sv1za
As filed with the Securities and Exchange Commission on
December 12, 2006
Registration
No. 333-134609
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 6
to
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CAL DIVE INTERNATIONAL,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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1389
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61-1500501
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(State or other jurisdiction
of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(I.R.S. employer
identification number)
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400 N. Sam Houston Parkway E., Suite 1000
Houston, Texas 77060
(281) 618-0400
(Address, including zip code,
and telephone number, including area code,
of registrants principal
executive offices)
G. Kregg Lunsford
400 N. Sam Houston Parkway E., Suite 1000
Houston, Texas 77060
(281) 618-0400
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Arthur H. Rogers, Esq.
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Telephone: (713) 651-5421
Facsimile: (713) 651-5246
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Richard D.
Truesdell, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4674
Facsimile: (212) 450-3674
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
DECEMBER 12, 2006
Prospectus
22,173,000 Shares
Cal Dive
International, Inc.
Common
Stock
Cal Dive International, Inc. is offering
22,173,000 shares of common stock. We intend to distribute
all of the net proceeds from this offering to our parent
company, Helix Energy Solutions Group, Inc., as a dividend.
See Use of Proceeds. This is our initial public
offering, and no public market currently exists for our shares.
We anticipate that the initial public offering price will be
between $14.00 and $16.00 per share.
Our common stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under
the symbol DVR.
Investing in our common stock involves a high degree of risk.
See Risk Factors beginning on page 10.
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Per Share
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Total
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Offering price
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$
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$
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Discounts and commissions to
underwriters
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$
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$
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Offering proceeds to Cal Dive
International, Inc
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$
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$
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal
offense.
Our parent company, Helix Energy Solutions Group, Inc., has
granted the underwriters the right to purchase up to 3,325,950
additional shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within
30 days after the offering. Any proceeds resulting from the
sale of shares by Helix, after deducting underwriting discounts,
will be paid to Helix and we will receive no proceeds from the
sale of shares by Helix. The underwriters expect to deliver the
shares of common stock to investors on or
about ,
2006.
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Banc
of America Securities LLC |
JPMorgan |
Johnson
Rice & Company L.L.C.
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Simmons &
Company
International
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Natexis Bleichroeder Inc.
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,
2006
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. We
are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You
should assume that the information contained in this prospectus
is accurate as of the date on the front of this prospectus only.
Our business, financial condition, results of operations and
prospects may have changed since that date.
Information contained in our web site does not constitute
part of this prospectus.
TABLE OF
CONTENTS
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SUMMARY
This summary highlights information contained elsewhere in
this prospectus and provides an overview of the material aspects
of this offering. Because it is a summary, it does not contain
all of the information you should consider before deciding to
invest in shares of our common stock. You should read this
entire prospectus carefully, especially the risks of investing
in shares of our common stock discussed under Risk
Factors beginning on page 10 and the financial
statements and notes thereto included elsewhere in this
prospectus. Our fiscal year ends on December 31 of each
year.
Unless the context otherwise requires, references in this
prospectus to (i) Helix shall mean our parent
company, Helix Energy Solutions Group, Inc., and its
consolidated subsidiaries (other than us) and
(ii) the issuer, the company,
our company, we, our,
us and Cal Dive International shall
mean Cal Dive International, Inc. and the predecessor
shallow water marine contracting business operated by Helix. On
March 6, 2006, Helix changed its corporate name from
Cal Dive International, Inc. to Helix
Energy Solutions Group, Inc., at which time the
Cal Dive International, Inc. name was passed on
to us.
Please refer to the subsection entitled Certain
Definitions on page 95 for definitions of additional
terms used in this prospectus.
Our
Business
We are a direct, wholly owned subsidiary of Helix Energy
Solutions Group, Inc., a diversified energy services company. On
March 6, 2006, our parent company changed its name from Cal
Dive International, Inc. to Helix Energy Solutions Group, Inc.,
at which time it passed the Cal Dive International, Inc. name to
us. Upon completion of this offering, we will be the successor
to all of Helixs shallow water marine contracting
business. At this time, Helix will directly own 61,506,691 of
our outstanding shares of common stock, representing
approximately 73.5% of the total voting power of our common
stock, or 58,180,741 shares representing approximately
69.5% if the underwriters exercise in full their over-allotment
option. See Arrangements Between Helix and Us and
Description of Capital Stock.
We are a marine contractor providing manned diving, pipelay and
pipe burial services to the offshore oil and natural gas
industry. Based on the size of our fleet, we believe that we are
the market leader in the diving support business, which involves
services such as construction, inspection, maintenance, repair
and decommissioning of offshore production and pipeline
infrastructure, on the Gulf of Mexico Outer Continental Shelf,
or OCS. We also provide these services directly or through
partnering relationships in select international offshore
markets, such as the Middle East (United Arab Emirates, Oman,
Egypt and Saudi Arabia) and Trinidad. Based in Houston, Texas,
we currently own and operate a diversified fleet of
26 vessels, including 23 surface and saturation diving
support vessels as well as three shallow water pipelay vessels.
We believe that our fleet of diving support vessels is the
largest in the world. Our customers include major and
independent oil and natural gas producers, pipeline transmission
companies and offshore engineering and construction firms.
Since 1975, we have provided essential marine contracting
services in support of oil and natural gas infrastructure
throughout the production lifecycle, including production
platforms, risers, subsea production systems and pipelines, on
the Gulf of Mexico OCS. Our services include saturation, surface
and mixed gas diving, enabling us to provide a full complement
of marine contracting services in water depths of up to
1,000 feet. We provide our saturation diving services in
water depths of 200 to 1,000 feet through our fleet of
eight saturation diving vessels and eight portable saturation
diving systems, which we believe is the largest saturation
diving support fleet in the world. We also believe that our
fleet of diving support vessels is among the most technically
advanced in the industry because a number of these vessels have
features such as dynamic positioning, or DP, hyperbaric rescue
chambers, multi-chamber systems for split-level operations and
moon pool deployment, which allow us to operate effectively in
challenging offshore environments. We provide surface and mixed
gas diving services in water depths typically less than
300 feet through our 15 surface diving vessels. We also
have three vessels dedicated exclusively to pipelay and pipe
burial services in
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water depths of up to approximately 400 feet. Pipelay and
pipe burial operations typically require extensive use of our
diving services; therefore, we consider these services to be
complementary.
We believe the combination of the scheduling flexibility
afforded by our large fleet, the wide range of capabilities of
our assets and the advanced technical skills of our personnel
distinguishes us from our competitors on the Gulf of Mexico OCS
and makes us a leading services provider in this region.
Furthermore, we believe that our superior operating
capabilities, international experience, existing relationships
with globally focused customers and proven acquisition expertise
will allow us to achieve similar leadership in other
economically attractive offshore markets, such as Southeast
Asia, the Middle East and Trinidad.
In the last 18 months, we have substantially increased the
size of our fleet and expanded our operating capabilities on the
Gulf of Mexico OCS through strategic acquisitions with Acergy
US, Inc. (formerly known as Stolt Offshore, Inc.), or Acergy,
and Torch Offshore, Inc., or Torch. Pursuant to our growth
strategy, we have also completed two transactions in
international offshore markets with Offshore Technology
Solutions Limited, or OTSL, and Fraser Diving International
Limited, or Fraser Diving. Upon closing all of these
transactions and completing subsequent divestitures, we will
have added a total of 13 vessels, including three
saturation diving vessels, seven portable saturation diving
systems and significant other diving equipment to our fleet.
Current business conditions are strong, and we believe the
outlook for our business remains very favorable based on several
industry trends. Oil and natural gas producers recently have
increased their spending on offshore drilling, completions and
acquisitions, and such activity generally has led to increased
demand for marine contracting services. In addition, many
producers recently have expanded their operations in
international offshore regions. These markets offer high growth
potential for us due to the significant production
infrastructure work that is required over the next several years
to develop new oil and natural gas discoveries. On the Gulf of
Mexico OCS, aging production infrastructure requires inspection,
maintenance, repair and decommissioning services. In addition,
Hurricanes Ivan, Katrina and Rita caused severe infrastructure
damage that dramatically increased demand for our repair
services. Finally, the Gulf of Mexico remains a key region for
domestic natural gas supply, and we expect projected growth in
U.S. demand to continue to drive increases in the number of
domestic natural gas wells drilled.
Our principal executive offices are located at 400 N. Sam
Houston Parkway E., Suite 1000, Houston, Texas 77060, and our
telephone number is (281) 618-0400. Our Internet website
address is www.caldive.com. Information contained on our
website or that can be accessed through our website is not
incorporated by reference in this prospectus. You should not
consider information on our website or that can be accessed
through our website to be part of this prospectus for any
purpose.
Competitive
Strengths
Our competitive strengths include:
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Leader in the Gulf of Mexico OCS diving services
market. We believe the size of our fleet and
workforce makes us the market leader for diving services on the
Gulf of Mexico OCS. We believe our size advantages allow us to
provide the highest-quality diving services on the Gulf of
Mexico OCS and result in our leading share of diving services
contracts in this market. Furthermore, we expect to achieve
similar leadership in new offshore markets due to our superior
operating capabilities, international experience, existing
relationships with globally focused customers and proven
acquisition expertise.
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High-quality asset base. The diversity of our
vessels and diving systems, along with the modern features of
our saturation diving fleet, positions us among the most
technically advanced marine contractors and enables us to
provide a wide range of offshore services. We possess
complementary diving, pipelay and pipe burial capabilities that
are often required for more complex subsea projects. As a
result, we can effectively execute this higher-margin business
while enhancing the utilization of our diving support vessels.
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Highly skilled workforce. The quality of our
workforce has been, and will continue to be, a vital contributor
to our success. We believe that our high vessel utilization,
commitment to effective training and safety, customer
relationships and proven operating history help us to attract
and retain skilled employees.
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Excellent, long-standing customer
relationships. During our more than 30 years
operating in the Gulf of Mexico, we have built a reputation as a
premier diving services contractor in the region and have
developed a large and stable customer base, which includes
virtually all of the top 20 energy producers in the Gulf of
Mexico.
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Successful acquisition track record. We have a
proven track record of identifying and executing acquisitions
that complement our fleet and workforce and enhance our service
capabilities.
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Proven management team with extensive experience in the
marine contracting business. Our senior
management team, which has an average of 22 years of
industry experience, includes recognized leaders in diving
services and offshore construction. We believe the knowledge and
experience of our management team provides us a valuable
competitive advantage.
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Business
Strategy
The principal elements of our strategy to grow and maximize
shareholder value include:
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Strengthen leadership position on the Gulf of Mexico
OCS. We will seek to expand our leadership
position in the Gulf of Mexico OCS diving services market by
enhancing the capabilities of our existing assets, making
acquisitions of complementary assets or businesses and
continuing to provide a high level of customer service. As
evidence of our continued success in this market, we recently
entered into a new diving services contract with a major oil
company, the largest such contract in our history based on
potential revenues of approximately $80 million.
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Expand into high-growth international markets through
acquisitions. We are continually evaluating
potential acquisition targets in high-growth international
markets. Our goal is to replicate our Gulf of Mexico OCS
leadership in the most attractive international offshore regions
by leveraging our operating capabilities, international
experience, customer relationships and acquisition expertise.
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Continue to attract, develop and retain highly skilled
personnel. Our market leadership and future
growth plans are predicated on our ability to employ the most
highly skilled divers, supervisors and support staff in the
industry. We structure our compensation and benefit plans to be
competitive with our peers and invest significant resources in
developing the technical, operational and safety skills of our
workforce.
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Maintain a disciplined cost structure. We seek
to contain the costs of our operations and identify new
opportunities to reduce costs. We believe that our cost
discipline strategy will enhance our profitability in strong
market environments and better position us to withstand market
downturns.
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Optimize our mix of dayrate and qualified turnkey
work. We seek to optimize the allocation of our
resources between dayrate and qualified turnkey work in order to
diversify our sources of revenue and enhance overall
profitability. We believe that this strategy allows us to
respond effectively to the increasing demand from larger
customers for integrated solutions while ensuring that a segment
of our fleet is positioned to capitalize on attractive
opportunities in the spot market.
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Improve financial flexibility. We intend to
improve our financial flexibility in the near term by utilizing
our strong operating cash flows to reduce the debt incurred by
us in connection with this offering. We seek to achieve a more
conservative capital structure over the long term so that we may
continue to actively pursue value-enhancing growth initiatives
and mitigate some of the financial risk associated with a market
downturn.
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Risks
Associated with our Business
Our business is subject to numerous risks, as more fully
described in the section entitled Risk Factors. For
example, although we have recently experienced increased demand
for our services and improved margins, our business largely
depends on offshore exploration, development and production
activity in the oil and natural gas industry, which could
decline in the future. In addition, market conditions in the
marine contracting industry are highly cyclical and subject to
rapid change. Due to the short-term nature of most of our
contracts, adverse changes in market conditions can have an
immediate impact on our results of operations. Our business is
also subject to a number of other risks, including the
concentration of our business on the Gulf of Mexico OCS, a
mature oil and natural gas production region, which could result
in less exploration, development and production activities in
the area, thereby reducing demand for our services. In addition,
intense competition in our industry may reduce our profitability
and weaken our financial condition. We are also the subject of
an agreed final judgment that prevents us from making
acquisitions of certain vessels without the consent of the U.S.
Department of Justice, which could adversely affect our ability
to make strategic acquisitions and increase our revenues and
profitability. Finally, the operation of marine vessels is
risky, and we may incur losses or other liabilities that are not
covered by insurance and could have a material adverse effect on
our financial condition and results of operations.
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The
Offering
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Common stock offered by us |
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22,173,000 shares
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Common stock to be outstanding immediately after completion of
this offering |
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83,679,691 shares |
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Common stock to be held by Helix immediately after completion of
this offering |
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61,506,691 shares |
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Percentage of our common stock to be held by Helix immediately
after completion of this offering |
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73.5% |
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Proposed NYSE symbol |
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DVR |
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Use of proceeds |
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We estimate that the net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately $307.0 million, assuming an
initial public offering price of $15.00 per share, which is
the midpoint of the estimated offering price range set forth on
the cover page of this prospectus. A $1.00 increase (decrease)
in the assumed public offering price of $15.00 per share
would increase (decrease) the net proceeds to us from this
offering and the dividend to Helix by $20.7 million,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same and after
deducting the estimated expenses and underwriting discounts and
commissions payable by us. |
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We intend to distribute all of the net proceeds from this
offering to Helix as a dividend. If the underwriters exercise
their over-allotment option, Helix will sell
3,325,950 additional shares of our common stock to the
underwriters to cover any over-allotments. Any proceeds
resulting from the sale of shares by Helix, after deducting
underwriting discounts, will be paid to Helix and we will
receive no proceeds from the sale of shares by Helix. See
Use of Proceeds. |
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Dividend policy |
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Other than the dividends that we declared prior to the
effectiveness of this offering and that we intend to pay Helix
in connection with this offering, we do not anticipate paying
any dividends on our common stock in the foreseeable future. |
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Risk factors |
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For a discussion of the risks related to our business, our
relationship with Helix, our common stock and this offering, see
Risk Factors beginning on page 10. |
Unless otherwise indicated, the information in this prospectus:
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reflects a 61,506.691 to 1 stock split to be effected
immediately prior to this offering;
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assumes no exercise of the underwriters over-allotment
option; and
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excludes 1,320,309 restricted shares we anticipate granting to
certain executive officers and employees in connection with this
offering.
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Summary
Historical and Pro Forma Combined Financial Data
The following table sets forth summary historical and pro forma
combined financial data and other information of Cal Dive
International, Inc.
We have prepared our combined financial statements as if
Cal Dive International, Inc. had been in existence as a
separate company throughout all relevant periods. The summary
combined results of operations data and cash flow data for the
years ended December 31, 2003, 2004 and 2005 and the
summary combined balance sheet data as of December 31, 2004
and 2005 presented below were derived from our audited combined
financial statements and the related notes thereto included
elsewhere in this prospectus. The summary balance sheet data as
of December 31, 2003 presented below were derived from our
unaudited combined financial statements. The summary results of
operations data and cash flow data for the nine months ended
September 30, 2005 and 2006 and the summary balance sheet
data as of September 30, 2006 presented below were derived
from our unaudited combined financial statements and the related
notes thereto included elsewhere in this prospectus. The
operating results for the nine months ended September 30,
2005 and 2006 include all adjustments (consisting only of normal
recurring adjustments) that we believe are necessary for a fair
statement of the results of such interim periods.
In August 2005, we acquired vessels and diving assets from Torch
for an aggregate purchase price of $26.4 million (including
assets held for sale). The operating results of the acquired
vessels from Torch are included in these historical combined
statements of operations since the acquisition date of
August 31, 2005. Also, in late 2005 and early 2006, we
acquired the diving and shallow water pipelay business of Acergy
for an aggregate purchase price of $124.3 million. The
operating results of the assets acquired from Acergy during 2005
are included in the accompanying historical combined statements
of operations since the acquisition date of November 1,
2005. The combined statements of operations through the year
ended December 31, 2005 do not include the operating
results of the DLB801 or the Kestrel, which were
acquired from Acergy in 2006.
The historical financial and other data have been prepared from
Helixs consolidated financial statements using the
historical results of operations and bases of the assets and
liabilities of the predecessor shallow water marine contracting
business operated by Helix and give effect to allocations of
expenses from Helix. Our historical financial data is not
necessarily indicative of our future performance, nor does such
data reflect what our financial position and results of
operations would have been had we operated as an independent
publicly traded company during the periods shown.
Results for the nine months ended September 30, 2006 are
not necessarily indicative of the results expected for the
fiscal year ending December 31, 2006 or any future period.
The pro forma combined statement of operations data for the year
ended December 31, 2005 presented below were derived from
our audited combined financial statements and the accompanying
notes thereto included elsewhere in this prospectus. The pro
forma combined statement of operations data for the nine months
ended September 30, 2006 and the pro forma combined balance
sheet data as of September 30, 2006 presented below were
derived from our unaudited condensed combined financial
statements and the accompanying notes thereto included elsewhere
in this prospectus. The operating results for the nine months
ended September 30, 2006 include all adjustments
(consisting only of normal recurring adjustments) that we
believe are necessary for a fair statement of the results for
such interim period.
Our unaudited pro forma results of operations data are presented
for the year ended December 31, 2005 as if the acquisition
of the Acergy business was completed on January 1, 2005.
Our unaudited pro forma combined financial data as of and for
the year ended December 31, 2005 do not include:
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the results of operations of the assets acquired from Torch
prior to their acquisition in August 2005 because this
transaction did not qualify as a business
combination under FASB Statement No. 141, Business
Combinations;
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the results of operations of the assets acquired from Fraser
Diving prior to their acquisition because such results are
immaterial; and
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the results of OTSL prior to our equity investment in July 2005
because such results are immaterial.
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Our unaudited pro forma combined results of operations data for
the nine months ended September 30, 2006 are presented as
if the acquisition of the Acergy business was completed on
January 1, 2005.
The unaudited pro forma combined results of operations data for
the nine months ended September 30, 2006 do not include the
results of operations of the assets acquired from Fraser Diving
prior to their acquisition because such results are immaterial.
Our unaudited pro forma combined balance sheet as of
September 30, 2006 is presented assuming:
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the third-party indebtedness of $78 million, bearing
interest at 6.37% and incurred on December 8, 2006 by a
subsidiary of Helix that is being transferred to us in
connection with this offering and the proceeds of which were
distributed to Helix on December 8, 2006 as a dividend, was
outstanding as of September 30, 2006; and
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an additional $122 million draw under the same third-party
indebtedness, bearing interest at 6.37% and incurred by the same
subsidiary following the closing of this offering and the
proceeds of which will be distributed to Helix as a dividend,
was outstanding as of September 30, 2006.
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The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Helixs consolidated
financial statements using the historical results of operations
and bases of assets and liabilities of Helixs shallow
water marine contracting business and give effect to allocations
of expenses from Helix to us and from us to Helix. The unaudited
pro forma information is for illustrative and informational
purposes only and is not intended to represent or be indicative
of what our financial condition or results of operations would
have been had this offering occurred on the dates indicated. The
unaudited pro forma information also should not be considered
representative of our future financial condition or results of
operations.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Unaudited Pro Forma Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited combined financial
statements and the accompanying notes thereto included elsewhere
in this prospectus.
The following table presents a non-GAAP financial measure,
EBITDA, which we use to evaluate the financial performance of
our business. EBITDA is not calculated or presented in
accordance with U.S. generally accepted accounting
principles, or GAAP. In footnote 3 below, we explain EBITDA
and reconcile it to net income, its most directly comparable
financial measure calculated and presented in accordance with
GAAP.
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Pro Forma
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Pro Forma
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Nine Months
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Year Ended
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Nine Months Ended
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Ended
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Year Ended December 31,
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December 31,
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September 30,
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September 30,
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2003
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2004
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2005
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2005(1)
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2005
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2006
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2006(1)
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|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands, except per share and marine contracting
activity data)
|
|
|
Results of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
135,488
|
|
|
$
|
125,786
|
|
|
$
|
224,299
|
|
|
$
|
464,543
|
|
|
$
|
127,237
|
|
|
$
|
372,918
|
|
|
$
|
378,930
|
|
Cost of sales
|
|
|
108,479
|
|
|
|
101,583
|
|
|
|
152,586
|
|
|
|
386,794
|
|
|
|
88,370
|
|
|
|
204,031
|
|
|
|
207,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
27,009
|
|
|
|
24,203
|
|
|
|
71,713
|
|
|
$
|
77,749
|
|
|
|
38,867
|
|
|
|
168,887
|
|
|
$
|
171,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
10,337
|
|
|
|
12,318
|
|
|
|
16,730
|
|
|
|
|
|
|
|
8,483
|
|
|
|
25,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
55,253
|
|
|
|
|
|
|
|
30,384
|
|
|
|
143,999
|
|
|
|
|
|
Equity in earnings (losses) of
investment
|
|
|
|
|
|
|
|
|
|
|
2,817
|
|
|
|
|
|
|
|
672
|
|
|
|
(587
|
)
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
22
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
58,115
|
|
|
|
|
|
|
|
31,078
|
|
|
|
143,776
|
|
|
|
|
|
Provision for income taxes
|
|
|
5,870
|
|
|
|
4,211
|
|
|
|
20,385
|
|
|
|
|
|
|
|
10,980
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
|
|
|
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(2)
|
|
$
|
0.18
|
|
|
$
|
0.12
|
|
|
$
|
0.61
|
|
|
|
|
|
|
$
|
0.33
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic
and diluted(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)(4)
|
|
$
|
31,881
|
|
|
$
|
27,395
|
|
|
$
|
73,378
|
|
|
|
|
|
|
$
|
41,670
|
|
|
$
|
160,459
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,209
|
|
|
|
15,510
|
|
|
|
15,308
|
|
|
|
|
|
|
|
10,614
|
|
|
|
17,047
|
|
|
|
|
|
Capital expenditures
|
|
|
2,784
|
|
|
|
2,912
|
|
|
|
36,407
|
|
|
|
|
|
|
|
31,678
|
|
|
|
21,055
|
|
|
|
|
|
Acquisition of businesses
|
|
|
|
|
|
|
|
|
|
|
42,917
|
|
|
|
|
|
|
|
|
|
|
|
100,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
26,370
|
|
|
$
|
28,610
|
|
|
$
|
32,228
|
|
|
|
|
|
|
$
|
15,788
|
|
|
$
|
107,832
|
|
|
|
|
|
Investing activities
|
|
|
(2,584
|
)
|
|
|
(2,912
|
)
|
|
|
(79,547
|
)
|
|
|
|
|
|
|
(31,104
|
)
|
|
|
(106,036
|
)
|
|
|
|
|
Financing activities
|
|
|
(23,786
|
)
|
|
|
(25,698
|
)
|
|
|
47,319
|
|
|
|
|
|
|
|
15,316
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine Contracting Activity Data
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of vessels(6)
|
|
|
13
|
|
|
|
13
|
|
|
|
22
|
|
|
|
|
|
|
|
13
|
|
|
|
25
|
|
|
|
|
|
Utilization(7)
|
|
|
68
|
%
|
|
|
63
|
%
|
|
|
79
|
%
|
|
|
|
|
|
|
72
|
%
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30, 2006
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
43,270
|
|
|
$
|
46,565
|
|
|
$
|
110,484
|
|
|
$
|
125,936
|
|
|
$
|
123,888
|
|
Net property and equipment
|
|
|
91,533
|
|
|
|
76,329
|
|
|
|
113,604
|
|
|
|
221,530
|
|
|
|
221,530
|
|
Total assets
|
|
|
156,280
|
|
|
|
144,817
|
|
|
|
277,884
|
|
|
|
405,357
|
|
|
|
403,309
|
|
Total current liabilities
|
|
|
21,165
|
|
|
|
27,438
|
|
|
|
73,869
|
|
|
|
101,865
|
|
|
|
101,865
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Total liabilities
|
|
|
45,748
|
|
|
|
52,309
|
|
|
|
100,101
|
|
|
|
132,256
|
|
|
|
331,033
|
|
Total owners equity
|
|
|
110,532
|
|
|
|
92,508
|
|
|
|
177,783
|
|
|
|
273,101
|
|
|
|
72,276
|
|
8
|
|
|
(1)
|
|
Since a statement of revenue and
direct operating expenses for the assets acquired from Acergy is
presented elsewhere in this prospectus instead of a full
statement of operations, the pro forma information for the year
ended December 31, 2005 and the nine months ended
September 30, 2006 set forth above is limited to a
presentation of net revenues, cost of sales and gross profit.
|
|
(2)
|
|
Basic and diluted net income per
share are based upon 61,506,691 shares outstanding to be
held by Helix. These shares reflect a 61,506.691 to 1 stock
split to be effected immediately prior to this offering.
|
|
|
|
(3)
|
|
Unaudited pro forma basic and
diluted net income per share have been calculated using the sum
of the 61,506,691 shares that will be owned by Helix at the
completion of this offering, the 22,173,000 shares to be issued
in this offering with the net proceeds to be distributed to
Helix as a dividend and the 13,333,333 shares that we would have
been required to issue to fund a $78 million dividend
distributed to Helix on December 8, 2006, and a
$122 million dividend to be distributed to Helix following
the closing of this offering for which a total of
$200 million of debt will be assumed by us.
|
|
|
|
(4)
|
|
In addition to net income, we
evaluate our financial performance based on other factors, one
primary measure of which is earnings before net interest
expense, taxes, depreciation and amortization, which we refer to
as EBITDA. We use EBITDA as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of EBITDA as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, EBITDA
should be considered in addition to, and not as a substitute
for, net income and other measures of financial performance
reported in accordance with GAAP. Furthermore, this measure may
vary among companies; thus, EBITDA as presented below may not be
comparable to similarly titled measures of other companies.
|
We believe EBITDA is useful to investors and other external
users of our financial statements in evaluating our operating
performance because:
|
|
|
|
|
it is widely used by investors in our industry to measure a
companys operating performance without regard to items
such as interest expense, depreciation and amortization, which
can vary substantially from company to company depending upon
accounting methods and book value of assets, capital structure
and the method by which assets were acquired; and
|
|
|
|
it helps investors more meaningfully evaluate and compare the
results of our operations from period to period by removing the
impact of our capital structure (primarily interest charges from
our outstanding debt) and asset base (primarily depreciation and
amortization of our vessels) from our operating results.
|
Our management uses EBITDA:
|
|
|
|
|
as a measure of operating performance because it assists us in
comparing our performance on a consistent basis as it removes
the impact of our capital structure and asset base from our
operating results;
|
|
|
|
in presentations to our board of directors to enable them to
have the same consistent measurement basis of operating
performance used by management;
|
|
|
|
as a measure for planning and forecasting overall expectations
and for evaluating actual results against such expectations;
|
|
|
|
to assess compliance with financial ratios and covenants that
will be included in our revolving credit facility; and
|
|
|
|
in communications with lenders, rating agencies and others,
concerning our financial performance.
|
The following table presents a reconciliation of EBITDA to net
income, which is the most directly comparable GAAP financial
measure of our operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
EBITDA (unaudited)
|
|
$
|
31,881
|
|
|
$
|
27,395
|
|
|
$
|
73,378
|
|
|
$
|
41,670
|
|
|
$
|
160,459
|
|
Less: Depreciation and
amortization
|
|
|
15,209
|
|
|
|
15,510
|
|
|
|
15,308
|
|
|
|
10,614
|
|
|
|
17,047
|
|
Plus: Net interest income
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
22
|
|
|
|
364
|
|
Less: Provision for income
taxes
|
|
|
5,870
|
|
|
|
4,211
|
|
|
|
20,385
|
|
|
|
10,980
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
Cash flows from financing
activities have been reflected as (a) cash transfers from
us to Helix equal to substantially all cash provided by
operating activities and (b) cash transfers from Helix to
us equal to the amount of cash used in investing activities.
Substantially all excess cash has been transferred to our owner.
These cash transfers have been reflected as changes in total
owners equity.
|
|
(6)
|
|
As of the end of the period and
excluding acquired vessels prior to their in-service dates,
vessels taken out of service prior to their disposition and
vessels jointly owned by a third party.
|
|
(7)
|
|
Average vessel utilization is
calculated by dividing the total number of days the vessels
generated revenues by the total number of days the vessels were
available for operation in each period and does not reflect
acquired vessels prior to their in-service dates, vessels in
drydocking, vessels taken out of service prior to their
disposition and vessels jointly owned by a third party.
|
9
RISK
FACTORS
An investment in our common stock involves various risks. You
should carefully consider the following risks and all of the
other information contained in this prospectus before investing
in our common stock. The risks described below are those which
we believe are the material risks that we face. These risks
could materially adversely affect our business, financial
condition or results of operations. In such an event, the
trading price of our common stock could decline and you could
lose part or all of your investment.
Risks
Related to Our Business
Our
business largely depends on offshore exploration, development
and production activity in the oil and natural gas industry,
which is currently at a historically high level and could
decline in the future.
Our business is substantially dependent upon the condition of
the oil and natural gas industry and, in particular, the
willingness of oil and natural gas companies to make capital
expenditures for offshore exploration, development and
production operations. The level of capital expenditures
generally depends on the prevailing views of future oil and
natural gas prices, which are influenced by numerous factors,
including but not limited to:
|
|
|
|
|
changes in U.S. and international economic conditions;
|
|
|
|
demand for oil and natural gas, especially in the United States,
China and India;
|
|
|
|
worldwide political conditions, particularly in significant
oil-producing regions such as the Middle East, West Africa and
Latin America;
|
|
|
|
actions taken by the Organization of Petroleum Exporting
Countries, or OPEC;
|
|
|
|
the availability and discovery rate of new oil and natural gas
reserves in offshore areas;
|
|
|
|
the cost of offshore exploration for, and production and
transportation of, oil and natural gas;
|
|
|
|
the ability of oil and natural gas companies to generate funds
or otherwise obtain external capital for exploration,
development and production operations;
|
|
|
|
the sale and expiration dates of offshore leases in the United
States and overseas;
|
|
|
|
technological advances affecting energy exploration, production,
transportation and consumption;
|
|
|
|
weather conditions;
|
|
|
|
environmental or other government regulations; and
|
|
|
|
tax policies.
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Oil and natural gas prices are currently at historically high
levels and recent capital spending levels may not remain the
same or increase. A sustained period of low offshore drilling
and production activity or the return of lower commodity prices
would likely have a material adverse effect on our business,
financial condition or results of operations.
Market
conditions in the marine contracting industry are highly
cyclical and subject to rapid change. Due to the short-term
nature of most of our contracts, adverse changes in market
conditions can have an immediate impact on our results of
operations.
Historically, the marine contracting industry has been highly
cyclical, with periods of high demand and high dayrates often
followed by periods of low demand and low dayrates. Periods of
low demand intensify the competition in the industry and can
result in vessels and diving systems being idle. We may be
required to idle vessels or diving systems or reduce contract
rates in response to market conditions in the future. On the
Gulf of Mexico OCS, contracts are generally short-term, and oil
and natural gas companies tend to respond quickly to changes in
commodity prices. Due to the short-term nature of most of our
contracts, changes in market conditions can have an immediate
impact on our results of operations. In addition, customers
generally have
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the right to terminate our contracts with little or no notice,
and without penalty. As a result of the cyclicality of our
industry, we expect our results of operations to be volatile.
Our
business is concentrated on the Gulf of Mexico OCS, and the
mature nature of this region could result in less exploration,
development and production activities in the area, thereby
reducing demand for our services.
The Gulf of Mexico OCS is a mature oil and natural gas
production region that has experienced substantial exploration,
development and production activity for many years. Because a
large number of oil and natural gas prospects in this region
have already been drilled, additional prospects of sufficient
size and quality could be more difficult to identify. Moreover,
oil and natural gas companies may be unable to obtain financing
necessary to drill prospects in this region. The decrease in the
size of oil and natural gas prospects, the decrease in
production or the failure to obtain such financing may result in
reduced exploration, development and production activity in the
Gulf of Mexico and reduced demand for our services.
Intense
competition in our industry may reduce our profitability and
weaken our financial condition.
The businesses in which we operate are highly competitive. Our
contracts traditionally have been awarded on a competitive bid
basis, and while customers may consider, among other things, the
reputation, safety record and experience of the contractor,
price competition is often the primary factor in determining
which qualified contractor is awarded a job. This competition
has become more intense in recent years as mergers among oil and
natural gas companies have reduced the number of available
customers. Contract pricing is in part dependent on the supply
of competing vessels. Generally, excess offshore service
capacity puts downward pressure on contract rates. If other
companies construct new vessels or relocate existing vessels to
our markets, competition may further increase, driving down the
rates we may charge our customers. We believe that the
competition for contracts will continue to be intense in the
foreseeable future. The impairment of our ability to compete
successfully may reduce our profitability and weaken our
financial condition.
If we
fail to manage our growth effectively, our results of operations
could be harmed.
We have a history of growing through acquisitions of companies
and assets. We must plan and manage our acquisitions effectively
to achieve revenue growth and maintain profitability in our
evolving market. If we fail to manage current and future
acquisitions effectively, our results of operations could be
adversely affected. Our growth has placed, and is expected to
continue to place, significant demands on our personnel,
management and other resources. We must continue to improve our
operational, financial, management and legal/compliance
information systems to keep pace with the growth of our business.
Any future acquisitions could present a number of risks,
including but not limited to:
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incorrect assumptions regarding the future results of acquired
operations or assets or expected cost reductions or other
synergies expected to be realized as a result of acquiring
operations or assets;
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failure to integrate the operations or management of any
acquired operations or assets successfully and timely;
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diversion of managements attention from existing
operations or other priorities; and
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our inability to secure, on terms we find acceptable, sufficient
financing that may be required for any such acquisition or
investment.
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If we are unsuccessful in completing acquisitions of other
businesses or assets, our business, financial condition or
results of operations could be adversely affected. In addition,
if we are unsuccessful in integrating our acquisitions in a
timely and cost-effective manner, our business, financial
condition or results of operations could be adversely affected.
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Our
operations outside of the United States are subject to
additional political, economic, and other uncertainties that
could adversely affect our business, financial condition or
results of operations, and our exposure to such risks will
increase as we expand our international
operations.
An element of our business strategy is to expand into
international oil and natural gas producing areas such as
Southeast Asia, the Middle East and Trinidad. Our operations
outside of the United States are subject to risks inherent in
foreign operations, including but not limited to:
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political, social and economic instability;
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the loss of revenue, property and equipment from hazards such as
expropriation, nationalization, war, insurrection, acts of
terrorism and other political risks;
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increased operating costs;
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increases in taxes and governmental royalties;
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renegotiation or abrogation of contracts with governmental
entities;
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changes in laws and policies governing operations of
foreign-based companies;
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import-export quotas;
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currency restrictions and exchange rate fluctuations;
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world economic cycles;
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limited market access; and
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other uncertainties arising out of foreign government
sovereignty over our international operations.
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In addition, laws and policies of the United States affecting
foreign trade and taxation may also adversely affect our
international operations.
As our international operations expand, the exposure to these
risks will increase. Our business, financial condition or
results of operations could be susceptible to adverse events
beyond our control that may occur in the particular country or
region in which we are active.
We are
the subject of an agreed final judgment that prevents us from
making acquisitions of certain vessels without the consent of
the U.S. Department of Justice, which could adversely
affect our ability to make strategic acquisitions and increase
our revenues and profitability.
As part of the Acergy and Torch acquisitions in 2005, Helix
entered into an agreed final judgment with the
U.S. Department of Justice, or DOJ, to remedy certain
anti-competitive effects of the acquisitions alleged by the DOJ.
The final judgment requires Helix, until January 2009, to notify
the DOJ of any proposed direct or indirect acquisition of a
saturation diving chamber that has been operated in the Gulf of
Mexico at any time since October 1, 2002 or any interest in
a company that owns or operates such a chamber. We are also
subject to and will continue to be bound by the consent decree.
Since we are not able to make any acquisition of this type
without obtaining the consent of the DOJ, our ability to satisfy
our customers demands for services that require us to use
saturation diving chambers and to generate revenues from these
services may be limited.
The
loss of the services of one or more of our key employees, or our
failure to attract and retain other highly qualified personnel
in the future, could disrupt our operations and adversely affect
our financial results.
Our industry has lost a significant number of experienced subsea
professionals over the years due to, among other reasons, the
cyclicality of our business. Our continued success depends on
the active participation of our key employees. The loss of one
or more of our key people could adversely affect our operations.
We believe that our success and continued growth are also
dependent upon our ability to attract and retain skilled
personnel. Unionization or a significant increase in the wages
paid by other employers could result in a reduction in our
workforce, increases in the wage rates we pay, or both. If
either of these events occurs for any
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significant period of time, our revenues and profitability could
be diminished and our growth potential could be impaired.
The
operation of marine vessels is risky, and we may incur losses or
other liabilities that are not covered by insurance and could
have a material adverse effect on our financial condition and
results of operations.
Marine contracting involves a high degree of operational risk.
Hazards, such as vessels sinking, grounding, colliding and
sustaining damage from severe weather conditions, are inherent
in marine operations. These hazards can cause personal injury or
loss of life, severe damage to and destruction of property and
equipment, pollution or environmental damage and suspension of
operations. Damage arising from such occurrences may result in
lawsuits asserting large claims. We maintain such insurance
protection as we deem prudent, including Jones Act employee
coverage, which is the maritime equivalent of workers
compensation, and hull insurance on our vessels. Such insurance
may not be sufficient or effective under all circumstances or
against all hazards to which we may be subject. A successful
claim for which we are not fully insured could have a material
adverse effect on our business, financial condition or results
of operations. Moreover, our ability to maintain adequate
insurance in the future at rates that we consider reasonable may
be limited. As a result of market conditions, premiums and
deductibles for certain of our insurance policies have increased
substantially and could escalate further. In some instances,
certain insurance could become unavailable or available only for
reduced amounts of coverage. For example, insurance carriers are
now requiring broad exclusions for losses due to war risk and
terrorist acts and limitations for wind storm damage. The
current insurance on our vessels, in some cases, is in amounts
approximating book value, which is less than replacement value.
In the event of property loss due to a catastrophic marine
disaster, mechanical failure or collision, insurance may not
cover a substantial loss of revenues, increased costs and other
liabilities, and could have a material adverse effect on our
operating performance if we were to lose any of our large
vessels.
After
this offering, we will have substantial debt obligations that
could restrict our operations and impair our financial
condition.
After this offering, we will be party to a $250 million
five-year revolving credit facility. On December 8, 2006,
the subsidiary of ours that acts as borrower under the facility
borrowed $79 million under the facility. Following the
closing of this offering, that subsidiary is expected to borrow
another $122 million under the facility. We expect to use
the remaining availability under the facility for working
capital and other general corporate purposes. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Revolving Credit Facility.
This substantial indebtedness could have adverse consequences on
us, including:
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increasing our vulnerability to adverse economic, regulatory and
industry conditions;
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limiting our ability to compete and our flexibility in planning
for, or reacting to, changes in our business and the industry;
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limiting our ability to borrow additional funds; and
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requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing funds
available for working capital, capital expenditures,
acquisitions and other purposes.
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If our cash flow and capital resources are insufficient to
service our debt obligations, we may be forced to reduce or
delay our business activities and capital expenditures, sell
assets, seek additional equity or debt capital or restructure or
refinance our debt. However, these measures might be
unsuccessful or inadequate in permitting us to meet our
scheduled debt service obligations. We may be unable to
restructure or refinance our obligations or obtain additional
equity financing or sell assets on satisfactory terms or at all.
As a result, an inability to meet our debt obligations could
cause us to default on those obligations. A default under any
debt instrument could, in turn, result in defaults under other
debt instruments. Any such defaults could materially impair our
financial condition and liquidity.
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Our
contracting business declines in winter, and bad weather in the
Gulf of Mexico can adversely affect our revenues.
Marine operations conducted in the Gulf of Mexico are typically
seasonal and depend, in part, on weather conditions.
Historically, we have experienced our lowest vessel utilization
rates during the first quarter, and to a lesser extent during
the fourth quarter, when weather conditions are least favorable
for offshore exploration, development and construction
activities. As is common in the industry, we typically bear the
risk of delays caused by some, but not all, adverse weather
conditions. Accordingly, our results in any one quarter are not
necessarily indicative of annual results or continuing trends.
Our
original estimates of the costs associated with our qualified
turnkey projects may be incorrect and result in reduced
profitability or losses on those projects.
Many of our projects are performed on a qualified turnkey basis
where a defined work scope is delivered for a fixed price and
extra work, which is subject to customer approval, is billed
separately. The revenue, cost and gross profit realized on a
turnkey contract can vary from the estimated amount because of
changes in offshore job conditions, variations in labor and
equipment productivity from the original estimates, and the
performance of others, such as alliance partners. These
variations and risks inherent in the marine construction
business may result in our experiencing reduced profitability or
losses on projects.
We are
subject to extensive federal, state, local and other laws and
regulations that could adversely affect the cost, manner or
feasibility of conducting our operations.
Our subsea construction, intervention, inspection, maintenance
and decommissioning operations are subject to extensive laws and
regulations. In order to conduct our operations in compliance
with these laws and regulations, we must obtain and maintain
numerous permits, approvals and certificates from various
federal, state and local governmental authorities. Due to
adverse operating market conditions or unfavorable financing
conditions, there may be occasions when certain recertification
efforts may be postponed, rendering certain vessel operations
temporarily out of commission, until more favorable market or
cost of capital conditions arise. For example, the DP DSV
Witch Queen, which generated $13.0 million of
revenues in 2003, was taken out of service for substantially all
of 2004 due to market conditions and a pending, costly
regulatory drydock. In addition, our costs of compliance may
increase if existing laws and regulations are revised or
reinterpreted, or if new laws and regulations become applicable
to our operations that may, for instance, require us to obtain
additional permits, approvals and certificates for proposed
projects. Any actual or alleged violation of permit requirements
or failure to obtain any required permit could result in
restrictions or prohibitions on our operations or criminal
sanctions. Alternatively, we may have to incur substantial
expenditures to obtain, maintain or renew authorizations to
conduct existing projects. If a project is unable to function as
planned due to changing requirements or local opposition, we may
suffer expensive delays, extended periods of non-operation or
significant loss of value in a project. All such costs may have
a negative effect on our business, financial condition or
results of operations. Failure to comply with such laws and
regulations, as interpreted and enforced, could have a material
adverse effect on our business, financial condition or results
of operations. See Business Government
Regulation.
We may
incur substantial costs and liabilities with respect to
environmental, health and safety laws and
regulations.
We may incur substantial costs and liabilities as a result of
environmental, health and safety requirements relating to, among
other things, our subsea construction and intervention,
inspection, maintenance and decommissioning operations. These
costs and liabilities could arise under a wide range of
environmental, health and safety laws, including regulations and
enforcement policies, which have tended to become increasingly
strict over time. Failure to comply with these laws and
regulations may result in assessment of administrative, civil,
and criminal penalties, imposition of cleanup and site
restoration costs and liens, and the issuance of orders
enjoining or limiting our current or future operations.
Compliance with these laws and regulations also increases the
cost of our operations and may prevent or delay the commencement
or
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continuance of a given operation. In addition, claims for
damages, including damages for natural resources, to persons or
property may result from environmental and other impacts of our
operations.
Strict, joint and several liability to remediate contamination
may be imposed under certain environmental laws, which could
cause us to become liable for, among other things, the conduct
of others or for consequences of our own actions that were in
compliance with all applicable laws at the time those actions
were taken. New or modified environmental, health or safety
laws, regulations or enforcement policies could be more
stringent and impose unforeseen liabilities or significantly
increase compliance costs. Therefore, the costs to comply with
environmental, health or safety laws or regulations or the
liabilities incurred in connection with them could significantly
and adversely affect our business, financial condition or
results of operations. See Business
Environmental Regulation.
Risks
Related to Our Relationship with Helix
We
have no operating history as an independent company and our
historical and pro forma combined financial information is not
necessarily representative of the results we would have achieved
as an independent publicly traded company and may not be a
reliable indicator of our future results.
The historical and pro forma combined financial information
included in this prospectus does not necessarily reflect the
financial condition, results of operations or cash flows we
would have achieved as an independent publicly traded company
during the periods presented or those results we will achieve in
the future. This is primarily a result of the following factors:
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Our historical and pro forma combined financial results reflect
allocations of corporate expenses from Helix. Those allocations
may be different from the comparable expenses we would have
incurred had we operated as an independent publicly traded
company.
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Our working capital requirements and funding for maintenance
capital expenditures, strategic investments and acquisitions
have historically been part of the corporate-wide cash
management program of Helix. Subsequent to this offering, we
will be solely responsible for the provision of funds to finance
our working capital and other cash requirements. Without the
opportunity to obtain financing from Helix, we may in the future
need to obtain additional financing from banks, or through
public offerings or private placements of debt or equity
securities, strategic relationships or other arrangements. We
may incur debt on terms and at interest rates that will not be
as favorable as those generally enjoyed by Helix.
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Significant changes may occur in our cost structure, management,
financing and business operations as a result of our operating
as an independent public subsidiary of Helix. These changes
could result in increased costs associated with reduced
economies of scale, standalone costs for services currently
provided by Helix, the need for additional personnel to perform
services currently provided by Helix and the legal, accounting,
compliance and other costs associated with being a public
company with equity securities listed on a national stock
exchange. We are obligated to continue to use the services of
Helix under the Corporate Services Agreement until such time as
Helix owns less than 50% of the total voting power of our common
stock, or longer for certain information technology services,
and, in the event our Corporate Services Agreement with Helix
terminates, we may not be able to replace the services that
Helix provides us until such time or in a timely manner or on
comparable terms.
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Helix
owns a controlling interest in our company. The interests of
Helix may conflict with those of our other stockholders, and
other stockholders voting power may be
limited.
