tdw20200930_10q.htm
0000098222 TIDEWATER INC false --12-31 Q3 2020 651 70 72,696 20,083 0.001 0.001 125,000,000 125,000,000 40,460,982 40,460,982 39,941,327 39,941,327 0.2 0.4 5,923,399 57.06 62.28 100.00 1.001 2014 2015 2016 2017 2018 2019 2020 0 0 0 0 Cash, cash equivalents and restricted cash at September 30, 2020 includes $3.4 million in long-term restricted cash. We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture. As of September 30, 2020 and December 31, 2019 the fair value (Level 2) of the Secured Notes was $193.9 million and $237.6 million, respectively. The $26.4 million restricted cash on the balance sheet at September 30, 2020, represents approximately 65% of net proceeds from asset dispositions since the date of the last tender offer and is restricted by the terms of the Indenture. In connection with the asset dispositions, we have commenced a mandatory tender offer for $28.7 million aggregate principal amount of Secured Notes in accordance with the Senior Notes Indenture, which will be terminated if the consent solicitation described below is approved by the requisite holders of Senior Notes, allowing the tender offer for $50 million aggregate principal amount of Senior Notes described below to proceed. We pay principal and interest on these notes semi-annually. As of September 30, 2020 and December 31, 2019, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $62.6 million and $72.9 million, respectively. The weighted average interest rate of the Troms Offshore borrowings as of September 30, 2020 was 5.0%. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


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

For the quarterly period ended September 30, 2020

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

For the transition period from             to             .

Commission file number: 1-6311

Tidewater Inc.

(Exact name of registrant as specified in its charter)

Delaware

72-0487776

(State of incorporation)

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

 

6002 Rogerdale Road, Suite 600

Houston, Texas 77072

(Address of principal executive offices) (Zip code)

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

Not Applicable

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

TDW

New York Stock Exchange

Series A Warrants to purchase shares of common stock

TDW.WS.A

New York Stock Exchange

Series B Warrants to purchase shares of common stock

TDW.WS.B

New York Stock Exchange

Warrants to purchase shares of common stock

TDW.WS

NYSE American

Preferred stock purchase rights

N/A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒

 

 

Accelerated filer  ☐

Non-accelerated filer  ☐

Emerging Growth Company

 

 

Smaller reporting company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

 

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

 

 40,546,647 shares of Tidewater Inc. common stock $0.001 par value per share were outstanding on October 29, 2020. 

 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.       FINANCIAL STATEMENTS

 

TIDEWATER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value data)

 

  

September 30,

  

December 31,

 

ASSETS

 

2020

  

2019

 

Current assets:

        

Cash and cash equivalents

 $192,243  $218,290 

Restricted cash

  26,401   5,755 

Trade and other receivables, less allowance for credit losses of $651 as of September 30, 2020 and less allowance for doubtful accounts of $70 as of December 31, 2019

  100,583   110,180 

Due from affiliate less allowance for credit losses of $72,696 as of September 30, 2020 and less due from affiliate allowance of $20,083 as of December 31, 2019

  65,692   125,972 

Marine operating supplies

  17,808   21,856 

Assets held for sale

  19,163   39,287 

Prepaid expenses and other current assets

  18,925   15,956 

Total current assets

  440,815   537,296 

Net properties and equipment

  820,876   938,961 

Net deferred drydocking and survey costs

  63,975   66,936 

Other assets

  25,108   36,335 

Total assets

 $1,350,774  $1,579,528 
         

LIABILITIES AND EQUITY

        

Current liabilities:

        

Accounts payable

 $12,953  $27,501 

Accrued costs and expenses

  55,811   74,000 

Due to affiliates

  53,355   50,186 

Current portion of long-term debt

  9,576   9,890 

Other current liabilities

  31,599   24,100 

Total current liabilities

  163,294   185,677 

Long-term debt

  246,179   279,044 

Other liabilities

  87,724   98,397 
         

Contingencies (Note 10)

          
         

Equity:

        

Common stock of $0.001 par value, 125,000,000 shares authorized, 40,460,982 and 39,941,327 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

  40   40 

Additional paid-in capital

  1,370,778   1,367,521 

Accumulated deficit

  (519,684)  (352,526)

