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Helix Energy Solutions 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Graphic
  3. Ex-10.3
  4. Ex-31.1
  5. Ex-31.2
  6. Ex-32.1
  7. Ex-32.1
form10q.htm


 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
Form 10-Q
 
 
[X]
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2013
 
or
[   ]
 
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 001-32936
 
 
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
 
 
     
     
Minnesota
(State or other jurisdiction
of incorporation or organization)
 
95–3409686
(I.R.S. Employer
Identification No.)
  
   
400 North Sam Houston Parkway East 
Suite 400 
Houston, Texas
(Address of principal executive offices)
 
 
77060
(Zip Code)
 
(281) 618–0400 
(Registrant's telephone number, including area code)
 
NOT APPLICABLE
(Former name, former address and former fiscal year, 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
       
     Yes  
[ √ ] 
    No 
[   ] 
 
Indicate by check mark whether the registrant has submitted electronically 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 the definitions 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 [   ]
   
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
       
     Yes  
[   ] 
    No 
[ √ ] 
 
As of April 19, 2013, 105,935,517 shares of common stock were outstanding.
 


 
 

 
 
         
         
PART I.
 
FINANCIAL INFORMATION
 
PAGE
 
Item 1.
 
Financial Statements:
   
   
 
 
   
 
 
 
  
 
 
   
 
 
   
 
 
 
Item 2.
 
 
  
 
Item 3.
   
 
Item 4.
   
 
PART II.
 
OTHER INFORMATION
   
Item 1.
 
 
 
 
Item 2.
   
 
Item 5.
   
Item 6.
 
 
 
   
 
 
   
 
 
 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements
 
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
   
March 31,
 
December 31,
   
2013
 
2012
   
(Unaudited)
         
ASSETS
Current assets:
               
Cash and cash equivalents
 
$
 625,650
   
$
 437,100
 
Accounts receivable:
               
Trade, net of allowance for uncollectible accounts of $5,154 and $5,152, respectively
   
142,793
     
152,233
 
Unbilled revenue
   
29,392
     
26,992
 
Costs in excess of billing
   
5,438
     
6,848
 
Other current assets
   
61,189
     
96,934
 
Current assets of discontinued operations
   
     
84,000
 
Total current assets
   
864,462
     
804,107
 
Property and equipment
   
2,115,321
     
2,051,796
 
Less accumulated depreciation
   
(582,594
   
(565,921
Property and equipment, net
   
1,532,727
     
1,485,875
 
Other assets:
               
Equity investments
   
165,452
     
167,599
 
Goodwill
   
61,732
     
62,935
 
Other assets, net
   
41,958
     
49,837
 
Non-current assets of discontinued operations
   
     
816,227
 
Total assets
 
$
2,666,331
   
$
3,386,580
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
               
Accounts payable
 
$
100,553
   
$
92,398
 
Accrued liabilities
   
122,024
     
161,514
 
Income tax payable
   
35,797
     
 
Current maturities of long-term debt
   
10,247
     
16,607
 
Current liabilities of discontinued operations
   
     
182,527
 
Total current liabilities
   
268,621
     
453,046
 
Long-term debt
   
687,461
     
1,002,621
 
Deferred tax liabilities
   
290,102
     
359,237
 
Other non-current liabilities
   
14,976
     
5,025
 
Non-current liabilities of discontinued operations
   
     
147,237
 
Total liabilities
   
1,261,160
     
1,967,166
 
                 
Commitments and contingencies
               
Shareholders' equity:
               
Common stock, no par, 240,000 shares authorized, 105,939 and 105,763 shares issued, respectively
   
935,463
     
932,742
 
Retained earnings
   
477,925
     
476,310
 
Accumulated other comprehensive loss
   
(33,986
   
(15,667
Total controlling interest shareholders' equity
   
1,379,402
     
1,393,385
 
Noncontrolling interest
   
25,769
     
26,029
 
Total equity
   
1,405,171
     
1,419,414
 
Total liabilities and shareholders' equity
 
$
2,666,331
   
$
3,386,580
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Net revenues
  $ 197,429     $ 229,842  
Cost of sales
    144,862       157,359  
                 
Gross profit
    52,567       72,483  
                 
Loss on commodity derivative contracts
    (14,113 )      
Selling, general and administrative expenses
    (23,216 )     (22,415 )
Income from operations
    15,238       50,068  
Equity in earnings of investments
    610       407  
Net interest expense
    (10,323 )     (14,477 )
Loss on early extinguishment of long-term debt
    (2,882 )     (17,127 )
Other income (expense), net
    (3,684 )     70  
Other income – oil and gas
    2,818        
Income before income taxes
    1,777       18,941  
Income tax provision
    443       1,278  
Income from continuing operations
    1,334       17,663  
Income from discontinued operations, net of tax
    1,058       48,853  
Net income, including noncontrolling interests
    2,392       66,516  
Less net income applicable to noncontrolling interests
    (777 )     (789 )
Net income applicable to Helix
  $ 1,615     $ 65,727  
                 
                 
Basic earnings per share of common stock:
               
Continuing operations
  $ 0.01     $ 0.16  
Discontinued operations
    0.01       0.46  
Net income per common share
  $ 0.02     $ 0.62  
                 
Diluted earnings per share of common stock:
               
Continuing operations
  $ 0.01     $ 0.16  
Discontinued operations
    0.01       0.46  
Net income per common share
  $ 0.02     $ 0.62  
                 
Weighted average common shares outstanding:
               
Basic
    105,032       104,530  
Diluted
    105,165       104,989  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Net income, including noncontrolling interests
  $ 2,392     $ 66,516  
Other comprehensive income (loss), net of tax:
               
Unrealized loss on hedges arising during the period
    (11,285 )     (21,318 )
Reclassification adjustments for loss included in net income
    150       84  
Income taxes on unrealized losses on hedges
    3,897       7,432  
Unrealized loss on hedges, net of tax
    (7,238 )     (13,802 )
Foreign currency translation gain (loss)
    (11,081 )     4,152  
Other comprehensive loss, net of tax
    (18,319 )     (9,650 )
Comprehensive income (loss)
    (15,927 )     56,866  
Less comprehensive income applicable to noncontrolling interests
    (777 )     (789 )
Comprehensive income (loss) applicable to Helix
  $ (16,704 )   $ 56,077  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net income, including noncontrolling interests
  $ 2,392     $ 66,516  
Adjustments to reconcile net income, including noncontrolling interests to net cash provided by operating activities:
               
Income from discontinued operations
    (1,058 )     (48,853 )
Depreciation and amortization
    24,380       24,649  
Amortization of deferred financing costs
    1,472       1,611  
Stock-based compensation expense
    3,353       1,838  
Amortization of debt discount
    1,278       2,355  
Deferred income taxes
    16,784       (2,673 )
Excess tax from stock-based compensation
    (617 )     340  
Loss on early extinguishment of debt
    2,882       17,127  
Unrealized loss and ineffectiveness on derivative contracts, net
    969       114  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    3,714       6,835  
Other current assets
    12,577       10,483  
Income tax payable
    (20,283 )     23,233  
Accounts payable and accrued liabilities
    (48,765 )     (35,987 )
Oil and gas asset retirement costs
    (240 )     (5,367 )
Other noncurrent, net
    (7,005 )     (4,056 )
Net cash provided by (used in) operating activities
    (8,167 )     58,165  
Net cash provided by (used in) discontinued operations
    (30,503 )     75,640  
Net cash provided by (used in) operating activities
    (38,670 )     133,805  
                 