After this offering, Helix will own approximately 73.5% of the
outstanding shares of our common stock. For so long as Helix
continues to own shares of our common stock representing more
than 50% of the total voting power of our stock, it will have
the ability to direct the election of all members of our board
of directors and to exercise a controlling influence over our
business and affairs, including any determinations with respect
to mergers or other business combinations involving us, or
acquisition or disposition of assets, the incurrence of
indebtedness by us, the issuance of any additional common stock
or other equity securities by
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us, the repurchase or redemption of common stock or preferred
stock by us and the payment of dividends by us. Similarly, Helix
will have the power to determine or significantly influence the
outcome of matters submitted to a vote or our stockholders,
including the power to prevent an acquisition or any other
change in control of us. Because Helixs interests as our
controlling stockholder may differ from your interests, actions
taken by Helix with respect to us may not be favorable to you.
Prior to the completion of this offering, we also will enter
into a Master Agreement, a Corporate Services Agreement and a
number of other agreements with Helix setting forth various
matters governing our relationship with Helix while it remains a
significant stockholder in us. For a description of these
agreements, see Arrangements Between Helix and Us.
These agreements will govern our relationship with Helix after
this offering and will allow Helix to retain control over, among
other things, the provision of corporate services to us and our
ability to make certain acquisitions or to merge or consolidate
or to sell all or substantially all our assets. The rights of
Helix under these agreements may allow Helix to delay or prevent
an acquisition of us that our other stockholders may consider
favorable. We will not be able to terminate these agreements or
amend them in a manner we deem more favorable so long as Helix
continues to own shares of our common stock representing more
than 50% of the total voting power of our common stock. See
Description of Capital Stock and Arrangements
Between Helix and Us.
Conflicts
of interest may arise between Helix and us that could be
resolved in a manner unfavorable to us.
Questions relating to conflicts of interest may arise between
Helix and us in a number of areas relating to our past and
ongoing relationships. After this offering, two of our directors
will continue to serve as directors and executive officers of
Helix and one of our prospective directors will continue to
serve as a director of Helix. For as long as Helix continues to
own shares of our common stock representing more than 50% of the
total voting power of our common stock, it will have the ability
to direct the election of all the members of our board of
directors and to exercise a controlling influence over our
business and affairs.
Areas in which conflicts of interest between Helix and us could
arise include, but are not limited to, the following:
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Cross officerships, directorships and stock
ownership. The ownership interests of our
directors or executive officers in the common stock of Helix or
service as a director or officer of both Helix and us could
create, or appear to create, conflicts of interest when
directors and executive officers are faced with decisions that
could have different implications for the two companies. For
example, these decisions could relate to (i) the nature,
quality and cost of services rendered to us by Helix,
(ii) disagreement over the desirability of a potential
acquisition opportunity, (iii) employee retention or
recruiting or (iv) our dividend policy.
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Intercompany transactions. From time to time,
Helix or its affiliates may enter into transactions with us or
our subsidiaries or other affiliates. Although the terms of any
such transactions will be established based upon negotiations
between employees of Helix and us and, when appropriate, subject
to the approval of the independent directors on our board or a
committee of disinterested directors, the terms of any such
transactions may not be as favorable to us or our subsidiaries
or affiliates as may otherwise be obtained in arms length
negotiations. Under the Master Agreement, at Helixs
request, we will continue to contract vessels and related
equipment owned by us to Helix, at prevailing market rates.
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Intercompany agreements. We will enter into
certain agreements with Helix pursuant to which Helix will
provide us with certain accounting, tax and other services and
we will provide Helix with certain training, supply chain,
operational facilities and operational human resources services.
Payments for these services will allow Helix and us to fully
recover the allocated direct costs of providing the services,
plus all
out-of-pocket
costs and expenses. In addition, we will enter into a number of
intercompany agreements covering matters such as tax sharing and
our responsibility for certain liabilities previously undertaken
by Helix for certain of our businesses. We are negotiating the
terms of these agreements with Helix in the context of a
parent-subsidiary relationship. The terms will not be the result
of arms length negotiations. In addition, conflicts could
arise in the interpretations of any
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extension or renegotiation of these agreements after this
offering. See Arrangements Between Helix and Us.
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If
Helix engages in the same type of business we conduct or takes
advantage of business opportunities that might be attractive to
us, our ability to operate successfully and expand our business
may be hampered.
Our amended and restated certificate of incorporation provides
that, subject to any contractual provision to the contrary,
Helix will have no obligation to refrain from:
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engaging in the same or similar business activities or lines of
business as us, or
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doing business with any of our clients, customers or vendors.
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In addition, the corporate opportunity policy set forth in our
amended and restated certificate of incorporation addresses
potential conflicts of interest between our company, on the one
hand, and Helix and its officers and directors who are officers
or directors of our company, on the other hand. The policy
provides that if Helix acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for
both Helix and us, we will have renounced our interest in the
corporate opportunity. It also provides that if one of our
directors or officers who is also a director or officer of Helix
learns of a potential transaction or matter that may be a
corporate opportunity for both Helix and us, we will have
renounced our interest in the corporate opportunity, unless that
opportunity is expressly offered to that person in writing
solely in his or her capacity as our director or officer.
If one of our officers or directors, who also serves as a
director or officer of Helix, learns of a potential transaction
or matter that may be a corporate opportunity for both Helix and
us, our amended and restated certificate of incorporation
provides that the director or officer will have no duty to
communicate or present that corporate opportunity to us and will
not be liable to us or our stockholders for breach of fiduciary
duty by reason of Helixs actions with respect to that
corporate opportunity.
This policy could result in Helix having rights to corporate
opportunities in which both we and Helix have an interest. We
are unaware of any intention by Helix to take advantage of
business opportunities that might be attractive to us.
By becoming a stockholder in our company, you will be deemed to
have notice of and have consented to these provisions of our
amended and restated certificate of incorporation. See
Description of Capital Stock Corporate
Opportunity.
Future
sales or distributions of our shares by Helix could depress the
market price for shares of our common stock.
After this offering, Helix may sell all or part of the shares of
our common stock that it owns or distribute those shares to its
stockholders, including pursuant to demand registration rights
described herein. Sales or distributions by Helix of substantial
amounts of our common stock in the public market or to its
stockholders could adversely affect prevailing market prices for
our common stock. Helix is not subject to any contractual
obligation that would prohibit it from selling, spinning off,
splitting off or otherwise disposing of any shares of our common
stock, except that Helix has agreed not to sell, spin off, split
off or otherwise dispose of any of our shares of common stock
for a period of 180 days after the date of this prospectus
without the prior written consent of Banc of America Securities
LLC and J.P. Morgan Securities Inc., subject to certain
limitations and limited exceptions. Consequently, Helix may not
maintain its ownership of our common stock after the
180-day
period following this offering.
We may
be unable to replace the corporate services Helix provides us in
a timely manner or on comparable terms.
We will enter into a Corporate Services Agreement with Helix
prior to the completion of this offering. Pursuant to the
Corporate Services Agreement, Helix and its affiliates will
agree to provide us with corporate services after this offering,
including treasury and other financial services, employment
benefit services and insurance, information systems and network
services. The Corporate Services Agreement will require Helix
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and us to utilize these services in the conduct of its business
until such time as Helix owns less than 50% of the total voting
power of our common stock.
We are negotiating these arrangements with Helix in the context
of a parent-subsidiary relationship. Although Helix will be
contractually obligated to provide us with services during the
term of the Corporate Services Agreement, we may not be able to
obtain services of similar scope and quality after the
expiration of that agreement. In addition, our costs of
procuring those services from third parties may increase. See
Arrangements Between Helix and Us Relationship
with Helix.
We
will not have control over certain tax decisions and could be
liable for income taxes owed by Helix.
Prior to the closing of this offering, we and certain of our
subsidiaries will be included in Helixs consolidated group
for U.S. federal income tax purposes. In addition, we or
one or more of our subsidiaries may be included in the combined,
consolidated or unitary tax returns of Helix or one or more of
its subsidiaries for foreign, state and local income tax
purposes. Under the Tax Matters Agreement, Helix will have the
right to prepare and file income tax returns that include us or
our subsidiaries if Helix has any responsibility for the taxes
shown on such income tax returns. The Tax Matters Agreement
provides that Helix will have sole authority to respond to and
conduct all tax proceedings (including tax audits) relating to
such income tax returns. This arrangement may result in
conflicts of interest between Helix and us. For example, under
the Tax Matters Agreement, Helix will be able to choose to
contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may
be beneficial to Helix and detrimental to us.
Moreover, notwithstanding the Tax Matters Agreement,
U.S. federal tax law provides that each member of a
consolidated group is liable for the groups entire tax
obligation. Thus, to the extent Helix or other members of the
consolidated group fail to make any U.S. federal income tax
payments required by law for tax periods for which we or our
subsidiaries are included in Helixs consolidated group, we
could be liable for the shortfall. Similar principles may apply
for foreign, state and local income tax purposes where we file
combined, consolidated or unitary returns with Helix or its
subsidiaries for foreign, state and local income tax purposes.
We
could be responsible for taxes resulting from the transfer of
assets to us by Helix.
To effect the separation, Helix will, and will cause its
affiliates to, transfer to us the assets related to our business
not currently owned by us, as described in this prospectus.
Under the Tax Matters Agreement, Helix is generally responsible
for any taxes resulting from such transfer. However, under the
Tax Matters Agreement, we have agreed to be responsible for any
additional taxes that may result from actions we take following
the closing of this offering.
Risks
Related to Our Common Stock and This Offering
There
is no existing market for our common stock, and a trading market
that will provide you with adequate liquidity may not
develop.
Prior to this offering, there has been no public market for our
common stock. We intend to apply to list our common stock on the
NYSE. An active trading market may not develop for our common
stock, which may make it more difficult for you to sell your
shares. Negotiations between us and the representatives of the
underwriters will determine the initial public offering price
and may not be indicative of the market price of our common
stock that will prevail in the trading market. You may not be
able to sell your shares at or above the initial public offering
price.
The
market price for our shares of common stock may be highly
volatile and could be subject to wide
fluctuations.
The market price of our common stock may also be influenced by
many factors, some of which are beyond our control, including:
18
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general economic conditions;
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our quarterly or annual earnings, or those of other companies in
our industry;
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publication of research reports about us or the marine
contracting industry generally;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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speculation in the press or investment community regarding our
business;
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changes in market valuations of similar companies;
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announcements by us or our competitors of significant contracts
or acquisitions;
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our loss of a significant client;
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additions or departures of key management personnel;
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future sales by us or other holders of our common stock;
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increases in market interest rates, which may increase our cost
of capital;
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adverse market reaction to any indebtedness we may incur in the
future;
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changes in accounting standards, policies guidance,
interpretations or principles;
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changes in applicable laws or regulations, court rulings and
enforcement and legal actions;
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actions by our shareholders; and
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other factors described in these Risk Factors.
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In recent years, the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many
companies, including companies in our industry. The changes
frequently appear to occur without regard to the operating
performance of these companies. The price of our common stock
could fluctuate based upon factors that have little or nothing
to do with our company, and these fluctuations could materially
reduce our stock price.
In the past, some companies that have had volatile market prices
for their securities have been subject to securities class
action suits filed against them. If a suit were to be filed
against us, regardless of the outcome, it could result in
substantial legal costs and a diversion of our managements
attention and resources. This could have a material adverse
effect on our business, financial condition or results of
operations.
Our
stock ownership by Helix, provisions in our agreements with
Helix and our corporate governance documents and Delaware law
may delay or prevent an acquisition of us that our other
stockholders may consider favorable, which could decrease the
value of your shares of common stock.
After this offering, for as long as Helix continues to own
shares of our common stock representing more than 50% of the
total voting power of our common stock, it will have the ability
to control decisions regarding an acquisition of us by a third
party. In addition, our amended and restated certificate of
incorporation, bylaws and Delaware law contain provisions that
could make it more difficult for a third party to acquire us
without the consent of our board of directors. These provisions
include restrictions on the ability of our stockholders to
remove directors, supermajority voting requirements for
stockholders to amend our organizational documents, restrictions
on a classified board of directors and limitations on action by
our stockholders by written consent. Some of these provisions,
such as the limitation on stockholder action by written consent,
only become effective once Helix no longer controls us. In
addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be
used to dilute the stock ownership of a potential hostile
acquirer. Delaware law also imposes certain restrictions on
mergers and other business combinations between us and any
holder of 15% or more of our outstanding voting stock. These
restrictions under Delaware law do not apply to Helix until it
beneficially owns less than 15% of our common stock and
subsequently increases its shareholdings to once again
beneficially own at least 15% of our common stock. Although we
believe these
19
provisions protect our stockholders from coercive or otherwise
unfair takeover tactics and thereby provide for an opportunity
to receive a higher bid by requiring potential acquirers to
negotiate with our board of directors, these provisions apply
even if the offer may be considered beneficial by some
stockholders. See Description of Capital Stock.
We
currently do not intend to pay dividends on our common
stock.
Other than the dividends that we declared prior to the
effectiveness of this offering and that we intend to pay to
Helix in connection with this offering, we do not expect to pay
dividends on our common stock in the foreseeable future. We are
a holding company with no independent operations and no
significant assets other than the stock of our subsidiaries. We
therefore are dependent upon the receipt of dividends or other
distributions from our subsidiaries to pay dividends.
Accordingly, if you purchase shares in this offering, the price
of our common stock must appreciate in order to realize a gain
on your investment. This appreciation may not occur.
You
will suffer an immediate and substantial dilution in the net
tangible book value of the common stock you
purchase.
We estimate that the initial public offering price of our common
stock will be $15.00 per share, which is the midpoint of
the estimated offering price range set forth on the cover page
of this prospectus. This amount is substantially higher than the
pro forma as adjusted net tangible book value that our
outstanding common stock will have immediately after this
offering. Accordingly, purchasers of common stock in this
offering will experience immediate and substantial dilution of
approximately $14.48 per share in net tangible book value
of the common stock. See Dilution.
You
may experience dilution of your ownership interests due to the
future issuance of additional shares of our common
stock.
We may in the future issue our previously authorized and
unissued securities, resulting in the dilution of the ownership
interests of our present shareholders and purchasers of common
stock offered hereby. Following the closing of this offering, we
will be authorized to issue 240 million shares of
common stock and 5 million shares of preferred stock
with preferences and rights as determined by our board of
directors. Pursuant to our long-term incentive plan, we will
also reserve 7 million shares of our common stock for
future issuance as restricted stock, stock options or other
equity-based grants to employees and directors. We may also
issue additional shares of our common stock or other securities
that are convertible into or exercisable for common stock in
connection with the hiring of personnel, future acquisitions,
future private placements of our securities for capital raising
purposes or for other business purposes. At the close of this
offering, the potential issuance of additional shares of common
stock may create downward pressure on the trading price of our
common stock.
20
FORWARD-LOOKING
STATEMENTS
All statements other than statements of historical facts
included in this prospectus, including but not limited to,
statements regarding our future financial position, business
strategy, budgets, projected costs, savings and plans and
objectives of management for future operations, are
forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such
as may, will, expect,
intend, estimate,
anticipate, believe or
continue or the negative thereof or variations
thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations
(cautionary statements) are disclosed under
Risk Factors and elsewhere in this prospectus,
including but not limited to, in conjunction with the
forward-looking statements included in this prospectus. All
subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the cautionary
statements included in this prospectus.
All forward-looking statements attributable to us or persons
acting on our behalf apply only as of the date of this
prospectus and are expressly qualified in their entirety by the
cautionary statements included in this prospectus. We undertake
no obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
21
USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and estimated offering
expenses, will be approximately $307.0 million, assuming an
initial public offering price of $15.00 per share of common
stock, which is the midpoint of the estimated offering price
range set forth on the cover page of this prospectus. We
estimate that a $1.00 increase (decrease) in the assumed public
offering price of $15.00 per share would increase
(decrease) the net proceeds to us from this offering and the
dividend to Helix by $20.7 million, assuming the number of
shares offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting the estimated
expenses and underwriting discounts and commissions payable by
us.
We intend to distribute all of the net proceeds from this
offering to Helix as a dividend. If the underwriters exercise
their over-allotment option, Helix will sell 3,325,950
additional shares of our common stock to the underwriters to
cover any over-allotments. Any proceeds resulting from the sale
of shares by Helix, after deducting underwriting discounts, will
be paid to Helix and we will receive no proceeds from the sale
of shares by Helix.
DIVIDEND
POLICY
Other than the dividends that we declared prior to the
effectiveness of this offering and that we intend to pay to
Helix in connection with this offering, we do not anticipate
paying any dividends on the shares of our common stock in the
foreseeable future. If cash dividends were to be paid on our
common stock, holders of common stock would share equally, on a
per share basis, in any such cash dividend.
22
CAPITALIZATION
The following table sets forth our combined cash and cash
equivalents and our combined capitalization as of
September 30, 2006, adjusted to give effect to:
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our sale of the 22,173,000 shares offered hereby, assuming
an initial public offering price of $15.00 per share, which
is the midpoint of the estimated offering price range set forth
on the cover page of this prospectus, and the application of the
estimated net proceeds therefrom as described under Use of
Proceeds;
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third-party indebtedness of $78 million, bearing interest
at 6.37% and incurred on December 8, 2006 by a subsidiary
of Helix that is being transferred to us in connection with this
offering and the proceeds of which were distributed to Helix on
December 8, 2006 as a dividend; and
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an additional $122 million draw under the same third-party
indebtedness, bearing interest at 6.37% and incurred by the same
subsidiary following the closing of this offering and the
proceeds of which will be distributed to Helix as a dividend.
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An increase or decrease in the assumed public offering price
would have no effect on our cash and cash equivalents,
additional paid-in capital, total owners equity or total
capitalization because any such increase or decrease will be
reflected solely in the proceeds to be paid to Helix as a
dividend. This table should be read in conjunction with our
selected combined financial data and the combined financial
statements and notes thereto included elsewhere in this
prospectus and Managements Discussion and Analysis
of Financial Condition and Results of Operations.
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September 30, 2006
|
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|
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Actual
|
|
|
As Adjusted(1)
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|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
2,048
|
|
|
$
|
|
(2)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Owners equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value; 240,000,000 shares authorized and 83,679,691 shares
outstanding, as adjusted
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|
|
|
|
|
837
|
|
Additional paid-in capital
|
|
|
|
|
|
|
71,439
|
|
Owners net investment
|
|
|
273,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
273,101
|
|
|
|
72,276
|
|
|
|
|
|
|
|
|
|
|
Total capitalization (excluding
cash)
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$
|
273,101
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|
|
$
|
272,276
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|
|
|
|
|
|
|
|
|
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(1)
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The as adjusted balances do not
reflect any activity for the receipt of the net proceeds from
this offering which is estimated to be approximately
$307.0 million and the equivalent dividend to Helix as this
dividend will be declared and paid resulting in no net impact to
the adjusted capital balances. Amounts also exclude a payable of
approximately $11.0 million to Helix resulting from a step
up in tax basis of certain assets transferred to the Company in
connection with this offering. Under a tax matters agreement
with Helix 90% of these tax assets realized will be paid to
Helix.
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(2)
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Prior to this offering, we were
part of Helixs corporate-wide cash management program. As
a part of such program, Helix sweeps all available cash from our
operating accounts periodically and intends to do so on the day
prior to the effectiveness of this offering. As a result, we
expect not to have any cash and cash equivalents on the closing
date of the offering. However, we expect to be able to fund our
operating activities for the next year with cash flows generated
from our operations and available borrowings under our revolving
credit facility.
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23
DILUTION
Our net tangible book value at September 30, 2006 was
approximately $243.2 million, or $3.95 per share of
our common stock. Net tangible book value per share represents
our total tangible assets reduced by our total liabilities and
divided by the number of shares of common stock outstanding.
Adjusted net tangible book value gives effect to the
$200 million of third-party indebtedness incurred by us in
connection with this offering. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Revolving Credit Facility. As of
September 30, 2006, we had an adjusted net tangible book
value of $43.2 million, or $0.70 per share of common stock.
Dilution in adjusted net tangible book value per share
represents the difference between the amount per share that you
pay in this offering and the pro forma adjusted net tangible
book value per share immediately after this offering.
After giving effect to the receipt of the estimated net proceeds
from the sale by us of 22,173,000 shares, assuming an
initial public offering price of $15.00 per share, which is
the midpoint of the estimated offering price range set forth on
the cover page of this prospectus and the application of the
estimated net proceeds therefrom as described under Use of
Proceeds, our pro forma adjusted net tangible book value
at September 30, 2006, would have been $43.2 million,
or $0.52 per share of common stock. The offering represents
an immediate $0.18 decrease in adjusted net tangible book value
per share to existing stockholders and an immediate $14.48
decrease in pro forma adjusted net tangible book value per share
to you. The following table illustrates the dilution:
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Initial public offering price per
share(1)
|
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$
|
15.00
|
|
Adjusted net tangible book value
per share at September 30, 2006(2)
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$
|
0.70
|
|
|
|
|
|
Increase per share attributable to
new investors(3)
|
|
$
|
3.67
|
|
|
|
|
|
Decrease per share attributable to
Helix dividend
|
|
$
|
(3.67
|
)
|
|
|
|
|
Decrease per share attributable to
shares issued in this offering
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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Pro forma adjusted net tangible
book value per share after this offering(3)
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$
|
0.52
|
|
|
|
|
|
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Dilution per share to new investors
|
|
$
|
14.48
|
|
|
|
|
|
|
|
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(1)
|
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Before underwriters
commissions and our expenses.
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(2)
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Adjusted to reflect the third-party
indebtedness of $200 million incurred by us in connection
with this offering.
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(3)
|
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Includes underwriters
commissions and our expenses.
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An increase or decrease in the assumed initial public offering
price would have no effect on our net tangible book value per
share after this offering or the dilution per share to new
investors in this offering because any such increase or decrease
will be reflected solely in the proceeds to be paid to Helix as
a dividend.
The following table sets forth, as of September 30, 2006,
the differences between the amounts paid or to be paid by the
groups set forth in the table with respect to the aggregate
number of shares of our common stock acquired or to be acquired
by each group:
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|
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Shares Purchased
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Total Consideration
|
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Average Price
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Number
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%
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|
|
Amount
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%
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Per Share
|
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Existing stockholders
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61,506,691
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73.5
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%
|
|
$
|
73,101,000
|
|
|
|
18.0
|
%
|
|
$
|
1.19
|
|
New investors
|
|
|
22,173,000
|
|
|
|
26.5
|
|
|
|
332,595,000
|
|
|
|
82.0
|
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
|
|
|
83,679,691
|
|
|
|
100.0
|
%
|
|
$
|
405,696,000
|
|
|
|
100.0
|
%
|
|
$
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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If the underwriters over-allotment option is exercised in
full, the number of shares of common stock held by existing
stockholders will be reduced to 58,180,741, or 69.5% of the
aggregate number of shares of common stock outstanding after
this offering, and the number of shares of common stock held by
new investors will be increased to 25,498,950, or 30.5% of the
aggregate number of common stock outstanding after this offering.
24
UNAUDITED PRO
FORMA COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined
financial data of Cal Dive International, Inc.
We have prepared our combined financial statements as if
Cal Dive International, Inc. had been in existence as a
separate company throughout all relevant periods. The pro forma
combined statement of operations data for the year ended
December 31, 2005 presented below was derived from our
audited combined financial statements and the accompanying notes
thereto included elsewhere in this prospectus.
The pro forma combined statement of operations data for the nine
months ended September 30, 2006 and the pro forma combined
balance sheet data as of September 30, 2006 presented below
were derived from our unaudited condensed combined financial
statements and the accompanying notes thereto included elsewhere
in this prospectus. The operating results for the nine months
ended September 30, 2006 include all adjustments
(consisting only of normal recurring adjustments) that we
believe are necessary for a fair statement of the results for
such interim period.
Our unaudited pro forma results of operations data is presented
for the year ended December 31, 2005 as if the acquisition
of the Acergy business was completed on January 1, 2005.
Our unaudited pro forma combined financial data as of and for
the year ended December 31, 2005 do not include:
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the results of operations of the assets acquired from Torch
prior to their acquisition in August 2005 because this
transaction did not qualify as a business
combination under FASB Statement No. 141, Business
Combinations;
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the results of operations of the assets acquired from Fraser
Diving prior to their acquisition because such results are
immaterial; and
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the results of OTSL prior to our equity investment in July 2005
because such results are immaterial.
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Our unaudited pro forma combined results of operations data for
the nine months ended September 30, 2006 are presented as
if the acquisition of the Acergy business was completed on
January 1, 2005.
Our unaudited pro forma combined results of operations data for
the nine months ended September 30, 2006 do not include the
results of operations of the assets acquired from Fraser Diving
prior to their acquisition because such results are immaterial.
Our unaudited pro forma combined balance sheet as of
September 30, 2006 is presented assuming:
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the third-party indebtedness of $78 million, bearing
interest at 6.37% and incurred on December 8, 2006 by a
subsidiary of Helix that is being transferred to us in
connection with this offering and the proceeds of which were
being distributed to Helix on December 8, 2006 as a
dividend, was outstanding as of September 30, 2006; and
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an additional $122 million draw under the same third-party
indebtedness, bearing interest at 6.37% and incurred by the same
subsidiary following the closing of this offering and the
proceeds of which will be distributed to Helix as a dividend,
was outstanding as of September 30, 2006.
|
The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Helixs consolidated
financial statements using the historical results of operations
and bases of assets and liabilities of Helixs shallow
water marine contracting business and give effect to allocations
of expenses from Helix to us and from us to Helix. The costs to
operate our business as a standalone public entity may exceed
the historical allocations of expenses related to areas that
include but are not limited to litigation and other legal
matters, compliance with the Sarbanes-Oxley Act and other
corporate compliance matters, insurance and claims management
and the related cost of insurance, as well as general overall
purchasing power. These possible increased costs are not
included in the pro forma information as their impact on
our results of operations cannot be reasonably estimated. The
unaudited pro forma information is
25
for illustrative and informational purposes only and is not
intended to represent or be indicative of what our financial
condition or results of operations would have been had this
offering occurred on the dates indicated. The unaudited pro
forma information also should not be considered representative
of our future financial condition or results of operations.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
Unaudited
Pro Forma Combined Statement of Operations(1)
(in thousands, except per share data)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
Ended
|
|
|
Quarter Ended
|
|
|
|
|
|
|
December 31,
|
|
|
November 30,
|
|
|
Year Ended
|
|
|
September 30,
|
|
|
February 28,
|
|
|
Nine Months Ended
|
|
|
|
2005
|
|
|
2005
|
|
|
December 31, 2005
|
|
|
2006
|
|
|
2006
|
|
|
September 30, 2006
|
|
|
|
Historical
|
|
|
Acergy(2)
|
|
|
Adjustments(2)
|
|
|
Pro Forma(2)
|
|
|
Historical
|
|
|
Acergy(2)
|
|
|
Adjustments(2)
|
|
|
Pro Forma(2)
|
|
|
Net revenues
|
|
$
|
224,299
|
|
|
$
|
245,774
|
|
|
$
|
(5,530
|
)(3)
|
|
$
|
464,543
|
|
|
$
|
372,918
|
|
|
$
|
7,332
|
|
|
$
|
(1,320
|
)(5)
|
|
$
|
378,930
|
|
Cost of sales
|
|
|
152,586
|
|
|
|
238,539
|
|
|
|
(4,331
|
)(3)(4)
|
|
|
386,794
|
|
|
|
204,031
|
|
|
|
4,178
|
|
|
|
(887
|
)(4)(5)
|
|
|
207,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
71,713
|
|
|
$
|
7,235
|
|
|
$
|
(1,199
|
)
|
|
$
|
77,749
|
|
|
|
168,887
|
|
|
$
|
3,154
|
|
|
$
|
(433
|
)
|
|
$
|
171,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of retirement of assets
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
16,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
55,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) of
investment
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
58,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
20,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(6)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted(7)
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Helix allocated to us
$8.5 million for the year ended December 31, 2005 and
$10.9 million for the nine months ended September 30,
2006 of expenses incurred by it for providing us accounting,
treasury, tax, legal, information systems, employee benefits,
facilities and other services. After this offering we expect to
continue to receive from Helix substantially all of these
services pursuant to a corporate services agreement. We
allocated to Helix $4.1 million for the year ended
December 31, 2005 and $4.3 million for the nine months
ended September 30, 2006 of expenses incurred by us for
providing training, quality control, marine administration,
supply chain, environmental, health and safety, operational
facilities and operational human resources services. After this
offering we expect to continue to deliver to Helix substantially
all of these services pursuant to a corporate services
agreement. Payments for these services will allow Helix and us
to fully recover the allocated direct costs of providing the
services, plus all out-of-pocket costs and expenses.
|
|
(2)
|
|
Since a statement of revenue and
direct operating expenses for the assets acquired from Acergy is
presented elsewhere in this prospectus instead of a full
statement of operations, the Acergy information for the year
ended November 30, 2005 and the three months ended
February 28, 2006 and the adjustments and pro forma
information for the year ended December 31, 2005 and the
nine months ended September 30, 2006 set forth above are
limited to a presentation of net revenues, cost of sales and
gross profit (loss).
|
26
|
|
|
(3)
|
|
We acquired the Acergy IMR assets
on November 1, 2005 while the DLB801 and
Kestrel were acquired in January 2006 and March 2006,
respectively. The annual audit period and fiscal year end for
Acergy ends on
November 30th
each year. As a result, the Acergy financial statements include
the operations of the IMR assets for a period of 11 months
from December 1, 2004 to November 1, 2005, the date we
acquired these assets. Our financial statements include two
months of results of the IMR assets from the November 1,
2005 acquisition date to December 31, 2005, resulting in
13 months of operations when combined with the financial
statements of Acergy. The adjustment eliminates the revenues and
direct operating expenses for the IMR assets for December 2004
so that only 12 months of operations are reflected in the
pro forma financial statements. No such adjustment to the
revenues and direct operating expenses for the DLB801 and
Kestrel has been made since the Acergy financial
statements reflect 12 months of operations for these assets
for the period December 1, 2004 to November 30, 2005.
|
|
(4)
|
|
Includes the estimated increase in
depreciation and amortization expense for 2005 and the nine
months ended September 30, 2006 assuming the expense was
calculated based on the step-up in basis of the
acquired assets to their fair value for the full year. These
assets include property, equipment and other intangibles related
to customer relationships.
|
|
(5)
|
|
This entry adjusts the revenues and
direct operating expenses for the DLB801 and
Kestrel so that only nine months of operations are
reflected in the pro forma financial statements.
|
|
(6)
|
|
Basic and diluted net income per
share are based upon 61,506,691 shares outstanding to be
held by Helix. These shares reflect a 61,506.691 to 1 stock
split to be effected immediately prior to this offering.
|
|
|
|
(7)
|
|
Unaudited pro forma basic and
diluted net income per share have been calculated using the sum
of the 61,506,691 shares that will be owned by Helix at the
completion of this offering, the 22,173,000 shares to be issued
in this offering with the net proceeds to be distributed to
Helix as a dividend and the 13,333,333 shares that we would have
been required to issue to fund a $78 million dividend
distributed to Helix on December 8, 2006, and a
$122 million dividend to be distributed to Helix following
the closing of this offering for which a total of
$200 million of debt will be assumed by us.
|
27
Unaudited
Pro Forma Combined Balance Sheet
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,048
|
|
|
$
|
(2,048
|
)
|
|
$
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
doubtful accounts of $113
|
|
|
76,611
|
|
|
|
|
|
|
|
76,611
|
|
Unbilled revenue
|
|
|
29,318
|
|
|
|
|
|
|
|
29,318
|
|
Deferred income taxes
|
|
|
1,805
|
|
|
|
|
|
|
|
1,805
|
|
Assets held for sale
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Notes receivable
|
|
|
3,008
|
|
|
|
|
|
|
|
3,008
|
|
Other current assets
|
|
|
13,046
|
|
|
|
|
|
|
|
13,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
125,936
|
|
|
|
(2,048
|
)
|
|
|
123,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
288,629
|
|
|
|
|
|
|
|
288,629
|
|
Less Accumulated
depreciation
|
|
|
(67,099
|
)
|
|
|
|
|
|
|
(67,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
221,530
|
|
|
|
|
|
|
|
221,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
10,785
|
|
|
|
|
|
|
|
10,785
|
|
Goodwill
|
|
|
26,666
|
|
|
|
|
|
|
|
26,666
|
|
Other assets, net
|
|
|
20,440
|
|
|
|
|
|
|
|
20,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
405,357
|
|
|
$
|
(2,048
|
)
|
|
$
|
403,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
36,242
|
|
|
$
|
|
|
|
$
|
36,242
|
|
Accrued liabilities
|
|
|
65,623
|
|
|
|
|
|
|
|
65,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
101,865
|
|
|
|
|
|
|
|
101,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
200,000
|
(1)
|
|
|
200,000
|
|
Deferred income taxes
|
|
|
27,048
|
|
|
|
(12,233
|
)(2)
|
|
|
14,815
|
|
Payable to Helix
|
|
|
|
|
|
|
11,010
|
(2)
|
|
|
11,010
|
|
Other long-term liabilities
|
|
|
3,343
|
|
|
|
|
|
|
|
3,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
132,256
|
|
|
|
198,777
|
|
|
|
331,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
837
|
(3)
|
|
|
837
|
|
Additional paid-in capital
|
|
|
|
|
|
|
71,439
|
(4)
|
|
|
71,439
|
|
Owners net investment
|
|
|
273,101
|
|
|
|
(273,101
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
273,101
|
|
|
|
(200,825
|
)
|
|
|
72,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners
equity
|
|
$
|
405,357
|
|
|
$
|
(2,048
|
)
|
|
$
|
403,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents third-party indebtedness incurred by us in connection
with this offering.
|
|
|
(2) |
Represents deferred tax assets and related payable to Helix
resulting from a step up in tax basis of certain assets
transferred to the Company in connection with this offering.
Under a tax matters agreement with Helix 90% of these tax assets
realized will be paid to Helix. These amounts are based on
preliminary information and will be adjusted once further tax
analysis and appraisals are completed.
|
|
|
(3) |
Represents the par value of 83,679,691 shares of common
stock issued and outstanding following this offering.
|
|
|
(4) |
Represents (i) the reclassification of owners net
investment into additional paid-in capital, (ii) the
receipt by us of approximately $307.0 million in net
proceeds from this offering (based on a $15.00 per share
offering price, which represents the midpoint of the range set
forth on the cover page of this prospectus), net of the par
value of our common stock issued in connection therewith, and
the subsequent dividend of such proceeds to Helix and
(iii) the reduction to owners net investment as a
result of the third-party indebtedness incurred by us and the
dividend of $200 million paid to Helix.
|
28
SELECTED
HISTORICAL COMBINED FINANCIAL DATA
The historical financial and other data have been prepared on a
combined basis from Helixs consolidated financial
statements using the historical results of operations and bases
of the assets and liabilities of the shallow water marine
contracting business of Helix and give effect to allocations of
expenses from Helix. Our historical financial data will not
necessarily be indicative of our future performance nor will
such data necessarily reflect what our financial position and
results of operations would have been had we operated as an
independent publicly traded company during the periods shown.
We have prepared our combined financial statements as if
Cal Dive International, Inc. had been in existence as a
separate company throughout all relevant periods. The combined
results of operations data and cash flow data for the years
ended December 31, 2003, 2004 and 2005 and the combined
balance sheet data as of December 31, 2004 and 2005
presented below were derived from our audited combined financial
statements and the related notes thereto included elsewhere in
this prospectus. The combined results of operations data and
cash flow data for the years ended December 31, 2001 and
2002 and for the nine months ended September 30, 2005 and
2006 and the combined balance sheet data as of
September 30, 2006 presented below were derived from our
unaudited combined financial statements and accompanying notes
thereto included elsewhere in this prospectus. The combined
balance sheet data as of December 31, 2001, 2002 and 2003
presented below were derived from our unaudited combined
financial statements. The operating results for the nine months
ended September 30, 2005 and 2006 include all adjustments
(consisting only of normal recurring adjustments) that we
believe are necessary for a fair statement of the results for
such interim periods.
The operating results of the acquired vessels from the Torch
asset purchase are included in these historical combined
statements of operations since the acquisition date of
August 31, 2005. The operating results of the assets
acquired from Acergy during 2005 are included in the
accompanying historical combined statements of operations since
the acquisition date of November 1, 2005. Our combined
statements of operations do not include the operating results of
the DLB801 or the Kestrel prior to their
acquisitions in January and March 2006, respectively. The
operating results of the assets acquired from Fraser Diving are
included in the accompanying historical combined statements of
operations since the acquisition date of July 31, 2006.
Results for the nine months ended September 30, 2006 are
not necessarily indicative of the results expected for the
fiscal year ended December 31, 2006 or any future period.
You should read the information contained in this table in
conjunction with Unaudited Pro Forma Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited combined financial
statements and the accompanying notes thereto of us included
elsewhere in this prospectus.
The following table presents a non-GAAP financial measure,
EBITDA, which we use to evaluate the financial performance of
our business. EBITDA is not calculated or presented in
accordance with GAAP. In footnote 2 below, we explain
EBITDA and reconcile it to net income, its most directly
comparable financial measure calculated and presented in
accordance with GAAP.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands, except per share and marine contracting
activity data)
|
|
Results of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
160,962
|
|
|
$
|
139,887
|
|
|
$
|
135,488
|
|
|
$
|
125,786
|
|
|
$
|
224,299
|
|
|
$
|
127,237
|
|
|
$
|
372,918
|
|
Cost of sales
|
|
|
120,147
|
|
|
|
116,167
|
|
|
|
108,479
|
|
|
|
101,583
|
|
|
|
152,586
|
|
|
|
88,370
|
|
|
|
204,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40,815
|
|
|
|
23,720
|
|
|
|
27,009
|
|
|
|
24,203
|
|
|
|
71,713
|
|
|
|
38,867
|
|
|
|
168,887
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
322
|
|
Selling and administrative expenses
|
|
|
10,332
|
|
|
|
8,055
|
|
|
|
10,337
|
|
|
|
12,318
|
|
|
|
16,730
|
|
|
|
8,483
|
|
|
|
25,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30,483
|
|
|
|
15,665
|
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
55,253
|
|
|
|
30,384
|
|
|
|
143,999
|
|
Equity in earnings (losses) of
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,817
|
|
|
|
672
|
|
|
|
(587
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
22
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
30,483
|
|
|
|
15,665
|
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
58,115
|
|
|
|
31,078
|
|
|
|
143,776
|
|
Provision for income taxes
|
|
|
10,699
|
|
|
|
5,510
|
|
|
|
5,870
|
|
|
|
4,211
|
|
|
|
20,385
|
|
|
|
10,980
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,784
|
|
|
$
|
10,155
|
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
(unaudited)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.32
|
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
|
$
|
0.12
|
|
|
$
|
0.61
|
|
|
$
|
0.33
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)(2)
|
|
$
|
43,261
|
|
|
$
|
29,858
|
|
|
$
|
31,881
|
|
|
$
|
27,395
|
|
|
$
|
73,378
|
|
|
$
|
41,670
|
|
|
$
|
160,459
|
|
Depreciation and amortization
|
|
|
12,778
|
|
|
|
14,193
|
|
|
|
15,209
|
|
|
|
15,510
|
|
|
|
15,308
|
|
|
|
10,614
|
|
|
|
17,047
|
|
Capital expenditures
|
|
|
45,252
|
|
|
|
12,980
|
|
|
|
2,784
|
|
|
|
2,912
|
|
|
|
36,407
|
|
|
|
31,678
|
|
|
|
21,055
|
|
Acquisition of businesses
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,917
|
|
|
|
|
|
|
|
100,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by
(used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
26,220
|
|
|
$
|
15,691
|
|
|
$
|
26,370
|
|
|
$
|
28,610
|
|
|
$
|
32,228
|
|
|
$
|
15,788
|
|
|
$
|
107,832
|
|
Investing activities
|
|
|
(55,222
|
)
|
|
|
(4,310
|
)
|
|
|
(2,584
|
)
|
|
|
(2,912
|
)
|
|
|
(79,547
|
)
|
|
|
(31,104
|
)
|
|
|
(106,036
|
)
|
Financing activities
|
|
|
(29,002
|
)
|
|
|
(11,381
|
)
|
|
|
(23,786
|
)
|
|
|
(25,698
|
)
|
|
|
47,319
|
|
|
|
15,316
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine Contracting Activity Data
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of vessels(4)
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
22
|
|
|
|
13
|
|
|
|
25
|
|
Utilization(5)
|
|
|
68
|
%
|
|
|
61
|
%
|
|
|
68
|
%
|
|
|
63
|
%
|
|
|
79
|
%
|
|
|
72
|
%
|
|
|
95
|
%
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
56,939
|
|
|
$
|
52,556
|
|
|
$
|
43,270
|
|
|
$
|
46,565
|
|
|
$
|
110,484
|
|
|
$
|
125,936
|
|
Net property and equipment
|
|
|
105,406
|
|
|
|
100,605
|
|
|
|
91,533
|
|
|
|
76,329
|
|
|
|
113,604
|
|
|
|
221,530
|
|
Total assets
|
|
|
183,882
|
|
|
|
172,904
|
|
|
|
156,280
|
|
|
|
144,817
|
|
|
|
277,884
|
|
|
|
405,357
|
|
Total current liabilities
|
|
|
42,607
|
|
|
|
28,431
|
|
|
|
21,165
|
|
|
|
27,438
|
|
|
|
73,869
|
|
|
|
101,865
|
|
Total liabilities
|
|
|
59,140
|
|
|
|
49,388
|
|
|
|
45,748
|
|
|
|
52,309
|
|
|
|
100,101
|
|
|
|
132,256
|
|
Total owners equity
|
|
|
124,742
|
|
|
|
123,516
|
|
|
|
110,532
|
|
|
|
92,508
|
|
|
|
177,783
|
|
|
|
273,101
|
|
|
|
|
(1)
|
|
Basic and diluted net income per
share are based upon 61,506,691 shares outstanding and held
by Helix. These shares reflect a 61,506.691 to 1 stock split to
be effected immediately prior to this offering.
|
|
(2)
|
|
In addition to net income, we
evaluate our financial performance based on other factors, one
primary measure of which is earnings before net interest
expense, taxes, depreciation and amortization, which we refer to
as EBITDA. We use EBITDA as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of EBITDA as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, EBITDA
should be considered in addition to, and not as a substitute
for, net income and other measures of financial performance
reported in accordance with GAAP. Furthermore, this measure may
vary among companies; thus, EBITDA as presented below may not be
comparable to similarly titled measures of other companies.
|
|
|
|
|
|
We believe EBITDA is useful to investors and other external
users of our financial statements in evaluating our operating
performance because:
|
|
|
|
|
|
it is widely used by investors in our industry to measure a
companys operating performance without regard to items
such as interest expense, depreciation and amortization, which
can vary substantially from company to company depending upon
accounting methods and book value of assets, capital structure
and the method by which assets were acquired; and
|
|
|
|
it helps investors more meaningfully evaluate and compare the
results of our operations from period to period by removing the
impact of our capital structure (primarily interest charges from
our outstanding debt) and asset base (primarily depreciation and
amortization of our vessels) from our operating results.
|
Our management uses EBITDA:
|
|
|
|
|
as a measure of operating performance because it assists us in
comparing our performance on a consistent basis as it removes
the impact of our capital structure and asset base from our
operating results;
|
|
|
|
in presentations to our board of directors to enable them to
have the same consistent measurement basis of operating
performance used by management;
|
|
|
|
as a measure for planning and forecasting overall expectations
and for evaluating actual results against such expectations;
|
|
|
|
to assess compliance with financial ratios and covenants that
will be included in our revolving credit facility; and
|
|
|
|
in communications with lenders, rating agencies and others,
concerning our financial performance.
|
31
The following table presents a reconciliation of EBITDA to net
income, which is the most directly comparable GAAP financial
measure of our operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
EBITDA (unaudited)
|
|
$
|
43,261
|
|
|
$
|
29,858
|
|
|
$
|
31,881
|
|
|
$
|
27,395
|
|
|
$
|
73,378
|
|
|
$
|
41,670
|
|
|
$
|
160,459
|
|
Less: Depreciation and
amortization
|
|
|
12,778
|
|
|
|
14,193
|
|
|
|
15,209
|
|
|
|
15,510
|
|
|
|
15,308
|
|
|
|
10,614
|
|
|
|
17,047
|
|
Plus: Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
22
|
|
|
|
364
|
|
Less: Provision for income
taxes
|
|
|
10,699
|
|
|
|
5,510
|
|
|
|
5,870
|
|
|
|
4,211
|
|
|
|
20,385
|
|
|
|
10,980
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,784
|
|
|
$
|
10,155
|
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Cash flows from financing
activities have been reflected as (a) cash transfers from
us to Helix equal to substantially all cash provided by
operating activities and (b) cash transfers from Helix to
us equal to the amount of cash used in investing activities.
Substantially all excess cash has been transferred to our owner.
These cash transfers have been reflected as changes in total
owners equity.
|
|
(4)
|
|
As of the end of the period and
excluding acquired vessels prior to their in-service dates,
vessels taken out of service prior to their disposition and
vessels jointly owned by a third party.
|
|
(5)
|
|
Average vessel utilization is
calculated by dividing the total number of days the vessels
generated revenues by the total number of days the vessels were
available for operation in each period and does not reflect
acquired vessels prior to their in-service dates, vessels in
drydocking, vessels taken out of service prior to their
disposition and vessels jointly owned by a third party.
|
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis should be
read in conjunction with our historical combined financial
statements and their notes included elsewhere in this
prospectus. This discussion contains forward-looking statements
that reflect our current views with respect to future events and
financial performance. Our actual results may differ materially
from those anticipated in these forward-looking statements as a
result of certain factors, such as those set forth under
Risk Factors and elsewhere in this prospectus.
Our
Business
We generate revenue principally by providing marine contracting
services to major and independent oil and natural gas producers,
pipeline transmission companies and offshore engineering and
construction firms. We perform our services under dayrate or
qualified turnkey contracts that are typically awarded through a
competitive bid process. Contract terms vary according to market
conditions and services rendered. See Business
Contracting and Tendering.
