10-Q 1 tdw-10q_20170630.htm 10-Q tdw-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2017

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.)

601 Poydras St., Suite 1500

New Orleans, Louisiana     70130

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code:     (504) 568-1010

Not Applicable

(Former name or former address, if changed since last report)

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 of 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 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).    Yes      No  

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

 

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

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  

47,121,418 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on July 28, 2017.  Registrant has no other class of common stock outstanding.

 

 

 


 

PART I.  FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TIDEWATER INC.

(Debtor-in-Possession)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value data)

 

 

June 30,

 

 

March 31,

 

ASSETS

 

2017

 

 

2017

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

683,778

 

 

 

706,404

 

Trade and other receivables, net

 

 

116,612

 

 

 

123,262

 

Due from affiliate

 

 

252,810

 

 

 

262,652

 

Marine operating supplies

 

 

31,097

 

 

 

30,560

 

Other current assets

 

 

34,619

 

 

 

18,409

 

Total current assets

 

 

1,118,916

 

 

 

1,141,287

 

Investments in, at equity, and advances to unconsolidated companies

 

 

49,216

 

 

 

45,115

 

Net properties and equipment

 

 

2,659,314

 

 

 

2,864,762

 

Other assets

 

 

92,134

 

 

 

139,535

 

Total assets

 

$

3,919,580

 

 

 

4,190,699

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

35,087

 

 

 

31,599

 

Accrued expenses

 

 

63,155

 

 

 

78,121

 

Due to affiliate

 

 

121,037

 

 

 

132,857

 

Accrued property and liability losses

 

 

2,758

 

 

 

3,583

 

Current portion of long-term debt

 

 

10,106

 

 

 

2,034,124

 

Other current liabilities

 

 

28,029

 

 

 

48,429

 

Total current liabilities

 

 

260,172

 

 

 

2,328,713

 

Long-term debt

 

 

80,863

 

 

 

 

Deferred income taxes

 

 

 

 

 

46,013

 

Accrued property and liability losses

 

 

2,776

 

 

 

10,209

 

Other liabilities and deferred credits

 

 

60,382

 

 

 

154,705

 

Liabilities subject to compromise

 

 

2,389,557

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock of $0.10 par value, 125,000,000 shares authorized,

   issued 47,121,304 shares at June 30, 2017 and 47,121,304

   shares at March 31, 2017

 

 

4,712

 

 

 

4,712

 

Additional paid-in capital

 

 

165,516

 

 

 

165,221

 

Retained earnings

 

 

950,895

 

 

 

1,475,329

 

Accumulated other comprehensive loss

 

 

(10,258

)

 

 

(10,344

)

Total stockholders’ equity

 

 

1,110,865

 

 

 

1,634,918

 

Noncontrolling interests

 

 

14,965

 

 

 

16,141

 

Total equity

 

 

1,125,830

 

 

 

1,651,059

 

Total liabilities and equity

 

$

3,919,580

 

 

 

4,190,699

 

 

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

2


 

TIDEWATER INC.

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Vessel revenues

 

$

112,257

 

 

 

162,430

 

Other operating revenues

 

 

2,849

 

 

 

5,495

 

 

 

 

115,106

 

 

 

167,925

 

Costs and expenses:

 

 

 

 

 

 

 

 

Vessel operating costs

 

 

83,773

 

 

 

108,874

 

Costs of other operating revenues

 

 

1,585

 

 

 

3,903

 

General and administrative

 

 

33,059

 

 

 

37,047

 

Vessel operating leases

 

 

5,542

 

 

 

8,441

 

Depreciation and amortization

 

 

36,287

 

 

 

44,552

 

Gain on asset dispositions, net

 

 

(3,189

)

 

 

(5,643

)

Asset impairments

 

 

163,423

 

 

 

36,886

 

 

 

 

320,480

 

 

 

234,060

 

Operating loss

 

 

(205,374

)

 

 

(66,135

)

Other income (expenses):

 

 

 

 

 

 

 

 

Foreign exchange loss

 

 

(1,157

)

 

 

(2,733

)

Equity in net earnings (losses) of unconsolidated companies

 

 

4,517

 

 

 

(1

)

Interest income and other, net

 

 

1,680

 

 

 

1,176

 

Reorganization items

 

 

(313,176

)

 

 

 

Interest and other debt costs, net

 

 

(10,605

)

 

 

(16,954

)

 

 

 

(318,741

)

 

 

(18,512

)

Loss before income taxes

 

 

(524,115

)

 

 

(84,647

)

Income tax expense

 

 

295

 

 

 

3,996

 

Net loss

 

$

(524,410

)

 

 

(88,643

)

Less: Net income attributable to noncontrolling interests

 

 

24

 

 

 

454

 

Net loss attributable to Tidewater Inc.