Cash flows from investing activities:
               
Capital expenditures
    (36,455 )     (82,962 )
Distributions from equity investments, net
    2,050       5,943  
Net cash provided by (used in) investing activities
    (34,405 )     (77,019 )
Net cash provided by (used in) discontinued operations
    582,965       (17,860 )
Net cash provided by (used in) investing activities
    548,560       (94,879 )
                 
Cash flows from financing activities:
               
Early extinguishment of Senior Unsecured Notes
          (209,500 )
Borrowings under revolving credit facility
    2,573       100,000  
Repayment of revolving credit facility
    (24,473 )      
Issuance of Convertible Senior Notes due 2032
          200,000  
Repurchase of Convertible Senior Notes due 2025
    (3,487 )     (143,945 )
Proceeds from Term Loan
          100,000  
Repayment of Term Loans
    (294,882 )     (750 )
Repayment of MARAD borrowings
    (2,529 )     (2,409 )
Deferred financing costs
    (41 )     (6,337 )
Distributions to noncontrolling interest
    (1,037 )      
Repurchases of common stock
    (1,473 )     (991 )
Excess tax from stock-based compensation
    617       (340 )
Exercise of stock options, net and other
    174       381  
Net cash provided by (used in) financing activities
    (324,558 )     36,109  
                 
Effect of exchange rate changes on cash and cash equivalents
    3,218       (1,051 )
Net increase in cash and cash equivalents
    188,550       73,984  
Cash and cash equivalents:
               
Balance, beginning of year
    437,100       546,465  
Balance, end of period
  $ 625,650     $ 620,449  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 1 — Basis of Presentation and Recent Accounting Standards 
 
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its majority-owned subsidiaries (collectively, "Helix" or the "Company").  Unless the context indicates otherwise, the terms "we," "us" and "our" in this report refer collectively to Helix and its majority-owned subsidiaries.  All material intercompany accounts and transactions have been eliminated.  These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (“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. 
 
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistent in all material respects with those applied in our 2012 Annual Report on Form 10-K (“2012 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 condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), and statements of cash flows, as applicable.  The operating results for the three-month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  Our balance sheet as of December 31, 2012 included herein has been derived from the audited balance sheet as of December 31, 2012 included in our 2012 Form 10-K.  These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our 2012 Form 10-K. 
 
Certain reclassifications were made to previously reported amounts in the condensed consolidated financial statements and notes thereto to make them consistent with the current presentation format.  The most significant of these reclassifications are associated with our discontinued operations.  As noted in Note 2, we exited our oil and gas business in February 2013 upon the sale of our former wholly-owned subsidiary, Energy Resource Technology GOM, Inc. (“ERT”).
 
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”).  Offsetting, otherwise known as netting, is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet).  U.S. GAAP allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy.  ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.  The adoption of ASU 2011-11 did not have any material impact on our consolidated financial statements.
 
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).  ASU 2013-02 requires companies to provide information about the amounts that are reclassified out of accumulated other comprehensive income either by the respective line items of net income or by cross-reference to other required disclosures.  This guidance is effective prospectively for fiscal years beginning after December 15, 2012.  We adopted ASU 2013-02 on January 1, 2013.  The adoption of this guidance did not have any material impact on our consolidated financial statements.  We have presented the information required by the guidance in Note 16.
 
 
Note 2 — Company Overview >
 
We are an international offshore energy company that provides specialty services to the offshore energy industry, with a focus on growing well intervention and robotics operations.  In February 2013, we completed the sale of ERT, our former wholly-owned subsidiary that conducted our oil and gas operations in the U.S., for $624 million plus consideration in the form of overriding royalty interests in ERT’s Wang well and certain other of its future exploration prospects.  We used $318.4 million of the sales proceeds to reduce our indebtedness under our Credit Agreement (Note 7) and we are using the remainder in our continuing operations, including supporting the expansion of our well intervention and robotics operations.
 
Contracting Services Operations
 
We seek to provide services and methodologies that we believe are critical to developing offshore reservoirs and maximizing production economics.  Our “life of field” services are segregated into four disciplines: well intervention, robotics, subsea construction and production facilities.  We have disaggregated our contracting services operations into two reportable segments: Contracting Services and Production Facilities.  Our Contracting Services segment includes well intervention, robotics and subsea construction operations (see below for disclosure regarding the planned dispositions of our remaining subsea construction vessels and related assets).  Our Production Facilities business includes our majority ownership of the Helix Producer I (“HP I”) vessel as well as our equity investments in Deepwater Gateway, L.L.C. (“Deepwater Gateway”) and Independence Hub, LLC (“Independence Hub”) (Note 6).  It also includes the Helix Fast Response System (“HFRS”), which includes access to our Q4000 and HP I vessels.
 
In October 2012, we entered into an agreement to sell our two remaining pipelay vessels, the Express and the Caesar, and other related pipelay equipment for a total sales price of $238.3 million, of which we have received a $50 million deposit that is only refundable in very limited circumstances.  The sales of these vessels are expected to close in July 2013 following the completion of each vessel’s backlog of work.
 
Discontinued Operations
 
In December 2012, we announced a definitive agreement for the sale of ERT.  On February 6, 2013, we sold ERT for $624 million plus consideration in the form of overriding royalty interests in ERT’s Wang well and certain other of its future exploration prospects.  As a result, we have presented the assets and liabilities included in the sale of ERT and the historical operating results of our former Oil and Gas segment as discontinued operations in the accompanying condensed consolidated financial statements.  See Note 4 for additional information regarding our discontinued oil and gas operations.
 
Note 3 — Details of Certain Accounts 
 
Other current assets consist of the following (in thousands): 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Other receivables
  $ 737     $ 1,086  
Prepaid insurance
    4,337       11,999  
Other prepaids
    12,545       11,751  
Spare parts inventory
    2,589       2,480  
Income tax receivable
          14,201  
Current deferred tax assets
    34,397       43,942  
Derivative assets
          5,946  
Other
    6,584       5,529  
Total other current assets
  $ 61,189     $ 96,934  
 
 
Other assets, net, consist of the following (in thousands): 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Deferred dry dock expenses, net
  $ 19,689     $ 22,704  
Deferred financing costs, net
    19,620       24,338  
Intangible assets with finite lives, net
    469       491  
Other
    2,180       2,304  
Total other assets, net
  $ 41,958     $ 49,837  
 
Accrued liabilities consist of the following (in thousands): 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Accrued payroll and related benefits
  $ 34,721     $ 51,561  
Current asset retirement obligations
    4,048       2,898  
Unearned revenue
    6,964       6,137  
Billing in excess of cost
    4,625       6,445  
Accrued interest
    7,699       17,451  
Derivative liability (Note 16)
    2,008       16,266  
Taxes payable excluding income tax payable
    5,788       5,164  
Pipelay assets sale deposit (Note 2)
    50,000       50,000  
Other
    6,171       5,592  
Total accrued liabilities
  $ 122,024     $ 161,514  
 
Note 4 — Oil and Gas Properties 
 
Results of Discontinued Operations 
 
The following summarized financial information relates to ERT, which is reported as “Income from discontinued operations, net of tax” in the accompanying condensed consolidated statements of operations:
 
   
Three Months Ended
 
   
March 31,
 
   
2013 (1)
   
2012
 
             
Revenues
  $ 48,847     $ 178,085  
Costs:
               
Production (lifting) costs
    16,017       37,020  
Exploration expenses
    3,514       754  
Depreciation, depletion, amortization and accretion
    1,226       47,843  
Proved property impairment and abandonment charges (credits)
    (152 )     3,241  
Loss on sale of oil and gas properties
          1,478  
Loss on commodity derivative contracts
          2,339  
Selling, general and administrative expenses
    1,229       3,281  
Net interest expense and other (2)
    2,732       7,277  
Total costs
    24,566       103,233  
Pretax income from discontinued operations
    24,281       74,852  
Income tax provision
    8,499       25,999  
Income from operations of discontinued operations
    15,782       48,853  
Loss on sale of business, net of tax
    (14,724 )      
Income from discontinued operations, net of tax
  $ 1,058     $ 48,853  
 
 
  (1)
Results for the first quarter of 2013 were through February 6, 2013 when ERT was sold.
 