Accumulated other comprehensive income (loss)

  1,106   (236)

Total stockholders’ equity

  852,240   1,014,799 

Noncontrolling interests

  1,337   1,611 

Total equity

  853,577   1,016,410 

Total liabilities and equity

 $1,350,774  $1,579,528 

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

 

2

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2020

   

September 30, 2019

   

September 30, 2020

   

September 30, 2019

 

Revenues:

                               

Vessel revenues

  $ 85,395     $ 117,173     $ 298,344     $ 360,476  

Other operating revenues

    1,072       2,592       6,835       7,296  
      86,467       119,765       305,179       367,772  

Costs and expenses:

                               

Vessel operating costs

    61,784       80,619       205,383       243,261  

Costs of other operating revenues

    219       534       3,063       1,884  

General and administrative

    17,438       30,474       56,455       81,310  

Depreciation and amortization

    30,777       25,735       86,028       73,705  

Long-lived asset impairments

    1,945       5,224       67,634       5,224  

Affiliate credit loss impairment expense

                53,581        

Affiliate guarantee obligation

                2,000        

Gain on asset dispositions, net

    (520 )     (270 )     (7,511 )     (1,047 )
      111,643       142,316       466,633       404,337  

Operating loss

    (25,176 )     (22,551 )     (161,454 )     (36,565 )

Other income (expense):

                               

Foreign exchange gain (loss)

    (1,153 )     173       (2,365 )     (324 )

Equity in net earnings of unconsolidated companies

          (468 )           (435 )

Dividend income from unconsolidated company

                17,150        

Interest income and other, net

    272       1,579       1,084       5,908  

Interest and other debt costs, net

    (6,071 )     (7,468 )     (18,172 )     (22,786 )
      (6,952 )     (6,184 )     (2,303 )     (17,637 )

Loss before income taxes

    (32,128 )     (28,735 )     (163,757 )     (54,202 )

Income tax expense

    5,953       15,071       3,512       26,443  

Net loss

  $ (38,081 )   $ (43,806 )   $ (167,269 )   $ (80,645 )

Net income (loss) attributable to noncontrolling interests

    (154 )     394       (274 )     1,245  

Net loss attributable to Tidewater Inc.

  $ (37,927 )   $ (44,200 )   $ (166,995 )   $ (81,890 )
Basic loss per common share   $ (0.94 )   $ (1.15 )   $ (4.15 )   $ (2.17 )
Diluted loss per common share   $ (0.94 )   $ (1.15 )   $ (4.15 )   $ (2.17 )

Weighted average common shares outstanding

    40,405       38,537       40,271       37,767  

Adjusted weighted average common shares

    40,405       38,537       40,271       37,767  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

3

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 

Net loss

 $(38,081) $(43,806) $(167,269) $(80,645)

Other comprehensive income:

                

Change in pension plan and supplemental pension plan liability, net of tax of $0.2 million and $0.4 million, respectively

  525      1,342    

Total comprehensive loss

 $(37,556) $(43,806) $(165,927) $(80,645)

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

4

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

Nine Months

   

Nine Months

 
   

Ended

   

Ended

 
   

September 30, 2020

   

September 30, 2019

 

Operating activities:

               

Net loss

  $ (167,269 )   $ (80,645 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation

    53,614       57,629  

Amortization of deferred drydocking and survey costs

    32,414       16,076  

Amortization of debt premium and discounts

    2,418       (1,562 )

Provision for deferred income taxes

    107       759  

Gain on asset dispositions, net

    (7,511 )     (1,047 )

Affiliate credit loss impairment expense

    53,581        

Affiliate guarantee obligation

    2,000        

Long-lived asset impairments

    67,634       5,224  

Changes in investments in unconsolidated companies

          435  

Compensation expense - stock-based

    3,959       16,599  
Changes in assets and liabilities, net:                

Trade and other receivables

    9,434       (11,796 )

Changes in due to/from affiliate, net

    9,852       14,898  

Accounts payable

    (14,548 )     (8,267 )

Accrued costs and expenses

    (18,189 )     (10,574 )

Cash paid for deferred drydocking and survey costs

    (29,499 )     (43,701 )

