cveo20180630_10q.htm
 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarterly period ended June 30, 2018

 

OR

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     
    For the transition period from _________________________ to _________________________

 

Commission file number: 001-36246

 

Civeo Corporation

_______________

 

(Exact name of registrant as specified in its charter)

 

British Columbia, Canada

98-1253716

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

   

Three Allen Center, 333 Clay Street, Suite 4980,

77002

Houston, Texas

(Zip Code)

(Address of principal executive offices)

 

 

(713) 510-2400


(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                  YES [X]

NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

                  YES [X]

NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "accelerated filer," "large accelerated filer," "smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):

Large Accelerated Filer [  ] Accelerated Filer [X] Emerging Growth Company [  ]
     
Non-Accelerated Filer [  ] (Do not check if a smaller reporting company)  Smaller Reporting Company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                  YES [  ]

NO [X ]

 

The Registrant had 167,958,214 common shares outstanding as of July 23, 2018.

 

1

 

 

 

CIVEO CORPORATION

 

INDEX

 

 

Page No.

                         Part I -- FINANCIAL INFORMATION

 
   

Item 1. Financial Statements:

 
   

Consolidated Financial Statements

 

Unaudited Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2018 and 2017 

3

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Month Periods Ended June 30, 2018 and 2017

4

Consolidated Balance Sheets – June 30, 2018 (unaudited) and December 31, 2017

5

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2018 and 2017

6

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 

7

Notes to Unaudited Consolidated Financial Statements

8–24

   

Cautionary Statement Regarding Forward-Looking Statements

 25

   

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

25-41

   

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

 41-42

   

Item 4.   Controls and Procedures

42

   
   

                          Part II -- OTHER INFORMATION

 
   

Item 1.     Legal Proceedings

 43

   

Item 1A.  Risk Factors

43

   

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

43

   

Item 6.     Exhibits

44

   

                (a) Index of Exhibits

44

   

Signature Page

45

 

2

 

 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

 

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

 
   

JUNE 30,

   

JUNE 30,

 
   

2018

   

2017

   

2018

   

2017

 

Revenues:

                               

Service and other

  $ 126,486     $ 89,013     $ 222,890     $ 178,874  

Product

    3,691       2,997       8,791       4,565  
      130,177       92,010       231,681       183,439  

Costs and expenses:

                               

Service and other costs

    86,294       56,844       159,249       116,376  

Product costs

    2,443       2,640       6,816       4,780  

Selling, general and administrative expenses

    22,539       14,060       39,426       28,270  

Depreciation and amortization expense

    34,270       31,554       65,034       64,383  

Impairment expense

    --       --       28,661       --  

Other operating expense

    132       279       511       729  
      145,678       105,377       299,697       214,538  

Operating loss

    (15,501 )     (13,367 )     (68,016 )     (31,099 )
                                 

Interest expense to third-parties

    (7,103 )     (4,752 )     (12,925 )     (10,256 )

Loss on extinguishment of debt

    (748 )     --       (748 )     (842 )

Interest income

    18       10       76       20  

Other income

    252       476       2,511       730  

Loss before income taxes

    (23,082 )     (17,633 )     (79,102 )     (41,447 )

Income tax benefit

    23,371       2,916       24,056       5,864  

Net income (loss)

    289       (14,717 )     (55,046 )     (35,583 )

Less: Net income attributable to noncontrolling interest

    122       99       244       220  

Net income (loss) attributable to Civeo Corporation

    167       (14,816 )     (55,290 )     (35,803 )
Less: Dividends attributable to Class A preferred shares     48,488       --       48,488       --  

Net loss attributable to Civeo common shareholders

  $ (48,321 )   $ (14,816 )   $ (103,778 )   $ (35,803 )
                                 
                                 

Per Share Data (see Note 10)

                               

Basic net loss per share attributable to Civeo Corporation common shareholders

  $ (0.29 )   $ (0.11 )   $ (0.70 )   $ (0.28 )
                                 

Diluted net loss per share attributable to Civeo Corporation common shareholders

  $ (0.29 )   $ (0.11 )   $ (0.70 )   $ (0.28 )
                                 

Weighted average number of common shares outstanding:

                               

Basic

    165,373       130,692       148,595       125,796  

Diluted

    165,373       130,692       148,595       125,796  

 

 

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

 

3

 

 

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

 

 

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

 
   

JUNE 30,

   

JUNE 30,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Net income (loss)

  $ 289     $ (14,717 )   $ (55,046 )   $ (35,583 )
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustment, net of taxes of zero

    (16,434 )     6,313       (24,255 )     24,348  

Total other comprehensive income (loss)

    (16,434 )     6,313       (24,255 )     24,348  
                                 

Comprehensive loss

    (16,145 )     (8,404 )     (79,301 )     (11,235 )

Comprehensive income attributable to noncontrolling interest

    (120 )     (72 )     (242 )     (541 )

Comprehensive loss attributable to Civeo Corporation

  $ (16,265 )   $ (8,476 )   $ (79,543 )   $ (11,776 )

 

 

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

 

4

 

 

 

CIVEO CORPORATION

 

CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

 

 

JUNE 30, 2018

   

DECEMBER 31, 2017

 
   

(Unaudited)

         
                 
ASSETS                
                 

Current assets:

               

Cash and cash equivalents

  $ 4,786     $ 32,647  

Accounts receivable, net

    75,789       66,823  

Inventories

    4,720       7,246  

Prepaid expenses

    15,998       14,481  

Other current assets

    16,383       1,553  

Assets held for sale

    12,519       9,462  

Total current assets

    130,195       132,212  
                 

Property, plant and equipment, net

    734,242       693,833  

Goodwill

    117,307       --  

Other intangible assets, net

    133,964       22,753  

Other noncurrent assets

    2,240       5,114  

Total assets

  $ 1,117,948     $ 853,912  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 29,797     $ 27,812  

Accrued liabilities

    17,265       22,208  

Income taxes

    1,568       1,728  

Current portion of long-term debt

    27,643       16,596  

Deferred revenue

    3,123       5,442  

Other current liabilities

    4,520       1,843  

Total current liabilities

    83,916       75,629  
                 

Long-term debt, less current maturities

    399,520       277,990  

Deferred income taxes

    29,003       --  

Other noncurrent liabilities

    30,044       23,926  

Total liabilities

    542,483       377,545  
                 

Commitments and contingencies (Note 14)

               
                 

Shareholders’ Equity:

               

Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,679 shares and zero shares issued and outstanding, respectively; aggregate liquidation preference of $97,268,530 as of June 30, 2018)

    55,305       --  

Common shares (no par value; 550,000,000 shares authorized, 168,315,440 shares and 132,427,885 shares issued, respectively, and 167,958,214 shares and 132,262,434 shares outstanding, respectively)

    --       --  

Additional paid-in capital

    1,555,994       1,383,934  

Accumulated deficit

    (682,497 )     (579,113 )

Common shares held in treasury at cost, 357,226 and 165,451 shares, respectively

    (990 )     (358 )

Accumulated other comprehensive loss

    (352,466 )     (328,213 )

Total Civeo Corporation shareholders’ equity

    575,346       476,250  

Noncontrolling interest

    119       117  

Total shareholders’ equity

    575,465       476,367  

Total liabilities and shareholders’ equity

  $ 1,117,948     $ 853,912  

 

 

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

 

5

 

 

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands)

 

   

Attributable to Civeo

                 
   

Preferred

Shares

   

Common

Shares

                                                 
   

Amount

   

Par Value

   

Additional

Paid-in

Capital

   

Accumulated

Deficit

   

Treasury

Shares

   

Accumulated

Other

Comprehensive

Income (Loss)

   

Noncontrolling

Interest

   

Total

Shareholders’

Equity

 
                                                                 

Balance, December 31, 2016

  $ --     $ --     $ 1,311,226     $ (472,764 )   $ (65 )   $ (362,930 )   $ 523     $ 475,990  

Net income (loss)

    --       --       --       (35,803 )     --       --       220       (35,583 )

Currency translation adjustment

    --       --       --       --       --       24,027       321       24,348  

Dividends paid

    --       --       --       --       --       --       (962 )     (962 )

Cumulative effect of implementation of ASU 2016-09

    --       --       636       (636 )     --       --       --       --  

Equity offering

    --       --       64,817       --       --       --       --       64,817  

Share-based compensation

    --       --       3,750       --       (293 )     --       --       3,457  

Balance, June 30, 2017

  $ --     $ --     $ 1,380,429     $ (509,203 )   $ (358 )   $ (338,903 )   $ 102     $ 532,067  
                                                                 
                                                                 

Balance, December 31, 2017

  $ --     $ --     $ 1,383,934     $ (579,113 )   $ (358 )   $ (328,213 )   $ 117     $ 476,367  

Net income (loss)

    --       --       --       (55,290 )     --       --       244       (55,046 )

Currency translation adjustment

    --       --       --       --       --       (24,253 )     (2 )     (24,255 )

Dividends paid

    --       --       --       --       --       --       (240 )     (240 )

Cumulative effect of implementation of ASU 2014-09

    --       --       --       394       --       --       --       394  

Issuance of shares for acquisitions

    6,972       --       166,892       --       --       --       --       173,864  
Dividends attributable to Class A preferred shares (Note 12)     48,333       --       155       (48,488 )     --       --       --       --  

Share-based compensation

    --       --       5,013       --       (632 )     --       --       4,381  

Balance, June 30, 2018

  $ 55,305     $ --     $ 1,555,994     $ (682,497 )   $ (990 )   $ (352,466 )   $ 119     $ 575,465  
                                                                 

 

   

 

Preferred

Shares (in

thousands)

   

 

Common

Shares (in

thousands)

                                                 

Balance, December 31, 2017

    --       132,262                                                  

Stock-based compensation

    --       1,566                                                  

Issuance of shares for acquisitions

    9,679       34,130                                                  

Balance, June 30, 2018

    9,679       167,958                                                  

 

 

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

 

6

 

 

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

   

SIX MONTHS ENDED

 
   

JUNE 30,

 
   

2018

   

2017

 
                 

Cash flows from operating activities:

               

Net loss

  $ (55,046 )   $ (35,583 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization

    65,034       64,383  

Impairment charges

    28,661       --  

Loss on extinguishment of debt

    748       842  

Deferred income tax benefit

    (23,661 )     (6,732 )

Non-cash compensation charge

    5,013       3,750  

Gains on disposals of assets

    (2,332 )     (854 )

Provision for loss on receivables, net of recoveries

    (58 )     (57 )

Other, net

    3,065       2,147  

Changes in operating assets and liabilities:

               

Accounts receivable

    10,661       (1,639 )

Inventories

    3,111       (664 )

Accounts payable and accrued liabilities

    (16,668 )     (4,499 )

Taxes payable

    (1,250 )     639  

Other current assets and liabilities, net

    (3,301 )     (7,332 )

Net cash flows provided by operating activities

    13,977       14,401  
                 

Cash flows from investing activities:

               

Capital expenditures

    (5,943 )     (6,037 )

Payments related to acquisitions, net of cash acquired

    (185,200 )     --  

Proceeds from disposition of property, plant and equipment

    3,438       1,160  

Other, net

    110       375  

Net cash flows used in investing activities

    (187,595 )     (4,502 )
                 

Cash flows from financing activities:

               

Proceeds from issuance of common shares, net

    --       64,817  

Revolving credit borrowings

    232,123       44,525  

Revolving credit repayments

    (70,067 )     (84,462 )

Term loan repayments

    (11,068 )     (8,000 )

Debt issuance costs

    (2,742 )     (1,795 )

Other, net

    (632 )     (293 )

Net cash flows provided by financing activities

    147,614       14,792  
                 

Effect of exchange rate changes on cash

    (1,857 )     850  

Net change in cash and cash equivalents

    (27,861 )     25,541  

Cash and cash equivalents, beginning of period

    32,647       1,785  
                 

Cash and cash equivalents, end of period

  $ 4,786     $ 27,326  
                 

Non-cash investing activities:

               

Value of common shares issued as consideration for acquisitions

  $ 119,297     $ --  

Value of preferred shares issued as consideration for acquisition

  $ 54,821     $ --  
                 

Non-cash financing activities:

               

Preferred dividends paid-in-kind

  $ 484     $ --  

 

 

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

 

7

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

 

 

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of the Business

 

We are one of the largest integrated providers of workforce accommodations, logistics and facility management services to the natural resource industry. Our scalable modular facilities provide long-term and temporary accommodations where traditional accommodations and related infrastructure is insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation, communications and redeployment logistics. Our accommodations support our customers’ employees and contractors in the Canadian oil sands and in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business segments – Canada, Australia and U.S.

 

Basis of Presentation

 

Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars.

 

The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.

 

The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.

 

The financial statements included in this report should be read in conjunction with our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

2.