  (2)
Net interest expense of $2.7 million and $7.2 million for the three-month periods ended March 31, 2013 and 2012, respectively, was allocated to ERT primarily based on interest associated with indebtedness directly attributed to the substantial oil and gas acquisition made in 2006.  This includes interest related to debt required to be paid upon the disposition of ERT.
 
Note 5 — Statement of Cash Flow Information
 
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less.  The following table provides supplemental cash flow information (in thousands): 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Interest paid, net of interest capitalized
  $ 20,164     $ 32,554  
Income taxes paid
  $ 4,521     $ 6,725  
 
Total non-cash investing activities for the three-month periods ended March 31, 2013 and 2012 included $23.3 million and $21.0 million, respectively, of accruals for property and equipment capital expenditures.
 
 
As of March 31, 2013, we had two investments that we account for using the equity method of accounting: Deepwater Gateway and Independence Hub, both of which are included in our Production Facilities segment. 
 
Deepwater Gateway, L.L.C.  In June 2002, we, along with Enterprise Products Partners L.P. (”Enterprise”), formed Deepwater Gateway, each with a 50% interest, to design, construct, install, own and operate a tension leg platform production hub primarily for Anadarko Petroleum Corporation's Marco Polo field in the Deepwater Gulf of Mexico.  Our investment in Deepwater Gateway totaled $90.2 million and $91.4 million as of March 31, 2013 and December 31, 2012, respectively (including capitalized interest of $1.3 million and $1.3 million at March 31, 2013 and December 31, 2012, respectively). 
 
Independence Hub, LLC.  In December 2004, we acquired a 20% interest in Independence Hub, an affiliate of Enterprise.  Independence Hub owns the "Independence Hub" platform located in Mississippi Canyon Block 920 in a water depth of 8,000 feet.  Our investment in Independence Hub was $75.3 million and $76.2 million as of March 31, 2013 and December 31, 2012, respectively (including capitalized interest of $4.5 million and $4.6 million at March 31, 2013 and December 31, 2012, respectively). 
 
We received the following distributions from our equity investments (in thousands):
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Deepwater Gateway
  $ 1,500     $ 2,150  
Independence Hub
    1,160       4,200  
Total
  $ 2,660     $ 6,350  
 
As disclosed in our 2012 Form 10-K, in the first quarter of 2012, we recorded losses totaling $3.8 million associated with our investment in an Australian joint venture, including a $3.0 million fee paid in connection with our exit from the joint venture.  In April 2012, we paid this fee and received approximately $3.7 million of proceeds for our pro rata portion (50%) of the value of certain of the net assets on hand at the time of our exit.  We are no longer a participant in this joint venture.
 
 
The summarized aggregated financial information related to the subsidiaries we record using the equity method is as follows (in thousands):
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Revenues
  $ 9,025     $ 23,018  
Operating income
    3,296       17,379  
Net income
    3,296       17,379  
 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Current assets
  $ 16,776     $ 16,682  
Total assets
    531,749       537,251  
Current liabilities
    635       706  
Total liabilities
    5,322       5,320  
 
Note 7 — Long-Term Debt>
 
Scheduled maturities of long-term debt outstanding as of March 31, 2013 are as follows (in thousands):
 
   
Term
Loan (1)
   
Revolving Credit Facility (1)
   
Senior Unsecured Notes
   
MARAD
Debt
   
2032
Notes (2)
   
Total
 
                                     
Less than one year
  $ 5,000     $     $     $ 5,247     $     $ 10,247  
One to two years
    5,000                   5,508             10,508  
Two to three years
    62,299       78,100       274,960       5,783             421,142  
Three to four years
                      6,072             6,072  
Four to five years
                      6,375             6,375  
Over five years
                      73,774       200,000       273,774  
Total debt
    72,299       78,100       274,960       102,759       200,000       728,118  
Current maturities
    (5,000 )                 (5,247 )           (10,247 )
Long-term debt, less current maturities
    67,299       78,100       274,960       97,512       200,000       717,871  
Unamortized debt discount (3)
                            (30,410 )     (30,410 )
Long-term debt
  $ 67,299     $ 78,100     $ 274,960     $ 97,512     $ 169,590     $ 687,461  
 
 
  (1)
Amounts reflect our remaining Term Loan debt.  In February 2013, we repaid $293.9 million of our Term Loan debt and $24.5 million under our Revolving Credit Facility with the after-tax proceeds from the sale of ERT.
 
  (2)
Beginning in March 2018, the holders of these Convertible Senior Notes may require us to repurchase these notes or we may at our own option elect to repurchase notes. These notes will mature in March 2032.
 
  (3)
The notes will increase to their principal amount through accretion of non-cash interest charges through March 2018 for the Convertible Senior Notes due 2032.
 
Included below is a summary of certain components of our indebtedness.  For additional information regarding our debt, see Note 7 of our 2012 Form 10-K.
 
 
Senior Unsecured Notes 
 
In December 2007, we issued $550 million of 9.5% Senior Unsecured Notes due 2016 (“Senior Unsecured Notes”).  Interest on the Senior Unsecured Notes is payable semi-annually in arrears on each January 15 and July 15, commencing July 15, 2008.  The Senior Unsecured Notes are fully and unconditionally guaranteed by substantially all of our existing restricted domestic subsidiaries, except for Cal Dive I-Title XI, Inc.  In addition, any future restricted domestic subsidiaries that guarantee any of our indebtedness and/or our restricted subsidiaries’ indebtedness are required to guarantee the Senior Unsecured Notes.  Our foreign subsidiaries are not guarantors of the notes.  Prior to stated maturity, we may redeem all or a portion of the Senior Unsecured Notes on no less than 30 days’ and no more than 60 days’ prior notice at the redemption prices (expressed as percentages of the principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date. 
 
     
Year
 
Redemption Price
     
2013
 
102.375%
2014 and thereafter
 
100.000%
 
In March 2012, we purchased a portion of these Senior Unsecured Notes which resulted in an early extinguishment of $200.0 million of our outstanding balance.  In these transactions we paid an aggregate amount of $213.5 million, including $200.0 million in principal, a $9.5 million premium and $4.0 million of accrued interest.  We also recorded a $2.0 million charge to accelerate a pro rata portion of the deferred financing costs associated with the original issuance of the Senior Unsecured Notes.  The loss on the early extinguishment of these Senior Unsecured Notes totaled $11.5 million and is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations.  We had $275.0 million of Senior Unsecured Notes outstanding at March 31, 2013 and December 31, 2012.
 