Other, net

    3,809       9,268  

Net cash provided by (used in) operating activities

    1,806       (36,704 )

Cash flows from investing activities:

               

Proceeds from sales of assets

    31,498       25,092  

Additions to properties and equipment

    (4,682 )     (13,931 )

Net cash provided by investing activities

    26,816       11,161  

Cash flows from financing activities:

               

Principal payments on long-term debt

    (33,520 )     (6,458 )

Taxes on share-based awards

    (702 )     (3,112 )

Other

          1  

Net cash used in financing activities

    (34,222 )     (9,569 )

Net change in cash, cash equivalents and restricted cash

    (5,600 )     (35,112 )

Cash, cash equivalents and restricted cash at beginning of period

    227,608       397,744  

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

  $ 222,008     $ 362,632  

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest, net of amounts capitalized

  $ 16,169     $ 24,482  

Income taxes

  $ 9,940     $ 10,386  

 

 

(A)

Cash, cash equivalents and restricted cash at September 30, 2020 includes $3.4 million in long-term restricted cash.

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

5

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

   

Three Months Ended

 
                           

Accumulated

                 
           

Additional

           

other

   

Non

         
   

Common

   

paid-in

   

Accumulated

   

comprehensive

   

controlling

         
   

stock

   

capital

   

deficit

   

income

   

interest

   

Total

 

Balance at June 30, 2020

  $ 40       1,369,645       (481,757 )     581       1,491       890,000  

Total comprehensive loss

                (37,927 )     525       (154 )     (37,556 )

Amortization/cancellation of restricted stock units

          1,133                         1,133  

Balance at September 30, 2020

  $ 40       1,370,778       (519,684 )     1,106       1,337       853,577  
                                                 

Balance at June 30, 2019

  $ 38       1,359,842       (248,473 )     2,194       1,938       1,115,539  

Total comprehensive loss

                (44,200 )           394       (43,806 )

Issuance of common stock from exercise of warrants

    1       (1 )                        

Amortization/cancellation of restricted stock units

          6,031                         6,031  

Balance at September 30, 2019

  $ 39       1,365,872       (292,673 )     2,194       2,332       1,077,764  

 

   

Nine Months Ended

 
                           

Accumulated

                 
           

Additional

           

other

   

Non

         
   

Common

   

paid-in

   

Accumulated

   

comprehensive

   

controlling

         
   

stock

   

capital

   

deficit

   

income (loss)

   

interest

   

Total

 

Balance at December 31, 2019

  $ 40       1,367,521       (352,526 )     (236 )     1,611       1,016,410  

Total comprehensive loss

                (166,995 )     1,342       (274 )     (165,927 )

Adoption of credit loss accounting standard

                (163 )                 (163 )

Amortization/cancellation of restricted stock units

          3,257                         3,257  

Balance at September 30, 2020

  $ 40       1,370,778       (519,684 )     1,106       1,337       853,577  
                                                 

Balance at December 31, 2018

  $ 37       1,352,388       (210,783 )     2,194       1,087       1,144,923  

Total comprehensive loss

                (81,890 )           1,245       (80,645 )

Issuance of common stock from exercise of warrants

    2                               2  

Amortization/cancellation of restricted stock units

          13,484                         13,484  

Balance at September 30, 2019

  $ 39       1,365,872       (292,673 )     2,194       2,332       1,077,764  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

6

 

 

(1)

INTERIM FINANCIAL STATEMENTS

 

The unaudited condensed consolidated financial statements for the interim periods presented herein have been prepared in conformity with United States generally accepted accounting principles and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the unaudited condensed consolidated financial statements at the dates and for the periods indicated as required by Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (SEC). Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.

 

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

 

 

(2)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

 

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

 

In August 2018 the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, which modifies the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. This ASU removes certain disclosures that no longer are considered cost beneficial, clarifies the specific requirements of certain other disclosures, and adds disclosure requirements identified as relevant.  The guidance is effective for annual and interim periods beginning after December 15, 2020 with early adoption permitted.  We do not expect the standard to have a significant impact on our consolidated financial statement disclosures.