RECENT ACCOUNTING PRONOUNCEMENTS

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards or other guidance updates, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.

 

In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. Effective with our quarterly report on Form 10-Q for the quarter ended March 31, 2018, we have adopted this standard effective January 1, 2018.

 

8

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASU 2016-13). This new standard changes how companies will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 is effective for financial statements issued for reporting periods beginning after December 15, 2019 and interim periods within the reporting periods. We are currently evaluating the impact of this new standard on our consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which replaces the existing guidance for lease accounting, Leases (Topic 840).  ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases with terms longer than 12 months.  The guidance is effective for financial statements issued for reporting periods beginning after December 15, 2018 and interim periods within the reporting periods.  An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  We are currently evaluating the impact of this new standard on our consolidated financial statements.  We have finalized our implementation plan and are in the process of analyzing our lease portfolio.

 

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (ASC 606).  ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures.  The standard is effective for annual and interim reporting periods beginning after December 15, 2017.  Effective with our quarterly report on Form 10-Q for the quarter ended March 31, 2018, we have adopted this standard effective January 1, 2018 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 is presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606. Upon adoption of this standard, we recognized a cumulative effect adjustment of $0.4 million to accumulated deficit in the accompanying unaudited consolidated balance sheet as of June 30, 2018. We expect the impact of the adoption of the new standard to be immaterial to our consolidated financial statements on an ongoing basis.

 

 

3.

REVENUE

 

We generally recognize accommodation, mobile facility rental and catering and other services revenues over time as our customers simultaneously receive and consume benefits as we serve our customers because of continuous transfer of control to the customer. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We transfer control and recognize a sale based on a periodic (usually daily) room rate each night a customer stays in our rooms or when the services are rendered. In some contracts, rates may vary over the contract term. In these cases, revenue may be deferred and recognized on a straight-line basis over the contract term. A limited portion of our revenue is recognized at a point in time when control transfers to the customer related to small modular construction and manufacturing contracts, minor catering arrangements and optional purchases our customers make for incidental services offered at our accommodation and mobile facilities.

 

For significant projects, manufacturing revenues are recognized over time with progress towards completion measured using the cost based input method as the basis to recognize revenue and an estimated profit. Billings on such contracts in excess of costs incurred and estimated profits are classified as deferred revenue. Costs incurred and estimated profits in excess of billings on these contracts are recognized as unbilled receivables. Management believes this input method is the most appropriate measure of progress to the satisfaction of a performance obligation on larger modular construction and manufacturing contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to projected costs and revenue and are recognized in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. Factors that may affect future project costs and margins include weather, production efficiencies, availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of our estimates and materially impact our future reported earnings.

 

9

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

The following table disaggregates our revenue by our three reportable segments: Canada, Australia and U.S., and major categories for the periods indicated (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2018

   

2017

   

2018

   

2017

 

Canada

                               

Accommodation revenues

  $ 80,620     $ 53,637     $ 131,267     $ 109,867  

Mobile facility rental revenues

    2,107       243       9,901       802  

Catering and other services revenues

    3,716       2,646       7,455       6,089  

Manufacturing revenues

    75       1,142       1,285       1,416  

Total Canada revenues

    86,518       57,668       149,908       118,174  
                                 

Australia

                               

Accommodation revenues

  $ 29,966     $ 28,607     $ 57,664     $ 55,623  

Catering and other services revenues

    611       --       788       --  

Total Australia revenues

    30,577       28,607       58,452       55,623  
                                 

United States

                               

Accommodation revenues

  $ 5,177     $ 2,446     $ 8,343     $ 4,544  

Mobile facility rental revenues

    4,533       2,072       8,110       3,117  

Manufacturing revenues

    3,329       1,167       6,793       1,907  

Catering and other services revenues

    43       50       75       74  

Total United States revenues

    13,082       5,735       23,321       9,642  
                                 

Total revenues

  $ 130,177     $ 92,010     $ 231,681     $ 183,439  

 

Because of control transferring over time, the majority of our revenue is recognized based on the extent of progress towards completion of the performance obligation. At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer our customers a good or service (or bundle of goods or services) that is distinct. Our customers typically contract for accommodation services under take-or-pay contracts with terms that most often range from several months to three years. Our contract terms generally provide for a rental rate for a reserved room and an occupied room rate that compensates us for services provided. We typically contract our facilities to our customers on a fee per day basis where the goods and services promised include lodging and meals. To identify the performance obligations, we consider all of the goods and services promised in the context of the contract and the pattern of transfer to our customers.

 

Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days. We do not have significant financing components or significant payment terms.

 

Revenues exclude taxes assessed based on revenues such as sales or value added taxes.

 

10

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

As of June 30, 2018, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue (in thousands):

 

   

For the years ending December 31,

 
   

2018

   

2019

   

2020

   

Thereafter

   

Total

 
                                         

Revenue expected to be recognized as of June 30, 2018

  $ 71,680     $ 81,789     $ 45,101     $ 1,857     $ 200,427  

 

 

4.

FAIR VALUE MEASUREMENTS

 

Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.

 

As of June 30, 2018 and December 31, 2017, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate term loan and revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans.

 

During the first quarter of 2018, we wrote down certain long-lived assets to fair value. Our estimates of fair value required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. These assumptions with respect to future circumstances included future oil, coal and natural gas prices, anticipated spending by our customers, the cost of capital, and industry and/or local market conditions. Please see Note 6 – Impairment Charges for further information.

 

During the first and second quarter of 2018, we acquired certain assets and businesses and recorded them at fair value. Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the valuation are based on our best estimates of future sales, earnings and cash flows after considering factors such as general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long term business plans and recent operating performance. Please see Note 7 – Acquisitions for further information.

 

 

5.

DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

 

Additional information regarding selected balance sheet accounts at June 30, 2018 and December 31, 2017 is presented below (in thousands):

 

   

June 30, 2018

   

December 31, 2017

 

Accounts receivable, net:

               

Trade

  $ 54,190     $ 46,692  

Unbilled revenue

    22,741       20,555  

Other

    158       914  

Total accounts receivable

    77,089       68,161  

Allowance for doubtful accounts

    (1,300 )     (1,338 )

Total accounts receivable, net

  $ 75,789     $ 66,823  

 

11

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

   

June 30, 2018

   

December 31, 2017

 

Inventories:

               

Finished goods and purchased products

  $ 2,581     $ 2,211  

Work in process

    1,040       4,096  

Raw materials

    1,099       939  

Total inventories

  $ 4,720     $ 7,246  

 

 

   

Estimated

Useful Life

(in years)

   

June 30, 2018

   

December 31, 2017

 

Property, plant and equipment, net:

                           

Land

              $ 47,929     $ 40,567  

Accommodations assets

    3 - 15       1,719,298       1,658,867  

Buildings and leasehold improvements

    5 - 20       24,229       24,181  

Machinery and equipment

    4 - 15       10,243       8,848  

Office furniture and equipment

    3 - 7       53,889       53,688  

Vehicles

    3 - 5       14,390       13,869  

Construction in progress

                4,480       2,770  

Total property, plant and equipment

                1,874,458       1,802,790  

Accumulated depreciation

                (1,140,216 )     (1,108,957 )

Total property, plant and equipment, net

              $ 734,242     $ 693,833  

 

 

   

June 30, 2018

   

December 31, 2017

 

Accrued liabilities:

               

Accrued compensation

  $ 15,459     $ 20,424  

Accrued taxes, other than income taxes

    1,538       1,224  

Accrued interest

    38       15  

Other

    230       545  

Total accrued liabilities

  $ 17,265     $ 22,208  

 

 

 

6.

IMPAIRMENT CHARGES

 

Quarter ended March 31, 2018. During the first quarter of 2018, we identified an indicator that certain assets used in the Canadian oil sands may be impaired due to market developments, including expected customer commitments, occurring in the first quarter of 2018. For purposes of our impairment assessment, we separated two lodges that were previously treated as a single asset group due to the lodges no longer being used together to generate joint cash flows. We assessed the carrying value of the asset group to determine if it continued to be recoverable based on estimated future cash flows.  Based on the assessment, the carrying value was determined to not be fully recoverable, and we proceeded to compare the estimated fair value of the asset group to its respective carrying value.  Accordingly, the value of a Canadian lodge was written down to its estimated fair value of zero. As a result of the analysis described above, we recorded an impairment expense of $28.7 million.

 

 

7.

ACQUISITIONS

 

Noralta

 

Description of Transaction.  On April 2, 2018, we acquired the equity of Noralta Lodge Ltd. (Noralta), located in Alberta, Canada (the Noralta Acquisition).  The total consideration, which is subject to adjustment in accordance with the terms of the definitive agreement, included (i) C$207.7 million (or approximately US$161.1 million) in cash, of which C$43.5 million is held in escrow by Alliance Trust Company (the Escrow Agent) to support the sellers’ indemnification obligations under the definitive agreement and certain obligations of the sellers to compensate us for certain increased employee compensation costs that are expected to be incurred as a result of the recent union certification of certain classes of Noralta employees, (ii) 32.8 million of our common shares, of which (a) 13.5 million shares are held in escrow by the Escrow Agent and will be released based on certain conditions related to Noralta customer contracts remaining in place and (b) 2.4 million shares are held in escrow by the Escrow Agent and will be released based on the employee compensation cost increases described above, and (iii) 9,679 Class A Series 1 Preferred Shares (the Preferred Shares) with an initial liquidation preference of $96.8 million, of which 692 shares are held in escrow by the Escrow Agent and will be released based on the employee compensation cost increases described above.  As a result of the Noralta Acquisition, we expanded our existing accommodations business in the Canadian oil sands market. We funded the cash consideration with cash on hand and borrowings under the Amended Credit Agreement (as defined in Note 11).    

 

12

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

The Noralta Acquisition was accounted for in accordance with the acquisition method of accounting for business combinations and, accordingly, the results of operations of Noralta were reported in our financial statements as part of our Canadian reportable business segment beginning on  April 2, 2018, the date of acquisition. During the three and six months ended June 30, 2018, we recorded approximately $32.0 million of revenue and $13.1 million of gross margin in the accompanying unaudited consolidated statements of operations related to the Noralta Acquisition.

 

Calculation of Purchase Consideration. The total purchase consideration received by the Noralta shareholders was based on the cash consideration and fair value of our common shares and Preferred Shares issued on April 2, 2018. The purchase consideration below reflects the fair value of common shares issued, which is based on the closing price on March 29, 2018 (the last business day prior to April 2, 2018) of our common shares of $3.77 per share and the estimated fair value of Preferred Shares issued, which are valued at 61% of the initial liquidation preference of the Preferred Shares of $96.79 million.

 

A portion of the consideration paid, $11.6 million cash, 2.4 million common shares and 692 Preferred Shares, is currently being held in escrow to support certain obligations of the sellers to compensate us for certain increased employee compensation costs that are expected to be incurred as a result of the recent union certification of certain classes of Noralta employees.  As of April 2, 2018, we expected the escrowed amounts to be released to us within 12 months, and therefore, a receivable of $11.6 million related to the cash expected to be released has been established.  Additionally, no fair value has been allocated to such common share or Preferred Shares portion of the consideration.

 

The purchase consideration and estimated fair value of Noralta’s net assets acquired as of April 2, 2018 is presented as follows:

 

(In thousands, except per share data)

               
                 

Common shares issued

    32,791          

Common share price as of March 29, 2018

  $ 3.77          

Common share consideration

          $ 123,622  

Cash consideration

            161,162  

Preferred Share consideration

            59,042  

Total purchase consideration

          $ 343,826  

Less: Common shares held in escrow, expected to be released to Civeo

            (8,825 )

Less: Cash held in escrow, expected to be released to Civeo

            (15,763 )

Less: Preferred Shares held in escrow, expected to be released to Civeo

            (4,221 )

Total purchase consideration

          $ 315,017  

 

At the time the Preferred Shares were issued, we determined that a beneficial conversion feature existed because the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the issuance date. Accordingly, we recorded a beneficial conversion feature of $47.8 million. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares. For further discussion of the Preferred Shares, including dividends on the Preferred Shares, please see Note 12 – Preferred Shares.

 

13

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Purchase Price Allocation. The application of purchase accounting under ASC 805 requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at April 2, 2018, with amounts exceeding the fair values being recorded as goodwill. The allocation process requires an analysis of acquired fixed assets, contracts, and contingencies to identify and record the fair value of all assets acquired and liabilities assumed. Our allocation of the purchase price to specific assets and liabilities is based, in part, upon outside appraisals using customary valuation procedures and techniques. The purchase price allocation is preliminary, as we are finalizing our valuation of tangible and intangible assets acquired. We expect to complete our purchase price allocation by the end of 2018. However, the differences between the final and preliminary purchase price allocations, if any, are not expected to have a material effect on our financial position or results of operations. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at April 2, 2018 (in thousands):

 

Cash and cash equivalents

  $ 24  

Accounts receivable (1)

    21,456  

Inventories

    839  

Other current assets

    4,550  

Property, plant and equipment

    132,888  

Goodwill

    119,858  

Intangible assets

    114,136  

Total assets acquired

    393,751  
         

Accounts payable and accrued liabilities

    15,305  

Income taxes payable

    1,226  

Other current liabilities

    2,079  

Deferred income taxes

    53,066  

Other noncurrent liabilities

    7,058  

Total liabilities assumed

    78,734  

Net assets acquired

  $ 315,017  

 

 

(1)

The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount.

