Attached files
file | filename |
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EX-31.1 - CERTIFICATE OF CEO - Cal Dive International, Inc. | exhibit31_1.htm |
EX-31.2 - CERTIFICATE OF CFO - Cal Dive International, Inc. | exhibit31_2.htm |
EX-32.1 - CERTIFICATION BY CEO AND CFO - Cal Dive International, Inc. | exhhibit32_1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Cal Dive International, Inc. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2011
or
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number: 001-33206
CAL DIVE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
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61-1500501
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2500 CityWest Boulevard, Suite 2200
Houston, Texas
(Address of principal executive offices)
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77042
(Zip Code)
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(713) 361-2600
Registrant’s telephone number, including area code:
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 þ No o
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 þ No o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o (Do not
check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of July 31, 2011, the registrant had issued and outstanding 95,229,053 shares of Common Stock, $.01 par value per share.
CAL DIVE INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
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1
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Financial Statements
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1
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Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010 (audited)
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1
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Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2011 and 2010
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2
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Consolidated Statements of Stockholders' Equity and Comprehensive Loss (unaudited) for the six months ended June 30, 2011 and 2010
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3
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Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010
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4
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Notes to Consolidated Financial Statements (unaudited)
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5
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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10
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Quantitative and Qualitative Disclosures About Market Risk
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17
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Controls and Procedures
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17
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17
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Risk Factors
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18
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Unregistered Sales of Equity Securities and Use of Proceeds
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18
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Exhibits
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18
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19
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20
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When we refer to “us,” “we,” “our,” “ours,” “the Company” or “CDI,” we are describing Cal Dive International, Inc. and/or our subsidiaries.
Cal Dive International, Inc. and Subsidiaries
(in thousands, except per share par value)
ASSETS
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June 30,
2011
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December 31,
2010
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||||||
(unaudited)
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 1,600 | $ | 24,576 | ||||
Accounts receivable -
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||||||||
Trade, net of allowance for doubtful accounts of $2,791
and $6,039, respectively
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80,467 | 86,239 | ||||||
Contracts in progress
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45,037 | 26,829 | ||||||
Income tax receivable
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14,992 | 2,182 | ||||||
Deferred income tax assets
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3,474 | 3,425 | ||||||
Other current assets
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15,372 | 17,439 | ||||||
Total current assets
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160,942 | 160,690 | ||||||
Property and equipment
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822,336 | 799,757 | ||||||
Less - Accumulated depreciation
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(260,188 | ) | (231,966 | ) | ||||
Net property and equipment
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562,148 | 567,791 | ||||||
Other assets:
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||||||||
Deferred drydock costs
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15,965 | 14,602 | ||||||
Other assets, net
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12,333 | 9,218 | ||||||
Total assets
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$ | 751,388 | $ | 752,301 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$ | 60,760 | $ | 58,685 | ||||
Current maturities of long-term debt
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2,000 | 59,328 | ||||||
Income tax payable
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— | 4,462 | ||||||
Accrued liabilities
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25,632 | 23,281 | ||||||
Total current liabilities
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88,392 | 145,756 | ||||||
Long-term debt
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182,300 | 106,008 | ||||||
Deferred income tax liabilities
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107,536 | 109,434 | ||||||
Other long term liabilities
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3,692 | 3,392 | ||||||
Total liabilities
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381,920 | 364,590 | ||||||
Stockholders’ equity:
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||||||||
Common stock, 240,000 shares authorized, $0.01 par value, issued and
outstanding: 95,338 and 95,465 shares, respectively
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953 | 954 | ||||||
Capital in excess of par value of common stock
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411,273 | 406,891 | ||||||
Accumulated other comprehensive income
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3,104 | 1,969 | ||||||
Retained deficit
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(45,862 | ) | (22,103 | ) | ||||
Total stockholders’ equity
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369,468 | 387,711 | ||||||
Total liabilities and stockholders’ equity
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$ | 751,388 | $ | 752,301 |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
Three Months Ended
June 30,
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Six Months Ended
June 30,
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|||||||||||||||
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2011
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2010
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2011
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2010
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Revenues
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$ | 124,040 | $ | 124,217 | $ | 219,471 | $ | 181,635 | ||||||||
Cost of sales
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122,386 | 116,760 | 225,043 | 189,587 | ||||||||||||
Gross profit (loss)
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1,654 | 7,457 | (5,572 | ) | (7,952 | ) | ||||||||||
Selling and administrative expenses
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16,883 | 15,615 | 32,836 | 30,139 | ||||||||||||
Gain on sale of assets and other
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487 | 117 | 3,319 | 1,307 | ||||||||||||
Provision for doubtful accounts
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(2,240 | ) | — | (2,240 | ) | (167 | ) | |||||||||
Loss from operations
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(12,502 | ) | (8,041 | ) | (32,849 | ) | (36,617 | ) | ||||||||
Interest expense, net
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2,314 | 1,833 | 4,341 | 4,291 | ||||||||||||
Other expense (income), net
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14 | (27 | ) | 162 | (68 | ) | ||||||||||
Loss before income taxes
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(14,830 | ) | (9,847 | ) | (37,352 | ) | (40,840 | ) | ||||||||
Income tax expense (benefit)
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(9,816 | ) | 1,119 | (13,593 | ) | (10,745 | ) | |||||||||
Net loss
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$ | (5,014 | ) | $ | (10,966 | ) | $ | (23,759 | ) | $ | (30,095 | ) | ||||
Loss per common share:
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Basic loss per share
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$ | (0.05 | ) | $ | (0.12 | ) | $ | (0.26 | ) | $ | (0.33 | ) | ||||
Fully-diluted loss per share
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$ | (0.05 | ) | $ | (0.12 | ) | $ | (0.26 | ) | $ | (0.33 | ) | ||||
Weighted average shares outstanding:
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Basic
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91,659 | 91,059 | 91,674 | 91,030 | ||||||||||||
Fully-diluted
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91,659 | 91,059 | 91,674 | 91,030 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
(in thousands)
Accumulated
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||||||||||||||||||||||||
Other
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||||||||||||||||||||||||
Capital
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Compre-
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Total
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||||||||||||||||||||||
Common Stock
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in Excess
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hensive
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Retained
