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FRESH-START ACCOUNTING | 12 Months Ended
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Dec. 31, 2019
Fresh Start Balance Sheet [Abstract] |
FRESH-START ACCOUNTING | (18) FRESH-START ACCOUNTING Upon our emergence from Chapter 11 bankruptcy, we qualified for and adopted fresh-start accounting in accordance with the provisions set forth in ASC 852 as (i) holders of existing shares of the Predecessor immediately before the Effective Date received less than 50 percent of the voting shares of the Successor entity and (ii) the reorganization value of the Successor was less than its post-petition liabilities and estimated allowed claims immediately before the Effective Date. Fresh-start accounting requires us to present our assets, liabilities, and equity as if we were a new entity upon emergence from bankruptcy. The new entity is referred to as "Successor”. The implementation of the Plan and the application of fresh-start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in our becoming a new entity for financial reporting purposes. As a result of the application of fresh-start accounting and the effects of the implementation of the Plan, the financial statements after July 31, 2017 are not comparable with the financial statements prior to July 31, 2017. Therefore, "black-line" financial statements are presented to distinguish between the Predecessor and Successor companies. As part of fresh-start accounting, we were required to determine the Reorganization Value of the Successor upon emergence from the Chapter 11 proceedings. Reorganization Value approximates the fair value of the entity, before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the restructuring. The fair values of the Successor’s assets were determined with the assistance of a third party valuation expert. The Reorganization Value was allocated to our individual assets and liabilities based on their estimated fair values. Enterprise value, which is the basis for deriving Reorganization Value, represents the estimated fair value of an entity’s capital structure, which generally consists of long term debt and shareholders’ equity. The Successor’s enterprise value was $1.050 billion, which is the mid-point of the range included in the disclosure statement of the Plan of $850.0 million to $1.250 billion. This enterprise value was the basis for deriving equity value of $1.055 billion, which is within the range of $743.0 million to $1.143 billion also included in the disclosure statement of the Plan. Fair values are inherently subject to significant uncertainties and contingencies beyond our control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the market value of our common stock subsequent to our emergence from bankruptcy may differ materially from the equity valuation derived for accounting purposes. For purposes of estimating the fair value of our vessels we used a combination of the discounted cash flow method (income approach) using a weighted average cost of capital of 12%, the guideline public company method (market approach) and vessel specific liquidation value analyses. In estimating the fair value of the other property and equipment, we used a combination of asset, income, and market-based approaches. See further discussion below in the "Fresh-start accounting adjustments" for the specific assumptions used in the valuation of our various other assets and liabilities. Although we believe the assumptions and estimates used to develop Enterprise Value and Reorganization Value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment. The following table reconciles our Enterprise Value to the estimated fair value of the Successor’s common stock as of July 31, 2017:
(In thousands) |  | July 31, 2017 |
Enterprise Value |  | $ | 1,050,000 |
Add: Cash and cash equivalents |  |  | 560,866 |
Less: Amounts due to General Unsecured Creditors |  |  | (102,193 | )
Less: Fair value of debt |  |  | (451,589 | )
Less: Fair value of New Creditor, Series A and B warrants |  |  | (299,045 | )
Less: Fair value of noncontrolling interests |  |  | (1,675 | )
Fair Value of Successor common stock |  | $ | 756,364 |
The following table reconciles our Enterprise Value to our Reorganization Value as of July 31, 2017:
|  | July 31, 2017 |
Enterprise Value |  | $ | 1,050,000 |
Add: Cash and cash equivalents |  |  | 560,866 |
Less: Amounts payable to General Unsecured Creditors |  |  | (102,193 | )
Add: Other working capital liabilities |  |  | 439,377 |
Reorganization value of Successor assets |  | $ | 1,948,050 |
Consolidated Balance Sheet The following presents the effects on our consolidated balance sheet due to the reorganization and fresh-start accounting adjustments. The explanatory notes following the table below provide further details on the adjustments, including our assumptions and methods used to determine fair value for our assets and liabilities.