Major
Influences on Results of Operations
Our business is substantially dependent upon the condition of
the oil and natural gas industry and, in particular, the
willingness of oil and natural gas companies to make capital
expenditures for offshore exploration, drilling and production
operations. The level of capital expenditures generally depends
on the prevailing views of future oil and natural gas prices,
which are influenced by numerous factors, including but not
limited to:
|
|
|
|
|
changes in U.S. and international economic conditions;
|
|
|
|
demand for oil and natural gas, especially in the United States,
China and India;
|
|
|
|
worldwide political conditions, particularly in significant
oil-producing regions such as the Middle East, West Africa and
Latin America;
|
|
|
|
actions taken by OPEC;
|
|
|
|
the availability and discovery rate of new oil and natural gas
reserves in offshore areas;
|
|
|
|
the cost of offshore exploration for, and production and
transportation of, oil and natural gas;
|
|
|
|
the ability of oil and natural gas companies to generate funds
or otherwise obtain external capital for exploration,
development and production operations;
|
|
|
|
the sale and expiration dates of offshore leases in the United
States and overseas;
|
|
|
|
technological advances affecting energy exploration, production,
transportation and consumption;
|
|
|
|
weather conditions;
|
|
|
|
environmental or other government regulations; and
|
|
|
|
tax policies.
|
The primary leading indicators we rely upon to forecast the
performance of our business are crude oil and natural gas prices
and drilling activity on the Gulf of Mexico OCS, as measured by
mobile offshore rig counts. Demand for our services generally
lags successful drilling activity by six to 18 months. In
recent years, crude oil and natural gas prices have increased
substantially, with the quarterly average of the NYMEX West
Texas Intermediate (WTI) near month crude oil daily average
contract price increasing from $28.91 per barrel in the second
quarter of 2003 to a high of $70.70 per barrel in the
second quarter of 2006 and the quarterly average of the Henry
Hub natural gas daily average spot price increasing from
$4.87 per one million British thermal units, or Mmbtu, in
the third quarter of 2003 to a high of $12.31 per Mmbtu in
the fourth quarter of 2005. However, oil and natural gas prices
can be extremely volatile. As of October 31, 2006, the
NYMEX WTI near
33
month crude oil closing contract price was $58.73 and the Henry
Hub natural gas closing spot price was $6.64. The majority of
our customers on the Gulf of Mexico OCS are drilling for,
producing and transporting natural gas. Therefore, we expect
sustained directional changes in natural gas prices will have a
greater impact on demand for our services than changes in crude
oil prices. While U.S. natural gas prices generally declined in
recent months primarily due to moderate weather and the
restoration of shut-in Gulf of Mexico production, we believe
long-term price trends will be driven by U.S. natural gas
demand, the productivity of existing fields and new discoveries,
and the availability of imports. From 2003 to 2005, the rig
count on the Gulf of Mexico OCS increased more modestly than rig
counts in other offshore regions due to the mobilization of rigs
from the Gulf of Mexico to other regions and the impairment of
offshore rigs caused by hurricane activity in the Gulf of Mexico
in 2004 and 2005. While demand for our marine contracting
services is typically highly correlated with offshore rig
counts, increases in subsea project complexity and capital
spending per project as well as a sharp rise in the demand for
hurricane-related repair work have been the primary drivers of
the record utilization and day rates we have achieved recently
across our fleet of vessels.
We believe vessel utilization is one of the most important
performance measurements for our business. Utilization provides
a good indication of demand for our vessels and, as a result,
the contract rates we may charge for our services. As a marine
contractor, our vessel utilization is typically lower during the
first quarter, and to a lesser extent during the fourth quarter,
due to winter weather conditions in the Gulf of Mexico.
Accordingly, we normally plan our drydock inspections and other
routine and preventive maintenance programs during this period.
The bid and award process during the first two quarters
typically leads to the commencement of construction activities
during the second and third quarters. As a result, we have
historically generated a majority of our revenues in the last
six months of the year.
In recent periods, however, we have not experienced the typical
seasonal trends in our business due to the impact of Hurricanes
Ivan, Katrina and Rita in the Gulf of Mexico. The severe
offshore infrastructure damage caused by these storms has
generated significant year-round demand for our services from
oil and gas companies trying to restore shut-in production as
soon as possible. We believe this production restoration focus,
along with the limited number of qualified marine contractors,
has created a large backlog of platform installation and removal
work. While many hurricane-related repairs have been completed,
we believe much additional repair work is required to restore
oil and natural gas production in the Gulf of Mexico to targeted
levels.
The outlook for our business remains very favorable based on our
projected demand for construction, inspection, maintenance and
repair services in the Gulf of Mexico as well as our significant
international growth opportunities; however, we expect that
market conditions will ease from the peak levels experienced in
recent quarters as the amount of hurricane-related repair
activity moderates during 2007. As shown in the table below,
during the third quarter of 2006 our average fleet utilization
rate, while strong at 91%, was below the levels achieved in the
fourth quarter of 2005 and the first two quarters of 2006. We
believe that our fleet utilization and contract pricing will
remain strong in 2007, but we expect they will continue to ease
from the recent record levels. However, if future storms cause
severe damage to Gulf of Mexico infrastructure, we would expect
another sharp rise in the demand for our services.
34
The following table sets forth key indicators and performance
metrics for our business:
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2003
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2004
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2005
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2006
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|
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Q1
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Q2
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Q3
|
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Q4
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Q1
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Q2
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Q3
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Q4
|
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Q1
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Q2
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Q3
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Q4
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Q1
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Q2
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Q3
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U.S. natural gas prices(1)
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$
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6.25
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|
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$
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5.61
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|
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$
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4.87
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$
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5.06
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$
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5.61
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$
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6.08
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$
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5.44
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$
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6.26
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$
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6.39
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$
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6.94
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$
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9.74
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$
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12.31
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$
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7.75
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$
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6.53
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$
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6.08
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NYMEX oil prices(2)
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$
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33.86
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$
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28.91
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$
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30.20
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$
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31.18
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$
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35.15
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$
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38.32
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$
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43.88
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$
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48.28
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$
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49.84
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$
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53.17
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$
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63.19
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$
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60.03
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$
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63.48
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$
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70.70
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$
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70.48
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Gulf of Mexico rigs(3)
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119
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123
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129
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122
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117
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115
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118
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|
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122
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130
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|
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132
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130
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127
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131
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132
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125
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Platform installations(4)
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22
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35
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30
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33
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25
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29
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37
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28
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36
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23
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19
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14
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18
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23
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6
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Platform removals(4)
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7
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22
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88
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53
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23
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51
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77
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39
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11
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50
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44
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9
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3
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13
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18
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Number of our vessels(5)
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13
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13
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13
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13
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13
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13
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|
13
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13
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13
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13
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13
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22
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23
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24
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25
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Our average utilization rate(6)
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67
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%
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68
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%
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73
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%
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62
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%
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54
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%
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57
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%
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62
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%
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|
77
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%
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65
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%
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72
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%
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77
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%
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|
94
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%
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96
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%
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98
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%
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91
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%
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(1)
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Quarterly average of the Henry Hub natural gas daily average
spot price (the midpoint index price per Mmbtu for deliveries
into a specific pipeline for the applicable calendar day as
reported by Platts Gas Daily in the Daily Price
Survey table).
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(2)
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Quarterly average of NYMEX West Texas Intermediate near month
crude oil daily average contract price.
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(3)
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Average monthly number of rigs contracted, as reported by
ODS-Petrodata Offshore Rig Locator.
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(4)
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Source: Minerals Management Service; installation and removal of
platforms in the Gulf of Mexico.
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(5)
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As of the end of the period and excluding acquired vessels prior
to their in-service dates, vessels taken out of service prior to
their disposition and vessels jointly owned by a third party.
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(6)
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Average vessel utilization is calculated by dividing the total
number of days the vessels generated revenues by the total
number of days the vessels were available for operation in each
quarter and does not reflect acquired vessels prior to their
in-service dates, vessels in drydocking, vessels taken out of
service prior to their disposition and vessels jointly owned by
a third party.
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Factors
Impacting Comparability of Our Financial Results
Our historical results of operations for the periods presented
may not be comparable with prior periods or to our results of
operations in the future for the reasons discussed below.
Recent
Acquisitions
In August 2005, we acquired six vessels and a portable
saturation diving system from Torch at a cost of
$26.4 million (including assets held for sale). In November
2005, we completed the acquisition of the diving and shallow
water pipelay business of Acergy, which included seven diving
support vessels, a portable saturation diving system, general
diving equipment and operating bases located in Louisiana, at a
purchase price of $42.9 million. Under the terms of the
regulatory approval required to remedy certain anti-competitive
effects of the Acergy and Torch acquisitions alleged by the DOJ,
we were required to divest two diving support vessels and a
portable saturation diving system from the combined
acquisitions. We have completed the sale of the portable
saturation diving system, and the sale of one diving support
vessel is pending. In addition, we acquired the DLB801
from Acergy for $38.0 million in January 2006. We
subsequently sold a 50% interest in the vessel in January 2006
for approximately $19.0 million and entered into a 10-year
charter lease agreement with the purchaser. The lessee has an
option to purchase the remaining 50% interest in the vessel
beginning in January 2009. We also acquired the Kestrel
from Acergy for approximately $39.9 million in March 2006.
Going forward, we believe these acquired assets will be
significant contributors to our financial results.
In December 2005, we entered into a memorandum of understanding
to acquire the business of Singapore-based Fraser Diving, which
includes six portable saturation diving systems and 15 surface
diving systems operating primarily in Southeast Asia, the Middle
East, Australia and the Mediterranean. We closed the purchase of
one of the portable saturation diving systems and redeployed it
to the Gulf of Mexico in December 2005. We completed the
purchase of the remaining systems in July 2006. The aggregate
purchase price for all of the Fraser Diving assets is
approximately $29.8 million, subject to post-closing
adjustments.
Our
Relationship with Helix
Our combined financial statements have been derived from the
financial statements and accounting records of Helix using the
historical results of operations and historical bases of assets
and liabilities of our business. Certain management,
administrative and operational services of Helix have been
shared between Helixs shallow water marine contracting
business and other Helix business segments for all periods
presented.
35
For purposes of financial statement presentation, the costs
included in our combined statements of operations for these
shared services have been allocated to us based on actual direct
costs incurred, headcount, work hours or revenues. We and Helix
consider these allocations to be a reflection of the utilization
of services provided. Our expenses as a separate, standalone
company may be higher or lower than the amounts reflected in the
combined statements of operations. Pursuant to the Corporate
Services Agreement to be entered into between Helix and us, we
will be required to utilize these services from Helix in the
conduct of our business until such time as Helix owns less than
50% of the total voting power of our common stock. Additionally,
Helix primarily uses a centralized approach to cash management
and the financing of its operations. Accordingly, all related
acquisition activity between Helix and us and all other cash
transactions have been reflected in our owners equity as
owners net investment. See Arrangements Between
Helix and Us.
We believe the assumptions underlying the combined financial
statements are reasonable. However, the effect of these
assumptions, the separation from Helix and our operating as a
standalone public entity could impact our results of operations
and financial position prospectively by increasing expenses in
areas that include but are not limited to litigation and other
legal matters, compliance with the Sarbanes-Oxley Act and other
corporate compliance matters, insurance and claims management
and the related cost of insurance, as well as general overall
purchasing power.
Critical
Accounting Estimates and Policies
Our accounting policies are described in the notes to our
audited financial statements included elsewhere in this
prospectus. We prepare our financial statements in conformity
with GAAP. Our results of operations and financial condition, as
reflected in our financial statements and related notes, are
subject to managements evaluation and interpretation of
business conditions, changing capital market conditions and
other factors that could affect the ongoing viability of our
business and our customers. We believe the most critical
accounting policies in this regard are those described below.
While these issues require us to make judgments that are
somewhat subjective, they are generally based on a significant
amount of historical data and current market data.
Revenue
Recognition
Revenues are derived from contracts that are typically of short
duration. These contracts contain either lump-sum turnkey
provisions or provisions for specific time, material and
equipment charges, which are billed in accordance with the terms
of such contracts. We recognize revenue as it is earned at
estimated collectible amounts.
Revenues generated from specific time, materials and equipment
contracts are generally earned on a dayrate basis and recognized
as amounts are earned in accordance with contract terms. In
connection with these contracts, we may receive revenues for
mobilization of equipment and personnel. In connection with new
contracts, revenues related to mobilization are deferred and
recognized over the period in which contracted services are
performed using the straight-line method. Incremental costs
incurred directly for mobilization of equipment and personnel to
the contracted site, which typically consist of materials,
supplies and transit costs, are also deferred and recognized
over the period in which contracted services are performed using
the straight-line method. Our policy to amortize the revenues
and costs related to mobilization on a straight-line basis over
the estimated contract service period is consistent with the
general pace of activity, level of services being provided and
dayrates being earned over the service period of the contract.
Mobilization costs to move vessels when a contract does not
exist are expensed as incurred.
Revenue on significant turnkey contracts is recognized on the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In determining whether a contract should be
accounted for using the
percentage-of-completion
method, we consider whether:
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the customer provides specifications for the construction of
facilities or for the provision of related services;
|
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we can reasonably estimate our progress towards completion and
our costs;
|
|
|
|
the contract includes provisions as to the enforceable rights
regarding the goods or services to be provided, consideration to
be received and the manner and terms of payment;
|
|
|
|
the customer can be expected to satisfy its obligations under
the contract; and
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36
|
|
|
|
|
we can be expected to perform our contractual obligations.
|
Under the
percentage-of-completion
method, we recognize estimated contract revenue based on costs
incurred to date as a percentage of total estimated costs.
Changes in the expected cost of materials and labor,
productivity, scheduling and other factors affect the total
estimated costs. Additionally, external factors, including
weather or other factors outside of our control, may also affect
the progress and estimated cost of a projects completion
and, therefore, the timing of income and revenue recognition. We
routinely review estimates related to our contracts and reflect
revisions to profitability in earnings on a current basis. If a
current estimate of total contract cost indicates an ultimate
loss on a contract, we recognize the projected loss in full when
it is first determined. We recognize additional contract revenue
related to claims when the claim is probable and legally
enforceable.
Unbilled revenue represents revenue attributable to work
completed prior to period end that has not yet been invoiced.
All amounts included in unbilled revenue at December 31,
2005 and September 30, 2006 are expected to be billed and
collected within one year.
Accounts
Receivable and Allowance for Uncollectible
Accounts
Accounts receivable are stated at the historical carrying amount
net of write offs and allowance for uncollectible accounts. We
establish an allowance for uncollectible accounts receivable
based on historical experience and any specific customer
collection issues that we have identified. Uncollectible
accounts receivable are written off when a settlement is reached
for an amount that is less than the outstanding historical
balance or when we have determined the balance will not be
collected.
Related
Party Cost Allocations
Helix has provided us certain management and administrative
services including: accounting, treasury, payroll and other
financial services; legal and related services; information
systems, network and communication services; employee benefit
services; and corporate facilities management services. Total
allocated costs from Helix for such services were approximately
$7.0 million, $7.3 million and $8.5 million for
the years ended December 31, 2003, 2004 and 2005,
respectively, and $5.3 million and $10.9 million for
the nine months ended September 30, 2005 and 2006,
respectively. These costs have been allocated based on
headcount, work hours and revenues, as applicable.
We provide Helix operational and field support services
including: training and quality control services; marine
administration services; supply chain and base operation
services; environmental, health and safety services; operational
facilities management services; and human resources. Total
allocated cost to Helix for such services were approximately
$3.3 million, $3.2 million and $4.1 million for
the years ended December 31, 2003, 2004 and 2005,
respectively, and $2.4 million and $4.3 million for
the nine months ended September 30, 2005 and 2006,
respectively. These costs have been allocated based on
headcount, work hours and revenues, as applicable.
Property
and Equipment
Property and equipment are recorded at cost. Depreciation is
provided primarily on the straight-line method over the
estimated useful life of the asset. Our estimates of useful
lives of our assets are as follows: vessels 15 to
20 years; machinery and equipment five years;
and buildings and leasehold improvements four to
20 years.
For long-lived assets to be held and used, excluding goodwill,
we base our evaluation of recoverability on impairment
indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors
that may be present. If such impairment indicators are present
or other factors exist that indicate that the carrying amount of
the asset may not be recoverable, we determine whether an
impairment has occurred through the use of an undiscounted cash
flows analysis of the asset at the lowest level for which
identifiable cash flows exist. Our marine vessels are assessed
on a
vessel-by-vessel
basis. If an impairment has occurred, we recognize a loss for
the difference between the carrying amount and the fair value of
the asset. The fair value of the asset is measured using quoted
market prices or, in the absence of quoted market prices, is
based on managements estimate of
37
discounted cash flows. We recorded impairment charges of
$3.9 million and $790,000 in 2004 and 2005, respectively,
on certain vessels that met the impairment criteria. These
assets were subsequently sold in 2005 and 2006 for an aggregate
gain on the disposals of approximately $322,000. There were no
such impairments during 2003 or the first three quarters of 2006.
Assets are classified as held for sale when we have a plan for
disposal of certain assets and those assets meet the held for
sale criteria. At December 31, 2004 and 2005 and
September 30, 2006, we classified certain assets intended
to be disposed of within a
12-month
period as assets held for sale totaling $3.0 million,
$7.9 million and $0.1 million, respectively.
Recertification
Costs and Deferred Drydock Charges
Our vessels are required by regulation to be recertified after
certain periods of time. These recertification costs are
incurred while the vessel is in drydock. In addition, routine
repairs and maintenance are performed and, at times, major
replacements and improvements are performed. We expense routine
repairs and maintenance as they are incurred. We defer and
amortize drydock and related recertification costs over the
length of time for which we expect to receive benefits from the
drydock and related recertification, which is generally
30 months. Vessels are typically available to earn revenue
for the
30-month
period between drydock and related recertification processes. A
drydock and related recertification process typically lasts one
to two months, a period during which the vessel is not available
to earn revenue. Major replacements and improvements, which
extend the vessels economic useful life or functional
operating capability, are capitalized and depreciated over the
vessels remaining economic useful life. Inherent in this
process are estimates we make regarding the specific cost
incurred and the period that the incurred cost will benefit.
As of December 31, 2004 and 2005, and September 30,
2006, capitalized deferred drydock charges (included in other
assets, net) totaled $6.9 million, $8.3 million and
$17.1 million, respectively. During the years ended
December 31, 2003, 2004 and 2005, drydock amortization
expense was $3.7 million, $4.3 million and
$5.5 million, respectively. For the nine months ended
September 30, 2005 and 2006, drydock amortization expense
was $4.0 million and $4.8 million, respectively. We
expect drydock amortization expense to increase in future
periods since there was only limited amortization expense
associated with the vessels we acquired in the Torch and Acergy
acquisitions during the nine months ended September 30,
2006.
Goodwill
and Other Intangible Assets
We test for the impairment of goodwill on at least an annual
basis. We test for the impairment of other intangible assets
when impairment indicators such as the nature of the assets, the
future economic benefit of the assets, any historical or future
profitability measurements and other external market conditions
are present. Our goodwill impairment test involves a comparison
of the fair value with its carrying amount. The fair value is
determined using discounted cash flows and other market-related
valuation models. We completed our annual goodwill impairment
test as of November 1, 2005. At December 31, 2004 and
2005 and at September 30, 2006, we had goodwill of
$15.0 million, $27.8 million and $26.7 million,
respectively. The $12.8 million increase in goodwill from
2004 to 2005 resulted from the Acergy acquisition, which closed
in November 2005. None of our goodwill was impaired based on the
impairment test performed as of November 1, 2005. The 2005
annual impairment test excluded the goodwill for the Acergy
acquisition. We finalized the purchase price allocation for the
Acergy acquisition in the second quarter of 2006. See
Note 5 to the combined financial statements included
herein. We will continue to test our goodwill annually on a
consistent measurement date unless events occur or circumstances
change between annual tests that would more likely than not
reduce the fair value of a reporting unit below its carrying
amount.
Equity
Investment
In July 2005, we acquired a 40% minority ownership interest in
OTSL, a Trinidad and Tobago entity, in exchange for our DP DSV
Witch Queen. Our investment in OTSL totaled
$10.8 million as of September 30, 2006. We review this
equity investment for impairment and record an adjustment when
we believe the decline in fair value is other than temporary.
The fair value of the asset is measured using quoted market
prices or, in the absence of quoted market prices, an estimate
of discounted cash flows. In determining whether the decline is
other than temporary, we consider the cyclical nature of the
industry in which the business operates, its historical
performance, its performance in relation to its peers and the
current economic environment. We have
38
reported a net loss of $587,000 for the nine months ended
September 30, 2006 related to our investment in OTSL. This
net loss is an impairment indicator. However, we believe the
current operating trend is temporary and have determined that
the fair value of this investment, based on an estimate of its
discounted cash flows, exceeds its carrying amount. As a result
there is no impairment at September 30, 2006. We will
continue to monitor the fair value of our investment for
impairment.
Income
Taxes
Our operations are included in a consolidated federal income tax
return filed by Helix. However, for financial reporting
purposes, our provision for income taxes has been computed as if
we completed and filed separate federal income tax returns
except that all tax benefits recognized on employee stock plans
are retained by Helix. Deferred income taxes are based on the
differences between financial reporting and tax bases of assets
and liabilities. We utilize the liability method of computing
deferred income taxes. The liability method is based on the
amount of current and future taxes payable using tax rates and
laws in effect at the balance sheet date. Income taxes have been
provided based upon the tax laws and rates in the countries in
which operations are conducted and income is earned. A valuation
allowance for deferred tax assets is recorded when it is more
likely than not that some or all of the benefit from the
deferred tax asset will not be realized.
Workers
Compensation Claims
Our onshore employees are covered by workers compensation.
Offshore employees, including divers, tenders and marine crews,
are covered by our maritime employers liability insurance
policy, which covers Jones Act exposures. We incur workers
compensation claims in the normal course of business, which
management believes are substantially covered by insurance. We,
together with our insurers and legal counsel, analyze each claim
for potential exposure and estimate the ultimate liability of
each claim.
Stock-Based
Compensation Plans
Certain of our employees have participated in Helixs
stock-based compensation plans. Helix used the intrinsic value
method of accounting for its stock-based compensation programs
through December 31, 2005. Accordingly, prior to
January 1, 2006, no compensation expense was recognized by
Helix or us if the exercise price of an employee stock option
was equal to the common share market price on the grant date.
All tax benefits recognized on employee stock plans are retained
by Helix. See Recently Issued Accounting
Principles.
Major
Customers and Concentration of Credit Risk
Our customers consist primarily of major and independent oil and
natural gas producers, pipeline transmission companies and
offshore engineering and construction firms. The capital
expenditures of our customers are generally dependent on their
views of future oil and gas prices and successful offshore
drilling activity. We perform ongoing credit evaluations of our
customers and provide allowances for probable credit losses when
necessary. The percent of revenue of major customers was as
follows: 2003 Emigar International (15%) and Horizon
Offshore, Inc. (10%); 2004 Lighthouse R&D
Enterprises (12%) and Shell (11%); and 2005 BP (13%)
and Lighthouse R&D Enterprises (11%).
Recently
Issued Accounting Principles
In December 2004, the FASB issued SFAS No. 123R, which
replaces SFAS No. 123 and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values beginning with the first interim period in fiscal 2006,
with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS No. 123 will no longer
be an alternative to financial statement recognition. Along with
Helix, we adopted SFAS No. 123R on January 1,
2006. Under SFAS No. 123R, we use the Black-Scholes
fair value model for valuing share-based payments and recognize
compensation cost on a straight-line basis over the respective
vesting period. We selected the modified-prospective method of
adoption, which requires that compensation expense be recorded
for all
39
unvested stock options and restricted stock beginning in 2006 as
the requisite service is rendered. In addition to the
compensation cost recognition requirements,
SFAS No. 123R also requires the tax deduction benefits
for an award in excess of recognized compensation cost be
reported as a financing cash flow rather than as an operating
cash flow, which was required under SFAS No. 95,
Statement of Cash Flows. The adoption did not have a material
impact on our combined results of operations and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, which
clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109.
FIN 48 clarifies the application of SFAS 109 by
defining criteria that an individual tax position must meet for
any part of the benefit of that position to be recognized in the
financial statements. Additionally, FIN 48 provides
guidance on the measurement, derecognition, classification and
disclosure of tax positions, along with accounting for the
related interest and penalties. The provisions of FIN 48
are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained
earnings. Management is currently evaluating the impact the
adoption of FIN 48 will have on our financial position,
results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective for fiscal years
beginning after November 15, 2007. We are currently
evaluating the impact, if any, of this statement.
Results
of Operations
Comparison
of Nine Months Ended September 30, 2006 and
2005
Revenues. For the nine months ended
September 30, 2006, our revenues increased 193% to
$372.9 million, compared to $127.2 million for the
nine months ended September 30, 2005. This increase was
primarily a result of the Torch and Acergy acquisitions in the
third and fourth quarters of 2005, respectively. Revenues
derived from assets purchased in these acquisitions were
$173.6 million in the first three quarters of 2006. In
addition, the increase was due to improved market demand, much
of which was the result of infrastructure damages caused by
recent hurricanes in the Gulf of Mexico. This resulted in
significantly improved utilization rates (95% in the first three
quarters of 2006 as compared to 71% in the same period of 2005)
and an overall increase in pricing for our services.
Gross profit. Gross profit for the nine months
ended September 30, 2006 increased 335% to
$168.9 million, compared to $38.9 million for the nine
months ended September 30, 2005. This increase was
attributable to additional gross profit derived from the Torch
and Acergy acquisitions, improved utilization rates and
increased average contract pricing. Gross profit derived from
assets purchased in these acquisitions was $87.4 million in
the first three quarters of 2006. Gross margins increased to 45%
for the nine months ended September 30, 2006 from 31% in
the first three quarters of 2005 due to the factors noted above.
Selling and administrative expenses. Selling
and administrative expenses of $25.2 million for the nine
months ended September 30, 2006 were $16.7 million
higher than the $8.5 million incurred in the first three
quarters of 2005 primarily due to additional administrative and
sales personnel hired to support the acquired Torch and Acergy
vessels in the third and fourth quarters of 2005, respectively.
Selling and administrative expenses were 7% of revenues for the
nine months ended September 30, 2006, and the nine months
ended September 30, 2005.
Income taxes. Income taxes increased to
$50.5 million for the nine months ended September 30,
2006, compared to $11.0 million in the first three quarters
of 2005, primarily due to increased profitability. The effective
tax rate for the respective periods was 35.3% for 2005 and 35.1%
for 2006.
40
Comparison
of Years Ended 2005 and 2004
Revenues. For the year ended December 31,
2005, our revenues increased 78% to $224.3 million,
compared to $125.8 million for the year ended
December 31, 2004. This increase was primarily due to
improved market demand, much of which was the result of
infrastructure damages caused by recent hurricanes in the Gulf
of Mexico. This resulted in significantly improved utilization
rates (79% in 2005 as compared to 63% in 2004) and an overall
increase in pricing for our services. In addition, revenues
increased in 2005 compared with 2004 as a result of the Torch
and Acergy acquisitions in the third and fourth quarters of
2005, respectively, with much of the impact of the acquisitions
occurring in the fourth quarter. Revenues derived from assets
purchased in these acquisitions were $28.7 million in 2005.
Gross profit. Gross profit for the year ended
December 31, 2005 increased 196% to $71.7 million,
compared to $24.2 million for the year ended
December 31, 2004. The increase was primarily due to
improved utilization rates, increased average contract pricing
and additional gross profit derived from the Torch and Acergy
acquisitions. Gross profit derived from assets purchased in
these acquisitions was $11.1 million in 2005. Gross profit
in 2005 and 2004 was negatively impacted by asset impairments on
certain vessels totaling $0.8 million and
$3.9 million, respectively, for conditions meeting our
asset impairment criteria. Gross margins increased to 32% in
2005 from 19% in 2004 due to the factors noted above.
Selling and administrative expenses. Selling
and administrative expenses of $16.7 million for the year
ended December 31, 2005 were $4.4 million higher than
the $12.3 million incurred in 2004 due to additional
administrative and sales personnel hired to support the acquired
Torch and Acergy vessels in the third and fourth quarter of
2005, respectively, and increased incentive compensation as a
result of increased profitability. Selling and administrative
expenses were 7% of revenues in 2005, compared to 10% of
revenues in 2004, due to the significant increase in revenue
from 2004 to 2005.
Income taxes. Income taxes increased to
$20.4 million for the year ended December 31, 2005,
compared to $4.2 million in 2004, primarily due to
increased profitability. The effective tax rate was 35.4% for
2004 and 35.1% for 2005.
Comparison
of Years Ended 2004 and 2003
Revenues. For the year ended December 31,
2004, our revenues decreased 7% to $125.8 million, compared
to $135.5 million during the year ended December 31,
2003, primarily due to decreased vessel utilization (63% in 2004
as compared to 68% in 2003). In addition, the DP DSV Witch
Queen, which generated $0.1 million in revenues in
2004, compared to $13.0 million in 2003, was temporarily
taken out of service in 2004 due to market conditions and a
pending, costly regulatory drydock. The resulting decrease in
2004 revenues was partially offset by improved overall pricing
for our services driven by higher-margin qualified turnkey
contracts executed during that year.
Gross profit. Gross profit for the year ended
December 31, 2004 decreased 10% to $24.2 million,
compared to $27.0 million for the year ended
December 31, 2003. During 2004, our gross profit was
negatively impacted by lower vessel utilization and impairments
on certain vessels totaling $3.9 million for conditions
that met our asset impairment criteria. Gross profit was
positively impacted by improved pricing on certain qualified
turnkey contracts executed during 2004. Gross margins decreased
to 19% in 2004 from 20% in 2003 due to the factors noted above.
Selling and administrative expenses. Selling
and administrative expenses of $12.3 million for the year
ended December 31, 2004 were $2.0 million higher than
the $10.3 million incurred in 2003 primarily due to the
introduction of an incentive compensation program in 2004. This
new program provided for incentive compensation based on certain
individual performance criteria and our profitability. Selling
and administrative expenses were 10% of revenues in 2004,
compared to 8% of revenues in 2003, due to a decrease in
revenues.
Income taxes. Income taxes decreased to
$4.2 million for the year ended December 31, 2004,
compared to $5.9 million in 2003, primarily due to
decreased profitability. The effective tax rate was 35.2% for
2003 and 35.4% for 2004.
41
Liquidity
and Capital Resources
We require capital to fund ongoing operations, organic growth
initiatives and acquisitions. Our working capital requirements
and funding for maintenance capital expenditures, strategic
investments and acquisitions have historically been part of the
corporate-wide cash management program of Helix. As a part of
such program, Helix sweeps all available cash from our operating
accounts periodically and intends to do so on the day prior to
the effectiveness of this offering. Subsequent to this offering,
we will be solely responsible for the provision of funds to
finance our working capital and other cash requirements.
Our primary sources of liquidity are cash flows generated from
our operations, available cash and cash equivalents and
availability under a revolving credit facility we intend to
secure prior to completion of this offering. We intend to use
these sources of liquidity to fund our working capital
requirements, maintenance capital expenditures, strategic
investments and acquisitions. In connection with our business
strategy, we regularly evaluate acquisition opportunities,
including vessels and marine contracting businesses. We believe
that our liquidity, along with other financing alternatives,
will provide the necessary capital to fund these transactions
and achieve our planned growth. Although Helix intends to sweep
out all cash from our operating accounts immediately prior to
the effectiveness of this offering and we plan to distribute to
Helix all of the net proceeds from this offering, we expect to
be able to fund our activities for the next year with cash flows
generated from our operations and available borrowings under our
revolving credit facility.
Cash
Flows
Operating activities. Cash flow from operating
activities in the first nine months of 2006 was
$107.8 million, an increase of $92.0 million from the
$15.8 million provided during the first nine months of
2005. The primary driver of this increase was net income, which
rose to $93.2 million during the first nine months of 2006
from $20.1 million during the first nine months of 2005.
Increases in accounts payable and accrued liabilities, partially
offset by an increase in accounts receivable, also positively
impacted cash flow from operations. These changes in working
capital items were primarily the result of the Torch and Acergy
acquisitions as well as higher vessel utilization and higher
contract rates for our services. In addition, cash flow from
operating activities was negatively impacted by an increase in
non-current assets of approximately $11.5 million primarily
due to cash expenditures for regulatory vessel drydocks.
Cash flow from operating activities was $32.2 million
during 2005, an increase of $3.6 million from the
$28.6 million generated during 2004. While net income for
2005 increased to $37.7 million from $7.7 million in
2004, this increase in profitability was offset by a
$55.3 million increase in accounts receivable. Cash flow
from operating activities was positively impacted by an increase
in accounts payable and accrued liabilities of
$46.4 million. The increases in accounts receivable and
accounts payable were primarily due to the Torch and Acergy
acquisitions, higher vessel utilization and larger incentive
compensation accruals resulting from increased profitability. In
addition, cash flow from operating activities was negatively
impacted by an increase in non-current assets of
$6.4 million primarily due to cash expenditures for
regulatory vessel drydocks.
Cash flow from operating activities was $28.6 million
during 2004, an increase of $2.2 million from the
$26.4 million generated during 2003. This increase was
primarily due to an increase in accounts payable and accrued
liabilities of $6.3 million, which was associated with the
timing of vendor and tax payments and an increase in accrued
incentive compensation. This increase in payables and accrued
liabilities was partially offset by an increase in non-current
assets of $4.1 million primarily due to cash expenditures
for regulatory vessel drydocks.
Investing Activities. Investing activities
consist principally of strategic business and asset
acquisitions, capital improvements to existing vessels and
purchases of operations support facilities and equipment. Net
cash used in investing activities was $31.1 million and
$106.0 million for the nine months ended September 30,
2005 and 2006, respectively, and $2.6 million,
$2.9 million and $79.5 million for the years ended
2003, 2004 and 2005, respectively.
We incurred $106.0 million for capital expenditures and
business acquisitions net of proceeds from property sales of
$15.7 million for the nine months ended September 30,
2006, compared to capital
42
expenditures of $31.7 million and proceeds from property
sales of $2.3 million during the first nine months of 2005.
Acquisitions and capital expenditures in the first nine months
of 2006 included the purchases of the DLB801 in January
2006 for approximately $38.0 million, the Kestrel in
March 2006 for approximately $39.9 million and the
completion of the Fraser Diving acquisition for
$22.5 million (net of $2.3 million of cash acquired)
as well as $21.1 million primarily related to vessel
upgrades, equipment purchases and leasehold improvements.
We incurred $76.4 million for capital expenditures and
business acquisitions during 2005, net of proceeds from sale of
property, compared to $2.9 million during 2004. The 2005
capital acquisitions and expenditures included
$42.9 million for the Acergy acquisition,
$26.4 million for the acquisition of the Torch assets
(including assets held for sale), and $10.0 million
primarily related to vessel upgrades.
We incurred $2.9 million for capital expenditures during
the year ended December 31, 2004, compared to
$2.6 million during 2003, net of proceeds from sale of
assets. Capital expenditures in 2003 and 2004 included additions
and improvements to vessels, equipment and leased facilities.
Financing activities. We have historically
operated within Helixs corporate cash management program.
We have financed seasonal operating requirements through
Helixs internally generated funds and borrowings under
credit facilities on a consolidated basis. Net cash flows
provided by operating activities are reflected as cash transfers
to Helix. Net cash flows used by investing activities are
reflected as cash transfers from Helix.
Capital
Expenditures
We incur capital expenditures for recertification costs relating
to regulatory drydocks as well as costs for major replacements
and improvements, which extend the vessels economic useful
life. Capital expenditures approved for these activities in 2006
include $23.7 million for recertification costs and
$9.9 million relating to steel replacement and vessel
improvement costs. We also incur capital expenditures for
strategic investments and acquisitions. During the first nine
months of 2006, we incurred $39.9 million for the purchase
of the Kestrel and $38.0 million for the purchase of
the DLB801. In July 2006, we completed the Fraser Diving
acquisition for an aggregate purchase price of approximately
$29.8 million, subject to post-closing adjustments. We have
also committed $4.0 million to the purchase and
construction of a portable saturation diving system during 2006.
Revolving
Credit Facility
We, along with CDI Vessel Holdings LLC, or Vessel, a subsidiary
of Helix that will act as borrower, have entered into a secured
credit facility with Bank of America, N.A., as administrative
agent, J.P. Morgan Securities Inc. and Banc of America
Securities LLC, as joint lead arrangers, and other financial
institutions as lenders and ancillary agents identified therein,
pursuant to which Vessel may have outstanding at any one time up
to $250 million in revolving loans under a five-year
revolving credit facility. The loans mature in November 2011. As
part of Helixs restructuring prior to the closing of this
offering, Vessel has become a subsidiary of us. The following is
a summary description of the terms of the credit agreement and
other loan documents.
Loans under the revolving credit facility may consist of loans
bearing interest in relation to the Federal Funds Rate or to
Bank of Americas base rate, known as Base Rate Loans, and
loans bearing interest in relation to a LIBOR rate, known as
LIBOR Rate Loans. Assuming there is no event of default, Base
Rate Loans will bear interest at a per annum rate equal to the
base rate plus a margin ranging from 0% to 0.5%, while LIBOR
Rate Loans will bear interest at the LIBOR rate plus a margin
ranging from 0.625% to 1.75%. In addition, a commitment fee
ranging from 0.20% to 0.375% will be payable on the portion of
the lenders aggregate commitment which from time to time
is not used for a borrowing or a letter of credit. Margins on
the loans and the commitment fee will fluctuate in relation to
our consolidated leverage ratio as provided in the credit
agreement.
The credit agreement and the other documents entered into in
connection with the credit agreement include terms and
conditions, including covenants, that we consider customary for
this type of transaction. The
43
covenants include restrictions on our and our subsidiaries
ability to grant liens, incur indebtedness, make investments,
merge or consolidate, sell or transfer assets and pay dividends.
In addition, the credit agreement obligates us to meet minimum
financial requirements of EBITDA to interest charges, funded
debt to EBITDA and collateral value to outstanding loans and
other specified obligations of us to the lenders.
On December 8, 2006, Vessel borrowed $79 million under
the revolving credit facility and distributed $78 million
of those proceeds to Helix as a dividend. Following the closing
of this offering Vessel is expected to borrow another
$122 million under the revolving credit facility, which is
to be distributed to Helix as a dividend. We expect to use the
remaining availability under the revolving credit facility for
working capital and other general corporate purposes.
Contractual
and Other Obligations
We lease several facilities under noncancelable operating
leases. Total rental expense under these operating leases was
approximately $445,000, $470,000 and $715,000 for the years
ended December 31, 2003, 2004 and 2005, respectively, and
$604,000 for the first three quarters of 2006. Future minimum
rentals under noncancelable lease agreements along with the
irrevocable letter of credit obligation to Fraser Diving at
December 31, 2005 are as follows:
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Payments Due by Period
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Less than
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More than
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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(in thousands)
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Fraser Diving acquisition
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$
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21,000
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$
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21,000
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$
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$
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$
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Noncancelable operating leases
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4,365
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599
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1,249
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913
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1,604
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Property and equipment
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4,000
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4,000
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Total cash obligations
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$
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29,365
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$
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25,599
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$
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1,249
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$
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913
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$
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1,604
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Market
Risk Management
We could be exposed to market risk related to interest rates in
the future. While we have no outstanding debt as of
September 30, 2006, we intend to incur debt under our
revolving credit facility. Changes based on the floating
interest rates under this facility could result in an increase
or decrease in our annual interest expense and related cash
outlay.
Off-Balance
Sheet Arrangements
As of September 30, 2006, we have no off-balance sheet
arrangements. For information regarding our principles of
consolidation, see Note 1 to our combined financial
statements.
44
BUSINESS
Our
Company
We were organized by Helix in February 2006 as a Delaware
corporation to facilitate the transfer of Helixs shallow
water marine contracting business to us. Prior to then, we
operated as a division of Helix.
We are a marine contractor providing manned diving, pipelay and
pipe burial services to the offshore oil and natural gas
industry. Based on the size of our fleet, we believe that we are
the market leader in the diving support business, which involves
services such as construction, inspection, maintenance, repair
and decommissioning of offshore production and pipeline
infrastructure, on the Gulf of Mexico OCS. We also provide these
services directly or through partnering relationships in select
international offshore markets, such as the Middle East (United
Arab Emirates, Oman, Egypt and Saudi Arabia) and Trinidad. Based
in Houston, Texas, we currently own and operate a diversified
fleet of 26 vessels, including 23 surface and saturation
diving support vessels as well as three shallow water pipelay
vessels. We believe that our fleet of diving support vessels is
the largest in the world. Our customers include major and
independent oil and natural gas producers, pipeline transmission
companies and offshore engineering and construction firms. We
are a direct wholly owned subsidiary of Helix, a diversified
energy services company. Upon completion of this offering, we
will be the successor to all of Helixs shallow water
marine contracting business. See Arrangements Between
Helix and Us.
Since 1975, we have provided essential marine contracting
services in support of oil and natural gas infrastructure
throughout the production lifecycle, including production
platforms, risers, subsea production systems and pipelines, on
the Gulf of Mexico OCS. Our services include saturation, surface
and mixed gas diving, enabling us to provide a full complement
of marine contracting services in water depths of up to
1,000 feet. We provide our saturation diving services in
water depths of 200 to 1,000 feet through our fleet of
eight saturation diving vessels and eight portable saturation
diving systems, which we believe is the largest saturation
diving support fleet in the world. In addition, we believe that
our fleet of diving support vessels is among the most
technically advanced in the world, because a number of these
vessels have features such as DP, hyperbaric rescue chambers,
multi-chamber systems for split-level operations and moon pool
deployment, which allow us to operate effectively in challenging
offshore environments. We provide surface and mixed gas diving
services in water depths typically less than 300 feet
through our 15 surface diving vessels. We also have three
vessels dedicated exclusively to pipelay and pipe burial
services in water depths of up to approximately 400 feet.
Pipelay and pipe burial operations typically require extensive
use of our diving services; therefore, we consider these
services to be complementary.
We believe the combination of the scheduling flexibility
afforded by our large fleet, the wide range of capabilities of
our assets and the advanced technical skills of our personnel
distinguishes us from our competitors on the Gulf of Mexico OCS
and makes us a leading services provider in this region.
Furthermore, we believe that our superior operating
capabilities, international experience, existing relationships
with globally focused customers and proven acquisition expertise
will allow us to achieve similar leadership in other
economically attractive offshore markets, such as Southeast
Asia, the Middle East and Trinidad.
Recent
Acquisitions and Investments
In the past year, we have substantially increased the size of
our fleet and expanded our operating capabilities on the Gulf of
Mexico OCS through the following strategic acquisitions:
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In August 2005, we acquired six vessels and a portable
saturation diving system from Torch for an aggregate purchase
price of $26.4 million (including assets held for sale).
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In late 2005 and early 2006, we acquired all of the diving and
shallow water pipelay business of Acergy operating in the Gulf
of Mexico and Trinidad, including nine vessels and one portable
saturation diving system, for an aggregate purchase price of
$124.3 million.
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45
Pursuant to our growth strategy, we have completed the following
transactions in international offshore markets:
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In July 2005, we obtained a 40% interest in OTSL, a diving
services provider in the Trinidad market.
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In December 2005, we entered into a memorandum of understanding
to acquire the business of Singapore-based Fraser Diving, which
includes six portable saturation diving systems and 15 surface
diving systems operating primarily in Southeast Asia, the Middle
East, Australia and the Mediterranean. We closed the purchase of
one of the portable saturation diving systems and redeployed it
to the Gulf of Mexico in December 2005. We completed the
purchase of the remaining systems in July 2006.
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Upon closing these transactions and completing subsequent
divestitures, we will have added a total of 13 vessels,
including three saturation diving vessels, seven portable
saturation diving systems and significant diving equipment to
our fleet.
Industry
Trends
Similar to most sectors within the oilfield services industry,
marine contracting is cyclical and typically driven by actual or
anticipated changes in oil and natural gas prices and capital
spending by upstream producers. Sustained high commodity prices
historically have led to increases in expenditures for offshore
drilling and completion activities and, as a result, greater
demand for our services. Therefore, we expect our results of
operations will be much stronger in a high commodity price
environment compared to those achieved in a low commodity price
environment. Current business conditions are extremely strong,
and we believe the outlook for our business remains very
favorable based on several industry trends:
Increased capital spending by oil and natural gas
producers. Supported by a high commodity price
environment, oil and natural gas producers have significantly
increased their spending on drilling, completions and
acquisitions. According to Spears & Associates, annual
offshore drilling and completion spending worldwide has risen
from $29.4 billion in 2000 to $44.1 billion in 2005
and is expected to reach $68.6 billion by 2008. In the Gulf
of Mexico, the growth in spending has been driven in part by
smaller independent producers, which have aggressively acquired
offshore properties and invested more heavily than previous
operators to improve production. Additionally, several of the
larger oil and natural gas companies have renewed their interest
in the Gulf of Mexico and are actively pursuing deep-shelf
drilling projects (15,000 feet or more below the mudline in
water depths up to 1,000 feet) that offer excellent
potential for natural gas reserve discoveries. The level of
upstream spending in offshore regions has generally served as a
leading indicator of demand for marine contracting services.
Rising international offshore activity. Many
oil and natural gas producers have recently expanded their
operations in international offshore regions with large untapped
reserves, such as Southeast Asia, West Africa and the Middle
East. According to Spears & Associates, international
offshore drilling and completion spending accounts for 67% of
worldwide offshore drilling and completion spending and is
expected to continue growing at a high rate. In many
international markets, significant production infrastructure
work is required over the next several years to develop new oil
and natural gas discoveries. We believe that we are well
positioned to capture a growing share of this work given our
superior operating capabilities relative to the smaller regional
providers that presently serve these markets. In addition, the
size and complexity of these projects often necessitates the
funding capabilities and expertise of the major oil and natural
gas companies, large independents or national oil companies,
which are less sensitive to changes in commodity prices than
many producers in the Gulf of Mexico. Therefore, international
demand for our services is typically more stable and predictable
than on the Gulf of Mexico OCS.
46
TOTAL
OFFSHORE DRILLING AND COMPLETION SPENDING
Source: Spears & Associates, Drilling and Production
Outlook (September 2006). International figures exclude Canada,
China and the Commonwealth of Independent States.
Aging production infrastructure in the Gulf of
Mexico. According to the MMS, there are nearly
4,000 oil and natural gas production platforms in the Gulf of
Mexico, of which approximately 60% are more than 15 years
old. Virtually all of the older platforms and other
infrastructure in the Gulf of Mexico lie in water depths of
1,000 feet or less. These structures are generally subject
to extensive periodic inspections, require frequent maintenance
and will ultimately be decommissioned as mandated by various
regulatory agencies. Consequently, we believe demand for our
inspection, maintenance, repair and decommissioning services
will remain strong. Demand for these services is less
discretionary, and therefore more stable, than that derived from
exploration, development and production activities.
INSTALLATION
DATE OF PRODUCTION PLATFORMS IN THE U.S. GULF OF
MEXICO
Source: U.S. Department of the Interior, Minerals
Management Service (May 2006).
Significant demand for infrastructure repair
projects. Prior to Hurricanes Katrina and Rita in
2005, demand for our services in the Gulf of Mexico exceeded
supply due to higher drilling activity and the repair work
generated by Hurricane Ivan in 2004. The severe infrastructure
damage caused by the recent hurricanes significantly increased
this demand. According to the MMS, approximately 197 platforms
and 474 pipelines in the Gulf of Mexico were damaged or
destroyed due to Hurricanes Ivan, Katrina and Rita, shutting in
a large
47
amount of oil and natural gas production. While many
hurricane-related repairs have been completed, we believe much
additional work is required to repair these structures and
restore production to targeted levels. Because of this demand
pressure and government regulations that impose limits on
foreign-domiciled vessels working in U.S. waters, we are
currently experiencing record contract rates and utilization for
our vessels and portable saturation diving systems.
PATHS OF
HURRICANES IVAN, KATRINA AND RITA RELATIVE TO GULF OF MEXICO
OCS
CRUDE OIL AND NATURAL GAS PRODUCTION PLATFORMS
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Sources:
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EIA, The Impact of Tropical Cyclones on Gulf of Mexico Crude
Oil and Natural Gas Production (June 2006), and information
obtained from the National Oceanic & Atmospheric
Administration.