 

Goodwill has been recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The goodwill is primarily attributable to synergies expected to arise from the Noralta Acquisition. The goodwill is not expected to be deductible for tax purposes. The fair value of the assets acquired and liabilities assumed were determined using income, market and cost valuation methodologies. The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement. Fair values of property, plant and equipment, excluding land, were determined using the cost approach. The cost approach estimates value by determining the current cost of replacing an asset with another of equivalent economic utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. Fair values of land were determined using the market approach. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets. The income approach was used to value the intangible assets, consisting primarily of customer contracts, trade name and favorable/unfavorable lease contracts. The income approach indicates value for an asset or liability based on present value of cash flows projected to be generated over the remaining economic life of the asset or liability being measured. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money.

 

14

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

The purchase price allocation to the identifiable intangible assets and liabilities is as follows (in thousands):

 

 

 

Fair Value at

April 2, 2018

 
Amortizable Intangible Assets        

Trade name

  $ 1,474  

Contracts

    110,258  

Favorable lease contract

    2,404  

Total amortizable intangible assets

  $ 114,136  
         

Amortizable Intangible Liabilities

       

Unfavorable lease contracts

  $ 2,456  

Total amortizable intangible liabilities

  $ 2,456  
         

Net intangible assets

  $ 111,680  

 

The contracts acquired consist of accommodations contracts with two major investment grade oil sands producers which are subject to amortization over an estimated useful life of 20 years at the time of acquisition. The trade name was assigned to Noralta’s name recognition with an estimated useful life of 9 months at the time of acquisition. The favorable/unfavorable intangible contracts are related to leases that will be amortized over the remaining lease terms, which range from 3.8 years to 9.3 years at the time of acquisition. The unfavorable contracts are included in other noncurrent liabilities in the accompanying unaudited consolidated balance sheet.

 

Supplemental Pro Forma Financial Information. The following unaudited pro forma supplemental financial information presents the consolidated results of operations of the Company and Noralta as if the Noralta Acquisition had occurred on January 1, 2017. We have adjusted historical financial information to give effect to pro forma items that are directly attributable to the Noralta Acquisition and are expected to have a continuing impact on the consolidated results. These items include adjustments to record the incremental amortization and depreciation expense related to the increase in fair values of the acquired assets, interest expense related to borrowings under the Amended Credit Agreement to fund the Noralta Acquisition and to reclassify certain items to conform to our financial reporting presentation. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of Noralta. The unaudited pro forma results do not purport to be indicative of the results of operations had the transaction occurred on the date indicated or of future results for the combined entities (in thousands, except per share data):

 

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

 
   

JUNE 30,

   

JUNE 30,

 
   

(Unaudited)

   

(Unaudited)

 
   

(Actual)

   

(Pro forma)

   

(Pro forma)

   

(Pro forma)

 
   

2018

   

2017

   

2018

   

2017

 

Revenues

  $ 130,177     $ 124,100     $ 266,264     $ 235,215  

Net loss attributable to Civeo Corporation common shareholders

    (48,321 )     (6,330 )     (101,846 )     (27,208 )
                                 

Basic net loss per share attributable to Civeo Corporation common shareholders

  $ (0.29 )   $ (0.04 )   $ (0.69 )   $ (0.17 )
                                 

Diluted net loss per share attributable to Civeo Corporation common shareholders

  $ (0.29 )   $ (0.04 )   $ (0.69 )   $ (0.17 )

 

Included in the pro forma results above are certain adjustments due to the following: (i) increases in depreciation and amortization expense due to acquired intangibles and the increased recorded value of property, plant and equipment, and (ii) increases in interest expense due to additional credit facility borrowings to fund the Noralta Acquisition, and (iii) decreases due to the exclusion of transaction costs.

 

Transaction Costs. During the three months ended June 30, 2018, we recognized $5.6 million of costs in connection with the Noralta Acquisition that are included in Service and other costs ($0.2 million) and Selling, general and administrative (SG&A) expenses ($5.4 million), respectively. During the six months ended June 30, 2018, we recognized $6.6 million of costs in connection with the Noralta Acquisition that are included in Service and other costs ($0.2 million) and SG&A expenses ($6.4 million).

 

15

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Acadian Acres

 

On February 28, 2018, we acquired the assets of Lakeland, L.L.C. (Lakeland), located near Lake Charles, Louisiana, for total consideration of $28.0 million, composed of $23.5 million in cash and $4.5 million of our common shares. The asset purchase agreement also includes potential future earn-out payments through December 2020 of up to 1.2 million Civeo common shares, based upon satisfaction of certain future revenue targets. The acquisition included a 400 room accommodations facility, 40 acres of land and related assets. We funded the cash consideration with cash on hand. Lakeland’s operations are reported as a new open camp location, Acadian Acres, in our U.S. reportable business segment.

 

Intangible assets acquired in the Acadian Acres acquisition totaled $8.2 million and consisted of a customer contract. The customer contract intangible is being amortized over the remaining contract term, which was 16 months at the time of acquisition.

 

This acquisition was accounted for as an asset acquisition based on the principles described in ASC 805, which provides a screen to determine when a set of transferred assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similarly identifiable assets, the set of transferred assets is not a business. Accordingly, we allocated the excess consideration over the fair value of the assets acquired to the acquired assets, pro rata, on the basis of relative fair values to increase the related assets acquired.

 

 

8.

ASSETS HELD FOR SALE

 

During the fourth quarter of 2017, we made the decision to dispose of our modular construction and manufacturing plant near Edmonton, Alberta, Canada due to changing geographic and market needs. Accordingly, the facility met the criteria of held for sale. Its estimated fair value less the cost to sell exceeded its carrying value. Additionally, we have discontinued depreciation of the facility. Depreciation expense related to the facility totaled approximately $0.1 million and $0.3 million during the three and six months ended June 30, 2017, respectively. The facility is part of our Canadian reportable business segment. 

