 31, 2021, 1.7 million shares were available for issuance as of September 30, 2017. In February 2016, we suspendedunder the ESPP. The ESPP purchases for the January through April 2016 purchase period and indefinitely imposedcurrently has a purchase limit of 130260 shares per employee for subsequentper purchase periods.
For more information regarding our employee benefit plans, including our long-term incentive stock-basedthe 2005 Incentive Plan and cash plans and our employee stock purchase plan,the ESPP, see Note 1214 to our 20162020 Form 10-K.
Note 1110 — Business Segment Information
We have three3 reportable business segments: Well Intervention, Robotics and Production Facilities. Our U.S., U.K. and Brazil well intervention operating segments are aggregated into the Well Intervention business segment for financial reporting purposes. Our Well Intervention segment includesprovides services enabling our vessels and equipment usedcustomers to performsafely access offshore wells for the purpose of performing well intervention servicesenhancement or decommissioning operations primarily in the U.S. Gulf of Mexico, Brazil, the North Sea and Brazil. Our Well Intervention segment also includes IRSs, some of which we rent out on a stand-alone basis, and SILs.West Africa. Our well intervention vessels include the
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We evaluate our performance primarily based on operating income of each reportable segment. Certain financial data by reportable segment are summarized as follows (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Net revenues — | | |
|
| |
| |
Well Intervention | | $ | 133,768 | | $ | 140,652 | |
Robotics | |
| 22,156 | |
| 35,258 | |
Production Facilities | |
| 16,447 | |
| 15,541 | |
Intercompany eliminations | |
| (8,956) | |
| (10,430) | |
Total | | $ | 163,415 | | $ | 181,021 | |
| | | | | | | |
Income (loss) from operations — | |
|
| |
|
| |
Well Intervention | | $ | 5,243 | | $ | (5,692) | |
Robotics | |
| (2,934) | |
| (2,824) | |
Production Facilities | |
| 6,514 | |
| 3,643 | |
Segment operating income (loss) | |
| 8,823 | |
| (4,873) | |
Goodwill impairment (1) | |
| — | |
| (6,689) | |
Corporate, eliminations and other | |
| (9,378) | |
| (9,465) | |
Total | | $ | (555) | | $ | (21,027) | |
(1) | As a result of the decline in oil prices as well as energy and energy services valuations during the first quarter 2020 due to the COVID-19 pandemic and the price war among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”), we impaired all of our goodwill, which consisted entirely of goodwill attributable to the acquisition of a controlling interest in Subsea Technologies Group Limited (“STL”). |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net revenues — | |||||||||||||||
Well Intervention | $ | 111,522 | $ | 108,287 | $ | 299,219 | $ | 214,262 | |||||||
Robotics | 47,049 | 48,897 | 102,078 | 119,805 | |||||||||||
Production Facilities | 16,380 | 17,128 | 47,965 | 54,567 | |||||||||||
Intercompany elimination | (11,691 | ) | (13,067 | ) | (31,145 | ) | (29,083 | ) | |||||||
Total | $ | 163,260 | $ | 161,245 | $ | 418,117 | $ | 359,551 | |||||||
Income (loss) from operations — | |||||||||||||||
Well Intervention | $ | 16,906 | $ | 24,413 | $ | 37,356 | $ | 7,187 | |||||||
Robotics | (9,365 | ) | (94 | ) | (37,313 | ) | (21,667 | ) | |||||||
Production Facilities | 7,660 | 8,312 | 20,724 | 25,225 | |||||||||||
Corporate and other | (10,633 | ) | (10,288 | ) | (29,296 | ) | (28,784 | ) | |||||||
Intercompany elimination | 199 | (873 | ) | 641 | (542 | ) | |||||||||
Total | $ | 4,767 | $ | 21,470 | $ | (7,888 | ) | $ | (18,581 | ) |
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Well Intervention | $ | 3,765 | $ | 2,898 | $ | 8,033 | $ | 5,740 | |||||||
Robotics | 7,926 | 10,169 | 23,112 | 23,343 | |||||||||||
Total | $ | 11,691 | $ | 13,067 | $ | 31,145 | $ | 29,083 |
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Well Intervention | | $ | 2,587 | | $ | 3,304 | |
Robotics | |
| 6,369 | |
| 7,126 | |
Total | | $ | 8,956 | | $ | 10,430 | |
Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments, most notably the majority of our cash and cash equivalents. The following table reflects total assets by reportable segment (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Well Intervention | | $ | 2,081,641 | | $ | 2,134,081 |
Robotics | |
| 108,372 | |
| 132,550 |
Production Facilities | |
| 134,989 | |
| 129,773 |
Corporate and other | |
| 96,747 | |
| 101,874 |
Total | | $ | 2,421,749 | | $ | 2,498,278 |
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September 30, 2017 | December 31, 2016 | ||||||
Well Intervention | $ | 1,774,821 | $ | 1,596,517 | |||
Robotics | 179,777 | 186,901 | |||||
Production Facilities | 141,739 | 158,192 | |||||
Corporate and other | 270,153 | 305,331 | |||||
Total | $ | 2,366,490 | $ | 2,246,941 |
Note 11 — Asset Retirement Obligations
Asset retirement obligations (“AROs”) are recorded at fair value and consist of estimated costs for subsea infrastructure plug and abandonment (“P&A”) activities associated with our oil and gas properties. The estimated costs are discounted to present value using a credit-adjusted risk-free discount rate. After its initial recognition, an ARO liability is increased for the passage of time as accretion expense, which is a component of our depreciation and amortization expense. An ARO liability may also change based on revisions in estimated costs and/or timing to settle the obligations.
Our AROs relate to our Droshky oil and gas properties that we acquired from Marathon Oil Corporation (“Marathon Oil”) in January 2019. In connection with assuming the P&A obligations related to those assets, we are entitled to receive agreed-upon amounts from Marathon Oil as the P&A work is completed. The following table describes the changes in our AROs (both current and long-term) (in thousands):
| | | | | | |
|
| 2021 |
| 2020 | ||
AROs at January 1, | | $ | 30,913 | | $ | 28,258 |
Accretion expense | |
| 48 | |
| 676 |
AROs at March 31, | | $ | 30,961 | | $ | 28,934 |
Note 12 — Commitments and Contingencies and Other Matters
Commitments
We have charter agreements for the
Contingencies and Claims
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations or cash flows.
