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  • 10-Q (Oct 24, 2017)
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  • 10-Q (Oct 21, 2016)
  • 10-Q (Jul 22, 2016)
  • 10-Q (Apr 22, 2016)

 
8-K

 
Other

Helix Energy Solutions 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Graphic
  6. Graphic
Document

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
þ
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2016
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
logo.jpg
 
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.)
  
 
 
3505 West Sam Houston Parkway North 
Suite 400 
Houston, Texas
(Address of principal executive offices)
 
 
77043
(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. þ 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). þ 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 þ
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 þ No
As of October 19, 2016, 120,551,780 shares of common stock were outstanding.
 



TABLE OF CONTENTS
PART I.
 
FINANCIAL INFORMATION
PAGE
 
 
 
 
Item 1.
 
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
482,106

 
$
494,192

Accounts receivable:
 
 
 
Trade, net of allowance for uncollectible accounts of $115 and $350, respectively
75,995

 
76,287

Unbilled revenue and other
41,570

 
20,465

Current deferred tax assets
15,706

 
53,573

Income tax receivable
9,569

 

Other current assets
54,064

 
39,518

Total current assets
679,010

 
684,035

Property and equipment
2,655,343

 
2,544,857

Less accumulated depreciation
(1,005,859
)
 
(941,848
)
Property and equipment, net
1,649,484

 
1,603,009

Other assets:
 
 
 
Equity investments

 
26,200

Goodwill
45,107

 
45,107

Other assets, net
57,945

 
41,608

Total assets
$
2,431,546

 
$
2,399,959

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
127,733

 
$
65,370

Accrued liabilities
69,904

 
71,641

Income tax payable

 
2,261

Current maturities of long-term debt
70,905

 
71,640

Total current liabilities
268,542

 
210,912

Long-term debt
607,502

 
677,695

Deferred tax liabilities
173,901

 
180,974

Other non-current liabilities
44,425

 
51,415

Total liabilities
1,094,370

 
1,120,996

Commitments and contingencies


 


Shareholders equity:
 
 
 
Common stock, no par, 240,000 shares authorized, 120,540 and 106,289 shares issued, respectively
1,045,483

 
945,565

Retained earnings
377,267

 
404,299

Accumulated other comprehensive loss
(85,574
)
 
(70,901
)
Total shareholders equity
1,337,176

 
1,278,963

Total liabilities and shareholders equity
$
2,431,546

 
$
2,399,959

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

3



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts) 
 
Three Months Ended
September 30,
 
2016
 
2015
 
 
 
 
Net revenues
$
161,245

 
$
182,462

Cost of sales
121,061

 
150,493

Gross profit
40,184

 
31,969

Selling, general and administrative expenses
(18,714
)
 
(13,597
)
Income from operations
21,470

 
18,372

Equity in losses of investments
(122
)
 
(251
)
Net interest expense
(6,843
)
 
(8,713
)
Gain on repurchase of long-term debt
244

 

Other income (expense), net
830

 
(5
)
Other income (expense) – oil and gas
(468
)
 
571

Income before income taxes
15,111

 
9,974

Income tax provision
3,649

 
94

Net income
$
11,462

 
$
9,880

 
 
 
 
Earnings per share of common stock:
 
 
 
Basic
$
0.10

 
$
0.09

Diluted
$
0.10

 
$
0.09

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
113,680

 
105,438

Diluted
113,680

 
105,438

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

4



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts) 
 
Nine Months Ended
September 30,
 
2016
 
2015
 
 
 
 
Net revenues
$
359,551

 
$
538,119

Cost of sales
330,639

 
446,995

Gross profit
28,912

 
91,124

Selling, general and administrative expenses
(47,493
)
 
(42,750
)
Income (loss) from operations
(18,581
)
 
48,374

Equity in losses of investments
(366
)
 
(553
)
Net interest expense
(25,007
)
 
(18,018
)
Gain on repurchase of long-term debt
546

 

Other income (expense), net
4,018

 
(6,197
)
Other income – oil and gas
2,500

 
4,396

Income (loss) before income taxes
(36,890
)
 
28,002

Income tax provision (benefit)
(9,858
)
 
1,115

Net income (loss)
$
(27,032
)
 
$
26,887

 
 
 
 
Earnings (loss) per share of common stock:
 
 
 
Basic
$
(0.25
)
 
$
0.25

Diluted
$
(0.25
)
 
$
0.25

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
109,135

 
105,362

Diluted
109,135

 
105,362

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

5



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
 
Three Months Ended
September 30,
 
2016
 
2015
 
 
 
 
Net income
$
11,462

 
$
9,880

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gain (loss) on hedges arising during the period
4,418

 
(14,779
)
Reclassification adjustments for loss included in net loss
3,157

 
4,255

Income taxes on unrealized (gain) loss on hedges
(2,683
)
 
3,772

Unrealized gain (loss) on hedges, net of tax
4,892

 
(6,752
)
Foreign currency translation loss
(3,611
)
 
(10,383
)
Other comprehensive income (loss), net of tax
1,281

 
(17,135
)
Comprehensive income (loss)
$
12,743

 
$
(7,255
)

 
Nine Months Ended
September 30,
 
2016
 
2015
 
 
 
 
Net income (loss)
$
(27,032
)
 
$
26,887

Other comprehensive loss, net of tax:
 
 
 
Unrealized gain (loss) on hedges arising during the period
5,450

 
(23,144
)
Reclassification adjustments for loss on hedges included in net income (loss)
9,651

 
9,186

Income taxes on unrealized (gain) loss on hedges
(5,236
)
 
4,974

Unrealized gain (loss) on hedges, net of tax
9,865

 
(8,984
)
Foreign currency translation loss arising during the period
(24,827
)
 
(8,363
)
Reclassification adjustment for translation loss realized upon liquidation
289

 

Foreign currency translation loss
(24,538
)
 
(8,363
)
Other comprehensive loss, net of tax
(14,673
)
 
(17,347
)
Comprehensive income (loss)
$
(41,705
)
 
$
9,540

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

6



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) 
 
Nine Months Ended
September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(27,032
)
 
$
26,887

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
84,846

 
86,333

Amortization of debt issuance costs
6,430

 
4,117

Share-based compensation
4,351

 
7,941

Amortization of debt discount
4,655

 
4,409

Deferred income taxes
(6,726
)
 
(2,403
)
Equity in losses of investments
366

 

Gain on repurchase of long-term debt
(546
)
 