 

$

(524,434

)

 

 

(89,097

)

Basic loss per common share

 

$

(11.13

)

 

 

(1.89

)

Diluted loss per common share

 

$

(11.13

)

 

 

(1.89

)

Weighted average common shares outstanding

 

 

47,121,304

 

 

 

47,067,715

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

 

Adjusted weighted average common shares

 

 

47,121,304

 

 

 

47,067,715

 

 

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

 

 

3


 

TIDEWATER INC.

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Net loss

 

$

(524,410

)

 

 

(88,643

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gains on available for sale securities,

   net of tax of $0 and $0

 

 

86

 

 

 

161

 

Amortization of loss on derivative contract, net of tax of

   $0 and $0

 

 

 

 

 

71

 

Total comprehensive loss

 

$

(524,324

)

 

 

(88,411

)

 

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

 

 

4


 

TIDEWATER INC.

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(524,410

)

 

 

(88,643

)

Adjustments to reconcile net loss to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Reorganization items

 

 

308,011

 

 

 

 

Depreciation and amortization

 

 

36,287

 

 

 

44,552

 

Provision for deferred income taxes

 

 

(5,543

)

 

 

 

Gain on asset dispositions, net

 

 

(3,189

)

 

 

(5,643

)

Asset impairments

 

 

163,423

 

 

 

36,886

 

Equity in earnings (losses) of unconsolidated companies, less dividends

 

 

(4,101

)

 

 

108

 

Compensation expense - stock-based

 

 

326

 

 

 

1,536

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

6,650

 

 

 

26,414

 

Changes in due to/from affiliate, net

 

 

(1,978

)

 

 

5,947

 

Marine operating supplies

 

 

(514

)

 

 

1,288

 

Other current assets

 

 

(16,210

)

 

 

(4,147

)

Accounts payable

 

 

3,488

 

 

 

4,613

 

Accrued expenses

 

 

8,603

 

 

 

(19,993

)

Accrued property and liability losses

 

 

(825

)

 

 

289

 

Other current liabilities

 

 

2,644

 

 

 

(6,814

)

Other liabilities and deferred credits

 

 

1,251

 

 

 

(3,212

)

Other, net

 

 

2,724

 

 

 

(4,084

)

Net cash used in operating activities

 

 

(23,363

)

 

 

(10,903

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of assets

 

 

608

 

 

 

1,234

 

Additions to properties and equipment

 

 

(1,627

)

 

 

(7,578

)

Payments related to novated vessel construction contract

 

 

5,272

 

 

 

 

Refunds from cancelled vessel construction contracts

 

 

 

 

 

11,515

 

Net cash provided by investing activities

 

 

4,253

 

 

 

5,171

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payment on long-term debt

 

 

(2,316

)

 

 

(2,324

)

Other

 

 

(1,200

)

 

 

(1,722

)

Net cash used in financing activities

 

 

(3,516

)

 

 

(4,046

)

Net change in cash and cash equivalents

 

 

(22,626

)

 

 

(9,778

)

Cash and cash equivalents at beginning of period

 

 

706,404

 

 

 

678,438

 

Cash and cash equivalents at end of period

 

$

683,778

 

 

 

668,660

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

433

 

 

 

26,733

 

Income taxes

 

$

3,611

 

 

 

11,006

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Additions to properties and equipment

 

$

 

 

 

2,537

 

 

 

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

5


 

TIDEWATER INC.