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Stockholders’
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||||||||||||||||||||
Shares
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Par value
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of Par
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Income
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Deficit
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Equity
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|||||||||||||||||||
Balances at December 31, 2010
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95,465 | $ | 954 | $ | 406,891 | $ | 1,969 | $ | (22,103 | ) | $ | 387,711 | ||||||||||||
Net loss
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(23,759 | ) | (23,759 | ) | ||||||||||||||||||||
Foreign currency translation adjustment
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1,168 | 1,168 | ||||||||||||||||||||||
Increase in unrealized loss from cash
flow hedge (net of income tax of $17)
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(33 | ) | (33 | ) | ||||||||||||||||||||
Comprehensive loss
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(22,624 | ) | ||||||||||||||||||||||
Stock-based compensation plans
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(127 | ) | (1 | ) | 4,382 | 4,381 | ||||||||||||||||||
Balances at June 30, 2011
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95,338 | $ | 953 | $ | 411,273 | $ | 3,104 | $ | (45,862 | ) | $ | (369,468 | ) |
Accumulated
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Other
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Capital
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Compre-
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Total
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||||||||||||||||||||||
Common Stock
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in Excess
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hensive
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Retained
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Stockholders’
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||||||||||||||||||||
Shares
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Par value
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of Par
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Income
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Earnings
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Equity
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Balances at December 31, 2009
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93,933 | $ | 939 | $ | 399,199 | $ | 914 | $ | 293,746 | $ | 694,798 | |||||||||||||
Net loss
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(30,095 | ) | (30,095 | ) | ||||||||||||||||||||
Foreign currency translation adjustment
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(346 | ) | (346 | ) | ||||||||||||||||||||
Decrease in unrealized loss from cash
flow hedge (net of income tax of $220)
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408 | 408 | ||||||||||||||||||||||
Comprehensive loss
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(30,033 | ) | ||||||||||||||||||||||
Stock-based compensation plans
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283 | 3 | 5,080 | 5,083 | ||||||||||||||||||||
Balances at June 30, 2010
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94,216 | $ | 942 | $ | 404,279 | $ | 976 | $ | 263,651 | $ | 669,848 |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended June 30,
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2011
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2010
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Cash Flows From Operating Activities:
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Net loss
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$ | (23,759 | ) | $ | (30,095 | ) | ||
Adjustments to reconcile net income to net cash (used) provided by operating activities:
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Depreciation and amortization
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34,352 | 34,825 | ||||||
Stock compensation expense
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4,599 | 3,578 | ||||||
Deferred income tax benefit
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(1,838 | ) | (2,858 | ) | ||||
Gain on sale of assets and other
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(3,319 | ) | (1,307 | ) | ||||
Provision for doubtful accounts
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(2,240 | ) | (167 | ) | ||||
Deferred financing costs
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893 | 586 | ||||||
Changes in operating assets and liabilities:
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Accounts receivable, net
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(9,109 | ) | 29,765 | |||||
Income tax receivable and payable, net
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(17,424 | ) | (20,761 | ) | ||||
Other current assets
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1,846 | 8,199 | ||||||
Deferred drydock costs
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(4,379 | ) | (4,778 | ) | ||||
Accounts payable and accrued liabilities
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(43 | ) | (10,338 | ) | ||||
Other noncurrent assets and liabilities, net
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(4,823 | ) | 1,397 | |||||
Net cash (used) provided by operating activities
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(25,244 | ) | 8,046 | |||||
Cash Flows From Investing Activities:
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Additions to property and equipment
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(23,534 | ) | (27,669 | ) | ||||
Insurance proceeds from loss and sales of property
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6,767 | 4,527 | ||||||
Net cash used in investing activities
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(16,767 | ) | (23,142 | ) | ||||
Cash Flows From Financing Activities:
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Repayments on term loan
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(15,336 | ) | (40,000 | ) | ||||
Draws on revolving credit facility
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34,300 | 20,000 | ||||||
Net cash (used) provided in financing activities
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18,964 | (20,000 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents
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71 | (141 | ) | |||||
Net decrease in cash and cash equivalents
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(22,976 | ) | (35,237 | ) | ||||
Cash and cash equivalents:
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Balance, beginning of period
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24,576 | 52,413 | ||||||
Balance, end of period
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$ | 1,600 | $ | 17,176 | ||||
Supplemental Cash Flow Information:
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Interest paid, net of capitalized interest
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$ | 2,897 | $ | 3,492 | ||||
Income taxes paid, net
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$ | 5,560 | $ | 12,964 |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements (unaudited)
1.
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Preparation of Interim Financial Statements and Significant Accounting Policies
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Organization
We are a marine contractor that provides manned diving, pipelay and pipe burial, platform installation and platform salvage services to a diverse customer base in the offshore oil and natural gas industry. We offer our customers these complementary services on an integrated basis for more complex subsea projects, which provides them with greater efficiency in the completion of their work, while enhancing the utilization of our fleet. Our headquarters are located in Houston, Texas.
Our global footprint encompasses operations in the Gulf of Mexico Outer Continental Shelf, or OCS, the Northeastern U.S., Latin America, Southeast Asia, China, Australia, the Middle East, India and the Mediterranean. We currently own and operate a diversified fleet of 29 vessels, including 19 surface and saturation diving support vessels, six pipelay/pipebury barges, one dedicated pipebury barge, one combination derrick/pipelay barge and two derrick barges.
Preparation of Interim Financial Statements
These interim consolidated financial statements are unaudited and have been prepared pursuant to instructions for quarterly reporting required to be filed with the Securities and Exchange Commission (“SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The accompanying consolidated financial statements have been prepared in conformity with GAAP, and our application of GAAP for purposes of preparing the accompanying consolidated financial statements is consistent in all material respects with the manner applied to the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2010 (our “2010 Annual Report on Form 10-K”). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. Management has reflected all adjustments (which were normal recurring adjustments unless otherwise disclosed herein) that it believes are necessary for a fair presentation of the consolidated balance sheets, results of operations and cash flows, as applicable.
Our balance sheet at December 31, 2010 included herein has been derived from the audited balance sheet at December 31, 2010 included in our 2010 Annual Report on Form 10-K. These consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included in our 2010 Annual Report on Form 10-K, which contains a summary of our significant accounting policies and other disclosures. Additionally, our financial statements for prior periods include reclassifications that were made to conform to current period presentation and did not affect our reported net income or stockholders’ equity. Interim results should not be taken as indicative of the results that may be expected for the year ending December 31, 2011.
Subsequent Events
We conducted our subsequent events review through the date these interim consolidated financial statements were filed with the SEC.
Seasonality
As a marine contractor with significant operations in the Gulf of Mexico, our vessel utilization is typically lower during the winter and early spring due to unfavorable weather conditions in the Gulf of Mexico.