Litigation
We are involved in various other legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act based on alleged negligence.Act. In addition, from time to time we incurreceive other claims, such as contract and employment-related disputes, in the normal course of business.
Note 13 — Statement of Cash Flow Information
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less. We classify cash as restricted when there are legal or contractual restrictions for its withdrawal. The following table provides supplemental cash flow information (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Interest paid, net of interest capitalized | | $ | 9,397 | | $ | 4,785 |
Income taxes paid | |
| 1,790 | |
| 2,584 |
Our capital additions include the acquisition of property and equipment for which payment has not been made. These non-cash capital additions totaled $0.6 million at March 31, 2021 and $1.6 million at December 31, 2020.
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Note 1314 — Allowance for Credit Losses
We estimate current expected credit losses on our accounts receivable at each reporting date. We estimate current expected credit losses based on our credit loss history, adjusted for current factors including global economic and business conditions, offshore energy industry and market conditions, customer mix, contract payment terms and past due accounts receivable.
The following table sets forth the activity in our allowance for credit losses (in thousands):
| | | | | | |
|
| 2021 |
| 2020 | ||
Balance at January 1, | | $ | 3,469 | | $ | — |
Additions (1) | |
| 7 | |
| 586 |
Write-offs (2) | | | (1,811) | | | — |
Adjustments (3) | |
| — | |
| 785 |
Balance at March 31, | | $ | 1,665 | | $ | 1,371 |
(1) | The additions in allowance for credit losses reflect credit loss reserves during the respective periods. |
(2) | The write-offs of allowance for credit losses reflect certain receivables related to our Robotics segment that were previously reserved and subsequently deemed to be uncollectible. |
(3) | The adjustment in allowance for credit losses reflects provision for current expected credit losses upon the adoption of ASU No. 2016-13 on January 1, 2020. |
Note 15 — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
● | Level 1. Observable inputs such as quoted prices in active markets; |
● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
● | Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Assets and liabilities measured at fair value are based on one or more of three valuation approaches as follows:
(a) | Market Approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
(b) | Cost Approach. Amount that would be required to replace the service capacity of an asset (replacement cost). |
(c) | Income Approach. Techniques to convert expected future cash flows to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models). |
Our financial instruments include cash and cash equivalents, receivables, accounts payable and long-term debt and various derivative instruments.debt. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments. The net carrying amount of our long-term note receivable also approximates its fair value. The following tables provide additional information relating to other financial instruments measured at fair value on a recurring basis (in thousands):
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Fair Value Measurements at September 30, 2017 Using | |||||||||||||||||
Level 1 | Level 2 (1) | Level 3 | Total | Valuation Approach | |||||||||||||
Assets: | |||||||||||||||||
Interest rate swaps | $ | — | $ | 374 | $ | — | $ | 374 | (c) | ||||||||
Liabilities: | |||||||||||||||||
Foreign exchange contracts | — | 19,508 | — | 19,508 | (c) | ||||||||||||
Interest rate swaps | — | 82 | — | 82 | (c) | ||||||||||||
Total liability | $ | — | $ | 19,216 | $ | — | $ | 19,216 |
Fair Value Measurements at December 31, 2016 Using | |||||||||||||||||
Level 1 | Level 2 (1) | Level 3 | Total | Valuation Approach | |||||||||||||
Assets: | |||||||||||||||||
Interest rate swaps | $ | — | $ | 451 | $ | — | $ | 451 | (c) | ||||||||
Liabilities: | |||||||||||||||||
Foreign exchange contracts | — | 38,170 | — | 38,170 | (c) | ||||||||||||
Interest rate swaps | — | 751 | — | 751 | (c) | ||||||||||||
Total net liability | $ | — | $ | 38,470 | $ | — | $ | 38,470 |
The carrying valuesprincipal amount and estimated fair valuesvalue of our long-term debt are as follows (in thousands):
| | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||||||||
| | Principal | | Fair | | Principal | | Fair | ||||
|
| Amount (1) |
| Value (2) (3) |
| Amount (1) |
| Value (2) (3) | ||||
Term Loan (matures December 2021) | | $ | 28,875 | | $ | 28,622 | | $ | 29,750 | | $ | 28,969 |
Nordea Q5000 Loan (matured January 2021) (4) | |
| — | |
| — | |
| 53,572 | |
| 53,598 |
MARAD Debt (matures February 2027) | |
| 52,676 | |
| 58,502 | |
| 56,410 | |
| 62,318 |
2022 Notes (mature May 2022) | |
| 35,000 | |
| 34,917 | |
| 35,000 | |
| 33,513 |
2023 Notes (mature September 2023) | |
| 30,000 | |
| 28,942 | |
| 30,000 | |
| 28,650 |
2026 Notes (mature February 2026) | |
| 200,000 | |
| 232,674 | |
| 200,000 | |
| 211,383 |
Total debt | | $ | 346,551 | | $ | 383,657 | | $ | 404,732 | | $ | 418,431 |
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Value (1) | Fair Value (2) | Carrying Value (1) | Fair Value (2) | ||||||||||||
Term Loan (previously scheduled to mature June 2018) | $ | — | $ | — | $ | 192,258 | $ | 192,258 | |||||||
Nordea Q5000 Loan (matures April 2020) | 169,643 | 168,583 | 196,429 | 192,746 | |||||||||||
Term Loan (matures June 2020) | 98,750 | 99,120 | — | — | |||||||||||
MARAD Debt (matures February 2027) | 77,000 | 83,928 | 83,222 | 92,049 | |||||||||||
2022 Notes (mature May 2022) | 125,000 | 123,281 | 125,000 | 130,156 | |||||||||||
2032 Notes (mature March 2032) | 60,115 | 60,077 | 60,115 | 59,965 | |||||||||||
Total debt | $ | 530,508 | $ | 534,989 | $ | 657,024 | $ | 667,174 |
(1) |
(2) | The estimated fair value of the 2022 Notes, the 2023 Notes and the |
(3) | The principal amount and estimated fair value of the 2022 Notes, the 2023 Notes and the 2026 Notes are for the entire instrument inclusive of the conversion feature, which had been accounted for in shareholders’ equity through December 31, 2020. |
(4) | The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5). |
September 30, 2017 | December 31, 2016 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Asset Derivative Instruments: | |||||||||||