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Growing U.S. demand for natural gas. The
majority of our customers on the Gulf of Mexico OCS are drilling
for, producing and transporting natural gas. The Gulf of Mexico
is a key region for natural gas supply, producing an estimated
21% of total U.S. natural gas production during the
five-year
period ending in 2005, according to the EIA. The EIA reports
that U.S. demand for natural gas has increased 27% since
1985 and is expected to grow an additional 26% through 2030. The
EIA projects a need for approximately 18% growth in annual
U.S. natural gas production and an increase in liquefied
natural gas imports to meet this demand. Due to the declining
productivity of many mature U.S. fields, the number of
domestic natural gas wells drilled annually has increased
significantly in recent years. We would expect the continuation
of this trend to result in strong demand for our services on the
Gulf of Mexico OCS.
48
AVERAGE
PRODUCTIVITY OF U.S. NATURAL GAS WELLS
Source: EIA, Annual Energy Review 2005 (July 2006).
U.S. NATURAL
GAS PRODUCTION AND NATURAL GAS WELLS DRILLED
Source: EIA, Monthly Energy Review (April 2006).
Competitive
Strengths
Our competitive strengths include:
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|
Leader in the Gulf of Mexico OCS diving services
market. We believe the size of our fleet and
workforce makes us the market leader for diving services on the
Gulf of Mexico OCS. We currently own and operate a diversified
fleet of 26 vessels and employ approximately 1,200 diving
and marine personnel. We believe our size advantages allow us to
provide the highest-quality diving services on the Gulf of
Mexico OCS and result in our leading share of diving services
contracts in this market. Furthermore, we expect to achieve
similar leadership in new offshore markets due to our superior
operating capabilities, international experience, existing
relationships with globally focused customers and proven
acquisition expertise.
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49
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|
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|
|
High-quality asset base. Our diverse fleet of
vessels and diving systems, particularly our saturation diving
fleet, is among the most technically advanced in the industry.
Our saturation diving fleet has a combination of modern
features, including DP, multi-chamber systems for split-level
operations and moon pool deployment, that allow us to operate
effectively in challenging offshore environments. The diversity
of our fleet also enables us to provide a wide range of marine
contracting services. We possess complementary diving, pipelay
and pipe burial capabilities that are often required for more
complex subsea projects. As a result, we can effectively execute
this higher-margin business while enhancing the utilization of
our diving support vessels.
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|
Highly skilled workforce. The quality of our
workforce has been, and will continue to be, a vital contributor
to our success. We invest significant resources in training
programs to ensure that our divers, supervisors and support
staff have the best technical, operational and safety skills in
the industry, which allows us to deliver innovative solutions to
our customers. In addition, our market leadership provides an
advantage with regards to employee retention, which is a major
issue in our sector in the current tight labor environment.
Compensation is typically determined by logged diving time, so
divers and others are strongly incentivized to work for us due
to our high vessel utilization, which is driven by our
relationships with the most active Gulf of Mexico producers and
proven operating history. We believe these qualities, along with
our commitment to effective training and safety, help us to
attract and retain skilled employees.
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|
Excellent, long-standing customer
relationships. We have built a reputation as a
premier diving services contractor during our more than
30 years operating in the Gulf of Mexico. We have developed
a large and stable customer base, which includes virtually all
of the top 20 energy producers in the Gulf of Mexico, by
consistently providing superior and comprehensive services on
schedule while maintaining a strong safety track record.
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|
Successful acquisition track record. We have a
proven track record of identifying and executing acquisitions
that complement our fleet and workforce and enhance our service
capabilities. In 2005, we added 13 vessels, including three
premium saturation diving vessels, and two portable saturation
diving systems to our fleet. More recently, in July 2006,
we completed the acquisition of six portable saturation diving
systems and 15 surface diving systems operating primarily in
Southeast Asia, the Middle East, Australia and the Mediterranean
from Singapore-based Fraser Diving. We attribute much of the
growth of our business to our success making acquisitions, and
we believe that acquisitions will remain a key element of our
growth strategy. Furthermore, we believe that our ability to
integrate acquisitions efficiently is one of our core
organizational competencies. We have consistently demonstrated
the ability to add to our revenue base and retain key personnel
from acquired businesses, while improving margins by leveraging
our existing cost structure.
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|
Proven management team with extensive experience in the
marine contracting business. Most of our
executive officers and senior managers have spent the majority
of their respective careers in the marine contracting business,
working at various levels of the industry in the Gulf of Mexico
and internationally. This senior management team, which has an
average of 22 years of industry experience, includes
recognized leaders in diving services and offshore construction.
Several of these individuals serve in high-ranking positions in
industry organizations for standards and safety. We believe the
knowledge and experience of our management team provides us a
valuable competitive advantage.
|
Business
Strategy
The principal elements of our strategy to grow and maximize
shareholder value include:
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|
|
Strengthen leadership position on the Gulf of Mexico
OCS. We will seek to expand our leadership
position in the Gulf of Mexico OCS diving services market by
enhancing the capabilities of our existing assets, making
acquisitions of complementary assets or businesses and
continuing to provide a high level of customer service. Pursuant
to this strategy, we have increased the crane capacity of the DP
DSV Kestrel and plan to convert the DSV Midnight Star
surface diving vessel to a saturation diving vessel in 2007.
We believe these upgrades will increase the demand for those
assets, and we
|
50
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|
intend to invest future available capital in similar fleet
enhancements. As evidence of our continued success in this
market, we recently entered into a new diving services contract
with a major oil company, the largest such contract in our
history based on potential revenues of approximately
$80 million.
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|
Expand into high-growth international markets through
acquisitions. Several international regions, such
as Southeast Asia, the Middle East and Trinidad, offer excellent
growth potential attributable to the recent and planned
increases in upstream capital spending and the highly fragmented
nature of the existing marine contracting markets. We are
continually evaluating potential acquisition targets that can
provide us with a meaningful presence in these markets. Our goal
is to replicate our Gulf of Mexico OCS leadership in the most
attractive international offshore regions by leveraging our
operating capabilities, international experience, customer
relationships and acquisition expertise. Pursuant to this
strategy, in July 2006, we completed an acquisition of the
business of Singapore-based Fraser Diving, and in July 2005 we
obtained a 40% interest in OTSL, a diving services provider in
the Trinidad market.
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|
Continue to attract, develop and retain highly skilled
personnel. Our market leadership and future
growth plans are predicated on our ability to employ the most
highly skilled divers, supervisors and support staff in the
industry. We invest significant resources in developing the
technical, operational and safety skills of our workforce. We
will continue to invest significant resources in training and
development courses that will provide our workforce with
superior knowledge and skills relevant to diving operations and
safety, as well as facilitate their long-term career
development. We will also continue our practice of structuring
compensation and benefit plans that are competitive with our
peers and properly incentivize our workforce.
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|
Maintain a disciplined cost structure. We seek
to contain the costs of our operations and identify new
opportunities to reduce costs. We believe that our cost
discipline will enhance our profitability in strong market
environments and better position us to withstand market
downturns. Furthermore, the size and diversity of our fleet
provide meaningful economies of scale and scope advantages,
which we have realized through the efficient integration of
recent acquisitions and ongoing cost initiatives.
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|
Optimize our mix of dayrate and qualified turnkey
work. We seek to optimize the allocation of our
resources between dayrate and qualified turnkey work in order to
diversify our sources of revenue and enhance overall
profitability. We believe that this strategy allows us to
respond effectively to the increasing demand from larger
customers for integrated solutions while ensuring that a segment
of our fleet is positioned to capitalize on attractive
opportunities in the spot market. As business conditions change,
we will adjust our resource allocation. For instance, due to the
heavy demand for Gulf of Mexico infrastructure repair work, many
of our customers have recently expressed a willingness to enter
longer-term, higher-dayrate contracts to secure access to our
vessels and divers. Therefore, we have reduced our current
proportion of short-term dayrate and qualified turnkey work in
an attempt to maximize profitability, satisfy customer demand
and reduce spot market volatility.
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|
Improve financial flexibility. We intend to
improve our financial flexibility in the near term by utilizing
our strong operating cash flows to reduce the debt incurred by
us in connection with this offering. Immediately following the
closing of this offering, we expect to have $200 million of
outstanding debt and $50 million of borrowing capacity
under our revolving credit agreement, which we believe is
sufficient to support our business. However, we seek to achieve
a more conservative capital structure over the long term, so
that we may continue to actively pursue value-enhancing growth
initiatives and mitigate some of the financial risk associated
with a market downturn.
|
Our
History
We trace our origins to California Divers Inc., which pioneered
the use of mixed gas diving in the early 1960s when oilfield
exploration off the Santa Barbara coast moved to water depths
beyond 250 feet. We commenced operations in the Gulf of
Mexico in 1975. Since that time our growth strategy has included
51
acquisitions and investments that enhanced our services and
increased our technological capabilities as evidenced by these
representative milestones in our history:
|
|
|
1980 |
|
Acquired International Oilfield Divers, our first acquisition in
the Gulf of Mexico market |
|
1984 |
|
Completed a major conversion of the
Cal Diver I, introducing the first DSV
dedicated for use in the Gulf of Mexico |
|
1986 |
|
Began providing subsea construction, maintenance and inspection
work on a qualified turnkey basis, enabling clients to better
control project costs |
|
1989 |
|
Launched shallow water salvage business |
|
1994 |
|
Acquired our first DP DSV, the Witch Queen, improving our
abilities to operate in winter months and work in deeper waters |
|
1996 |
|
Acquired and enhanced the Uncle John, the first
semi-submersible MSV dedicated for use in the Gulf of Mexico in
heavy construction and saturation mode |
|
1997 |
|
Acquired Aquatica, Inc. (previously known as Acadiana Divers) in
Lafayette, Louisiana to expand our call out diving support
capabilities |
|
2001 |
|
Acquired Professional Divers of New Orleans, adding an
additional 4 point surface DSV and three utility boats |
|
2005 |
|
Acquired six DSVs and a portable saturation diving system from
Torch |
|
|
|
Acquired all of the diving and shallow water pipelay business of
Acergy operating in the Gulf of Mexico and Trinidad, including
nine vessels and one portable saturation diving system |
|
2006 |
|
Acquired the business of Singapore-based Fraser Diving and its
six portable saturation diving systems and 15 surface diving
systems operating primarily in Southeast Asia and the
Middle East |
|
|
|
Entered into a new diving services contract with a major oil
company, the largest such contract in our history based on
potential revenues of approximately $80 million. |
With the recent Torch, Acergy and Fraser Diving acquisitions, we
have substantially increased the size of our fleet and expanded
our operating capabilities. Upon closing these transactions and
completing subsequent divestitures, we will have added a total
of 13 vessels, including three premium saturation diving
vessels, seven portable saturation diving systems and
significant other diving equipment to our fleet.
Our
Vessels
We currently own and operate a diversified fleet of
26 vessels, including 23 surface and saturation diving
support vessels capable of operating in water depths of up to
1,000 feet as well as three shallow water pipelay vessels.
Our fleet of diving support vessels comprises 15 surface diving
support vessels capable of working in water depths up to
300 feet and eight saturation diving support vessels that
typically work in water depths of 200 to 1,000 feet. Four
of our saturation diving support vessels have DP capabilities.
52
The following table provides select information about each of
the vessels we own:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Placed in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service by Cal
|
|
|
|
|
|
|
|
|
DP or Anchor
|
|
|
Flag State
|
|
Dive(1)
|
|
|
Length (Feet)
|
|
|
Berths
|
|
|
Moored
|
|
Saturation Diving
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DP DSV Eclipse
|
|
Bahamas
|
|
|
3/2002
|
|
|
|
367
|
|
|
|
109
|
|
|
DP
|
DP DSV Mystic Viking
|
|
Bahamas
|
|
|
6/2001
|
|
|
|
253
|
|
|
|
60
|
|
|
DP
|
DP DSV Kestrel(2)
|
|
Vanuatu
|
|
|
9/2006
|
|
|
|
323
|
|
|
|
80
|
|
|
DP
|
DP MSV Uncle John
|
|
Bahamas
|
|
|
11/1996
|
|
|
|
254
|
|
|
|
102
|
|
|
DP
|
DSV American Constitution
|
|
Panama
|
|
|
11/2005
|
|
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200
|
|
|
|
46
|
|
|
4 point
|
DSV Cal Diver I
|
|
U.S.
|
|
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7/1984
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|
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196
|
|
|
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40
|
|
|
4 point
|
DSV Cal Diver II
|
|
U.S.
|
|
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6/1985
|
|
|
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166
|
|
|
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32
|
|
|
4 point
|
DSV Midnight Star(3)
|
|
Vanuatu
|
|
|
6/2006
|
|
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197
|
|
|
|
42
|
|
|
4 point
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Surface Diving
|
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|
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|
|
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|
|
|
|
|
|
|
|
American Diver
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|
U.S.
|
|
|
11/2005
|
|
|
|
105
|
|
|
|
22
|
|
|
|
American Liberty
|
|
U.S.
|
|
|
11/2005
|
|
|
|
110
|
|
|
|
22
|
|
|
|
Cal Diver IV
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|
U.S.
|
|
|
3/2001
|
|
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120
|
|
|
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24
|
|
|
|
DSV American Star
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|
U.S.
|
|
|
11/2005
|
|
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165
|
|
|
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30
|
|
|
4 point
|
DSV American Triumph
|
|
U.S.
|
|
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11/2005
|
|
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164
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|
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32
|
|
|
4 point
|
DSV American Victory
|
|
U.S.
|
|
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11/2005
|
|
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165
|
|
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34
|
|
|
4 point
|
DSV Cal Diver V
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|
U.S.
|
|
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9/1991
|
|
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166
|
|
|
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34
|
|
|
4 point
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DSV Dancer
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|
U.S.
|
|
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3/2006
|
|
|
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173
|
|
|
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34
|
|
|
4 point
|
DSV Mr. Fred
|
|
U.S.
|
|
|
3/2000
|
|
|
|
166
|
|
|
|
36
|
|
|
4 point
|
Fox
|
|
U.S.
|
|
|
10/2005
|
|
|
|
130
|
|
|
|
42
|
|
|
|
Mr. Jack
|
|
U.S.
|
|
|
1/1998
|
|
|
|
120
|
|
|
|
22
|
|
|
|
Mr. Jim
|
|
U.S.
|
|
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2/1998
|
|
|
|
110
|
|
|
|
19
|
|
|
|
Polo Pony
|
|
U.S.
|
|
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3/2001
|
|
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|
110
|
|
|
|
25
|
|
|
|
Sterling Pony
|
|
U.S.
|
|
|
3/2001
|
|
|
|
110
|
|
|
|
25
|
|
|
|
White Pony
|
|
U.S.
|
|
|
3/2001
|
|
|
|
116
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brave
|
|
U.S.
|
|
|
11/2005
|
|
|
|
275
|
|
|
|
80
|
|
|
Anchor
|
Rider
|
|
U.S.
|
|
|
11/2005
|
|
|
|
275
|
|
|
|
80
|
|
|
Anchor
|
DLB801(4)
|
|
Panama
|
|
|
1/2006
|
|
|
|
351
|
|
|
|
230
|
|
|
Anchor
|
|
|
|
(1)
|
|
Represents the date Cal Dive
placed the vessel in service and not its date of commissioning.
|
|
(2)
|
|
Acquired the DP DSV Kestrel,
formerly known as the DP DSV Seaway Kestrel, in March
2006 from Acergy.
|
|
(3)
|
|
Expected to be converted in the
second quarter of 2007 to full saturation diving capabilities.
|
|
(4)
|
|
The DLB801 was purchased in
January 2006 and a 50% interest in the vessel was subsequently
sold that same month. The vessel is now under a
10-year
charter lease agreement with the purchaser of the 50% interest.
The charter lease agreement includes an option by the other
holder to purchase our 50% interest in the vessel beginning in
January 2009.
|
We currently own eight portable saturation diving systems,
including six acquired from Fraser Diving. We are also scheduled
to take ownership later in 2006 of one additional portable
saturation diving system that is currently under construction.
By the end of 2006, based on our existing plans, we will own
nine portable saturation diving systems.
Pursuant to an agreed final judgment with the DOJ permitting us
to complete the Acergy acquisition in November 2005, we agreed
to divest ourselves of the Midnight Carrier, the
Seaway Defender and a portable saturation diving system.
We have since completed the sale of the portable saturation
diving system and the Seaway Defender. As of
September 30, 2006, the Midnight Carrier was held
for sale.
53
We incur routine drydock, inspection, maintenance and repair
costs pursuant to U.S. Coast Guard regulations and in order
to maintain our vessels in class under the rules of the
applicable class society. For 2006, we estimate that these costs
will be approximately $24 million. These costs can
fluctuate widely from year to year based on the number of
vessels, the scope of the related work plan, availability of
drydock capacity and general prevailing market conditions. In
addition to complying with these requirements, we have our own
vessel maintenance program that we believe permits us to
continue to provide our customers with well maintained, reliable
vessels. In the normal course of business, we charter other
vessels on a short-term basis, such as tugboats, cargo barges,
utility boats and dive support vessels.
The following table shows the historical size of our fleet and
utilization of our vessels:
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
First Nine Months of 2006
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
of Vessels
|
|
|
Utilization
|
|
|
of Vessels
|
|
|
Utilization
|
|
|
of Vessels
|
|
|
Utilization
|
|
|
of Vessels
|
|
|
Utilization
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
|
(2)
|
|
|
Saturation Diving
|
|
|
5
|
|
|
|
91
|
%
|
|
|
5
|
|
|
|
86
|
%
|
|
|
6
|
|
|
|
91
|
%
|
|
|
8
|
|
|
|
94
|
%
|
Surface and Mixed Gas Diving
|
|
|
8
|
|
|
|
54
|
%
|
|
|
8
|
|
|
|
49
|
%
|
|
|
14
|
|
|
|
72
|
%
|
|
|
15
|
|
|
|
95
|
%
|
Shallow Water Pipelay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
92
|
%(3)
|
|
|
2
|
|
|
|
99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entire Fleet
|
|
|
13
|
|
|
|
68
|
%
|
|
|
13
|
|
|
|
63
|
%
|
|
|
22
|
|
|
|
79
|
%
|
|
|
25
|
|
|
|
95
|
%
|
|
|
|
(1)
|
|
As of the end of the period and
excluding acquired vessels prior to their in-service dates,
vessels taken out of service prior to their disposition and
vessels jointly owned by a third party.
|
|
(2)
|
|
Average vessel utilization is
calculated by dividing the total number of days the vessels
generated revenues by the total number of days the vessels were
available for operation in each quarter and does not reflect
acquired vessels prior to their in-service dates, vessels in
drydocking, vessels taken out of service prior to their
disposition and vessels jointly owned by a third party.
|
|
(3)
|
|
Includes activity for only November
and December 2005.
|
Seasonality
Historically, we have experienced our lowest vessel utilization
rates during the first quarter, and to a lesser extent during
the fourth quarter, when weather conditions are least favorable
for offshore exploration, development and construction
activities. As is common in the industry, we typically bear the
risk of delays caused by some, but not all, adverse weather
conditions. We believe that the technical capabilities of our
fleet and ability to operate effectively in challenging offshore
environments will provide an advantage during winter months and
reduce the impact of weather-related delays. However, due to
high utilization rates caused by hurricane repair work, we are
not experiencing typical seasonal trends in the current market
environment.
Customers
Our customers include major and independent oil and natural gas
producers, pipeline transmission companies and offshore
engineering and construction firms. The level of marine
contracting capital spending by customer varies from year to
year due to the concentrated nature of construction and
installation expenditures and the unpredictability of repair
work. Consequently, customers that account for a significant
portion of contract revenues in one fiscal year may represent an
immaterial portion of contract revenues in subsequent fiscal
years. The percent of consolidated revenue of major customers
was as follows: 2003 Emigar International 15% and
Horizon Offshore, Inc. 10%; 2004 Lighthouse R&D
Enterprises 12% and Shell 11%; 2005 BP 13% and
Lighthouse R&D Enterprises 11%. We estimate we provided
marine contracting services to over 100 customers in 2005.
Contracting
and Tendering
Our services are performed under contracts that are typically
awarded through a competitive bid process. Contract terms vary
depending on the services required and are often determined
through negotiation. Most of
54
our contracts can be categorized as either dayrate or qualified
turnkey. Under dayrate contracts, we are paid a daily rate,
which consists of a base rate for our vessel and crews as well
as cost reimbursements for materials and ancillary activities,
for as long as we provide our services. Qualified turnkey
contracts, on the other hand, define the services that we will
provide for an agreed upon fixed price and certain cost
protections. This type of contract is most commonly used for
complex subsea projects on which customers desire greater
control over costs.
We seek to optimize our mix of dayrate and qualified turnkey
contracts based on prevailing market conditions. As part of that
effort, we also attempt to strike the appropriate balance
between short-term and long-term dayrate contracts. Our goal is
to diversify our sources of revenue while maximizing
profitability in a given business environment. For instance, our
volume of dayrate contracts has increased dramatically following
the hurricanes in the Gulf of Mexico during 2004 and 2005. This
increase has occurred as a result of our preference to perform
hurricane-related inspections and subsequent repairs on a
dayrate basis given the difficulty of accurately defining the
scope of required services prior to commencing such a project.
Furthermore, in response to the limited supply of available
vessels and divers on the Gulf of Mexico OCS, many customers
have expressed a willingness to enter longer-term,
higher-dayrate contracts. Therefore, in addition to a general
increase in the number of dayrate contracts related to hurricane
repairs we have also elected to increase our proportion of
long-term dayrate contracts to capitalize on favorable market
conditions.
Our recent acquisitions expanded our operating capabilities. We
now offer a comprehensive range of manned diving, pipelay and
pipe burial services. These businesses are complementary since
pipeline installation and completion work often requires
significant diving support. As a result, we frequently enter
into contracts to provide each of these services for a
particular project. This type of arrangement allows customers to
negotiate contract terms and share project information with us
as a single contractor, rather than multiple contractors, and
enhances the utilization of our fleet.
Competitors
The marine contracting business is highly competitive.
Competition for marine contracting work in the Gulf of Mexico
has historically been based on price, the location and type of
equipment available, the ability to deploy such equipment and
the safety and quality of such services. In recent years, price
has been the primary factor in obtaining contracts, but the
ability to acquire specialized vessels, to attract and retain
skilled personnel, and to demonstrate a good safety record have
also been important competitive factors. Our principal
competitors for diving services include Global Industries, Ltd.,
Tetra Technologies Inc. (through its wholly owned subsidiary,
Epic Divers & Marine, L.L.C.) and Oceaneering
International, Inc., as well as a number of smaller companies
that often compete solely on price. Based on the size of our
fleet, we are the largest saturation and surface diving service
provider on the Gulf of Mexico OCS. Our principal competitors
for shallow water pipelay services on the Gulf of Mexico OCS
include Global Industries, Horizon Offshore, Inc. and several
independent companies. Other foreign-based marine contractors
have either positioned, or announced their intention to deploy,
certain vessels, equipment and personnel to perform services on
the Gulf of Mexico OCS in response to demand for
hurricane-related repair projects. However, we believe that our
reputation, asset capabilities, highly experienced personnel and
low-cost structure are key advantages for us in this market.
Employees
As of October 31, 2006, we had approximately 1,200
employees, 200 of whom were salaried personnel. As of that date,
we also contracted with third parties to utilize approximately
200
non-U.S. citizens
to crew our foreign-flagged vessels. None of our employees
belong to a union or are employed pursuant to any collective
bargaining agreement or any similar arrangement. We believe our
relationship with our employees and foreign crew members is good.
Training
and Safety
We have established a corporate culture in which safety is one
of our core values. Our goal, based upon the belief that all
incidents are preventable, is to provide an injury-free
workplace by emphasizing the importance of safe behavior by our
employees. Our behavioral safety procedures and training
programs were
55
developed by management personnel who have worked at entry level
positions within the industry and know firsthand the mental and
physical challenges of the ocean worksite. As a result, we
believe that our overall safety management system is among the
best in the industry. Nevertheless, we are constantly engaged in
a company-wide effort to enhance our behavioral safety
procedures and training programs with a constant focus on
awareness and open communication between management and all
offshore and onshore employees. We currently document all daily
observations and analyze data both at the immediate worksite and
at the corporate level. Worksite conditions inspections, known
as Hazard Hunts, are conducted bi-weekly with
required actions by and close out dates. Annual
progressive audits are carried out at the site by our
environmental, health and safety department to provide an avenue
of understanding and mechanism to identify training requirements
throughout our diverse fleet. Management site visits are
conducted monthly to assist in face to face communication across
the fleet.
Our
Facilities
Our corporate headquarters are located at 400 N. Sam
Houston Parkway E., Suite 1000, Houston, Texas. Our primary
subsea and marine services operations are based in Port of
Iberia, Louisiana. All of our facilities are leased except for
approximately
61/2
acres that are owned by us at our Port of Iberia, Louisiana
facility. The remaining terms of these leases range from two to
14 years. Future minimum rentals under these non-cancelable
leases are approximately $4.3 million at December 31,
2005, with $0.6 million due in 2006, $0.6 million in
2007, $0.6 million in 2008, $0.6 million in 2009,
$0.3 million in 2010 and $1.6 million thereafter.
Total rental expense under these operating leases was
approximately $0.4 million, $0.5 million and
$0.7 million for the years ended December 31, 2003,
2004 and 2005, respectively.
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Location
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Function
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Size
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Houston, Texas
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Corporate Headquarters, Project
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20,000 square feet
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Management and Sales Office
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Port of Iberia, Louisiana
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Operations, Offices and Warehouse
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23 acres (Buildings: 68,602
sq. feet)
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Fourchon, Louisiana
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Marine, Operations, Living Quarters
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10 acres (Buildings: 2,300
sq. feet)
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New Orleans, Louisiana
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Sales Office
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2,724 square feet
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Singapore
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Marine, Operations, Offices,
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29,772 square feet
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Project Management and Warehouse
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Dubai, United Arab Emirates
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Sales Office and Warehouse
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12,916 square feet
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Perth, Australia
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Operations, Offices and Project
Management
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28,738 square feet
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Government
Regulation
The marine contracting industry is subject to extensive
governmental and industry rules and regulations, including those
of the U.S. Coast Guard, the U.S. Environmental
Protection Agency, the MMS and the U.S. Customs Service, as
well as private industry organizations such as the American
Bureau of Shipping. We also support and voluntarily comply with
standards of the Association of Diving Contractors
International. Among the more significant standards we follow
are those established by the Coast Guard, which sets safety
standards, authorizes investigations into vessel and diving
accidents and recommends improved safety standards. We are
required by various other governmental and quasi-governmental
agencies to obtain various permits, licenses and certificates
with respect to our operations.
In addition, we depend on the demand for our services from the
oil and natural gas industry and, therefore, our business is
affected by laws and regulations, as well as changing taxes and
policies relating to the oil and natural gas industry generally.
In particular, the development and operation of oil and natural
gas properties located on the OCS of the United States is
regulated primarily by the MMS. In addition, because our
operations rely on offshore oil and natural gas production, if
the government were to restrict the availability of offshore oil
and natural gas leases, such action could materially adversely
affect our business, general condition and results of operations.
56
Environmental
Regulation
Our operations are subject to a variety of federal, state and
local as well as international laws and regulations governing
environmental protection, health and safety, including those
relating to the discharge of materials into the environment.
Numerous governmental departments issue rules and regulations to
implement and enforce laws that are often complex and costly to
comply with and that carry substantial administrative, civil and
possibly criminal penalties for failure to comply. Under these
laws and regulations, we may be liable for remediation or
removal costs, damages, including damages to natural resources,
and other costs associated with releases of hazardous materials,
including oil, into the environment, and such liability may be
imposed on us even if the acts that resulted in the releases
were in compliance with all applicable laws at the time such
acts were performed. Some of the environmental laws and
regulations that are applicable to our business operations are
discussed in the following paragraphs.
The Oil Pollution Act of 1990, as amended, or OPA, imposes a
variety of requirements on Responsible Parties
related to the prevention of oil spills and liability for
damages resulting from such spills in waters of the United
States. A Responsible Party includes the owner or
operator of an onshore facility, a vessel or a pipeline, and the
lessee or permittee of the area in which an offshore facility is
located. OPA imposes liability on each Responsible Party for oil
spill removal costs and for other public and private damages
from oil spills. Failure to comply with OPA may result in the
assessment of civil and criminal penalties. OPA establishes
liability limits of $350 million for onshore facilities,
all removal costs plus $75 million for offshore facilities
and the greater of $600 per gross ton or $500,000 for
vessels other than tank vessels. The liability limits are not
applicable, however, if the spill is caused by gross negligence
or willful misconduct or results from violation of a federal
safety, construction, or operating regulation; or if a party
fails to report a spill or fails to cooperate fully in the
cleanup. Few defenses exist to the liability imposed under OPA.
OPA also imposes ongoing requirements on a Responsible Party,
including preparation of an oil spill contingency plan and
maintenance of proof of financial responsibility to cover a
majority of the costs in a potential spill. With respect to
financial responsibility, OPA requires the Responsible Party for
certain offshore facilities to demonstrate financial
responsibility of not less than $35 million, with the
financial responsibility requirement potentially increasing up
to $150 million if the risk posed by the quantity or
quality of oil that is explored for or produced indicates that a
greater amount is required. The MMS has promulgated regulations
implementing these financial responsibility requirements for
covered offshore facilities. Under the MMS regulations, the
amount of financial responsibility required for an offshore
facility is increased above the minimum amounts if the
worst case oil spill volume calculated for the
facility exceeds certain limits established in the regulations.
OPA also requires owners and operators of vessels over
300 gross tons to provide the Coast Guard with evidence of
financial responsibility to cover the cost of cleaning up oil
spills from such vessels. We currently own and operate six
vessels over 300 gross tons. Satisfactory evidence of
financial responsibility has been provided to the Coast Guard
for all of our vessels.
The Federal Water Pollution Control Act, or the Clean Water Act,
and analogous state laws impose strict controls on the discharge
of pollutants, including oil and other substances, into the
navigable waters of the United States and state waters and
impose potential liability for the costs of remediating releases
of such pollutants. The controls and restrictions imposed under
the Clean Water Act and analogous state laws have become more
stringent over time, and it is possible that additional
restrictions will be imposed in the future. Permits must be
obtained to discharge pollutants into state and federal waters.
Certain state regulations and the general permits issued under
the Federal National Pollutant Discharge Elimination System
program prohibit the discharge of produced waters and sand,
drilling fluids, drill cuttings and certain other substances
related to the exploration for and production of oil and natural
gas into certain coastal and offshore waters. The Clean Water
Act and analogous state laws provide for civil, criminal and
administrative penalties for any unauthorized discharge of oil
and other hazardous substances and impose liability on
responsible parties for the costs of cleaning up any
environmental contamination caused by the release of a hazardous
substance and for natural resource damages resulting from the
release. Our vessels routinely transport diesel fuel to offshore
57
rigs and platforms and also carry diesel fuel for their own use.
Offshore vessels operated by us have facility and vessel
response plans to deal with potential spills of oil or its
derivatives.
The Comprehensive Environmental Response, Compensation, and
Liability Act, or CERCLA, contains provisions requiring the
remediation of releases of hazardous substances into the
environment and imposes liability, without regard to fault or
the legality of the original conduct, on certain classes of
persons including current and former owners and operators of
contaminated sites where the release occurred and those
companies that transport, dispose of or arrange for disposal of
hazardous substances released at the site. Under CERCLA, such
persons may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources
and for the costs of certain health studies. Neighboring parties
and third parties may also file claims for personal injury and
property damage allegedly caused by the release of hazardous
substances into the environment. In the ordinary course of
business, we handle hazardous substances. Governmental agencies
or third parties could seek to hold us responsible under CERCLA
for all or part of the costs to clean up a site at which such
hazardous substances may have been released or deposited.
We have incurred in the past, and expect to incur in the future,
capital and other expenditures related to environmental
compliance. Such expenditures, however, are included within our
overall capital and operating budgets and are not separately
accounted for. We do not anticipate that compliance with
existing environmental laws and regulations will have a material
effect upon our capital expenditures, earnings or competitive
position. However, changes in the environmental laws and
regulations, or claims for damages to persons, property, natural
resources or the environment, could result in substantial costs
and liabilities, and thus there can be no assurance that we will
not incur material environmental costs or liabilities in the
future. Pursuant to the Master Agreement, we will retain, and
indemnify, hold harmless and defend Helix from and against, all
liabilities, including environmental liabilities, relating to
our business. See Arrangements Between Helix and
Us Master Agreement.
Insurance
and Legal Proceedings
Our operations are subject to the inherent risks of offshore
marine activity, including accidents resulting in personal
injury and the loss of life or property, environmental mishaps,
mechanical failures, fires and collisions. We insure against
these risks at levels consistent with industry standards. We
also carry workers compensation, maritime employers
liability, general liability and other insurance customary in
our business. All insurance is carried at levels of coverage and
deductibles we consider financially prudent. Our services are
provided in hazardous environments where accidents involving
catastrophic damage or loss of life could occur, and litigation
arising from such an event may result in our being named a
defendant in lawsuits asserting large claims. Although there can
be no assurance the amount of insurance we carry is sufficient
to protect us fully in all events, or that such insurance will
continue to be available at current levels of cost or coverage,
we believe that our insurance protection is adequate for our
business operations. A successful liability claim for which we
are underinsured or uninsured could have a material adverse
effect on our business, financial condition or results of
operations.
We are involved in various legal proceedings, primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence. In addition, we from time to time incur
other claims, such as contract disputes, in the normal course of
business. Under our agreements with Helix, we have assumed and
will indemnify Helix for liabilities related to our business.
See Arrangements Between Helix and Us Master
Agreement.
58
MANAGEMENT
Executive
Officers and Directors
Set forth below are the names and ages and current positions of
our executive officers and current and proposed directors. After
this offering, we expect to appoint William L. Transier, Todd A.
Dittmann and David E. Preng as additional directors to our board
of directors. See Composition of the Board of Directors
After This Offering below.
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Name
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Age
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Position
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Term as Director
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Owen Kratz
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52
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Director
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Expires 2007
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Martin R. Ferron
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50
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Director
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Expires 2008
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William L. Transier
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52
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Director
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Expires 2008
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Todd A. Dittmann
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39
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Director
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Expires 2009
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David E. Preng
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60
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Director
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Expires 2007
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Quinn J. Hébert
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43
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President, Chief Executive Officer
and Director
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Expires 2009
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Scott T. Naughton
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52
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Executive Vice President and Chief
Operating Officer
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G. Kregg Lunsford
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38
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Executive Vice President, Chief
Financial Officer and Treasurer
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Lisa Manget Buchanan
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46
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Vice President, General Counsel
and Secretary
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Owen Kratz. Mr. Kratz has served on our
board of directors since February 2006 and is currently
Executive Chairman of Helix. He was Chairman of Helix from May
1998 to September 2006 and served as Chief Executive Officer of
Helix from April 1997 to September 2006. Mr. Kratz served
as President of Helix from 1993 until February 1999, and as a
Director of Helix since 1990. He served as Chief Operating
Officer of Helix from 1990 through 1997. Mr. Kratz joined
Helix in 1984 and has held various offshore positions, including
saturation diving supervisor, and has had management
responsibility for client relations, marketing and estimating.
Mr. Kratz has a Bachelor of Science degree in Biology and
Chemistry from the State University of New York at Stony Brook.
Martin R. Ferron. Mr. Ferron has served
on our board of directors since February 2006 and is currently
the President and Chief Executive Officer and a member of the
board of directors of Helix. He was elected to the board of
directors of Helix in September 1998 and has served as President
of Helix since February 1999 and Chief Executive Officer since
October 2006. He also served as Chief Operating Officer of Helix
from January 1998 until August 2005. Mr. Ferron has
25 years of worldwide experience in the oilfield industry,
seven of which were in senior management positions with
McDermott Marine Construction and Oceaneering International
Services Limited immediately prior to his joining Helix.
Mr. Ferron has a Civil Engineering degree from City
University, London; a Masters Degree in Marine Technology from
the University of Strathclyde, Glasgow; and an M.B.A. from the
University of Aberdeen. Mr. Ferron is also a Chartered
Civil Engineer.
William L. Transier. Mr. Transier has served
as a Director of Helix Energy Solutions Group, Inc. since
October 2000. He is Co-Chief Executive Officer of Endeavour
International Corporation, an international oil and gas
exploration and production company focused on the North Sea. He
served as Executive Vice President and Chief Financial Officer
of Ocean Energy, Inc. from March 1999 to June 2003, when Ocean
Energy merged with Devon Energy Corporation. From September 1998
to March 1999, Mr. Transier served as Executive Vice President
and Chief Financial Officer of Seagull Energy Corporation when
Seagull Energy merged with Ocean Energy. From May 1996 to
September 1998, he served as Senior Vice President and Chief
Financial Officer of Seagull Energy Corporation. Prior thereto,
Mr. Transier served in various roles including partner from June
1986 to April 1996 in the audit department of KPMG LLP. He
graduated from the University of Texas with a B.B.A. in
Accounting and has an M.B.A. from Regis University. He is also a
59
director of Reliant Energy, Inc., a provider of electricity and
energy services to retail and wholesale customers in the United
States.
Todd A. Dittmann. Mr. Dittmann has served as
Managing Director of D.B. Zwirn & Co., L.P., a private
investment firm, since April 2004. From April 1997 to April
2004, he worked for Jefferies & Co., where he most recently
served as Managing Director in the Energy Investment Banking
Group. From 1996 to April 1997, he served as Vice President in
the Energy Investment Banking Group of Paine Webber. From 1990
until 1996, he held various positions in commercial and
investment banking at Chase Manhattan Bank and its predecessors.
Mr. Dittmann received an M.B.A. and a B.B.A. in Finance
from the University of Texas at Austin. He is a Chartered
Financial Analyst.
David E. Preng. Mr. Preng has served as
President and CEO of Preng & Associates, an executive search
firm, since 1980. Previously, he spent six years in the
executive search industry with two international and one
national search firm. Mr. Preng was a director of Remington
Oil and Gas Corp. prior to its acquisition by Helix in July
2006. Mr. Preng is also a director of Maverick Oil and Gas
Inc., an oil and gas exploration, development and production
company, and BPI Energy Holdings, Inc., a company engaged in the
exploration, production and commercial sale of coalbed methane.
Mr. Preng holds a Bachelor of Science degree in Finance
from Marquette University and an M.B.A. from DePaul University.
Quinn J. Hébert. Mr. Hébert has
served as our President and Chief Executive Officer since
November 2005 and has been a member of our board of directors
since May 2006. He served as the President, Vice President
Commercial, and General Counsel of Acergy US Inc. (formerly
Stolt Offshore) for the North Americas Region from 1998 to 2005.
Mr. Hébert terminated his working relationship with
Acergy on October 31, 2005. Prior to his employment with
Acergy, Mr. Hébert served as Vice President, General
Counsel and Secretary of American Oilfield Divers, Inc. (also
known as Ceanic Corporation). Mr. Héberts
professional career began as an associate at Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, LLP in New
Orleans, Louisiana. Mr. Hébert holds a Bachelor of
Arts in History from Louisiana State University and a Juris
Doctor from Boston College Law School.
Scott T. Naughton. Mr. Naughton has
served as our Executive Vice President and Chief Operating
Officer since November 2005. He became Vice President of
Helixs Shelf Contracting Services segment in May 1998.
Mr. Naughton terminated his working relationship with Helix
on March 6, 2006. Mr. Naughton has been in the
commercial diving industry since 1972, working offshore for
14 years as both a diver and a supervisor. He joined Helix
in 1981 following the acquisition of J & J Marine
Diving, and worked as an Operations Manager and a Project
Manager.
G. Kregg Lunsford. Mr. Lunsford has
served as our Executive Vice President, Chief Financial Officer
and Treasurer since January 2006. He became the Vice President
of Finance and Audit for Helix in February 2003.
Mr. Lunsford terminated his working relationship with Helix
on March 6, 2006. Mr. Lunsford was a senior manager in
the Transaction Advisory Services practice of Ernst &
Young LLP and Arthur Andersen LLP from March 2001 until February
2003. Prior to this he served as Director of Corporate
Development with PSINet Consulting Solutions and as Manager of
Corporate Development with Consolidated Graphics, Inc. from
April 1998 until March 2001. Mr. Lunsford began his career
in the audit practice of Arthur Andersen LLP in September 1992
and was promoted to manager in 1996. He held this position until
April 1998. Mr. Lunsford graduated magna cum laude from Sam
Houston State University with a B.B.A. in Accounting in 1992 and
is a certified public accountant.
Lisa Manget Buchanan. Ms. Buchanan has
served as our Vice President, General Counsel and Secretary
since June 2006. Ms. Buchanan joined Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, LLP as an
associate in September 1987 and became a partner of the firm in
January 1994, a position she held until June 2006.
Ms. Buchanan holds a Bachelor of Science in Commerce from
the University of Virginia and a Juris Doctor from Louisiana
State University Law Center.
60
Composition
of the Board of Directors After This Offering
Prior to the completion of this offering, we intend to
restructure our board of directors. Our board of directors
consists of three directors. We intend to appoint three
additional directors, subject to the completion of this
offering, each of whom has consented to so serve. We anticipate
that William L. Transier, Todd A. Dittmann and
David E. Preng will be independent as determined by our
board of directors under the applicable securities law
requirements and listing standards. For so long as Helix is the
direct owner of such number of shares representing more than 50%
of the total voting power of our common stock, it will have the
ability to direct the election of all the members of our board
of directors, the composition of our board committees and the
size of the board. See Description of Capital Stock.
Concurrent with the completion of the offering, our directors
will be divided into three classes serving staggered three-year
terms. At each annual meeting of our stockholders, directors
will be elected to succeed the class of directors whose terms
have expired. Class I directors terms will expire at
the 2007 annual meeting of our stockholders, Class II
directors terms will expire at the 2008 annual meeting of
our stockholders and Class III directors terms will
expire at the 2009 annual meeting of our stockholders. Owen
Kratz and David E. Preng will initially be our Class I
directors, Martin R. Ferron and William L. Transier
will initially be our Class II directors and Todd A.
Dittmann and Quinn J. Hebert will initially be our
Class III directors. Our classified board of directors
could have the effect of increasing the length of time necessary
to change the composition of a majority of our board. Generally,
at least two annual meetings of stockholders will be necessary
for stockholders to effect a change in a majority of the members
of the board of directors.
Although we would otherwise qualify for the controlled
company exemptions of the NYSE corporate governance
standards, we do not intend to avail ourselves of those
exemptions.
Committees
of the Board of Directors After This Offering
The standing committees of our board of directors will be an
audit committee, nominating and governance committee and
compensation committee, each of which is described below.
Audit
Committee
The three independent (as defined in the NYSE listing standards)
audit committee members will be Todd A. Dittmann, who will
serve as the chairman, William L. Transier and
David E. Preng. We anticipate that Todd A. Dittmann
will be designated by our board of directors as the audit
committee financial expert (as defined in the applicable
regulations of the SEC). The audit committee will operate under
a written charter adopted by the board of directors which
reflects standards set forth in SEC regulations and NYSE rules.
The composition and responsibilities of the audit committee and
the attributes of its members, as reflected in the charter, are
intended to be in accordance with applicable requirements for
corporate audit committees. The charter will be reviewed, and
amended if necessary, on an annual basis. The full text of the
audit committees charter can be found on our website at
www.caldive.com or may be obtained upon request from our
Secretary.
As set forth in more detail in the charter, the audit
committees purpose is to assist the board of directors in
its general oversight of Cal Dive Internationals
financial reporting, internal control and audit functions.
Helixs internal audit department will document, test and
evaluate our internal control over financial reporting in
response to the requirements set forth in Section 404 of
the Sarbanes-Oxley Act and related regulations. The
responsibilities of the audit committee will include:
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recommending the hiring or termination of independent auditors
and approving any non-audit work performed by such auditor;
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approving the overall scope of the audit;
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assisting our board of directors in monitoring the integrity of
our financial statements, the independent accountants
qualifications and independence, the performance of the
independent accountants and our internal audit function, and our
compliance with legal and regulatory requirements;
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61
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annually reviewing our independent auditors report
describing the auditing firms internal quality control
procedures, any material issues raised by the most recent
internal quality control review, or peer review, of the auditing
firm;
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discussing the annual audited financial and quarterly statements
with our management and the independent auditor;
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discussing earnings press releases, as well as financial
information and earnings guidance provided to analysts and
rating agencies;
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discussing policies with respect to risk assessment and risk
management;
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meeting separately, periodically, with management, internal
auditors and the independent auditor;
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reviewing with the independent auditor any audit problems or
difficulties and managements response;
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setting clear hiring policies for employees or former employees
of the independent auditors;
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annually reviewing the adequacy of the audit committees
written charter;
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reviewing with management any legal matters that may have a
material impact on us; and
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reporting regularly to our full board of directors.
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Nominating
and Governance Committee
The nominating and governance committee members will be David E.
Preng, who will serve as chairman, William L. Transier and Todd
A. Dittmann. The nominating and governance committee will
operate under a written charter adopted by the board of
directors. The committee will be primarily responsible for
assembling, reviewing background information for and
recommending candidates for our board of directors, including
those candidates designated by our stockholders. The committee
will also make recommendations to our board of directors
regarding the structure and membership of the other board
committees, annually review director compensation and benefits,
and oversee annual self-evaluations of our board of directors
and committees.
Compensation
Committee
The compensation committee members will be William L. Transier,
who will serve as chairman, Todd A. Dittmann and David E. Preng.
The compensation committee will operate under a written charter
adopted by the board of directors. The committee will be
primarily responsible for administering Cal Dive
Internationals stock option plans, performance-based
compensation plans and other incentive compensation plans. Also,
the committee will determine compensation arrangements for all
of our executive officers and will make recommendations to the
board of directors concerning compensation policies for us and
our subsidiaries.
Compensation
Committee Interlocks and Insider Participation in Compensation
Decisions
None of our executive officers serve as a member of the
compensation committee or as a member of the board of directors
of any other company of which any member of our compensation
committee or board of directors is an executive officer.
Code of
Business Conduct and Ethics
We adopted a Code of Business Conduct and Ethics applicable to
all of our directors and employees, including our Chief
Executive Officer, Chief Financial Officer and Chief Operating
Officer, which is a code of ethics as defined by
applicable SEC rules. This code is publicly available on our
website at www.caldive.com or may be obtained upon
request from our Secretary. If we make any amendments to this
code, other than technical, administrative or other
non-substantive amendments, or grant any waivers, including
implicit waivers, from any provisions of this code that apply to
our Chief Executive Officer, Chief Financial Officer or Chief
Operating Officer and relate to an element of the SECs
code of ethics definition,
62
we will disclose the nature of the amendment or waiver, its
effective date and to whom it applies on our website or in a
report on
Form 8-K
filed with the SEC.