Significant Accounting Policies
The information below provides an update to the significant accounting policies discussed in our 2010 Annual Report on Form 10-K and accounting pronouncements issued but not yet adopted.
Interest Rate Swap and Hedging Activities
To reduce the potentially adverse impact of changes in interest rates on our variable rate term loan, in August 2010 we entered into a twelve-month interest rate swap with a notional amount of $100 million that converts a portion of our anticipated variable-rate interest payments under our term loan to fixed-rate interest payments of 0.645%. This interest rate swap began to settle in December 2010 and will expire in December 2011. In May 2011 we entered into a second twelve-month interest rate swap with a notional amount of $100 million that converts the same portion of our anticipated variable-rate interest payments under our term loan to fixed-rate interest payments of 0.82%. This interest rate swap will begin to settle in December 2011 and will expire in December 2012. Both interest rate swap instruments qualify as cash flow hedges under hedge accounting. At June 30, 2011, the current interest rate swap instrument had a negative fair value of $0.3 million, which is recorded as current accrued liabilities. We reclassify any unrealized loss from our interest rate swap into earnings upon settlement. As of June 30, 2011, $0.2 million of present value of unrealized loss from our interest rate swap is recorded in other comprehensive income. For the six months ended June 30, 2011, we reclassified $0.2 million of unrealized losses into earnings related to all settled cash flow hedges.
Changes in the fair value of an interest rate swap are deferred to the extent it is effective and are recorded as a component of accumulated other comprehensive income until the anticipated interest payments occur and are recognized in interest expense. The ineffective portion of an interest rate swap, if any, will be recognized immediately in earnings.
We formally document all relations between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. We also assess, both at inception of the hedge and on an on-going basis, whether the derivatives that are used in our hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Changes in the assumptions used could impact whether the fair value change in an interest rate swap is charged to earnings or accumulated other comprehensive income.
Recently Issued Accounting Policies
Each reporting period we consider all newly issued but not yet adopted accounting and reporting guidance applicable to our operations and the preparation of our consolidated financial statements. We do not believe that any issued accounting and reporting guidance we have not yet adopted will have a material impact on our financial statements at the time they may be adopted.
2. Details of Certain Accounts
Other current assets consisted of the following as of June 30, 2011 and December 31, 2010 (in thousands):
June 30,
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December 31,
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|||||||
2011
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2010
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|||||||
Insurance claims to be reimbursed
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$ | 368 | $ | 1,806 | ||||
Prepaid job costs
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3,546 | 2,847 | ||||||
Prepaid insurance
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33 | 4,102 | ||||||
Prepaid other
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1,051 | 417 | ||||||
Supplies and spare parts inventory
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1,852 | 2,154 | ||||||
Other receivables
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7,625 | 4,379 | ||||||
Other
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897 | 1,734 | ||||||
$ | 15,372 | $ | 17,439 |
Other long-term assets, net, consisted of the following as of June 30, 2011 and December 31, 2010 (in thousands):
June 30,
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December 31,
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|||||||
2011
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2010
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|||||||
Intangible assets with definite lives, net
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$ | 2,204 | $ | 2,773 | ||||
Deferred financing costs
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8,284 | 3,644 | ||||||
Equipment deposits and other
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1,845 | 2,801 | ||||||
$ | 12,333 | $ | 9,218 |
Accrued liabilities consisted of the following as of June 30, 2011 and December 31, 2010 (in thousands):
June 30,
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December 31,
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|||||||
2011
|
2010
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|||||||
Accrued payroll and related benefits
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$ | 8,800 | $ | 7,762 | ||||
Insurance claims to be reimbursed
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5,033 | 1,806 | ||||||
Accrued insurance
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7,138 | 7,529 | ||||||
Interest rate swap
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281 | 282 | ||||||
Accrued taxes other than income
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2,285 | 2,320 | ||||||
Other
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2,095 | 3,577 | ||||||
$ | 25,632 | $ | 23,276 |
3. Long-term Debt
We have a senior secured credit facility with certain financial institutions, consisting of a $150 million term loan and a $300 million revolving credit facility, both of which mature on April 26, 2016. As of June 30, 2011, we had outstanding debt of $150 million under the term loan, with no quarterly principal payments required until June 30, 2012 when quarterly principal payments of $2 million commence. The quarterly principal payments will remain at $2 million until June 30, 2013 when they increase to $4 million for the duration of the facility. A final payment of approximately $94 million will be due at maturity on April 26, 2016. As of June 30, 2011, we had outstanding borrowings of $34.3 million under our revolving credit facility, as well as $0.9 million of issued and outstanding letters of credit under our revolving credit facility and approximately $2.4 million of outstanding warranty and bid bonds. The amount we can borrow under our revolving credit facility is limited by outstanding borrowings, letters of credit, and our consolidated leverage (debt to EBITDA) ratio covenant. Based on our consolidated leverage (debt to EBITDA) ratio and outstanding borrowings and letters of credit as of June 30, 2011, we had approximately $174.8 million available for borrowing under our revolving credit facility.
Effective April 26, 2011, we renewed our senior secured credit facility for five years through April 2016 in connection with which we significantly reduced our quarterly principal payments on the term loan. The term loan and the revolving loans (together, the “Loans”) may consist of loans bearing interest equal to the highest of the Federal Funds Rate plus ½ of 1 percent, the Bank of America prime rate and LIBOR plus 1 percent, known as Base Rate Loans, and loans bearing interest equal to LIBOR, known as Eurodollar Rate Loans, in each case plus an applicable margin. The interest rate margins on the Loans range from 1.50% to 2.25% on Base Rate Loans and 2.50% to 3.25% on Eurodollar Rate Loans. The interest rate margins on the Loans will fluctuate in relation to our consolidated leverage (debt to EBITDA) ratio as provided in the credit agreement. Under the renewed credit facility, our permitted debt to EBITDA leverage ratio is 4.25x for the period through September 30, 2011, and thereafter decreases to 3.75x.
At June 30, 2011 and December 31, 2010, respectively, we were in compliance with all debt covenants contained in our credit facility. The credit facility is secured by vessel mortgages on all of our vessels (except for the Sea Horizon and Eclipse), a pledge of all of the stock of all of our domestic subsidiaries and 66% of the stock of three of our foreign subsidiaries, and a security interest in, among other things, all of our equipment, inventory, accounts receivable and general tangible assets.
4. Income Taxes
As of June 30, 2011 and December 31, 2010 we had $1.3 million and $1.2 million, respectively, recorded as a long-term liability for uncertain tax benefits, interest and penalty.