Interest rate swaps | Other assets, net | $ | 374 | Other assets, net | $ | 451 | |||||
$ | 374 | $ | 451 | ||||||||
Liability Derivative Instruments: | |||||||||||
Foreign exchange contracts | Accrued liabilities | $ | 6,945 | Accrued liabilities | $ | 14,056 | |||||
Interest rate swaps | Accrued liabilities | 82 | Accrued liabilities | 751 | |||||||
Foreign exchange contracts | Other non-current liabilities | 6,123 | Other non-current liabilities | 13,383 | |||||||
$ | 13,150 | $ | 28,190 |
September 30, 2017 | December 31, 2016 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Liability Derivative Instruments: | |||||||||||
Foreign exchange contracts | Accrued liabilities | $ | 2,900 | Accrued liabilities | $ | 3,923 | |||||
Foreign exchange contracts | Other non-current liabilities | 3,540 | Other non-current liabilities | 6,808 | |||||||
$ | 6,440 | $ | 10,731 |
Gain (Loss) Recognized in OCI on Derivative Instruments, Net of Tax (Effective Portion) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Foreign exchange contracts | $ | 3,620 | $ | 4,249 | $ | 9,341 | $ | 10,745 | |||||||
Interest rate swaps | 68 | 643 | 366 | (880 | ) | ||||||||||
$ | 3,688 | $ | 4,892 | $ | 9,707 | $ | 9,865 |
Location of Loss Reclassified from Accumulated OCI into Earnings | Loss Reclassified from Accumulated OCI into Earnings (Effective Portion) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Foreign exchange contracts | Cost of sales | $ | (3,288 | ) | $ | (2,663 | ) | $ | (10,280 | ) | $ | (8,033 | ) | ||||
Interest rate swaps | Net interest expense | (95 | ) | (494 | ) | (542 | ) | (1,618 | ) | ||||||||
$ | (3,383 | ) | $ | (3,157 | ) | $ | (10,822 | ) | $ | (9,651 | ) |
Location of Gain Recognized in Earnings on Derivative Instruments | Gain Recognized in Earnings on Derivative Instruments | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Foreign exchange contracts | Other income (expense), net | $ | 1,050 | $ | 1,309 | $ | 1,531 | $ | 3,375 | ||||||||
$ | 1,050 | $ | 1,309 | $ | 1,531 | $ | 3,375 |
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of OperationsFORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix Energy Solutions Group, Inc. and represent our current expectations and beliefs concerningor forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated herein by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements.statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
● | statements regarding our business strategy and any other business plans, forecasts or objectives, any or all of which are subject to change; |
● | statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items; |
● | statements regarding our backlog and commercial contracts and rates thereunder; |
● | statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts; |
● | statements regarding the spot market, the continuation of our current backlog, our spending and cost reduction plans and our ability to manage changes, and the ongoing COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans; |
● | statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto; |
● | statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements; |
26
● | statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions; |
● | statements regarding our trade receivables and their collectability; |
● | statements regarding potential developments, industry trends, performance or industry ranking; |
● | statements regarding global, market or investor sentiment with respect to fossil fuels; |
● | statements regarding our existing activities in, and future expansion into, the offshore renewable energy market; |
● | statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business; |
● | statements regarding our ability to retain our senior management and other key employees; |
● | statements regarding the underlying assumptions related to any projection or forward-looking statement; and |
● | any other statements that relate to non-historical or future information. |
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to bediffer materially different from those in the forward-looking statements. These factors include:
● | the results and effects of the ongoing COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto; |
● | the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services; |
● | the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market; |
● | the impact of any potential cancellation, deferral or modification of our work or contracts by our customers; |
● | the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure; |
● | the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets; |
● | unexpected future capital expenditures, including the amount and nature thereof; |
● | the effectiveness and timing of completion of our vessel and/or system upgrades and major maintenance items; |
● | unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets; |
● | the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments; |
● | the results of our continuing efforts to control costs and improve performance; |
● | the success of our risk management activities; |
● | the effects of competition; |
● | the availability of capital (including any financing) to fund our business strategy and/or operations; |
● | the impact of current and future laws and governmental regulations and how they will be interpreted or enforced; |
● | the future impact of U.K.’s exit from the European Union (the “EU”), known as Brexit, and related trade agreements between the U.K. and the EU on our business, operations and financial condition; |
● | the effect of adverse weather conditions and/or other risks associated with marine operations; |
● | the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations; |
● | the effectiveness of our future hedging activities; |
● | the potential impact of a loss of one or more key employees; and |
● | the impact of general, market, industry or business conditions. |
27
Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 1A. “Risk Factors”7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20162020 Form 10-K. AllShould one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements attributablestatements.
We caution you not to us or persons actingplace undue reliance on our behalf are expressly qualified in their entirety by these risk factors.the forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ.