Credit Agreement
 
In July 2006, we entered into a credit agreement (the “Credit Agreement”) under which we borrowed $835 million in a term loan (the “Term Loan B”) and were able to borrow up to $300 million (the “Revolving Loans”) under a revolving credit facility (the “Revolving Credit Facility”).  The Credit Agreement has been amended eight times, with the most recent amendment occurring in February 2013.  These amendments address certain issues with regard to covenants, maturity and the borrowing limits under the Term Loan and the Revolving Loans.  The February 2013 amendment was entered into to waive certain year end oil and gas reporting requirements and covenant compliance as a result of the sale of ERT.
 
In February 2013, we repaid $293.9 million of our Term Loan debt (including the entire outstanding balance of the Term Loan B) and $24.5 million under our Revolving Credit Facility with the after-tax proceeds from the sale of ERT.  At March 31, 2013, the remaining balance of our Term Loan debt was $72.3 million.  In connection with the repayment of debt in February 2013, we recorded a $2.9 million charge to accelerate a pro rata portion of the deferred financing costs associated with our Term Loan debt.  This charge is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations.
 
Our Term Loan debt currently bears interest at the one-, two-, three- or six-month LIBOR or on Base Rates at our current election plus an applicable margin between 2.25% and 3.5% depending on our consolidated leverage ratio.  The average interest rates on our Term Loan debt were 3.3% for the three-month period ended March 31, 2013 and 4.0% (including the effects of our interest rate swaps) for the same period last year.  The Term Loan is currently scheduled to mature on July 1, 2015 but could be extended to January 1, 2016 if our Senior Unsecured Notes are fully repaid or refinanced by July 1, 2015. 
 
As amended, our Revolving Credit Facility provides for $600 million in borrowing capacity.  The full amount of the Revolving Credit Facility may be used for issuances of letters of credit.  These letters of credit guarantee items such as various contract bidding, contractual performance, insurance activities and shipyard commitments.  The Revolving Loans bear interest based on one-, two-, three- or six-month LIBOR rates or on Base Rates at our current election, plus an applicable margin.  The margin ranges from 1.5% to 3.5%, depending on our consolidated leverage ratio.  Fees associated with outstanding letters of credit range from 2.0% to 3.0%, depending on our consolidated leverage ratio.  We also pay a fixed commitment fee of 0.5%
 
 
12

 
on the unused portion of our Revolving Credit Facility.  We had $78.1 million and $100.0 million drawn on the Revolving Credit Facility at March 31, 2013 and December 31, 2012, respectively.  At March 31, 2013, our availability under the Revolving Credit Facility totaled $513.9 million, net of $8.0 million of letters of credit issued.  The average interest rate for the outstanding balance under the Revolving Credit Facility totaled 3.0% during the three-month period ended March 31, 2013.
 
We may elect to prepay amounts outstanding under the Term Loan without penalty, but may not reborrow any amounts paid.  We may repay amounts outstanding under the Revolving Loans without penalty, and may reborrow amounts paid prior to maturity.  In addition, upon the occurrence of certain dispositions or the issuance or incurrence of certain types of indebtedness, we may be required to repay a portion of the Term Loan debt and borrowings under the Revolving Credit Facility equal to the amount of proceeds received from such occurrences (in the event of a disposition of assets comprising collateral, 60% of the after-tax proceeds).  Such payments would be applied to the Term Loan and the Revolving Credit Facility on a pro rata basis.
 
The Credit Agreement contains various covenants regarding, among other things, collateral, capital expenditures, investments, dispositions, indebtedness and financial performance that are customary for this type of financing and for companies in our industry. 
 
Convertible Senior Notes Due 2025 
 
In March 2005, we issued $300 million of 3.25% Convertible Senior Notes due 2025 at 100% of the principal amount to certain qualified institutional buyers (“2025 Notes”). 
 
In March 2012, we repurchased $142.2 million in aggregate principal of the 2025 Notes.  In these repurchase transactions we paid an aggregate amount of $145.1 million, representing principal plus $1.8 million of premium and $1.1 million of accrued interest.  The loss on the early extinguishment of the 2025 Notes totaled $5.6 million and is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations.  The loss on early extinguishment includes the acceleration of $3.5 million of unamortized discount associated with the 2025 Notes, the $1.8 million premium paid in connection with the repurchase of a portion of the 2025 Notes and a $0.3 million charge to accelerate a pro rata portion of the deferred financing costs associated with the original issuance of the 2025 Notes.  The remainder of the 2025 Notes was extinguished when the holders exercised their option for us to repurchase their notes in December 2012 ($154.3 million) and in February 2013 when we repurchased the remaining $3.5 million of the 2025 Notes that were not put to us by the holders in December 2012. 
 
Convertible Senior Notes Due 2032 
 
In March 2012, we completed the public offering and sale of $200.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2032 (“2032 Notes”).  The net proceeds from the issuance of the 2032 Notes were $195.0 million, after deducting the underwriter’s discounts and commissions and offering expenses.  We used the net proceeds to repurchase and retire $142.2 million of aggregate principal amount of the 2025 Notes (see above) in separate, privately negotiated transactions.  The remaining net proceeds were used for general corporate purposes, including the repayment of other indebtedness. 
 
The registered 2032 Notes bear interest at a rate of 3.25% per annum, and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2012.  The 2032 Notes will mature on March 15, 2032, unless earlier converted, redeemed or repurchased by us.  The 2032 Notes are convertible in certain circumstances and during certain periods at an initial conversion rate of 39.9752 shares of common stock per $1,000 principal amount of the 2032 Notes (which represents an initial conversion price of approximately $25.02 per share of common stock), subject to adjustment in certain circumstances as set forth in the indenture governing the 2032 Notes.  The initial conversion price represents a conversion premium of 35.0% over the closing price of our common stock on March 6, 2012, which was $18.53 per share. 
 
 
Prior to March 20, 2018, the 2032 Notes will not be redeemable.  On or after March 20, 2018, we may, at our option, redeem some or all of the 2032 Notes in cash, at any time, upon at least 30 days’ notice at a price equal to 100% of the principal amount plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the redemption date.  Holders may require us to purchase in cash some or all of their 2032 Notes at a repurchase price equal to 100% of the principal amount of the 2032 Notes, plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the applicable repurchase date, on March 15, 2018, March 15, 2022 and March 15, 2027, or, subject to specified exceptions, at any time prior to the 2032 Notes’ maturity following a fundamental change (as defined in the governing indenture). 
 
In connection with the issuance of the 2032 Notes, we recorded a discount of $35.4 million as required under existing accounting rules.  To arrive at this discount amount, we estimated the fair value of the liability component of the 2032 Notes as of the date of their issuance (March 12, 2012) using an income approach.  To determine this estimated fair value, we used borrowing rates of similar market transactions involving comparable liabilities at the time of issuance and an expected life of 6.0 years.  In selecting the expected life, we selected the earliest date that the holders could require us to repurchase all or a portion of the 2032 Notes (March 15, 2018).  The effective interest rate for the 2032 Notes is 6.9% after considering the effect of the accretion of the related debt discount that represented the equity component of the 2032 Notes at their inception. 
 