Our effective tax benefit rate was 66.1% and 36.4% for the three and six months ended June 30, 2011, respectively, compared to an effective tax expense rate of 11% for the three months ended June 30, 2010 and a tax benefit rate of 26% for the six months ended June 30, 2010. The increase in the tax benefit was primarily due to a combination of changes in (i) the management structure of certain foreign operations and (ii) pricing agreements between the US and certain foreign subsidiaries.
For the three and six months ended June 30, 2011 and June 30, 2010, we determined that a reliable estimate of our annual effective tax rate could not be determined for the year based on the current volatility in pretax income or loss and its impact on estimating our annual effective tax rate for the year. Therefore, the interim effective tax benefit rate at June 30, 2011 and June 30, 2010 was based on the actual year-to-date results.
Tax Assessments
In the fourth quarter of 2007, we completed our acquisition of Horizon Offshore, Inc. (“Horizon”), following which Horizon became our wholly-owned subsidiary. During the fourth quarter of 2006, Horizon received a tax assessment related to fiscal 2001 from the Servicio de Administracion Tributaria (SAT), the Mexican taxing authority, for approximately $283.5 million pesos (U.S. $26.3 million using the foreign exchange rate at June 30, 2011, including penalties and interest). The SAT’s assessment claims unpaid taxes related to services performed among our subsidiaries as well as penalties and accrued interest. We have consulted with our Mexican counsel and believe that under the Mexico and United States double taxation treaty these services are not taxable and that the tax assessment itself is invalid. Accordingly, we have not recorded a liability for the SAT’s assessment for the 2001 tax year in our consolidated financial statements. On February 14, 2008, we received notice from the SAT upholding the original assessment. On April 21, 2008, we filed a petition in Mexico tax court disputing the assessment. We believe that our position is supported by law and intend to vigorously defend our position. All pleadings have been filed and we are awaiting the court’s decision. However, the ultimate outcome of this litigation and our potential liability from this assessment, if any, cannot be determined at this time. However, an unfavorable outcome with respect to the Mexico tax assessment could have a material adverse effect on our financial position, results of operations and cash flows.
The SAT also claimed unpaid taxes related to services performed among our subsidiaries for Horizon’s 2002 through 2007 taxable years. During 2009, we successfully completed negotiations with the SAT with respect to their claim of unpaid taxes related to Horizon’s 2002 through 2007 taxable years, and paid an aggregate of approximately $3.3 million in settlement of these periods. Horizon’s 2002 through 2004 tax audits were closed in 2009, settling this particular claim by the SAT. In 2009 we also filed amended returns for tax years 2005 through 2007 using the same methodology used in the settlement for the 2002 through 2004 years. The amended returns were accepted by the Mexican tax authority in March 2010, effectively settling this particular claim. Even though we have settled this issue for prior years, there is a five-year statute of limitations under Mexican tax law, so our tax years 2005 through 2010 remain open for examination in Mexico.
While we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and tax litigation is inherently uncertain. As a result, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.
5. Commitments and Contingencies
Insurance
We incur maritime employers’ liability, workers’ compensation and other insurance claims in the normal course of business, which management believes are covered by insurance. We analyze each claim for potential exposure and estimate the ultimate liability of each claim. Amounts due from insurance companies, above the applicable deductible limits, are reflected in other current assets in the consolidated balance sheets. Such amounts were $0.4 million and $1.8 million as of June 30, 2011 and December 31, 2010, respectively. We have not historically incurred significant losses as a result of claims denied by our insurance carriers.
During the first quarter of 2011, we realized an insurance recovery of $2.8 million for a specific claim incurred in a prior year related to a fire that damaged one of our barges, which we have recorded in gain on sale of assets and other in the accompanying consolidated statement of operations.
Litigation and Claims
We are involved in various legal proceedings, primarily involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act as a result of alleged negligence. In addition, we from time to time incur other claims, such as contract disputes, in the normal course of business. Although these matters have the potential of significant additional liability, we believe the outcome of all such matters and proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Pursuant to the terms of a master agreement we entered into with Helix Energy Solutions Group, Inc. (“Helix”) in contemplation of our IPO in 2006, we assumed and will indemnify Helix for liabilities related to our business, other than tax liabilities, relating to our pre-IPO operations.
6. Business Segment Information
We have one reportable segment, Marine Contracting. We perform a portion of our marine contracting services in foreign waters. We derived revenues from foreign locations of $51.0 million and $94.8 million for the three and six months ended June 30, 2011, respectively, and $14.9 million and $28.0 million for the three and six months ended June 30, 2010, respectively. The remainder of our revenues was generated in the U.S. Gulf of Mexico and other U.S. waters. Net property and equipment in foreign locations were $165.0 million and $166.0 million at June 30, 2011 and December 31, 2010, respectively.
7. Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to common shares by the weighted-average shares of outstanding common stock. The calculation of diluted EPS is similar to basic EPS, except the denominator includes dilutive common stock equivalents. The components of basic and diluted EPS for common shares for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands, except per share amounts):
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net loss
|
$ | (5,014 | ) | $ | (10,966 | ) | $ | (23,759 | ) | $ | (30,095 | ) | ||||
Net loss attributable to common shares
|
$ | (5,014 | ) | $ | (10,966 | ) | $ | (23,759 | ) | $ | (30,095 | ) | ||||
Denominator:
|
||||||||||||||||
Basic weighted average shares outstanding
|
91,659 | 91,059 | 91,674 | 91,030 | ||||||||||||
Diluted weighted-average shares outstanding
|
91,659 | 91,059 | 91,674 | 91,030 | ||||||||||||
Loss per share:
|
||||||||||||||||
Total basic
|
$ | (0.05 | ) | $ | (0.12 | ) | $ | (0.26 | ) | $ | (0.33 | ) | ||||
Total diluted
|
$ | (0.05 | ) | $ | (0.12 | ) | $ | (0.26 | ) | $ | (0.33 | ) |
8. Performance Share Units
In December 2010 and 2009, we granted to certain of our officers a total of 488,323 and 403,206 performance share units, respectively, which constitute restricted stock units under an incentive plan adopted by us in December 2006. During 2010, 51,036 performance share units granted in December 2009 were forfeited back to the plan, and during the first six months of 2011, 14,763 performance share units granted in December 2009 and 2010 were forfeited back to the plan. Each performance share unit represents a contingent right to receive the cash value of one share of our common stock dependent upon our total shareholder return relative to a peer group of companies over a three-year performance period ending on December 31, 2013 (in the case of the December 2010 grant) and December 31, 2012 (in the case of the December 2009 grant). The awards vest 100% on December 31, 2013 and December 31, 2012, respectively, and are payable in cash unless the compensation committee determines to pay in stock. A maximum of 200% of the number of performance shares granted may be earned if performance at the maximum level is achieved. For the three and six months ended June 30, 2011, compensation expense related to the performance share units was $0.1 million and $0.4 million, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management discussion and analysis should be read in conjunction with our historical consolidated financial statements and their accompanying notes included elsewhere in this quarterly report on Form 10-Q, and the consolidated financial statements and their accompanying footnotes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Business and Properties sections included in our 2010 Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Item 1A, “Risk Factors” included in our 2010 Annual Report on Form 10-K.