Unrealized (gain) loss and ineffectiveness on derivative contracts, net
(9,282
)
 
2,222

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(27,346
)
 
(13,326
)
Other current assets
(10,853
)
 
6,610

Income tax receivable, net of income tax payable
20,576

 
(12,152
)
Accounts payable and accrued liabilities
(1,794
)
 
(52,045
)
Other non-current, net
(22,201
)
 
(19,164
)
Net cash provided by operating activities
15,444

 
39,429

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(79,353
)
 
(280,523
)
Distributions from equity investments, net of earnings
1,200

 
5,853

Proceeds from sale of equity investment
25,000

 

Proceeds from sale of assets
10,887

 
7,500

Net cash used in investing activities
(42,266
)
 
(267,170
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from Nordea Q5000 Loan

 
250,000

Repayment of Nordea Q5000 Loan
(26,786
)
 
(8,929
)
Repayment of Term Loan
(30,500
)
 
(15,000
)
Repayment of MARAD Debt
(5,926
)
 
(5,644
)
Repurchase of Convertible Senior Notes due 2032
(13,400
)
 

Debt issuance costs
(1,230
)
 
(1,611
)
Net proceeds from issuance of common stock
94,538

 

Repurchase of common stock
(187
)
 
(1,056
)
Proceeds from issuance of ESPP shares
708

 
3,484

Net cash provided by financing activities
17,217

 
221,244

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(2,481
)
 
(1,059
)
Net decrease in cash and cash equivalents
(12,086
)
 
(7,556
)
Cash and cash equivalents:
 
 
 
Balance, beginning of year
494,192

 
476,492

Balance, end of period
$
482,106

 
$
468,936

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

7



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Basis of Presentation and New Accounting Standards
 
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix” or the “Company”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”), and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
 
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and are consistent in all material respects with those applied in our 2015 Annual Report on Form 10-K (“2015 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. We have made all adjustments (which were normal recurring adjustments) that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income (loss), and statements of cash flows, as applicable. The operating results for the three- and nine-month periods ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Our balance sheet as of December 31, 2015 included herein has been derived from the audited balance sheet as of December 31, 2015 included in our 2015 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 2015 Form 10-K.
 
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
 
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU provides a single five-step approach to account for revenue arising from contracts with customers. The ASU requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This revenue standard was originally effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 by one year to annual reporting periods beginning after December 15, 2017. Adoption as of the original effective date is permitted. In March 2016, the FASB issued ASU No. 2016-08, which amends the guidance to clarify the implementation guidance on principal versus agent considerations (gross versus net revenue presentation). In April 2016, the FASB issued ASU No. 2016-10, which amends the guidance with respect to certain implementation issues on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, which provides certain narrow-scope improvements and practical expedients to the guidance. The new revenue standard permits companies to either apply the requirements retrospectively to all prior periods presented or apply the requirements in the year of adoption through a cumulative adjustment. We are currently evaluating our existing revenue recognition policies to determine the types of contracts that are within the scope of this guidance and the impact the adoption of this standard may have on our consolidated financial statements. We have not yet determined if we will apply the full retrospective or the modified retrospective method.
 

8



In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires that debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” This ASU includes an SEC staff announcement that the SEC staff will not object to an entity presenting the cost of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding. The subject of this ASU was not previously addressed by ASU No. 2015-03. We adopted this guidance retrospectively in the first quarter of 2016. As a result, we presented $12.0 million of unamortized debt issuance costs that had been included in “Other assets, net” in our consolidated balance sheet as of December 31, 2015 as direct deductions from the carrying amounts of the related debt liabilities.
 
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This ASU requires companies to classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance. The guidance is effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is permitted. This guidance will not affect our statements of operations or statements of cash flows.
 
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU amends the existing accounting standards for leases. The amendments are intended to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods. Early adoption is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We are currently evaluating the impact these amendments will have on our consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is permitted. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
 
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU replaces the current incurred loss model for measurement of credit losses on financial assets including trade receivables with a forward-looking expected loss model based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
 
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing the existing diversity in practice. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods. Early adoption is permitted. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. We do not expect this guidance to have a material impact on our statements of cash flows.

9



Note 2 — Company Overview
 
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We seek to provide services and methodologies that we believe are critical to maximizing production economics. We provide services primarily in deepwater in the U.S. Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, and are expanding our operations offshore Brazil. Our “life of field” services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities (Note 11).
 
Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the U.S. Gulf of Mexico and North Sea regions. Our Well Intervention segment also includes intervention riser systems (“IRSs”), some of which we rent out on a stand-alone basis, and subsea intervention lubricators (“SILs”). Our well intervention vessels include the Q4000, the Q5000, the Well Enhancer, the Seawell, the Helix 534 and the Skandi Constructor, which is a chartered vessel. The Q5000 vessel went on contracted rates on May 19, 2016 under our five-year contract with BP; we have been notified by BP that they will not take more than the minimum 270 contracted days in 2017. We currently have another semi-submersible well intervention vessel under construction, the Q7000. We are chartering the Siem Helix 1 and have contracted to charter the Siem Helix 2. These two newbuild monohull vessels are to be used in connection with our contracts to provide well intervention services offshore Brazil.
 
Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and ROVDrills designed to complement offshore construction and well intervention services, and currently operates three chartered ROV support vessels following the expiration of the Rem Installer charter on July 12, 2016. Another chartered ROV support vessel, the Grand Canyon III, was delivered by the shipyard to the vessel owner in May 2016. The vessel is currently stacked by the owner and is expected to be in service for us in May 2017.
 
Our Production Facilities segment includes the Helix Producer I vessel (“HP I”), a ship-shaped dynamic positioning floating production unit, and the Helix Fast Response System (“HFRS”), which provides certain operators access to our Q4000 and HP I vessels in the event of a well control incident in the Gulf of Mexico. The HP I was previously contracted to process production from the Phoenix field until at least December 31, 2017, and in July 2016 we entered into a new fixed fee agreement for the HP I with the same operator, effective June 1, 2016, for service to the Phoenix field until at least June 1, 2023. The Production Facilities segment also includes our ownership interest in Independence Hub, LLC (“Independence Hub”) and included our former ownership interest in Deepwater Gateway, L.L.C. (“Deepwater Gateway”) that we sold for $25 million in February 2016 (Note 5).
 