 

Certain undeveloped land positions in the British Columbia LNG market in our Canadian segment previously met the criteria of held for sale. These assets were recorded at the estimated fair value less costs to sell of approximately $4.2 million.

 

In addition, as a result of the Noralta Acquisition, Noralta’s corporate offices located in Nisku, Alberta, Canada were closed and are being held for sale. The related assets are recorded at the estimated fair value less costs to sell of approximately $3.2 million and was the same value used in the purchase price allocation.

 

The following table summarizes the carrying amount as of June 30, 2018 and December 31, 2017 of the major classes of assets from the modular construction and manufacturing plant, undeveloped land positions and Noralta’s corporate offices we classified as held for sale (in thousands):

 

 

   

June 30,

   

December 31,

 
   

2018

   

2017

 

Assets held for sale:

               

Property, plant and equipment, net

  $ 12,519     $ 9,418  

Inventories

    --       44  

Total assets held for sale

  $ 12,519     $ 9,462  

 

16

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

 

9.

GOODWILL AND OTHER INTANGIBLE ASSETS

 

Changes in the carrying amount of goodwill from December 31, 2017 to June 30, 2018 are as follows (in thousands):

 

   

Canadian

   

Australian

   

U.S.

   

Total

 

Balance as of December 31, 2017

  $ --     $ --     $ --     $ --  

Noralta Acquisition (1)

    119,858       --       --       119,858  

Foreign currency translation

    (2,551 )     --       --       (2,551 )

Balance as of June 30, 2018

  $ 117,307     $ --     $ --     $ 117,307  

 

 

(1)

Please see Note 7 – Acquisitions for further information.

 

The following table presents the total amount of other intangible assets and the related accumulated amortization for major intangible asset classes as of June 30, 2018 and December 31, 2017 (in thousands):

 

   

June 30, 2018

   

December 31, 2017

 
   

Gross

Carrying

Amount

   

 

Accumulated

Amortization

   

Gross

Carrying

Amount

   

 

Accumulated

Amortization

 

Amortizable Intangible Assets

                               

Customer relationships

  $ 43,331     $ (34,327 )   $ 45,209     $ (33,997 )

Trade name

    1,443       (472 )     --       --  

Contracts / agreements

    152,373       (30,704 )     38,362       (26,853 )

Favorable lease contract

    2,353       (63 )     --       --  

Noncompete agreements

    675       (675 )     675       (675 )

Total amortizable intangible assets

  $ 200,175     $ (66,241 )   $ 84,246     $ (61,525 )
                                 

Indefinite-Lived Intangible Assets Not Subject to Amortization

                               

Licenses

    30       --       32       --  

Total indefinite-lived intangible assets

    30       --       32       --  

Total intangible assets

  $ 200,205     $ (66,241 )   $ 84,278     $ (61,525 )

 

The weighted average remaining amortization period for all intangible assets, other than indefinite-lived intangibles, was 16.3 years as of June 30, 2018 and 3.1 years as of December 31, 2017. Please see Note 7 – Acquisitions for further information.

 

As of June 30, 2018, the estimated remaining amortization of our amortizable intangible assets was as follows (in thousands):

 

   

Year Ending

December 31,

 

2018 (remainder of the year)

  $ 10,422  

2019

    15,736  

2020

    12,728  

2021

    5,810  

2022

    5,797  

Thereafter

    83,441  

Total

  $ 133,934  

 

17

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

 

10.

EARNINGS PER SHARE

 

The calculation of earnings per share attributable to Civeo is presented below for the periods indicated (in thousands, except per share amounts):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2018

   

2017

   

2018

   

2017

 

Basic Loss per Share

                               

Net loss attributable to Civeo common shareholders

  $ (48,321 )   $ (14,816 )   $ (103,778 )   $ (35,803 )

Less: undistributed net income to participating securities

    --       --       --       --  

Net loss attributable to Civeo common shareholders - basic

  $ (48,321 )   $ (14,816 )   $ (103,778 )   $ (35,803 )
                                 

Weighted average common shares outstanding - basic

    165,373       130,692       148,595       125,796  
                                 

Basic loss per share

  $ (0.29 )   $ (0.11 )   $ (0.70 )   $ (0.28 )
                                 

Diluted Loss per Share

                               

Net loss attributable to Civeo common shareholders - basic

  $ (48,321 )   $ (14,816 )   $ (103,778 )   $ (35,803 )

Less: undistributed net income to participating securities

    --       --       --       --  

Net loss attributable to Civeo common shareholders - diluted

  $ (48,321 )   $ (14,816 )   $ (103,778 )   $ (35,803 )
                                 

Weighted average common shares outstanding - basic

    165,373       130,692       148,595       125,796  

Effect of dilutive securities (1)

    --       --       --       --  

Weighted average common shares outstanding - diluted

    165,373       130,692       148,595       125,796  
                                 

Diluted loss per share

  $ (0.29 )   $ (0.11 )   $ (0.70 )   $ (0.28 )

 

(1)

When an entity has a net loss from continuing operations, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized the basic shares outstanding amount to calculate both basic and diluted loss per share for the three and six months ended June 30, 2018 and 2017. In the three months ended June 30, 2018 and 2017, we excluded from the calculation 4.1 million and 2.3 million share based awards, respectively, since the effect would have been anti-dilutive. In the six months ended June 30, 2018 and 2017, we excluded from the calculation 3.5 million and 2.1 million share based awards, respectively, since the effect would have been anti-dilutive. In the three and six months ended June 30, 2018, we excluded from the calculation the impact of converting the Preferred Shares into 29.3 million common shares, since the effect would have been anti-dilutive.

 

 

11.

DEBT

 

As of June 30, 2018 and December 31, 2017, long-term debt consisted of the following (in thousands):

 

   

June 30, 2018

   

December 31, 2017

 

Canadian term loan, which matures on November 30, 2020; 2.50% of aggregate principal repayable per quarter; weighted average interest rate of 5.5% for the six-month period ended June 30, 2018

  $ 272,564     $ 297,623  
                 

U.S. revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 7.2% for the six-month period ended June 30, 2018

    --       --  
                 

Canadian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 6.1% for the six-month period ended June 30, 2018

    132,516       --  
                 

Australian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 5.5% for the six-month period ended June 30, 2018

    25,129       --  
      430,209       297,623  

Less: Unamortized debt issuance costs

    3,046       3,037  

Total debt

    427,163       294,586  

Less: Current portion of long-term debt, including unamortized debt issuance costs, net

    27,643       16,596  

Long-term debt, less current maturities

  $ 399,520     $ 277,990  

 

We did not have any capitalized interest to net against interest expense for either of the three-month periods ended June 30, 2018 or 2017.