Overview
Financial Performance
We generated a net loss of $23.8 million for the first six months ended June 30, 2011 compared to a net loss of $30.1 million for the same period in 2010. During the six months ended June 30, 2011 we generated revenues of $219.5 million compared to revenues of $181.6 million generated in the same period in 2010.
Our first half 2011 performance continued to be affected by typical winter seasonality, which extended into the second quarter as well as our required regulatory drydock schedule and continued challenging market conditions in the Gulf of Mexico arising primarily from limited permitting activity following the Macondo well blowout. Although permitting activity is recovering, the pace of such activity is significantly slower than in the years preceding the Macondo incident. The reduction in permitting activity has a direct negative affect on offshore construction in the Gulf of Mexico which, together with increased competition for our services in Southeast Asia, continues to adversely affect our financial results. Positive contributions to our financial results during the first six months of 2011 included strong diving activity in Australia and successful execution of a large construction project in the Bahamas which was completed in the second quarter.
Business and Outlook
The Macondo well disaster has had a dramatically negative affect on oil and gas exploration activities in the Gulf of Mexico, and there remains a significant amount of uncertainty in the market regarding the regulatory environment for our industry. We believe this uncertainty will continue to suppress our customers’ spending levels for some time and although permitting activity in the Gulf of Mexico is recovering, many of our services lag behind new drilling activity and we expect the challenging market conditions that we have been experiencing since in 2010 to continue throughout the remainder of 2011 and possibly beyond. It is unclear how long these factors will continue to disrupt the market conditions for our industry.
Internationally, in addition to completing a large construction project in the Bahamas in the second quarter of 2011 we commenced a pipelay project in Mexico, which will be completed in the third quarter. We also remain busy with diving related work on the Gorgon project in Australia with increased activity expected in the third and fourth quarters as we enter into a more active phase of the project. Markets in the Eastern Hemisphere continue to be highly competitive due to the increased marine construction capacity that has come into service.
Generally, we believe the long-term outlook for our business remains favorable in both domestic and international markets as capital spending will be required to replenish offshore oil and natural gas production, which should drive long-term demand for our services.
Backlog
As of June 30, 2011, our backlog supported by written agreements or contract awards totaled approximately $176.1 million, compared to approximately $191.5 million as of December 31, 2010 and $302 million at June 30, 2010. Approximately 68% of our current backlog is expected to be performed during 2011, and the remainder is expected to be performed in 2012. These backlog contracts are cancellable without penalty in most cases. Backlog is not a reliable indicator of total annual revenues because it does not include the substantial portion of our revenues that is derived from the spot market.
Vessel Utilization
We believe vessel utilization is one of the most important performance metrics for our business. Utilization provides a good indication of demand for our vessels and, as a result, the contract rates we may charge for our services. As a marine contractor with significant operations in the Gulf of Mexico, our vessel utilization is typically lower during the winter and early spring due to unfavorable weather conditions in the Gulf of Mexico. Accordingly, we attempt to schedule our drydock inspections and other routine and preventive maintenance programs during this period. The bid and award process during the first two quarters typically leads to the commencement of construction activities during the second and third quarters.
During the first half of 2011, we experienced customary seasonal conditions on the Gulf of Mexico OCS, the effect of which was further impacted by reduced construction work due to significantly less drilling activity in 2010, our regulatory drydock schedule, as well as reduced activity levels compared to higher activity during the same period of 2010 due to oil spill cleanup efforts following the Macondo well blowout. Offsetting these factors was utilization related to the Bahamas project, which was completed in the second quarter 2011, and the Mexico project, which commenced in the second quarter. The factors resulted in a net increase in vessel utilization of 1% across our fleet for the six months ended June 30, 2011, compared to the prior year period.
The following table shows the size of our fleet and effective utilization of our vessels during the three and six months ended June 30, 2011 and 2010:
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Number
of
Vessels
|
Utilization
(1)
|
Number
of
Vessels
|
Utilization
(1)
|
Number
of
Vessels
|
Utilization
(1)
|
Number
of
Vessels
|
Utilization
(1)
|
||||||||||
Saturation Diving
|
8
|
60%
|
8
|
62%
|
8
|
54%
|
8
|
50%
|
|||||||||
Surface Diving
|
11
|
46%
|
11
|
61%
|
11
|
40%
|
11
|
42%
|
|||||||||
Construction Barges
|
10
|
27%
|
10
|
25%
|
10
|
21%
|
10
|
16%
|
|||||||||
Entire Fleet
|
29
|
43%
|
29
|
50%
|
29
|
37%
|
29
|
36%
|
|||||||||
(1)
|
Effective vessel utilization is calculated by dividing the total number of days the vessels generated revenues by the total number of days the vessels were available for operation in each quarter and does not reflect vessels in drydocking or taken out of service for upgrades.
|
Results of Operations
Operating Results
Three Months Ended
June 30,
|
Increase/(Decrease) (1)
|
Six Months Ended
June 30,
|
Increase/(Decrease) (1)
|
|||||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
|||||||||||||||||||
(in thousands, except %)
|
(in thousands, except %)
|
(in thousands, except %)
|
(in thousands, except %)
|
|||||||||||||||||||||
Revenues
|
$
|
124,040
|
$
|
124,217
|
$
|
(177)
|
0%
|
$
|
219,471
|
$
|
181,635
|
$
|
37,836
|
21%
|
||||||||||
Gross profit (loss)
|
1,654
|
7,457
|
(5,803)
|
(78%)
|
(5,572)
|
(7,952)
|
(2,380)
|
(30%)
|
||||||||||||||||
Vessel Utilization
|
43%
|
50%
|
(7%)
|
—
|
37%
|
36%
|
1%
|
—
|
||||||||||||||||
(1)
|
Percentage comparison for vessel utilization is not meaningful.
|
Revenues for the three months ended June 30, 2011 decreased from the same period ended June 30, 2010 by $0.2 million. Revenues for the six months ended June 30, 2011 increased from the same period ended June 30, 2010 by $37.8 million, or 21%.