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Non

 

 

 

 

 

 

 

Common

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

earnings

 

 

loss

 

 

interest

 

 

Total

 

Balance at March 31, 2017

 

$

4,712

 

 

 

165,221

 

 

 

1,475,329

 

 

 

(10,344

)

 

 

16,141

 

 

 

1,651,059

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(524,434

)

 

 

86

 

 

 

24

 

 

 

(524,324

)

Stock option expense

 

 

 

 

 

293

 

 

 

 

 

 

 

 

 

 

 

 

293

 

Amortization of restricted stock units

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Cash paid to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,200

)

 

 

(1,200

)

Balance at June 30, 2017

 

$

4,712

 

 

 

165,516

 

 

 

950,895

 

 

 

(10,258

)

 

 

14,965

 

 

 

1,125,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2016

 

$

4,707

 

 

 

166,604

 

 

 

2,135,075

 

 

 

(6,866

)

 

 

6,034

 

 

 

2,305,554

 

Total comprehensive loss

 

 

 

 

 

 

 

 

(89,097

)

 

 

232

 

 

 

454

 

 

 

(88,411

)

Stock option activity

 

 

 

 

 

277

 

 

 

 

 

 

 

 

 

 

 

 

277

 

Cancellation of restricted stock awards

 

 

 

 

 

 

 

 

192

 

 

 

 

 

 

 

 

 

192

 

Amortization/cancellation of restricted stock units

 

 

 

 

 

1,383

 

 

 

 

 

 

 

 

 

 

 

 

1,383

 

Balance at June 30, 2016

 

$

4,707

 

 

 

168,264

 

 

 

2,046,170

 

 

 

(6,634

)

 

 

6,488

 

 

 

2,218,995

 

 

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 the company’s Annual Report on Form 10-K for the year ended March 31, 2017, filed with the SEC on June 12, 2017.

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

 

The condensed consolidated financial statements have been prepared as if the company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.  Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items” on the company’s condensed consolidated statements of earnings.  In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the company’s condensed balance sheet at June 30, 2017. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less.

 

The accompanying financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the financial statements do not purport to show: (i) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on the statements of equity of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business.

 

(2)CHAPTER 11 PROCEEDINGS AND EMERGENCE

 

As previously reported, on July 17, 2017, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) issued its written order confirming the company’s consensual prepackaged plan of reorganization (the “Prepackaged Plan”) that had been filed with the Bankruptcy Court on May 17, 2017 (the “Petition Date”) in connection with the filing by the company and certain of its subsidiaries (the “Debtors”) of a petition with Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code. On July 31, 2017, the company and its affiliated chapter 11 debtors emerged from bankruptcy after successfully completing its reorganization pursuant to the Second Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Tidewater and its Affiliated Debtors (the “Plan”), that was confirmed on July 17, 2017 by the Bankruptcy Court.

During the bankruptcy proceedings, the Debtors have operated as "debtors-in-possession" in accordance with applicable provisions of the Bankruptcy Code. The company has been operating in the ordinary course of business pursuant to motions filed by the Debtors and granted by the Bankruptcy Court.

Upon emergence of the Company from bankruptcy:

 

The lenders under the company’s Fourth Amended and Restated Revolving Credit Agreement, dated as of June 21, 2013 (the “Credit Agreement”), the holders of Senior Notes, and the lessors from whom the company leases 16 vessels (the “Sale Leaseback Parties”) (collectively, the “General Unsecured Creditors” and the claims thereof, the “General Unsecured Claims”) received their pro rata share of (a) $225 million of cash, (b) subject to the limitations discussed below, common stock and, if applicable, warrants (the “New Creditor Warrants”) to purchase common stock, representing 95% of the pro forma common equity in the reorganized company (subject to dilution


7


 

by a management incentive plan and the exercise of warrants issued to existing stockholders under the Prepackaged Plan as described below); and (c) new 8% fixed rate secured notes due in 2022 in the aggregate principal amount of $350 million (the “New Secured Notes”).

 