EXECUTIVE SUMMARY
Our Business Strategy
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We believe that focusingThe services we offer to the oil and gas market cover the lifecycle of an offshore oil or gas field, and the services we offer to the renewable energy market are currently focused on these services will deliver favorable long-term financial returns. From time to time, we make strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions.offshore wind farm projects and cable burial operations. Our well intervention fleet expanded followingincludes seven purpose-built well intervention vessels, six IRSs, three SILs and the deliveryROAM. Our robotics equipment includes 42 work-class ROVs, four trenchers and one ROVDrill. We charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations. Our well intervention and robotics operations are geographically dispersed throughout the world. Our Production Facilities segment includes the HP I, the HFRS and our ownership of the
Economic Outlook and Industry Influences
Demand for our services is primarily influenced by the condition of the oil and gas industry, and the renewable energy markets, in particular, the willingness of oil and gasoffshore energy companies to spend on operational activities as well asand capital projects. The performance of our business is also largely dependent onaffected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:
● | worldwide economic activity and general economic and business conditions, including access to global capital and capital markets; |
● | the global supply and demand for oil and natural gas; |
● | political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions; |
● | actions taken by OPEC and/or OPEC+; |
● | the availability and discovery rate of new oil and natural gas reserves in offshore areas; |
● | the exploration and production of onshore shale oil and natural gas; |
● | the cost of offshore exploration for and production and transportation of oil and natural gas; |
● | the level of excess production capacity; |
● | the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations; |
● | the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community; |
● | the sale and expiration dates of offshore leases globally; |
● | governmental restrictions on oil and gas leases; |
● | technological advances affecting energy exploration, production, transportation and consumption; |
● | potential acceleration of the development of alternative fuels; |
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● | shifts in end-customer preferences toward fuel efficiency and the use of natural gas or renewable energy alternatives; |
● | weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic; |
● | laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement; |
● | environmental and other governmental regulations; and |
● | domestic and international tax laws, regulations and policies. |
Crude oil prices historically have been volatile, which volatility has been exacerbated recently due to global capital and capital markets;
The ongoing COVID-19 pandemic has resulted in a new period of market weakness. While the full impact of the COVID-19 pandemic, including the duration of the decrease in economic activity and the resulting impact on the demand and price of oil, remains unknown, we expect that the impact of Brexit and any exit agreements as they are negotiated, but the impact from Brexit on our business and operations will dependCOVID-19 on the outcome of tariff, tax treaties, trade, regulatoryindustry will continue to be felt through 2021 and possibly longer. We believe the uncertainty and other negotiations,conditions of the current environment will make it more difficult for us to secure long-term contracts for our vessels and systems, as operators have been less willing to commit to future spending. These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce. The COVID-19 pandemic and its effects on our industry and the global economy impacted our 2020 and 2021 operating results to date. Most if not all of our oil and gas customers have cut their spending, which has reduced the demand and rates for the services offered to our oil and gas customers. We warm-stacked two of our vessels in 2020 as a result of decreased demand and government lock-downs, and the Seawell in the North Sea remains stacked to date. The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of BrexitCOVID-19 on macroeconomic growthour offshore workforce and currencychallenges with offshore crew changes due to travel restrictions and quarantine measures.
Despite this current period of market weakness and volatility, which are uncertain at this time.
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Demand for our experience as a responderservices in the 2010 Macondo well controlrenewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and containment efforts. The HFRS centers on twogovernment subsidies for renewable energy projects.
Backlog
We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. In addition to serving the oil and gas market, our vessels,robotics assets are contracted for the
RESULTS OF OPERATIONS
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations.
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under U.S. GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with U.S. GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these non-GAAP measures.
We measure our operating performance based on EBITDA aand free cash flow. EBITDA and free cash flow are non-GAAP financial measuremeasures that isare commonly used but isare not a recognized accounting termterms under U.S. GAAP. We use EBITDA and free cash flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measuremeasures of EBITDA providesand free cash flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand our operating performance and compare our results to other companies that have different financing, capital and tax structures.
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We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, which are excluded from EBITDA as a component of net other income or expense. We define free cash flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Net loss | | $ | (3,050) | | $ | (13,928) |
Adjustments: | |
|
| |
|
|
Income tax provision (benefit) | |
| 116 | |
| (21,093) |
Net interest expense | |
| 6,053 | |
| 5,746 |
Other (income) expense, net | |
| (1,617) | |
| 10,427 |
Depreciation and amortization | |
| 34,566 | |
| 31,598 |
Goodwill impairment | |
| — | |
| 6,689 |
EBITDA | |
| 36,068 | |
| 19,439 |
Adjustments: | |
|
| |
|
|
General provision for current expected credit losses | |
| 100 | |
| 586 |
Realized losses from foreign exchange contracts not designated as hedging instruments | |
| — | |
| (682) |
Adjusted EBITDA | | $ | 36,168 | | $ | 19,343 |
The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities | | $ | 39,869 | | $ | (17,222) |
Less: Capital expenditures, net of proceeds from sale of assets | |
| (1,329) | |
| (12,389) |
Free cash flow | | $ | 38,540 | | $ | (29,611) |