Gross profit for the three months ended June 30, 2011 decreased from the same period ended June 30, 2010 by $5.8 million, or 78%. Gross loss for the six months ended June 30, 2011 improved from the same period ended June 30, 2010 by $2.4 million, or 30%.
While our revenues were relatively flat for the second quarter of 2011 compared to 2010, gross profit for the three months ended June 30, 2011 decreased from the prior year three month period primarily due to reduced activity and lower margins in the Gulf of Mexico in the 2011 period due to slower than expected recovery in permitting activity and continued uncertainty in the region compared to the same period in 2010 due to oil spill cleanup efforts following the Macondo well blowout. Revenues and gross loss improved for the six months ended June 30, 2011 compared to the prior year six month period primarily due to revenue and profit on our construction projects in the Bahamas and Mexico and diving related work in Australia, partially offset by the decline in activity in the Gulf of Mexico.
Selling and administrative expenses
Three Months Ended
June 30,
|
Increase/(Decrease) (1)
|
Six Months Ended
June 30,
|
Increase/(Decrease) (1)
|
||||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||||
(in thousands, except %)
|
(in thousands, except %)
|
(in thousands, except %)
|
(in thousands, except %)
|
||||||||||||||||||||
Selling and administrative expenses
|
$
|
16,883
|
$
|
15,615
|
$
|
1,268
|
8%
|
$
|
32,836
|
$
|
30,139
|
$
|
2,697
|
9%
|
|||||||||
Selling and administrative expenses as a percentage of revenues
|
14%
|
13%
|
1%
|
—
|
15%
|
17%
|
(2%)
|
—
|
|||||||||||||||
(1)
|
Percentage comparison for selling and administrative expenses as a percentage of revenue is not meaningful.
|
Selling and administrative expenses for the three and six months ended June 30, 2011 increased from the same periods ended June 30, 2010 by $1.3 million, or 8%, and $2.7 million, or 9%, respectively. The increase included $1.1 million of one-time severance and restructuring costs in our Southeast Asia region. As a percentage of revenue, SG&A was 14% and 15% for the three and six months ended June 30, 2011 compared to 13% and 17% for the same periods of 2010, respectively. SG&A as a percentage of revenues for the six months of 2011 improved from the first six months of 2010 due to the increase in revenues in 2011.
Provision for doubtful accounts
Three Months Ended
June 30,
|
Increase/(Decrease)
|
Six Months Ended
June 30,
|
Increase/(Decrease)
|
||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||
(in thousands)
|
(in thousands, except %)
|
(in thousands)
|
(in thousands, except %)
|
||||||||||||||||||
Provision for doubtful accounts
|
$
|
(2,240)
|
$
|
—
|
$
|
(2,240)
|
(100%)
|
$
|
(2,240)
|
$
|
(167)
|
$
|
(2,073)
|
(1241%)
|
No provision for doubtful accounts was recorded during the three and six months ended June 30, 2011. The reversal of provision for doubtful accounts during the second quarter of 2011 is due to a collection of a receivable previously reserved as bad debt on a West Africa project. The reversal of provision for doubtful accounts recorded during the first quarter of 2010 resulted from the collection of trade receivables from the court administering the bankruptcy of a previous customer.
Gain on sales of assets and other income (expense), net
Three Months Ended
June 30,
|
Increase/(Decrease)
|
Six Months Ended
June 30,
|
Increase/(Decrease)
|
||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||
(in thousands)
|
(in thousands, except %)
|
(in thousands)
|
(in thousands, except %)
|
||||||||||||||||||
Gain on sale of assets and other
|
$
|
487
|
$
|
117
|
$
|
370
|
316%
|
$
|
3,319
|
$
|
1,307
|
$
|
2,012
|
154%
|
|||||||
Other (income) expense, net
|
14
|
(27)
|
41
|
152%
|
162
|
(68)
|
230
|
338%
|
During the three months ended June 30, 2011 we sold our Sabine Pass facility, one of our barges that was previously damaged by fire and miscellaneous equipment to various third parties for $3.9 million, and we recognized a net gain on the sales of $0.5 million. During the first quarter of 2011, we received an insurance settlement in the amount of $2.8 million for a specific claim incurred in a prior year related to a fire that damaged one of our barges.
During the three months ended June 30, 2010, we sold two utility vessels to various third parties for $0.6 million and recognized a net gain on the sales of $0.1 million. During the first quarter of 2010, we sold a portable saturation system to a third party for cash proceeds totaling $3.7 million and recognized a gain on the sale of $1.1 million.
Other (income) expense is primarily from foreign currency gains and losses on transactions conducted in currencies other than the U.S. dollar.
Interest expense, net
Three Months Ended
June 30,
|
Increase/(Decrease)
|
Six Months Ended
June 30,
|
Increase/(Decrease)
|
||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||
(in thousands)
|
(in thousands, except %)
|
(in thousands)
|
(in thousands, except %)
|
||||||||||||||||||
Interest expense, net
|
$
|
2,314
|
$
|
1,833
|
$
|
481
|
26%
|
$
|
4,341
|
$
|
4,291
|
$
|
50
|
1%
|
The increase in interest expense, net from the three and six months ended June 30, 2010 to the same periods in 2011 is primarily due to increased amortization of deferred finance costs relating to the renewal of the credit facility. In connection with the renewal of our term loan for five years, our quarterly principal payments have been significantly reduced.
Income tax benefit
Three Months Ended
June 30,
|
Increase/(Decrease)(1)
|
Six Months Ended
June 30,
|
Increase/(Decrease)(1)
|
||||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||||
Income tax expense (benefit)
|
$
|
(9,816)
|
$
|
1,119
|
$
|
10,935
|
$
|
—
|
$
|
(13,593)
|
$ |
(10,745)
|
$
|
2,848
|
—
|
||||||||
(1)
|
Percentage comparison is not meaningful.
|
Our effective tax benefit rate was 66.1% and 36.4% for the three and six months ended June 30, 2011, respectively, compared to an effective tax expense rate of 11% for the three months ended June 30, 2010 and a tax benefit rate of 26% for the six months ended June 30, 2010. The increase in the tax benefit was primarily due to a combination of changes in (i) the management structure of certain foreign operations and (ii) pricing agreements between the US and certain foreign subsidiaries.