MARAD Debt
 
This U.S. government guaranteed financing ("MARAD Debt") is pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, and was used to finance the construction of the Q4000.  The MARAD Debt is payable in equal semi-annual installments beginning in August 2002 and matures 25 years from such date.  The MARAD Debt is collateralized by the Q4000, is guaranteed 50% by us, and initially bore interest at a floating rate which approximated AAA Commercial Paper yields plus 20 basis points.  As provided for in the MARAD Debt agreements, in September 2005, we fixed the interest rate on the debt through the issuance of a 4.93% fixed-rate note with the same maturity date (February 2027). 
 
Other 
 
In accordance with our Credit Agreement, Senior Unsecured Notes, 2032 Notes and MARAD Debt agreements, we are required to comply with certain covenants, including the maintenance of minimum net worth, working capital and debt-to-equity requirements, and restrictions that limit our ability to incur certain types of additional indebtedness.  As of March 31, 2013, we were in compliance with these covenants and restrictions. 
 
Unamortized deferred financing costs are included in “Other assets, net” in the accompanying condensed consolidated balance sheets and are being amortized over the life of the respective debt agreements.  The following table reflects the components of our deferred financing costs (in thousands):
 
   
March 31, 2013
   
December 31, 2012
 
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net
 
                                     
Term Loans (mature July 2015)
  $ 15,325     $ (14,669 )   $ 656     $ 15,318     $ (11,595 )   $ 3,723  
Revolving Credit Facility (matures July 2015)
    20,046       (13,225 )     6,821       20,021       (12,466 )     7,555  
2025 Notes (mature December 2025)
                      8,189       (8,189 )      
2032 Notes (mature March 2032)
    3,759       (687 )     3,072       4,251       (534 )     3,717  
Senior Unsecured Notes (mature January 2016)
    10,643       (8,402 )     2,241       10,643       (8,252 )     2,391  
MARAD Debt (matures February 2027)
    12,200       (5,370 )     6,830       12,200       (5,248 )     6,952  
Total deferred financing costs
  $ 61,973     $ (42,353 )   $ 19,620     $ 70,622     $ (46,284 )   $ 24,338  
 
 
The following table details our interest expense and capitalized interest (in thousands): 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Interest expense
  $ 12,578     $ 15,244  
Interest income
    (316 )     (288 )
Capitalized interest
    (1,939 )     (479 )
Interest expense, net
  $ 10,323     $ 14,477  
 
Note 8 — Income Taxes 
 
The effective tax rates for the three-month periods ended March 31, 2013 and 2012 were 24.9% and 6.7%, respectively.  The variance is primarily attributable to projected year over year increases in profitability in the United States. 
 
We believe our recorded assets and liabilities are reasonable; however, tax laws and regulations are subject to interpretation and tax litigation is inherently uncertain, and therefore our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.  Income taxes have been provided based on the U.S. statutory rate of 35% and at the local statutory rate for each foreign jurisdiction adjusted for items which are allowed as deductions for federal and foreign income tax reporting purposes, but not for book purposes.  The primary differences between the statutory rate and our effective rate from continuing operations are as follows: 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Statutory rate
    35.0 %     35.0 %
Foreign provision
    (10.7 )     (26.5 )
Other
    0.6       (1.8 )
Effective rate
    24.9 %     6.7 %
 
Note 9 — Accumulated Other Comprehensive Loss>
 
The components of accumulated other comprehensive loss are as follows (in thousands): 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Cumulative foreign currency translation adjustment
  $ (26,748 )   $ (15,667 )
Unrealized loss on hedges, net (1)
    (7,238 )      
Accumulated other comprehensive loss
  $ (33,986 )   $ (15,667 )
 
  (1)
Amount at March 31, 2013 is related to foreign currency hedges for the Grand Canyon, Grand Canyon II and Grand Canyon III and is net of deferred income taxes totaling $3.9 million. 
 
Note 10 — Earnings Per Share 
 
We have shares of restricted stock issued and outstanding, some of which remain subject to vesting requirements.  Holders of such shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our outstanding common stock and are thus considered participating securities.  Under applicable accounting guidance, the undistributed earnings for each period are allocated based on the participation rights of both the common shareholders and holders of any participating securities as if earnings for the respective periods had been distributed.  Because both the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.  Further, we are
 
 
15

 
required to compute earnings per share (“EPS”) amounts under the two class method in periods in which we have earnings from continuing operations.  For periods in which we have a net loss we do not use the two class method as holders of our restricted shares are not contractually obligated to share in such losses. 
 
The presentation of basic EPS amounts on the face of the accompanying condensed consolidated statements of operations is computed by dividing the net income applicable to Helix common shareholders by the weighted average shares of outstanding common stock.  The calculation of diluted EPS is similar to basic EPS, except that the denominator includes dilutive common stock equivalents and the income included in the numerator excludes the effects of the impact of dilutive common stock equivalents, if any.  The computations of  the numerator (Income) and denominator (Shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands)
 
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2013
   
March 31, 2012
 
   
Income
   
Shares
   
Income
   
Shares
 
Basic:
                       
Continuing operations:
                       
Net income applicable to Helix
  $ 1,615             $ 65,727          
Less: Income from discontinued operations, net of tax
    (1,058             (48,853        
Income from continuing operations
    557               16,874          
Less: Undistributed income allocable to participating securities – continuing operations
    (5             (174        
Income applicable to common shareholders – continuing operations
  $ 552       105,032     $ 16,700       104,530  
 
                         
Discontinued operations:
                       
Income from discontinued operations, net of tax
  $ 1,058           $ 48,853        
Less: Undistributed income allocable to participating securities – discontinued operations
    (8 )           (503 )      
Income applicable to common shareholders – discontinued operations
  $ 1,050       105,032     $ 48,350       104,530  
 
                         
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2013
   
March 31, 2012
 
   
Income
   
Shares
   
Income
   
Shares
 
Diluted:
                       
Continuing operations:
                       
Income applicable to common shareholders – continuing operations
  $ 552       105,032     $ 16,700       104,530  
Effect of dilutive securities:
                               
Share-based awards other than participating securities
          133             98  
Undistributed income reallocated to participating securities
                1        
Convertible preferred stock
                10       361  
Income applicable to common shareholders – continuing operations
  $ 552       105,165     $ 16,711       104,989  
                                 
Discontinued operations:
                               
Income from discontinued operations, net of tax
    1,058       105,165       48,853       104,989  
 
No diluted shares were included for the 2032 Notes for the three-month periods ended March 31, 2013 and 2012 as the conversion trigger of $32.53 per share was not met, and because we have the right to settle any such future conversions in cash at our sole discretion (Note 7).  There were no diluted shares associated with our 2025 Convertible Senior Notes as the conversion price of $32.14 (and conversion trigger of $38.57 per share) was not met in the three-month periods ended March 31, 2013 and 2012.
 