The company’s existing shares of common stock were cancelled. Existing common stockholders of the company received their pro rata share of common stock representing 5% of the pro forma common equity in the reorganized company (subject to dilution by a management incentive plan and the exercise of warrants issued to existing stockholders under the Prepackaged Plan) and six year warrants to purchase additional shares of common stock of the reorganized company. These warrants were issued in two tranches, with the first tranche (the “Series A Warrants”) exercisable immediately, at an aggregate exercise price based upon an equity value of the company of approximately $1.71 billion, and the second tranche (the “Series B Warrants”) exercisable immediately, at an aggregate exercise price based upon an equity value of the company of $2.02 billion. The Series A Warrants are exercisable for a number of shares equal to 7.5% of the sum of (i) the total outstanding shares of common stock after completion of the transactions contemplated by the Prepackaged Plan, and (ii) any shares issuable upon exercise of the New Creditor Warrants and the Series A Warrants, while the Series B Warrants are exercisable for a number of shares equal to 7.5% of the sum of (x) the total outstanding shares of common stock after completion of the transactions contemplated by the Prepackaged Plan, and (y) any shares issuable upon the exercise of the New Creditor Warrants, the Series A Warrants, and Series B Warrants. Like the New Creditor Warrants, the Series A Warrants and the Series B Warrants do not grant the holder thereof any voting or control rights or dividend rights, or contain any negative covenants restricting the operation of the company’s business and are subject to the restrictions in the company’s new certificate of incorporation that prohibits the exercise of such warrants where such exercise would cause the total number of shares held by non-U.S. citizens to exceed 24%. However, the Series A and Series B Warrants were amended to provide that if, during the six-month period immediately preceding their termination date, a non-U.S. Citizen was precluded from exercising the warrant because of the foreign ownership limitations, then the holder thereof may exercise and receive, in lieu of shares of common stock, warrants identical in all material respects to the New Creditor warrants, with one such warrant being issued for each share of common stock that the Series A or Series B Warrant were otherwise convertible into.

 

To assure the continuing ability of certain vessels owned by the company’s subsidiaries to engage in U.S. coastwise trade, the number of shares of the company’s common stock that would otherwise be issuable to the allowed General Unsecured Creditors may be adjusted to assure that the foreign ownership limitations of the United States Jones Act are not exceeded. The Jones Act requires any corporation that engages in coastwise trade be a U.S. citizen within the meaning of that law, which requires, among other things, that the aggregate ownership of common stock by non-U.S. citizens within the meaning of the Jones Act be not more than 25% of its outstanding common stock. The Prepackaged Plan required that, at the time the company emerged from bankruptcy, not more than 22% of the common stock will be held by non-U.S. citizens. To that end, the Prepackaged Plan provided for the issuance of a combination of common stock of the reorganized company and the New Creditor Warrants to purchase common stock of the reorganized company on a pro rata basis to any non-U.S. citizen among the allowed General Unsecured Creditors whose ownership of common stock, when combined with the shares to be issued to existing Tidewater stockholders that are non-U.S. citizens, would otherwise cause the 22% threshold to be exceeded. The New Creditor Warrants do not grant the holder thereof any voting or control rights or dividend rights, or contain any negative covenants restricting the operation of the company’s business. Generally, the New Creditor Warrants are exercisable immediately at a nominal exercise price, subject to restrictions contained in the company’s new certificate of incorporation designed to assure the company’s continuing eligibility to engage in coastwise trade under the Jones Act that prohibit the exercise of such warrants where such exercise would cause the total number of shares held by non-U.S. citizens to exceed 24%. The company has established, under its charter and through Depository Trust Corporation (DTC), appropriate measures to assure compliance with these ownership limitations.

 

The undisputed claims of other unsecured creditors such as customers, employees, and vendors, will be paid in full in the ordinary course of business (except as otherwise agreed among the parties).

The company and the Sale Leaseback Parties have not reached agreement with respect to the amount of the Sale Leaseback Claims. Accordingly, on the Effective Date, a portion of the above consideration in cash, New Creditor Warrants, and New Secured Notes in an amount that the company believes represents the maximum possible distributions owing on account of the Sale Leaseback Claims has been withheld from the cash, New Creditor Warrants, and New Secured Notes distributed to holders of allowed General Unsecured Claims on account of such disputed Sale

8


 

Leaseback Claims until they are resolved. To the extent the Sale Leaseback Claims are resolved for less than the amount withheld, the remainder will be distributed to holders of allowed General Unsecured Claims pro rata. Included in liabilities subject to compromise is $323.6 million related to the claims of the Sale Leaseback Parties.

The company’s emergence from chapter 11 bankruptcy has resolved the significant risks and uncertainties which previously raised substantial doubt about the company’s ability to continue as a going concern.  

 

(3)

LIABILITIES SUBJECT TO COMPROMISE

 

As a result of the filing of the Bankruptcy cases on May 17, 2017, we have classified unsecured prepetition liabilities that are expected to be impaired pursuant to the Prepackaged Plan as liabilities subject to compromise in our condensed consolidated balance sheet at June 30, 2017. Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. If there was uncertainty at the time about whether a secured claim was under-secured, or would be impaired under the Prepackaged Plan, the entire amount of the claim was included in liabilities subject to compromise. The amounts classified at June 30, 2017 as liabilities subject to compromise represent the company’s current estimate of claims expected to be allowed under the Prepackaged Plan as of June 30, 2017.  

