FORWARD-LOOKING STATEMENT In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, this Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain forward-looking statements which reflect our current view with respect to future events and future financial performance. Forward-looking statements are all statements other than statements of historical fact. All such forward-looking statements are subject to risks and uncertainties, many of which are beyond the control of the Company, and our future results of operations could differ materially from our historical results or current expectations reflected by such forward-looking statements. Some of these risks and uncertainties include, without limitation, the risks related to fluctuations in worldwide energy demand and oil and natural gas prices, and continuing depressed levels of oil and natural gas prices without a clear indication of if, or when, prices will recover to a level to support renewed offshore exploration activities; fleet additions by competitors and industry overcapacity; our limited capital resources available to replenish our asset base as needed, including through acquisitions or vessel construction, and to fund our capital expenditure needs; uncertainty of global financial market conditions and potential constraints in accessing capital or credit if and when needed with favorable terms, if at all; changes in decisions and capital spending by customers in the energy industry and the industry expectations for offshore exploration, field development and production; consolidation of our customer base; loss of a major customer; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; rapid technological changes; delays and other problems associated with vessel maintenance; the continued availability of qualified personnel and our ability to attract and retain them; the operating risks normally incident to our lines of business, including the potential impact of liquidated counterparties; our ability to comply with covenants in our indentures and other debt instruments; acts of terrorism and piracy; the impact of regional or global public health crises or pandemics; the impact of potential information technology, cybersecurity or data security breaches; integration of acquired businesses and entry into new lines of business; disagreements with our joint venture partners; natural disasters or significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation or enforcement of customs or other laws that are not well developed or consistently enforced; the risks associated with our international operations, including local content, local currency or similar requirements especially in higher political risk countries where we operate; interest rate and foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight; changes in laws governing the taxation of foreign source income; retention of skilled workers; enforcement of laws related to the environment, labor and foreign corrupt practices; the potential liability for remedial actions or assessments under existing or future environmental regulations or litigation; the effects of asserted and unasserted claims and the extent of available insurance coverage; and the resolution of pending legal proceedings. Forward-looking statements, which can generally be identified by the use of such terminology as "may," "can," "potential," "expect," "project," "target," "anticipate," "estimate," "forecast," "believe," "think," "could," "continue," "intend," "seek," "plan," and similar expressions contained in this Quarterly Report on Form 10-Q, are not guarantees or assurances of future performance or events. Any forward-looking statements are based on our assessment of current industry, financial and economic information, which by its nature is dynamic and subject to rapid and possibly abrupt changes, which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments that affect us will be those that we anticipate and have identified. The forward-looking statements should be considered in the context of the risk factors listed above, discussed in this Quarterly Report on Form 10-Q, and discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 2, 2020 , as updated by subsequent filings with theSEC . Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events or developments. In certain places in this Quarterly Report on Form 10-Q, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information. 18
-------------------------------------------------------------------------------- The following information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and related disclosures and our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 2, 2020 .
About Tidewater
Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production. These services include towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction and seismic and subsea support; and a variety of specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships. We are also one of the most experienced international operators in the offshore energy industry with a history spanning over 60 years. AtJune 30, 2020 , we owned 192 vessels (excluding 3 joint venture vessels), 146 of which are available to serve the global energy industry and 46 of which are available for immediate sale. The average age of our 146 active vessels atJune 30, 2020 is 10.1 years.
Principal Factors That Drive Our Results
Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers' business activity, in turn, is dependent on current and expected crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce crude oil and natural gas reserves.
Our revenues in all segments are driven primarily by our fleet size, vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.
Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors which affect overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies, though a weaker offshore energy market should somewhat mitigate any potential inflation of crew costs. Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking that are not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel's useful life or increase the vessel's functionality are capitalized and depreciated. Insurance costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage. Fuel and lube costs can also fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices. We also incur vessel operating costs that are aggregated as "other" vessel operating costs. These costs consist of brokers' commissions, including commissions paid to unconsolidated joint venture companies, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers' commissions are incurred primarily in our non-United States operations where brokers 19 -------------------------------------------------------------------------------- sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.