 

7

 
 

(3)

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

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

 

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

 

Expected credit losses are recognized on the initial recognition of our trade accounts receivable and contract assets.  In each subsequent reporting period, even if a loss has not yet been incurred, credit losses are recognized based on the history of credit losses and current conditions, as well as reasonable and supportable forecasts affecting collectability.  We developed an expected credit loss model applicable to our trade accounts receivable and contract assets that considers our historical performance and the economic environment, as well as the credit risk and its expected development for each group of customers that share similar risk characteristics.  We segmented our trade accounts receivable and contract assets by type of client, except for individual account balances that have deteriorated in credit quality, which are evaluated individually.  We then determined, for each of these client asset groups, the average expected credit loss utilizing our actual credit loss experience over the last five years, which was adjusted as discussed above, and was applied to the balance attributable to each segment in our trade accounts receivable and contract asset balances.  This standard was adopted through a cumulative-effect adjustment to the accumulated deficit as of January 1, 2020, which is the beginning of the first period in which this guidance is effective.  Periods prior to the adoption date that are presented for comparative purposes are not adjusted.  Adopting this standard on January 1, 2020 increased the allowance for expected credit losses by approximately $0.2 million.

 

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

 

  

Trade

  

Due

 
  

and

  

from

 

(In thousands)

 

Other Receivables

  

Affiliate

 

Balance at January 1, 2020

 $70  $20,083 

Cumulative effect adjustment upon adoption of standard

  163    

Current period provision for expected credit losses

  418   54,550 

Other

     (1,937)

Balance at September 30, 2020

 $651  $72,696 

 

 

(4)

REVENUE RECOGNITION

 

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

 

Contract Balances

 

At September 30, 2020, we had $6.2 million and $1.0 million of deferred mobilization costs included within other current assets and other assets, respectively.

 

At September 30, 2020 we have $0.9 million of deferred mobilization revenue, included within other current liabilities, related to unsatisfied performance obligations which will be primarily recognized during the remainder of 2020 and 2021.

 

8

 
 

(5)

STOCKHOLDERS' EQUITY AND DILUTIVE EQUITY INSTRUMENTS

 

Accumulated Other Comprehensive Income (Loss) (OCI)

 

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

 

  

Three Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

 

Balance at June 30, 2020 and 2019

 $581  $2,194 

Pension benefits recognized in AOCI

  525    

Balance at September 30, 2020 and 2019

 $1,106  $2,194 

 

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

 

Balance at December 31, 2019 and 2018

 $(236) $2,194 

Pension benefits recognized in AOCI

  1,342    

Balance at September 30, 2020 and 2019

 $1,106  $2,194 

 

Dilutive Equity Instruments

 

We had 2,488,752 and 3,397,110 incremental "in-the-money" warrants and restricted stock units at September 30, 2020 and 2019, respectively, which are as follows:

 

Total shares outstanding including warrants and restricted stock units

 

September 30, 2020

  

September 30, 2019

 

Common shares outstanding

  40,460,982   39,110,938 

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

  761,395   1,329,884 

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

  930,027   1,300,359 

Restricted stock units

  797,330   766,867 

Total

  42,949,734   42,508,048 

 

We also had 5,923,399 shares of “out-of-the-money” warrants outstanding at September 30, 2020 and 2019, respectively. Included in these “out-of-the-money” warrants are Series A Warrants, Series B Warrants and GLF Equity Warrants which have exercise prices of $57.06, $62.28, and $100.00, respectively. No warrants or restricted stock units, whether in the money or out of the money, are included in our loss per share calculations because the effect of such inclusion is antidilutive.

 

Tax Benefits Preservation Plan

 

On April 13, 2020, we adopted a Tax Benefits Preservation Plan (the “Plan”) as a measure to protect our existing net operating loss carryforwards ($280 million at September 30, 2020) and foreign tax credits (“Tax Attributes”) and to reduce our potential future tax liabilities.  Use of our Tax Attributes will be substantially limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code (“Section 382”).

 

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

 

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

 

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

 

9

 
 

(6)

INCOME TAXES

 

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

 

Income tax expense for the quarter and nine months ended September 30, 2020, reflects tax liabilities in various jurisdictions that are either based on revenue (deemed profit regimes) or pre-tax profits.