 

The company’s obligations under the Revolving Credit Facility, Senior Notes, Term Loan Facility and sale-leaseback agreements have been affected by the Prepackaged Plan which has been confirmed by the Bankruptcy Court. As such, the outstanding balances of these debt instruments, related accrued pre-petition interest and claims related to the rejection of sale-leaseback agreements and claims associated with the make-whole provisions included in the senior notes have been classified as liabilities subject to compromise in the condensed consolidated balance sheet as of June 30, 2017.

 

Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities were stayed during the pendency of the bankruptcy proceeding. Although payment of pre-petition claims is generally not permitted, the Bankruptcy Court approved the Debtors’ “first day” motions allowing, among other things, the company to pay prepetition employee wages and benefits without interruption, maintain its insurance programs, utilize its current cash management system, and pay undisputed prepetition obligations owed to its vendors and trade creditors in the ordinary course of business. As a result of this approval, the company continues to pay certain pre-petition claims in designated categories and subject to certain terms and conditions in the ordinary course of business, and we have not classified these liabilities as subject to compromise in the condensed consolidated balance sheet as of June 30, 2017. This is designed to preserve the value of the company’s businesses and assets. With respect to pre-petition claims, the company notified all known claimants of the deadline to file a proof of claim with the Court.

 

The company has been paying and intends to continue to pay post-petition claims in the ordinary course of business. 

 

The following table reflects pre-petition liabilities that are subject to compromise included in our Condensed Consolidated Balance Sheet as of June 30, 2017. See Note (8) - “Indebtedness” for a specific discussion on the debt instruments and related balances subject to compromise:

 

(In thousands)

 

June 30, 2017

 

Revolving Credit Facility

 

$

600,000

 

Term Loan Facility

 

 

300,000

 

September 2013 senior unsecured notes

 

 

500,000

 

August 2011 senior unsecured notes

 

 

165,000

 

September 2010 senior unsecured notes

 

 

382,500

 

Accrued interest payable

 

 

23,736

 

Make-whole provision - Senior notes

 

 

94,726

 

Lessor claims - sale leaseback agreements

 

 

323,595

 

Liabilities subject to compromise

 

$

2,389,557

 

 

9


 

(4)

REORGANIZATION ITEMS

 

ASC 852 requires that transactions and events directly associated with the reorganization be distinguished from the ongoing operations of the business. The company uses “Reorganization items” on its condensed consolidated statements of earnings (loss) to reflect the revenues, expenses, gains and losses that are the direct result of the reorganization of the business. The following table summarizes the components included in “Reorganization items”:

 

 

 

Three Months Ended

 

 

 

June 30,

 

(In thousands)

 

2017

 

Professional fees

 

$

5,165

 

Sale-leaseback contract terminations (A)

 

 

208,141

 

Debt related costs (B)

 

 

99,870

 

Total reorganization items

 

$

313,176

 

 

 

(A)

Represents the lessors’ claims reserve of $323.6 million plus leasehold improvements to vessels underlying sale leaseback transactions of $1.7 million, partially offset by the recognition of remaining deferred gains of $105.9 million and accrued liabilities associated with the recognition of lease expense on a straight-line basis of $11.3 million.

 

 

(B)

Represents primarily $94.8 million of make-whole claims on the Senior Notes and $5.1 of unamortized debt issue costs related to the revolver, term loan and Senior Notes.

 

(5)

STOCKHOLDERS' EQUITY

Dividends

The declaration of dividends is at the discretion of the company’s Board of Directors, and depends on the company’s financial results, cash requirements, future prospects, and other factors deemed relevant by the Board of Directors.

In January 2016, the company suspended the quarterly dividend program in order to preserve liquidity in an oilfield services market that has been negatively impacted by the precipitous drop in oil prices and corresponding reduction in global E&P spending.