Sonatide Joint Venture (
We previously disclosed the significant financial and operational challenges that we confront with respect to operations inAngola , as well as steps that we have taken to address or mitigate those risks. Most of our attention has been focused in three areas: (i) reducing the net receivable balance due from Sonatide, our Angolan joint venture with Sonangol, for vessel services; (ii) reducing the foreign currency risk created by virtue of provisions of Angolan law that require that payment for a portion of the services provided by Sonatide be paid in Angolan kwanza; and (iii) optimizing opportunities, consistent with Angolan law, for services provided by us to be paid for directly inU.S. dollars. The amounts due from Sonatide are denominated inU.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas. We and Sonangol, our partner in Sonatide, have had discussions regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared. In late 2019, we were informed that, as part of a broad privatization program, Sonangol intends to seek to divest itself from the Sonatide joint venture. In the second quarter of 2020, Sonatide declared a$35.0 million dividend. OnJune 22, 2020 , Sonangol received$17.9 million and we received$17.1 million . All of our share of the dividend is reflected as dividend income from unconsolidated company in the consolidated statement of operations because (i) our investment in the Sonatide joint venture had previously been written down to zero, (ii) the distributions are not refundable and (iii) we are not liable for the obligations of or committed to provide financial support to the Sonatide joint venture. In addition, as a result of the aforementioned dividend payment, the cash balances of the joint venture were significantly reduced and we determined that, as a result, a significant portion of our net due from Sonatide balance was compromised. OnJune 30, 2020 , we recorded a$41.5 million affiliate credit loss impairment expense.
Refer to Note (7) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on the Sonatide joint venture.
DTDW Joint Venture (Nigeria ) We own 40% of the DTDW joint venture inNigeria . Our partner,who owns 60%, is a Nigerian national. DTDW owns one offshore service vessel and has long term debt of$5.6 million which is secured by the vessel and guarantees from the DTDW partners. We also operate company owned vessels inNigeria for which our partner receives a commission. As ofJune 30, 2020 , we had only one company owned vessel operating inNigeria and the DTDW owned vessel was not employed. At the beginning of 2020 we had expected that we would be operating numerous vessels inNigeria , but in the second quarter of 2020 the Covid pandemic and resulting oil price reduction caused our primary customer inNigeria to eliminate all planned operations for 2020. As a result, the near term cash flow projections indicate that DTDW does not have sufficient funds to meet its obligations to us or to the holder of its long term debt. In theJune 2020 DTDW board meeting neither of the DTDW partners indicated willingness to contribute additional funds to DTDW to meet its obligations. Therefore, we have recorded an affiliate credit loss impairment expense for the entire net due from DTDW balance as ofJune 30, 2020 totaling$12.1 million . In addition, based on our analysis we have determined that DTDW will be unable to pay its debt obligation and the debt will not be satisfied by liquidating the vessel and, as a result, we recorded additional impairment expense of$2.0 million for our expected share of the obligation guarantee.
Refer to Note (7) of Notes to Unaudited Condensed Consolidated Financial
Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for
further details on the
Industry Conditions and Outlook
Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices. In addition, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. In particular, the oil price is significantly influenced by actions of theOrganization of Petroleum Exporting Countries , orOPEC . Prices are subject to significant uncertainty and, as a result, are extremely volatile. The industry experienced a severe downturn beginning in late 2014 that lasted through 2018 with prices falling into the high$20 's per barrel before recovering to average between$50.00 and$65.00 per barrel in 2019. We had expected to begin to experience consistent operating cash flow in 2020. 20
-------------------------------------------------------------------------------- In early 2020, it became evident that a novel coronavirus originating inAsia (COVID-19) could become a pandemic with worldwide reach. By mid-March, when theWorld Health Organization declared the outbreak to be a pandemic (the "COVID-19 pandemic"), much of the industrialized world had initiated severe measures to lessen its impact. The ongoing COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption during the first half of 2020. With respect to our particular sector, the COVID-19 pandemic has resulted in a much lower demand for oil as national, regional, and local governments impose travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread. During this same time period, oil-producing countries have struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices. Combined, these conditions adversely affected our operations and business beginning in lateMarch 2020 and continuing through the second quarter of 2020 and we expect our operations and business during the remainder of 2020 to be negatively impacted. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of the virus on offshore operations. Further, these conditions, separately or together, are expected to continue to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general. As the pandemic has spread throughout the world, its impact on one or more of our locations, including our vessels, has affected our operations. We have implemented various protocols for both onshore and offshore personnel in efforts to limit this impact, but there is no assurance that those efforts will be fully successful. The spread of COVID-19 to our onshore workforce could prevent us from supporting our offshore operations, we may experience reduced productivity as our onshore personnel continue to work remotely, and any spread to our key management personnel may disrupt our business. Any outbreak on our vessels may result in the vessel, or some or all of a vessel crew, being quarantined and therefore impede the vessel's ability to generate revenue. We have experienced challenges in connection with our offshore crew changes due to health and travel restrictions related to COVID-19, and those challenges and/or restrictions are expected to continue despite our efforts at mitigating them. To the extent the COVID-19 pandemic adversely affects our operations and business, it may also have the effect of heightening many of the other risks set forth in ourSEC filings. The effect on our business includes lockdowns of shipyards where we have vessels performing drydocks which will delay vessels returning to service and the cancellation and/or temporary delay of certain revenue vessel contracts allowed either under the contract provisions or by mutual agreement with our customers. These cancellations and delays affect approximately 19% of our 2020 contracts with durations in excess of three months which typically comprise over 90% of our contractual revenue. It is possible that there will be additional cancellations or delays.