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income (loss) | $ | 2,290 | $ | 11,462 | $ | (20,528 | ) | $ | (27,032 | ) | |||||
Adjustments: | |||||||||||||||
Income tax provision (benefit) | (1,539 | ) | 3,649 | (1,117 | ) | (9,858 | ) | ||||||||
Net interest expense | 3,615 | 6,843 | 15,480 | 25,007 | |||||||||||
(Gain) loss on early extinguishment of long-term debt | — | (244 | ) | 397 | (546 | ) | |||||||||
Other (income) expense, net | 551 | (830 | ) | 619 | (4,018 | ) | |||||||||
Depreciation and amortization | 26,293 | 27,607 | 82,670 | 84,846 | |||||||||||
EBITDA | 31,210 | 48,487 | 77,521 | 68,399 | |||||||||||
Adjustments: | |||||||||||||||
Loss on disposition of assets, net | — | — | 39 | — | |||||||||||
Realized losses from cash settlements of ineffective foreign currency exchange contracts | (758 | ) | (1,786 | ) | (2,759 | ) | (5,744 | ) | |||||||
Adjusted EBITDA | $ | 30,452 | $ | 46,701 | $ | 74,801 | $ | 62,655 |
Comparison of Three Months Ended September 30, 2017March 31, 2021 and 2016
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Increase/ |
| |||||||
| | March 31, | | (Decrease) |
| |||||||
|
| 2021 |
| 2020 |
| Amount |
| Percent |
| |||
Net revenues — |
| |
|
| |
|
| |
|
|
| |
Well Intervention | | $ | 133,768 | | $ | 140,652 | | $ | (6,884) |
| (5) | % |
Robotics | |
| 22,156 | |
| 35,258 | |
| (13,102) |
| (37) | % |
Production Facilities | |
| 16,447 | |
| 15,541 | |
| 906 |
| 6 | % |
Intercompany eliminations | |
| (8,956) | |
| (10,430) | |
| 1,474 |
|
| |
| | $ | 163,415 | | $ | 181,021 | | $ | (17,606) |
| (10) | % |
| | | | | | | | | | | | |
Gross profit (loss) — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | | $ | 8,726 | | $ | (1,256) | | $ | 9,982 |
| 795 | % |
Robotics | |
| (933) | |
| (467) | |
| (466) |
| 100 | % |
Production Facilities | |
| 7,213 | |
| 4,207 | |
| 3,006 |
| 71 | % |
Corporate, eliminations and other | |
| (382) | |
| (474) | |
| 92 |
|
| |
| | $ | 14,624 | | $ | 2,010 | | $ | 12,614 |
| 628 | % |
| | | | | | | | | | | | |
Gross margin — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | |
| 7 | % |
| (1) | % |
|
|
| | |
Robotics | |
| (4) | % |
| (1) | % |
|
|
|
| |
Production Facilities | |
| 44 | % |
| 27 | % |
|
|
|
| |
Total company | |
| 9 | % |
| 1 | % |
|
|
|
| |
| | | | | | | | | | | | �� |
Number of vessels or robotics assets (1) / Utilization (2) | |
|
| |
|
| |
|
|
|
| |
Well Intervention vessels | |
| 7 / 70 | % |
| 7 / 72 | % |
|
|
|
| |
Robotics assets (3) | |
| 47 / 24 | % |
| 49 / 34 | % |
|
|
|
| |
Chartered robotics vessels | |
| 3 / 90 | % |
| 6 / 89 | % |
|
|
|
| |
Three Months Ended September 30, | Increase/ (Decrease) | ||||||||||
2017 | 2016 | ||||||||||
Net revenues — | |||||||||||
Well Intervention | $ | 111,522 | $ | 108,287 | $ | 3,235 | |||||
Robotics | 47,049 | 48,897 | (1,848 | ) | |||||||
Production Facilities | 16,380 | 17,128 | (748 | ) | |||||||
Intercompany elimination | (11,691 | ) | (13,067 | ) | 1,376 | ||||||
$ | 163,260 | $ | 161,245 | $ | 2,015 | ||||||
Gross profit (loss) — | |||||||||||
Well Intervention | $ | 20,642 | $ | 28,174 | $ | (7,532 | ) | ||||
Robotics | (6,991 | ) | 4,953 | (11,944 | ) | ||||||
Production Facilities | 7,780 | 8,413 | (633 | ) | |||||||
Corporate and other | (489 | ) | (483 | ) | (6 | ) | |||||
Intercompany elimination | 199 | (873 | ) | 1,072 | |||||||
$ | 21,141 | $ | 40,184 | $ | (19,043 | ) | |||||
Gross margin — | |||||||||||
Well Intervention | 19% | 26% | |||||||||
Robotics | (15)% | 10% | |||||||||
Production Facilities | 47% | 49% | |||||||||
Total company | 13% | 25% | |||||||||
Number of vessels or robotics assets (1) / Utilization (2) | |||||||||||
Well Intervention vessels | 5/88% | 5/76% | |||||||||
Robotics assets | 60/46% | 60/57% | |||||||||
Chartered robotics vessels | 5/80% | 3/81% |
(1) | Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under long-term charter, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of |
(2) | Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period. The average utilization rates of chartered robotics vessels during the three-month periods ended March 31, 2021 and 2020 included three and 272 spot vessel days, respectively, at near full utilization. |
(3) | Consists of ROVs, trenchers and ROVDrill. |
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended September 30, | Increase/ (Decrease) | ||||||||||
2017 | 2016 | ||||||||||
Well Intervention | $ | 3,765 | $ | 2,898 | $ | 867 | |||||
Robotics | 7,926 | 10,169 | (2,243 | ) | |||||||
$ | 11,691 | $ | 13,067 | $ | (1,376 | ) |
| | | | | | | | | |
| | Three Months Ended | | | | ||||
| | March 31, | | Increase/ | |||||
|
| 2021 |
| 2020 |
| (Decrease) | |||
Well Intervention | | $ | 2,587 | | $ | 3,304 | | $ | (717) |
Robotics | |
| 6,369 | |
| 7,126 | |
| (757) |
| | $ | 8,956 | | $ | 10,430 | | $ | (1,474) |
Net Revenues.
Our32
Our Well Intervention revenues increaseddecreased by 3%5% for the three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 20162020, primarily reflecting revenues generated from our well intervention operations in Brazil, offset in part by operational downtime experienced by the Well Enhancerlower vessel utilization in the North Sea and $15.6 million we recognizedWest Africa during the quarter, offset in part by higher utilization in the third quarterGulf of 2016 associated with a work scope cancellation under a “take or pay” contract originally scheduled to be performed by the Q4000Mexico. Utilization in late 2016. In Brazil, the Siem Helix1 was 96% utilized during the third quarter of 2017. Our day rates improved in the third quarter as we addressed most of the items identified in the vessel acceptance process. In the North Sea, the Well Enhancer was 84% utilized during the third quarter of 2017 while the vessel was 91% utilized during the same period in 2016. The Seawell was 97% utilized during the third quarter of 2017 as compared to being 98% utilized during the same period in 2016. In the Gulf of Mexico the Q5000 was 75% utilized during the thirdfirst quarter of 2017 primarily2020 was lower due to 18 idle days duringour scheduled regulatory certification inspections for the off-hire period ofQ4000 and the BP contract. The vessel was 84% utilized during the same period in 2016. The Q4000 was 86% utilized during the third quarter of 2017 as compared to being 93% utilized during the same period in 2016.
Robotics revenues decreased by 4%37% for the three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016. The decrease2020, primarily reflected lowerreflecting a reduction in vessel days as well as decreased utilization of our robotics assetsROVs and accepting work at reduced rates,ROVDrill, offset in part by an increase in trenching activities. Our results included 165 vessel days and 72 trenching days during the addition ofthree-month period ended March 31, 2021 as compared to 405 vessel days and 42 trenching days during the
Our Production Facilities revenues decreasedincreased by 4%6% for the three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016, which reflected reduced retainer fees from the amended HFRS agreement that became effective February 1, 2017.