In January 2016, we sold our office and warehouse property located in Aberdeen, Scotland for approximately $11 million and entered into a separate agreement with the same party to lease back the facility for a minimum lease term of 15 years with two five-year options to extend the lease at our option. A gain of approximately $7.6 million from the sale of this property is deferred and will be amortized over the 15-year minimum lease term.

10



Note 3 — Details of Certain Accounts
 
Other current assets consist of the following (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Note receivable (1)
$
10,000

 
$
10,000

Other receivables
5,288

 

Prepaid insurance
6,462

 
5,433

Other prepaids
9,898

 
10,142

Deferred costs
8,891

 
609

Spare parts inventory
4,401

 
4,985

Value added tax receivable
8,995

 
7,842

Other
129

 
507

Total other current assets
$
54,064

 
$
39,518

(1)
Relates to the balance of the promissory note we received in connection with the sale of our former Ingleside spoolbase in January 2014. Interest on the note is payable quarterly at a rate of 6% per annum. Under the terms of the note, the remaining $10 million principal balance is required to be paid on December 31, 2016.
 
Other assets, net consist of the following (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Note receivable, net (1)
$
4,330

 
$

Deferred dry dock costs, net
13,854

 
19,615

Deferred costs
21,829

 

Deferred financing costs, net (2)
4,238

 
7,863

Charter fee deposit (Note 12)
12,544

 
12,544

Other
1,150

 
1,586

Total other assets, net
$
57,945

 
$
41,608

(1)
Amount, net of allowance of $2.7 million, relates to an agreement we entered into with one of our customers to defer their payment obligations until June 30, 2018. Interest at a rate of 3% per annum is payable semi-annually.
(2)
Represents unamortized debt issuance costs related to our Revolving Credit Facility (Note 6).
 
Accrued liabilities consist of the following (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Accrued payroll and related benefits
$
20,660

 
$
14,775

Deferred revenue
12,789

 
12,841

Accrued interest
969

 
4,854

Derivative liability (Note 14)
17,721

 
23,192

Taxes payable excluding income tax payable
9,018

 
8,136

Other
8,747

 
7,843

Total accrued liabilities
$
69,904

 
$
71,641

 

11



Other non-current liabilities consist of the following (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Loss in excess of equity investment (Note 5)
$
8,437

 
$
8,308

Deferred gain on sale of property (Note 2)
6,190

 

Deferred revenue
5,926

 

Derivative liability (Note 14)
20,383

 
39,709

Other
3,489

 
3,398

Total other non-current liabilities
$
44,425

 
$
51,415

Note 4 — 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): 
 
Nine Months Ended
September 30,
 
2016
 
2015
 
 
 
 
Interest paid, net of interest capitalized
$
17,970

 
$
11,823

Income taxes paid
$
4,674

 
$
16,008

 
Our non-cash investing activities include property and equipment capital expenditures that are incurred but not yet paid. These non-cash capital expenditures totaled $88.0 million as of September 30, 2016 and $18.7 million as of December 31, 2015. The non-cash capital expenditures as of September 30, 2016 included a $69.2 million shipyard invoice for the Q7000 that was paid in October 2016 (Note 12).
Note 5 — Equity Investments
 
We have a 20% ownership interest in Independence Hub, LLC (“Independence Hub”) that we account for using the equity method of accounting. We previously had a 50% ownership interest in Deepwater Gateway, L.L.C., which we sold in February 2016 to a subsidiary of Genesis Energy, L.P., the other owner, for $25 million with no resulting gain or loss. Both equity investments are included in our Production Facilities segment.
 
Independence Hub owns the “Independence Hub” platform located in Mississippi Canyon Block 920 in a water depth of 8,000 feet. Our share of the losses reported by Independence Hub exceeded the carrying amount of our investment by $8.4 million as of September 30, 2016 and $8.3 million at December 31, 2015 reflecting our share of Independence Hub’s obligations (primarily its estimated asset retirement obligations to decommission the platform), net of remaining working capital. This liability is reflected in “Other non-current liabilities” in the accompanying condensed consolidated balance sheets.
 
We received the following distributions from our equity method investments (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Deepwater Gateway
$

 
$
1,200

 
$
1,200

 
$
3,900

Independence Hub

 
560

 

 
1,400

Total
$

 
$
1,760

 
$
1,200

 
$
5,300


12



Note 6 — Long-Term Debt
 
Scheduled maturities of our long-term debt outstanding as of September 30, 2016 are as follows (in thousands):
 
Term
Loan
 
2032
Notes (1)
 
MARAD
Debt
 
Nordea
Q5000 Loan
 
Total
 
 
 
 
 
 
 
 
 
 
Less than one year
$
28,968

 
$

 
$
6,222

 
$
35,715

 
$
70,905

One to two years
195,532

 

 
6,532

 
35,714

 
237,778

Two to three years

 

 
6,858

 
35,714

 
42,572

Three to four years

 

 
7,200

 
98,214

 
105,414

Four to five years

 

 
7,560

 

 
7,560

Over five years

 
185,116

 
48,850

 

 
233,966

Total debt
224,500

 
185,116

 
83,222

 
205,357

 
698,195

Current maturities
(28,968
)
 

 
(6,222
)
 
(35,715
)
 
(70,905
)
Long-term debt, less current maturities
195,532

 
185,116

 
77,000

 
169,642

 
627,290

Unamortized debt discount (2)

 
(9,448
)
 

 

 
(9,448
)
Unamortized debt issuance costs (3)
(1,623
)
 
(853
)
 
(5,123
)
 
(2,741
)
 
(10,340
)
Long-term debt
$
193,909

 
$
174,815

 
$
71,877

 
$
166,901

 
$
607,502

(1)
Beginning in March 2018, the holders of our Convertible Senior Notes due 2032 may require us to repurchase these notes or we may at our option elect to repurchase these notes. The notes will mature in March 2032.
(2)
Our Convertible Senior Notes due 2032 will increase to their face amount through accretion of non-cash interest charges through March 2018.
(3)
Debt issuance costs are amortized over the life of the applicable debt agreement.
 