As a company, we have undertaken the following temporary measures to assist us in weathering the COVID 19 pandemic and allow us to recover as soon as possible:
• Planned capital and dry dock expenditures tied to contracts referenced above
will be temporarily delayed or cancelled. As a result of the ongoing
contract cancellations and delays we have postponed drydocks expected to
cost approximately
planned drydocks will be cancelled or delayed due to contract cancellations
or delays. We cannot predict the number or cost of any additional cancellations or delays.
• We have the ability to rapidly respond to contract cancellations and
delays. We have or will remove the crews and shut down all operations,
depending on contract terms, on vessels associated with cancelled or delayed
contracts. We are also in the process of evaluating our general and
administrative costs to reflect the current demand for our offshore support
vessels.
The full impact of the COVID-19 pandemic is unknown and is rapidly evolving. The extent to which it impacts our business and operations will depend on the severity, location, and duration of the effects and spread of the pandemic itself, the actions undertaken by national, regional, and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. As we cannot predict the duration or scope of this pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated but could be both material and long-lasting. 21 -------------------------------------------------------------------------------- We consider these events to be indicators that the value of our offshore vessel fleet may be impaired. As a result, in the first quarter of 2020 we performed a Step 1 evaluation of our offshore fleet under FASB Accounting Standards Codification 360, which governs the methodology for identifying and recording impairment of long-lived assets to determine if any of our asset groups have net book value in excess of undiscounted future net cash flows. Our evaluation did not indicate impairment of any of our asset groups. Our evaluation did, however, identify one asset group with a net book value of approximately$40.0 million where the undiscounted future net cash flows total was within 10% of the net book value of that asset group as ofMarch 31, 2020 . In the second quarter of 2020, we identified 22 vessels in our active fleet that were designated as assets held for sale. Several of the identified vessels were in the asset group that had indications of potential impairment atMarch 31, 2020 . In conjunction with reclassifying the vessels to assets held for sale and revaluing the vessels' carrying value to net realizable value, we recorded$49.9 million of impairment expense. In addition, atJune 30, 2020 , we performed another Step 1 impairment evaluation of our offshore fleet and did not identify any asset groups that had carrying values in excess of undiscounted future net cash flows. We also did not identify any asset group that had undiscounted future net cash flows within 10% of the net book value of that asset group. The eventual impact of the oil price reduction and the COVID 19 pandemic on our future operations is not known. Depending on the severity of the impact, our expected cash flows in future periods could indicate impairment of one or more asset groups in our vessel fleet. We will continue to monitor the expected future cash flows and the fair market value of our asset groups for impairment.
Results of Operations - Three Months Ended
Revenues for the quarters endedJune 30, 2020 and 2019, were$102.3 million and$125.9 million , respectively. The decrease in revenue is primarily due to decreases in ourWest Africa segment, with 8 less active vessels and ourEurope /Mediterranean segment, with 14 less active vessels. Both segments were significantly affected by the decrease in demand caused by the pandemic. Overall, we had 25 less average active vessels in the second quarter of 2020 than in the second quarter of 2019. Active utilization decreased from 79.3% in 2019 compared to 74.5% in 2020. Vessel operating costs for the quarters endedJune 30, 2020 and 2019, were$64.8 million and$80.4 million , respectively. The decrease is primarily due to a decrease in vessel activity, as we have 25 less active vessels in our fleet in the first quarter 2020 largely due to the downturn caused by the pandemic. Depreciation and amortization expense for the quarters endedJune 30, 2020 and 2019, was$28.1 million and$25.0 million , respectively. The decrease in depreciation from the sale in 2019 of over 40 vessels and the reclassification of an additional 46 vessels at year end 2019 from property and equipment to assets held for sale was more than offset by the increase in amortization expense related to deferred drydock expenditures. General and administrative expenses for the quarters endedJune 30, 2020 and 2019, were$17.6 million and$23.7 million , respectively. The decrease is primarily due to decreased personnel and benefit costs related to the significant restructuring of our executive management and corporate administrative functions in 2019 and cost cutting measures being implemented due to the current downturn. Included in gain on asset dispositions, net for the quarter endedJune 30, 2020 , are$1.7 million of net gains from the disposal of 16 vessels and other assets. During the quarter endedJune 31, 2019 , we recognized losses of$0.5 million related to the disposal of 18 vessels and other assets. In the three months endedJune 30, 2020 we recorded$55.5 million of impairment expense related to valuation of our assets held for sale,$53.6 million affiliate credit loss impairment expense relating to the valuation of our net receivables from our joint ventures inAfrica and$2.0 million of impairment related to a guarantee of long term debt of one of our African joint ventures.