 

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive income (loss) by component, net of tax for the quarters ended June 30, 2017 and 2016 are as follows:

 

 

 

For the quarter ended June 30, 2017

 

 

For the quarter ended June 30, 2016

 

 

 

Balance

 

 

Gains/(losses)

 

 

Reclasses

 

 

Net

 

 

Remaining

 

 

Balance

 

 

Gains/(losses)

 

 

Reclasses

 

 

Net

 

 

Remaining

 

 

 

at

 

 

recognized

 

 

from OCI to

 

 

period

 

 

balance

 

 

at

 

 

recognized

 

 

from OCI to

 

 

period

 

 

balance

 

(in thousands)

 

3/31/17

 

 

in OCI

 

 

net income

 

 

OCI

 

 

6/30/17

 

 

3/31/16

 

 

in OCI

 

 

net income

 

 

OCI

 

 

6/30/16

 

Available for sale securities

 

 

(95

)

 

 

6

 

 

 

80

 

 

 

86

 

 

 

(9

)

 

 

(208

)

 

 

59

 

 

 

102

 

 

 

161

 

 

 

(47

)

Currency translation adjustment

 

 

(9,811

)

 

 

 

 

 

 

 

 

 

 

 

(9,811

)

 

 

(9,811

)

 

 

 

 

 

 

 

 

 

 

 

(9,811

)

Pension/Post- retirement benefits

 

 

(438

)

 

 

 

 

 

 

 

 

 

 

 

(438

)

 

 

4,683

 

 

 

 

 

 

 

 

 

 

 

 

4,683

 

Interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,530

)

 

 

 

 

 

71

 

 

 

71

 

 

 

(1,459

)

Total

 

 

(10,344

)

 

 

6

 

 

 

80

 

 

 

86

 

 

 

(10,258

)

 

 

(6,866

)

 

 

59

 

 

 

173

 

 

 

232

 

 

 

(6,634

)

10


 

 

The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the condensed consolidated statement of income for the quarters ended June 30, 2017 and 2016:

 

 

 

Quarter Ended

 

 

 

 

 

June 30,

 

 

Affected line item in the condensed

(In thousands)

 

2017

 

 

2016

 

 

consolidated statements of income

Realized gains on available for sale securities

 

$

80

 

 

 

102

 

 

Interest income and other, net

Interest rate swap

 

 

 

 

 

71

 

 

Interest and other debt costs

Total pre-tax amounts

 

 

80

 

 

 

173

 

 

 

Tax effect

 

 

 

 

 

 

 

 

Total gains for the period, net of tax

 

$

80

 

 

 

173

 

 

 

 

 

(6)

INCOME TAXES

For all periods prior to March 31, 2015, we calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Beginning in the quarter ended June 30, 2015, we use a discrete effective tax rate method to calculate taxes for interim periods. We determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the fiscal three month period ended June 30, 2017.

Income tax expense for the quarter ended June 30, 2017 reflects tax liabilities in various jurisdictions that are based on revenue (deemed profit regimes) rather than pre-tax profits.

The company’s balance sheet at June 30, 2017 reflects the following in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes:

 

 

 

June 30,

 

(In thousands)

 

2017

 

Tax liabilities for uncertain tax positions

 

$

16,538

 

Income tax payable

 

 

16,157

 

 

The tax liabilities for uncertain tax positions are primarily attributable to permanent establishment issue related to a foreign joint venture. Penalties and interest related to income tax liabilities are included in income tax expense. Income tax payable is included in other current liabilities.

Unrecognized tax benefits, which would lower the effective tax rate if realized at June 30, 2017, are as follows:

 

 

 

June 30,

 

(In thousands)

 

2017

 

Unrecognized tax benefit related to state tax issues

 

$

12,367

 

Interest receivable on unrecognized tax benefit related to state tax issues

 

 

50

 

 

As of March 31, 2017, the company’s balance sheet reflected approximately $5.5 million of net deferred tax liabilities.  For the quarter ended June 30, 2017, the company has net deferred tax assets of approximately $45 million prior to a valuation allowance analysis.  

 

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

 

 


11


 

On the basis of this evaluation, a valuation allowance of $45 million has been recorded against net deferred tax assets which are more likely than not to be unrealized.  The amount of deferred tax assets considered realizable could be adjusted if future estimates of U.S. taxable income change, or if objective negative evidence in the form of cumulative losses is no longer present and subjective evidence, such as financial projections and tax planning strategies, are given additional weight.