Below is a summary of certain components of our indebtedness:
 
Credit Agreement
 
In June 2013, we entered into a credit agreement (the “Credit Agreement”) with a group of lenders pursuant to which we borrowed $300 million under a term loan (the “Term Loan”) and, subject to the terms of the Credit Agreement, may borrow additional amounts (the “Revolving Loans”) and/or obtain letters of credit under a revolving credit facility (the “Revolving Credit Facility”) up to $600 million (reduced to $400 million by the February 2016 amendment to the Credit Agreement, as described below). Pursuant to our Credit Agreement, subject to existing lender participation and/or the participation of new lenders, and subject to standard conditions precedent, we may obtain an increase of up to $200 million in aggregate commitments with respect to the Revolving Credit Facility, additional term loans or a combination thereof. At September 30, 2016, we had no borrowings under the Revolving Credit Facility and our available borrowing capacity under that facility, based on the leverage ratio covenant, totaled $16.7 million, net of $5.1 million of letters of credit issued.
 
The Term Loan and the Revolving Loans (together, the “Loans”) bear interest, at our election, in relation to either the base rate established by Bank of America N.A. or to a LIBOR rate, provided that all Swing Line Loans (as defined in the Credit Agreement) will be base rate loans.
 

13



The Loans or portions thereof bearing interest at the base rate currently bear interest at a per annum rate equal to the base rate plus a margin ranging from 1.00% to 3.00%. The Loans or portions thereof bearing interest at a LIBOR rate currently bear interest at the LIBOR rate selected by us plus a margin ranging from 2.00% to 4.00%. A letter of credit fee is payable by us equal to our applicable margin for LIBOR rate Loans multiplied by the daily amount available to be drawn under outstanding letters of credit. Margins on the Loans vary in relation to the consolidated coverage ratio, as provided by the Credit Agreement. We also pay a fixed commitment fee of 0.50% on the unused portion of our Revolving Credit Facility. The Term Loan currently bears interest at the one-month LIBOR rate plus 4.00%. In September 2013, we entered into various interest rate swap contracts to fix the one-month LIBOR rate on a portion of our borrowings under the Term Loan (Note 14). The total notional amount of the swaps (initially $148.1 million) decreases in proportion to the reduction in the principal amount outstanding under our Term Loan. The fixed LIBOR rates are approximately 75 basis points.
 
The Term Loan is repayable in scheduled principal installments (currently 10% or $30 million per year), payable quarterly, with a balloon payment of $180 million at maturity. These installment amounts are subject to adjustment for any prepayments on the Term Loan. We may elect to prepay amounts outstanding under the Term Loan without premium or penalty, but may not reborrow any amounts prepaid. In September 2016, we elected to prepay $8.0 million of the Term Loan. We may also prepay amounts outstanding under the Revolving Loans without premium or penalty, and may reborrow any amounts paid up to the amount of the Revolving Credit Facility. The Loans mature on June 19, 2018.
 
The Credit Agreement and the other documents entered into in connection with the Credit Agreement (together, the “Loan Documents”) include terms and conditions, including covenants and prepayment requirements, that we consider customary for this type of transaction. The covenants include restrictions on our and our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and incur capital expenditures. In addition, the Credit Agreement obligates us to meet certain financial ratios, including the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio (as defined in the Credit Agreement).
 
In January 2016, we amended the Credit Agreement to permit the sale and lease back of certain office and warehouse property located in Aberdeen, Scotland. In February 2016, we amended the Credit Agreement to decrease the lenders’ commitment under the Revolving Credit Facility from $600 million to $400 million. As a result, we recorded a $2.5 million interest charge to accelerate the amortization of debt issuance costs in proportion to the reduced commitment.
 
Also pursuant to the February 2016 amendment to the Credit Agreement:
 
(a)
The minimum permitted Consolidated Interest Coverage Ratio was revised as follows:
Four Fiscal Quarters Ending
Minimum Consolidated
Interest Coverage Ratio
 
 
 
March 31, 2016 through and including September 30, 2016
2.50

to 1.00
December 31, 2016 through and including March 31, 2017
2.75

to 1.00
June 30, 2017 and each fiscal quarter thereafter
3.00

to 1.00
 
(b)
The maximum permitted Consolidated Leverage Ratio was revised as follows:
Four Fiscal Quarters Ending
Maximum Consolidated
Leverage Ratio
 
 
 
September 30, 2016 through and including December 31, 2016
5.00

to 1.00
March 31, 2017
4.75

to 1.00
June 30, 2017
4.25

to 1.00
September 30, 2017
3.75

to 1.00
December 31, 2017 and each fiscal quarter thereafter
3.50

to 1.00
 

14



(c)
A new financial covenant was established requiring us to maintain a minimum cash balance if our Consolidated Leverage Ratio is 3.50x or greater, as described below. This minimum cash balance is not required to be maintained in any particular bank account or to be segregated from other cash balances in bank accounts that we use in our ordinary course of business. Because the use of this cash is not legally restricted notwithstanding this maintenance covenant, we present it as cash and cash equivalents on our balance sheet. As of September 30, 2016, we needed to maintain an aggregate cash balance of at least $150 million in order to comply with this covenant.
Consolidated Leverage Ratio
Minimum Cash
 
 
Greater than or equal to 4.50x
$150,000,000.00
Greater than or equal to 4.00x but less than 4.50x
$100,000,000.00
Greater than or equal to 3.50x but less than 4.00x
$50,000,000.00
Less than 3.50x
$0.00
 
We have designated five of our foreign subsidiaries, and may designate any newly established foreign subsidiaries, as subsidiaries that are not generally subject to the Credit Agreement’s covenants (the “Unrestricted Subsidiaries”), provided we meet certain liquidity requirements, in which case EBITDA (net of cash distributions to the parent) of the Unrestricted Subsidiaries is not included in the calculations with respect to our financial covenants. Our obligations under the Credit Agreement are guaranteed by our wholly owned domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, a wholly owned Scottish subsidiary. Our obligations under the Credit Agreement, and of the guarantors under their guaranty, are secured by most of our assets of the parent and our wholly owned domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited, plus pledges of up to two-thirds of the shares of certain foreign subsidiaries.
 
Convertible Senior Notes Due 2032 
 
In March 2012, we completed a public offering and sale of Convertible Senior Notes in the aggregate principal amount of $200 million due 2032 (the “2032 Notes”). The 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 mature on March 15, 2032 unless earlier converted, redeemed or repurchased. 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 (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. We have the right and the intention to settle any such future conversions in cash.
 
Prior to March 20, 2018, the 2032 Notes are not redeemable. On or after March 20, 2018, we, at our option, may 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. In addition, the holders of the 2032 Notes 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 (either a Change of Control or a Termination of Trading, as those terms are defined in the Indenture governing the 2032 Notes).
 