For the three and six months ended June 30, 2011 and June 30, 2010, we determined that a reliable estimate of our annual effective tax rate could not be determined for the year based on the current volatility in pretax income or loss and its impact on estimating our annual effective tax rate for the year. Therefore, the interim effective tax benefit rate at June 30, 2011 and June 30, 2010 was based on the actual year-to-date results.
Net Loss
Three Months Ended
June 30,
|
Increase/(Decrease)
|
Six Months Ended
June 30,
|
Increase/(Decrease)
|
||||||||||||||||||
2011
|
2010
|
2011 to 2010
|
2011
|
2010
|
2011 to 2010
|
||||||||||||||||
(in thousands, except
per share data)
|
(in thousands, except %)
|
(in thousands, except
per share data)
|
(in thousands, except %)
|
||||||||||||||||||
Net loss
|
$
|
(5,014)
|
$
|
(10,966)
|
$
|
(5,952)
|
(54%)
|
$
|
(23,759)
|
$
|
(30,095)
|
$
|
(6,336)
|
(21%)
|
|||||||
Weighted average fully-diluted shares outstanding
|
91,659
|
91,059
|
600
|
1%
|
91,674
|
91,030
|
644
|
1%
|
|||||||||||||
Fully-diluted loss per share
|
(0.05)
|
(0.12)
|
(0.07)
|
(58%)
|
(0.26)
|
(0.33)
|
(0.07)
|
(21%)
|
|||||||||||||
Net loss for the three and six months ended June 30, 2011 improved from the same periods ended June 30, 2010 by $6.0 million, or 54%, and $6.3 million, or 21%, respectively, and fully-diluted loss per share improved from the same periods ended June 30, 2010 by $0.07, or 58%, and $0.07, or 21%, respectively, as a result of the factors described above.
Liquidity and Capital Resources
We require capital to fund ongoing operations, organic growth initiatives and pursue joint ventures or acquisitions. Our primary sources of liquidity are cash flows generated from our operations, available cash and cash equivalents and availability under our revolving credit facility. We use, and intend to continue using, these sources of liquidity to fund our working capital requirements, maintenance capital expenditures, strategic investments and acquisitions. For 2011, we anticipate capital expenditures, excluding acquisitions or investments in joint ventures, of approximately $63.1 million for vessel improvements and replacements, and $3.8 million of regulatory drydock costs. In connection with our business strategy, we regularly evaluate acquisition and joint venture opportunities, including vessels and marine contracting businesses. We believe that our access to liquidity will provide the necessary capital to fund our business activities and achieve our near-term and long-term growth objectives. We expect to be able to fund our activities for the next twelve months with cash flows generated from our operations, available cash and cash equivalents and available borrowings under our revolving credit facility. Given the current market conditions, we rely on our credit facility for liquidity purposes and further deterioration in the market conditions could adversely impact this.
At June 30, 2011, we had a credit facility, consisting of a variable-interest term loan and a variable-interest $300 million revolving credit facility, with certain financial institutions. At June 30, 2011, we had outstanding debt of $150 million under our term loan, including current maturities and $34.3 million outstanding under our revolving credit facility. The revolving credit facility and the term loan mature on April 26, 2016. We may prepay all or any portion of the outstanding balance of the term loan without prepayment penalty. We may borrow from or repay the revolving credit facility as business needs merit. At June 30, 2011 and December 31, 2010, respectively, we were in compliance with all debt covenants under our credit facility.
On April 26, 2011, we renewed our senior secured credit facility for five years through April 2016. The $450 million credit facility consists of a $300 million revolving credit facility and a $150 million term loan. In connection with the renewed credit facility, our quarterly principal payments on the term loan were significantly reduced such that no payments are required until June 30, 2012 when quarterly principal payments in the amount of $2 million commence. The quarterly principal payments will remain at $2 million until June 30, 2013 when they increase to $4 million for the duration of the facility. A final payment of approximately $94 million will be due at maturity on April 26, 2016. The term loan and the revolving loans (together, the “Loans”) may consist of loans bearing interest equal to the highest of the Federal Funds Rate plus ½ of 1 percent, the Bank of America prime rate and LIBOR plus 1 percent, known as Base Rate Loans, and loans bearing interest equal to LIBOR, known as Eurodollar Rate Loans, in each case plus an applicable margin. The interest rate margins on the Loans range from 1.50% to 2.25% on Base Rate Loans and 2.50% to 3.25% on Eurodollar Rate Loans. The interest rate margins on the Loans will fluctuate in relation to our consolidated leverage (debt to EBITDA) ratio as provided in the credit agreement. Our current blended total interest rate is approximately 3.3% for the term loan and 2.9% for the revolving loan. Under the renewed credit facility, our permitted debt to EBITDA leverage ratio is 4.25x for the period through September 30, 2011, and thereafter decreases to 3.75x.
At June 30, 2011, we had $1.6 million of cash on hand, issued and outstanding letters of credit of $0.9 million under our revolving credit facility, and $2.4 million of outstanding warranty and bid bonds. The amount we can borrow under our $300 million revolver is limited by outstanding borrowings, letters of credit, and our consolidated leverage (debt to EBITDA) ratio covenant. Based on our consolidated leverage (debt to EBITDA) ratio and outstanding borrowings and letters of credit as of June 30, 2011, we had approximately $174.8 million available for borrowing under our revolving credit facility.
Cash Flows
Our cash flows depend on the level of spending by oil and natural gas companies for marine contracting services. Certain sources and uses of cash, such as the level of discretionary capital expenditures, issuance and repurchases of debt and of our common stock, are within our control and are adjusted as necessary based on market conditions. The following is a discussion of our cash flows for the six months ended June 30, 2011 and 2010.
Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash provided by (used in):
|
||||||||
Operating activities
|
$ | (25,244 | ) | $ | 8,046 | |||
Investing activities
|
(16,767 | ) | (23,142 | ) | ||||
Financing activities
|
18,964 | (20,000 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents
|
71 | (141 | ) | |||||
Net decrease in cash and cash equivalents
|
$ | (22,976 | ) | $ | (35,237 | ) | ||
Operating Activities. Net cash used by operating activities totaled $25.2 million during the first six months of 2011 compared to net cash provided by operating activities of $8.0 million in the first six months of 2010. The primary reason for the decrease in cash flows from operating activities is the net loss of $23.8 million generated during the six month period ended 2011 compared to net loss of $30.1 million generated during the same period in 2010. Net loss adjusted for non-cash items, such as depreciation and amortization, stock-based compensation and deferred income tax expense, provided $8.7 million and $4.6 million of cash, respectively, and net changes in our working capital and other balance sheet accounts used $33.9 million and provided $3.4 million of cash, respectively, during the first six months of 2011 and 2010.