We recorded
InNovember 2019 , we paid down$125.0 million of our Senior Notes. This reduced our interest expense by$1.6 million for the three months endedJune 30 . 2020 compared to the three months endedJune 30, 2019 . In addition, the reduction in cash plus a reduction in interest rates received on our cash balances reduced our interest income by$1.2 million for the same period. During the quarter endedJune 30, 2020 we recognized foreign exchange losses of$2.0 million and during the quarter endedJune 30, 2019 we recognized de minimis foreign exchange gains. 22
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The tax expense for the three months ending
Results of Operations - Six Months Ended
Revenues for the six months endedJune 30, 2020 and 2019, were$218.7 million and$248.0 million , respectively. The decrease in revenue is primarily due to decreases in ourWest Africa segment, with 9 less active vessels and ourEurope /Mediterranean segment, with 10 less active vessels. Both segments were significantly affected by the decrease in demand caused by the pandemic. Overall, we had 20 less average active vessels in the six months endedJune 30, 2020 than in the six months endedJune 30, 2019 . Active utilization decreased from 79.9% in 2019 compared to 76.6% in 2020. Vessel operating costs for the six months endedJune 30, 2020 and 2019, were$143.6 million and$162.6 million , respectively. decrease is primarily due to a decrease in vessel activity, as we have 20 less active vessels in our fleet in the six months of 2020. Depreciation and amortization expense for the six months endedJune 30, 2020 and 2019, was$55.3 million and$48.0 million , respectively. The decrease in depreciation from the sale in 2019 of over 40 vessels and the reclassification at year end 2019 of an additional 46 vessels from property and equipment to assets held for sale was more than offset by the increase in amortization expense related to deferred drydock expenditures. General and administrative expenses for the six months endedJune 30, 2020 and 2019, were$39.0 million and$50.8 million , respectively. The decrease is primarily due to decreased personnel and benefit costs related to the significant restructuring of our executive management and corporate administrative functions in 2019 and cost cutting measures being implemented due to the current downturn. Included in gain on asset dispositions, net for the six months endedJune 30, 2020 , are$7.0 million of net gains from the disposal of 25 vessels and other assets. During the six months endedJune 31, 2019 , we recognized net gains of$0.8 million related to the disposal of 34 vessels and other assets. In the six months endedJune 30, 2020 we recorded$65.7 million of impairment expense related to valuation of our assets held for sale,$53.6 million affiliate credit loss impairment expense relating to the valuation of our net receivables from our joint ventures inAfrica and$2.0 million of impairment related to a guarantee of long term debt of one of our African joint ventures.
We recorded
InNovember 2019 , we paid down$125.0 million of our Senior Notes. This reduced our interest expense by$3.2 million for the six months endedJune 30 . 2020 compared to the six months endedJune 30, 2019 . In addition, the reduction in cash plus a reduction in interest rates received on our cash balances reduced our interest income by$3.5 million for the same period.
During the six months ended
The tax benefit for the six months ending
23
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The following table compares vessel revenues and vessel operating costs by geographic segment for our owned and operated vessel fleet and the related percentage of vessel revenue for the periods indicated:
Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(In thousands) % % % % Vessel revenues: Americas$ 34,044 34 %$ 35,199 28 %$ 65,903 31 %$ 70,477 29 % Middle East/Asia Pacific 23,983 24 % 20,449 17 % 48,811 23 % 40,905 17 % Europe/Mediterranean 20,620 20 % 35,027 28 % 50,111 24 % 63,585 26 % West Africa 22,328 22 % 32,966 27 % 48,124 23 % 68,336 28 % Total vessel revenues$ 100,975 100 %$ 123,641 100 %$ 212,949 100 %$ 243,303 100 % Vessel operating costs: Americas: Crew costs$ 13,138 39 %$ 16,008 45 %$ 27,324 41 %$ 33,107 47 % Repair and maintenance 1,703 5 % 2,328 7 % 3,874 6 % 5,948 8 % Insurance 427 1 % (1,118 ) (3 )% 844 1 % (378 ) (1 )% Fuel, lube and supplies 1,373 4 % 2,115 6 % 3,988 6 % 4,561 7 % Other 1,956 6 % 2,772 8 % 4,629 7 % 5,543 8 %$ 18,597 55 %$ 22,105 63 %$ 40,659 62 %$ 48,781 69 % Middle East/Asia Pacific: Crew costs$ 8,726 36 %$ 8,986 44 %$ 18,811 39 %$ 17,613 43 % Repair and maintenance 2,196 9 % 1,673 8 % 4,782 10 % 3,254 8 % Insurance 739 3 % 186 1 % 1,330 3 % 776 2 % Fuel, lube and supplies 1,405 6 % 2,350 12 % 4,070 8 % 4,685 11 % Other 2,412 10 % 1,844 9 % 4,108 8 % 3,577 9 %$ 15,478 55 %$ 15,039 74 %$ 33,101 68 %$ 29,905 73 %Europe /Mediterranean : Crew costs$ 9,707 47 %$ 13,001 37 %$ 21,403 43 %$ 26,060 41 % Repair and maintenance 1,278 6 % 3,914 11 % 4,419 9 % 6,491 10 % Insurance 420 2 % 693 2 % 851 2 % 1,253 2 % Fuel, lube