<PAGE>
<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-22853
GULFMARK OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0526032
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 POST OAK PARK, SUITE 1170 77027
Houston, Texas
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(713) 963-9522
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 / /
Number of shares of Common Stock, $0.01 Par Value, outstanding as
of October 30, 1997: 7,915,462.
(Exhibit Index Located on Page 22)
<PAGE>2
GENERAL INFORMATION
This Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, represents the second quarterly report of GulfMark
Offshore, Inc. ("GulfMark" or the "Company") following the completion
of a series of restructuring transactions completed on May 1, 1997.
As a result of those transactions, the operations of the Company
currently consist of the offshore marine services business.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, which follows the financial statements and
notes thereto, contains a description of the transactions, as well as
a discussion of the results of operations for the quarter and nine
months ended September 30, 1997.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company. In the opinion of
management, all adjustments which include reclassifications and normal
recurring adjustments necessary to present fairly the financial
statements for the periods indicated, including the restatement of the
Company's equity and presentation of the net assets and operations of
the non-offshore marine services business of the Company's predecessor
as discontinued operations have been made. Certain information
relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or omitted
in this Form 10-Q pursuant to such rules and regulations. However,
the Company believes that the disclosures herein are adequate to make
the information presented not misleading. It is recommended that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Registration
Statement on Amendment No. 1 to Form S-1 No. 333-31139 filed with the
Securities and Exchange Commission July 22, 1997.
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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
--------- -------
(Unaudited)
<S> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 39,462 $ 17,234
Accounts receivable..................................................... 11,156 8,939
Inventory, prepaids and other........................................... 530 675
------- -------
Total current assets.................................................. 51,148 26,848
NET ASSETS OF DISCONTINUED OPERATIONS..................................... -- 14,837
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation
of $22,164,000(unaudited) in 1997 and $19,504,000 in 1996................ 95,544 87,405
OTHER ASSETS.............................................................. 3,452 2,217
------- -------
$ 150,144 $ 131,307
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt............. $ 10,337 $ 9,341
Accounts payable........................................................ 1,957 1,931
Other accrued liabilities............................................... 3,025 1,628
------- -------
Total current liabilities............................................. 15,319 12,900
------- -------
LONG-TERM DEBT............................................................ 45,621 50,811
DEFERRED TAXES AND OTHER.................................................. 6,917 5,079
MINORITY INTEREST......................................................... 549 501
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 15,000,000 shares authorized;
7,915,462 (unaudited) and 6,679,904 shares issued and outstanding..... 79 67
Additional paid-in capital.............................................. 60,493 26,793
Retained earnings....................................................... 23,416 36,676
Cumulative translation adjustment....................................... (2,250) (1,520)
------- -------
Total stockholders' equity............................................ 81,738 62,016
------- -------
$ 150,144 $ 131,307
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<PAGE>4
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES............................................... $12,642 $ 9,204 $33,673 $ 23,697
COSTS AND EXPENSES:
Direct operating expenses............................ 4,736 3,956 13,622 11,238
General and administrative expenses.................. 1,389 1,186 4,059 3,292
Depreciation and amortization........................ 1,678 1,331 4,962 3,595
------- ------- ------- -------
7,803 6,473 22,643 18,125
------- ------- ------- -------
OPERATING INCOME....................................... 4,839 2,731 11,030 5,572
OTHER INCOME (EXPENSE):
Interest expense..................................... (1,215) (1,049) (3,831) (2,793)
Interest income...................................... 268 132 483 263
Minority interest.................................... (73) (62) (47) (16)
Other................................................ 18 23 36 52
------- ------- ------- -------
(1,002) (956) (3,359) (2,494)
------- ------- ------- -------
Income from continuing operations before taxes......... 3,837 1,775 7,671 3,078
INCOME TAX PROVISION................................... (1,211) (617) (2,331) (988)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS...................... 2,626 1,158 5,340 2,090
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF TAXES.......................................... -- 4,553 (648) 4,424
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF TAXES.......................................... -- -- (1,426) --
------- ------- ------- -------
NET INCOME............................................. $ 2,626 $ 5,711 $ 3,266 $ 6,514
======= ======= ======= =======
EARNINGS PER SHARE.....................................