 

18

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Amended Credit Agreement

 

As of December 31, 2017, our Credit Agreement, as then amended to date, provided for: (i) a $275.0 million revolving credit facility scheduled to mature on May 28, 2019, allocated as follows: (A) a $40.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $90.0 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; (C) a $60.0 million senior secured revolving credit facility in favor of Civeo, as borrower; and (D) a $85.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $350.0 million term loan facility scheduled to mature on May 28, 2019 in favor of Civeo.

 

On April 2, 2018, the Amended and Restated Syndicated Facility Agreement (the Amended Credit Agreement) became effective, which, among other things:

 

 

provided for the reduction by $35.5 million of the aggregate revolving loan commitments under the Amended Credit Agreement, to a maximum principal amount of $239.5 million, allocated as follows: (1) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (2) a $159.5 million senior secured revolving credit facility, after combining the commitments of the previously existing two tranches of the Canadian revolving credit facility into one tranche, in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (3) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower;

 

 

extended the maturity date by 18 months, from May 30, 2019 to November 30, 2020;

 

 

adjusted the maximum leverage ratio financial covenant, as follows:

 

Period Ended

 

Maximum Leverage Ratio

 

June 30, 2018

  4.50 : 1.00  

September 30, 2018

  4.25 : 1.00  

December 31, 2018

  3.75 : 1.00  

March 31, 2019 & thereafter

  3.50 : 1.00  

; and

 

 

provided for other technical changes and amendments to the Credit Agreement.

 

As a result of the Amended Credit Agreement, we recognized a loss during the second quarter of 2018 of approximately $0.7 million related to unamortized debt issuance costs, which is included in Loss on extinguishment of debt on the unaudited consolidated statements of operations.

 

U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total leverage to EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to the Canadian Dollar Offered Rate plus a margin of 2.25% to 4.00%, or a base rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our consolidated total leverage to EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our consolidated total leverage to EBITDA.

 

The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) subsidiary indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 4.50 to 1.0 (as of June 30, 2018).  As noted above, the permitted maximum leverage ratio changes over time.  Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement.  EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges.  We were in compliance with our covenants as of June 30, 2018. 

 

19

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of June 30, 2018, we have 9 lenders that are parties to the Credit Agreement, with commitments ranging from $24.9 million to $110.6 million.

 

 

12.

PREFERRED SHARES

 

As further discussed in Note 7 – Acquisitions, on April 2, 2018, we issued 9,679 Preferred Shares as part of the Noralta Acquisition. The Preferred Shares have an initial liquidation preference of $10,000 per share. Holders of the Preferred Shares will be entitled to receive a 2% annual dividend on the liquidation preference, subject to increase to up to 3% in certain circumstances, paid quarterly in cash or, at our option, by increasing the Preferred Shares’ liquidation preference or any combination thereof.

 

The Preferred Shares are convertible into our common shares at a conversion price of US$3.30 per Preferred Share, subject to certain anti-dilution adjustments (the Conversion Price). We have the right to elect to convert the Preferred Shares into our common shares if the 15-day volume weighted average price of our common shares is equal to or exceeds the Conversion Price. Holders of the Preferred Shares will have the right to convert the Preferred Shares into our common shares at any time after two years from the date of issuance, and the Preferred Shares mandatorily convert after five years from the date of issuance. The Preferred Shares also convert automatically into our common shares upon a change of control of Civeo. We may, at any time and from time to time, redeem any or all of the Preferred Shares for cash at the liquidation preference, plus accrued and unpaid dividends.

 

The Preferred Shares do not have voting rights, except as statutorily required.

 

During the three and six-month periods ended June 30, 2018, we recognized preferred dividends on the Preferred Shares as follows (in thousands):

 

   

Three and Six

Months Ended

 
   

June 30,

 
   

2018

 
         

Deemed dividend on beneficial conversion feature at April 2, 2018

  $ 47,849  

In-kind dividend on June 30, 2018

    484  

Deemed dividend on beneficial conversion feature related to in-kind dividend

    155  

Total preferred dividends

  $ 48,488  

 

As noted in Note 7 - Acquisitions, at the time the Preferred Shares were issued, we determined that a beneficial conversion feature existed as the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the issuance date. Accordingly, we recorded a beneficial conversion feature of $47.8 million. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares.  The increase to additional paid-in capital of the beneficial conversion feature is included in the $166.9 million increase due to issuance of shares for acquisitions on the unaudited consolidated statements of changes in shareholders’ equity.  Similarly, the discount to Preferred Shares of the beneficial conversion feature is netted in the $7.0 million increase due to issuance of shares for acquisitions on the unaudited consolidated statements of changes in shareholders’ equity.  

 

20

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

As the Preferred Shares do not have a stated redemption date, the discount is required to be recognized as a dividend over the minimum period from the date of issuance through the date of earliest conversion. Because the 15-day volume weighted average price of our common shares was greater than $3.30 on April 2, 2018, the earliest conversion date was determined to be April 2, 2018. Accordingly, we recorded a deemed dividend on April 2, 2018 totaling the discount of $47.8 million.

 

The Board of Directors elected to pay the dividend due on June 30, 2018, which totaled $49.44 per Preferred Share, through an increase in the liquidation preference rather than in cash. The paid-in-kind dividend of $0.5 million is included in Preferred dividends on the unaudited consolidated statement of operations for the three and six month periods ended June 30, 2018.

 

In addition, at the time the dividend was deemed to be paid-in-kind, the fair value of the securities into which the Preferred Shares were convertible was greater than the effective conversion price on the deemed payment date. Accordingly, we recorded a beneficial conversion feature of $0.2 million. The beneficial conversion feature was recorded as an increase to additional paid-in capital with the offset recorded as a discount on the Preferred Shares. As the Preferred Shares do not have a stated redemption date, the discount is required to be recognized as a dividend over the minimum period from the date of issuance through the date of earliest conversion. Because the 15-day volume weighted average price of our common shares was greater than $3.30 on June 30, 2018, the earliest conversion date was determined to be June 30, 2018. Accordingly, we recorded a deemed dividend on June 30, 2018 totaling the discount of $0.2 million.

 

 

13.

INCOME TAXES

 

Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.

 

We operate primarily in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 21% to 30%. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions.