15



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 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. We recorded $22.5 million related to the carrying amount of the equity component of the 2032 Notes. The remaining unamortized amount of the debt discount of the 2032 Notes was $9.4 million at September 30, 2016 and $15.0 million at December 31, 2015.
 
In June 2016, we repurchased $7.3 million in aggregate principal amount of the 2032 Notes for $6.5 million. In July 2016, we repurchased an additional $7.6 million in aggregate principal amount of the 2032 Notes for $7.0 million including $0.1 million in accrued interest. The purchase price reflects the market price of the notes at the time of purchase. For the three- and nine-month periods ended September 30, 2016, we recognized gains of $0.2 million and $0.5 million, respectively, which are presented as “Gain on repurchase of long-term debt” in the accompanying consolidated statements of operations. Included in the gains were charges totaling $0.5 million and $1.0 million, respectively, for the acceleration of a pro rata portion of unamortized debt discount and debt issuance costs related to the 2032 Notes.
 
MARAD Debt
 
This U.S. government guaranteed financing (the “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 in February 2027. The MARAD Debt is collateralized by the Q4000, is guaranteed 50% by us, and initially bore interest at a floating rate that approximated AAA Commercial Paper yields plus 20 basis points. As required by 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.
 
Nordea Credit Agreement
 
In September 2014, a wholly owned subsidiary incorporated in Luxembourg, Helix Q5000 Holdings S.à r.l. (“Q5000 Holdings”), entered into a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) in an amount of up to $250 million. The Nordea Q5000 Loan was funded in the amount of $250 million in April 2015 at the time the Q5000 vessel was delivered to us. The parent company of Q5000 Holdings, Helix Vessel Finance S.à r.l., also a wholly owned Luxembourg subsidiary, guaranteed the Nordea Q5000 Loan. The loan is secured by the Q5000 and its charter earnings as well as by a pledge of the shares of Q5000 Holdings. This indebtedness is non-recourse to Helix.
 
The Nordea Q5000 Loan bears interest at a LIBOR rate plus a margin of 2.5%. The Nordea Q5000 Loan matures on April 30, 2020 and is repayable in scheduled quarterly principal installments of $8.9 million with a balloon payment of $80.4 million at maturity. Q5000 Holdings may elect to prepay amounts outstanding under the Nordea Q5000 Loan without premium or penalty, but may not reborrow any amounts prepaid. Installment amounts are subject to adjustment for any prepayments on this debt. In June 2015, we entered into various interest rate swap contracts to fix the one-month LIBOR rate on a portion of our borrowings under the Nordea Q5000 Loan (Note 14). The total notional amount of the swaps (initially $187.5 million) decreases in proportion to the reduction in the principal amount outstanding under our Nordea Q5000 Loan. The fixed LIBOR rates are approximately 150 basis points.
 
The Nordea Credit Agreement and related loan documents include terms and conditions, including covenants and prepayment requirements, that are considered customary for this type of transaction. The covenants include restrictions on Q5000 Holdings’s ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, and pay dividends. In addition, the Nordea Credit Agreement obligates Q5000 Holdings to meet certain minimum financial requirements, including liquidity, consolidated debt service coverage and collateral maintenance.
 

16



Other 
 
In accordance with our Credit Agreement, the 2032 Notes, the MARAD Debt agreements, and the Nordea Credit Agreement, we are required to comply with certain covenants, including certain financial ratios such as a consolidated interest coverage ratio and a consolidated leverage ratio, as well as the maintenance of minimum net worth, working capital and debt-to-equity requirements. As of September 30, 2016, we were in compliance with these covenants.
 
The following table details the components of our net interest expense (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Interest expense
$
10,745

 
$
10,897

 
$
34,224

 
$
29,057

Interest income
(833
)
 
(470
)
 
(1,713
)
 
(1,577
)
Capitalized interest
(3,069
)
 
(1,714
)
 
(7,504
)
 
(9,462
)
Net interest expense
$
6,843

 
$
8,713

 
$
25,007

 
$
18,018

Note 7 — Income Taxes
 
Our estimated annual effective tax rate, adjusted for discrete tax items, is applied to interim periods’ pretax earnings. We believe that our recorded deferred tax 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.
 
The effective tax rates for the three- and nine-month periods ended September 30, 2016 were 24.1% and 26.7%, respectively. The effective tax rates for the three- and nine-month periods ended September 30, 2015 were 0.9% and 4.0%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions.
 
Income taxes are provided based on the U.S. statutory rate of 35% and at the local statutory rate for each foreign jurisdiction adjusted for items that are allowed as deductions for federal and foreign income tax reporting purposes, but not for book purposes. The primary differences between the U.S. statutory rate and our effective rate are as follows: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
U.S. statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
Foreign provision
(10.8
)
 
(35.3
)
 
(8.8
)
 
(32.9
)
Other
(0.1
)
 
1.2

 
0.5

 
1.9

Effective rate
24.1
 %
 
0.9
 %
 
26.7
 %
 
4.0
 %

17



Note 8 — Shareholders’ Equity
 
On April 25, 2016, we launched an at-the-market (“ATM”) equity offering program and executed an Equity Distribution Agreement with Wells Fargo Securities, LLC (“Wells Fargo”) to sell up to $50 million of our common stock through Wells Fargo. As of September 30, 2016, we had sold a total of 6,309,355 shares of our common stock under this ATM program for $50 million, or an average of $7.92 per share. The proceeds from the ATM program totaled $47.7 million, net of transaction costs, including commissions of $1.3 million to Wells Fargo.
 
On August 11, 2016, we executed another Equity Distribution Agreement with Wells Fargo to sell an additional $50 million of our common stock under an ATM program. As of September 30, 2016, we had sold a total of 6,709,377 shares of our common stock under this ATM program for $50 million, or an average of $7.45 per share. The proceeds from this ATM program totaled $48.8 million, net of transaction costs, including commissions of $1.0 million to Wells Fargo.
 