 

With limited exceptions, the company is no longer subject to tax audits by U.S. federal, state, local or foreign taxing authorities for years prior to 2010. The company has ongoing examinations by various U.S. federal, state and foreign tax authorities and does not believe that the results of these examinations will have a material adverse effect on the company’s financial position, results of operations, or cash flows.

 

 

(7)

EMPLOYEE BENEFIT PLANS

U.S. Defined Benefit Pension Plan

The company has 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. Effective April 1, 1996, the pension plan was closed to new participation. In December 2009, the Board of Directors amended the pension plan to discontinue the accrual of benefits once the plan was frozen on December 31, 2010. This change did not affect benefits earned by participants prior to January 1, 2011. The company did not contribute to the pension plan during the quarters ended June 30, 2017 and 2016, and currently does not expect to contribute to the pension plan during the remaining quarters of fiscal 2018.

Supplemental Executive Retirement Plan

The company also maintains a non-contributory, defined benefit supplemental executive retirement plan (supplemental plan) that provides pension benefits to certain employees in excess of those allowed under the company’s tax-qualified pension plan. A Rabbi Trust has been established for the benefit of participants in the supplemental plan. The Rabbi Trust assets, which are invested in a variety of marketable securities (but not the company’s stock), are recorded at fair value with unrealized gains or losses included in accumulated other comprehensive income (loss). Effective March 4, 2010, the supplemental plan was closed to new participation. The supplemental plan is a non-qualified plan and, as such, the company is not required to make contributions to the supplemental plan. The company did not contribute to the supplemental plan during the quarter ended June 30, 2017. The company contributed $0.1 million to the supplemental plan during the quarter ended June 30, 2016. The company expects to contribute $0.1 million to the supplemental plan during the remaining quarters of fiscal 2018.

Investments held in a Rabbi Trust are included in other assets at fair value. The following table summarizes the carrying value of the trust assets, including unrealized gains or losses at June 30, 2017 and March 31, 2017:

 

 

 

June 30,

 

 

March 31,

 

(In thousands)

 

2017

 

 

2017

 

Investments held in Rabbi Trust

 

$

8,723

 

 

 

8,759

 

Unrealized losses in fair value of trust assets

 

 

(9

)

 

 

(95

)

Unrealized losses in fair value of trust assets

   are net of income tax expense of

 

 

(223

)

 

 

(223

)

Obligations under the supplemental plan

 

 

29,701

 

 

 

29,108

 

 

To the extent that trust assets are liquidated to fund benefit payments, gains or losses, if any, will be recognized at that time. The company’s obligations under the supplemental plan are included in ‘accrued expenses’ and ‘other liabilities and deferred credits’ on the consolidated balance sheet.


12


 

Postretirement Benefit Plan

Qualified retired employees currently are covered by a plan which provides limited health care and life insurance benefits. Costs of the plan are based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. This plan is funded through payments by the company as benefits are required.

 

Effective November 20, 2015, the company eliminated its post-65 medical coverage for all current and future retirees effective January 1, 2017.  The medical coverage remains unchanged for participants under age 65.

 

Net Periodic Benefit Costs

The net periodic benefit cost for the company’s defined benefit pension plans and supplemental plan (referred to collectively as “Pension Benefits”) and the postretirement health care and life insurance plan (referred to collectively as “Other Benefits”) is comprised of the following components:

 

 

 

Quarter Ended

 

 

 

June 30,

 

(In thousands)

 

2017

 

 

2016

 

Pension Benefits:

 

 

 

 

 

 

 

 

Service cost

 

$

294

 

 

 

252

 

Interest cost

 

 

984

 

 

 

941

 

Expected return on plan assets

 

 

(518

)

 

 

(548

)

Administrative expenses

 

 

2

 

 

 

2

 

Amortization of prior service cost

 

 

 

 

 

 

Recognized actuarial loss

 

 

561

 

 

 

446

 

Net periodic benefit cost

 

$

1,323

 

 

 

1,093

 

Other Benefits:

 

 

 

 

 

 

 

 

Service cost

 

$

17

 

 

 

20

 

Interest cost

 

 

48

 

 

 

50

 

Amortization of prior service cost

 

 

(695

)

 

 

(1,086

)

Recognized actuarial benefit

 

 

(252

)

 

 

(285

)

Net periodic benefit cost

 

$

(882

)

 

 

(1,301

)

 

The company also has a defined benefit pension plan that covers certain Norway citizen employees and other employees who are permanent residents of Norway. Benefits are based on years of service and employee compensation. The company contributed 3.0 million NOK and 3.4 million NOK, (approximately $0.4 million and $0.5 million, respectively) to the Norway defined benefit pension plan during the quarters ended June 30, 2017 and 2016. The company currently does not expect to contribute to the Norway pension plan during the remaining quarters of fiscal 2018. The preceding net periodic benefit cost table includes the Norway pension plan.

