Cal Dive reports third quarter 2012 results and details of restructuring planCompany News // November 15, 2012
US-based Cal Dive International has reported third quarter 2012 financial results and implementation of a company restructuring plan that includes cost saving measures and the placing of certain non-core assets up for sale.
The company reported a third quarter 2012 loss of US$15.9 million, or US$0.17 per diluted share, compared to a loss of US$34.4 million, or US$0.37 per diluted share for third quarter 2011.
Included in the loss for the third quarter 2012 is a US$14.8 million after-tax non-cash impairment charge related to certain non-core assets classified as held for sale as part of the implementation of the company’s restructuring plan.
Also included in the third quarter 2012 loss is a US$5.4 million after-tax non-cash benefit related to the adjustment of the fair value of the derivative liability associated with the embedded conversion feature within the company’s convertible debt.
Comparatively, the company’s third quarter 2011 results included after-tax non-cash impairment charges of US$28.8 million.
The most significant factors affecting the company’s operating results for the third quarter 2012 were:
- Uncle John, the company’s most profitable asset, experienced an interruption in its light well intervention operations in the middle of August. The riser system, which was separately leased by the customer from a third party contractor unrelated to the company, did not operate according to specifications. The customer decided to halt operations until the equipment could be repaired and thus released Uncle John, which did not work for the remainder of the quarter. The negative impact to EBITDA for the third quarter from this event was approximately US$5 million. The vessel returned to work in early October and is expected to be utilized for the remainder of 2012 and into 2013.
- During the third quarter 2012, Kestrel performed low margin work in the US Gulf of Mexico spot market, compared to the prior year third quarter when the vessel was utilized on a profitable salvage project. As a result, the vessel generated approximately US$4 million less EBITDA during third quarter 2012 compared to third quarter 2011. As previously announced, in mid-October, Kestrel commenced a two-year bareboat charter with a major contractor to work in Mexico that is expected to result in annual EBITDA of approximately US$10 million.
- The company incurred an EBITDA loss of approximately US$2.5 million on a lump-sum salvage project during the third quarter 2012. The loss was the cumulative result of higher than normal weather delays associated with Tropical Storm Debby and Hurricane Isaac and scheduling conflicts which required the company to utilize higher cost assets on the project than originally planned.
In response to the Gulf of Mexico market conditions experienced in 2012, during the third quarter the company implemented a domestic restructuring plan that included consolidating departments and facilities, head-count reductions and selling non-core assets.
The company expects the restructuring to result in annual cost savings of approximately US$15 million, US$10 million of which will be cash cost savings, which will have a positive effect on EBITDA.
Approximately US$4 million of the cash cost savings will be from SG&A and the remainder from operations support overhead which is included in cost of sales on the company’s consolidated income statement. Severance charges of US$2.2 million were recorded during the third quarter 2012 and were added back to EBITDA under the company’s credit facility with no impact on debt covenants.
The company is actively marketing for sale certain non-core assets that are expected to produce minimal EBITDA in 2012 and, for certain assets, that provided no EBITDA contribution for some time and have been impaired in prior years.
As part of this plan, the company expects to complete sales of certain under-utilized facilities by year-end for proceeds up to approximately US$9 million. Proceeds will be used to reduce the balance of the existing term loan.
Quinn Hébert, Chairman, President and Chief Executive Officer of Cal Dive, said: “The third quarter proved to be difficult with the unexpected interruption in the Uncle John operations and the difficult spot market for the Kestrel.
"However, looking forward the Uncle John has returned to work and we have placed the Kestrel on a two-year charter in Mexico that will generate a significant improvement in EBITDA.
"We also had disappointing results on a large lump-sum project due to weather interruptions and other factors that resulted in a contract loss that we do not expect to re-occur.
"Currently, the US Gulf of Mexico spot market is stable despite the winter season. We currently expect our fourth quarter 2012 consolidated EBITDA to exceed the third quarter and approximately 80 per cent of our expected EBITDA for the fourth quarter is contracted work.
"Our customers remain focused on increased drilling for oil, which is a good leading indicator for our company. We have responded to the current US Gulf of Mexico market by lowering costs and focusing on what we can control. It is never easy to reduce your workforce but current market conditions necessitated that action. We believe that the implementation of our restructuring plan will result in leaner and more efficient domestic operations. Also, selling various non-core assets to repay debt remains a key focus for us during these challenging market conditions.
“We remain busy internationally. In Mexico, including the Kestrel charter, we have US$25 million of remaining revenue expected in the fourth quarter 2012 under our existing contracts and we are actively bidding more work to commence in 2013.
"We expect to bid on five projects before the end of 2012. Australia general diving continues to be strong, with three recently announced saturation diving contract awards there, and Sea Horizon and chartered the Toisa Paladin remain busy in Southeast Asia.”