(In thousands) | As of July 31, 2017 |
| Predecessor Company |  |  |  | Reorganization Adjustments |  |  |  |  |  | Fresh-Start Adjustments |  |  |  |  |  | Successor Company |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ |  | 683,673 |  |  |  |  |  | (122,807 | ) |  | (1 | ) |  |  |  | - |  |  |  |  |  |  |  | 560,866 |
Trade and other receivables, net |  |  | 116,976 |  |  |  |  |  | - |  |  |  |  |  |  |  | (480 | ) |  | (10 | ) |  |  |  | 116,496 |
Due from affiliate |  |  | 252,393 |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 252,393 |
Marine operating supplies |  |  | 30,495 |  |  |  |  |  | - |  |  |  |  |  |  |  | 1,594 |  |  | (11 | ) |  |  |  | 32,089 |
Other current assets |  |  | 33,243 |  |  |  |  |  | (12,438 | ) |  | (2 | ) |  |  |  | (278 | ) |  | (12 | ) |  |  |  | 20,527 |
Total current assets |  |  | 1,116,780 |  |  |  |  |  | (135,245 | ) |  |  |  |  |  |  | 836 |  |  |  |  |  |  |  | 982,371 |
Investments in, at equity, and advances to unconsolidated companies |  |  | 49,367 |  |  |  |  |  | - |  |  |  |  |  |  |  | (24,683 | ) |  | (13 | ) |  |  |  | 24,684 |
Net properties and equipment |  |  | 2,625,848 |  |  |  |  |  | - |  |  |  |  |  |  |  | (1,731,257 | ) |  | (14 | ) |  |  |  | 894,591 |
Other assets |  |  | 92,674 |  |  |  |  |  | - |  |  |  |  |  |  |  | (46,270 | ) |  | (15 | ) |  |  |  | 46,404 |
Total assets | $ |  | 3,884,669 |  |  |  |  |  | (135,245 | ) |  |  |  |  |  |  | (1,801,374 | ) |  |  |  |  |  |  | 1,948,050 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable | $ |  | 39,757 |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 39,757 |
Accrued expenses |  |  | 71,824 |  |  |  |  |  | - |  |  |  |  |  |  |  | (160 | ) |  | (16 | ) |  |  |  | 71,664 |
Due to affiliate |  |  | 123,899 |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 123,899 |
Accrued property and liability losses |  |  | 2,761 |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 2,761 |
Current portion of long-term debt |  |  | 10,409 |  |  |  |  |  | (5,204 | ) |  | (3 | ) |  |  |  | - |  |  |  |  |  |  |  | 5,205 |
Other current liabilities |  |  | 20,483 |  |  |  |  |  | 102,193 |  |  | (4 | ) |  |  |  | (963 | ) |  | (17 | ) |  |  |  | 121,713 |
Total current liabilities |  |  | 269,133 |  |  |  |  |  | 96,989 |  |  |  |  |  |  |  | (1,123 | ) |  |  |  |  |  |  | 364,999 |
Long-term debt |  |  | 80,233 |  |  |  |  |  | 355,204 |  |  | (5 | ) |  |  |  | 10,946 |  |  | (18 | ) |  |  |  | 446,383 |
Deferred income taxes |  |  | - |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | - |
Accrued property and liability losses |  |  | 2,789 |  |  |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  | 2,789 |
Other liabilities and deferred credits |  |  | 80,902 |  |  |  |  |  | - |  |  |  |  |  |  |  | (4,107 | ) |  | (17 | ) |  |  |  | 76,795 |
Liabilities subject to compromise |  |  | 2,326,122 |  |  |  |  |  | (2,326,122 | ) |  | (6 | ) |  |  |  | - |  |  |  |  |  |  |  | - |
Total liabilities |  |  | 2,759,179 |  |  |  |  |  | (1,873,929 | ) |  |  |  |  |  |  | 5,716 |  |  |  |  |  |  |  | 890,966 |
Commitments and Contingencies |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
Common stock (Predecessor) |  |  | 4,712 |  |  |  |  |  | (4,712 | ) |  | (7 | ) |  |  |  | - |  |  |  |  |  |  |  | - |
Additional paid-in capital (Predecessor) |  |  | 166,867 |  |  |  |  |  | (166,867 | ) |  | (7 | ) |  |  |  | - |  |  |  |  |  |  |  | - |
Common stock (Successor) |  |  | - |  |  |  |  |  | 18 |  |  | (8 | ) |  |  |  | - |  |  |  |  |  |  |  | 18 |
Additional paid-in capital (Successor) |  |  | - |  |  |  |  |  | 1,055,391 |  |  | (8 | ) |  |  |  | - |  |  |  |  |  |  |  | 1,055,391 |
Retained earnings |  |  | 951,749 |  |  |  |  |  | 854,854 |  |  | (9 | ) |  |  |  | (1,806,603 | ) |  | (19 | ) |  |  |  | - |