 

 

 


13


 

(8)INDEBTEDNESS

 

The following is a summary of all debt outstanding at June 30, 2017 and March 31, 2017:

 

 

 

June 30,

 

 

March 31,

 

(In thousands)

 

2017

 

 

2017

 

Term loan (A)

 

$

300,000

 

 

 

300,000

 

Revolving line of credit (A) (B)

 

 

600,000

 

 

 

600,000

 

September 2013 senior unsecured notes (A)

 

 

500,000

 

 

 

500,000

 

August 2011 senior unsecured notes (A)

 

 

165,000

 

 

 

165,000

 

September 2010 senior unsecured notes (A)

 

 

382,500

 

 

 

382,500

 

Troms Offshore borrowings:

 

 

 

 

 

 

 

 

May 2015 4.42% notes (C)

 

 

26,116

 

 

 

27,421

 

March 2015 4.41% notes (C)

 

 

24,573

 

 

 

24,573

 

January 2014 4.31% notes (C) (D)

 

 

26,957

 

 

 

26,167

 

May 2012 5.88% notes (C) (D)

 

 

14,291

 

 

 

14,864

 

 

 

 

2,039,437

 

 

 

2,040,525

 

Less: Deferred debt issue costs

 

 

968

 

 

 

6,401

 

Less: Current portion of long-term debt

 

 

10,106

 

 

 

2,034,124

 

Less: Liabilities subject to compromise

 

 

1,947,500

 

 

 

 

Total long-term debt

 

$

80,863

 

 

 

 

 

(A)  

At June 30, 2017, the term loan, revolving line of credit and senior notes have been classified as liabilities subject to compromise as a result of the bankruptcy petition filed on May 17, 2017.  Refer to Note (3) - Liabilities Subject to Compromise for additional information. As of June 30, 2017 and March 31, 2017, the aggregate fair value (Level 2) of the term loan, revolver and senior notes were $1.1 billion and $1.1 billion, respectively.   

 

(B)

The revolver was fully utilized at June 30, 2017 and March 31, 2017, respectively.

 

(C)

The company continues to make semi-annual principal and interest payments on these notes in the ordinary course of business.  As of June 30, 2017 and March 31, 2017, the aggregate fair value (Level 2) of the Troms Offshore borrowings was $91.7 million and $92.9 million, respectively.

 

(D)

Notes are denominated in Norwegian kroner (NOK)    

 

On July 31, 2017, amendments related to the four Troms Offshore debt arrangements became effective. Refer to
Note (18) for additional information regarding the new terms of the Troms Offshore Debt.

 

Debt Costs

The company capitalizes a portion of its interest costs incurred on borrowed funds used to construct vessels. The following is a summary of interest and debt costs incurred, net of interest capitalized, for the quarters ended June 30, are as follows:

 

 

 

Quarter Ended

 

 

 

June 30,

 

(In thousands)

 

2017

 

 

2016

 

Interest and debt costs incurred, net of interest capitalized

 

$

10,605

 

 

 

16,954

 

Interest costs capitalized

 

 

601

 

 

 

1,393

 

Total interest and debt costs

 

$

11,206

 

 

 

18,347

 

 

The company recognizes interest expense incurred subsequent to its chapter 11 filing date only to the extent that such interest will be paid during the proceedings or that it is probable that it will be an allowed claim.  Accrued interest on the term loan, revolving line of credit and senior notes subsequent to the Petition Date was not an allowed claim in the Prepackaged Plan; therefore, the company did not record interest expense subsequent to that date. Had the term loan, revolving line of credit and senior notes not been compromised by the Prepackaged Plan, interest expense for the quarter ended
June 30, 2017 would have been approximately $20 million.

 

14


 

(9)

LOSS PER SHARE

The components of basic and diluted loss per share for the quarters ended June 30, are as follows:

 

 

 

Quarter Ended