 
Note 11 — Employee Benefit Plans 
 
Stock-Based Compensation Plan 
 
We have two stock-based compensation plans: the 1995 Long-Term Incentive Plan, as amended (the “1995 Incentive Plan”) and the 2005 Long-Term Incentive Plan, as amended (the “2005 Incentive Plan”).  As of March 31, 2013, there were 6.4 million shares available for issuance under the amended and restated 2005 Incentive Plan, which includes a maximum of 2.0 million shares that may be granted as incentive stock options.  There were no stock option grants in the three-month periods ended March 31, 2013 and 2012.  During the three-month period ended March 31, 2013, the following grants of share-based awards were made to executive officers and non-employee members of our Board of Directors under the amended and restated 2005 Incentive Plan: 
 
Date of Grant
 
Shares
     
Grant Date Fair Value Per Share
 
Vesting Period
                 
January 2, 2013 (1)
 
89,329
   
$
20.64
 
33% per year over three years
January 2, 2013 (2)
 
89,329
     
30.96
 
100% on January 1, 2016
January 2, 2013 (3)
 
1,620
     
20.64
 
100% on January 1, 2015
 
  (1)
Reflects the grant of restricted shares to our executive officers.
 
  (2)
Reflects the grant of performance share units (“PSUs”) to our executive officers.  The estimated fair value of the PSUs on grant date was determined using a Monte Carlo simulation model.  The PSUs provide for an award based on the performance of our common stock over a three-year period with the maximum award being 200% of the original awarded PSUs and the minimum amount being zero.  The vested PSUs will be settled in an equivalent number of shares of our common stock unless the Compensation Committee of our Board of Directors elects to pay in cash.
 
  (3)
Reflects the grant of restricted shares to one of our directors.
 
Compensation cost is recognized over the respective vesting periods on a straight-line basis.  For the three-month periods ended March 31, 2013 and 2012, $3.4 million and $1.8 million, respectively, were recognized as stock-based compensation expense related to share-based awards.  Additionally during the three-month period ended March 31, 2013, $1.3 million of stock-based compensation expense was reflected within our discontinued operations as a component of “Loss on sale of business, net of tax” (Note 4).
 
Long-Term Incentive Cash Plan 
 
The 2005 Incentive Plan and the 2009 Long-Term Incentive Cash Plan (the “LTI Plans”) provide long-term cash-based compensation to eligible employees.  Cash awards historically have been both fixed sum amounts payable (for non-executive management only) as well as cash awards indexed to our common stock with the payment amount at each vesting date fluctuating based on the performance of our common stock (for both executive and non-executive management).  These are measured based on the performance of our stock price over the applicable award period compared to a base price determined by the Compensation Committee of our Board of Directors at the time of the award.  Cash award payments under the LTI Plans are made each year on the anniversary date of the award.  Cash awards granted prior to 2012 have a vesting period of five years and cash awards granted in 2012 and 2013 have a vesting period of three years.  This share-based component is considered a liability plan and as such is re-measured to fair value each reporting period with corresponding changes being recorded as a charge to earnings as deemed appropriate. 
 
The cash awards made under the LTI Plans totaled $5.9 million in 2013 and $4.2 million in 2012.  Such awards were made to our executive officers and selected management employees in 2013 and to our executive officers in 2012.  No cash awards were given to non-executive employees in 2012.  Total compensation expense associated with the cash awards issued pursuant to the LTI Plans was $2.5 million ($1.6 million related to our executive officers) and $2.4 million ($2.0 million related to our executive officers) for the three-month periods ended March 31, 2013 and 2012, respectively.  The liability balance for the cash
 
 
17

 
awards issued under the LTI Plans was $8.3 million at March 31, 2013 and $13.0 million at December 31, 2012, including $7.5 million at March 31, 2013 and $11.7 million at December 31, 2012 associated with the variable portion of the cash awards issued under the LTI plans.
 
Employee Stock Purchase Plan 
 
In May 2012, the shareholders approved the Helix Energy Solutions Group, Inc. Employee Stock Purchase Plan (the “ESPP”).  The ESPP has 1.5 million shares authorized for issuance.  Eligible employees who participate in the ESPP may purchase shares of our common stock through payroll deductions on an after-tax basis over a four-month period beginning on January 1, May 1, and September 1 of each year during the term of the ESPP, subject to certain restrictions and limitations established by the Compensation Committee of our Board of Directors (which administers the ESPP) and Section 423 of the Internal Revenue Code.  The per share price of common stock purchased under the ESPP is equal to 85% of the lesser of (i) its fair market value on the first trading day of the purchase period or (ii) its fair market value on the last trading day of the purchase period.  The first purchase period under the ESPP began on September 1, 2012.  The total value of the ESPP awards is calculated using the component approach where each award is computed as the sum of 15% of a share of non-vested stock, a call option on 85% of a share of non-vested stock, and a put option on 15% of a share of non-vested stock.  Share-based compensation expense with respect to the ESPP was $0.2 million for the three-month period ended March 31, 2013.
 
For more information regarding our employee benefit plans, including our stock-based compensation plans, our long-term incentive cash plan and our employee stock purchase plan, see Note 9 of our 2012 Form 10-K.
 
Note 12 — Business Segment Information 
 
In 2012, our operations were conducted through the following lines of business: contracting services and oil and gas.  We have disaggregated our contracting services operations into two reportable segments: Contracting Services and Production Facilities.  Our Contracting Services segment includes well intervention, robotics and subsea construction operations (see Note 2 for disclosures regarding the planned dispositions of our remaining subsea construction vessels and related assets).  The Production Facilities segment includes our consolidated investment in the HP I and Kommandor LLC as well as our equity investments in Deepwater Gateway and Independence Hub that are accounted for under the equity method of accounting.  All material intercompany transactions between the segments have been eliminated.  In February 2013, we sold ERT and as a result, we have presented the assets and liabilities included in the sale of ERT and the historical operating results of our former Oil and Gas segment as discontinued operations in the accompanying condensed consolidated financial statements.  See Note 4 for additional information regarding our discontinued operations. 
 
We evaluate our performance based on operating income and income before income taxes of each segment.  Segment assets are comprised of all assets attributable to the reportable segment.  Certain financial data by reportable segment are summarized as follows (in thousands): 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Revenues —
           
Contracting Services
  $ 198,054     $ 244,544  
Production Facilities
    20,393       20,022  
Intercompany elimination
    (21,018 )     (34,724 )
Total
  $ 197,429     $ 229,842  
                 
Income (loss) from operations —
               
Contracting Services
  $ 39,304     $ 59,124  
Production Facilities
    11,185       10,049  
Corporate
    (33,531 )     (16,085 )
Intercompany elimination
    (1,720 )     (3,020 )
Total
  $ 15,238     $ 50,068  
                 
Equity in earnings of equity investments
  $ 610     $ 407  
 
 
Intercompany segment revenues are as follows (in thousands): 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Contracting Services
  $ 16,345     $ 23,201  
Production Facilities
    4,673       11,523  
Total
  $ 21,018     $ 34,724  
 
Intercompany segment profits (losses) (which only relate to intercompany capital projects) are as follows (in thousands): 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Contracting Services
  $ 1,764     $ 3,064  
Production Facilities
    (44 )     (44 )
Total
  $ 1,720     $ 3,020  
 
Segment assets are comprised of all assets attributable to each reportable segment.  The following table reflected total assets by reportable segment (in thousands): 
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
             
Contracting Services
  $ 2,141,930     $ 1,974,763  
Production Facilities
    496,986       503,531  
Corporate and other
    27,415       8,059  
Discontinued operations
          900,227  
Total
  $ 2,666,331     $ 3,386,580  
 
 
Note 13 — Related Party Transactions 
 
In April 2000, we acquired a 20% working interest in Gunnison, a deepwater Gulf of Mexico prospect, from a third party.  Financing for the exploratory costs of approximately $20 million was provided by an investment partnership, OKCD Investments, Ltd. (“OKCD”), the investors of which include current and former Helix management, in exchange for a revenue interest that is an overriding royalty interest of 25% of Helix’s working interest.  Production began in December 2003.  Our payments to OKCD totaled $0.6 million and $1.7 million in the three-month periods ended March 31, 2013 and 2012, respectively.  Our Chief Executive Officer, Owen Kratz, through Class A limited partnership interests in OKCD, personally owns approximately 83% of the partnership.  In 2000, OKCD also awarded Class B income participations to key Helix employees who are required to maintain their employment status with Helix in order to retain such income participations.  The royalty agreement with OKCD was assumed by the purchaser of ERT following the sale of ERT in February 2013.
 