The components of Accumulated Other Comprehensive Income (Loss) (“OCI”) are as follows (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Cumulative foreign currency translation adjustment
$
(67,548
)
 
$
(43,010
)
Unrealized loss on hedges, net (1)
(18,026
)
 
(27,891
)
Accumulated other comprehensive loss
$
(85,574
)
 
$
(70,901
)
(1)
Amounts relate to foreign currency hedges for the Grand Canyon, Grand Canyon II and Grand Canyon III charters as well as interest rate swap contracts for the Term Loan and the Nordea Q5000 Loan, and are net of deferred income taxes totaling $9.8 million at September 30, 2016 and $15.1 million at December 31, 2015 (Note 14).
Note 9 — Earnings Per Share
 
We have shares of restricted stock issued and outstanding that currently are unvested. Holders of such shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our outstanding unrestricted common stock and the shares of restricted stock 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 required to compute earnings per share (“EPS”) amounts under the two class method in periods in which we have earnings. For periods in which we have a net loss we do not use the two class method as holders of our restricted shares are not 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 our common shareholders by the weighted average shares of our 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): 

18



 
Three Months Ended
September 30, 2016
 
Three Months Ended
September 30, 2015
 
Income
 
Shares
 
Income
 
Shares
Basic:
 
 
 
 
 
 
 
Net income
$
11,462

 
 
 
$
9,880

 
 
Less: Undistributed earnings allocated to participating securities
(160
)
 
 
 
(52
)
 
 
Undistributed earnings allocated to common shares
$
11,302

 
113,680

 
$
9,828

 
105,438

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Undistributed earnings allocated to common shares
$
11,302

 
113,680

 
$
9,828

 
105,438

Effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards other than participating securities

 

 

 

Undistributed earnings reallocated to participating securities

 

 

 

Net income
$
11,302

 
113,680

 
$
9,828

 
105,438

 
Nine Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2015
 
Income
 
Shares
 
Income
 
Shares
Basic:
 
 
 
 
 
 
 
Net income (loss)
$
(27,032
)
 
 
 
$
26,887

 
 
Less undistributed earnings allocated to participating securities

 
 
 
(149
)
 
 
Undistributed earnings (loss) allocated to common shares
$
(27,032
)
 
109,135

 
$
26,738

 
105,362

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Undistributed earnings (loss) allocated to common shares
$
(27,032
)
 
109,135

 
$
26,738

 
105,362

Effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards other than participating securities

 

 

 

Undistributed earnings reallocated to participating securities

 

 

 

Net income (loss)
$
(27,032
)
 
109,135

 
$
26,738

 
105,362

 
We had a net loss for the nine-month period ended September 30, 2016. Accordingly, our diluted EPS calculation for the nine-month period ended September 30, 2016 was equivalent to our basic EPS calculation since diluted EPS excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period. Shares that otherwise would have been included in the diluted per share calculation assuming we had earnings are as follows (in thousands): 
 
Nine Months Ended
 
September 30, 2016
 
 
Diluted shares (as reported)
109,135

Share-based awards
308

Total
109,443

 

19



In addition, the following potentially dilutive shares related to the 2032 Notes were excluded from the diluted EPS calculation because we have the right and the intention to settle any such future conversions in cash (Note 6) (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
2032 Notes
7,493

 
7,995

 
7,814

 
7,995

Note 10 — Employee Benefit Plans
 
Long-Term Incentive Stock-Based Plan 
 
As of September 30, 2016, there were 3.9 million shares of our common stock available for issuance under our active long-term incentive stock-based plan, the 2005 Long-Term Incentive Plan, as amended and restated (the “2005 Incentive Plan”). During the nine-month period ended September 30, 2016, the following grants of share-based awards were made under the 2005 Incentive Plan: 
Date of Grant
 
 
Shares
 
 
 
Grant Date
Fair Value
Per Share
 
 
Vesting Period
 
 
 
 
 
 
 
 
 
 
 
January 4, 2016 (1)
 
 
1,143,062

 
 
 
$
5.26

 
 
33% per year over three years
January 4, 2016 (2)
 
 
1,143,062

 
 
 
$
7.13

 
 
100% on January 1, 2019
January 4, 2016 (3)
 
 
11,763

 
 
 
$
5.26

 
 
100% on January 1, 2018
February 1, 2016 (1)
 
 
18,610

 
 
 
$
4.03

 
 
33% per year over three years
February 1, 2016 (2)
 
 
18,610

 
 
 
$
7.13

 
 
100% on January 1, 2019
April 1, 2016 (3)
 
 
13,727

 
 
 
$
5.60

 
 
100% on January 1, 2018
July 1, 2016 (3)
 
 
8,476

 
 
 
$
6.76

 
 
100% on January 1, 2018
(1)
Reflects the grant of restricted stock to our executive officers and select management employees.
(2)
Reflects the grant of performance share units (“PSUs”) to our executive officers and select management employees. The PSUs provide for an award based on the performance of our common stock over a three-year period with the maximum amount of the award being 200% of the original awarded PSUs and the minimum amount being zero. The vested PSUs may be settled in either cash or shares of our common stock at the discretion of the Compensation Committee of our Board of Directors (the “Board”).
(3)
Reflects the grant of restricted stock to certain members of our Board who have made an election to take their quarterly fees in stock in lieu of cash.
 
Compensation cost for restricted stock is the product of grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. For the three- and nine-month periods ended September 30, 2016, $1.4 million and $4.3 million, respectively, were recognized as share-based compensation related to restricted stock. For the three- and nine-month periods ended September 30, 2015, $1.5 million and $4.4 million, respectively, were recognized as share-based compensation related to restricted stock.
 

20



The estimated fair value of the PSUs is determined using a Monte Carlo simulation model. Compensation cost for PSUs that are accounted for as equity awards is measured based on the estimated grant date fair value and recognized over the vesting period on a straight-line basis. PSUs that are accounted for as liability awards are measured based on the estimated fair value at the balance sheet date and changes in fair value of the awards are recognized in earnings. Cumulative compensation cost for vested liability PSU awards equals the actual cash payout amount upon vesting. In January 2015, in connection with the vesting of the 2012 PSU awards, a decision was made by the Compensation Committee of our Board to settle these PSUs in cash (rather than with an equivalent number of shares of our common stock, which was the default payment method for the 2012 PSU awards). Accordingly, PSUs, including those that were previously accounted for as equity awards, are treated as liability awards. To the extent the recognized fair value of the modified liability awards is less than the compensation cost associated with the grant date fair value of the original equity awards at the end of a reporting period, the higher amount is recorded as share-based compensation. The amount of cumulative compensation expense recognized in excess of the fair value of the modified liability awards is recorded in equity. For the three- and nine-month periods ended September 30, 2016, $2.5 million and $5.3 million, respectively, were recognized as share-based compensation related to PSUs. For the three-month period ended September 30, 2015, $0.6 million was recognized as share-based compensation related to PSUs. For the nine-month period ended September 30, 2015, we recorded a net reduction of $0.3 million of previously recognized compensation cost to reflect the estimated fair value of unvested PSUs as of September 30, 2015. The equity balance at September 30, 2016 and December 31, 2015 included $3.0 million and $2.9 million, respectively, reflecting the cumulative compensation expense recognized in excess of the estimated fair value of the modified liability PSU awards at the respective balance sheet dates. The liability balance for unvested PSUs was $5.6 million at September 30, 2016 and $0.7 million at December 31, 2015. We paid $0.2 million in cash to settle the 2013 grant of PSUs when they vested in January 2016.
 