 

We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions.  As of June 30, 2018, Australia and the U.S. are loss jurisdictions for tax accounting purposes, therefore Australia and the U.S. have been removed from the annual effective tax rate computation for purposes of computing the interim tax provision.  Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs.

 

As part of the acquisition of Noralta as described in Note 7 – Acquisitions, the purchase price allocation included $53 million of deferred tax liabilities in Canada.  As of June 30, 2018, the addition of these deferred tax liabilities resulted in Canada no longer being considered a loss jurisdiction.  Accordingly, a benefit of $4.9 million was recorded to reverse a valuation allowance against the Canadian net deferred tax asset and Canadian pre-tax results were included in the annual effective tax rate.

 

Our income tax benefit for the six months ended June 30, 2018 totaled $24.1 million, or 30.4% of pretax loss, compared to a benefit of $5.9 million, or 14.1% of pretax loss, for the six months ended June 30, 2017.  Our effective tax rate for the six months ended June 30, 2018 and 2017 was reduced approximately 5% and 13%, respectively, by the exclusion of Australia and the U.S. for purposes of computing the interim tax provision since they are considered loss jurisdictions for tax accounting purposes.  

 

Our income tax benefit for the three months ended June 30, 2018 totaled $23.4 million, or 101.3% of pretax loss, compared to a benefit of $2.9 million, or 16.5% of pretax loss, for the three months ended June 30, 2017.  The effective tax rate for the three months ended June 30, 2018 was impacted by an increase in the 2018 effective tax rate due to Canada no longer being considered a loss jurisdiction.  Under ASC 740-270, Accounting for Income Taxes, the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter’s year-to-date provision. 

 

21

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

 

14.

COMMITMENTS AND CONTINGENCIES

 

We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

 

15.

ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Our accumulated other comprehensive loss increased $24.3 million from $328.2 million at December 31, 2017 to $352.5 million at June 30, 2018, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the first half of 2018 were primarily driven by the Australian dollar and Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$0.3 billion and A$0.4 billion, respectively, at June 30, 2018.

 

 

16.

SHARE BASED COMPENSATION

 

Our employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board of Directors and the Compensation Committee of our Board of Directors to approve grants of options, awards of restricted shares, performance awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 18.7 million Civeo common shares may be awarded under the Civeo Plan.

 

Outstanding Awards

 

Options. Compensation expense associated with options recognized in the three month periods ended June 30, 2018 and 2017 totaled zero and less than $0.1 million, respectively. Compensation expense associated with options recognized in the six month periods ended June 30, 2018 and 2017 totaled less than $0.1 million during both periods. At June 30, 2018, unrecognized compensation cost related to options was zero.

 

Restricted Share / Deferred Share Awards. On February 20, 2018, we granted 2,018,990 restricted share awards and deferred share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 20, 2019. On May 10, 2018, we granted 265,153 restricted share awards to our outside directors, which vest in their entirety on May 10, 2019.

 

Compensation expense associated with restricted share awards and deferred share awards recognized in the three month periods ended June 30, 2018 and 2017 totaled $1.6 million and $1.0 million, respectively. Compensation expense associated with restricted share awards and deferred share awards recognized in the six month periods ended June 30, 2018 and 2017 totaled $2.9 million and $2.3 million, respectively. The total fair value of restricted share awards and deferred share awards that vested during the three months ended June 30, 2018 and 2017 was $1.0 million and $1.1 million, respectively. The total fair value of restricted share awards and deferred share awards that vested during the six months ended June 30, 2018 and 2017 was $3.4 million and $2.4 million, respectively.    

 

At June 30, 2018, unrecognized compensation cost related to restricted share awards and deferred share awards was $11.4 million, which is expected to be recognized over a weighted average period of 2.1 years.

 

22

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Phantom Share Awards. During the three month periods ended June 30, 2018 and 2017, we recognized compensation expense associated with phantom shares totaling $2.6 million and $1.1 million, respectively. During the six month periods ended June 30, 2018 and 2017, we recognized compensation expense associated with phantom shares totaling $6.0 million and $4.1 million, respectively. At June 30, 2018, unrecognized compensation cost related to phantom shares was $6.8 million, as remeasured at June 30, 2018, which is expected to be recognized over a weighted average period of 0.9 years.

 

Performance Awards. On February 20, 2018, we granted 848,830 performance awards under the Civeo Plan, which cliff vest in three years on February 20, 2021. These awards will be earned in amounts between 0% and 200% of the participant’s target performance share award, based on the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies.  

  

During the three month periods ended June 30, 2018 and 2017, we recognized compensation expense associated with performance awards totaling $1.2 million and $0.8 million, respectively. During the six month periods ended June 30, 2018 and 2017, we recognized compensation expense associated with performance awards totaling $2.2 million and $1.5 million, respectively. At June 30, 2018, unrecognized compensation cost related to performance shares was $7.4 million, which is expected to be recognized over a weighted average period of 2.0 years.

 

 

17.

SEGMENT AND RELATED INFORMATION

 

In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada, Australia and U.S., which represent our strategic focus on workforce accommodations.

 

23

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Financial information by business segment for each of the three and six months ended June 30, 2018 and 2017 is summarized in the following table (in thousands):

 

   

Total

Revenues

   

Depreciation

and

amortization

   

Operating

income

(loss)

   

Capital

expenditures

   

 

Total assets

 

Three months ended June 30, 2018

                                       

Canada

  $ 86,518     $ 19,245     $ (6,718 )   $ 1,409     $ 860,149  

Australia

    30,577       10,649       (1,099 )     475       314,446  

United States

    13,082       2,861       (1,832 )     1,029       61,243  

Corporate and eliminations

    --       1,515       (5,852 )     334       (117,890 )

Total

  $ 130,177     $ 34,270     $ (15,501 )   $ 3,247     $ 1,117,948  
                                         

Three months ended June 30, 2017

                                       

Canada

  $ 57,668     $ 17,559     $ (9,586 )   $ 465     $ 552,076  

Australia

    28,607       11,231       (3,416 )     600       383,715  

United States

    5,735       1,194       (3,604 )     212       30,978  

Corporate and eliminations

    --       1,570       3,239       877       (50,181 )

Total

  $ 92,010     $ 31,554     $ (13,367 )   $ 2,154     $ 916,588  
                                         

Six months ended June 30, 2018

                                       

Canada

  $ 149,908     $ 35,756     $ (46,648 )   $ 2,481     $ 860,149  

Australia

    58,452       21,766       (4,265 )     1,069       314,446  

United States