Investing Activities. Net cash used for investing activities was $16.8 million during the first six months of 2011 compared to $23.1 million in the first six months of 2010. During the first six months of 2011 and 2010, cash used for capital expenditures was $23.5 million and $27.6 million, respectively, and cash provided by sales of assets and insurance proceeds from loss was $6.8 and $4.5 million, respectively.
Financing Activities. Net cash generated from financing activities was $19.0 million during the first half of 2011 compared to net cash used of $20.0 million in the first half of 2010. During the first half of 2011, we made scheduled payments of $15.3 million under our term loan and borrowed $34.3 million under our revolving credit facility due to our normal working capital requirements. During the first half of 2010, we made scheduled payments of $40 million under our term loan and borrowed $20 million under our revolving credit facility.
Off-Balance Sheet Arrangements
As of June 30, 2011, we have no off-balance sheet arrangements. For information regarding our principles of consolidation, see Note 2 to our consolidated financial statements contained in our 2010 Annual Report on Form 10-K.
Critical Accounting Estimates and Policies
Our accounting policies are described in the notes to our audited consolidated financial statements included in our 2010 Annual Report on Form 10-K. We prepare our financial statements in conformity with GAAP. Our results of operations and financial condition, as reflected in our financial statements and related notes, are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions and other factors that could affect the ongoing viability of our business and our customers. We believe the most critical accounting policies in this regard are those described in our 2010 Annual Report on Form 10-K. While these issues require us to make judgments that are somewhat subjective, they are generally based on a significant amount of historical data and current market data. There have been no material changes or developments in authoritative accounting pronouncements or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be critical accounting policies and estimates as disclosed in our 2010 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk Management
We are exposed to market risks in our normal business activities. Market risk is the potential loss that may result from market changes associated with existing or forecasted financial transactions. The types of market risks to which we are exposed are credit risk, interest rate risk and foreign currency exchange rate risk. There have been no material changes in our market risk during the six months ended June 30, 2011 from those reported under Part II, Item 7A of our 2010 Annual Report on Form 10-K.
In August 2010, we entered into a twelve-month interest rate swap with a notional amount of $100 million to convert a portion of our anticipated variable-rate interest payments under our term loan to fixed-rate interest payments. This interest rate swap began to settle in December 2010 and will expire in December 2011. In May 2011 we entered into a second twelve-month interest rate swap with a notional amount of $100 million that converts the same portion of our anticipated variable-rate interest payments under our term loan to fixed-rate interest payments. This interest rate swap will begin to settle in December 2011 and will expire in December 2012. We expect the current interest rate swap instrument to effectively fix our variable interest payments made on $100 million of our term loan, or approximately 67% as of June 30, 2011, at 0.82% plus the current average applicable loan margin of approximately 2.75% for a total interest rate of 3.27%. Both interest rate swap instruments are accounted for as cash flow hedges.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our CEO and CFO, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
This quarterly report contains or incorporates by reference statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may involve risk and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements regarding our future financial position, business strategy, budgets, projected costs and savings, forecasts of trends, and statements of management’s plans and objectives and other matters. These forward-looking statements do not relate strictly to historic or current facts and often use words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and other words and expressions of similar meaning. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized or achieved in the future. Important factors that could cause actual results to differ materially from our expectations include: current economic and financial market conditions, changes in commodity prices for natural gas and oil, and in the level of offshore exploration, development and production activity in the oil and natural gas industry, the impact on the market and regulatory environment in the US Gulf of Mexico resulting from the Macondo well blowout, our inability to obtain contracts with favorable pricing terms if there is a downturn in our business cycle, intense competition in our industry, the operational risks inherent in our business, and other risks detailed in Part I, Item 1A of our 2010 Annual Report on Form 10-K. Forward-looking statements speak only as of the date of this quarterly report and we undertake no obligation to update or revise such forward-looking statements to reflect new circumstances or unanticipated events as they occur.
Item 1A. Risk Factors.
There have been no material changes during the three months ended June 30, 2011 to the risk factors previously disclosed in our 2010 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer
The table below summarizes the repurchases of our common stock in the second quarter of 2011:
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of a Publicly Announced Program
|
Maximum Number or Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
||||||
(in thousands)
|
||||||||||
April 1 to April 30, 2011(1)
|
744
|
$7.34
|
—
|
N/A
|
||||||
May 1 to May 31, 2011(1)
|
114
|
$6.30
|
—
|
N/A
|
||||||
June 1 to June 30, 2011(1)
|
483
|
$6.25
|
—
|
N/A
|
||||||
1,341
|
$6.86
|
—
|
N/A
|
|||||||
(1)
|
Represents shares surrendered to us by employees in order to satisfy tax withholding obligations upon vesting of restricted stock.
|
Item 6. Exhibits.
Exhibits filed as part of this quarterly report are listed in the Exhibit Index appearing on page 20.
|
Items 1, 3, 4 and 5 are not applicable and have been omitted.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAL DIVE INTERNATIONAL, INC.
|
||
Date: August 3, 2011
|
By:
|
/s/ Quinn J. Hébert
|
Quinn J. Hébert
Chairman, President and Chief Executive Officer
|
||
Date: August 3, 2011
|
By:
|
/s/ Brent D. Smith
|
Brent D. Smith
Executive Vice President,
Chief Financial Officer and Treasurer
|
Filed
|
|||||||
Exhibit | with this |
Incorporated by Reference
|
|||||
Number
|
Exhibit Title | Form 10-Q | Form | File No. | Date Filed | ||
3.1
|
Amended and Restated Certificate of Incorporation of Cal Dive International, Inc.
|
10-K
|
000-33206
|
3/1/07
|
|||
3.2
|
Amended and Restated Bylaws of Cal Dive International, Inc.
|
8-K
|
000-33206
|
8/31/10
|
|||
4.1
|
Specimen Common Stock certificate of Cal Dive International, Inc.
|
S-1
|
333-134609
|
5/31/06
|
|||
10.1
|
Credit Agreement dated April 26, 2011 among Cal Dive International, Inc. and Bank of America, N.A., as Administration Agent, together with the other lenders parties thereto
|
8-K
|
000-33206
|
4/27/11
|
|||
31.1
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Quinn J. Hébert, Chief Executive Officer
|
X
|
|||||
31.2
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Brent D. Smith, Chief Financial Officer
|
X
|
|||||
32.1
|
Section 1350 Certification by Chief Executive Officer and Chief Financial Officer
|
X
|
|||||
20