Long-Term Incentive Cash Plans 
 
We have certain long-term incentive cash plans (the “LTI Cash Plans”) that provide long-term cash-based compensation to eligible employees. Cash awards are indexed to our common stock with the payment amount at each vesting date, if any, determined by the performance of our common stock over the relevant performance period. Payout under these awards is calculated based on the ratio of the average stock price during the applicable measurement period over the original base price determined by the Compensation Committee of our Board at the time of the award. Cash awards vest equally each year over a three-year period and payments under these awards are made on each anniversary date of the award. The LTI Cash Plans are considered liability plans and as such are re-measured to fair value each reporting period with corresponding changes in the liability amount being reflected in our results of operations.
 
No long-term incentive cash awards were granted in 2015 or 2016. For the three- and nine-month periods ended September 30, 2015, we recorded reductions of $1.2 million and $3.7 million, respectively, of previously recognized compensation expense associated with the cash awards issued pursuant to the LTI Cash Plans, reflecting the effect that decreases in our stock price had on the value of our liability plan. The liability balance for the cash awards issued under the LTI Cash Plans was less than $0.1 million at December 31, 2015. We have reduced this liability balance down to zero at September 30, 2016 as we do not expect that these cash awards will meet the performance requirements for any payout.
 
Employee Stock Purchase Plan 
 
We also have an employee stock purchase plan (the “ESPP”). The ESPP has 1.5 million shares authorized for issuance, of which 0.7 million shares were available for issuance as of September 30, 2016. In February 2016, we suspended ESPP purchases for the January through April 2016 purchase period and indefinitely imposed a purchase limit of 130 shares per employee for subsequent purchase periods. Share-based compensation with respect to the ESPP was $0.1 million for the three- and nine-month periods ended September 30, 2016 and $0.3 million and $0.9 million, respectively, for the three- and nine-month periods ended September 30, 2015.
 
For more information regarding our employee benefit plans, including our long-term incentive stock-based and cash plans and our employee stock purchase plan, see Note 12 to our 2015 Form 10-K.

21



Note 11 — Business Segment Information
 
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. Our U.S., U.K. and Brazil well intervention operating segments are aggregated into the Well Intervention business segment for financial reporting purposes. Our Well Intervention segment includes our vessels and equipment used to perform well intervention services primarily in the U.S. Gulf of Mexico and North Sea regions. Our well intervention vessels include the Q4000, the Q5000, the Helix 534, the Seawell, the Well Enhancer and the Skandi Constructor, which is a chartered vessel. Our well intervention segment also includes IRSs, some of which we rent out on a stand-alone basis, and SILs. Our Robotics segment includes ROVs, trenchers and ROVDrills designed to complement offshore construction and well intervention services, and currently operates three chartered ROV support vessels. Our Production Facilities segment includes the HP I, the HFRS and our investment in Independence Hub that is accounted for under the equity method, and included our former ownership interest in Deepwater Gateway that we sold in February 2016 (Note 5). All material intercompany transactions between the segments have been eliminated.
 
We evaluate our performance primarily based on operating income of each reportable segment. Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments. Certain financial data by reportable segment are summarized as follows (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net revenues —
 
 
 
 
 
 
 
Well Intervention
$
108,287

 
$
94,895

 
$
214,262

 
$
284,621

Robotics
48,897

 
83,310

 
119,805

 
238,582

Production Facilities
17,128

 
19,133

 
54,567

 
57,811

Intercompany elimination
(13,067
)
 
(14,876
)
 
(29,083
)
 
(42,895
)
Total
$
161,245

 
$
182,462

 
$
359,551

 
$
538,119

 
 
 
 
 
 
 
 
Income (loss) from operations —
 
 
 
 
 
 
 
Well Intervention
$
24,413

 
$
6,233

 
$
7,187

 
$
25,162

Robotics
(94
)
 
14,329

 
(21,667
)
 
28,089

Production Facilities
8,312

 
6,938

 
25,225

 
19,960

Corporate and other
(10,288
)
 
(8,965
)
 
(28,784
)
 
(24,581
)
Intercompany elimination
(873
)
 
(163
)
 
(542
)
 
(256
)
Total
$
21,470

 
$
18,372

 
$
(18,581
)
 
$
48,374

 
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties. Intercompany segment revenues are as follows (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Well Intervention
$
2,898

 
$
7,324

 
$
5,740

 
$
18,687

Robotics
10,169

 
7,552

 
23,343

 
24,208

Total
$
13,067

 
$
14,876

 
$
29,083

 
$
42,895

 

22



The following table reflects total assets by reportable segment (in thousands): 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Well Intervention
$
1,656,612

 
$
1,484,109

Robotics
242,252

 
274,926

Production Facilities
160,236

 
182,007

Corporate and other
372,446

 
458,917

Total
$
2,431,546

 
$
2,399,959

Note 12 — Commitments and Contingencies and Other Matters
 
Commitments 
 
We have charter agreements for the Grand Canyon, Grand Canyon II and Grand Canyon III vessels for use in our robotics operations. Pursuant to the charter amendments in February 2016, in connection with charter rate reductions for the vessels, the term of the vessel charters was revised such that the Grand Canyon charter expires in October 2019, the Grand Canyon II charter expires in April 2021 and the Grand Canyon III charter expires in May 2023. We also have a charter agreement for the Deep Cygnus which expires in March 2018.
 