 

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

 

As of December 31, 2019, our balance sheet reflected approximately $101.3 million of net deferred tax assets prior to a valuation allowance analysis, with a valuation allowance of $103.5 million. As of September 30, 2020, we had net deferred tax assets of approximately $106.3 million prior to a valuation allowance analysis of $108.6 million.

 

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

 

The amount of deferred tax assets considered realizable could be adjusted if future estimates of U.S. taxable income change, or if objective negative evidence in the form of cumulative losses is no longer present and subjective evidence, such as financial projections for future growth and tax planning strategies, are given additional weight.

 

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

 

With limited exceptions, we are no longer subject to tax audits by U.S. federal, state, local or foreign taxing authorities for years prior to 2014. We are subject to ongoing examinations by various foreign tax authorities and do not believe that the results of these examinations will have a material adverse effect on our financial position, results of operations, or cash flows.

 

10

 
 

(7)

AFFILIATES BALANCES

 

We maintained the following balances with our unconsolidated affiliates:

 

(In thousands)

 

September 30, 2020

  

December 31, 2019

 

Due from affiliates:

        

Sonatide (Angola)

 $45,627  $89,246 

DTDW (Nigeria)

  20,065   36,726 
   65,692   125,972 

Due to affiliates:

        

Sonatide (Angola)

 $33,290  $31,475 

DTDW (Nigeria)

  20,065   18,711 
   53,355   50,186 

Net due from affiliates

 $12,337  $75,786 

 

Amounts due from Sonatide

 

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

 

  

Nine Months

 
  

Ended

 

(In thousands)

 

September 30, 2020

 

Due from Sonatide at December 31, 2019

 $89,246 

Revenue earned by the company through Sonatide

  34,378 

Less amounts received from Sonatide

  (27,761)

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

  (8,145)

Affiliate credit loss impairment expense

  (41,500)

Other

  (591)

Total due from Sonatide at September 30, 2020

 $45,627 

 

 

(A)

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

 

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

 

In the second quarter of 2020 Sonatide declared a $35.0 million dividend.  On June 22, 2020, Sonangol received $17.8 million and we received $17.2 million.  All of our share of the dividend is reflected as dividend income from unconsolidated company in the consolidated statement of operations because (i) our investment in the Sonatide joint venture had previously been written down to zero, (ii) the distributions are not refundable and (iii) we are not liable for the obligations of or committed to provide financial support to the Sonatide joint venture.  In addition, as a result of the aforementioned dividend payment, the cash balances of the joint venture were significantly reduced and we determined that, as a result, a significant portion of our net due from Sonatide balance was compromised.

 

After offsetting the amounts due to Sonatide, the net amount due from Sonatide at September 30, 2020 was approximately $12.3 million. Sonatide had approximately $8.9 million of cash on hand (approximately $1.0 million denominated in Angolan kwanzas) at September 30, 2020 plus approximately $12.9 million of net trade accounts receivable to satisfy the net due from Sonatide. Given prior discussions with our partner regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared, we continue to evaluate our net due from Sonatide balance for possible additional impairment in future periods based in part on available liquidity held by Sonatide. In the nine months ended  September 30, 2020, we recorded $41.5 million in credit loss impairment expense.

 

11

 

Amounts due to Sonatide

 

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

 

  

Nine Months

 
  

Ended

 

(In thousands)

 

September 30, 2020

 

Due to Sonatide at December 31, 2019

 $31,475 

Plus additional commissions payable to Sonatide

  3,240 

Plus amounts paid by Sonatide on behalf of the company

  6,763 

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

  (8,145)

Other

  (43)

Total due to Sonatide at September 30, 2020

 $33,290 

 

 

(A)

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

 

Sonatide Operations

 

Sonatide’s principal earnings are from the commissions paid by us to the joint venture for company vessels chartered in Angola. In addition, Sonatide owns two vessels that may generate operating income and cash flow.