and supplies 924 4 % 1,314 4 % 2,022 4 % 3,205 5 % Other 1,547 8 % 2,902 8 % 4,069 8 % 5,897 9 %$ 13,876 67 %$ 21,824 62 %$ 32,764 65 %$ 42,906 67 % West Africa: Crew costs$ 7,120 32 %$ 9,196 28 %$ 15,640 32 %$ 18,555 27 % Repair and maintenance 1,479 7 % 2,996 9 % 4,179 9 % 4,919 7 % Insurance 424 2 % 989 3 % 770 2 % 1,277 2 % Fuel, lube and supplies 2,681 12 % 2,672 8 % 6,055 13 % 5,346 8 % Other 5,119 23 % 5,618 17 % 10,431 22 % 10,953 16 %$ 16,823 75 %$ 21,471 65 %$ 37,075 77 %$ 41,050 60 % Vessel operating costs: Crew costs$ 38,691 38 %$ 47,191 38 %$ 83,178 39 %$ 95,335 39 % Repair and maintenance 6,656 7 % 10,911 9 % 17,254 8 % 20,612 9 % Insurance 2,010 2 % 750 1 % 3,795 2 % 2,928 1 % Fuel, lube and supplies 6,383 6 % 8,451 7 % 16,135 8 % 17,797 7 % Other 11,034 11 % 13,136 10 % 23,237 11 % 25,970 11 % Total vessel operating costs$ 64,774 64 %$ 80,439 65 %$ 143,599 67 %$ 162,642 67 % 24
-------------------------------------------------------------------------------- The following table presents general and administrative expenses in our four geographic segments both individually and in total and the related general and administrative expenses as a percentage of the vessel revenues of each segment and in total for the three and six months endedJune 30, 2020 and 2019: Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 (In thousands) % % % % Segment general and administrative expenses: Americas$ 2,869 8 %$ 3,679 10 %$ 6,334 10 %$ 7,051 10 % Middle East/Asia Pacific 2,261 9 % 2,218 11 % 4,795 10 % 4,521 11 % Europe/Mediterranean 1,700 8 % 2,638 8 % 3,938 8 % 5,984 9 % West Africa 2,741 12 % 3,297 10 % 6,742 14 % 6,529 10 % Total segment general and administrative expenses$ 9,571 9 %$ 11,832 10 %$ 21,809 10 %$ 24,085 10 % The following table presents segment depreciation and amortization expense by our four geographic segments, the related segment vessel depreciation and amortization expense as a percentage of segment vessel revenues, total segment depreciation and amortization expense and the related total segment depreciation and amortization expense as a percentage of total vessel revenues for the three and six months endedJune 30, 2020 and 2019: Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 (In thousands) % % % % Segment depreciation and amortization expense: Americas$ 8,073 24 %$ 6,515 19 %$ 15,569 24 %$ 12,776 18 % Middle East/Asia Pacific 5,645 24 % 5,319 26 % 11,172 23 % 9,769 24 % Europe/Mediterranean 6,793 38 % 7,741 22 % 13,612 27 % 15,187 24 % West Africa 6,750 24 % 5,100 15 % 13,154 27 % 9,543 14 % Total segment depreciation and amortization expense$ 27,261 27 %$ 24,675 20 %$ 53,507 25 %$ 47,275 19 % The following table compares operating loss and other components of loss and its related percentage of total revenue for the three and six months endedJune 30, 2020 and 2019: Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 (In thousands) % % % % Vessel operating profit (loss): Americas$ 4,505 4 %$ 2,900 2 %$ 3,341 2 %$ 1,870 1 % Middle East/Asia Pacific 599 1 % (2,127 ) (1 )% (257 ) 0 % (3,289 ) (1 )% Europe/Mediterranean (1,750 ) (2 %) 2,824 2 % (203 ) 0 % (493 ) 0 % West Africa (3,984 ) (4 %) 3,099 3 % (8,847 ) (4 %) 11,214 5 % Other operating profit 1,198 1 % 1,625 1 % 2,919 1 % 3,330 1 % 568 1 % 8,321 7 % (3,047 ) (1 %) 12,632 5 % Corporate expenses (8,910 ) (9 %) (12,221 ) (10 )% (18,952 ) (9 %) (27,422 ) (11 )% Gain on asset dispositions, net 1,660 2 % (494 ) 0 % 6,991 3 % 776 0 % Affiliate credit loss impairment expense (53,581 ) (52 %) - 0 % (53,581 ) (24 %) - 0 % Affiliate guarantee obligation (2,000 ) (2 %) - 0 % (2,000 ) (1 %) - 0 % Long-lived asset impairments (55,482 ) (54 %) - 0 % (65,689 ) (30 %) - 0 % Operating loss$ (117,745 ) (115 %)$ (4,394 ) (3 %)$ (136,278 ) (62 %)$ (14,014 ) (6 %) 25
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Results for three months ended
Americas Segment Operations. Vessel revenues in theAmericas segment decreased 3%, or$1.2 million , during the quarter endedJune 30, 2020 , as compared to the quarter endedJune 30, 2019 . This decrease is primarily the result of less demand due to the pandemic. We had 5 less active vessels in the quarter endedMarch 31, 2020 than the comparable prior year period. Vessel operating profit for theAmericas segment for the quarter endedJune 30, 2020 was$4.5 million , which was$1.6 million more than the operating profit for the quarter endedJune 30, 2019 . The higher operating profit was due to a$3.5 million decrease in operating expenses, resulting from intensive cost saving measures taken in the second quarter of 2020 in response to the effect of the pandemic and a$0.8 million reduction in general and administrative costs primarily due to our ongoing cost saving initiatives as we react to the current downturn.Middle East /Asia Pacific Segment Operations. Vessel revenues in the MiddleEast/Asia Pacific segment increased 17%, or$3.5 million , during the quarter endedJune 30, 2020 , as compared to the quarter endedJune 30, 2019 . Active utilization for the quarter endedJune 30, 2020 increased to 75.9% from 74.7%, average day rates increased almost 10% and average active vessels in the segment increased by two vessels.