In September 2013, we executed a contract with the same shipyard in Singapore that constructed the Q5000. This contract is for the construction of a newbuild semi-submersible well intervention vessel, the Q7000, which is being built to North Sea standards. This $346.0 million shipyard contract represents the majority of the expected costs associated with the construction of the Q7000. Pursuant to the original terms of this contract, 20% of the contract price was paid upon the signing of the contract. Pursuant to a contract amendment we entered into in June 2015, we agreed to pay the shipyard incremental costs of up to $14.5 million to extend the scheduled delivery of the Q7000 from mid-2016 to July 30, 2017 and to defer certain payment obligations. We paid $7.3 million of these costs in July 2015 and the remaining costs were to be paid upon the delivery of the vessel. Pursuant to a second contract amendment we entered into in December 2015, the remaining 80% will be paid in three installments, with 20% in June 2016 (payment was made in October 2016 as agreed between the parties), 20% upon issuance of the Completion Certificate, which is to be issued on or before December 31, 2017, and 40% upon the delivery of the vessel, which at our option can be deferred until December 30, 2018. Also pursuant to this second amendment, we agreed to reimburse the shipyard for incremental costs in connection with the further deferment of the Q7000’s delivery. Incremental costs are capitalized as they are incurred during the construction of the vessel. At September 30, 2016, our total investment in the Q7000 was $190.1 million, including $69.2 million paid to the shipyard upon signing the contract and the $69.2 million shipyard invoice that was paid in October 2016.
 
In February 2014, we entered into agreements with Petróleo Brasileiro S.A. (“Petrobras”) to provide well intervention services offshore Brazil, and in connection with the Petrobras agreements, we entered into charter agreements with Siem Offshore AS (“Siem”) for two newbuild monohull vessels, the Siem Helix 1 and the Siem Helix 2. The initial term of the charter agreements with Siem is for seven years from the respective vessel delivery dates with options to extend. The initial term of the agreements with Petrobras is for four years with options to extend. As part of Petrobras’s efforts to reduce its costs structure with many of its suppliers, we and Petrobras began discussions in mid-2015 with respect to potentially amending our contracts in a manner that addressed Petrobras’s objectives and was acceptable to us as well. Those negotiations were finalized in early June 2016 such that the contracts for the Siem Helix 1, originally scheduled to begin no later than July 22, 2016, were amended to commence between July 22, 2016 and October 21, 2016, with the day rate reduced to a mutually acceptable level, and the contracts for the Siem Helix 2, originally scheduled to begin no later than January 21, 2017, were amended to commence between October 1, 2017 and December 31, 2017, with no change in the day rate.
 

23



The Siem Helix 1 vessel was delivered to us and the charter term began on June 14, 2016. The vessel has transited to Brazil after integration and commissioning of our topside equipment onboard and is currently in the process of customer acceptance protocol and customer equipment integration. The Siem Helix 2 is under construction for the owner at the same shipyard that built the Siem Helix 1, and we anticipate that the vessel will be available for work in the second quarter of 2017 prior to commencing services for Petrobras in the fourth quarter of 2017. At September 30, 2016, our total investment in the topside equipment for the two vessels was $179.5 million. In November 2014, we paid a charter fee deposit of $12.5 million, which will be used to reduce our final charter payments for the Siem Helix 2.
 
Contingencies and Claims 
 
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations or cash flows.
 
Litigation 
 
On July 31, 2015, a purported stockholder, Parviz Izadjoo, filed a class action lawsuit styled Parviz Izadjoo v. Owen Kratz and Helix Energy Solutions Group, Inc. against the Company and Mr. Kratz, our President and Chief Executive Officer, in the United States District Court for the Southern District of Texas on behalf of a putative class of all purchasers of shares of our common stock between October 21, 2014, and July 21, 2015, inclusive (the “Class Period”). The lawsuit asserts violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and SEC Rule 10b-5 as to both us and Mr. Kratz, and Section 20(a) of the Exchange Act against Mr. Kratz, based on alleged misrepresentations and omissions in SEC filings and other public disclosures regarding projections for 2015 dry docks of two of our vessels working in the Gulf of Mexico that allegedly caused the price at which putative class members bought stock during the proposed class period to be artificially inflated. On January 28, 2016, the judge in the case approved a motion for the appointment of lead plaintiff and lead counsel. On March 14, 2016, the plaintiffs filed an amended class action complaint, adding Mr. Tripodo (our Executive Vice President and Chief Financial Officer) and Mr. Chamblee (our former Executive Vice President and Chief Operating Officer) as individual defendants, alleging the same types of claims made in the original complaint (alleged violations during the Class Period of Section 10(b) of the Exchange Act and SEC Rule 10b-5 with respect to all defendants, and Section 20(a) of the Exchange Act against the individual defendants), but asserting that the alleged misrepresentations and omissions in SEC filings and other public disclosures are related to the condition of and repairs to certain equipment aboard the Q4000 vessel. The defendants filed a motion to dismiss on April 28, 2016 and the parties have completed briefing on that motion. We believe this lawsuit to be without merit and intend to vigorously defend against it.
 
We are involved in various other legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act based on alleged negligence. In addition, from time to time we incur other claims, such as contract disputes, in the normal course of business.
Note 13 — Fair Value Measurements
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: 

Level 1.  Observable inputs such as quoted prices in active markets;
Level 2.  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3.  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation 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). 

24



(c)
Income Approach.  Techniques to convert expected future cash flows to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).
 
Our financial instruments include cash and cash equivalents, receivables, accounts payable, long-term debt and various derivative instruments. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments. The net carrying amount of our long-term note receivable also approximates its fair value. The following tables provide additional information relating to other financial instruments measured at fair value on a recurring basis (in thousands): 
 
Fair Value Measurements at
September 30, 2016 Using
 
 
 
 
 
Level 1
 
Level 2 (1)
 
Level 3
 
Total
 
Valuation
Technique
Liabilities:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
35,614

 
$

 
$
35,614

 
(c)
Interest rate swaps

 
2,490

 

 
2,490

 
(c)
Total liability
$

 
$
38,104

 
$

 
$
38,104

 
 
 
 
Fair Value Measurements at
December 31, 2015 Using
 
 
 
 
 
Level 1
 
Level 2 (1)
 
Level 3
 
Total
 
Valuation
Technique
Assets:
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
413

 
$

 
$
413

 
(c)
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts

 
61,427

 

 
61,427

 
(c)
Interest rate swaps

 
1,473

 

 
1,473

 
(c)
Total net liability
$

 
$
62,487

 
$

 
$
62,487

 
 
(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. See Note 14 for further discussions on the fair value of our derivative instruments.
 
The carrying values and estimated fair values of our long-term debt are as follows (in thousands): 
 
September 30, 2016
 
December 31, 2015
 
Carrying
Value (1)
 
Fair
Value (2)
 
Carrying
Value (1)
 
Fair
Value (2)
 
 
 
 
 
 
 
 
Term Loan (matures June 2018)
$
224,500

 
$
223,658