 

Company operations in Angola

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 

Revenues of Angolan operations (in thousands)

 $10,660  $11,534  $35,086  $41,194 

Percent of consolidated vessel revenues

  12%  10%  12%  11%

Number of company owned vessels in Angola

  24   31   26   33 

Number of stacked company owned vessels in Angola

  8   14   9   14 

 

Amounts due from DTDW (Nigeria)

 

We own 40% of the DTDW joint venture in Nigeria.  Our partner, who owns 60%, is a Nigerian national.  DTDW owns one offshore service vessel and has long term debt of $4.7 million which is secured by the vessel and guarantees from the DTDW partners. We also operate company owned vessels in Nigeria for which our partner receives a commission.  As of September 30, 2020, we had no company owned vessels operating in Nigeria and the DTDW owned vessel was not employed.  At the beginning of 2020 we had expected that we would be operating numerous vessels in Nigeria, but in the second quarter of 2020 the COVID-19 pandemic and resulting oil price reduction caused our primary customer in Nigeria to eliminate all planned operations for 2020.  As a result, the near-term cash flow projections indicate that DTDW does not have sufficient funds to meet its obligations to us or to the holder of its long-term debt.  Therefore, we recorded affiliate credit loss impairment expense for the nine months ending September 30, 2020 totaling $12.1 million.  In addition, based on our analysis we have determined that DTDW will be unable to pay its debt obligation and the debt will not be satisfied by liquidating the vessel and, as a result, we recorded additional impairment expense of $2.0 million for our expected share of the obligation guarantee during the nine  months ended September 30, 2020. 

 

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(8)

EMPLOYEE BENEFIT PLANS

 

U.S. Defined Benefit Pension Plan

 

We have a defined benefit pension plan (pension plan) that covers certain U.S. citizen employees and other employees who are permanent residents of the United States. The pension plan was frozen during 2010.  We did not contribute to the pension plan during the three and nine months ended September 30, 2020 and we are not required to contribute to the pension plan during the remaining quarter of calendar year 2020; however, we may, at our discretion, make contributions to the pension plan in order to manage our plan expenses.  We contributed $1.1 million to the pension plan during the third quarter of 2019.  Actuarial valuations are performed annually and an assessment of the future pension obligations and market value of the assets will determine if contributions are made in the future.

 

Supplemental Executive Retirement Plan

 

We also support a non-contributory and non-qualified defined benefit supplemental executive retirement plan (supplemental plan) which was closed to new participants during 2010, that provided pension benefits to certain employees in excess of those allowed under our tax-qualified pension plan.  We contributed $0.4 million and $1.2 million during the three and nine months ended September 30, 2020 and $2.1 million and $2.9 million during the three and nine months ended September 30, 2019, respectively. We expect to contribute $0.4 million to the supplemental plan during the remainder of 2020. Our obligations under the supplemental plan were $21.0 million and $21.4 million as of September 30, 2020 and  December 31, 2019, respectively, and are included in “accrued costs and expenses” and “other liabilities” on the consolidated balance sheet.

 

Other Defined Benefit Pension Plans

 

We also have defined benefit pension plans that cover a small number of former Norwegian employees. Benefits are based on years of service and employee compensation. Our contributions to the Norwegian defined benefit pension plans during 2020 and 2019, were immaterial and we expect that any contributions for the remainder of calendar year 2020 will be immaterial. Substantially, all of our Norwegian employees were transferred from our defined benefit pension plans into a defined contribution plan during 2020.

 

Net Periodic Benefit Costs

 

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

 

  

Three Months Ended

  

Nine Months Ended

 

(In thousands)

 

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 

Pension Benefits:

                

Service cost

 $97  $316  $111  $328 

Interest cost

  239   1,006   2,737   2,853 

Expected return on plan assets

  (114)  (711)  (2,208)  (1,787)

Administrative expenses

  52   83   64   90 

Settlement loss

  79   (46)  910   46 

Amortization of net actuarial losses

  5      (4)   

Net periodic pension cost

 $358  $648  $1,610  $1,530 

 

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DEBT

 

The following is a summary of all debt outstanding:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Secured notes:

        

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

 $197,049  $224,793 

Troms Offshore borrowings (D):

        
NOK denominated notes due May 2024  8,683   10,260 

NOK denominated notes due January 2026

  16,746   20,788 

USD denominated notes due January 2027

  17,816   20,273 

USD denominated notes due April 2027

  20,240   21,545 
  $260,534  $297,659 

Debt premiums and discounts, net

  (4,779)  (8,725)

Less: Current portion of long-term debt

  (9,576)  (9,890)

Total long-term debt

 $246,179  $279,044 

 

 

(A)

As of September 30, 2020 and  December 31, 2019 the fair value (Level 2) of the Secured Notes was $193.9 million and $237.6 million, respectively.  