Director
Compensation
We do not currently pay any compensation to any of our
directors. In conjunction with this offering, we will be adding
independent directors to our board of directors and plan to pay
our independent directors an annual cash retainer of $30,000. We
may also grant stock options and awards to our independent
directors. We plan to pay the chairpersons of the audit
committee, compensation committee and nominating and governance
committee an additional annual cash retainer.
Stock
Ownership of Directors and Executive Officers
All of the outstanding shares of our common stock are currently
owned by Helix and thus none of our named executive officers (as
defined below) or directors owns shares of our common stock.
The following table sets forth the Helix common stock and
options to purchase shares of Helixs common stock
exercisable within 60 days held by our directors, the named
executive officers and all of our directors and named executive
officers as a group, as of October 31, 2006. Except as
otherwise noted, the individual director or named executive
officer (including his or her family members) had sole voting
and investment power with respect to the shares of Helixs
common stock.
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Amount and Nature
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of Beneficial
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Name
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Ownership
|
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Owen Kratz
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|
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6,020,979
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(1)
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Martin R. Ferron
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247,851
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(2)
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William L. Transier
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|
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15,070
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Todd A. Dittmann
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|
|
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David E. Preng
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110,384
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Quinn J. Hébert
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58,072
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Scott T. Naughton
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67,434
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G. Kregg Lunsford
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16,492
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Lisa Manget Buchanan
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4,180
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All Directors and Executive
Officers as a Group (9 persons)
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6,540,462
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(1)
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Mr. Kratz disclaims beneficial
ownership of 1,000,000 shares included in the above table,
which are held by Joss Investments Limited Partnership, an
entity of which he is a General Partner.
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(2)
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Mr. Ferron disclaims
beneficial ownership of 44,340 shares included in the above
table, which are held by the Uncle John Limited Partnership, a
family limited partnership of which he is a General Partner.
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63
Executive
Compensation
The following table sets forth the compensation paid or awarded
to that individual who will be our Chief Executive Officer and
the four most highly compensated individuals, based on
employment with Helix as determined by reference to total annual
salary and bonus for the last completed fiscal year, who will
become our executive officers. All of the information included
in this table reflects compensation earned by the individuals
for services with Helix. We refer to these individuals as our
named executive officers.
Summary
Compensation Table
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Annual Compensation
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Long-Term Compensation
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Awards
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Payouts
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Other
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Restricted
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Annual
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Stock
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LTIP
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All Other
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Name and
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Salary
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Bonus
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Compensation
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Award(s)
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Options
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Payout
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Compensation
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Principal Position(1)
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Year
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($)
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($)
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($) (2)
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($)
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(#)
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($)
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($)
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Quinn J. Hébert(3)
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2005
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41,667
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36,000
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1,797,328
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President and Chief Executive
Officer
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Scott T. Naughton
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2005
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154,350
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144,983
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87,310
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5,250
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(4)
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Executive Vice President and
Chief Operating Officer
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G. Kregg Lunsford
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2005
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144,500
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108,537
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62,827
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5,250
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(4)
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Executive Vice President, Chief
Financial Officer and
Treasurer
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(1)
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This table does not include Lisa
Manget Buchanan, our current Vice President, General Counsel and
Secretary, who joined Cal Dive International in June 2006.
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(2)
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Perquisites that are less than
$50,000 in the aggregate for any named executive officer are not
disclosed in the table in accordance with SEC rules.
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(3)
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Mr. Hébert joined Helix
in November 2005.
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(4)
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Consists of matching contributions
by Helix through its 401(k) Plan. Helixs Retirement Plan
is a 401(k) retirement savings plan under which Helix currently
matches 50% of employees pre-tax contributions up to 5% of
salary (including bonus) subject to contribution limits.
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Exercise
of Stock Options
The following table discloses information regarding the exercise
of stock options to acquire shares of Helixs common stock
by our named executive officers in 2005 and the value of
unexercised stock options held by the named executive officers.
Aggregated
Option Exercises and Fiscal Year-End Option Value
Table
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Number of Securities
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Value of Unexercised
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Underlying Unexercised
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In-the-Money
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Shares
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Value
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Options at
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Options at Fiscal
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Acquired on
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Realized
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Fiscal Year End (#)
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Year End ($)
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Name(1)
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Exercise (#)
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($)
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Exercisable/Unexercisable
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Exercisable/Unexercisable
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Quinn J. Hébert(2)
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/
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/
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Scott T. Naughton
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30,000
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/
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749,025
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/
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G. Kregg Lunsford
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8,000
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131,440
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/24,000
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/655,680
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(1)
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This table does not include Lisa
Manget Buchanan, our current Vice President, General Counsel and
Secretary, who joined Cal Dive International in June 2006.
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(2)
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Mr. Hébert joined Helix
in November 2005.
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64
Employee
Benefit Plans
In general, our employees currently participate in various
incentive, retirement savings, group welfare and other employee
benefit plans sponsored by Helix. Our employees will cease
participating in the Helix plans after this offering is
completed; however, our employees will continue to participate
in the Helix Energy Solutions Group, Inc. 1998 Employee Stock
Purchase Plan through June 30, 2007, provided that Helix
continues to own at least 50% of the combined voting power of
all classes of our stock, and our employees will continue to
participate in certain Helix group welfare plans through
December 31, 2006. In some situations, our employees may
continue to be covered by Helix plans on a temporary basis as an
accommodation to us (for which we will reimburse Helix).
Some of our employees hold stock options and/or shares of Helix
restricted stock under the Helix Energy Solutions Group, Inc.
2005 Long-Term Incentive Plan and the 1995 Long Term Incentive
Plan of Helix Energy Solutions Group, Inc. It is contemplated
that options held by our employees prior to this offering will
generally continue under their present terms and shall be
exercisable for shares of Helix stock. It is also contemplated
that Helix restricted stock awards held by our employees prior
to the offering will generally continue under their present
terms. See Helix Stock Plan Awards.
We have adopted a new long-term incentive plan, a new annual
incentive compensation plan and a new stock purchase plan for
our eligible employees, described below under Our New
Long-Term Incentive Plan and Our New Stock Purchase
Plan.
We will reimburse Helix for the costs incurred by it in
connection with Helixs services relating to the
administration of our own stock incentive and other plans and
Cal Dive employees participating in Helix benefit plans. See
Arrangements Between Helix and Us Corporate
Services Agreement for information concerning our
reimbursement obligations to Helix.
Our New
Long-Term Incentive Plan
Our board of directors has adopted and our sole stockholder has
approved the Cal Dive International, Inc. 2006 Long-Term
Incentive Plan. The purpose of the plan is to help us attract,
motivate and retain qualified executives and other key
personnel. In furtherance of this purpose, the plan authorizes
us to grant various forms of incentive awards, including stock
options, restricted stock, and restricted stock unit awards. See
Forms of Award below. The plan and certain tax
aspects of awards made under the plan are summarized below.
Administration
The plan will be administered by the compensation committee of
our board of directors (or a subcommittee composed of at least
two members of the compensation committee); however, the full
board of directors will have sole responsibility and authority
for making and administering awards to any of our non-employee
directors. Subject to the terms of the plan, the committee has
broad authority to select the persons to whom awards will be
made, fix the terms and conditions of each award, and construe,
interpret and apply the provisions of the plan and of any award
made under the plan. Our Chief Executive Officer has the
authority to grant options (for no more than 100,000 shares
per fiscal year) as inducements to hire candidates who will not
be officers.
Securities
Covered by the Plan
We can issue a total of 7,000,000 shares of our common
stock under the plan, of which no more than
5,000,000 shares may be issued in the form of restricted
stock or pursuant to restricted stock unit awards. Shares
covered by awards that expire or are forfeited, canceled or
settled in cash are not taken into account in applying these
limitations.
Individual
Award Limitations
No participant may receive options in any fiscal year covering
more than 500,000 shares. No participant may be granted
restricted stock awards during any fiscal year covering more
than 300,000 shares. The maximum number of shares of stock
with respect to which restricted stock units may be granted to a
65
participant during a fiscal year may not exceed in value the
fair market value of 300,000 shares determined as of the
date of grant.
Eligibility
Awards may be made under the plan to any of our directors,
employees, or certain persons who have agreed to become our
employees.
Forms
of Award
Stock Options. We may grant stock options that
do not qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as
amended, or the Code. The per share exercise price of a stock
option may not be less than the fair market value per share of
common stock on the date the option is granted. The maximum term
of a stock option is 10 years. The committee may impose
such exercise, forfeiture and other conditions and limitations
as it deems appropriate with respect to stock options, as well
as the shares of common stock acquired upon the exercise of
stock options. The exercise price under a stock option may be
paid in cash or with previously owned shares of common stock.
The exercise price may also be paid through broker-assisted
cashless exercise procedures and, in certain cases, through the
issuance of net shares or by surrender of other
outstanding awards having a fair market value equal to the
exercise price.
Restricted Stock Awards. The plan authorizes
the committee to make restricted stock awards, pursuant to which
shares of common stock are issued to designated participants
subject to transfer restrictions and vesting conditions. In
general, if the recipient of a restricted stock award terminates
employment or service on our board of directors before the end
of the specified vesting period or if the recipient fails to
meet performance or other specified vesting conditions, the
restricted shares will be forfeited by the recipient and will
revert to us. Subject to such conditions as the committee may
impose, the recipient of a restricted stock award may be given
the rights to vote and receive dividends on shares covered by
the award pending the vesting or forfeiture of the shares.
Restricted Stock Unit Awards. A restricted
stock unit award gives the recipient the right to receive shares
or cash at the end of a specified period. Restricted stock unit
awards generally consist of the right to receive shares of our
common stock or cash in the future, upon the satisfaction of
vesting conditions, such as continuing employment or service for
a specified period of time or satisfaction of specified
performance criteria. Prior to settlement, deferred stock awards
do not carry voting, dividend or other rights associated with
stock ownership; however, dividend equivalents may be payable or
accrue if the committee so determines.
Adjustments
of Awards
Capital Changes. The committee will also
determine the appropriate adjustments to be made to the terms of
the plan and outstanding awards upon the occurrence of certain
events affecting our capital structure, including, for example,
a recapitalization, stock dividend, stock split or spin-off.
Appropriate adjustments may be made to the maximum number of
shares and the class of shares or other securities which may be
issued under the plan, the maximum number and class of shares of
restricted stock which may be issued under the plan, the maximum
number and class of shares which may be covered by awards made
to an individual in any calendar year, the number and class of
shares or other securities subject to outstanding awards and,
where applicable, the exercise price, base value or purchase
price of outstanding awards and the performance objectives upon
which outstanding performance awards are based.
Change in Control. The committee may specify
in a recipients award agreement the effect of a change in
control (as defined in the plan) on an award granted under the
plan.
No Repricing of Stock Options. Subject to the
provisions of the plan regarding adjustments due to a change in
corporate or capital structure, the committee will have no
authority to reprice outstanding options, whether through
amendment, cancellation or replacement grants, without approval
of our stockholders.
66
Amendment
and Termination of the Plan; Term
Except as may otherwise be required by law or the requirements
of any stock exchange or market upon which the common stock may
then be listed, our board of directors, acting in its sole
discretion and without further action on the part of our
stockholders, may amend the plan at any time and from time to
time and may terminate the plan at any time.
U.S.
Federal Income Tax Considerations
The grant of a stock option under the plan is not a taxable
event for federal income tax purposes. In general, ordinary
income is realized upon the exercise of a stock option in an
amount equal to the excess of the fair market value on the
exercise date of the shares acquired pursuant to the exercise
over the option exercise price paid for the shares. We are
entitled to a deduction equal to the amount of ordinary income
realized by a plan participant upon the exercise of an option.
The tax basis of shares acquired upon the exercise of a stock
option is equal to the value of the shares on the date of
exercise. Upon a subsequent sale of the shares, capital gain or
loss will be realized in an amount equal to the difference
between the selling price and the basis of the shares.
In general, a participant will realize ordinary income with
respect to common stock received pursuant to restricted stock or
a restricted stock unit award at the time the shares become
vested in accordance with the terms of the award in an amount
equal to the fair market value of the shares at the time they
become vested, and we are entitled to a corresponding deduction.
A participant may make an early income election with
respect to the receipt of restricted shares of common stock, in
which case the participant will realize ordinary income on the
date the restricted shares are received equal to the difference
between the value of the shares on that date and the amount, if
any, paid for the shares. In such event, any appreciation in the
value of the shares after the date of the award will be taxable
as capital gain upon a subsequent disposition of the shares. Our
deduction is limited to the amount of ordinary income realized
by the participant as a result of the early income election.
Compensation that qualifies as performance-based
compensation is exempt from the $1.0 million deductibility
limitation imposed by Section 162(m) of the Code for the
Chief Executive Officer and the next four highest paid officers.
It is contemplated that stock options granted under the plan
with an exercise price at least equal to 100% of fair market
value of the underlying stock at the date of grant will be able
to qualify for the performance-based compensation
exemption, assuming the applicable requirements are satisfied.
One of the requirements is that the plan be approved by our
stockholders for compensation paid under the plan after the
first annual meeting of our stockholders occurring after the
first anniversary of the completion of this offering.
Accordingly, it is anticipated that the plan will be resubmitted
for stockholder approval at or before that annual meeting in
order to enable us to continue to pay compensation under the
plan that satisfies the Section 162(m) exemption. Our
restricted stock awards are not considered
performance-based compensation, and therefore will
count against the $1.0 million deductibility limitation
imposed by Section 162(m) for the Chief Executive Officer
and the next four highest paid officers as disclosed in the
summary compensation table.
The above summary pertains solely to certain U.S. federal
income tax consequences associated with awards made under the
plan. The summary does not address all federal income tax
consequences and it does not address state, local and
non-U.S. tax
considerations.
Grants
to Named Executive Officers
Following completion of this offering, we intend to make grants
of restricted stock to our employees. The total dollar value of
the grants to be made immediately following completion of this
offering will be $10,932,162, with the number of shares to be
granted based on the initial public offering price set forth on
the cover page of this prospectus. Of such total dollar value,
the dollar value of grants of restricted stock to be made to the
Named Executive Officers will be as follows: Quinn J.
Hébert $2,500,000; Scott T.
Naughton $1,170,000; G. Kregg
Lunsford $743,000; and Lisa Manget
Buchanan $684,000. For the Named Executive Officers,
62% of the shares of restricted stock granted will vest over a
five-year period in
67
equal increments commencing on the first anniversary of the
closing date of this offering and the balance of the shares of
restricted stock granted will vest over a five-year period in
equal increments commencing on the first anniversary of the date
that Helix no longer continues to own shares of common stock
representing 51% or more of the total voting power of our common
stock.
Our New
Stock Purchase Plan
Our board of directors has adopted and our sole stockholder has
approved the Cal Dive International, Inc. Employee Stock
Purchase Plan. The purposes of the plan are to help us attract,
motivate and retain qualified employees and to align the
interests of our employees with our stockholders by encouraging
their ownership of our stock. Purchase rights granted under the
stock purchase plan will be options issued pursuant to an
employee stock purchase plan within the meaning of
Section 423 of the Code. The plan and certain tax aspects
of options granted under the plan are summarized below.
Eligibility
Subject to limitations under the Code and the plan, our eligible
employees and eligible employees of our subsidiaries who have
been employed for six months or more on the first day of January
or July shall be eligible to participate in the plan for the
offering period beginning on that date. An employee is not
eligible to participate in the plan if his customary employment
is 20 hours or less per week or is for five months or less
in any calendar year. An employee may not participate in the
plan if he owns stock possessing 5% or more of the total
combined voting power or value of all classes of our stock. The
first offering period under the plan will start on July 1,
2007.
Securities
Covered by the Plan
We can issue a total of 1,500,000 shares of our common
stock under the plan, subject to increase or decrease by reason
of stock splits, reclassifications, stock dividends, changes in
par value, and similar matters requiring adjustment. The maximum
number of shares each participant is permitted to purchase
during each offering period is determined by dividing $12,500 by
the fair market value of our common stock on the first business
day of each offering period. No employee is permitted to
purchase our common stock under the plan and any similar plans
maintained by us or any parent or subsidiary corporations which
accrue at a rate which exceeds $25,000 of the fair market value
of our common stock (determined as of the date such option is
granted) for each calendar year in which an option first becomes
exercisable.
Payment
Periods and Purchase Options
Except as otherwise provided in the plan, twice each year on
January 1 and July 1, we will grant to each eligible
employee an option to purchase, on the last business day of such
offering period, at a discounted purchase price, such number of
shares of our common stock reserved for the purpose of the plan
as his accumulated payroll deductions on such date will pay for
at such purchase price. The purchase price shall be the lesser
of 85% of the fair market value of our common stock on the first
business day of the offering period or 85% of the fair market
value of our common stock on the last business day of the
offering period.
Maximum
Amount of Payroll Deductions
An employee may authorize payroll deductions in any whole
percentage amount up to but not more than 10% of his regular
base pay and overtime pay (which excludes payments for bonuses
and other special items), provided that the minimum deduction in
respect of any payroll period shall be 1% (or such lesser amount
as the committee administering the plan shall establish).
Withdrawal
from the Plan
An employee may withdraw from the plan, in whole but not in
part, at any time prior to 10 days before the last business
day of each offering period by delivering a withdrawal notice to
the committee. In this case, we will promptly refund the entire
balance of his payroll deductions which have not been applied to
purchase
68
our common stock. An employee who withdraws from the plan is
treated as an employee who has not participated in the plan. To
re-enter, he must file a new authorization form at least
10 days before the beginning date of the next offering
period.
Issuance
of Stock/Unused Payroll Deductions
Certificates of stock will be issued to participants, as
appropriate, as soon as practicable after a written request is
made by the employee to the administrator of the plan.
Fractional shares will not be issued under the plan. Any
accumulated payroll deductions which would have been used to
purchase fractional shares will be returned to the employee
promptly without interest if the employee ceased participation
in the plan, or carried over to the next offering period if the
employee continues in the plan.
Transfer
and Termination of Employees Rights
An employees rights under the plan are his alone and may
not be transferred or assigned to any other person. Any purchase
right granted to an employee may be exercised only by such
employee. An employees rights under the plan will
terminate when he ceases to be an employee for any reason. A
withdrawal notice will be considered as having been received
from the employee on the day his employment ceases, and all
payroll deductions not used to purchase our common stock will be
refunded.
Administration
of the Plan
We will bear all costs of administering the plan. The plan shall
be administered by a committee appointed by our board of
directors. The committee will consist of three members. The
interpretation and construction by the committee in its
discretion of any provisions of the plan or of any options
granted under it shall be final unless otherwise determined by
our board of directors. No member of our board of directors or
the committee shall be liable for any action or determination
made in good faith and in its sole judgment with respect to the
plan or any purchase right granted under it. Our officials
charged with administering the plan shall have full and absolute
discretion in the exercise of their authority.
Purchasers
Not Stockholders
The granting of an option to an employee under the plan and the
deduction from his pay shall not entitle the optionee to any
rights as a stockholder with respect to our common stock subject
to the option. Only after the shares of our common stock have
been purchased by and issued to such employee shall the rights
of a stockholder apply.
U.S.
Federal Income Tax Considerations
The plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of
Section 423 of the Code. Under these provisions, no income
will be taxable to a participant at the time of the grant or
exercise of the purchase right. Upon any sale or disposition of
the shares, the participant will be subject to tax, and the
character of the tax will depend upon the participants
holding period. If the shares have been held for more than two
years after the grant date and more than one year after the
transfer of shares to him, the participant will recognize
compensation income measured as the lesser of the excess of the
fair market value of the shares at the time of such sale or
disposition over the amount paid for the shares or an amount
equal to 15% of the fair market value of the shares as of the
first day of the offering period. Any additional gain generally
will be taxed as long-term capital gain. If the shares are
disposed of before the expiration of the applicable holding
period, the excess of the fair market value of the shares on the
exercise date over the purchase price will be treated as
ordinary income, and any further gain or loss on such
disposition will generally be taxed as long-term or short-term
capital gain or loss, depending on the holding period. Upon the
death of the participant at any time while he owns shares
purchased under the plan, participant will recognize
compensation income measured as the lesser of the excess of the
fair market value of the shares at the time of such death over
the amount paid for the shares or an amount equal to 15% of the
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fair market value of the shares as of the first day of the
offering period. Any additional gain generally will be taxed as
long-term capital gain.
In general, unless the shares purchased under the plan are
disposed of before the expiration of the applicable holding
period, we will not be entitled to a compensation deduction with
respect to shares purchased under the plan. If a participant
disposes of shares purchased under the plan before the
expiration of the applicable holding period, we will be entitled
to a deduction equal to the amount of ordinary income realized
by the plan participant upon the disposition.
The above summary pertains solely to certain U.S. federal
income tax consequences associated with options granted under
the plan. The summary does not address all federal income tax
consequences and it does not address state, local and
non-U.S. tax
considerations.
Employment
Agreements
All of our Named Executive Officers, other than
Ms. Buchanan, have entered into employment agreements with
Helix. These agreements will be assumed by us as of the closing
of this offering pursuant to the terms of the Master Agreement
and the Employee Matters Agreement. Each of these employment
agreements have similar terms involving salary, bonus and
benefits (with amounts that vary due to their responsibilities),
but none of them have the right to cause us to purchase his
shares.
Each of the executive employment agreements provide, among other
things, that if we pay specific amounts, then until the first or
second anniversary date of termination of the executives
employment with us (depending on the event of termination), the
executive shall not, directly or indirectly either for himself
or any other individual or entity, participate in any business
which engages or which proposes to engage in the business of
providing diving services in the Gulf of Mexico or any other
business actively engaged in by Helix on the date of termination
of employment, so long as such executive continues to receive
payments, including his base salary and insurance benefits
received by the senior executives.
If a Named Executive Officer, other than Ms. Buchanan,
terminates his employment for Good Cause or is
terminated without cause during a certain specified period
following a Change of Control, such executive would
(a) receive a lump sum payment in the following amount:
(i) for Mr. Hébert, two times the annual base
salary together with an amount equal to the annual bonus paid to
the executive with respect to the most recently completed fiscal
year, (ii) for Mr. Naughton, two times the sum of the
annual base salary and annual bonus paid to the executive with
respect to the most recently completed fiscal year and
(iii) for Mr. Lunsford, one times the annual base
salary due to the occurrence of a Change of Control
and two times the annual base salary due to termination for
Good Cause, in each case together with an amount
equal to the annual bonus paid to the executive with respect to
the most recently completed fiscal year, (b) have all
options and restricted stock held by such executive under the
Helix Energy Solutions Group, Inc. 2005 Long Term Incentive Plan
and its predecessor, the Cal Dive International, Inc. 1995 Long
Term Incentive Plan, as amended, vest, and (c) continue to
receive welfare plan and other benefits for a period of two
years or as long as such plan or benefits allow. For purposes of
the employment agreements, Good Cause includes both
that (a) the CEO or COO of Helix shall cease employment
with Helix and (b) one of the following: (i) a
material change in the executives position, authority,
duties or responsibilities, (ii) changes in the office or
location at which the executive is based without his consent
(such consent not to be unreasonably withheld), or
(iii) certain breaches of the agreement. Each agreement
also provides for payments to the executive as part of any
Change of Control. A Change of Control
for purposes of the employment agreements would occur if a
person or group becomes the beneficial owner, directly or
indirectly, of securities of Helix representing 45% or more of
the combined voting power of Helixs then outstanding
securities. The employment agreements provide that, if any
payment to one of the covered executives will be subject to any
excise tax under Section 4999 of the Internal Revenue Code,
a gross-up payment would be made to place the
executive in the same net after-tax position as would have been
the case if no excise tax had been payable.
Following this offering, we expect to enter into new employment
agreements similar to the existing agreements described above
with each of our executive officers.
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Helix
Stock Plan Awards
Before this offering, some of our employees received Helix stock
options and restricted stock under the Helix Energy Solutions
Group, Inc. 2005 Long-Term Incentive Plan and the 1995 Long Term
Incentive Plan of Helix Energy Solutions Group, Inc. Those
awards will be dealt with in the manner described below.
Helix
Stock Options
After the offering, all outstanding Helix stock options held by
our employees will generally continue to be exercisable for
Helix stock in accordance with their terms. The stock options
will generally continue to be governed by their original terms
and conditions and the provisions of the applicable Helix stock
incentive plan. Non-vested options will continue to vest in
accordance with their original provisions, based upon continuing
service with us.
Notwithstanding the original provisions of the option, on the
date that Helix owns 50% or less of the combined voting power of
all classes of our stock, any then outstanding Helix option held
by one of our employees will become fully vested and will remain
exercisable until the earlier of (1) the later of
(i) the 15th day of the third month after the expiration of
the 60-day
period commencing on such date or (ii) December 31 of the
calendar year in which such date occurs or (2) the
expiration of the general term of the option. The cost of these
new features will be borne by us.
If before the lapse or forfeiture of a Helix stock option held
by our employees the United States Department of Treasury issues
guidance in which it expressly takes the position that a stock
option that would have otherwise expired early due to
termination of employment may remain exercisable for its general
term without being subject to section 409A of the Code, Helix
shall take such actions as are necessary to amend the Helix
stock options then held by our employees to specify that such
stock options will remain exercisable in accordance with their
original terms except that employment with us or our affiliates
shall be treated in the same manner as if it were employment
with Helix or its affiliates.
After the date that Helix owns 50% or less of the combined
voting power of all classes of our stock we will pay to Helix a
monthly service fee in an amount of the aggregate third party
costs incurred by Helix during the month in connection with the
administration of the Helix stock options held by our employees
and the total costs and expenses recognized, accrued or
otherwise incurred by Helix during the month for financial
accounting purposes with respect to the Helix stock options held
by our employees. Helixs determination concerning the
amount of such costs and expenses shall be binding on us. The
service fee will be charged to us on a monthly basis and we are
required to pay the amount of the service fee to Helix for a
month within 15 days after we receive written notification
of the amount of the service fee for the month. We will have the
option, however, of prepaying the amount of the service fee for
a calendar year within 15 days after we receive written
notification of the amount of the aggregate service fee for the
calendar year.
Helix
Restricted Stock
Some of our employees will hold restricted shares of Helix stock
under the Helix Energy Solutions Group, Inc. 2005 Long-Term
Incentive Plan and the 1995 Long Term Incentive Plan of Helix
Energy Solutions Group, Inc. The restricted shares of Helix
stock held by our employees will generally continue to be
subject to the forfeiture conditions and transfer restrictions
and the other terms and conditions of the original award
relating to those shares and of the Helix plans under which they
were granted.
Following the date that Helix owns 50% or less of the combined
voting power of all classes of our stock, the restricted shares
of Helix stock held by our employees will continue to vest in
the same manner as if employment with us or one of our
subsidiaries were employment with Helix. The cost of this
additional vesting will be borne by us.
After the date that Helix owns 50% or less of the combined
voting power of all classes of our stock we will pay to Helix a
monthly service fee in an amount of the aggregate third party
costs incurred by Helix during the month in connection with the
administration of the Helix restricted stock awards held by our
employees and the total costs and expenses recognized, accrued
or otherwise incurred by Helix during the
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month for financial accounting purposes with respect to the
Helix restricted stock awards held by our employees.
Helixs determination concerning the amount of such costs
and expenses shall be binding on us. The service fee will be
charged to us on a monthly basis and we are required to pay the
amount of the service fee to Helix for a month within
15 days after we receive written notification of the amount
of the service fee for the month. We will have the option,
however, of prepaying the amount of the service fee for a
calendar year within 15 days after we receive written
notification of the amount of the aggregate service fee for the
calendar year.
Annual
Incentive Awards
Our executive officers and other key employees will be covered
by the Helix Annual Performance Incentive Plan for 2006. For
2006, the performance goals for our executive officers are based
upon profitability, integration of acquired businesses and
safety record. Our Chief Executive Officer is eligible for an
award under the Helix Annual Performance Incentive Plan of up to
80% of base salary, and each of our other executive officers is
eligible for an award of up to 97% of base salary. However, in
no event will any participant receive an award greater than
$200,000.
We intend to establish an annual incentive compensation program
or programs and provide our key employees (including executive
officers) with the opportunity to earn annual incentives based
upon company-wide, business unit and individual performance
measures. It is anticipated that our annual incentive plan(s)
will become effective in 2007. The cost of the annual incentive
awards earned by our employees under the Helix Annual
Performance Incentive Plan for 2006 will be borne by us.
72
ARRANGEMENTS
BETWEEN HELIX AND US
Relationship
with Helix
Immediately prior to this offering, Helix is our only
stockholder. Our companys name, Cal Dive
International, Inc., was formerly used by our parent company,
Helix. Effective March 6, 2006, our parent company changed
its name from Cal Dive International, Inc. to Helix Energy
Solutions Group, Inc., after which it passed the Cal Dive
International, Inc. name on to us. After this offering, Helix
directly will own 61,506,691 shares of our common stock,
representing approximately 73.5% of the outstanding shares of
our common stock. For as long as Helix continues to own shares
of common stock representing more than 50% of the total voting
power of our common stock, Helix will be able to direct the
election of all the members of our board of directors and
exercise a controlling influence over our business and affairs,
including any determinations with respect to mergers or other
business combinations involving us, the acquisition or
disposition of assets by us, the incurrence of indebtedness by
us, the issuance of any additional common stock or other equity
securities by us, the repurchase or redemption of common stock
or preferred stock by us and the payment of dividends by us.
Similarly, Helix will have the power to determine or
significantly influence the outcome of matters submitted to a
vote of our stockholders, will have the power to prevent a
change in control of us and could take other actions that might
be favorable to Helix. See Description of Capital
Stock.
Prior to the completion of this offering, we will enter into a
master agreement and a number of other agreements with Helix
setting forth various matters governing our relationship with
Helix while it remains a significant stockholder in us. These
agreements will govern our relationship with Helix after this
offering and will provide for, among other things, the
allocation of employee benefit, tax and other liabilities and
obligations attributable or related to periods or events prior
to and in connection with this offering. Additionally, a number
of the existing agreements between us and our subsidiaries, on
one hand, and Helix and its subsidiaries, on the other hand,
relating to various aspects of our business will remain in
effect following this offering. The effects of these contractual
agreements, the separation from Helix and our operating as a
standalone public entity could impact our results of operations
and financial position prospectively by increasing expenses in
areas that include but are not limited to litigation and other
legal matters, compliance with the Sarbanes-Oxley Act and other
corporate compliance matters, insurance and claims management
and the related cost of insurance, as well as general overall
purchasing power.
Set forth below are descriptions of certain agreements,
relationships and transactions we will have with Helix.
Master
Agreement
We will enter into a master agreement with Helix prior to the
completion of this offering. In this prospectus, we refer to
this agreement as the Master Agreement. The Master Agreement
will set forth our agreements with Helix regarding the principal
transactions required to effect the transfer of assets and the
assumption of liabilities necessary to complete the separation
of our company from Helix. It also will set forth other
agreements governing our relationship immediately prior to and
after the separation.
The
Transfers
To effect the separation, Helix will, and will cause its
affiliates to, transfer to us the assets related to our
businesses not currently owned by us, as described in this
prospectus. This may involve, in part, the transfer of the
shares or other equity interests of certain of Helixs
current subsidiaries. We or our subsidiaries will assume and
agree to perform, discharge and fulfill the liabilities related
to our businesses (which, in the case of tax liabilities, will
be governed by the Tax Matters Agreement described below). If
any governmental approval or other consent required to transfer
any assets to us or for us to assume any liabilities is not
obtained prior to the completion of this offering, we will agree
with Helix that such transfer or assumption will be deferred
until the necessary approvals or consents are obtained. Helix
will continue to hold the assets
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and be responsible for the liabilities for our benefit and at
our expense until the necessary approvals or consents are
obtained.
Certain of the assets that will be transferred to us were
acquired by Helix in the Acergy and Torch acquisitions. Helix
acquired those assets with a portion of the proceeds from the
issuance of its 3.25% Convertible Senior Notes due 2025, or
Convertible Senior Notes. Since the obligation to pay the
portion of the Convertible Senior Notes used to acquire the
Acergy and Torch assets cannot be assumed by us, one of the
Helix subsidiaries that was transferred to us, prior to such
transfer, borrowed $78 million in principal under our
$250 million revolving credit facility and then distributed
all of the proceeds to Helix. Helix will remain responsible for
the entire outstanding amount of the Convertible Senior Notes.
The incurrence of the debt and the distribution by such
subsidiary is intended to substitute this new debt for a portion
of the debt incurred by Helix in acquiring the Acergy and Torch
assets that are held by that subsidiary.
Except as expressly set forth in the Master Agreement or in any
other transaction document, neither we nor Helix will make any
representation or warranty as to:
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the assets, businesses or liabilities transferred or assumed as
part of the separation;
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any consents or approvals required in connection with the
transfers;
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the value, or freedom from any security interests, of, or any
other matter concerning, any assets transferred;
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the absence of any defenses or right of set-off or freedom from
counterclaim with respect to any claim of either us or
Helix; or
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the legal sufficiency of any document or instrument delivered to
convey title to any asset transferred.
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Except as expressly set forth in any transaction document, all
assets will be transferred on an as is, where
is basis, and we and our subsidiaries will agree to bear
the economic and legal risks that any conveyance was
insufficient to vest in us good title, free and clear of any
security interest, and that any necessary consents or approvals
are not obtained or that any requirements of laws or judgments
are not complied with.
Auditors
and Audits; Annual Financial Statements and
Accounting
We have agreed that, for so long as Helix is required to
consolidate our results of operations and financial position or
account for its investment in our company using the equity
method of accounting, we will reimburse Helix for any costs
associated with a change in our independent auditors and we will
use our best efforts to enable our independent auditors to
complete their audit of our financial statements in a timely
manner so as to permit timely filing of Helixs financial
statements. We have also agreed to provide to Helix and its
independent auditors all information required for Helix to meet
its schedule for the filing and distribution of its financial
statements and to make available to Helix and its independent
auditors all documents necessary for the annual audit of our
company as well as access to the responsible company personnel
so that Helix and its independent auditors may conduct their
audits relating to our financial statements. We have also agreed
to adhere to certain specified Helix accounting policies and to
notify and consult with Helix regarding any changes to our
accounting principles and estimates used in the preparation of
our financial statements, and any deficiencies in, or violations
of law in connection with, our internal control over financial
reporting.
Exchange
of Other Information
The Master Agreement will also provide for other arrangements
with respect to the mutual sharing of information between Helix
and us in order to comply with reporting, filing, audit or tax
requirements, for use in judicial proceedings, and in order to
comply with our respective obligations after the separation. We
will also agree to provide mutual access to historical records
relating to businesses that may be in our possession.
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Releases
and Indemnification
Except for each partys obligations under the Master
Agreement, the other transaction documents and certain other
specified liabilities, we and Helix will release and discharge
each other and each of our affiliates from all liabilities
existing or arising between us on or before the separation,
including in connection with the separation and this offering.
The releases will not extend to obligations or liabilities under
any agreements between Helix and us that remain in effect
following the separation.
We will indemnify, hold harmless and defend Helix, each of its
affiliates and each of their respective directors, officers and
employees, on an after-tax basis, from and against all
liabilities relating to, arising out of or resulting from:
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the failure by us or any of our affiliates or any other person
or entity to pay, perform or otherwise promptly discharge any
liabilities or contractual obligations associated with our
businesses, whether arising before or after the separation;
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the operations, liabilities and obligations of our business;
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any guarantee, indemnification obligation, surety bond or other
credit support arrangement by Helix or any of its affiliates for
our benefit;
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any breach by us or any of our affiliates of the Master
Agreement, certain of the other transaction documents or our
amended and restated certificate of incorporation or bylaws;
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any untrue statement of, or omission to state, a material fact
in Helixs public filings to the extent the statement or
omission was as a result of information that we furnished to
Helix or that Helix incorporated by reference from our public
filings, if the statement or omission was made or occurred after
the separation; and
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any untrue statement of, or omission to state, a material fact
in any registration statement or prospectus related to this
offering, except to the extent the statement was made or omitted
in reliance upon information provided to us by Helix expressly
for use in any such registration statement or prospectus or
information relating to and provided by any underwriter
expressly for use in any such registration statement or
prospectus.
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Helix will indemnify, hold harmless and defend us, each of our
affiliates and each of our and their respective directors,
officers and employees, on an after-tax basis, from and against
all liabilities relating to, arising out of or resulting from:
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the failure of Helix or any of its affiliates or any other
person or entity to pay, perform or otherwise promptly discharge
any liabilities of Helix or its affiliates, other than
liabilities associated with our businesses, whether arising
before or after the separation;
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the liabilities of Helix and its affiliates businesses,
other than liabilities associated with our businesses;
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any breach by Helix or any of its affiliates of the Master
Agreement or certain of the other transaction documents;
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any untrue statement of, or omission to state, a material fact
in our public filings to the extent the statement or omission
was as a result of information that Helix furnished to us or
that we incorporated by reference from Helixs public
filings, other than any registration statement or prospectus
related to this offering; and
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any untrue statement of, or omission to state, a material fact
contained in any registration statement or prospectus related to
this offering, but only to the extent the statement or omission
was made or omitted in reliance upon information provided by
Helix expressly for use in any such registration statement or
prospectus.
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The Master Agreement will also specify procedures with respect
to claims subject to indemnification and related matters and
will provide for contribution in the event that indemnification
is not available to an indemnified party.
Expenses
of the Separation and Our Initial Public Offering
Helix will pay or reimburse us for all
out-of-pocket
fees, costs and expenses (including all legal, accounting and
printing expenses) incurred prior to the completion of this
offering in connection with our separation from Helix, except
that we shall be responsible for fees and expenses (including
all filing and listing fees and all legal, accounting and
printing expenses) that are attributable to this offering.
Disputes
Any dispute or claim between us and Helix arising out of or
relating to the Master Agreement that is not resolved in the
normal course of business must be brought in the state courts of
Texas. Both we and Helix will agree to waive trial by jury in
any such litigation. These provisions will not apply to any
disputes arising out of Helixs ownership of our shares.
Other
Provisions
The Master Agreement also will contain covenants between Helix
and us with respect to the following:
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restrictions (subject to certain limited exceptions) on our
ability to repurchase shares of our outstanding common stock or
any other securities convertible into or exercisable for our
common stock, for so long as Helix owns more than 50% of our
outstanding common stock;
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confidentiality of our and Helixs information;
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our right to continue coverage under Helixs insurance
policies for so long as Helix owns more than 50% of our
outstanding common stock;
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restrictions on our ability to take any action or enter into any
agreement that would cause Helix to violate any law, agreement
or judgment;
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restrictions on our ability to take any action that limits
Helixs ability to freely sell, transfer, pledge or
otherwise dispose of our stock;
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our obligation to comply with Helixs policies applicable
to its subsidiaries for so long as Helix owns more than 50% of
our outstanding common stock, except:
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to the extent such policies conflict with our amended and
restated certificate of incorporation or bylaws or any of the
agreements between Helix and us, or
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as otherwise agreed with Helix or superseded by any policies
adopted by our board of directors;
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restrictions on our ability to enter into any agreement that
binds or purports to bind Helix; and
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litigation and settlement cooperation between Helix and us.
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Approval
Rights of Helix
The prior affirmative vote or written consent of Helix will be
required for us to take certain actions (subject in each case to
certain agreed exceptions) that are prohibited under
Helixs senior secured credit facility, and that are
standard negative covenants for a senior secured credit
facility, until such time as we are no longer a subsidiary of
Helix for purposes of such credit facility.
Vessel
Utilization
Consistent with current and past practices of Helix, the vessels
owned by Helix that will be transferred to us are bid and
utilized by Helix and its subsidiaries for operations worldwide.
Under the Master Agreement,
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Helix will have a preferential right, subject to certain
limits, to contract vessels and related equipment owned by us,
at prevailing market rates. The diversity of our expanded fleet
gives us the flexibility to respond to these requirements. We
will not be required to breach any legal obligations to third
parties to make a vessel available to Helix upon request.
Corporate
Services Agreement
We will enter into a corporate services agreement with Helix
prior to the completion of this offering pursuant to which each
of Helix and us will provide certain administrative and support
services and other assistance in the United States to each
other, consistent with the services provided by both parties
before the offering. In this prospectus, we refer to this
agreement as the Corporate Services Agreement. The services that
Helix and we will provide to each other, as qualified in the
agreement, include, without limitation, certain of the following:
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treasury, payroll and other financial related services;
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human resources and employee benefits;
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information systems, network and related services;
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leased facilities; and
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purchasing, logistics and warehousing.
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We will pay to Helix, and Helix will pay to us, the costs of
such services based upon allocations of costs for such services
consistent with past practices. The allocations will be
determined on a monthly basis, and settled each month prior to
the expiration of the next succeeding month. The charges for
these services are intended to allow Helix and us to fully
recover the allocated direct costs of providing the services,
plus all
out-of-pocket
costs and expenses, generally without profit.
Under the Corporate Services Agreement, we and Helix will each
have the right to purchase goods or services, use intellectual
property licensed from third parties and realize other benefits
and rights under the other partys agreements with
third-party vendors to the extent allowed by such vendor
agreements. The agreement also will provide for the lease or
sublease of certain facilities used in the operation of our
respective businesses and for access to each others
computing and telecommunications systems to the extent necessary
to perform or receive the services.
The Corporate Services Agreement will require Helix and us to
continue to make available to each other the range of services
provided prior to this offering, as qualified by such agreement,
and will require each to utilize such services in the conduct of
its business until such time as Helix owns less than 50% of the
total voting power of our common stock. Under the terms of the
Corporate Services Agreement, neither party will be liable to
the other for or in connection with any services rendered
pursuant to the agreement or for any actions or inactions taken
in connection with the provision of services. However, each
party will be liable for, and will indemnify a receiving party
for, liabilities resulting from its gross negligence, willful
misconduct, improper use or disclosure of client information or
violations of law, subject to a cap on liability equal to the
value of services provided by the indemnifying party over the
previous 12 months. Additionally, each party will indemnify
the other for any losses arising from the provision of services,
except to the extent the liabilities are caused by negligence or
breach of the Corporate Services Agreement, and as otherwise
provided in the agreement.
Registration
Rights Agreement
We will enter into a registration rights agreement with Helix
prior to the completion of this offering to provide Helix with
registration rights relating to shares of our outstanding common
stock held by Helix after this offering. In this prospectus, we
refer to this agreement as the Registration Rights Agreement.
Helix may assign its rights under the Registration Rights
Agreement to any person that acquires shares of our outstanding
common stock subject to the agreement and agrees to be bound by
the terms of the
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agreement. Subject to certain limitations, Helix and its
permitted transferees may require us to register under the
Securities Act of 1933, as amended, or the Securities Act, all
or any portion of these shares, a so-called demand
request. We are not obligated to effect the following:
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a demand registration within 60 days after the effective
date of a previous demand registration, other than a shelf
registration pursuant to Rule 415 under the Securities Act;
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a demand registration within 180 days after the effective
date of the registration statement of which this prospectus is a
part;
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a demand registration, unless the demand request is for a number
of shares of common stock with a market value that is equal to
at least $150.0 million; and
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more than two demand registrations during the first 12 months
after this offering or more than three demand registrations
during any 12-month period thereafter.
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We may defer the filing of a registration statement for a period
of up to 90 days after a demand request has been made if at
the time of such request we are engaged in confidential business
activities, which would be required to be disclosed in the
registration statement, and our board of directors determines
that such disclosure would be materially detrimental to us and
our stockholders, or prior to receiving such request, our board
of directors had determined to effect a registered underwritten
public offering of our securities for our account and we have
taken substantial steps to effect such offering. However, with
respect to two demand requests only, if Helix or any of its
affiliates makes a demand request during the two-year period
after this offering, we will not have the right to defer such
demand registration or to not file such registration statement
during that period.
Additionally, Helix and its permitted transferees have so-called
piggyback registration rights, which means that
Helix and its permitted transferees may include their respective
shares in any future registrations of our equity securities,
whether or not that registration relates to a primary offering
by us or a secondary offering by or on behalf of any of our
stockholders. The demand registration rights and piggyback
registrations are each subject to market cutback exceptions.
Helix or its permitted transferees will pay all costs and
expenses in connection with any demand registration.
We will pay all costs and expenses in connection with any
piggyback registration, except underwriting
discounts, commissions or fees attributable to the shares of
common stock sold by Helix. The Registration Rights Agreement
will set forth customary registration procedures, including an
agreement by us to make our management available for road show
presentations in connection with any underwritten offerings. We
will also agree to indemnify Helix and its permitted transferees
with respect to liabilities resulting from untrue statements or
omissions in any registration statement used in any such
registration, other than untrue statements or omissions
resulting from information furnished to us for use in the
registration statement by Helix or any permitted transferee.
The rights of Helix and its permitted transferees under the
Registration Rights Agreement will remain in effect with respect
to the shares of common stock covered by the agreement until
those shares:
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have been sold pursuant to an effective registration statement
under the Securities Act;
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have been sold to the public pursuant to Rule 144 under the
Securities Act;
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have been transferred in a transaction where subsequent public
distribution of the shares would not require registration under
the Securities Act; or
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are no longer outstanding.
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Additionally, the registration rights under the agreement will
cease to apply to a holder other than Helix or its affiliates
when such holder holds less than 3% of economic value of the
then-outstanding shares of common stock covered by the agreement
and such shares are eligible for sale pursuant to
Rule 144(k) under the Securities Act.
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Tax
Matters Agreement
In order to allocate the responsibility for the payment of taxes
and certain other tax matters, we and Helix will enter into a
tax matters agreement prior to the completion of this offering.
In this prospectus, we refer to this agreement as the Tax
Matters Agreement. The following is a summary of the material
terms of the Tax Matters Agreement.
Liability
for Taxes
Each party has agreed to indemnify the other in respect of all
taxes for which it is responsible under the Tax Matters
Agreement. Helix is generally responsible for all federal,
state, local and foreign income taxes that are imposed on or are
attributable to us or any of our subsidiaries for all tax
periods (or portions thereof) ending on or before the closing of
this offering. We are generally responsible for all federal,
state, local and foreign income taxes that are imposed on or are
attributable to us or any of our subsidiaries for all tax
periods (or portions thereof) beginning after the closing of
this offering. We are also responsible for all taxes other than
income taxes imposed on or attributable to us or any of our
subsidiaries for all tax periods.
Tax
Benefit Payments
As a result of certain taxable income recognition by Helix in
conjunction with this offering, we will become entitled to
certain tax benefits that are expected to be realized by us in
the ordinary course of our business and otherwise would not have
been available to us. These benefits are generally attributable
to increased tax deductions for amortization of tangible and
intangible assets and to increased tax basis in nonamortizable
assets. Under the Tax Matters Agreement, for the next ten years,
we will be required to make annual payments to Helix equal to
90% of the amount of taxes which we save for each tax period as
a result of these increased tax benefits.
The timing of our payments to Helix under the Tax Matters
Agreement will be determined with reference to when we actually
realize the projected tax savings. This timing will depend upon,
among other things, the amount of our taxable income and the
rate at which certain assets are sold or disposed.
Transaction
Taxes
To effect the separation, Helix will, and will cause its
affiliates to, transfer to us the assets related to our business
not currently owned by us, as described in this prospectus.