The
Europe /Mediterranean Segment Operations. Vessel revenues in theEurope /Mediterranean segment decreased 41%, or$14.4 million , during the quarter endedJune 30, 2020 , as compared to the quarter endedJune 30, 2019 . The decreased revenue was primarily attributable to 14 less active vessels. Average day rates during these same periods decreased 2% because of decreased demand, effected by the pandemic, for vessels in theNorth Sea and Mediterranean. Active utilization increased two percentage points during the quarter endedJune 30, 2020 compared to the quarter endedJune 30, 2019 . TheEurope /Mediterranean segment reported an operating loss of$1.8 million for the quarter endedJune 30, 2020 , compared to an operating profit of$2.8 million for the quarter endedJune 30, 2019 due to decreased revenue partially offset by$7.9 million in decreased operating costs, primarily due to lower personnel and repair and maintenance costs. West Africa Segment Operations. Vessel revenues in theWest Africa segment decreased 32% or$10.6 million , during the quarter endedJune 30, 2020 , as compared to the quarter endedJune 30, 2019 . TheWest Africa active vessel fleet decreased by 8 vessels during the comparative periods.West Africa segment active utilization decreased as well from 76% during the second quarter of 2019 to 55% during the second quarter of 2020. Average day rates increased 13 percent due to the change in the mix of remaining contracts. The decreases in revenue are almost entirely the result of lower demand caused by the effect of the pandemic. Vessel operating profit for theWest Africa segment decreased from$3.1 million for the quarter endedJune 30, 2019 to an operating loss of$4.0 million in the quarter endedJune 30, 2020 primarily due to decreased revenue, partially offset by lower operating costs.
Results for six months ended
Americas Segment Operations. Vessel revenues in theAmericas segment decreased 6%, or$4.6 million , during the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 . This decrease is primarily the result of lower demand caused by the effect of the pandemic. The segment has four less vessels operating in the first six months of 2020 compared to the same period in 2019. Vessel operating profit for theAmericas segment for the six months endedJune 30, 2020 was$3.3 million , which was$1.5 million more than the operating profit for the six months endedJune 30, 2019 . This was primarily due to$8.1 million less operating costs resulting from the decrease in vessel activity due to the pandemic and$0.7 million lower general and administrative costs due to ongoing cost saving efforts.Middle East /Asia Pacific Segment Operations. Vessel revenues in the MiddleEast/Asia Pacific segment increased 19%, or$7.9 million , during the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 . This segment had three more vessels operating in the first six months of 2020 compared to the same period in 2019. Active 26 --------------------------------------------------------------------------------
utilization for the six months ended
TheMiddle East /Asia Pacific segment reported an operating loss of$0.3 million for the six months endedJune 30, 2020 , compared to an operating loss of$3.3 million for the six months endedJune 30, 2019 primarily due to increased revenue.Europe /Mediterranean Segment Operations. Vessel revenues in theEurope /Mediterranean segment decreased 21%, or$13.5 million , during the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 . The segment has 10 less vessels operating in the first six months of 2020 compared to the same period in 2019. The reduction is due mainly to the effects of the pandemic. Average day rates during these same periods increased 5% and active utilization increased three percentage points during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . TheEurope /Mediterranean segment reported an operating loss of$0.2 million for the six months endedJune 30, 2020 , compared to an operating loss of$0.5 million for the six months endedJune 30, 2019 . This is due mainly to the lower revenue offset somewhat with lower operating costs associated with the lower vessel activity and lower general and administrative costs resulting from our ongoing cost reduction efforts. West Africa Segment Operations. Vessel revenues in theWest Africa segment decreased 30% or$20.2 million , during the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 . TheWest Africa active vessel fleet decreased by 9 vessels during the comparative periods.West Africa segment active utilization decreased as well from 76.4% to 61.5% primarily due to the effects of the pandemic, but day rates increased by five percent due to the change in the mix of contracts. TheWest Africa segment reported an operating loss of$8.8 million for the six months endedJune 30, 2020 compared to an operating profit of$11.2 million in the six months endedJune 30, 2019 primarily due to decreased revenue. This segment had the most negative impact from the pandemic due to significant contract cancellations.