Note 14 — Commitments and Contingencies and Other Matters 
 
Commitments 
 
In March 2012, we executed a contract with a shipyard in Singapore for the construction of a newbuild semi-submersible well intervention vessel, the Q5000.  This $386.5 million shipyard contract represents the majority of the expected costs associated with the construction of the Q5000.  Under the terms of this contract, payments are made in a fixed percentage of the contract price, together with any variations, on contractually scheduled dates.  At March 31, 2013, our total investment in the Q5000 was $142.6 million, including $115.9 million of scheduled payments made to the shipyard. 
 
 
In July 2012, we contracted to charter the Skandi Constructor for use in our North Sea well intervention operations.  The vessel was delivered to us on April 1, 2013.  The initial term of the charter will expire in March 2016. 
 
In August 2012, we acquired the Discoverer 534 drillship from a subsidiary of Transocean Ltd. for $85 million.  The vessel, renamed the Helix 534, is currently undergoing upgrades and modifications in Singapore to render it suitable for use as a well intervention vessel.  At March 31, 2013, our investment in the acquisition and subsequent upgrades to and modifications of the Helix 534 totaled $147.9 million, including related well control equipment. 
 
In January 2013, we contracted to charter the Rem Installer for use in our robotics operations.  The term of the charter will be three years from the delivery date, which is expected to be around mid-2013. 
 
In February 2013, we contracted to charter the Grand Canyon II and Grand Canyon III for use in our robotics operations.  The terms of the charters will be five years from the respective delivery dates, which are expected to be in 2014 and 2015. 
 
Contingencies and Claims 
 
Under terms of the ERT equity purchase agreement, we have required the buyer to provide bonding in a sufficient amount as determined by the Bureau of Ocean Energy Management (“BOEM”) to replace and allow for a full discharge of our existing guaranty to the BOEM for ERT’s lease obligations.  The BOEM is in the process of reevaluating its decommissioning assessments for ERT’s deepwater lease properties in the Gulf of Mexico and as such it is currently uncertain as to the amount of bonding that will be required, and thus also the amount of collateral that the buyer will be required to post to its surety/ies to secure such bonding.  To the extent that the purchaser is required to post bonding collateral in an amount greater than $100 million to obtain bonds in the aggregate amount required by the BOEM in order for the BOEM to release our guaranty of ERT’s lease obligations, we have agreed to provide incremental collateral above that amount, if and to the extent required, to the surety/ies providing bonding for ERT’s deepwater properties (the Bushwood and Phoenix fields) in the form of letter(s) of credit, up to the next $50 million of required collateral, for a period not to exceed one year from issuance of the letter(s) of credit, after which the purchaser would then be required to provide all collateral associated with the bonding requirements with respect to our former oil and gas properties.  We anticipate that the BOEM will determine its assessments of decommissioning costs for our former deepwater fields in the near term and that the bonding amounts, and therefore the bonding collateral requirements, to obtain a release of our guaranty with respect to ERT’s lease obligations will be known.  At the time of this filing it is uncertain whether the amount of collateral will exceed the $100 million threshold so as to require any incremental bonding collateral on our part.
 
In 2007, we were subcontracted to perform development work for a large gas field offshore India.  Work commenced in the fourth quarter of 2007 and we completed our scope of work in the third quarter of 2009.  To date we have collected approximately $303 million related to this project with an amount of trade receivables yet to be collected.  We have requested arbitration in India pursuant to the terms of the subcontract to pursue our claims and the prime contractor has also requested arbitration and has asserted certain counterclaims against us.  If we are not successful in resolving these matters through ongoing discussions with the prime contractor, then arbitration in India remains a potential remedy.  Based on a number of factors associated with the ongoing negotiations with the prime contractor, in 2010, we established a $4 million allowance against our trade receivable balance that reduces its balance to an amount we believe is ultimately realizable.  However, at the time of this filing no final commercial resolution of this matter has been reached. 
 
We have received value added tax (VAT) assessments from the State of Andhra Pradesh, India (the “State”) in the amount of approximately $28 million for the tax years 2010, 2009, 2008 and 2007 related to an Indian subsea construction and diving contract that we entered into in December 2006.  The State claims that we owe unpaid taxes related to products consumed by us during the period of the contract.  We are of the opinion that the State has arbitrarily assessed this VAT tax and has no foundation for the assessment and believe that we have complied with all rules and regulations as related to VAT in the State.  We also believe that our position is supported by law and intend to vigorously defend our position.  However, the ultimate outcome of this assessment and our potential liability from it, if any, cannot be determined at this time.  If the current assessment is upheld, it may have a material negative effect on our consolidated results of operations while also impacting our financial position. 
 
 
Litigation 
 
On July 8, 2011, a shareholder derivative lawsuit styled City of Sterling Heights Police & Fire Retirement System v. Owen Kratz, et al. was filed in the United States District Court for the Southern District of Texas, Houston Division.  In the suit, the plaintiff makes claims against our Board of Directors, certain of our former directors, certain of our current and former executives, and the independent compensation consultant to the Compensation Committee of our Board of Directors, for breaches of the fiduciary duty of loyalty, unjust enrichment and aiding and abetting the alleged breaches of fiduciary duty relating to the long-term equity awards granted in 2010 to the Company’s then executive officers who are defendants.  The Company filed a motion to dismiss the claim asserting that the plaintiff has not (i) pled specific facts excusing its failure to make pre-suit demand on the Company’s Board of Directors as required by Minnesota law; (ii) filed proper verification; or (iii) stated a claim.  A ruling regarding the motion is pending.
 
On May 12, 2012, a shareholder derivative lawsuit styled Mark Lucas v. Owen Kratz, et al. was filed in the 270th Judicial District in the District Court of Harris County, Texas.  In the suit, the plaintiff makes claims against our Board of Directors, certain of our former directors, certain of our current and former executive officers and the independent compensation consultant to the Compensation Committee of our Board of Directors, for breaches of the fiduciary duties of candor, good faith and loyalty, unjust enrichment and aiding and abetting the alleged breaches of fiduciary duty relating to the long-term equity awards granted in 2010 to certain of our executive officers.  This case is essentially a “copycat” complaint asserting similar causes of action arising out of the same facts as set forth in the federal action described above.  The plaintiff is generally demanding disgorgement of the excessive compensation, restraint on the disposition/exercise of the alleged improperly awarded equity, implementation of additional internal controls, and attorney’s fees and costs of litigation.  We filed motions to stay and dismiss the proceeding, which motions were denied by the trial court judge.  We filed a petition for a writ of mandamus with the state appellate court, in which we requested that court to direct the district court to grant our motion to stay or dismiss the case. 
 