Accumulated other comprehensive loss |  |  | (12,779 | ) |  |  |  |  | - |  |  |  |  |  |  |  | 12,779 |  |  | (20 | ) |  |  |  | - |
Total stockholders' equity |  |  | 1,110,549 |  |  |  |  |  | 1,738,684 |  |  |  |  |  |  |  | (1,793,824 | ) |  |  |  |  |  |  | 1,055,409 |
Noncontrolling interests |  |  | 14,941 |  |  |  |  |  | - |  |  |  |  |  |  |  | (13,266 | ) |  | (21 | ) |  |  |  | 1,675 |
Total equity |  |  | 1,125,490 |  |  |  |  |  | 1,738,684 |  |  |  |  |  |  |  | (1,807,090 | ) |  |  |  |  |  |  | 1,057,084 |
Total liabilities and equity | $ |  | 3,884,669 |  |  |  |  |  | (135,245 | ) |  |  |  |  |  |  | (1,801,374 | ) |  |  |  |  |  |  | 1,948,050 |
Reorganization Adjustments
| (1) | The table below reconciles cash payments and amounts payable as of July 31, 2017 to the terms of the Plan as previously described.
(In thousands) |  |  |  |
Payment made to holders of General Unsecured Claims upon emergence | $ |  | 122,807 |
Amounts payable to holders of General Unsecured Claims at July 31, 2017 |  |  | 102,193 |
Total payments pursuant to the Plan | $ |  | 225,000 |
| (2) | Represents the recognition of expenses paid prior to the Effective Date of $12.4 million for Plan support and other reorganization-related professional fees.
| (3) | Reflects the reclassification from current to long-term of $5.2 million of Troms Offshore debt, consistent with the terms of the amended Troms Offshore credit agreement.
| (4) | Reflects the establishment of a liability related to the unpaid pro rata cash distribution to the General Unsecured Claims.
| (5) | Reflects the issuance of the $350.0 million Secured Notes to the General Unsecured Creditors as provided for in the Plan and the reclassification from current to long-term of $5.2 million of Troms Offshore debt (see (3) above).
| (6) | Gain on settlement of liabilities subject to compromise is as follows:
(In thousands) |  |  |  |
Revolving Credit Facility | $ |  | (600,000 | )
Term Loan Facility |  |  | (300,000 | )
September 2013 senior unsecured notes |  |  | (500,000 | )
August 2011 senior unsecured notes |  |  | (165,000 | )
September 2010 senior unsecured notes |  |  | (382,500 | )
Accrued interest payable |  |  | (23,736 | )
Make-whole provision - Senior notes |  |  | (94,726 | )
Lessor claims - sale leaseback agreements |  |  | (260,160 | )
Total liabilities subject to compromise | $ |  | (2,326,122 | )
Fair value of equity and warrants issued to General Unsecured Creditors |  |  | 983,482 |
Issuance of 8% Secured Notes |  |  | 350,000 |
Cash payment to General Unsecured Creditors |  |  | 122,807 |
Amounts payable to General Unsecured Creditors |  |  | 102,193 |
Gain on settlement of Liabilities subject to compromise | $ |  | (767,640 | )
| (7) | Reflects the cancellation of Predecessor's equity to retained earnings.
| (8) | Represents the issuance of Successor equity. The Successor issued approximately 18.5 million shares of New Common Stock including approximately 17.0 million shares of New Common Stock to General Unsecured Creditors and 1.5 million to holders of Predecessor stock. Approximately 7.7 million New Creditor Warrants were issued upon emergence to the General Unsecured Creditors and approximately 3.9 million New Creditor Warrants were reserved for with respect to the unresolved sale leaseback claims. Additionally, 2.4 million Series A Warrants and 2.6 million Series B Warrants were issued to the holders of Predecessor stock with exercise prices of $57.06 and $62.28, respectively. Based on a Black-Scholes-Merton valuation and an estimated fair value of the underlying New Common Stock of $25.00 per share, the value of each New Creditor Warrant was estimated at $25.00, the value of each Series A Warrant was estimated at $2.27 and the value of each Series B Warrant was estimated at $1.88.