Helix is generally responsible for any taxes resulting from such
transfer. However, we will be responsible for any such taxes to
the extent we take certain actions following the closing of this
offering that result in additional taxes being imposed.
Preparation
and Filing of Tax Returns
Helix will prepare and file all income tax returns that include
us or any of our subsidiaries if Helix is responsible for any
portion of the taxes reported on such tax returns. The Tax
Matters Agreement also provides that Helix will have the sole
authority to respond to and conduct all tax proceedings
(including tax audits) relating to such income tax returns. This
arrangement may result in conflicts of interest between Helix
and us. For example, under the Tax Matters Agreement, Helix will
be able to choose to contest, compromise or settle any
adjustment or deficiency proposed by the relevant taxing
authority in a manner that may be beneficial to Helix and
detrimental to us.
We will prepare and file all tax returns that include us or any
of our subsidiaries if we are solely responsible for the taxes
reported thereon.
Miscellaneous
For U.S. federal income tax purposes, each member of an
affiliated group of corporations that files a consolidated
return is jointly and severally liable for the U.S. federal
income tax liability of the entire group. Similar principles may
apply with respect to members of a group that file a tax return
on a combined, consolidated or unitary group basis for foreign,
state and local tax purposes. Accordingly, although the Tax
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Matters Agreement will allocate tax liabilities between Helix
and us during the period in which we or any of our subsidiaries
are included in the consolidated group of Helix or any of its
subsidiaries, we and our subsidiaries included in such
consolidated group could be liable for the tax liability of the
entire consolidated group in the event any such tax liability is
incurred and not discharged by Helix. The Tax Matters Agreement
will provide, however, that Helix will indemnify us and our
subsidiaries to the extent that, as a result of us or any of our
subsidiaries being a member of a consolidated group, we or our
subsidiaries become liable for the tax liability of the entire
consolidated group (other than the portion of such liability for
which we and our subsidiaries are liable under the Tax Matters
Agreement).
Employee
Matters Agreement
We will enter into an employee matters agreement with Helix to
allocate responsibility and liability for certain
employee-related matters. The employee matters agreement
generally provides for the following:
Employee
Liabilities
Following the offering, we will continue to employ U.S. and
non-U.S. employees
of Helix currently employed by us, as identified in the employee
matters agreement, all of whom are currently either employed by
us or involved in our business. After this offering, we will
retain or to the extent not already retained, assume all
employment, compensation and employee benefit liabilities
relating to our employees. We intend to adopt employee benefit
plans that are substantially similar to the employee benefit
plans maintained by Helix. Helix shall continue to provide
employee benefit services to us until Helix owns less than 50%
of our outstanding common stock. See Corporate Services
Agreement.
U.S. Employee
Benefits
Effective no later than the closing of this offering, we will
establish our own employee benefit plans for our
U.S. employees, and our U.S. employees will cease to
participate in Helix U.S. plans. However, our employees
will continue to participate in the Helix Energy Solutions
Group, Inc. 1998 Employee Stock Purchase Plan through
June 30, 2007, provided that Helix continues to own at
least 50 percent of the combined voting power of all classes of
our stock, and our employees will continue to participate in
certain Helix group welfare plans through December 31,
2006. In some situations, our employees may continue to be
covered by Helix plans on a temporary basis as an accommodation
to us (for which we will reimburse Helix).
Non-U.S. Employee
Benefits
The benefits provided to
non-U.S. employees
following the closing of this offering will vary by country.
Effective as of the closing of this offering, we generally will
establish our own employee benefit plans for our
non-U.S. employees,
and our
non-U.S. employees
will in that event cease to participate in the Helix
non-U.S. plans.
In some situations, our employees may continue to be covered by
Helix plans on a temporary basis as an accommodation to us (for
which we will reimburse Helix).
Helix
Agreements with Third Parties
Historically, we have received services provided by third
parties pursuant to various agreements that Helix has entered
into for the benefit of its affiliates. We pay the third parties
directly for the services they provide to us or reimburse Helix
for our share of the actual costs incurred under the agreements.
After this offering, we intend to continue to procure some of
these third-party services through Helix to the extent we are
permitted (and elect to) or required to do so.
Products
and Services Provided between Helix and Us
We engage in transactions with Helix in the ordinary course of
our respective businesses. These transactions include diving and
conventional shallow water pipelay services that we provide to
Helix and ROV and reeled pipelay services that Helix provides
to us.
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PRINCIPAL AND
SELLING STOCKHOLDER
We are a wholly owned subsidiary of Helix. All of our common
stock is held by Helix. If the underwriters exercise their
over-allotment option, Helix will sell up to
3,325,950 shares pursuant to that option. After this
offering, Helix will own 61,506,691 of our outstanding shares of
common stock, representing approximately 73.5% of our common
stock, or 58,180,741 shares representing approximately
69.5% if the underwriters exercise in full their over-allotment
option. Helix is not subject to any contractual obligation that
would prohibit it from selling, spinning off, splitting off or
otherwise disposing of any shares of our common stock, except
that Helix has agreed not to sell, spin off, split off or
otherwise dispose of any shares of our common stock for a period
of 180 days after the date of this prospectus without the
prior written consent of the underwriters, subject to certain
limitations and limited exceptions. See Underwriting.
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DESCRIPTION OF
CAPITAL STOCK
Below we have provided a summary description of our capital
stock. This description is not complete. You should read the
full text of our amended and restated certificate of
incorporation and bylaws, which will be included as exhibits to
the registration statement of which this prospectus is a part,
as well as the provisions of applicable Delaware law.
General
After this offering, we will be authorized to issue
240 million shares of our common stock, $0.01 par
value per share, and 5 million shares of preferred stock,
$0.01 par value.
Common
Stock
The rights of the common stock are currently as follows:
Voting
Rights
Each share of common stock entitles its holder to one vote and
the holders vote as a single class. Generally, all matters to be
voted on by stockholders must be approved by a majority of the
votes entitled to be cast by the holders of common stock present
in person or represented by proxy, subject to any voting rights
granted to holders of any preferred stock. Except as otherwise
provided by law or in our amended and restated certificate of
incorporation, and subject to any voting rights granted to
holders of any outstanding preferred stock, amendments to our
amended and restated certificate of incorporation and bylaws
must be approved by a majority of the votes entitled to be cast
by the holders of our common stock.
Dividends
Holders of common stock will share equally, on a per share
basis, in any cash dividend declared by our board of directors,
subject to any preferential rights of any outstanding shares of
preferred stock. Dividends payable in shares of common stock may
be paid only as follows: (i) shares of common stock may be
paid only to holders of common stock, and (ii) the number
of shares so paid will be equal, on a per share basis, with
respect to each outstanding share of common stock.
Other
Rights
On liquidation, dissolution or winding up of our company, after
payment in full of the amounts required to be paid to holders of
preferred stock, if any, all holders of common stock are
entitled to receive the same amount per share with respect to a
distribution of assets, if any.
No shares of common stock are subject to redemption or have
preemptive rights to purchase additional shares of common stock
or other securities of our company.
Upon completion of this offering, all the outstanding shares of
common stock will be validly issued, fully paid and
nonassessable.
Preferred
Stock
Our board of directors has the authority, without action by our
stockholders, to designate and issue our preferred stock in one
or more series and to designate the rights, preferences and
privileges of each series, which may be greater than the rights
of our common stock. It is not possible to state the actual
effect of the issuance of any shares of our preferred stock upon
the rights of holders of our common stock until our board of
directors determines the specific rights of the holders of our
preferred stock. However, the effects might include, among other
things:
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restricting dividends on our common stock;
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diluting the voting power of our common stock;
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impairing the liquidation rights of our common stock; or
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delaying or preventing a change in control of our company
without further action by our stockholders.
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At the completion of this offering, no shares of our preferred
stock will be outstanding and we have no present plans to issue
any shares of our preferred stock.
Anti-Takeover
Effects of Our Amended and Restated Certificate of Incorporation
and Bylaws and Delaware Law
Some provisions of Delaware law and our amended and restated
certificate of incorporation and bylaws could make the following
more difficult, although they have little significance while we
are controlled by Helix:
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acquisition of us by means of a tender offer or merger;
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acquisition of us by means of a proxy contest or
otherwise; or
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removal of our incumbent officers and directors.
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These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids. These
provisions also are designed to encourage persons seeking to
acquire control of us to first negotiate with our board of
directors. We believe that the benefits of the potential ability
to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure our company outweigh the
disadvantages of discouraging those proposals because
negotiation of them could result in an improvement of their
terms.
Election
and Removal of Directors
Our amended and restated certificate of incorporation provides
that our board of directors is divided into three classes. The
term of the first class of directors expires at our 2007 annual
meeting of stockholders, the term of the second class of
directors expires at our 2008 annual meeting of stockholders and
the term of the third class of directors expires at our 2009
annual meeting of stockholders. At each of our annual meetings
of stockholders, the successors of the class of directors whose
term expires at that meeting of stockholders will be elected for
a three-year term, one class being elected each year by our
stockholders. This system of electing and removing directors may
discourage a third party from making a tender offer or otherwise
attempting to obtain control of us if Helix no longer controls
us because it generally makes it more difficult for stockholders
to replace a majority of our directors.
Directors may be removed, with or without cause, by the
affirmative vote of shares representing a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors as long as Helix and its
subsidiaries (excluding our company and our subsidiaries) owns
shares representing at least a majority of the votes entitled to
be cast by the outstanding capital stock in the election of our
board of directors. Once Helix and its subsidiaries (excluding
our company and our subsidiaries) cease to own shares
representing at least a majority of the votes entitled to be
cast by the outstanding capital stock in the election of our
board of directors, our amended and restated certificate of
incorporation requires that directors may only be removed for
cause and only then by the affirmative vote of not less than 80%
of votes entitled to be cast by the outstanding capital stock in
the election of our board of directors.
Size
of Board and Vacancies
Our amended and restated certificate of incorporation provides
that the number of directors on our board of directors will be
fixed exclusively by our board of directors. Newly created
directorships resulting from any increase in our authorized
number of directors will be filled solely by the vote of our
remaining directors in office. Any vacancies in our board of
directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause will be
filled solely by the vote of our remaining directors in office;
provided, however, that as long as Helix and its subsidiaries
(excluding our company and our subsidiaries) continue to
beneficially own shares representing at least a majority of the
votes entitled to be cast by the
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outstanding capital stock in the election of our board of
directors and such vacancy was caused by the action of
stockholders, then such vacancy may only be filled by the
affirmative vote of shares representing at least a majority of
the votes entitled to be cast by the outstanding common stock in
the election of our board of directors.
Stockholder
Action by Written Consent
Our amended and restated certificate of incorporation permits
our stockholders to act by written consent without a meeting as
long as Helix and its subsidiaries (excluding our company and
our subsidiaries) continue to beneficially own shares
representing at least a majority of the votes entitled to be
cast by the outstanding capital stock in the election of our
board of directors. Once Helix and its subsidiaries (excluding
our company and our subsidiaries) cease to beneficially own at
least a majority of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors, our amended and restated certificate of incorporation
eliminates the right of our stockholders to act by written
consent.
Amendment
of Our Bylaws
Our amended and restated certificate of incorporation and bylaws
provide that the provisions of our bylaws relating to the
calling of meetings of stockholders, notice of meetings of
stockholders, stockholder action by written consent, advance
notice of stockholder business or director nominations, the
authorized number of directors, the classified board structure,
the filling of director vacancies or the removal of directors
(and any provision relating to the amendment of any of these
provisions) may only be amended by the vote of a majority of our
entire board of directors or, as long as Helix and its
subsidiaries (excluding our company and our subsidiaries) owns
shares representing at least a majority of the votes entitled to
be cast by the outstanding capital stock in the election of our
board of directors, by the vote of holders of a majority of the
votes entitled to be cast by outstanding capital stock in the
election of our board of directors. Once Helix and its
subsidiaries (excluding our company and our subsidiaries) cease
to own shares representing at least a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors, our amended and restated
certificate of incorporation and bylaws provide that these
provisions may only be amended by the vote of a majority of our
entire board of directors or by the vote of holders of at least
80% of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors.
Amendment
of Certain Provisions of Our Amended and Restated Certificate of
Incorporation
The amendment of any of the above provisions in our amended and
restated certificate of incorporation requires approval by
holders of shares representing at least a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors, as long as Helix and its
subsidiaries (excluding our company and our subsidiaries) owns
shares representing at least a majority of the votes entitled to
be cast by the outstanding capital stock in the election of our
board of directors. Once Helix and its subsidiaries (excluding
our company and our subsidiaries) cease to own shares
representing at least a majority of the votes entitled to be
cast by the outstanding capital stock in the election of our
board of directors, our amended and restated certificate of
incorporation and bylaws provide that these provisions may only
be amended by the vote of a majority of our entire board of
directors followed by the vote of holders of at least 80% of the
votes entitled to be cast by the outstanding capital stock in
the election of our board of directors.
Stockholder
Meetings
Our amended and restated certificate of incorporation and bylaws
provide that a special meeting of our stockholders may be called
only by (i) Helix, so long as Helix and its subsidiaries
(excluding our company and our subsidiaries) beneficially own at
least a majority of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors, or (ii) the Chairman of our board of directors
or our board of directors.
Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our bylaws establish advance notice procedures with respect to
stockholder proposals and nomination of candidates for election
as directors other than nominations made by or at the direction
of our board of directors or a committee of our board of
directors.
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Delaware
Anti-Takeover Law
Section 203 of the Delaware General Corporation Law, an
anti-takeover law, does not apply to Helix until it beneficially
owns less than 15% of our common stock and subsequently
increases its shareholdings to once again beneficially own at
least 15% of our common stock.
In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an
interested stockholder for a period of three years following the
date the person became an interested stockholder, unless the
business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
interested stockholder is a person that, together
with affiliates and associates, owns, or within three years
prior to the determination of interested stockholder status, did
own, 15% or more of a corporations voting stock. This may
have an anti-takeover effect with respect to transactions not
approved in advance by our board of directors, including
discouraging attempts that might result in a premium over the
market price for the shares of our common stock.
No
Cumulative Voting
Our amended and restated certificate of incorporation and bylaws
do not provide for cumulative voting in the election of our
board of directors.
Limitation
on Foreign Ownership of our Common Stock
In order to preserve our ability to enjoy the benefits of U.S.
domestic trade for certain of our vessels, we must maintain U.S.
citizenship for U.S. coastwise trade purposes as defined in the
Merchant Marine Act, 1936, the Merchant Marine Act, 1920, the
Shipping Act, 1916, and other federal laws that restrict
domestic trade. In order to maintain U.S. citizenship for these
purposes, our amended and restated certificate of incorporation
contains provisions that limit foreign ownership of our common
stock. Our amended and restated certificate of incorporation
provides that any attempted or purported transfer of our common
stock in violation of these restrictions will be ineffective to
transfer shares of our common stock. In addition, our amended
and restated certificate of incorporation contains provisions
requiring the following persons to be U.S. citizens: (1) our
chairman of the board, (2) our chief executive officer and (3) a
majority of our board of directors necessary to constitute a
quorum.
Corporate
Opportunity
Our amended and restated certificate of incorporation provides
that our directors and officers, who are also directors,
officers, employees or consultants of Helix or its affiliates,
shall have no duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines
of business as we do and such persons shall not be liable to us
or our stockholders for breach of any fiduciary duty by reason
of such activities. If any such person named above shall acquire
knowledge of a potential transaction or matter that may be a
corporate opportunity to us, such person shall have no
obligation to communicate such corporate opportunity to us and
shall not be liable to us or our stockholders for breach of
fiduciary duty by reason of the fact that such corporate
opportunity is not communicated or offered to us. This provision
in our amended and restated certificate of incorporation will
automatically terminate at such time as Helix and all persons
named above in the aggregate directly or indirectly own less
than 20% of our outstanding common stock and no director or
officer of us or one of our affiliates is also a director or
officer of Helix or one of its affiliates.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is Wells
Fargo Shareowner Services.
New York
Stock Exchange Listing
Our common stock has been approved for listing on the NYSE under
the symbol DVR.
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SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock. The sale of a substantial amount of our common
stock in the public market after this offering, or the
perception that such sales may occur, could adversely affect the
prevailing market price of our common stock. Furthermore,
because some of our shares will not be available for sale
shortly after this offering due to the contractual and legal
restrictions on resale described below, the sale of a
substantial amount of common stock in the public market after
these restrictions lapse could adversely affect the prevailing
market price of our common stock and our ability to raise equity
capital in the future.
Upon the completion of this offering, we will have
83,679,691 shares of common stock outstanding (assuming the
underwriters over-allotment option to purchase additional
shares of common stock is not exercised in full), which includes
the 22,173,000 shares of common stock sold by us in this
offering.
Of those shares, all of the shares of our common stock sold in
this offering will be freely tradable without restriction or
further registration under the Securities Act, unless the shares
are purchased by affiliates as that term is defined
in Rule 144 under the Securities Act. Any shares purchased
by an affiliate may not be resold except in compliance with
Rule 144 volume limitations, manner of sale and notice
requirements, pursuant to another applicable exemption from
registration or pursuant to an effective registration statement.
The shares of our common stock held by Helix are
restricted securities as that term is defined in
Rule 144 under the Securities Act. These restricted
securities may be sold in the public market by Helix only if
they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 144(k) under the
Securities Act. These rules are summarized below.
Rule 144
In general, under Rule 144 as currently in effect,
beginning 90 days after the date of this prospectus, a
person or persons whose shares are aggregated, who have
beneficially owned restricted shares for at least one year,
including persons who may be deemed to be our
affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of 1% of the number of shares of common stock then
outstanding, which will equal approximately 836,797 shares
immediately after this offering, or the average weekly trading
volume of our common stock on the NYSE during the four calendar
weeks before a notice of the sale on SEC Form 144 is filed.
Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability
of certain public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the
90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including
the holding period of any prior owner other than an
affiliate, is entitled to sell these shares without
complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Stock
Issued Under Employee Plans
We intend to file registration statements on
Form S-8
under the Securities Act to register approximately
8,500,000 shares of common stock issuable, with respect to
options, restricted shares and restricted stock units to be
granted, or shares to be purchased, under our employee plans.
Currently, there are no outstanding options to purchase shares
of our common stock or restricted stock units. These
registration statements are expected to be filed following the
effective date of the registration statement of which this
prospectus is a part and will be effective upon filing. Shares
issued upon the exercise of stock options or restricted stock
units after the
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effective date of the
Form S-8
registration statements will be eligible for resale in the
public market without restriction, subject to Rule 144
limitations applicable to affiliates.
Lock-up
Agreements
Notwithstanding the foregoing, our company, our directors and
officers and Helix have agreed with the underwriters not to
dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing
through the date 180 days after the date of this
prospectus, except with the prior written consent of Banc of
America Securities LLC and J.P. Morgan Securities Inc., subject
to certain limitations and limited exceptions.
Registration
Rights
As described in Arrangements Between Helix and
Us Registration Rights Agreement, we will
enter into a registration rights agreement with Helix. We do not
have any other contractual obligations to register our stock.
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MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
OF COMMON STOCK
The following discussion summarizes the material
U.S. federal income and estate tax consequences of the
purchase, ownership and disposition of our common stock by
certain
non-U.S. holders
(as defined below). This discussion only applies to
non-U.S. holders
who purchase and hold our common stock as a capital asset for
U.S. federal income tax purposes (generally property held
for investment). This discussion does not describe all of the
tax consequences that may be relevant to a
non-U.S. holder
in light of its particular circumstances.
A
non-U.S. holder,
for the purposes of this discussion, means a person (other than
a partnership) that is not for U.S. federal income tax
purposes any of the following:
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an individual citizen or resident of the United States
(including certain former citizens and former long-term
residents);
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if it is subject to the primary supervision of a court
within the United States and one or more United States persons
have the authority to control all substantial decisions of the
trust or has a valid election in effect under applicable United
States Treasury regulations to be treated as a United States
person.
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This discussion is based upon provisions of the Code and
regulations, rulings and judicial decisions as of the date
hereof. These authorities may be changed, perhaps retroactively,
so as to result in U.S. federal income and estate tax
consequences different from those summarized below. This
discussion does not address all aspects of U.S. federal
income and estate taxes and does not describe any foreign,
state, local or other tax considerations that may be relevant to
non-U.S. holders
in light of their particular circumstances. In addition, this
discussion does not describe the U.S. federal income and
estate tax consequences applicable to you if you are subject to
special treatment under the U.S. federal income tax laws
(including if you are a United States expatriate,
controlled foreign corporation, passive
foreign investment company, corporation that accumulates
earnings to avoid U.S. federal income tax, pass-through
entity or an investor in a pass-through entity). We cannot
assure you that a change in law will not alter significantly the
tax considerations that we describe in this discussion.
If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds our common
stock, the U.S. federal income tax treatment of a partner
of that partnership will generally depend upon the status of the
partner and the activities of the partnership. If you are a
partner of a partnership holding our common stock, you should
consult your tax advisors.
THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND
DOES NOT CONSTITUTE LEGAL ADVICE TO ANY PROSPECTIVE PURCHASER OF
OUR COMMON STOCK. ADDITIONALLY, THIS DISCUSSION CANNOT BE USED
BY ANY HOLDER FOR THE PURPOSE OF AVOIDING TAX PENALTIES THAT MAY
BE IMPOSED ON SUCH HOLDER. IF YOU ARE CONSIDERING THE PURCHASE
OF OUR COMMON STOCK, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS
CONCERNING THE U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON
STOCK IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND ANY
CONSEQUENCES ARISING UNDER THE LAWS OF APPLICABLE STATE, LOCAL
OR FOREIGN TAXING JURISDICTIONS. YOU SHOULD ALSO CONSULT WITH
YOUR TAX ADVISORS CONCERNING ANY POSSIBLE ENACTMENT OF
LEGISLATION THAT WOULD AFFECT YOUR INVESTMENT IN OUR COMMON
STOCK IN YOUR PARTICULAR CIRCUMSTANCES.
88
Dividends
Dividends paid to a
non-U.S. holder
of our common stock generally will be subject to withholding of
U.S. federal income tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a
trade or business by the
non-U.S. holder
within the United States (and, where a tax treaty applies, are
attributable to a U.S. permanent establishment of the
non-U.S. holder)
are not subject to the withholding tax, provided certain
certification and disclosure requirements are satisfied.
Instead, such dividends are subject to U.S. federal income
tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code, unless an
applicable income tax treaty provides otherwise. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A
non-U.S. holder
of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required to either:
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complete Internal Revenue Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits; or
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if our common stock is held through certain foreign
intermediaries, satisfy the relevant certification requirements
of applicable United States Treasury regulations.
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Special certification and other requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of our common stock eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the Internal Revenue Service.
Gain on
Disposition of Common Stock
Any gain realized by a
non-U.S. holder
on the disposition of our common stock generally will not be
subject to U.S. federal income or withholding tax unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a U.S. permanent
establishment of the
non-U.S. holder);
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes.
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An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated U.S. federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by U.S. source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
U.S. federal income tax purposes.
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Federal
Estate Tax
Common stock held by an individual
non-U.S. holder
at the time of death will be included in such
non-U.S. holders
gross estate for U.S. federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
Information
Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such
non-U.S. holder
and the tax withheld with respect to such dividends, regardless
of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which
the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
non-U.S. holder
unless such
non-U.S. holder
certifies under penalty of perjury that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such
non-U.S. holder
is a United States person as defined under the Code), and such
non-U.S. holder
otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), and such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
U.S. federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
90
UNDERWRITING
We are offering the shares of common stock described in this
prospectus through a number of underwriters. Banc of America
Securities LLC and J.P. Morgan Securities Inc. are the
representatives of the underwriters. We have entered into a firm
commitment underwriting agreement with the representatives.
Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each
underwriter has agreed to purchase, the number of shares of
common stock listed next to its name in the following table:
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Number
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Underwriter
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of Shares
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Banc of America Securities LLC
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J.P. Morgan Securities
Inc.
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Johnson Rice & Company
L.L.C.
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Raymond James & Associates,
Inc.
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Simmons & Company
International
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Natexis Bleichroeder Inc.
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Total
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22,173,000
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The underwriting agreement is subject to a number of terms and
conditions and provides that the underwriters must buy all of
the shares if they buy any of them. The underwriters will sell
the shares to the public when and if the underwriters buy the
shares from us.
The underwriters initially will offer the shares to the public
at the price specified on the cover page of this prospectus. The
underwriters may allow a concession of not more than
$ per share to selected
dealers. The underwriters may also allow, and those dealers may
re-allow, a concession of not more than
$ per share to some other
dealers. If all the shares are not sold at the public offering
price, the underwriters may change the public offering price and
the other selling terms. The common stock is offered subject to
a number of conditions, including:
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receipt and acceptance of the common stock by the
underwriters; and
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the underwriters right to reject orders in whole or in
part.
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Over-Allotment Option. Helix has granted the
underwriters an over-allotment option to buy up
to additional shares of our common
stock at the same price per share as they are paying for the
shares shown in the table above. These additional shares would
cover sales of shares by the underwriters that exceed the total
number of shares shown in the table above. The underwriters may
exercise this option at any time within 30 days after the
date of this prospectus. To the extent that the underwriters
exercise this option, each underwriter will purchase additional
shares from Helix in approximately the same proportion as it
purchased the shares shown in the table above. If purchased, the
additional shares will be sold by the underwriters on the same
terms as those on which the other shares are sold. We will pay
the expenses associated with the exercise of this option.
Discounts and Commissions. The following table
shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts
are shown assuming no exercise and full exercise of the
underwriters over-allotment option to purchase additional
shares.
We estimate that the expenses of the offering to be paid by us,
not including underwriting discounts and commissions, will be
approximately $4,000,000.
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Paid by Us
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No Exercise
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Full Exercise
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Per Share
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$
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$
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Total
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$
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$
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Listing. We are applying to have our common
stock listed on the NYSE under the symbol DVR. In
order to meet one of the requirements for listing our common
stock on the NYSE, the underwriters have undertaken to sell 100
or more shares of our common stock to a minimum of 2,000
beneficial holders.
Stabilization. In connection with this
offering, the underwriters may engage in activities that
stabilize, maintain or otherwise affect the price of our common
stock, including:
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stabilizing transactions;
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short sales;
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syndicate covering transactions;
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imposition of penalty bids; and
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purchases to cover positions created by short sales.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
Stabilizing transactions may include making short sales of our
common stock, which involves the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering, and purchasing shares of common
stock from us or in the open market to cover positions created
by short sales. Short sales may be covered shorts,
which are short positions in an amount not greater than the
underwriters over-allotment option referred to above, or
may be naked shorts, which are short positions in
excess of that amount. Syndicate covering transactions involve
purchases of our common stock in the open market after the
distribution has been completed in order to cover syndicate
short positions.
The underwriters may close out any covered short position either
by exercising their over-allotment option, in whole or in part,
or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which the underwriters may
purchase shares through the over-allotment option.
A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure
on the price of the common stock in the open market that could
adversely affect investors who purchased shares of our common
stock in this offering. To the extent that the underwriters
create a naked short position, they will purchase shares in the
open market to cover the position.
The representatives also may impose a penalty bid on
underwriters and dealers participating in the offering. This
means that the representatives may reclaim from any syndicate
member or other dealers participating in the offering the
commissions and selling concessions on shares sold by them and
purchased by the representatives in stabilizing or short
covering transactions.
These activities may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of our common stock. As a result
of these activities, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the NYSE, in the
over-the-counter
market or otherwise. Neither we nor any of the underwriters make
any representation or prediction as to the direction or
magnitude of any effect that the transactions described above
may have on the price of our common stock.
Discretionary Accounts. The underwriters have
informed us that they do not expect to make sales to accounts
over which they exercise discretionary authority in excess of 5%
of the shares of common stock being offered.
IPO Pricing. Prior to this offering, there has
been no public market for our common stock. The initial public
offering price will be negotiated between us and the
representatives of the underwriters. Among the factors to be
considered in these negotiations are:
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the history of, and prospects for, our company and the industry
in which we compete;
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our past and present financial performance;
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an assessment of our management;
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the present state of our development;
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the prospects for our future earnings;
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the prevailing conditions of the applicable United States
securities market at the time of this offering;
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market valuations of publicly traded companies that we and the
representatives of the underwriters believe to be comparable to
us; and
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other factors deemed relevant.
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The estimated initial public offering price range set forth on
the cover of this preliminary prospectus is subject to change as
a result of market conditions and other factors.
Lock-up
Agreements. We, our directors and executive
officers and Helix have entered into
lock-up
agreements with the underwriters. Under these agreements,
subject to exceptions, we may not issue any new shares of common
stock, and those holders of stock may not, directly or
indirectly, offer, sell, contract to sell, pledge or otherwise
dispose of or hedge any common stock or securities convertible
into or exchangeable for shares of common stock, or publicly
announce the intention to do any of the foregoing, without the
prior written consent of Banc of America Securities LLC and J.P.
Morgan Securities Inc. for a period of 180 days from the
date of this prospectus. This consent may be given at any time
without public notice. The underwriters have no present intent
to release the lock-up restrictions early.
The 180-day
restricted period described above is subject to extension such
that, in the event that either (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event related to us occurs or (2) prior to
the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the lock-up restrictions described above
will continue to apply until the expiration of the
18-day
period beginning on the earnings release or the occurrence of
the material news or material event.
Directed Share Program. At our request, the
underwriters have reserved for sale to our employees, directors,
families of employees and directors, business associates and
other third parties at the initial public offering price up to
5% of the shares being offered by this prospectus. The sale of
the reserved shares to these purchasers will be made by J.P.
Morgan Securities, Inc. The purchasers of these shares will be
subject to a
120-day
lock-up
period in addition to any
lock-up
required by the Conduct Rules of the NASD, which require a
90-day
lock-up if
they are affiliated with or associated with NASD members of if
they or members of their immediate families hold senior
positions at financial institutions, and to the extent the
purchasers are subject to a
lock-up
agreement with the underwriters as described above. We do not
know if our employees, directors, families of employees and
directors, business associates and other third parties will
choose to purchase all or any portion of the reserved shares,
but any purchases they do make will reduce the number of shares
available to the general public. If all of these reserved shares
are not purchased, the underwriters will offer the remainder to
the general public on the same terms as the other shares offered
by this prospectus.
Indemnification. We will indemnify the
underwriters against some liabilities, including liabilities
under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters
may be required to make in respect of those liabilities.
Online Offering. A prospectus in electronic
format may be made available on the web sites maintained by one
or more of the underwriters participating in this offering.
Other than the prospectus in electronic format, the information
on any such web site, or accessible through any such web site,
is not part of the prospectus. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet
distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities
dealers who resell shares to online brokerage account holders.
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Conflicts/Affiliates. Certain of the
underwriters and their affiliates have provided, and may in the
future provide, various investment banking, commercial banking
and other financial services for us or our affiliates for which
services they have received, and may in the future receive,
customary fees. A brief description of the services provided by
certain of the underwriters is as follows:
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In January 2003 and June 2004, Raymond James acted as placement
agent for Helixs $55 million private placement of
convertible preferred stock.
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In August 2004, Helix entered into a four-year $150 million
revolving credit facility with a syndicate of banks, including
Bank of America, N.A., JPMorgan Chase Bank, N.A., Natexis
Banques Populaires and others. Bank of America, N.A. and Banc of
America Securities LLC served as administrative agent and sole
lead arranger, respectively, for this facility. Under this
facility, affiliates of the underwriters may extend loans to
Helix in an aggregate amount of up to $65 million.
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In March 2005, Banc of America Securities LLC acted as sole
book-running manager for Helixs $300 million offering
of 3.25% Convertible Senior Notes.
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In September 2005, JPMorgan acted as placement agent for a
$135 million MARAD financing for Helix.
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In November 2005, Simmons & Company International acted
as financial advisor in connection with Helixs
acquisitions of Helix RDS and the diving and shallow water
pipelay business of Acergy.
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Simmons & Company International advised Helix in connection
with its acquisition of Remington Oil and Gas Corporation, or
Remington, in July 2006.
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Banc of America Securities LLC served as a financial advisor to
Helix in connection with its acquisition of Remington. Bank of
America, N.A. and Banc of America Securities LLC are serving as
administrative agent and sole lead arranger, respectively, for
the credit facility that funded the cash portion of the
acquisition and supports the operations of Helix. In addition,
JPMorgan Chase Bank, N.A. and Natexis Banques Populaires served
as co-syndication agents for this facility.
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Bank of America, N.A. is serving as administrative agent on our
syndicated $250 million revolving credit facility. In
addition, Bank of America Securities LLC and J.P. Morgan
Securities, Inc. serve as
co-lead
arrangers and joint bookrunners for our credit facility.
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Selling Restrictions. Each underwriter intends
to comply with all applicable laws and regulations in each
jurisdiction in which it acquires, offers, sells or delivers the
shares or has in its possession or distributes the prospectus or
any other material.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date) an offer of the shares to the public
may not be made in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts; or
(c) in any other circumstances which do not require the
publication by the company of a prospectus pursuant to
Article 3 of the Prospectus Directive.
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For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
No prospectus (including any amendment, supplement or
replacement thereto) has been prepared in connection with the
offering of the shares that has been approved by the
Autorité des marchés financiers or by the
competent authority of another State that is a contracting party
to the Agreement on the European Economic Area and notified to
the Autorité des marchés financiers; no shares
have been offered or sold and will be offered or sold, directly
or indirectly, to the public in France except to permitted
investors (Permitted Investors) consisting of
persons licensed to provide the investment service of portfolio
management for the account of third-parties, qualified investors
(investisseurs qualifiés) acting for their own
account
and/or
investors belonging to a limited circle of investors (cercle
restreint dinvestisseurs) acting for their own
account, with qualified investors and limited
circle of investors having the meaning ascribed to them in
Articles L. 411-2, D. 411-1, D. 411-2, D. 734-1, D. 744-1,
D. 754-1 and D. 764-1 of the French Code Monétaire et
Financier and applicable regulations thereunder; none of
this prospectus or any other materials related to the offering
or information contained therein relating to the shares has been
released, issued or distributed to the public in France except
to Permitted Investors, and the direct or indirect resale to the
public in France of any shares acquired by any Permitted
Investors may be made only as provided by
Articles L. 411-1,
L. 411-2, L. 412-1 and L. 621-8 to
L. 621-8-3 of the French Code Monétaire et
Financier and applicable regulations thereunder.
Each underwriter acknowledges and agrees that:
(i) it has not offered or sold and will not offer or sell
the shares other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of
investments (as principal or as agent) for the purposes of their
businesses or who it is reasonable to expect will acquire, hold,
manage or dispose of investments (as principal or agent) for the
purposes of their businesses where the issue of the shares would
otherwise constitute a contravention of Section 19 of the
Financial Services and Markets Act 2000 (the FSMA)
by the company;
(ii) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the Securities in
circumstances in which Section 21(1) of the FSMA does not
apply to the company; and
(iii) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons). The
shares are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such
shares will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on
this document or any of its contents.
The offering of the shares has not been cleared by the Italian
Securities Exchange Commission (Commissione Nazionale per le
Società e la Borsa, the CONSOB) pursuant to
Italian securities legislation and, accordingly, acknowledges
and agrees that the shares may not and will not be offered, sold
or delivered, nor may or will copies of the prospectus or any
other documents relating to the shares or the prospectus be
distributed in Italy other than to professional investors
(investitori professionali), as defined in
Article 31, paragraph 2 of CONSOB
Regulation No. 11522 of July 1, 1998, as amended
(Regulation No. 11522) or
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pursuant to another exemption from the requirements of
Articles 94 and seq. of Legislative Decree No. 58 of
February 24, 1998 (the Italian Finance Law) and
CONSOB Regulation No. 11971 of May 14, 1999
(Regulation No. 11971).
Any offer, sale or delivery of the shares or distribution of
copies of the prospectus or any other document relating to the
shares or the prospectus in Italy may and will be effected in
accordance with all Italian securities, tax, exchange control
and other applicable laws and regulations, and, in particular,
will be:
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made by an investment firm, bank or financial intermediary
permitted to conduct such activities in Italy in accordance with
the Legislative Decree No. 385 of September 1, 1993,
as amended (the Italian Banking Law), Legislative
Decree No. 58 of February 24, 1998, as amended, CONSOB
Regulation No. 11522 of July 1, 1998, and any
other applicable laws and regulations;
|
|
|
|
in compliance with Article 129 of the Italian Banking Law
and the implementing guidelines of the Bank of Italy; and
|
|
|
|
in compliance with any other applicable notification requirement
or limitation which may be imposed upon the offer of the shares
by CONSOB or the Bank of Italy.
|
Any investor purchasing shares of our common stock in the
initial public offering is solely responsible for ensuring that
any offer or resale of such shares that it purchased in the
initial public offering occurs in compliance with applicable
laws and regulations.
This prospectus and the information contained herein are
intended only for the use of its recipient and are not to be
distributed to any third-party resident or located in Italy for
any reason. No person resident or located in Italy other than
the original recipients of this document may rely on it or its
content.
In addition to the above (which shall continue to apply to the
extent not inconsistent with the implementing measures of the
Prospectus Directive in Italy), after the implementation of the
Prospectus Directive in Italy, the restrictions, acknowledgments
and agreements in the paragraph relating to the European
Economic Area set forth above shall apply to Italy.
96
LEGAL
MATTERS
The validity of the issuance of the shares of common stock to be
sold in this offering will be passed upon for us by
Fulbright & Jaworski L.L.P., Houston, Texas. As of
October 31, 2006, lawyers at Fulbright & Jaworski
L.L.P. working on this offering owned 4,000 shares of
Helixs common stock. Davis Polk & Wardwell, New
York, New York, will act as counsel to the underwriters.
EXPERTS
The combined financial statements of Cal Dive
International, Inc. and subsidiaries at December 31, 2004
and 2005, and for each of the three years in the period ended
December 31, 2005, appearing in this Prospectus and
Registration Statement have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set
forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
The statement of revenue and direct operating expenses for each
of the three years in the period ended November 30, 2005 of
Acergy US Inc., S&H Diving, LLC, and Acergy Shipping Ltd.
(which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the basis of presentation as
discussed in Note 2) included in this prospectus have been
audited by Deloitte & Touche LLP, an independent public
accounting firm, as stated in their report appearing herein and
are included in reliance upon the report of such firm given on
their authority as experts in accounting and auditing.
Statistical information regarding offshore drilling and
completion spending included in this prospectus has been derived
from information compiled and classified by Spears &
Associates, Inc.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the issuance of shares
of our common stock being offered hereby. This prospectus, which
forms a part of the registration statement, does not contain all
of the information set forth in the registration statement. For
further information with respect to us and the shares of our
common stock, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of
any contract or other document are not necessarily complete. We
are not currently subject to the informational requirements of
the Securities Exchange Act of 1934. As a result of the offering
of the shares of our common stock, we will become subject to the
informational requirements of the Exchange Act and, in
accordance therewith, will file reports and other information
with the SEC. The registration statement, such reports and other
information can be inspected and copied at the Public Reference
Room of the SEC located at 100 F Street, N.E., Washington,
D.C. 20549. Copies of such materials, including copies of all or
any portion of the registration statement, can be obtained from
the Public Reference Room of the SEC at prescribed rates. You
can call the SEC at
1-800-SEC-0330
to obtain information on the operation of the Public Reference
Room. Such materials may also be accessed electronically by
means of the SECs home page on the Internet
(http://www.sec.gov).
97
CERTAIN
DEFINITIONS
Defined below are certain terms helpful to understanding the
services rendered and equipment utilized in the marine
contracting industry:
|
|
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|
|
Dive support vessel (DSV): Specially equipped
vessel that performs services and acts as an operational base
for divers, ROVs and specialized equipment.
|
|
|
|
Drydock: The process of docking a vessel so
that it is fully supported out of the water for the purposes of
regulatory certification, inspection, maintenance and repair.
Drydocking allows full work access to the vessel hull.
|
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|
|
Dynamic positioning (DP): Computer-directed
thruster systems that use satellite-based positioning and other
positioning technologies to ensure the proper counteraction to
wind, current and wave forces, enabling the vessel to maintain
its position without the use of anchors. Two DP systems
(DP-2) are
necessary to provide the redundancy required to support safe
deployment of divers, while only a single DP system is necessary
to support ROV operations.
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|
4 point mooring: A mooring system that uses
four anchors, which are spooled out to the sea floor by
deck-mounted anchor winches, to secure a vessel in open waters.
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|
Gulf of Mexico OCS: The Outer Continental
Shelf in the Gulf of Mexico, defined as the area in the Gulf of
Mexico extending from the shoreline to water depths up to
1,000 feet.
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|
|
Hyperbaric rescue chamber (HRC): An additional
chamber, connected to the saturation diving system, that acts as
a floating pressurized lifeboat in the event of a vessel
emergency.
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|
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Mixed gas diving: Diving technique used in
water depths between 170 and 300 feet. Inert nitrogen in
air is replaced with helium, which provides longer bottom times
at greater depths and eliminates the narcotic effect of nitrogen
under pressure.
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|
|
Moon pool: An opening in the center of a
vessel through which a saturation diving system or ROV may be
deployed, allowing safer deployment in adverse weather
conditions.
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|
Multi-purpose support vessel (MSV): A
DP DSV that is capable of performing coring and well
operations in addition to working in diving and ROV modes.
|
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|
Pipelay and pipe burial: Pipelay barges
provide an offshore work station that allow for the welded
assembly of multiple sections of pipe on deck. After completing
nondestructive testing, the barge pulls forward on the anchor
spread moorings and lays out the pipeline on the seafloor. In
water depths less than 200 feet, the pipeline is required
to have a minimum of three feet of burial cover. Burial is
accomplished by digging and jetting out a trenched ditch from
under the pipeline.
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|
|
|
Portable saturation diving system: Saturation
diving system that is transportable to various offshore
locations. These systems are typically deployed on barges and
rigs that do not consistently require deep dive support.
|
|
|
|
Qualified turnkey: Lump-sum bid sent in
response to a clients request for quote. Our bid response
contains the following: a defined scope of work, a lump-sum
price to complete that work, extra work rates for anything
outside the defined scope of work and a list of clarifications
and qualifications applicable to the project or contract.
|
|
|
|
Remotely operated vehicle (ROV): Robotic
vehicles used to complement, support and increase the efficiency
of diving and subsea operations and for tasks beyond the
capability of manned diving operations.
|
98
|
|
|
|
|
Saturation diving: Provides for efficient work
time on the seafloor in water depths between 200 and
1,000 feet. Divers stay under pressure in a vessel-mounted
chamber and are transported to the sea floor in a diving bell.
One-time decompression is conducted after completion of the job
or a 30-day
period, whichever is shorter. A split-level saturation diving
system has an additional chamber that allow extra divers to
store at a different pressure level, which allows
the divers to work at different depths.
|
|
|
|
Surface diving: Diving operations conducted in
shallower waters, typically limited to depths of approximately
170 feet. At greater depths, bottom times become limited
and decompression times increase significantly. Compressed air
and communications are supplied to the diver through a dive
umbilical, tethered to the surface. Based on factors of depth
and time, divers must decompress after each dive.
|
|
|
|
Surface diving system: Dive equipment
components required for air or gas surface diving operations,
which typically includes air compressors, dive hoses,
communication radios,
air/gas
manifolds and decompression chambers.
|
99
INDEX TO
FINANCIAL STATEMENTS
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Page
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Cal Dive International, Inc. and
Subsidiaries
|
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-21
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F-22
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F-23
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F-24
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F-25
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Acergy US Inc.
|
|
|
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F-33
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F-34
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F-35
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F-1
Report of
Independent Registered Public Accounting Firm
BOARD OF DIRECTORS
HELIX ENERGY SOLUTIONS GROUP, INC.
We have audited the accompanying combined balance sheets of Cal
Dive International, Inc. and Subsidiaries (the Company) as of
December 31, 2005 and 2004, and the related combined
statements of operations, changes in owners equity, and
cash flows for each of the three years in the period ended
December 31, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of Cal Dive International, Inc. and Subsidiaries
at December 31, 2005, and 2004, and the combined results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
May 30, 2006, except for the first paragraph of Note 1
and Note 13, as to which the date is December 11, 2006.