Vessel Utilization and Average
Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created largely through the level of offshore exploration, field development and production spending by energy companies relative to the supply of offshore support vessels. Specifications of available equipment and the scope of service provided may also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of days a vessel works during a reporting period by the number of days the vessel is available to work in the reporting period. As such, stacked vessels depress utilization rates because stacked vessels are considered available to work and are included in the calculation of utilization rates. Average day rates are calculated by dividing the revenue a vessel earns during a reporting period by the number of days the vessel worked in the reporting period. 27
-------------------------------------------------------------------------------- Total vessel utilization is calculated on all vessels in service (which includes stacked vessels, vessels held for sale and vessels in drydock) but do not include vessels owned by joint ventures (3 and 4 vessels atJune 30, 2020 and 2019, respectively). Active utilization is calculated on active vessels (which excludes vessels held for sale). Average day rates are calculated based on total vessel days worked.
The following tables compare day-based utilization percentages, average day
rates and average total, active and stacked vessels by segment for the three and
six months ended
Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 SEGMENT STATISTICS: Americas fleet: Utilization 58.3 % 54.5 % 57.7 % 51.1 % Active utilization 88.6 % 82.3 % 87.1 % 84.8 % Average vessel day rates 12,865 12,341 12,355 11,871 Average total vessels 50 58 51 64 Average stacked vessels (17 ) (20 ) (17 ) (26 ) Average active vessels 33 38 34 38 MiddleEast/Asia Pacific fleet: Utilization 63.0 % 61.6 % 63.0 % 61.5 % Active utilization 75.9 % 74.7 % 76.8 % 75.6 % Average vessel day rates 8,009 7,293 7,934 7,249 Average total vessels 52 50 54 51 Average stacked vessels (9 ) (9 ) (10 ) (10 ) Average active vessels 43 41 44 41Europe /Mediterranean fleet: Utilization 48.6 % 62.7 % 56.5 % 61.4 % Active utilization 88.6 % 86.5 % 87.8 % 85.3 % Average vessel day rates 12,689 13,010 12,586 12,004 Average total vessels 37 47 39 48 Average stacked vessels (17 ) (13 ) (14 ) (13 ) Average active vessels 20 34 25 35 West Africa fleet: Utilization 36.5 % 52.3 % 41.2 % 50.8 % Active utilization 55.0 % 76.0 % 61.5 % 76.4 % Average vessel day rates 10,711 9,439 10,049 9,535 Average total vessels 63 73 64 78 Average stacked vessels (21 ) (23 ) (21 ) (26 ) Average active vessels 42 50 43 52 Worldwide fleet: Utilization 50.9 % 57.0 % 53.7 % 55.2 % Active utilization 74.5 % 79.3 % 76.6 % 79.9 % Average vessel day rates 10,799 10,442 10,513 10,119 Average total vessels 202 228 208 241 Average stacked vessels (64 ) (65 ) (62 ) (75 ) Average active vessels 138 163 146 166 Average active vessels exclude stacked vessels. We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is being performed on the vessel. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are included in the calculation 28 -------------------------------------------------------------------------------- of utilization statistics. We had 63 and 60 stacked vessels atJune 30, 2020 and 2019, respectively. Total stacking costs for the three and six months endedJune 30, 2020 were$4.8 million and$8.7 million , respectively.
Vessel Dispositions
We seek opportunities to sell and/or scrap our older vessels when market conditions warrant and opportunities arise. The majority of our vessels are sold to buyerswho do not compete with us in the offshore energy industry. Vessels sales in 2020 included 22 vessels that were classified as assets held for sale and 3 vessels from our active fleet.