Gross Profit (Loss).
OurNine Months Ended September 30, | Increase/ (Decrease) | ||||||||||
2017 | 2016 | ||||||||||
Net revenues — | |||||||||||
Well Intervention | $ | 299,219 | $ | 214,262 | $ | 84,957 | |||||
Robotics | 102,078 | 119,805 | (17,727 | ) | |||||||
Production Facilities | 47,965 | 54,567 | (6,602 | ) | |||||||
Intercompany elimination | (31,145 | ) | (29,083 | ) | (2,062 | ) | |||||
$ | 418,117 | $ | 359,551 | $ | 58,566 | ||||||
Gross profit (loss) — | |||||||||||
Well Intervention | $ | 47,757 | $ | 17,195 | $ | 30,562 | |||||
Robotics | (29,376 | ) | (12,008 | ) | (17,368 | ) | |||||
Production Facilities | 21,031 | 25,634 | (4,603 | ) | |||||||
Corporate and other | (1,370 | ) | (1,367 | ) | (3 | ) | |||||
Intercompany elimination | 641 | (542 | ) | 1,183 | |||||||
$ | 38,683 | $ | 28,912 | $ | 9,771 | ||||||
Gross margin — | |||||||||||
Well Intervention | 16% | 8% | |||||||||
Robotics | (29)% | (10)% | |||||||||
Production Facilities | 44% | 47% | |||||||||
Total company | 9% | 8% | |||||||||
Number of vessels or robotics assets (1) / Utilization (2) | |||||||||||
Well Intervention vessels | 5/79% | 5/52% | |||||||||
Robotics assets | 60/42% | 60/48% | |||||||||
Chartered robotics vessels | 5/61% | 3/63% |
Nine Months Ended September 30, | Increase/ (Decrease) | ||||||||||
2017 | 2016 | ||||||||||
Well Intervention | $ | 8,033 | $ | 5,740 | $ | 2,293 | |||||
Robotics | 23,112 | 23,343 | (231 | ) | |||||||
$ | 31,145 | $ | 29,083 | $ | 2,062 |
The gross profit related to our Well Intervention segment increased by 178%$10.0 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to the same period in 20162020, primarily reflecting higher revenues on the Q5000 and cost reduction efforts associated with lower utilization in ourthe North Sea region.
The gross profit associated withloss related to our Robotics segment decreasedincreased by 145%$0.5 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to the same period in 20162020, primarily reflecting decreased utilization for our robotics assets and accepting work with lower profit margins.
The gross profit related to our Production Facilities segment decreasedincreased by 18%$3.0 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to the same period in 20162020, primarily reflecting revenue decreases forhigher oil and gas production revenues and a reduction in direct costs.
Goodwill Impairment. The $6.7 million charge in the HFRS andthree-month period ended March 31, 2020 reflects the
Selling, General and Administrative Expenses.
Our selling, general and administrative expensesNet Interest on debt used to finance capital projects is capitalized and thus reduces overallExpense. Our net interest expense. Capitalized interestexpense totaled $12.6$6.1 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to $7.5$5.7 million for the same period in 2016. The decrease2020, primarily reflecting the cessation of interest capitalization with the completion of the Q7000 in interest expense was primarily attributable to a significant reduction in our debt levels including the $80 million principal reduction of our term loan in June 2017. Interestfirst quarter 2020. Net interest expense for the nine-month periods ended September 30, 2017 and 2016 also included charges of $1.6 million and $2.5 million, respectively, to accelerate the amortization of a pro-rata portion of debt issuance costs related to the lenders whose commitments in our revolving credit facility were reduced (Note 6).
Other Income (Expense), Net.
Income Tax Benefit.
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Net working capital (1) | | $ | 270,504 | | $ | 246,338 |
Long-term debt (1) | |
| 299,560 | |
| 258,912 |
Liquidity (2) | |
| 376,992 | |
| 451,532 |
September 30, 2017 | December 31, 2016 | ||||||
Net working capital | $ | 268,817 | $ | 336,387 | |||
Long-term debt (1) | $ | 395,345 | $ | 558,396 | |||
Liquidity (2) | $ | 426,741 | $ | 375,504 |
(1) |
(2) | Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under |
The carrying amountamounts of our long-term debt including current maturities, net of unamortized debt discount and debt issuance costs, isare as follows (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Term Loan (matures December 2021) | | $ | 28,732 | | $ | 29,559 |
Nordea Q5000 Loan (matured January 2021) (1) | |
| — | |
| 53,532 |
MARAD Debt (matures February 2027) | |
| 49,749 | |
| 53,361 |
2022 Notes (mature May 2022) (2) | |
| 34,794 | |
| 33,477 |
2023 Notes (mature September 2023) (2) | |
| 29,555 | |
| 26,922 |
2026 Notes (mature February 2026) (2) | |
| 193,208 | |
| 152,712 |
Total debt (3) | | | 336,038 | | | 349,563 |
Less current maturities | | | (36,478) | | | (90,651) |
Long-term debt | | $ | 299,560 | | $ | 258,912 |
September 30, 2017 | December 31, 2016 | ||||||
Term Loan (previously scheduled to mature June 2018) | $ | — | $ | 190,867 | |||
Nordea Q5000 Loan (matures April 2020) | 167,667 | 193,879 | |||||
Term Loan (matures June 2020) | 96,935 | — | |||||
MARAD Debt (matures February 2027) | 72,365 | 78,221 | |||||
2022 Notes (mature May 2022) (1) | 108,018 | 105,697 | |||||
2032 Notes (mature March 2032) (2) | 58,971 | 57,303 | |||||
Total debt | $ | 503,956 | $ | 625,967 |
(1) | The |
(2) |
(3) | Amounts include current maturities and are net of |
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash provided by (used in): |
| |
|
| | |
Operating activities | | $ | 39,869 | | $ | (17,222) |
Investing activities | |
| (1,329) | |
| (12,389) |
Financing activities | |
| (59,885) | |
| (18,391) |
34
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash provided by (used in): | |||||||
Operating activities | $ | 31,323 | $ | 15,444 | |||
Investing activities | $ | (121,428 | ) | $ | (42,266 | ) | |
Financing activities | $ | 88,420 | $ | 17,217 |
Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt. Historically,
The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our revenues and we have fundedexpect these events to continue to impact our capital program withresults into the near future. Our operating cash flows from operations, borrowings under credit facilities, and project financing, along with other debt and equity alternatives.