 

(B)

The $26.4 million restricted cash on the balance sheet at September 30, 2020, represents approximately 65% of net proceeds from asset dispositions since the date of the last tender offer and is restricted by the terms of the Indenture. In connection with the asset dispositions, we have commenced a mandatory tender offer for $28.7 million aggregate principal amount of Secured Notes in accordance with the Senior Notes Indenture, which will be terminated if the consent solicitation described below is approved by the requisite holders of Senior Notes, allowing the tender offer for $50 million aggregate principal amount of Senior Notes described below to proceed.

 (C)During the three and nine months ended September 30, 2020, we repurchased $27.7 million of the Secured Notes at a discount of $1.5 million in open market transactions.

 

(D)

We pay principal and interest on these notes semi-annually.  As of September 30, 2020 and  December 31, 2019, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $62.6 million and $72.9 million, respectively. The weighted average interest rate of the Troms Offshore borrowings as of September 30, 2020 was 5.0%. 

 

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

 

In October 2020 we executed a consent to conform the TROMS offshore borrowing covenants to those of the Senior Secured Notes.  As a condition of this consent, we will be prepaying approximately $12.4 million of the TROMS debt in the fourth quarter of 2020 and another $8 million in the first half of 2021.  If the company were to make additional prepayments of Senior Secured Notes, we would be obliged to make additional prepayments of Troms debt up to a cumulative balance of $35 million.

 

On  November 3, 2020, we launched a consent solicitation and concurrent tender offer for $50 million aggregate principal amount of Senior Notes. We are soliciting consents to approve amendments to several covenants under the Senior Notes Indenture, as well as a waiver of  the mandatory tender offer discussed in Item B under the Debt table above.

 

 

(10)

COMMITMENTS AND CONTINGENCIES

 

Currency Devaluation and Fluctuation Risk

 

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

 

Legal Proceedings

 

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

 

 

(11)

FAIR VALUE MEASUREMENTS

 

Other Financial Instruments

 

Our primary financial instruments consist of cash and cash equivalents, restricted cash, trade receivables and trade payables with book values that are considered to be representative of their respective fair values.

 

The carrying value for cash equivalents is considered to be representative of its fair value due to the short duration and conservative nature of the cash equivalent investment portfolio.  As of September 30, 2020 and  December 31, 2019, we had $222.0 and $227.6 million of cash equivalents, respectively.

 

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(12)

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

 

Our property and equipment consist primarily of 146 active vessels, which excludes the 24 vessels we have classified as held for sale, located around the world.

 

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

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Properties and equipment:

        

Vessels and related equipment

 $968,411  $1,051,558 

Other properties and equipment

  15,674   13,119 
   984,085   1,064,677 

Less accumulated depreciation and amortization

  163,209   125,716 

Properties and equipment, net

 $820,876  $938,961 

 

During the three months ended September 30, 2020 we revised our estimates of salvage value for our vessels which will increase our depreciation expense on a prospective basis.  The effect of the change in estimate on our results of operations for the three months ended September 30, 2020 was to increase depreciation expense by $3.8 million (or $0.09 per share).

 

A summary of accrued cost and expenses is as follows:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Payroll and related payables

 $16,364  $16,351 

Accrued vessel expenses

  17,968   38,383 

Accrued interest expense

  4,053   4,570 

Other accrued expenses

  17,426   14,696 
  $55,811  $74,000 

 

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

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Taxes payable

 $22,416  $18,661 

Other

  9,183   5,439 
  $31,599  $24,100 

 

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

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Pension liabilities

 $29,832  $32,545 

Liability for uncertain tax positions

  44,876   48,577 

Deferred tax liability

  2,692   2,571 

Other

  10,324   14,704 
  $87,724  $98,397 

 

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SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS

 

The following table provides a comparison of segment revenues, vessel operating profit (loss), depreciation and amortization, and additions to properties and equipment for the three and nine months ended September 30, 2020 and 2019. Vessel revenues and operating costs relate to vessels owned and operated by us while other operating revenues relate to other miscellaneous marine-related businesses.