Liquidity, Capital Resources and Other Matters
Availability of Cash AtJune 30, 2020 , we had$206.4 million in cash and cash equivalents (excluding$19.9 million of restricted cash), including amounts held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held inU.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints, or partner or tax related matters, prior to the cash being made available for remittance to our domestic accounts. We currently intend that earnings by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and intercompany) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the U. S. because cash generated from our domestic businesses and the repayment of intercompany liabilities from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our operations in the U. S. Restricted cash of$19.9 million represents the portion of proceeds from vessel sales reserved for a cash tender of Senior Notes that may be required if certain conditions in the underlying indenture are satisfied. During the first quarter of 2020, the industry was impacted by a world-wide pandemic that had the effect of isolating people across the world and significantly reducing the demand and price for crude oil. See a detailed discussion under "Industry Conditions and Outlook" above. The reduced oil price will impact our industry in the near term and if it is prolonged could impact us beyond this year. We have significant cash on hand and the substantial portion of our debt is not due until 2022. As a company, we have undertaken the following temporary measures to assist us in weathering the pandemic and allow us to recover as soon as possible:
• Planned capital and dry dock expenditures tied to contracts referenced in
"Industry Conditions and Outlook" above will be temporarily delayed or
cancelled. As a result of the ongoing contract cancellations and delays we
have postponed drydocks expected to cost approximately
2020. It is possible that additional planned drydocks will be cancelled or
delayed due to contract cancellations or delays. We cannot predict the number or cost of such possible cancellations or delays.
• We have the ability to rapidly respond to contract cancellations and
delays. We have or will remove the crews and shut down all operations,
depending on contract terms on vessels associated with cancelled or delayed
contracts. We continue to dispose of vessels and their related stacking
cost. We have also been reducing our general and administrative costs to reflect the current demand for our offshore support vessels. Our objective in financing our business is to maintain adequate financial resources and access to sufficient levels of liquidity. We do not have a revolving credit facility. Cash and cash equivalents and net cash provided by operating activities provide us, in our opinion, with sufficient liquidity to meet our liquidity requirements. Debt
Refer to Note (9) of Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our indebtedness.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or 29 -------------------------------------------------------------------------------- exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Operating Activities
Net cash used in operating activities for the six months ended
Net cash used in operations for the six months endedJune 30, 2020 , reflects a net loss of$129.4 million , which includes non-cash depreciation and amortization of$55.3 million , net gains on asset dispositions of$7.0 million , an affiliate credit loss impairment expense of$53.6 million and long-lived asset impairments of$65.7 million . Combined changes in operating assets and liabilities and in amounts due to/from affiliate, net used$28.3 million in cash and cash paid for deferred drydocking and survey costs was$29.0 million . Net cash used in operations for the six months endedJune 30, 2019 reflects a net loss of$36.8 million , which includes non-cash depreciation and amortization of$48.0 million , gain on asset dispositions, net of$0.8 million and stock-based compensation expense of$9.2 million . Combined charges in operating assets and liabilities and in amounts due to/from affiliate, net, used$11.0 million of cash and cash paid for deferred drydock and survey costs of$28.7 million . Investing Activities Net cash provided by in investing activities for the six months endedJune 30, 2020 and 2019, was$16.8 million and$11.7 million , respectively. Net cash provided by investing activities for the six months endedJune 30, 2020 primarily reflects the receipt of$20.9 million related to the sale or scrapping of 25 vessels. Additions to properties and equipment were comprised of approximately$2.8 million in capitalized upgrades to existing vessels and equipment and$1.3 million for other property and equipment purchases. Net cash provided by investing activities for the six months endedJune 30, 2019 primarily reflects the receipt of$20.6 million related to the sale or scrapping of 34 vessels. Additions to properties and equipment were comprised of approximately$8.0 million in capitalized upgrades to existing vessels and equipment and$0.8 million for other property and equipment purchases. Financing Activities Net cash used in financing activities for the six months endedJune 30, 2020 and 2019, was$5.4 million and$5.6 million , respectively. Net cash used in financing activities for the six months endedJune 30, 2020 included$4.7 million of scheduled semiannual principal payments on Troms offshore debt and$0.6 million of taxes paid to related share-based compensation. Net cash used in financing activities for the six months endedJune 30, 2019 included$3.6 million of scheduled semiannual principal payments on Troms offshore debt,$1.8 million of taxes paid to related share-based compensation and the repurchase of$0.2 million of New Secured Notes resulting from a tender offer. Other Liquidity Matters
Contractual Obligations and Other Contingent Commitments
We did not have any material changes in our contractual obligations and commercial commitments since the end of fiscal year 2019. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , for information regarding our contractual obligations and other contingent commitments.
Application of Critical Accounting Policies and Estimates
Our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 2, 2020 , describes the accounting policies that are critical to reporting our financial position and operating results and that require management's most difficult, subjective or complex judgments. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , regarding these critical accounting policies. 30 --------------------------------------------------------------------------------
New Accounting Pronouncements
For information regarding the effect of new accounting pronouncements, refer to Notes (2) and (3) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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