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 based on alleged negligence.  In addition, from time to time we incur other claims, such as contract disputes, in the normal course of business.
 
Note 15 — Fair Value Measurements
 
Certain of our financial assets and liabilities are measured and reported at fair value on a recurring basis as required under applicable accounting requirements.  These requirements establish a hierarchy for inputs used in measuring fair value.  The fair value is to be calculated based on assumptions that market participants would use in pricing assets and liabilities and not on assumptions specific to the entity.  The statement requires that each asset and liability carried at fair value be classified into one of the following categories: 
 
 
 
Level 1.  Observable inputs such as quoted prices in active markets;
 
 
Level 2.  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 
 
Level 3.  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
Assets and liabilities measured at fair value are based on one or more of three valuation techniques as follows: 
 
(a)  
Market Approach.  Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. 
(b)  
Cost Approach.  Amount that would be required to replace the service capacity of an asset (replacement cost). 
(c)  
Income Approach.  Techniques to convert expected future cash flows to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models). 
 
 
The following table provides additional information related to other financial instruments measured at fair value on a recurring basis at March 31, 2013 (in thousands): 
 
   
Level 1
   
Level 2 (1)
   
Level 3
   
Total
 
Valuation Technique
Liabilities:
                         
Fair value of long-term debt (2)
    681,558       117,597             799,155  
(a)
Foreign currency forwards
          11,958             11,958  
(c)
Total liability
  $ 681,558     $ 129,555     $     $ 811,113    
 
  (1)
Unless otherwise indicated, the fair value of our Level 2 derivative instruments reflects our best estimate and is based upon exchange or over-the-counter quotations whenever they are available.  Quoted valuations may not be available due to location differences or terms that extend beyond the period for which quotations are available.  Where quotes are not available, we utilize other valuation techniques or models to estimate market values.  These modeling techniques require us to make estimations of future prices, price correlation and market volatility and liquidity based on market data.  Our actual results may differ from our estimates, and these differences could be positive or negative. 
 
  (2)
See Note 7 for additional information regarding our long-term debt.  The fair value of our debt is as follows: 
 
   
March 31, 2013
 
   
Carrying Value
   
Fair Value
 
             
Term Loan (mature July 2015) (a)
  $ 72,299     $ 73,022  
Revolving Credit Facility (matures July 2015) (a)
    78,100       78,100  
2032 Notes (mature March 2032) (b)
    200,000       246,540  
Senior Unsecured Notes (mature January 2016)
    274,960       283,896  
MARAD Debt (matures February 2027) (c)
    102,759       117,597  
Total debt
  $ 728,118     $ 799,155  
 
  (a)
In February 2013, we repaid $293.9 million of our Term Loans and $24.5 million under our Revolving Credit Facility with the after-tax proceeds from the sale of ERT. 
  (b)
Carrying value excludes the related unamortized debt discount of $30.4 million at March 31, 2013. 
  (c)
The estimated fair value of all debt, other than the MARAD debt, was determined using Level 1 inputs using the market approach.  The fair value of the MARAD debt was determined using a third party evaluation of the remaining average life and outstanding principal balance of the MARAD indebtedness as compared to other governmental obligations in the marketplace with similar terms.  The fair value of the MARAD Debt was estimated using Level 2 fair value inputs using the market approach.
 
Note 16 — Derivative Instruments and Hedging Activities
 
Our continuing operations are exposed to market risk associated with interest rates and foreign currency exchange rates.  Our risk management activities involve the use of derivative financial instruments to hedge the impact of market risk exposure related to variable interest rates and foreign currency exchange rates.  All derivatives are reflected in the accompanying condensed consolidated balance sheets at fair value, unless otherwise noted.
 
We engage solely in cash flow hedges.  Hedges of cash flow exposure are entered into to hedge a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.  Changes in the derivative fair values that are designated as cash flow hedges are deferred to the extent that the hedges are effective.  These fair value changes are recorded as a component of accumulated other comprehensive income or loss (a component of shareholders’ equity) until the hedged transactions occur and are recognized in earnings.  The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in earnings.  In addition, any change in the fair value of a derivative that does not qualify for hedge accounting is recorded in earnings in the period in which the change occurs.
 
 
For additional information regarding our accounting for derivatives, see Notes 2 and 17 of our 2012 Form 10-K. 
 
Interest Rate Risk
 
As some of our long-term debt has variable interest rates, we historically entered into interest rate swaps to stabilize cash flows related to a portion of our Term Loan debt.  We de-designated all of our outstanding interest rate swaps as hedging instruments in December 2012 following the announcement of the sale of ERT.  We cash settled all outstanding interest rate swap contracts in February 2013. 
 
Foreign Currency Exchange Rate Risk
 
Because we operate in various regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar.  We entered into various foreign currency forwards to stabilize expected cash outflows relating to certain vessel charters that are denominated in British pounds and Norwegian kroner.
 
In January 2013, we entered into foreign currency exchange contracts to hedge the foreign currency exposure to potential variability in cash flows associated with the Grand Canyon charter payments ($104.6 million) denominated in Norwegian kroner (NOK591.3 million), through September 2017.  In February 2013, we entered into similar foreign currency exchange contracts for the Grand Canyon II and Grand Canyon III charter payments ($100.4 million and $98.8 million) denominated in Norwegian kroner (NOK594.7 million and NOK595.0 million), through July 2019 and February 2020, respectively.  These contracts currently qualify for hedge accounting treatment.  All of our remaining foreign exchange contracts are not accounted for as hedge contracts and changes in their fair value are being marked-to-market each reporting period.
 
Quantitative Disclosures Related to Derivative Instruments 
 
As a result of the announcement in December 2012 of the sale of ERT, we de-designated all of our outstanding oil and natural gas derivative contracts as hedging instruments.  In addition, under the terms of our Credit Agreement (Note 7), we are required to use at a minimum 60% of the after-tax proceeds from the sales of the Caesar, the Express and ERT to make payments to reduce our Term Loan debt and borrowings under the Revolving Credit Facility.  Because of the probability that the Term Loan debt would be totally repaid before the expiration of our interest rate swaps, we also concluded that the swaps no longer qualified as cash flow hedges.  In February 2013, we settled all of our outstanding commodity derivative contracts and interest rate swap contracts for approximately $22.5 million and $0.6 million, respectively.
 
The following table presents the fair value and balance sheet classification of our derivative instruments that were not designated as hedging instruments (in thousands): 
 
 
As of March 31, 2013
 
As of December 31, 2012
 
 
Balance Sheet
 
Fair
 
Balance Sheet
 
Fair
 
 
Location
 
Value
 
Location
 
Value
 
Asset Derivatives:
               
Oil contracts
Other current assets
  $  
Other current assets
  $ 5,800  
Foreign exchange forwards
Other current assets
     
Other current assets
    146  
      $       $ 5,946  
                     
Liability Derivatives:
                   
Oil contracts
Accrued liabilities
  $  
Accrued liabilities
  $ 15,777  
Interest rate swaps
Accrued liabilities
     
Accrued liabilities
    489  
Foreign exchange forwards
Accrued liabilities
    821  
Accrued liabilities
     
Interest rate swaps
Other long-term liabilities
     
Other long-term liabilities
    32  
Foreign exchange forwards
Other long-term liabilities
    2   Other long-term liabilities      
      $ 823       $ 16,298  
 
 
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