The table below reflects the components of Additional paid-in capital (Successor) upon emergence:
(In thousands) |  |  |  |
Additional paid-in capital attributable to common shares |  | $ | 756,346 |
Series A Warrants (2,432,432 Warrants at $1.88 per warrant) |  |  | 5,510 |
Series B Warrants (2,629,657 Warrants at $2.27 per warrant) |  |  | 4,945 |
Issued Creditor Warrants (7,684,453 Warrants at $25 per warrant) |  |  | 192,108 |
Reserved Creditor Warrants (3,859,361 Warrants at $25 per warrant) |  |  | 96,482 |
Fair Value of Successor additional paid-in capital |  | $ | 1,055,391 |
| (9) | Reflects the cumulative effect of the reorganization adjustments discussed above.
Fresh-start Accounting Adjustments
| (10) | Represents fair value adjustments on outstanding warranty claims.
| (11) | Reflects the adjustment to record fuel inventory held as marine and operating supplies at fair value.
| (12) | Reflects adjustments to deferred tax items as a result of the change in vessel values from the application of fresh-start accounting.
| (13) | Reflects the adjustment to decrease the carrying value of our equity method investments to their estimated fair values which were determined using a discounted cash flow analysis.
| (14) | In estimating the fair value of the vessels and related equipment, we used a combination of discounted cash flow method (income approach), the guideline public company method (market approach) and vessel specific liquidation value analyses. A discount rate of 12% was used for the discounted cash flow method. In estimating the fair value of the other property and equipment, we used a combination of asset, income, and market-based approaches.
| (15) | Reflects fair value adjustments of (i) $41.7 million to reduce the carrying value of a vessel under construction that is currently the subject of an arbitration proceeding in the United States and (ii) $3.8 million to reduce the carrying value of a receivable related to a vessel under construction in Brazil, which is also the subject of pending arbitration (the carrying value of receivable after such fair value adjustment is approximately $1.8 million). Also reflects adjustments to deferred tax items of $0.8 million as a result of the change in vessel values from the application of fresh-start accounting.
| (16) | Reflects the write-off of deferred rent liabilities and an increase in a market-value based fuel related liabilities in Brazil.
| (17) | Reflects the write-off of $1.3 million of accrued losses in excess of investment related to an unconsolidated subsidiary, an unrecognized deferred gain on the sale of a vessel to an unconsolidated subsidiary of $3.8 million, $0.4 million of which was reflected as current and adjustments to deferred tax items as a result of the change in vessel values from the application of fresh-start accounting of which $0.9 million is current and $1.3 million is long-term. Offsetting these items is the recognition of an intangible liability of approximately $2.1 million, $0.4 million of which is recorded as current, to adjust our office lease contracts to fair value as of July 31, 2017. The intangible liability will be amortized over the remaining life of the contracts through 2023.
| (18) | Reflects a $15.4 million premium recorded in relation to the $350.0 million Secured Notes, an aggregate $5.4 million discount recorded in relation to the modified Troms Offshore borrowings, and the write-off of historical unamortized debt issuance costs related to the Troms Offshore borrowings of $0.9 million.
| (19) | Reflects the cumulative effects of the fresh-start accounting adjustments.
| (20) | Represents the elimination of Predecessor accumulated other comprehensive loss.
| (21) | Reflects a $13.3 million adjustment to decrease the carrying value of the noncontrolling interests to the estimated fair value.
We use “Reorganization items” on our consolidated statements of operations to reflect the revenues, expenses, gains and losses that are the direct result of the reorganization of the business. The following tables summarize the components included in “Reorganization items”:
|  | Successor |  |  |  | Predecessor |
|  | Period from |  |  |  | Period from |
|  | August 1, 2017 |  |  |  | April 1, 2017 |
|  | through |  |  |  | through |
(In thousands) |  | December 31, 2017 |  |  |  | July 31, 2017 |
Gain on settlement of liabilities subject to compromise |  | $ | — |  |  |  |  | (767,640 | )
Fresh start adjustments |  |  | — |  |  |  |  | 1,820,018 |
Debt, sale leaseback and other reorganization items |  |  | 1,631 |  |  |  |  | 316,504 |
Reorganization-related professional fees |  |  | 2,668 |  |  |  |  | 28,023 |
Loss on reorganization items |  | $ | 4,299 |  |  |  |  | 1,396,905 |

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