The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our Credit Agreement,existing debt as well as volatility in our stock price, both of which increase our cost of capital. The yield on the 2026 Notes is significantly higher than that of the 2022 Notes the 2032 Notes, the MARAD Debt agreements and the Nordea Credit Agreement, we are required2023 Notes. The COVID-19 pandemic has also contributed to comply withlimited access to certain covenants, including certain financial ratios such as a consolidated interest coverage ratio and various leverage ratios, as well as the maintenance of minimum cash balance, net worth, working capital and debt-to-equity requirements. Our Credit Agreement also contains provisions that limit our ability to incur certain types of additional indebtedness. These provisions effectively prohibit us from incurring any additional secured indebtedness or indebtedness guaranteed by us. The Credit Agreement does permit us to incur certain unsecured indebtedness, and also provides for our subsidiaries to incur project financing indebtedness (such as our MARAD Debt and our Nordea Q5000 Loan) secured by the underlying asset, provided that such indebtedness is not guaranteed by us. Our Credit Agreement also permits our Unrestricted Subsidiaries to incur indebtedness provided that it is not guaranteed by us or any of our Restricted Subsidiaries (as defined in our Credit Agreement). As of September 30, 2017 and December 31, 2016, we were in compliance with all of the covenants in our long-term debt agreements.
An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt. Furthermore, during any perioddebt, and our failure to comply with these covenants and other restrictions could lead to an event of sustained weak economic activitydefault. Current global and reducedmarket conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we secure a replacement of, or our lenders’ willingness to continue to participate in, our credit facility, which expires December 2021. Decreases in our revenues and EBITDA, including as may be attributable to the fallout from the ongoing COVID-19 pandemic, may also limit our ability to fully access ourthe Revolving Credit Facility may be impacted.Facility. At September 30, 2017,March 31, 2021, our available borrowing capacity under ourthe Revolving Credit Facility, based on the applicable leverage ratio covenant, was restricted to $69.9$172.2 million, net of $4.0$2.8 million of letters of credit issued under that facility. We currently have no plans or forecasted requirements to borrowdo not anticipate borrowing under ourthe Revolving Credit Facility other than for issuancesthe issuance of letters of credit. Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control. If we fail to comply with these covenants and other restrictions, that failure could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.
Operating Cash Flows
Net cash flows fromprovided by operating activities increased by $15.9were $39.9 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to net cash flows used by operating activities of $17.2 million for the same period in 2016. This2020. The $57.1 million increase wasin operating cash flows primarily attributable to improvementsreflects lower operating loss and decreases in our operating results.
Investing Activities
Capital expenditures consistrepresent cash paid principally offor the acquisition, construction, completion, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Capital expenditures also include interest on property and equipment under development. Significant (uses) sources (uses) of cash associated with investing activities are as follows (in thousands):
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Capital expenditures: | |||||||
Well Intervention | $ | (130,649 | ) | $ | (79,147 | ) | |
Robotics | (691 | ) | (504 | ) | |||
Production Facilities | — | (74 | ) | ||||
Other | (88 | ) | 372 | ||||
Distribution from equity investment | — | 1,200 | |||||
Proceeds from sale of equity investment (1) | — | 25,000 | |||||
Proceeds from sale of assets (2) | 10,000 | 10,887 | |||||
Net cash used in investing activities | $ | (121,428 | ) | $ | (42,266 | ) |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Capital expenditures: |
| |
|
| | |
Well Intervention | | $ | (1,259) | | $ | (12,263) |
Robotics | |
| — | |
| (44) |
Production Facilities | |
| (70) | |
| — |
Other | |
| — | |
| (82) |
Net cash used in investing activities | | $ | (1,329) | | $ | (12,389) |
Our capital expenditures associated with our businessduring the three-month period ended March 31, 2020 primarily have included payments associated with the construction and completion of our
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Financing Activities
Cash flows from financing activities consist primarily of proceeds from debt and equity financing activities and repayments ofrelated to our long-term debt. TotalNet cash flowsoutflows from financing activities increased by $71.2of $59.9 million for the nine-monththree-month period ended September 30, 2017March 31, 2021 primarily reflect the repayment of $58.2 million of scheduled maturities related to our indebtedness, including the final maturity of $53.6 million of our Nordea Q5000 Loan (Note 5). Net cash outflows from financing activities of $18.4 million for the three-month period ended March 31, 2020 primarily reflect the repayment of $13.4 million of our indebtedness (Note 5).
Free Cash Flow
Free cash flow increased by $68.2 million for the three-month period ended March 31, 2021 as compared to the same period in 20162020. The increase was primarily reflecting net proceeds of approximately $220 million we received from our underwritten public equity offeringattributable to the increase in January 2017 (Note 8) and the $100 million proceeds from our Term Loan borrowings in June 2017, offset in part by early repayment of the approximately $180 million term loan then outstanding under the credit agreement prior to its June 2017 amendment and restatement (Note 6) and net proceeds of approximately $95 million we received in the nine-month period ended September 30, 2016 from the sale of our common stock under at-the-market equity offering programs.