 

  

Three Months Ended

  

Nine Months Ended

 

(In thousands)

 

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 

Revenues:

                

Vessel revenues:

                

Americas

 $28,705  $33,147  $94,608  $103,624 

Middle East/Asia Pacific

  23,280   22,765   72,091   63,670 

Europe/Mediterranean

  17,716   30,946   67,827   94,531 

West Africa

  15,694   30,315   63,818   98,651 

Other operating revenues

  1,072   2,592   6,835   7,296 
  $86,467  $119,765  $305,179  $367,772 

Vessel operating profit (loss):

                

Americas

 $107  $(168) $3,448  $1,702 

Middle East/Asia Pacific

  (2,222)  (809)  (2,479)  (4,098)

Europe/Mediterranean

  (3,883)  (276)  (4,086)  (768)

West Africa

  (10,168)  678   (19,015)  11,891 

Other operating profit

  853   2,052   3,772   5,381 
   (15,313)  1,477   (18,360)  14,108 

Corporate expenses

  (8,438)  (19,074)  (27,390)  (46,496)

Long-lived asset impairments

  (1,945)  (5,224)  (67,634)  (5,224)

Affiliate credit loss impairment expense

        (53,581)   

Affiliate guarantee obligation

        (2,000)   

Gain on asset dispositions, net

  520   270   7,511   1,047 

Operating loss

 $(25,176) $(22,551) $(161,454) $(36,565)

Depreciation and amortization:

                

Americas

 $8,076  $6,929  $23,645  $19,706 

Middle East/Asia Pacific

  6,332   5,685   17,504   15,454 

Europe/Mediterranean

  8,248   7,436   21,860   22,623 

West Africa

  7,330   5,335   20,484   14,876 

Corporate

  791   350   2,535   1,046 
  $30,777  $25,735  $86,028  $73,705 

Additions to properties and equipment:

                

Americas

 $(10) $326  $(10) $967 

Middle East/Asia Pacific

  5   594   1,188   4,231 

Europe/Mediterranean

  (13)  1,847   913   3,070 

West Africa

  (11)  684   667   2,267 

Corporate

  636   1,632   1,924   3,396 
  $607  $5,083  $4,682  $13,931 

 

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

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Total assets:

        

Americas

 $343,792  $375,297 

Middle East/Asia Pacific

  231,514   270,413 

Europe/Mediterranean

  312,651   358,943 

West Africa

  260,121   376,087 

Corporate

  202,696   198,788 
  $1,350,774  $1,579,528 

  

 

(14)

RESTRUCTURING CHARGES

 

In the fourth quarter of 2018, we finalized plans and made accruals of expected costs to abandon the duplicate office facilities in four locations in the USA and Scotland with the final lease agreement ending in October 2026. Activity for the lease exit and severance liabilities for the nine months ended September 30, 2020 and 2019 was as follows:

 

  

Lease

         

(In thousands)

 

Exit Costs

  

Severance

  

Total

 

Balance at December 31, 2019

 $4,109  $272  $4,381 

General and administrative charges

  198   1,076   1,274 

Cash payments

  (720)  (1,274)  (1,994)

Balance at September 30, 2020

 $3,587  $74  $3,661 

 

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

 

  

Lease

         

(In thousands)

 

Exit Costs

  

Severance

  

Total

 

Balance at December 31, 2018

 $6,468  $285  $6,753 

General and administrative charges

  251   5,634   5,885 

Cash payments

  (1,960)  (4,220)  (6,180)

Balance at September 30, 2019

 $4,759  $1,699  $6,458 

 

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ASSET DISPOSITIONS, ASSETS HELD FOR SALE AND ASSET IMPAIRMENTS

 

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

 

(in thousands, except for number of vessels data)

 

Number of Vessels

  

Three Months Ended March 31, 2020

  

Number of Vessels

  

Three Months Ended June 30, 2020

  

Number of Vessels

  

Three Months Ended September 30, 2020

  

Number of Vessels

  

Nine Months Ended September 30, 2020

 

Beginning balance

  46   39,287   38  $26,142   46  $29,064   46  $39,287 

Additions

         22   15,931