F-2
Cal Dive
International, Inc. and Subsidiaries
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
doubtful accounts of $4,641 and $26, respectively
|
|
|
28,989
|
|
|
|
75,713
|
|
Unbilled revenue
|
|
|
5,027
|
|
|
|
13,608
|
|
Deferred income taxes
|
|
|
3,538
|
|
|
|
1,939
|
|
Assets held for sale
|
|
|
2,989
|
|
|
|
7,936
|
|
Other current assets
|
|
|
6,022
|
|
|
|
11,288
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
46,565
|
|
|
|
110,484
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
145,922
|
|
|
|
173,841
|
|
Less Accumulated
depreciation
|
|
|
(69,593
|
)
|
|
|
(60,237
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
76,329
|
|
|
|
113,604
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
|
|
|
|
11,513
|
|
Goodwill
|
|
|
14,973
|
|
|
|
27,814
|
|
Other assets, net
|
|
|
6,950
|
|
|
|
14,469
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
144,817
|
|
|
$
|
277,884
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,549
|
|
|
$
|
32,034
|
|
Accrued liabilities
|
|
|
13,889
|
|
|
|
41,835
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,438
|
|
|
|
73,869
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
24,209
|
|
|
|
22,621
|
|
Other long term liabilities
|
|
|
662
|
|
|
|
3,611
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,309
|
|
|
|
100,101
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Owners equity:
|
|
|
|
|
|
|
|
|
Unearned compensation
|
|
|
|
|
|
|
(1,898
|
)
|
Owners net investment
|
|
|
92,508
|
|
|
|
179,681
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
92,508
|
|
|
|
177,783
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners
equity
|
|
$
|
144,817
|
|
|
$
|
277,884
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-3
Cal Dive
International, Inc. and Subsidiaries
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Net revenues
|
|
$
|
135,488
|
|
|
$
|
125,786
|
|
|
$
|
224,299
|
|
Cost of sales
|
|
|
108,479
|
|
|
|
101,583
|
|
|
|
152,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
27,009
|
|
|
|
24,203
|
|
|
|
71,713
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
270
|
|
Selling and administrative expenses
|
|
|
10,337
|
|
|
|
12,318
|
|
|
|
16,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
55,253
|
|
Equity in earnings of investment
|
|
|
|
|
|
|
|
|
|
|
2,817
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
16,672
|
|
|
|
11,885
|
|
|
|
58,115
|
|
Provision for income taxes
|
|
|
5,870
|
|
|
|
4,211
|
|
|
|
20,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-4
Cal Dive
International, Inc. and Subsidiaries
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners Net
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Investment
|
|
|
Compensation
|
|
|
Owners Equity
|
|
|
Balances at December 31, 2002
|
|
$
|
123,516
|
|
|
$
|
|
|
|
$
|
123,516
|
|
Net income
|
|
|
10,802
|
|
|
|
|
|
|
|
10,802
|
|
Capital contributions by owner
|
|
|
2,584
|
|
|
|
|
|
|
|
2,584
|
|
Cash transfers to owner
|
|
|
(26,370
|
)
|
|
|
|
|
|
|
(26,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
$
|
110,532
|
|
|
$
|
|
|
|
$
|
110,532
|
|
Net income
|
|
|
7,674
|
|
|
|
|
|
|
|
7,674
|
|
Capital contributions by owner
|
|
|
2,912
|
|
|
|
|
|
|
|
2,912
|
|
Cash transfers to owner
|
|
|
(28,610
|
)
|
|
|
|
|
|
|
(28,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
$
|
92,508
|
|
|
$
|
|
|
|
$
|
92,508
|
|
Net income
|
|
|
37,730
|
|
|
|
|
|
|
|
37,730
|
|
Stock grants in owners stock
plan
|
|
|
2,124
|
|
|
|
(2,124
|
)
|
|
|
|
|
Amortization of stock grants in
owners stock plan
|
|
|
|
|
|
|
226
|
|
|
|
226
|
|
Capital contributions by owner
|
|
|
79,547
|
|
|
|
|
|
|
|
79,547
|
|
Cash transfers to owner
|
|
|
(32,228
|
)
|
|
|
|
|
|
|
(32,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
$
|
179,681
|
|
|
$
|
(1,898
|
)
|
|
$
|
177,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-5
Cal Dive
International, Inc. and Subsidiaries
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,209
|
|
|
|
15,510
|
|
|
|
15,308
|
|
Assets impairment charges
|
|
|
|
|
|
|
3,900
|
|
|
|
790
|
|
Equity in earnings of investment
|
|
|
|
|
|
|
|
|
|
|
(2,817
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Deferred income taxes
|
|
|
3,233
|
|
|
|
(970
|
)
|
|
|
11
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
(270
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
8,624
|
|
|
|
54
|
|
|
|
(55,305
|
)
|
Other current assets
|
|
|
1,178
|
|
|
|
258
|
|
|
|
(3,494
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(7,266
|
)
|
|
|
6,272
|
|
|
|
46,431
|
|
Other noncurrent, net
|
|
|
(5,410
|
)
|
|
|
(4,088
|
)
|
|
|
(6,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities:
|
|
|
26,370
|
|
|
|
28,610
|
|
|
|
32,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,784
|
)
|
|
|
(2,912
|
)
|
|
|
(36,407
|
)
|
Acquisition of businesses
|
|
|
|
|
|
|
|
|
|
|
(42,917
|
)
|
Equity investment
|
|
|
|
|
|
|
|
|
|
|
(1,696
|
)
|
Loan to Offshore Technology
Solutions Limited
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
Proceeds from sales of property
|
|
|
200
|
|
|
|
|
|
|
|
2,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities:
|
|
|
(2,584
|
)
|
|
|
(2,912
|
)
|
|
|
(79,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash transfers from owner for
investing activities
|
|
|
2,584
|
|
|
|
2,912
|
|
|
|
79,547
|
|
Cash transfers to owner from
operating activities
|
|
|
(26,370
|
)
|
|
|
(28,610
|
)
|
|
|
(32,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(23,786
|
)
|
|
|
(25,698
|
)
|
|
|
47,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-6
Cal Dive
International, Inc. and Subsidiaries
|
|
1.
|
Organization
and Basis of Presentation
|
Cal Dive International, Inc. and subsidiaries
(CDI or the Company) is currently a
wholly-owned subsidiary of Helix Energy Solutions Group, Inc.
(Helix). On February 27, 2006, Helix announced
a plan to separate its shallow water marine contracting business
into a separate company. As part of the plan, Helix intends to
complete an initial public offering (IPO) of less
than 50% of the Companys common stock. On
December 11, 2006, Helix and its subsidiaries contributed
and transferred to the Company all of the assets and liabilities
of the shallow water marine contracting business. Following the
contribution and transfer by Helix, the Company owns and
operates a diversified fleet of 26 vessels, including 23
surface and saturation diving support vessels capable of
operating in water depths of up to 1,000 feet as well as
three shallow water pipelay vessels.
These financial statements reflect the combined financial
position and results of the shallow water marine contracting
business of Helix and related assets and liabilities, results of
operations and cash flows for this segment as carved out of the
accounts of Helix and as though the shallow water marine
contracting business had been a separate stand-alone company for
the respective periods presented.
The shallow water marine contracting business of Helix has
operated within Helixs corporate cash management program
for all periods presented. For purposes of presentation in the
Combined Statements of Cash Flows, net cash flows provided by
the operating activities of the Company are presented as cash
transfers to owner under cash flows from financing activities.
Additionally, net cash flows used in investing activities of the
Company are presented as cash transfers from owner under cash
flows from financing activities. This presentation results in
the combined financial statements reflecting no cash balances
for all periods presented as if all excess cash has been
transferred to Helix as described. These financial statements
have been prepared using Helixs historical basis in the
assets and liabilities and the historical results of operations
relating to the shallow water marine contracting business of
Helix.
Cash transfers to owner and cash transfers from owner as
disclosed under cash flows from financing activities have also
been reflected as changes to the balances in total owners
equity as presented in the Combined Statements of Changes in
Owners Equity.
Certain management, administrative and operational services of
Helix have been shared between the shallow water marine
contracting business and other Helix business segments for all
periods presented. For purposes of financial statement
presentation, the costs for these shared services has been
allocated to the Company based on actual direct costs incurred,
or allocated based on headcount, work hours and revenues. See
Note 3 Related Party Transactions.
The operations of the Company are included in the consolidated
federal income tax returns of Helix. The Companys
provision for income taxes has been computed as if the Company
completed and filed separate federal income tax returns for all
periods presented except that no benefits for employee stock
option exercises related to Helix common stock have been
recognized or reflected herein. Tax benefits recognized on these
employee stock options have been and will continue to be
retained by Helix.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Combination
The accompanying combined financial statements include the
accounts of the shallow water marine contracting business of
Helix and Helixs 40% interest in Offshore Technology
Solutions Limited (OTSL). All intercompany accounts
and transactions have been eliminated. The Company accounts for
its interest in OTSL under the equity method of accounting as
the Company does not have voting or operational control of OTSL.
F-7
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
Use of
Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, the Company evaluates its
estimates, including those related to bad debts, equity
investments, intangible assets and goodwill, property and
equipment, income taxes, workers compensation insurance
and contingent liabilities. The Company bases its estimates on
historical experience and on various other assumptions believed
to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from those estimates.
Revenue
Recognition
We recognize our revenue according to the type of contract
involved. Revenues are derived from contracts that are typically
of short duration. These contracts contain either lump-sum
turnkey provisions or provisions for specific time, material and
equipment charges, which are billed in accordance with the terms
of such contracts. The Company recognizes revenue as it is
earned at estimated collectible amounts.
Revenues generated from specific time, materials and equipment
contracts are generally earned on a dayrate basis and recognized
as amounts are earned in accordance with contract terms. In
connection with these contracts, we may receive revenues for
mobilization of equipment and personnel. In connection with new
contracts, revenues related to mobilization are deferred and
recognized over the period in which contracted services are
performed using the straight-line method. Incremental costs
incurred directly for mobilization of equipment and personnel to
the contracted site, which typically consist of materials,
supplies and transit costs, are also deferred and recognized
over the period in which contracted services are performed using
the straight-line method. Our policy to amortize the revenues
and costs related to mobilization on a straight-line basis over
the estimated contract service period is consistent with the
general pace of activity, level of services being provided and
dayrates being earned over the service period of the contract.
Mobilization costs to move vessels when a contract does not
exist are expensed as incurred.
Revenue on significant turnkey contracts is recognized on the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In determining whether a contract should be
accounted for using the
percentage-of-completion
method, we consider whether:
|
|
|
|
|
the customer provides specifications for the construction of
facilities or for the provision of related services;
|
|
|
|
we can reasonably estimate our progress towards completion and
our costs;
|
|
|
|
the contract includes provisions as to the enforceable rights
regarding the goods or services to be provided, consideration to
be received and the manner and terms of payment;
|
|
|
|
the customer can be expected to satisfy its obligations under
the contract; and
|
|
|
|
we can be expected to perform our contractual obligations.
|
Under the
percentage-of-completion
method, we recognize estimated contract revenue based on costs
incurred to date as a percentage of total estimated costs.
Changes in the expected cost of materials and labor,
productivity, scheduling and other factors affect the total
estimated costs. Additionally, external factors, including
weather or other factors outside of our control, may also affect
the progress and estimated cost of a projects completion
and, therefore, the timing of income and revenue recognition. We
routinely review
F-8
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
estimates related to our contracts and reflect revisions to
profitability in earnings on a current basis. If a current
estimate of total contract cost indicates an ultimate loss on a
contract, we recognize the projected loss in full when it is
first determined. The Company recognizes additional contract
revenue related to claims when the claim is probable and legally
enforceable.
Unbilled revenue represents revenue attributable to work
completed prior to period end which has not yet been invoiced.
All amounts included in unbilled revenue at December 31,
2005 are expected to be billed and collected within one year.
Accounts
Receivable and Allowance for Uncollectible
Accounts
Accounts receivable are stated at the historical carrying amount
net of write-offs and allowance for uncollectible accounts. The
Company establishes an allowance for uncollectible accounts
receivable based on historical experience and any specific
customer collection issues that the Company has identified.
Uncollectible accounts receivable are written off when a
settlement is reached for an amount that is less than the
outstanding historical balance or when the Company has
determined the balance will not be collected.
Property
and Equipment
Property and equipment are recorded at cost. Depreciation is
provided primarily on the straight-line method over the
estimated useful lives of the assets. The following is a summary
of the components of property and equipment (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2004
|
|
|
2005
|
|
|
Vessels
|
|
|
15 to 20 years
|
|
|
$
|
131,412
|
|
|
$
|
142,036
|
|
Machinery and equipment
|
|
|
5 years
|
|
|
|
13,163
|
|
|
|
25,749
|
|
Buildings and leasehold
improvements
|
|
|
4 to 20 years
|
|
|
|
1,347
|
|
|
|
6,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
|
|
|
$
|
145,922
|
|
|
$
|
173,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cost of repairs and maintenance is charged to operations as
incurred, while the cost of improvements is capitalized. Total
repair and maintenance charges were $6.4 million,
$3.9 million and $7.5 million for the years ended
December 31, 2003, 2004 and 2005, respectively.
For long-lived assets to be held and used, excluding goodwill,
the Company bases its evaluation of recoverability on impairment
indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors
that may be present. If such impairment indicators are present
or other factors exist that indicate the carrying amount of the
asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash
flows analysis of the asset at the lowest level for which
identifiable cash flows exist. The Companys marine vessels
are assessed on a vessel by vessel basis. If an impairment has
occurred, the Company recognizes a loss for the difference
between the carrying amount and the fair value of the asset.
Impairment expenses are included as a component of cost of
sales. The fair value of the asset is measured using quoted
market prices or, in the absence of quoted market prices, is
based on an estimate of discounted cash flows. The Company
recorded impairment charges of $3.9 million and $790,000 in
2004 and 2005, respectively, on certain vessels that met the
impairment criteria. Such charges are included in cost of sales
in the accompanying Combined Statements of Operations. These
assets were subsequently sold in 2005 and 2006, for an aggregate
gain on the disposals of approximately $322,000. There were no
such impairments during 2003.
F-9
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
Assets are classified as held for sale when the Company has a
plan for disposal of certain assets and those assets meet the
held for sale criteria. At December 31, 2004 and 2005 the
Company classified certain assets intended to be disposed of
within a 12-month period as assets held for sale totaling
$3.0 million and $7.9 million, respectively.
Recertification
Costs and Deferred Drydock Charges
The Companys vessels are required by regulation to be
recertified after certain periods of time. These recertification
costs are incurred while the vessel is in drydock. In addition,
routine repairs and maintenance are performed and, at times,
major replacements and improvements are performed. The Company
expenses routine repairs and maintenance as they are incurred.
The Company defers and amortizes drydock and related
recertification costs over the length of time for which the
Company expects to receive benefits from the drydock and related
recertification, which is generally 30 months. Vessels are
typically available to earn revenue for the 30-month period
between drydock and related recertification processes. A drydock
and related recertification process typically lasts one to two
months, a period during which the vessel is not available to
earn revenue. Major replacements and improvements, which extend
the vessels economic useful life or functional operating
capability, are capitalized and depreciated over the
vessels remaining economic useful life. Inherent in this
process are estimates the Company makes regarding the specific
cost incurred and the period that the incurred cost will benefit.
As of December 31, 2004 and 2005, capitalized deferred
drydock and related recertification costs (included in other
assets, net) totaled $6.9 million and $8.3 million,
respectively. During the years ended December 31, 2003,
2004 and 2005, drydock amortization expense was
$3.7 million, $4.3 million and $5.5 million,
respectively.
Goodwill
and Other Intangible Assets
The Company tests for the impairment of goodwill on at least an
annual basis. The Company tests for the impairment of other
intangible assets when impairment indicators such as the nature
of the assets, the future economic benefit of the assets, any
historical or future profitability measurements and other
external market conditions are present. The Companys
goodwill impairment test involves a comparison of the fair value
with its carrying amount. The fair value is determined using
discounted cash flows and other market-related valuation models.
The Company completed its annual goodwill impairment test as of
November 1, 2005. At December 31, 2004 and 2005 the
Company had goodwill of $15.0 million and
$27.8 million, respectively. The $12.8 million
increase in goodwill resulted from the Acergy acquisition, which
closed in November 2005. None of the Companys
goodwill was impaired based on the impairment test performed as
of November 1, 2005. The 2005 annual impairment test
excluded the goodwill for the Acergy acquisition. For the Acergy
acquisition, the preliminary allocation of the purchase price
was based upon preliminary valuations, and estimates and
assumptions are subject to change upon the receipt and
managements review of the final valuations. The primary
areas of the purchase price allocation that are not yet
finalized relate to identifiable intangible assets and residual
goodwill. The final valuation of net assets is expected to be
completed no later than one year from the acquisition date. See
Note 5 to the combined financial statements included
herein. The Company will continue to test its goodwill annually
on a consistent measurement date unless events occur or
circumstances change between annual tests that would more likely
than not reduce the fair value of a reporting unit below its
carrying amount.
Equity
Investment
The Company periodically reviews the investment in OTSL for
impairment. Recognition of a loss would occur when the decline
in an investment is deemed other than temporary. In determining
whether the decline
F-10
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
is other than temporary, the Company considers the cyclical
nature of the industry in which the investment operates, its
historical performance, its performance in relation to peers and
the current economic environment. During 2005, no impairment
indicators existed.
Income
Taxes
The operations of the Company are included in a consolidated
federal income tax return filed by Helix. However, for financial
reporting purposes, the Companys provision for income
taxes has been computed on the basis as if the Company completed
and filed separate federal income tax returns for all periods
presented except that all tax benefits recognized on employee
stock plans are retained by Helix. Deferred income taxes are
based on the differences between financial reporting and tax
bases of assets and liabilities. The Company utilizes the
liability method of computing deferred income taxes. The
liability method is based on the amount of current and future
taxes payable using tax rates and laws in effect at the balance
sheet date. Income taxes have been provided based upon the tax
laws and rates in the countries in which operations are
conducted and income is earned. A valuation allowance for
deferred tax assets is recorded when it is more likely than not
that some or all of the benefit from the deferred tax asset will
not be realized.
Stock-Based
Compensation Plans
The Company does not have any stock-based compensation plans.
However, certain employees of the Company have participated in
Helixs stock-based compensation plans. Helix used the
intrinsic value method of accounting for its stock-based
compensation programs through December 31, 2005.
Accordingly, no compensation expense was recognized by Helix or
the Company when the exercise price of an employee stock option
was equal to the common share market price on the grant date.
All tax benefits recognized on employee stock plans are retained
by Helix.
The following table reflects the Companys pro forma
results if the fair value accounting method under the provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) had been
used for the Companys employees who participated in the
Helix plans, with the pro forma expense being allocated to the
Company based on the options outstanding to employees of the
Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Net income as reported
|
|
$
|
10,802
|
|
|
$
|
7,674
|
|
|
$
|
37,730
|
|
Plus: Stock-based employee
compensation cost included in reported net income
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Less: Total stock-based
compensation costs determined under the fair value method
|
|
|
(1,635
|
)
|
|
|
(1,087
|
)
|
|
|
(576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
9,167
|
|
|
$
|
6,587
|
|
|
$
|
37,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the purposes of pro forma disclosures, the fair value of
each option grant was estimated by Helix on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used: expected dividend yield of
0%; expected lives ranging from three to 10 years,
risk-free interest rate of 4.0% in 2003 and 2004, and expected
volatility of 56% in 2003 and 2004. There were no stock option
grants in 2005. The fair value of shares issued under the Helix
Employee Stock Purchase Plan was based on the 15% discount
received by the employees. The weighted average per share fair
value of the options granted by Helix in 2003 and 2004 was $6.37
and $8.80, respectively. The estimated fair value of the options
is amortized to pro forma expense over the vesting period, which
ranges from three to five years. See
F-11
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
Recently Issued Accounting Principles in this
footnote for a discussion of the Companys adoption of
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R).
Major
Customers and Concentration of Credit Risk
The Companys customers consist primarily of major and
independent oil and natural gas producers, pipeline transmission
companies and offshore engineering and construction firms. The
capital expenditures of the Companys customers are
generally dependent on their views of future oil and gas prices
and successful offshore drilling activity. The Company performs
ongoing credit evaluations of its customers and provides
allowances for probable credit losses when necessary. The
percent of revenue of major customers was as follows:
2003 Emigar International (15%) and Horizon
Offshore, Inc. (10%); 2004 Lighthouse R&D
Enterprises (12%) and Shell (11%); and 2005 BP (13%)
and Lighthouse R&D Enterprises (11%).
Statement
of Cash Flow Information
The Company defines cash and cash equivalents as cash and all
highly liquid financial instruments with original maturities of
less than three months. All cash transactions are settled and
managed through Helix bank accounts and related facilities. The
Company had no cash or cash equivalents as of December 31,
2003, 2004 and 2005.
Recently
Issued Accounting Principles
In December 2004, the FASB issued SFAS No. 123R, which
replaces SFAS No. 123 and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values beginning with the first interim period in fiscal 2006,
with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS No. 123 no longer will
be an alternative to financial statement recognition. Helix and
the Company adopted SFAS No. 123R on January 1,
2006. Under SFAS No. 123R, the Company will use the
Black-Scholes fair value model for valuing share-based payments
and recognize compensation cost on a straight-line basis over
the respective vesting period. The Company selected the
modified-prospective method of adoption which requires that
compensation expense be recorded for all unvested stock options
and restricted stock beginning in 2006 as the requisite service
is rendered. In addition to the compensation cost recognition
requirements, SFAS No. 123R also requires the tax
deduction benefits for an award in excess of recognized
compensation cost be reported as a financing cash flow rather
than as an operating cash flow, which was required under
SFAS No. 95, Statement of Cash Flows. The
adoption did not have a material impact on the Companys
consolidated results of operations and cash flows.
|
|
3.
|
Related
Party Transactions
|
The Companys working capital requirements have
historically been part of the corporate cash management program
of Helix. The operating cash flows generated by the Company have
been reflected as cash transfers to owner in owners net
investment, a component of total owners equity. The cash
funding for investing activities of the Company have been
reflected as cash transfers from owner in owners net
investment.
Helix provides to the Company certain management and
administrative services including: (i) accounting,
treasury, payroll and other financial services; (ii) legal
and related services; (iii) information systems, network
and communication services; (iv) employee benefit services;
and (v) corporate facilities management services. Total
allocated costs from Helix for such services were approximately
$7.0 million, $7.3 million and $8.5 million for
the years ended December 31, 2003, 2004, and 2005,
respectively.
F-12
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
The Company provides to Helix operational and field support
services including: (i) training and quality control
services; (ii) marine administration services;
(iii) supply chain and base operation services;
(iv) environmental, health and safety services;
(v) operational facilities management services; and
(vi) human resources. Total allocated costs to Helix for
such services were approximately $3.3 million,
$3.2 million and $4.1 million for the years ended
December 31, 2003, 2004, and 2005, respectively.
The Company anticipates executing a corporate services agreement
with Helix that will provide services similar to the services
discussed above. These services will be provided for a period of
time subsequent to the separation and will be charged based upon
actual direct costs incurred or allocated based on headcount,
work hours and revenues.
The operations of the Company are included in a consolidated
federal income tax return filed by Helix. The Companys
provision for income taxes has been computed on the basis that
the Company has completed and filed separate consolidated
federal income tax returns except that no benefits for employee
stock option exercises related to Helix stock have been
recognized or reflected herein. Tax benefits recognized on these
employee stock options exercises have been and will continue to
be retained by Helix. The Companys accounting policy and
provision for income taxes are further disclosed in
Notes 1, 2 and 8.
The Companys employees participate in Helix employee
benefit plans, including employee medical insurance and a
defined contribution 401(k) retirement plan. These costs are
recorded as a component of operating expenses and were
approximately $2.5 million, $2.5 million and
$3.3 million for the years ended December 31, 2003,
2004, and 2005, respectively. Helixs defined contribution
401(k) retirement plan and the Companys cost related to
its employees participation are further disclosed in
Note 10.
During 2003, the Company was paid $2.2 million by Ocean
Energy, Inc. (Ocean), an oil and gas industry
customer, for marine contracting services. A member of the Helix
board of directors was a member of senior management of Ocean
(now part of Devon Energy Corp.).
The Company has entered and will enter into agreements with
Helix that will govern the relationship between Helix and the
Company after the IPO and will provide for, among other things,
the provision of services by Helix to the Company and the
allocation of employee benefit, tax and other liabilities and
obligations attributable or related to periods or events prior
to and in connection with the IPO. The agreements will include,
among others, a master agreement, corporate services agreement,
registration rights agreement, tax matters agreement and
employee matters agreement. The effects of these contractual
agreements, the separation from Helix and our operating as a
standalone public entity could impact our results of operations
and financial position prospectively by increasing expenses in
areas that include but are not limited to litigation and other
legal matters, compliance with the Sarbanes-Oxley Act and other
corporate compliance matters, insurance and claims management
and the related cost of insurance, as well as general overall
purchasing power.
|
|
4.
|
Acquisition
of Torch Offshore, Inc. Assets
|
In a bankruptcy auction held in June 2005, Helix was the high
bidder for seven vessels and a portable saturation system for
$85.6 million, subject to the terms of an amended and
restated asset purchase agreement, executed in May 2005, with
Torch Offshore, Inc. and its wholly owned subsidiaries, Torch
Offshore, L.L.C. and Torch Express, L.L.C. This transaction
received regulatory approval, including completion of a review
pursuant to a Second Request from the U.S. Department of
Justice, in August 2005 and subsequently closed. The total
purchase price for the Torch vessels was approximately
$85.6 million, including certain costs incurred related to
the transaction. The acquisition was an asset purchase with the
acquisition price allocated to the assets acquired based upon
their estimated fair values. Pursuant to the terms of the Master
Agreement, Helix conveyed to CDI six of the seven vessels and
the portable saturation system at its cost of approximately
F-13
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
$26.4 million (including assets held for sale). The results
of the acquired vessels are included in the accompanying
Combined Statements of Operations since the date of the
purchase, August 31, 2005.
|
|
5.
|
Acquisition
of Acergy (formerly known as Stolt Offshore) Business
|
In April 2005, Helix agreed to acquire the diving and shallow
water pipelay assets of Acergy that operate in the waters of the
Gulf of Mexico and Trinidad. The transaction included: seven
diving support vessels; two diving and pipelay vessels (the
Kestrel and the DLB801); a portable saturation
diving system; various general diving equipment and Louisiana
operating bases at the Port of Iberia and Fourchon. The
transaction required regulatory approval, including the
completion of a review pursuant to a Second Request from the
U.S. Department of Justice. On October 18, 2005, Helix
received clearance from the U.S. Department of Justice to
close the asset purchase from Acergy. Under the terms of the
clearance, Helix will divest two diving support vessels and a
portable saturation diving system from the combined asset
package acquired through this transaction and the Torch
transaction which closed August 31, 2005. These assets were
included in assets held for sale totaling $7.8 million as
of December 31, 2005. On November 1, 2005, Helix
closed the transaction to purchase the Acergy diving assets
operating in the Gulf of Mexico. The acquisition was accounted
for as a business purchase with the acquisition price allocated
to the assets acquired and liabilities assumed based upon their
estimated fair values, with the excess being recorded as
goodwill. The results of the acquisition are included in the
accompanying Combined Statements of Operations since the date of
the purchase. Helix acquired the DLB801 in January 2006
for approximately $38.0 million and the Kestrel for
approximately $39.9 million in March 2006.
The preliminary allocation of the purchase price was based upon
preliminary valuations, and estimates and assumptions are
subject to change upon the receipt and managements review
of the final valuations. The primary areas of the purchase price
allocation that are not yet finalized relate to vessel
valuations and residual goodwill. The final valuation of net
assets is expected to be completed no later than one year from
the acquisition date. The preliminary purchase price allocation
as of December 31, 2005 presented below together with the
acquisition prices for the DLB801 and the Kestrel
and $3.2 million of transaction costs aggregate to a total
transaction value of approximately $124 million. The
customer relationship intangible asset included in the table
below is amortized over eight years on a straight-line basis, or
approximately $463,000 per year.
As of December 31, 2005, the preliminary allocation of the
Acergy purchase price is as follows (in thousands):
|
|
|
|
|
Vessels
|
|
$
|
11,930
|
|
Goodwill
|
|
|
12,841
|
|
Portable saturation system and
diving equipment
|
|
|
9,498
|
|
Facilities, land and leasehold
improvements
|
|
|
4,319
|
|
Customer relationships intangible
asset
|
|
|
3,698
|
|
Materials and supplies
|
|
|
631
|
|
|
|
|
|
|
Total
|
|
$
|
42,917
|
|
|
|
|
|
|
Subsequent to the purchase of the DLB801, Helix sold a
50% interest in the vessel in January 2006 for
approximately $19.0 million. Helix received
$6.5 million in cash in 2005 and a $12.5 million
interest-bearing promissory note in 2006. Helix has received
$9.0 million of the promissory note and expects to collect
the remaining balance in the second quarter of 2006. Subsequent
to the sale of the 50% interest, Helix entered into a
10-year
charter lease agreement with the purchaser, in which the lessee
has an option to purchase the remaining 50% interest in the
vessel beginning in January 2009. This lease was accounted
for as an operating lease. Included in Helixs lease
accounting analysis was an assessment of the likelihood of the
lessee
F-14
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
performing under the full term of the lease. Minimum future
rentals to be received on this lease are $73.0 million over
the next 10 years ($7.3 million per year). In
addition, under the lease agreement, the lessee is able to
credit $2.4 million of its lease payments per year against
the remaining 50% interest in the DLB801 not already
owned.
Pursuant to the terms of the Master Agreement, Helix will convey
to CDI at its costs all the assets acquired from Acergy
including its remaining 50% interest in the DLB801 and
the related
10-year
charter lease agreement.
Unaudited pro forma combined operating results of the Company
and the Acergy acquisition for the years ended December 31,
2004 and 2005, respectively, were as follows as if the
acquisition occurred January 1, 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
Net revenues
|
|
$
|
287,717
|
|
|
$
|
464,543
|
|
(Loss) income before income taxes
|
|
$
|
(24,645
|
)
|
|
$
|
64,136
|
|
Net (loss) income
|
|
$
|
(16,071
|
)
|
|
$
|
41,644
|
|
In July 2005, Helix acquired a 40% minority ownership interest
in OTSL in exchange for the Helixs DP DSV Witch
Queen. Helixs investment in OTSL totaled
$11.5 million at December 31, 2005. OTSL provides
marine construction services to the oil and natural gas industry
in and around Trinidad and Tobago, as well as the U.S. Gulf
of Mexico. Effective December 31, 2003, Helix adopted and
applied the provisions of FASB Interpretation (FIN)
No. 46, Consolidation of Variable Interest Entities,
as revised December 31, 2003, for all variable interest
entities. FIN 46 requires the consolidation of variable
interest entities in which an enterprise absorbs a majority of
the entitys expected losses, receives a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. OTSL qualified as a variable interest entity
(VIE) under FIN 46. Helix (and the Company) has
determined that it is not the primary beneficiary of OTSL and,
thus, has not consolidated the financial results of OTSL. Helix
accounts for its investment in OTSL under the equity method of
accounting.
Further, in conjunction with its investment in OTSL, Helix
entered into a one-year, unsecured $1.5 million working
capital loan, bearing interest at 6% per annum, with OTSL.
Interest is due quarterly beginning September 30, 2005 with
a lump-sum principal payment due on June 30, 2006.
In the third and fourth quarters of 2005, OTSL contracted the
Witch Queen to Helix for certain services to be performed
in the U.S. Gulf of Mexico. Helix incurred costs under its
contract with OTSL totaling approximately $11.1 million
during the third and fourth quarters of 2005.
Pursuant to the terms of the Master Agreement, Helix will convey
to CDI its ownership interest and rights in OTSL along with the
related unsecured $1.5 million working capital loan.
F-15
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
Accrued liabilities consisted of the following as of
December 31, 2004 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
Accrued payroll and related
benefits
|
|
$
|
2,925
|
|
|
$
|
5,370
|
|
Accrued insurance
|
|
|
2,953
|
|
|
|
3,172
|
|
Insurance claims to be reimbursed
|
|
|
2,120
|
|
|
|
2,678
|
|
Accrued income taxes payable
|
|
|
5,181
|
|
|
|
20,374
|
|
Deposits
|
|
|
|
|
|
|
10,000
|
|
Other
|
|
|
710
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
13,889
|
|
|
$
|
41,835
|
|
|
|
|
|
|
|
|
|
|
The operations of the Company are included in a consolidated
federal income tax return filed by Helix. The Companys
provision for income taxes has been computed on the basis as if
the Company has completed and filed separate consolidated
federal income tax returns for all periods presented except that
no benefits for employee stock option exercises related to Helix
stock have been recognized or reflected herein. Tax benefits
recognized on employee stock options exercises are retained by
Helix.
Components of the provision for income taxes reflected in the
statements of operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Current
|
|
$
|
2,637
|
|
|
$
|
5,181
|
|
|
$
|
20,374
|
|
Deferred
|
|
|
3,233
|
|
|
|
(970
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,870
|
|
|
$
|
4,211
|
|
|
$
|
20,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current foreign income tax expense totaled $2.3 million in
2005. No foreign income tax was incurred in 2003 and 2004,
respectively.
Income taxes have been provided based on the U.S. statutory rate
of 35% adjusted for items that are allowed as deductions for
federal income tax reporting purposes but not for book purposes.
The primary differences between the statutory rate and the
Companys effective rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Other
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
35.2
|
%
|
|
|
35.4
|
%
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
Deferred income taxes result from the effect of transactions
that are recognized in different periods for financial and tax
reporting purposes. The nature of these differences and the
income tax effect of each as of December 31, 2004 and 2005
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
21,416
|
|
|
$
|
19,506
|
|
Deferred drydock costs
|
|
|
2,431
|
|
|
|
2,894
|
|
Prepaid and other
|
|
|
362
|
|
|
|
1,555
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
24,209
|
|
|
$
|
23,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
(2,124
|
)
|
|
$
|
(646
|
)
|
Reserves, accrued liabilities and
other
|
|
|
(1,414
|
)
|
|
|
(2,627
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
(3,538
|
)
|
|
$
|
(3,273
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
20,671
|
|
|
$
|
20,682
|
|
|
|
|
|
|
|
|
|
|
All tax obligations owed by the Company have been paid or are
settled by Helix. Tax obligations and their settlements are
activities included as a part of the cash flows from operating
activities in the combined statements of cash flows.
|
|
9.
|
Commitments
and Contingencies
|
Lease
Commitments
The Company leases several facilities under noncancelable
operating leases. Future minimum rentals under these leases are
approximately $4.4 million at December 31, 2005, with
$0.6 million due in 2006, $0.6 million in 2007,
$0.6 million in 2008, $0.6 million in 2009,
$0.3 million in 2010 and $1.6 million thereafter.
Total rental expense under these operating leases was
approximately $0.4 million, $0.5 million and
$0.7 million for the years ended December 31, 2003,
2004 and 2005, respectively.
Insurance
Through Helix, the Company carries Hull and Increased Value
insurance, which provides coverage for physical damage to an
agreed amount for each vessel. The Company maintains deductibles
that vary between $250,000 and $350,000 based on the value of
each vessel. The Company also carries Protection and Indemnity
insurance which covers liabilities arising from the operation of
the vessel and General Liability insurance, which covers
liabilities arising from construction operations. The deductible
on both the P&I and General Liability is $100,000 per
occurrence. Onshore employees are covered by Workers
Compensation. Offshore employees, including divers and tenders
and marine crews, are covered by a Maritime Employers Liability
insurance policy, which covers Jones Act exposures and includes
a deductible of $100,000 per occurrence plus a
$1 million annual aggregate. In addition to the liability
policies named above, the Company carries various layers of
Umbrella Liability for a total limit of $300,000,000 in excess
of primary limits. The Companys self-insured retention on
its medical and health benefits program for employees is
$130,000 per participant.
The Company incurs workers compensation and other
insurance claims in the normal course of business, which
management believes are covered by insurance. The Company, its
insurers and legal counsel analyze each claim for potential
exposure and estimate the ultimate liability of each claim.
Amounts due from insurance companies, above the applicable
deductible limits, are reflected in other current assets in the
F-17
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
combined balance sheets. Such amounts were $2.1 million and
$2.7 million as of December 31, 2004 and 2005,
respectively. See related accrued liabilities at Note 7.
The Company has not historically incurred significant losses as
a result of claims denied by its insurance carriers.
Litigation
and Claims
The Company is involved in various legal proceedings, primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence. In addition, we from time to time incur
other claims, such as contract disputes, in the normal course of
business. Although these matters have the potential of
significant additional liability, the Company believes the
outcome of all such matters and proceedings will not have a
material adverse effect on its consolidated financial position,
results of operations or cash flows. Pursuant to the terms of
the Master Agreement, we will assume and indemnify Helix for
liabilities related to our business.
Purchase
Commitment
In December 2005, Helix entered into a memorandum of
understanding to acquire the business of Singapore-based Fraser
Diving International Ltd (FDI) for
$23.5 million. FDI owns six portable saturation diving
systems and 15 surface diving systems that operate primarily in
Southeast Asia and the Middle East. As a part of the proposed
purchase, in December 2005 a payment of $2.5 million was
made to FDI for the purchase of one of the portable saturation
diving systems. Helix also paid FDI $2.5 million and issued
an irrevocable letter of credit for an additional
$2.5 million to FDI that constitutes a non-refundable
deposit totaling $5 million. This deposit will be credited
against the purchase price upon closing the transaction or
forfeited to the shareholders of FDI in the event the
transaction is not completed by August 1, 2006. Pursuant to
the terms of the Master Agreement, Helix conveyed to CDI its
interests, obligations and terms associated with this purchase
commitment.
|
|
10.
|
Employee
Benefit Plans
|
Defined
Contribution Plan
The Companys employees are eligible to participate in the
defined contribution 401(k) retirement plan provided by Helix
for the purpose of providing retirement benefits for
substantially all employees. Both the employees and the Company
make contributions to the plan. The Company matches a portion of
an employees contribution. The Companys
contributions are in the form of cash and are determined
annually as 50% of each employees contribution up to 5% of
the employees salary. The Companys costs related to
its employees participating in this plan totaled $199,000,
$215,000 and $405,000 for the years ended December 31,
2003, 2004 and 2005, respectively.
Stock-Based
Compensation Plans
Under an incentive plan provided by Helix, a maximum of 10% of
the total shares of Helix common stock issued and outstanding
may be granted to key executives and selected employees of Helix
and the Company who are likely to make a significant positive
impact on the reported net income of Helix as well as
non-employee members of the board of directors. The incentive
plan is administered by a committee that determines, subject to
approval of the Helix compensation committee of the board of
directors, the type of award to be made to each participant and
sets forth in the related award agreement the terms, conditions
and limitations applicable to each award. The committee may
grant stock options, stock appreciation rights, or stock and
cash awards. Awards granted to employees under the incentive
plan typically vest 20% per year for a five-year period or
33% per year for a three-year period, have a maximum
exercise life of three, five or 10 years and, subject to
certain exceptions, are not transferable.
F-18
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
On January 3, 2005, Helix granted certain CDI executives
16,670 restricted shares under the Incentive Plan. The shares
vest 20% per year for a five-year period. The market value
(based on the quoted price of the common stock on the business
day prior to the date of the grant) of the restricted shares was
$19.56 per share, or $326,000, at the date of the grant and
was recorded as unearned compensation, a component of
owners equity through December 31, 2005. Upon
adoption of SFAS No. 123R in 2006, awards will be
amortized directly to expense and additional paid in capital (a
component of Common Stock). The balance in unearned compensation
was reversed in January 2006.
On November 1, 2005, a certain key executive of the Company
was granted 58,072 restricted shares under the Incentive Plan of
Helix. The shares vest in two tranches. Tranche 1 (41,916
restricted shares) vests on February 1, 2007.
Tranche 2 (16,156 restricted shares) vests upon successful
completion of a specific, company-identified corporate
objective. The market value of the restrictive shares was
$30.95 per share, or $1.8 million, at the date of the
grant and was recorded by the Company as unearned compensation,
a component of owners equity through December 31,
2005.
The amounts related to restricted share grants are being charged
to expense over the respective vesting periods. Amortization of
unearned compensation totaled $226,000 for the Company in the
year ended December 31, 2005.
On January 3, 2006, Helix granted certain CDI executives
22,885 restricted shares under the Incentive Plan. The shares
vest 20% per year for a five-year period. The market value
of the restricted shares was $35.89 per share, or $821,000,
at the date of the grant.
The Companys employees are also eligible to participate in
a qualified, non-compensatory Employee Stock Purchase Plan
(ESPP) provided by Helix, which allows employees to
acquire shares of common stock through payroll deductions over a
six-month period. The purchase price is equal to 85% of the fair
market value of the common stock on either the first or last day
of the subscription period, whichever is lower. Purchases under
the plan are limited to 10% of an employees base salary.
Under this plan 105,144, 93,580 and 79,878 shares of common
stock were purchased in the open market at a weighted average
share price of $10.87, $13.58 and $23.11 during 2003, 2004 and
2005, respectively. The Companys employees represent
approximately 37% of the total participation in this plan.
F-19
Cal Dive
International, Inc. and Subsidiaries
Notes to
Combined Financial
Statements (Continued)
|
|
11.
|
Allowance
for Uncollectible Accounts
|
The following table sets forth the activity in the
Companys allowance for uncollectible accounts for each of
the three years in the period ended December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Beginning balance
|
|
$
|
4,383
|
|
|
$
|
5,087
|
|
|
$
|
4,641
|
|
Additions
|
|
|
1,579
|
|
|
|
1,225
|
|
|
|
411
|
|
Deductions
|
|
|
(875
|
)
|
|
|
(1,671
|
)
|
|
|
(5,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,087
|
|
|
$
|
4,641
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2 for discussion regarding the Companys
accounting policy on accounts receivable and allowance for
uncollectible accounts.
|
|
12.
|
Business
Segment Information
|
The Company has one reportable segment, Marine Contracting. The
Company performs a portion of its marine contracting services in
foreign waters. For the years ended December 31, 2003, 2004
and 2005, the Company derived revenues of $48.0 million,
$19.6 million and $33.6 million, respectively, from
foreign locations. The remainder of the Companys revenues
were generated in the U.S. Gulf of Mexico.
On December 8, 2006, the Company and Helix entered into a
master agreement that will govern the relationship between Helix
and the Company after the IPO. See Notes 1 and 3.
On December 11, 2006, Helix and its subsidiaries
contributed and transferred to the Company all of the assets and
liabilities of the shallow water marine contracting business.
Included in this transfer was a secured credit facility with a
group of institutional lenders pursuant to which the Company may
have outstanding at any one time up to $250 million in
revolving loans under a five-year revolving credit facility. The
loans mature in November 2011. Loans under the revolving credit
facility may consist of loans bearing interest in relation to
the Federal Funds Rate or to Bank of Americas base rate,
known as Base Rate Loans, and loans bearing interest in relation
to a LIBOR rate, known as LIBOR Rate Loans. Assuming there is no
event of default, Base Rate Loans will bear interest at a per
annum rate equal to the base rate plus a margin ranging from 0%
to 0.5%, while LIBOR Rate Loans will bear interest at the LIBOR
rate plus a margin ranging from 0.625% to 1.75%. In addition, a
commitment fee ranging from 0.20% to 0.375% will be payable on
the portion of the lenders aggregate commitment which from
time to time is not used for a borrowing or a letter of credit.
Margins on the loans and the commitment fee will fluctuate in
relation to our consolidated leverage ratio as provided in the
credit agreement. The credit agreement includes terms and
conditions, including covenants. The covenants include
restrictions on our ability to grant liens, incur indebtedness,
make investments, merge or consolidate, sell or transfer assets
and pay dividends. In addition, the credit agreement obligates
us to meet minimum financial requirements. Under this credit
agreement the Company assumed $79 million of debt, of which
$78 million was distributed to Helix as a dividend on
December 8, 2006. On December 9, 2006, the Company
declared a $122 million dividend to Helix and anticipates
an additional $122 million draw under the same credit
agreement to occur following the closing of this offering.
F-20
Cal Dive
International, Inc. and Subsidiaries
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
(unaudited)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
2,048
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
doubtful accounts of $26 and $113, respectively
|
|
|
75,713
|
|
|
|
76,611
|
|
Unbilled revenue
|
|
|
13,608
|
|
|
|
29,318
|
|
Deferred income taxes
|
|
|
1,939
|
|
|
|
1,805
|
|
Assets held for sale
|
|
|
7,936
|
|
|
|
100
|
|
Notes receivable
|
|
|
1,500
|
|
|
|
3,008
|
|
Other current assets
|
|
|
9,788
|
|
|
|
13,046
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
110,484
|
|
|
|
125,936
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
173,841
|
|
|
|
288,629
|
|
Less Accumulated
depreciation
|
|
|
(60,237
|
)
|
|
|
(67,099
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
113,604
|
|
|
|
221,530
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
11,513
|
|
|
|
10,785
|
|
Goodwill
|
|
|
27,814
|
|
|
|
26,666
|
|
Other assets, net
|
|
|
14,469
|
|
|
|
20,440
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
277,884
|
|
|
$
|
405,357
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
32,034
|
|
|
$
|
36,242
|
|
Accrued liabilities
|
|
|
41,835
|
|
|
|
65,623
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
73,869
|
|
|
|
101,865
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
22,621
|
|
|
|
27,048
|
|
Other long term liabilities
|
|
|
3,611
|
|
|
|
3,343
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
100,101
|
|
|
|
132,256
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Owners equity:
|
|
|
|
|
|
|
|
|
Unearned compensation
|
|
|
(1,898
|
)
|
|
|
|
|
Owners net investment
|
|
|
179,681
|
|
|
|
273,101
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
177,783
|
|
|
|
273,101
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners
equity
|
|
$
|
277,884
|
|
|
$
|
405,537
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
combined financial statements.
F-21
Cal Dive
International, Inc. and Subsidiaries
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Net revenues
|
|
$
|
127,237
|
|
|
$
|
372,918
|
|
Cost of sales
|
|
|
88,370
|
|
|
|
204,031
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
38,867
|
|
|
|
168,887
|
|
Gain on sale of assets
|
|
|
|
|
|
|
322
|
|
Selling and administrative expenses
|
|
|
8,483
|
|
|
|
25,210
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30,384
|
|
|
|
143,999
|
|
Equity in earnings (losses) of
investment
|
|
|
672
|
|
|
|
(587
|
)
|
Interest income
|
|
|
22
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
31,078
|
|
|
|
143,776
|
|
Provision for income taxes
|
|
|
10,980
|
|
|
|
50,531
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
combined financial statements.
F-22
Cal Dive
International, Inc. and Subsidiaries
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners Net
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Investment
|
|
|
Compensation
|
|
|
Owners Equity
|
|
|
Balances at December 31, 2005
|
|
$
|
179,681
|
|
|
$
|
(1,898
|
)
|
|
$
|
177,783
|
|
Net income
|
|
|
93,245
|
|
|
|
|
|
|
|
93,245
|
|
Reversal of unearned compensation
|
|
|
(1,898
|
)
|
|
|
1,898
|
|
|
|
|
|
Amortization of stock grants in
owners stock plan
|
|
|
1,821
|
|
|
|
|
|
|
|
1,821
|
|
Capital contributions by owner
|
|
|
106,036
|
|
|
|
|
|
|
|
106,036
|
|
Cash transfers to owner
|
|
|
(105,784
|
)
|
|
|
|
|
|
|
(105,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2006
|
|
$
|
273,101
|
|
|
$
|
|
|
|
$
|
273,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
combined financial statements.
F-23
Cal Dive
International, Inc. and Subsidiaries
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,098
|
|
|
$
|
93,245
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,614
|
|
|
|
17,047
|
|
Assets impairment charges
|
|
|
790
|
|
|
|
|
|
Stock compensation expense
|
|
|
169
|
|
|
|
1,821
|
|
Equity in (earnings) losses of
investment
|
|
|
(672
|
)
|
|
|
728
|
|
Deferred income taxes
|
|
|
1,357
|
|
|
|
4,561
|
|
Gain on sale of assets
|
|
|
(301
|
)
|
|
|
(322
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(11,957
|
)
|
|
|
(14,793
|
)
|
Other current assets
|
|
|
(1,807
|
)
|
|
|
(3,741
|
)
|
Accounts payable and accrued
liabilities
|
|
|
5,317
|
|
|
|
20,749
|
|
Other noncurrent, net
|
|
|
(7,820
|
)
|
|
|
(11,463
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
15,788
|
|
|
|
107,832
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(31,678
|
)
|
|
|
(21,055
|
)
|
Acquisition of businesses, net of
cash acquired
|
|
|
|
|
|
|
(100,660
|
)
|
Equity investment
|
|
|
(1,696
|
)
|
|
|
|
|
Proceeds from sales of property
|
|
|
2,270
|
|
|
|
15,679
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(31,104
|
)
|
|
|
(106,036
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
|
|
Cash transfers from owner for
investing activities
|
|
|
31,104
|
|
|
|
106,036
|
|
Cash transfers to owner from
operating activities
|
|
|
(15,788
|
)
|
|
|
(105,784
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
15,316
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
|
|
|
2,048
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
|
|
|
$
|
2,048
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
combined financial statements.
F-24
Cal Dive
International, Inc. and Subsidiaries
Financial
Statements
|
|
1.
|
Preparation
of Interim Financial Statements
|
Cal Dive International, Inc. and subsidiaries
(CDI or the Company) is a wholly-owned
subsidiary of Helix Energy Solutions Group, Inc.
(Helix). Pursuant to the terms of the Master
Agreement, which governs the separation of the Company from
Helix, CDI is the successor to all of Helixs shallow water
marine contracting business.
The accompanying financial statements reflect the combined
financial position and results of the shallow water marine
contracting business of Helix and related assets and
liabilities, results of operations and cash flows for this
segment as carved out of the accounts of Helix and as though the
shallow water marine contracting business had been a separate
stand-alone company for the respective periods presented.