Free cash flow is a non-GAAP financial measure. See “RESULTS OF OPERATIONS” above for the definition and calculation of future capital expenditures may change based on various factors. We may seek to reduce the level of our planned capital expenditures given a prolonged industry downturn.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of September 30, 2017March 31, 2021 and the scheduled years in which the obligations are contractually due (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Less Than | | | | | | | | More Than | ||
|
| Total (1) |
| 1 Year |
| 1-3 Years |
| 3-5 Years |
| 5 Years | |||||
Term Loan | | $ | 28,875 | | $ | 28,875 | | $ | — | | $ | — | | $ | — |
MARAD debt | |
| 52,676 | |
| 7,746 | |
| 16,672 | |
| 18,377 | |
| 9,881 |
2022 Notes (2) | |
| 35,000 | |
| — | |
| 35,000 | |
| — | |
| — |
2023 Notes (3) | |
| 30,000 | |
| — | |
| 30,000 | |
| — | |
| — |
2026 Notes (4) | |
| 200,000 | |
| — | |
| — | |
| 200,000 | |
| — |
Interest related to debt (5) | |
| 80,319 | |
| 20,126 | |
| 32,621 | |
| 27,285 | |
| 287 |
Property and equipment | |
| 6,184 | |
| 6,078 | |
| 106 | |
| — | |
| — |
Operating leases (6) | |
| 242,043 | |
| 97,752 | |
| 134,611 | |
| 5,796 | |
| 3,884 |
Total cash obligations | | $ | 675,097 | | $ | 160,577 | | $ | 249,010 | | $ | 251,458 | | $ | 14,052 |
Total (1) | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |||||||||||||||
Term Loan | $ | 98,750 | $ | 6,250 | $ | 92,500 | $ | — | $ | — | |||||||||
Nordea Q5000 Loan | 169,643 | 35,714 | 133,929 | — | — | ||||||||||||||
MARAD Debt | 77,000 | 6,532 | 14,058 | 15,497 | 40,913 | ||||||||||||||
2022 Notes (2) | 125,000 | — | — | 125,000 | — | ||||||||||||||
2032 Notes (3) | 60,115 | 60,115 | — | — | — | ||||||||||||||
Interest related to debt (4) | 78,706 | 23,411 | 35,804 | 14,614 | 4,877 | ||||||||||||||
Property and equipment (5) | 262,626 | 113,149 | 149,477 | — | — | ||||||||||||||
Operating leases (6) | 694,257 | 140,345 | 250,424 | 207,824 | 95,664 | ||||||||||||||
Total cash obligations | $ | 1,566,097 | $ | 385,516 | $ | 676,192 | $ | 362,935 | $ | 141,454 |
(1) | Excludes unsecured letters of credit outstanding at |
(2) | Notes mature in May 2022. |
(3) | Notes mature |
(4) | Notes mature in February 2026. See Note 5 for additional information. |
(5) | Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at |
(6) | Operating leases include vessel charters and facility and equipment leases. At March 31, 2021. |
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CRITICAL ACCOUNTING POLICIESESTIMATES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations, are based upon ouras reflected in the condensed consolidated financial statements. We prepare these financial statements and related footnotes, are prepared in conformity with accounting principles generally accepted in the United States.GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
For additional information regarding our critical accounting policiesestimates and estimates,policies, please read our “Critical Accounting PoliciesEstimates and Estimates”Policies” as disclosed in our 20162020 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2021, we were exposed to market risk in two areas:risks associated with interest rates and foreign currency exchange rates.
Interest Rate Risk.
As ofForeign Currency Exchange Rate Risk.
Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar. As such, our earnings areAssets and liabilities of our subsidiaries that do not have the nine-monthU.S. dollar as their functional currency are translated using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected in “Accumulated other comprehensive loss” in the shareholders’ equity section of our condensed consolidated balance sheets. For the three-month period ended September 30, 2017,March 31, 2021, we recognized losses of $2.2 million related torecorded foreign currency transactionstranslation gains of $4.6 million to accumulated other comprehensive loss. Deferred taxes have not been provided on foreign currency translation adjustments since we consider our undistributed earnings (when applicable) of our non-U.S. subsidiaries without operations in the U.S. to be permanently reinvested.
When currencies other than the functional currency are to be paid or received, the resulting transaction gain or loss associated with changes in the applicable foreign currency exchange rate is recognized in the condensed consolidated statements of operations as a component of “Other income (expense), net” in our condensed consolidated statement of operations.
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Item 4.
Controls and Procedures(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2017.March 31, 2021. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017March 31, 2021 to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter endedPart II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 12 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
| | | | | | | | | |
| | | | | | | (c) | | |
| | | | | | | Total number | | (d) |
| | | | | | | of shares | | Maximum |
| | (a) | | (b) | | purchased as | | number of shares | |
| | Total number | | Average | | part of publicly | | that may yet be | |
| | of shares | | price paid | | announced | | purchased under | |
Period |
| purchased (1) |
| per share |
| program |
| the program (2) | |
January 1 to January 31, 2021 |
| 447,139 | | $ | 4.43 |
| — |
| 7,734,655 |
February 1 to February 28, 2021 |
| — | |
| — |
| — |
| 7,734,655 |
March 1 to March 31, 2021 |
| — | |
| — |
| — |
| 7,734,655 |
|
| 447,139 | | $ | 4.43 |
| — | | |
(1) | Includes shares forfeited in satisfaction of tax obligations upon vesting of restricted shares. |
(2) | Under the terms of our stock repurchase program, |
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Item 6. Exhibits
| | | | |
Exhibit Number | Description | Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number) | ||
3.1 | | | Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739) | |
3.2 | | | Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936) | |
31.1 | | | Filed herewith | |
31.2 | | | Filed herewith | |
32.1 | | | Furnished herewith | |
101.INS | | XBRL Instance Document. | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith |
104 | | Cover Page Interactive Data File (formatted as inline XBRL | | Filed herewith |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | |
| | |||
HELIX ENERGY SOLUTIONS GROUP, INC. | ||||
| | | (Registrant) | |
| | | ||
Date: April 28, 2021 | | By: | /s/ Owen Kratz | |
| | | Owen Kratz | |
| | | President and Chief Executive Officer | |
| | | (Principal Executive Officer) | |
| | | | |
Date: April 28, 2021 | | By: | /s/ Erik Staffeldt | |
| | | Erik Staffeldt | |
| | | Executive Vice President and | |
| | | Chief Financial Officer | |
| | | (Principal Financial Officer) |
40