The shallow water marine contracting business of Helix has
operated within Helixs corporate cash management program
for all periods presented. For purposes of presentation in the
Condensed Combined Unaudited Statements of Cash Flows, net cash
flows provided by the operating activities of the Company are
presented as cash transfers to owner under cash flows from
financing activities. Additionally, net cash flows used in
investing activities of the Company are presented as cash
transfers from owner under cash flows from financing activities.
This presentation results in the combined financial statements
reflecting minimal cash balances for all periods presented as if
substantially all excess cash has been transferred to Helix as
described. These financial statements have been prepared using
Helixs historical basis in the assets and liabilities and
the historical results of operations relating to the shallow
water marine contracting business of Helix.
Cash transfers to owner and cash transfers from owner as
disclosed under cash flows from financing activities have also
been reflected as changes to the balances in total owners
equity as presented in the Condensed Combined Unaudited
Statements of Changes in Owners Equity.
Certain management, administrative and operational services of
Helix have been shared between the shallow water marine
contracting business and other Helix business segments for all
periods presented. For purposes of financial statement
presentation, the costs for these shared services have been
allocated to the Company based on actual direct costs incurred,
or allocated based on headcount, work hours and revenues. See
Note 2 Related Party Transactions.
The operations of the Company are included in the consolidated
federal income tax returns of Helix. The Companys
provision for income taxes has been computed as if the Company
completed and filed separate federal income tax returns for all
periods presented except that no benefits for employee stock
option exercises related to Helix common stock have been
recognized or reflected herein. Tax benefits recognized on these
employee stock options have been and will continue to be
retained by Helix.
These condensed interim combined financial statements are
unaudited and have been prepared pursuant to instructions for
quarterly reporting required to be filed with the Securities and
Exchange Commission (SEC) and do not include all
information and footnotes normally included in annual financial
statements prepared in accordance with U.S. generally
accepted accounting principles.
The accompanying condensed combined financial statements have
been prepared by the Company and, in the opinion of management,
include all adjustments (consisting of normal recurring accruals
and adjustments necessary for adoption of new accounting
standards) necessary to present fairly the results of the
interim periods shown. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles in
the United States have been condensed or omitted pursuant to
such SEC rules and regulations. Management believes that the
disclosures made are adequate to make the information presented
not misleading. Due to seasonality and other factors, the
results for the interim periods are not necessarily indicative
of results for the full year.
F-25
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
|
|
2.
|
Related
Party Transactions
|
The Companys working capital requirements have
historically been part of the corporate cash management program
of Helix. The operating cash flows generated by the Company have
been reflected as cash transfers to owner in owners net
investment, a component of total owners equity. The cash
funding for investing activities of the Company has been
reflected as cash transfers from owner in owners net
investment.
Helix provides to the Company certain management and
administrative services including: (i) accounting,
treasury, payroll and other financial services; (ii) legal
and related services; (iii) information systems, network
and communication services; (iv) employee benefit services;
and (v) corporate facilities management services. Total
allocated costs from Helix for such services were approximately
$5.3 million and $10.9 million for the nine months ended
September 30, 2005 and 2006, respectively.
The Company provides to Helix operational and field support
services including: (i) training and quality control
services; (ii) marine administration services;
(iii) supply chain and base operation services;
(iv) environmental, health and safety services;
(v) operational facilities management services; and
(vi) human resources. Total allocated costs to Helix for
such services were approximately $2.4 million and
$4.3 million for the nine months ended September 30,
2005 and 2006, respectively.
The Company anticipates executing a corporate services agreement
with Helix that will provide services similar to the services
discussed above. These services will be provided for a period of
time subsequent to the separation and will be charged based upon
actual direct costs incurred or allocated based on headcount,
work hours and revenues.
The operations of the Company are included in a consolidated
federal income tax return filed by Helix. The Companys
provision for income taxes has been computed on the basis that
the Company has completed and filed separate consolidated
federal income tax returns except that no benefits for employee
stock option exercises related to Helix stock have been
recognized or reflected herein. Tax benefits recognized on these
employee stock options exercises have been and will continue to
be retained by Helix.
|
|
3.
|
Acquisition
of Acergy (formerly known as Stolt Offshore) Business
|
In April 2005, Helix agreed to acquire the diving and shallow
water pipelay assets of Acergy that operate in the waters of the
Gulf of Mexico and Trinidad. The transaction included: seven
diving support vessels; two diving and pipelay vessels (the
Kestrel and the DLB801); a portable saturation
diving system; various general diving equipment and Louisiana
operating bases at the Port of Iberia and Fourchon. The
transaction required regulatory approval, including the
completion of a review pursuant to a Second Request from the
U.S. Department of Justice. On October 18, 2005, Helix
received clearance from the U.S. Department of Justice to
close the asset purchase from Acergy. Under the terms of the
clearance, Helix agreed to divest two diving support vessels and
one portable saturation diving system from the combined asset
package acquired through this transaction and the Torch
Offshore, Inc. transaction, which closed August 31, 2005.
Accordingly, Helix has since disposed of one diving support
vessel and a portable saturation diving system, and will dispose
of the remaining diving support vessel. These assets were
included in assets held for sale totaling $7.8 million as
of December 31, 2005, and $100,000 as of September 30,
2006. On November 1, 2005, Helix closed the transaction to
purchase the Acergy diving assets operating in the Gulf of
Mexico. The assets include: seven diving support vessels, a
portable saturation diving system, various general diving
equipment and Louisiana operating bases at the Port of Iberia
and Fourchon. Furthermore, pursuant to the purchase agreement,
Helix acquired the DLB801 in January 2006 for
approximately $38.0 million and the Kestrel for
approximately $39.9 million in March 2006 and Helix paid
approximately $274,000 additional transaction costs related to
the Acergy acquisitions in 2006.
F-26
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
The Acergy acquisition was accounted for as a business
combination with the acquisition price allocated to the assets
acquired and liabilities assumed based upon their fair values,
with the excess being recorded as goodwill. The final valuation
of net assets was completed in the second quarter of 2006. The
total transaction value for all of the assets was approximately
$124.3 million. The results of the acquired assets are
included in the accompanying condensed combined statements of
operations since the date of the purchase. Pro forma combined
operating results adjusted to reflect the results of operations
of the DLB801 and the Kestrel prior to their
acquisition from Acergy in January and March 2006,
respectively, are not provided because the 2006
pre-acquisition
results related to these vessels were immaterial.
The allocation of the Acergy purchase price is as follows (in
thousands):
|
|
|
|
|
Vessels
|
|
$
|
94,583
|
|
Goodwill
|
|
|
11,594
|
|
Portable saturation system and
diving equipment
|
|
|
9,494
|
|
Facilities, land and leasehold
improvements
|
|
|
4,314
|
|
Customer relationship intangible
asset
|
|
|
3,698
|
|
Materials and supplies
|
|
|
631
|
|
|
|
|
|
|
Total
|
|
$
|
124,314
|
|
|
|
|
|
|
The customer relationship intangible asset is amortized over
eight years on a straight-line basis, or approximately
$463,000 per year.
Subsequent to the purchase of the DLB801, Helix sold a
50% interest in the vessel in January 2006 for approximately
$19.0 million. Helix received $6.5 million in cash in
2005 and a $12.5 million interest-bearing promissory note
in 2006. The balance of the promissory note as of
September 30, 2006 was $1.5 million. Helix expects to
collect the remaining balance. Subsequent to the sale of the 50%
interest, Helix entered into a
10-year
charter lease agreement with the purchaser, in which the lessee
has an option to purchase the remaining 50% interest in the
vessel beginning in January 2009. This lease was accounted for
as an operating lease. Included in Helixs lease accounting
analysis was an assessment of the likelihood of the lessee
performing under the full term of the lease. The carrying amount
of the DLB801 at September 30, 2006, was
approximately $17.8 million. In addition, if the lessee
exercises the purchase option under the lease agreement, the
lessee is able to credit $2.4 million of its lease payments
per year against the remaining 50% interest in the DLB801
not already owned. If the lessee elects not to exercise its
option to purchase the remaining 50% interest in the vessel,
minimum future rentals to be received on this lease are
$68.0 million through January 2016.
Pursuant to the terms of the Master Agreement, Helix will convey
to CDI at its costs all the assets acquired from Acergy
including its remaining 50% interest in the DLB801 and
the related
10-year
charter lease agreement.
|
|
4.
|
Acquisition
of Fraser Diving International Ltd (FDI)
Business
|
To expand our international operations, in July 2006, we
acquired the business of Singapore-based Fraser Diving
International Ltd for an aggregate purchase price of
approximately $29.8 million, subject to post-closing
adjustments including the assumption of $1.8 million of
liabilities. FDI owns six portable saturation diving systems and
15 surface diving systems that operate primarily in Southeast
Asia, the Middle East, Australia and the Mediterranean. As a
part of the purchase, in December 2005, a payment of
$2.5 million was made to FDI for the purchase of one of the
portable saturation diving systems. The acquisition was
accounted for as a business combination with the acquisition
price allocated to the assets acquired and liabilities assumed
F-27
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
based upon their estimated fair values. The following table
summarizes the estimated preliminary fair values of the assets
acquired and liabilities assumed at the date of acquisition (in
thousands):
|
|
|
|
|
Portable saturation diving systems
and surface diving systems
|
|
$
|
22,813
|
|
Diving support equipment, support
facilities and other equipment
|
|
|
4,077
|
|
Cash and cash equivalents
|
|
|
2,332
|
|
Accounts receivable
|
|
|
1,817
|
|
Prepaid expenses and deposits
|
|
|
542
|
|
|
|
|
|
|
Total assets acquired
|
|
|
31,581
|
|
Accounts payable and accrued
liabilities
|
|
|
(1,763
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
29,818
|
|
|
|
|
|
|
The allocation of the purchase price was based upon preliminary
valuations. Estimates and assumptions are subject to change upon
the receipt and managements review of the final
valuations. The primary areas of the purchase price allocation
that are not yet finalized relate to post closing purchase price
adjustments and identification of potential other intangible
assets. The final valuation of net assets is expected to be
completed no later than one year from the acquisition date. The
results of FDI are included in the accompanying condensed
combined unaudited statements of operations since the date of
purchase. Pro forma combined operating results for the nine
months ended September 30, 2005 and 2006 (adjusted to
reflect the results of operations of FDI prior to its
acquisition) are not provided because the pre-acquisition
results related to FDI were immaterial to the historical results
of the Company.
In July 2005, Helix acquired a 40% minority ownership interest
in OTSL in exchange for Helixs DP DSV Witch Queen.
Helixs investment in OTSL totaled $11.5 million and
$10.8 million at December 31, 2005 and
September 30, 2006, respectively. OTSL provides marine
construction services to the oil and natural gas industry in and
around Trinidad and Tobago, as well as the U.S. Gulf of
Mexico. Effective December 31, 2003, Helix adopted and
applied the provisions of FASB Interpretation (FIN)
No. 46, Consolidation of Variable Interest Entities, as
revised December 31, 2003, for all variable interest
entities. FIN 46 requires the consolidation of variable
interest entities in which an enterprise absorbs a majority of
the entitys expected losses, receives a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. OTSL qualified as a variable interest entity
(VIE) under FIN 46. Helix (and the Company) has
determined that it is not the primary beneficiary of OTSL and,
thus, has not consolidated the financial results of OTSL. Helix
accounts for its investment in OTSL under the equity method of
accounting.
Further, in conjunction with its investment in OTSL, Helix
entered into a one-year, unsecured $1.5 million working
capital loan, initially bearing interest at 6% per annum, with
OTSL. Interest is due quarterly beginning September 30,
2005 with a lump-sum principal payment originally due on
June 30, 2006. Helix agreed to extend the lump-sum
principal payment due date and increase the interest rate to
three-month LIBOR plus 4.0%.
In the first quarter of 2006, OTSL contracted the DP DSV
Witch Queen to Helix for certain services to be performed
in the U.S. Gulf of Mexico. Helix incurred costs under its
contract with OTSL totaling approximately $7.7 million in
2006. The charter ended in March 2006.
Under the equity method of accounting, an impairment loss is
recorded whenever a decline in value of an equity investment
below its carrying amount is determined to be other than
temporary. In judging other than temporary, we
consider the length of time and extent to which the fair value
of the investment has been less than the carrying amount of the
equity investment, the near-term and longer-term operating and
financial
F-28
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
prospects of the equity investment and our longer-term intent of
retaining the investment in the entity. We have reported a net
loss of $587,000 for the nine months ended September 30,
2006 related to our investment in OTSL. This net loss is an
impairment indicator. However, we believe the current operating
trend is temporary and have determined that the fair value of
this investment, based on an estimate of its discounted cash
flows, exceeds its carrying amount. As a result there is no
impairment at September 30, 2006.
Pursuant to the terms of the Master Agreement, Helix will convey
to CDI its ownership interest and rights in OTSL along with the
related unsecured $1.5 million working capital loan.
Accrued liabilities consisted of the following as of
December 31, 2005 and September 30, 2006 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Accrued payroll and related
benefits
|
|
$
|
5,370
|
|
|
$
|
7,273
|
|
Accrued insurance
|
|
|
3,172
|
|
|
|
3,885
|
|
Insurance claims to be reimbursed
|
|
|
2,678
|
|
|
|
2,062
|
|
Accrued income taxes payable
|
|
|
20,374
|
|
|
|
46,073
|
|
Deposits
|
|
|
10,000
|
|
|
|
1,500
|
|
Other
|
|
|
241
|
|
|
|
4,830
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
41,835
|
|
|
$
|
65,623
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Stock-Based
Compensation Plans
|
The Company does not have any stock-based compensation plans.
However certain employees of the Company have participated in
Helixs stock-based compensation plans. Helix used the
intrinsic value method of accounting for its stock-based
compensation programs through December 31, 2005.
Accordingly, no compensation expense was recognized by the
Company when the exercise price of an employee stock option was
equal to the common share market price on the grant date and all
other terms were fixed. In addition, under the intrinsic value
method, on the date of grant for restricted shares, the Company
recorded unearned compensation (a component of owners
equity) that equaled the product of the number of shares granted
and the closing price of Helixs common stock on the grant
date, and expense was recognized over the vesting period of each
grant on a straight-line basis. All tax benefits recognized on
employee stock plans are retained by Helix.
The Company began accounting for stock-based compensation plans
under the fair value method beginning January 1, 2006 and
continues to use the Black-Scholes fair value model for valuing
share-based payments and recognize compensation cost on a
straight-line basis over the respective vesting period. No
forfeitures were estimated for outstanding unvested options and
restricted shares as historical forfeitures have been
immaterial. The Company has selected the modified-prospective
method of adoption, which requires that compensation expense be
recorded for all unvested stock options and restricted stock
beginning in 2006 as the requisite service is rendered. In
addition to the compensation cost recognition requirements, tax
deduction benefits for an award in excess of recognized
compensation cost is reported as a financing cash flow rather
than as an operating cash flow. The adoption did not have a
material impact on our combined results of operations. There
were no stock option grants in the first three quarters of 2005
or 2006.
F-29
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
The following table reflects the Companys pro forma
results as if the fair value accounting method had been used for
the Companys employees who participated in the Helix plans
for the nine months ended September 30, 2005, with the pro
forma expense being allocated to the Company based on the
options outstanding to employees of the Company (in thousands):
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
Net income as reported
|
|
$
|
20,098
|
|
Plus: Stock-based employee
compensation cost included in reported net income
|
|
|
170
|
|
Less: Total stock-based
compensation costs determined under the fair value method
|
|
|
(291
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
19,977
|
|
|
|
|
|
|
For the purposes of pro forma disclosures, the fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The estimated fair value of
the options is amortized to pro forma expense over the vesting
period, which ranges from three to five years.
Under an incentive plan provided by Helix, a maximum of 10% of
the total shares of Helix Common Stock issued and outstanding
may be granted to key executives and selected employees of Helix
and the Company as well as non-employee members of the Board of
Directors. The incentive plan is administered by a committee
that determines, subject to approval of the Helix Compensation
Committee of the Board of Directors, the type of award to be
made to each participant and sets forth in the related award
agreement the terms, conditions and limitations applicable to
each award. The committee may grant stock options, stock
appreciation rights, or stock and cash awards. Awards granted to
employees under the incentive plan vest 20% per year for a
five-year period or
331/3% per
year for a three year period, have a maximum exercise life of
three, five or 10 years and, subject to certain exceptions,
are not transferable.
On January 3, 2005, Helix granted certain CDI executives
16,670 restricted shares under the Incentive Plan. The shares
vest 20% per year for a five-year period. The market value
(based on the quoted price of the common stock on the business
day prior to the date of the grant) of the restricted shares was
$19.56 per share, or $326,000, at the date of the grant and was
recorded as unearned compensation, a component of owners
equity and charged to expense over the respective vesting
periods through December 31, 2005.
On January 3, 2006, Helix granted certain CDI executives
22,885 restricted shares under the Incentive Plan. The shares
vest 20% per year for a five-year period. The market value
of the restricted shares was $35.89 per share, or $821,000,
at the date of the grant.
Amortization of unearned compensation totaled $245,000 for the
nine months ended September 30, 2005. The balance in
unearned compensation at December 31, 2005 was
$1.9 million and was reversed in January 2006 upon adoption
of the fair value method. For the nine months ended
September 30, 2006, the Company recognized
$1.8 million of compensation expense related to unvested
stock options and restricted shares.
The Companys employees are also eligible to participate in
a qualified, non-compensatory Employee Stock Purchase Plan
(ESPP) provided by Helix, which allows employees to
acquire shares of common stock through payroll deductions over a
six-month period. The purchase price is equal to 85% of the fair
market value of the common stock on either the first or last day
of the subscription period, whichever is lower. Purchases under
the plan are limited to 10% of an employees base salary.
Under this plan, 79,878 and 97,598 shares of Helixs
common stock were purchased in the open market at a share price
of $23.11 and $33.12 during the nine months ended
September 30, 2005 and 2006, respectively. For the purchase
period from January 1, 2006 to September 30, 2006, the
Companys employees represented approximately 66% of
F-30
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
total participation. For the nine months ended
September 30, 2006, the Company recognized $673,000 of
compensation expense related to stock purchased under the ESPP.
No expenses related to the ESPP were recognized in 2005 under
the intrinsic value method.
|
|
8.
|
Commitments
and Contingencies
|
Through Helix, the Company carries Hull and Increased Value
insurance, which provides coverage for physical damage to an
agreed amount for each vessel. The Company maintains deductibles
that vary between $250,000 and $350,000 based on the value of
each vessel. The Company also carries Protection and Indemnity
insurance, which covers liabilities arising from the operation
of the vessel, and General Liability insurance, which covers
liabilities arising from construction operations. The deductible
on both the P&I and General liability is $100,000 per
occurrence. Onshore employees are covered by Workers
Compensation. Offshore employees, including divers and tenders
and marine crews, are covered by a Maritime Employers Liability
insurance policy, which covers Jones Act exposures and includes
a deductible of $100,000 per occurrence plus a
$1 million annual aggregate. In addition to the liability
policies named above, the Company carries various layers of
Umbrella Liability for a total limit of $300,000,000 in excess
of primary limits. The Companys self-insured retention on
its medical and health benefits program for employees is
$130,000 per participant.
The Company incurs workers compensation and other
insurance claims in the normal course of business, which
management believes are covered by insurance. The Company, its
insurers and legal counsel analyze each claim for potential
exposure and estimate the ultimate liability of each claim.
Amounts due from insurance companies, above the applicable
deductible limits, are reflected in other current assets in the
combined balance sheets. Such amounts were $2.7 million and
$2.1 million as of December 31, 2005 and
September 30, 2006, respectively. See related accrued
liabilities at Note 6. The Company has not historically
incurred significant losses as a result of claims denied by its
insurance carriers.
The Company is involved in various legal proceedings, primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence. In addition, we from time to time incur
other claims, such as contract disputes, in the normal course of
business. Although these matters have the potential of
significant additional liability, the Company believes the
outcome of all such matters and proceedings will not have a
material adverse effect on its consolidated financial position,
results of operations or cash flows. Pursuant to the terms of
the Master Agreement, we will assume and indemnify Helix for
liabilities related to our business.
|
|
9.
|
Recently
Issued Accounting Principles
|
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB
Statement No. 109 (SFAS 109). FIN 48
clarifies the application of SFAS 109 by defining criteria
that an individual tax position must meet for any part of the
benefit of that position to be recognized in the financial
statements. Additionally, FIN 48 provides guidance on the
measurement, derecognition, classification and disclosure of tax
positions, along with accounting for the related interest and
penalties. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. Management is
currently evaluating the impact the adoption of FIN 48 will
have on the Companys financial position, results of
operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value
measurements. The provisions of SFAS No. 157 are effective
for fiscal years beginning after November 15, 2007. We are
currently evaluating the impact, if any, of this statement.
F-31
Cal Dive
International, Inc. and Subsidiaries
Notes to
Condensed Combined Unaudited Interim
Financial
Statements (Continued)
On December 8, 2006, the Company and Helix entered into a
master agreement that will govern the relationship between Helix
and the Company after the IPO.
On December 11, 2006, Helix and its subsidiaries
contributed and transferred to the Company all of the assets and
liabilities of the shallow water marine contracting business.
Included in this transfer was a secured credit facility with a
group of institutional lenders pursuant to which the Company may
have outstanding at any one time up to $250 million in
revolving loans under a five-year revolving credit facility. The
loans mature in November 2011. Loans under the revolving credit
facility may consist of loans bearing interest in relation to
the Federal Funds Rate or to Bank of Americas base rate,
known as Base Rate Loans, and loans bearing interest in relation
to a LIBOR rate, known as LIBOR Rate Loans. Assuming there is no
event of default, Base Rate Loans will bear interest at a per
annum rate equal to the base rate plus a margin ranging from 0%
to 0.5%, while LIBOR Rate Loans will bear interest at the LIBOR
rate plus a margin ranging from 0.625% to 1.75%. In addition, a
commitment fee ranging from 0.20% to 0.375% will be payable on
the portion of the lenders aggregate commitment which from
time to time is not used for a borrowing or a letter of credit.
Margins on the loans and the commitment fee will fluctuate in
relation to our consolidated leverage ratio as provided in the
credit agreement. The credit agreement includes terms and
conditions, including covenants. The covenants include
restrictions on our ability to grant liens, incur indebtedness,
make investments, merge or consolidate, sell or transfer assets
and pay dividends. In addition, the credit agreement obligates
us to meet minimum financial requirements. Under this credit
agreement the Company assumed $79 million of debt, of which
$78 million was distributed to Helix as a dividend on
December 8, 2006. On December 9, 2006, the Company
declared a $122 million dividend to Helix and anticipates
an additional $122 million draw under the same credit
agreement to occur following the closing of this offering.
F-32
Report of
Independent Registered Public Accounting Firm
To the Boards of Directors of
Acergy US Inc.; S&H Diving, LLC; and Acergy Shipping Ltd.
Houston, Texas
We have audited the accompanying statement of revenue and direct
operating expenses of Acergy US Inc.; S&H Diving, LLC; and
Acergy Shipping Ltd. (collectively, the Company) for
each of the three fiscal years in the period ended
November 30, 2005. This financial statement is the
responsibility of the Companys management. Our
responsibility is to express an opinion on this statement based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of this statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purposes of
complying with the rules and regulations of the Securities and
Exchange Commission in lieu of the full financial statements
required by
Rule 3-05
of
Regulations S-X,
as described in Note 2 and is not intended to be a complete
presentation of the financial position or the results of
operations of the Company.
In our opinion, such statement presents fairly, in all material
respects, the revenue and direct operating expenses for each of
the three years in the period ended November 30, 2005, in
conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
August 30, 2006
F-33
Acergy US
Inc.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
November 30,
|
|
|
Quarter Ended
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
February 28,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Revenue
|
|
$
|
188,973
|
|
|
$
|
161,931
|
|
|
$
|
245,774
|
|
|
$
|
7,332
|
|
Direct operating expenses
|
|
|
230,727
|
|
|
|
193,113
|
|
|
|
238,539
|
|
|
|
4,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of revenue over direct
operating expenses (direct operating expenses over revenue)
|
|
$
|
(41,754
|
)
|
|
$
|
(31,182
|
)
|
|
$
|
7,235
|
|
|
$
|
3,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to statement of revenue and direct operating expenses
F-34
Notes to
Acergy
Statement of Revenue and Direct Operating Expenses
|
|
1.
|
Business
and Asset Purchase Agreement
|
On April 11, 2005, Cal-Dive International, Inc. (the
Buyer), and Acergy US Inc. and
S & H Diving, LLC (collectively, the
Seller, the Company, or
Acergy) entered into an asset purchase agreement
(the Agreement) for the Buyer to acquire certain
assets for $125 million. The assets sold included seven
ships that work in the inspection, maintenance and repair
(IMR) segment, the Seaway Kestrel, a diving
support and reel pipelay ship, the DLB801, a pipelay
barge, and the shore support bases at the Port of Iberia and
Fourchon in Louisiana (collectively, the Disposed
Assets).
The IMR ships being sold are:
Seaway Defender
American Constitution
American Star
American Triumph
American Victory
American Diver
American Liberty
The Agreement was amended on November 1, 2005 to finalize
the updated timing of the sequential three-part close, the
inclusion of Acergy Shipping Ltd. as a Seller, the settlement
with the Antitrust Division of the Department of Justice
regarding the Seaway Defender, and the agreed final sales
price of $123 million.
The Agreement was amended again on March 1, 2006 to
finalize the timing of the sale of the Seaway Kestrel,
the third and final close in the series.
Historically, the Disposed Assets operated as a group of assets
within Acergy and had no separate legal status. Accordingly, the
Statement of Revenue and Direct Operating Expenses have been
prepared pursuant to a request from the Buyer and derived from
the historical records of Acergy, including allocations of
certain expenses. The Seaway Kestrel is presented in the
Statement of Revenue and Direct Operating Expenses based on a
market value time charter from another subsidiary in the Acergy
group. The Seaway Defender and American Constitution
are presented in this same manner subsequent to the transfer
of ownership in March 2003 from S&H Diving, LLC to Acergy
Shipping Ltd. No gain or loss was recognized on this
transaction. Additionally, the DLB801 was owned by an
affiliated company prior to a transfer of ownership in May 2003
to S&H Diving, LLC. The financial results for the DLB801
for the period in 2003 prior to the transfer are reflected
in the Statement of Revenue and Direct Operating Expenses and
include a market value time charter from the affiliated company
prior to the transfer date. As a result, this statement may not
be indicative of the operating results of the Disposed Assets
had the business been operated as a separate, stand-alone
entity. Management believes the methodologies used to allocate
revenue and operating expenses to the Disposed Assets are
reasonable and appropriate.
The Sellers fiscal year ends on November 30, while
the Buyer operates on a calendar year ending December 31.
The IMR assets, including the shore support bases at the Port of
Iberia and Fourchon, Louisiana, were sold as of November 1,
2005. The DLB801 was sold as of January 9, 2006. The
sale of the Seaway Kestrel closed on March 16, 2006.
F-35
Notes to Acergy
Statement of Revenue and Direct Operating
Expenses Continued
The components of the assets sold are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMR Assets
|
|
|
DLB801
|
|
|
Seaway Kestrel
|
|
|
|
November 1,
|
|
|
January 9,
|
|
|
March 16,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Inventories
|
|
$
|
1,538
|
|
|
$
|
|
|
|
$
|
|
|
Property and equipment, net
|
|
|
10,319
|
|
|
|
16,869
|
|
|
|
18,954
|
|
Other long-term assets
|
|
|
1,974
|
|
|
|
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,831
|
|
|
$
|
16,869
|
|
|
$
|
19,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations related to these assets are reflected in the
Statement of Revenue and Direct Operating Expenses through the
dates of sale.
The accompanying Statement of Revenue and Direct Operating
Expenses for the years ended November 30, 2003, 2004 and
2005, and the quarter ended February 28, 2006 (unaudited)
have been prepared for the purpose of complying with the rules
and regulations of the Securities and Exchange Commission.
The accompanying statement was prepared from the books and
records maintained by Acergy, of which the Disposed Assets
represented only a portion. This statement is therefore not
intended to be a complete representation of the results of
operations for the Disposed Assets as a stand-alone going
concern, nor is it indicative of the results to be expected from
future operations of the Disposed Assets. The accompanying
statement is also not intended to be a complete presentation of
the results of operations of Acergy and its subsidiaries as of
or for any period. Further, this statement does not include any
other adjustments or allocations of purchase price that may be
required in accordance with accounting principles generally
accepted in the United States of America subsequent to the date
of acquisition.
A statement of stockholders equity is not presented, since
the Agreement was structured such that only assets were acquired
by the Buyer.
Statement
of Revenue and Direct Operating Expenses
The Statement of Revenue and Direct Operating Expenses includes
revenue and operating expenses directly attributable to the
Disposed Assets and allocations of certain expenses attributable
to the operations of the Disposed Assets but incurred by the
Seller.
Directly attributable expenses of the Disposed Assets include
certain payroll and related expenses, asset and project costs,
and divisional management costs that are specifically
identifiable with the Disposed Assets.
Certain other expenses and income, such as Acergy regional and
corporate overhead, interest income, interest expense, and
income taxes, are not included in the accompanying Statement of
Revenue and Direct Operating Expenses, since they are not
directly associated with the operations of the Disposed Assets.
Regional and corporate overhead expenses include costs incurred
for administrative support, such as expenses for legal,
treasury, tax and executive management functions. The
accompanying Statement of Revenue and Direct Operating Expenses
is not necessarily indicative of the future financial position
or results of the operations of the Disposed Assets due to the
change in ownership, and the exclusion of certain assets,
liabilities and operating expenses, as described herein.
F-36
Notes to Acergy
Statement of Revenue and Direct Operating
Expenses Continued
Statement
of Cash Flows
During the years ended November 30, 2003, 2004 and 2005,
and the quarter ended February 28, 2006 (unaudited),
financing requirements were provided by Acergy, and cash
generated by the Disposed Assets was transferred to Acergy.
Since the Disposed Assets have historically been managed as part
of the operations of Acergy and have not been operated as a
stand-alone entity, it is not practical to prepare historical
cash flow information regarding the Disposed Assets
financing cash flows. The net cash provided by (used in)
operating activities was ($20.7 million),
$28.6 million and $0.1 million for the years ended
November 30, 2003, 2004 and 2005, respectively, and
$6.7 million for the quarter ended February 28, 2006
(unaudited). The net cash used in investing activities was
$0.6 million, $11.8 million and $4.5 million for
the years ended November 30, 2003, 2004 and 2005,
respectively, and $0 million for the quarter ended
February 28, 2006 (unaudited).
|
|
3.
|
Summary
of Significant Accounting Policies
|
Use of
estimates
Preparation of this financial statement in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the reported amounts of assets and the disclosure of
contingencies at the dates of the statement of revenue and
direct operating expenses reported.
In the preparation of this financial statement, estimates and
assumptions have been made by management including costs to
complete projects, an assessment of percentage-of-completion of
projects, recognition of revenue in respect of variation orders,
and the selection of useful lives of tangible assets. Actual
results could differ from those estimates.
Also, as discussed in Note 2, the Statement of Revenue and
Direct Operating Expenses includes allocations and estimates
that are not necessarily indicative of the revenues, costs and
expenses that would have resulted if the Disposed Assets had
been operated as a stand-alone entity.
Inventory
In determining the cost of inventory, the weighted average cost
method is used. Inventory is valued at the lower of cost or
market value, with provisions made against slow-moving and
obsolete items. Provisions for excess and obsolete items are
analyzed at least annually on the basis of inventory counts,
reviews of recent and planned inventory use, assessments of
technical obsolescence, and physical inspections.
Property
and Equipment
Property and equipment are recorded at cost. Depreciation is
recorded on a straight-line basis over the useful lives of the
assets as follows:
|
|
|
|
|
|
|
Years
|
|
|
Ships
|
|
|
10 - 18
|
|
Operating equipment
|
|
|
5 - 10
|
|
Furniture, fixtures and office
equipment
|
|
|
3 - 5
|
|
Building and Leasehold Improvements
|
|
|
7 - 30
|
|
Ships are depreciated to a residual value of 10% of acquisition
cost, which reflects managements estimate of salvage of
otherwise recoverable value. No residual value is assumed with
respect to other tangible assets. Costs for fitting out
construction support ships are capitalized and amortized over a
period equal to the remaining useful life of the related
equipment.
F-37
Notes to Acergy
Statement of Revenue and Direct Operating
Expenses Continued
Dry-docking
Costs
Dry-docking costs are accounted for on a deferral basis.
Deferred dry-docking costs are amortized over the period between
ships docking, which is typically between two and five years.
Amortization expenses of deferred dry-docking costs from the
Disposed Assets were $3.3 million, $2.4 million and
$2.2 million in 2003, 2004 and 2005, respectively, and
$0.1 million for the quarter ended February 28, 2006
(unaudited). The unamortized portion of deferred dry-docking
costs is presented as other long-term assets amounting to
$2 million, $0 million and $1 million at
November 1, 2005, January 9, 2006, and March 16,
2006, respectively, in the components of assets sold.
Revenue
Recognition
Long-term contracts are accounted for using the
percentage-of-completion method. Acergy applies Statement of
Position 81-1,
Accounting for Performance of Certain Construction-Type
Contracts. Revenue and gross profit are recognized each
period based upon the advancement of the work-in progress,
unless the stage of completion is insufficient to enable a
reasonable certain forecast of gross profit to be established.
In such cases, no gross profit is recognized during the period.
The percentage-of-completion is calculated based on the ratio of
costs incurred to date to total estimated costs, taking into
account the level of completion. The percentage-of-completion
method requires Acergy to make reasonably dependable estimates
of progress toward completion of such contracts and contract
costs. Provisions for anticipated losses are made in the period
in which they become known.
A major portion of the Sellers revenue is billed under
fixed-price contracts. However, due to the nature of the
services performed, variation orders and claims are commonly
billed to clients in the normal course of business and are
recognized as contract revenue where recovery is probable and
can be reasonably estimated.
During the course of multi-year projects the accounting estimate
for the current period and/or future periods may change. The
effect of such a change, which can be upward as well as
downward, is accounted for in the period of change, and the
cumulative income recognized to date is adjusted to reflect the
latest estimates. These revisions to estimate will not result in
restating amounts in previous periods. Revisions of estimates
are calculated on a regular basis.
Acergy reports its operating revenue on a gross basis with
regard to any related expenses in accordance with Emerging
Issues Task Force Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent.
Operating
Expenses
Acergy reports operating expenses, which consist of costs
associated with or directly related to, project work. These
types of costs include direct costs related to a contract (e.g.
procurement costs, cost of goods sold, and subcontract costs);
personnel costs (e.g. salaries and benefit costs); vessel and
equipment costs (e.g. vessel hire, equipment rental, maintenance
and repair costs, mobilization costs, fuel, logistics and
insurance costs); depreciation and amortization; and
administrative costs for support embedded within projects.
Impairment
Charges
The Company recognized an impairment charge related to certain
of these assets in 2004 and 2003. The charges totaling
$1.6 million and $42.5 million, respectively, are
reflected in the Statement of Revenue and Direct Operating
Expenses.
Income
Taxes
No provision or benefit for income taxes has been provided in
the accompanying financial statement due to the fact that the
Disposed Assets were not operated as a stand-alone unit, no
allocation of Acergys income
F-38
Notes to Acergy
Statement of Revenue and Direct Operating
Expenses Continued
tax provision/benefit has been made to the Disposed Assets
pursuant to the Agreement, and no tax-related assets were
acquired by the Buyer.
|
|
4.
|
Property
and Equipment
|
Depreciation expense from operations was $10.9 million,
$7.2 million and $7.2 million in 2003, 2004 and 2005,
respectively, and $1.4 million for the quarter ended
February 28, 2006 (unaudited).
|
|
5.
|
Significant
Customers and Concentration of Credit Risk
|
Four customers accounted for 10% or more of the total revenue of
the Disposed Assets, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Customer A
|
|
|
|
|
|
|
23
|
%
|
|
|
21
|
%
|
Customer B
|
|
|
5
|
%
|
|
|
25
|
%
|
|
|
9
|
%
|
Customer C
|
|
|
|
|
|
|
6
|
%
|
|
|
24
|
%
|
Customer D
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
6.
|
Related
Party Transactions
|
There are no significant related party transactions at
November 30, 2003, 2004 and 2005, and the quarter ended
February 28, 2006 (unaudited), other than the market value
time charters and transfer of asset ownership described in
Note 2.
The sale of the Seaway Kestrel closed on March 16,
2006.
F-39
22,173,000
Shares
Cal Dive
International, Inc.
Common
Stock
Prospectus
,
2006
Joint Book-Running Managers
|
|
Banc
of America Securities LLC |
JPMorgan |
Johnson
Rice & Company L.L.C.
|
|
|
Simmons &
Company
International
|
|
|
Natexis
Bleichroeder Inc.
|
Until ,
2006, all dealers that buy, sell or trade the common stock may
be required to deliver a prospectus, regardless of whether they
are participating in this offering. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The table below sets forth the estimated expenses expect to be
paid by Cal Dive International, Inc. (the Company)
in connection with the issuance and distribution of the common
stock being registered on this
Form S-1,
other than underwriting discounts and commission. All amounts
are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the NYSE listing fee.
|
|
|
|
|
Securities and Exchange Commission
registration fee
|
|
$
|
43,654
|
|
NASD filing fee
|
|
|
41,299
|
|
NYSE listing fee
|
|
|
250,000
|
|
Printing and engraving expenses
|
|
|
350,000
|
|
Accounting fees and expenses
|
|
|
1,400,000
|
|
Legal fees and expenses
|
|
|
1,500,000
|
|
Transfer agent and registrar fees
|
|
|
10,000
|
|
Miscellaneous fees and expenses
|
|
|
405,047
|
|
|
|
|
|
|
Total
|
|
$
|
4,000,000
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the General Corporation Law of the State of
Delaware provides as follows:
A corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
A corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses
(including attorneys fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to
the best interests of the corporation and except that no
indemnification shall be made with respect to any claim, issue
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
As permitted by the Delaware General Corporation Law, we have
included in our amended and restated certificate of
incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach of their fiduciary
duties as directors, subject to certain exceptions. In addition,
our amended and restated certificate of incorporation and bylaws
provide that we are required to indemnify our officers and
directors under certain circumstances, including those
circumstances in which indemnification
II-1
would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection
with proceedings against them for which they may be indemnified.
The underwriting agreement provides that the underwriters are
obligated, under certain circumstances, to indemnify our
directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act.
Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 hereto.
The Master Agreement by and between the company and Helix Energy
Solutions Group, Inc., provides for indemnification by the
company of Helix and its directors, officers and employees for
certain liabilities, including liabilities under the Securities
Act.
We maintain directors and officers liability insurance for the
benefit of our directors and officers.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
None.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
1
|
.1***
|
|
Form of Underwriting Agreement
|
|
3
|
.1***
|
|
Form of Amended and Restated
Certificate of Incorporation of Cal Dive International, Inc.
|
|
3
|
.2***
|
|
Form of Amended and Restated
Bylaws of Cal Dive International, Inc.
|
|
4
|
.1***
|
|
Form of Specimen Common Stock
certificate of Cal Dive International, Inc.
|
|
5
|
.1***
|
|
Opinion of Fulbright &
Jaworski L.L.P.
|
|
10
|
.1***
|
|
Form of Master Agreement between
Cal Dive International, Inc. and Helix Energy Solutions
Group, Inc.
|
|
10
|
.2***
|
|
Form of Corporate Services
Agreement between Cal Dive International, Inc. and Helix
Energy Solutions Group, Inc.
|
|
10
|
.3***
|
|
Form of Registration Rights
Agreement between Cal Dive International, Inc. and Helix
Energy Solutions Group, Inc.
|
|
10
|
.4***
|
|
Form of Tax Matters Agreement
between Cal Dive International, Inc. and Helix Energy
Solutions Group, Inc.
|
|
10
|
.5***
|
|
Form of Employee Matters Agreement
between Cal Dive International, Inc. and Helix Energy
Solutions Group, Inc.
|
|
10
|
.6***
|
|
Form of Cal Dive
International, Inc. 2006 Long Term Incentive Plan.
|
|
10
|
.7***
|
|
Form of Cal Dive
International, Inc. Employee Stock Purchase Plan.
|
|
10
|
.8***
|
|
Employment Agreement dated
November 1, 2005, between Cal Dive International, Inc.
(predecessor to Helix Energy Solutions Group, Inc.) and Quinn J.
Hébert .
|
|
10
|
.9***
|
|
Amended and Restated Employment
Agreement dated February 15, 1999, between Cal Dive
International, Inc. (predecessor to Helix Energy Solutions
Group, Inc.) and Scott T. Naughton.
|
|
10
|
.10***
|
|
Employment Agreement dated
February 1, 2003, between Cal Dive International, Inc.
(predecessor to Helix Energy Solutions Group, Inc.) and G. Kregg
Lunsford.
|
|
10
|
.11***
|
|
Credit Agreement dated November
20, 2006, among CDI Vessel Holdings LLC, Cal Dive International,
Inc., Bank of America, N.A., as Administrative Agent, Amegy Bank
National Association, as Documentation Agent, Banc of America
Securities LLC and J.P. Morgan Securities, Inc., as Joint Lead
Arrangers and Joint Book Runners, and the lenders from time to
time party thereto.
|
|
21
|
.1**
|
|
Subsidiaries of Cal Dive
International, Inc.
|
|
23
|
.1**
|
|
Consent of Ernst & Young
LLP
|
|
23
|
.2**
|
|
Consent of Deloitte &
Touche LLP
|
|
23
|
.3***
|
|
Consent of Fulbright &
Jaworski L.L.P. (included in Exhibit 5.1)
|
|
23
|
.4***
|
|
Consent of Spears &
Associates, Inc.
|
|
24
|
.1***
|
|
Powers of Attorney
|
|
99
|
.1***
|
|
Consent of Prospective Director
for William L. Transier
|
|
99
|
.2***
|
|
Consent of Prospective Director
for Todd A. Dittmann
|
|
99
|
.3***
|
|
Consent of Prospective Director
for David E. Preng
|
II-2
|
|
|
*
|
|
To be filed by amendment.
|
|
**
|
|
Filed herewith.
|
|
***
|
|
Previously filed.
|
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 6 to
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston
and State of Texas on December 11, 2006.
CAL DIVE INTERNATIONAL, INC.
(Registrant)
|
|
|
|
By:
|
/s/ G.
Kregg Lunsford
|
Name: G. Kregg Lunsford
|
|
|
|
Title:
|
Executive Vice President, Chief Financial Officer and Treasurer
|
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 6 to registration statement has been signed
by the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
*
Owen
Kratz
|
|
Director
|
|
December 11, 2006
|
|
|
|
|
|
*
Martin
R. Ferron
|
|
Director
|
|
December 11, 2006
|
|
|
|
|
|
*
Quinn
J. Hébert
|
|
President, Chief Executive
Officer
and Director
(Principal Executive Officer)
|
|
December 11, 2006
|
|
|
|
|
|
/s/ G.
Kregg Lunsford
G.
Kregg Lunsford
|
|
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
December 11, 2006
|
|
|
|
|
|
|
|
*By:
|
|
/s/ G.
Kregg Lunsford
|
|
|
|
December 11, 2006
|
G. Kregg Lunsford, as
Attorney-In-Fact
|
|
|
|
|
II-4
EXHIBIT LIST
Exhibits
and Financial Statements Schedules.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.1***
|
|
Form of Underwriting Agreement
|
|
3
|
.1***
|
|
Form of Amended and Restated
Certificate of Incorporation of Cal Dive International, Inc.
|
|
3
|
.2***
|
|
Form of Amended and Restated
Bylaws of Cal Dive International, Inc.
|
|
4
|
.1***
|
|
Form of Specimen Common Stock
certificate of Cal Dive International, Inc.
|
|
5
|
.1***
|
|
Opinion of Fulbright &
Jaworski L.L.P.
|
|
10
|
.1***
|
|
Form of Master Agreement between
Cal Dive International, Inc. and Helix Energy Solutions
Group, Inc.
|
|
10
|
.2***
|
|
Form of Corporate Services
Agreement between Cal Dive International, Inc. and Helix
Energy Solutions Group, Inc.
|
|
10
|
.3***
|
|
Form of Registration Rights
Agreement between Cal Dive International, Inc. and Helix
Energy Solutions Group, Inc.
|
|
10
|
.4***
|
|
Form of Tax Matters Agreement
between Cal Dive International, Inc. and Helix Energy
Solutions Group, Inc.
|
|
10
|
.5***
|
|
Form of Employee Matters Agreement
between Cal Dive International, Inc. and Helix Energy
Solutions Group, Inc.
|
|
10
|
.6***
|
|
Form of Cal Dive International,
Inc. 2006 Long Term Incentive Plan.
|
|
10
|
.7***
|
|
Form of Cal Dive International,
Inc. Employee Stock Purchase Plan.
|
|
10
|
.8***
|
|
Employment Agreement dated
November 1, 2005, between Cal Dive International, Inc.
(predecessor to Helix Energy Solutions Group, Inc.) and Quinn J.
Hébert .
|
|
10
|
.9***
|
|
Amended and Restated Employment
Agreement dated February 15, 1999, between Cal Dive
International, Inc. (predecessor to Helix Energy Solutions
Group, Inc.) and Scott T. Naughton.
|
|
10
|
.10***
|
|
Employment Agreement dated
February 1, 2003, between Cal Dive International, Inc.
(predecessor to Helix Energy Solutions Group, Inc.) and G. Kregg
Lunsford.
|
|
10
|
.11***
|
|
Credit Agreement dated November
20, 2006, among CDI Vessel Holdings LLC, Cal Dive International,
Inc., Bank of America, N.A., as Administrative Agent, Amegy Bank
National Association, as Documentation Agent, Banc of America
Securities LLC and J.P. Morgan Securities, Inc., as Joint Lead
Arrangers and Joint Book Runners, and the lenders from time to
time party thereto.
|
|
21
|
.1**
|
|
Subsidiaries of Cal Dive
International, Inc.
|
|
23
|
.1**
|
|
Consent of Ernst & Young
LLP
|
|
23
|
.2**
|
|
Consent of Deloitte &
Touche LLP
|
|
23
|
.3***
|
|
Consent of Fulbright &
Jaworski L.L.P. (included in Exhibit 5.1)
|
|
23
|
.4***
|
|
Consent of Spears &
Associates, Inc.
|
|
24
|
.1***
|
|
Powers of Attorney (included in
signature page)
|
|
99
|
.1***
|
|
Consent of Prospective Director
for William L. Transier
|
|
99
|
.2***
|
|
Consent of Prospective Director
for Todd A. Dittmann
|
|
99
|
.3***
|
|
Consent of Prospective Director
for David E. Preng
|
|
|
|
*
|
|
To be filed by amendment
|
|
**
|
|
Filed herewith
|
|
***
|
|
Previously filed.
|