Income from continuing operations..................... $ 0.35 $ 0.17 $ 0.76 $ 0.31
Income (loss) from discontinued operations,
net of taxes........................................ 0.00 0.68 (0.09) 0.66
Loss on disposal of segment, net of taxes............ 0.00 0.00 (0.20) 0.00
------- ------- ------- -------
$ 0.35 $ 0.85 $ 0.47 $ 0.97
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES AND COMMON STOCK
EQUIVALENTS.......................................... 7,611 6,678 7,030 6,676
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 3,266 $ 6,514
Income (loss) from discontinued operations, net........................... 2,074 (4,424)
------- -------
Income from continuing operations......................................... 5,340 2,090
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operations:
Depreciation and amortization............................................ 4,962 3,595
Deferred and other income tax provision.................................. 1,992 864
Minority interest........................................................ 48 16
Change in operating assets and liabilities:
Accounts receivable.................................................. (1,268) (2,946)
Inventory, prepaids and other........................................ 135 639
Accounts payable..................................................... 121 (18)
Other accrued liabilities............................................ 114 298
Other, net............................................................... 204 (5)
------- -------
Cash provided by continuing operations............................... 11,648 4,533
Cash flow from discontinued operations............................... (1,360) 8,653
------- -------
Net cash provided by operating activities............................ 10,288 13,186
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of vessels and equipment....................................... (16,713) (23,473)
Expenditures for drydocking and main engine overhaul..................... (2,903) (1,062)
------- -------
Net cash used in investing activities................................ (19,616) (24,535)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock offering, net of offering costs...................... 33,358 --
Proceeds from exercise of options........................................ 355 17
Proceeds from debt, net of direct financing cost......................... 7,393 22,031
Repayments of debt....................................................... (9,020) (1,835)
------- -------
Net cash provided by financing activities............................. 32,086 20,213
Effect of exchange rate changes on cash.................................. (530) 43
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................. 22,228 8,907
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD....................... 17,234 5,136
------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................. $ 39,462 $ 14,043
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................................................. $ 3,772 $ 2,467
======= =======
Income taxes paid.......................................................... $ 65 $ 59
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BACKGROUND AND ORGANIZATION
On April 30, 1997, the stockholders of GulfMark International,
Inc. (the "Predecessor") approved a transaction to transfer the
assets, liabilities and operations of its offshore marine services
business (the "Marine Business") to GulfMark Offshore, Inc. ("New
GulfMark" or the "Company"), a new wholly owned subsidiary of the
Predecessor. Immediately after the transfer of the Marine Business,
the Predecessor completed a spin-off of New GulfMark by distributing
all of the common stock of New GulfMark to the Predecessor's
stockholders (the "Distribution"). Following the Distribution, on May
1, 1997, a subsidiary of EVI, Inc. ("EVI") was merged (the "Merger")
with and into the Predecessor, whose assets then consisted solely of
the Predecessor's remaining active business, the erosion control
business ("Ercon"),and the Predecessor's investment in approximately
4.5 million shares of EVI common stock (adjusted to reflect EVI's 2
for 1 split of common stock in May 1997). The Predecessor survived
the Merger as a subsidiary of EVI.
Although the separation of the Marine Business from the remainder
of the operations of the Predecessor was structured as a "spin-off" of
New GulfMark for legal, tax and other reasons, New GulfMark succeeded
to certain important aspects of the Predecessor business, organization
and affairs, namely: (i) the Marine Business conducted by New
GulfMark, which consisted of over half of the assets, revenues and
operating income of the businesses, operations and companies
previously constituting the Predecessor; (ii) each member of the Board
of Directors of the Predecessor became a Director of New GulfMark;
(iii) New GulfMark's management is substantially the same as the
management of the Predecessor; and (iv) New GulfMark retained as its
headquarters the former headquarters of the Predecessor.
Consequently, the Consolidated Financial Statements present the net
assets, results of operations and cash flows of Ercon and the EVI
investment as discontinued operations.
Prior year's financial statements have been reclassified where
appropriate to conform to 1997 presentations.
(2) EARNINGS PER SHARE
Earnings per share was computed based on the weighted average
number of shares issued and outstanding during the periods presented
plus additional shares assumed to be outstanding to reflect the
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dilutive effect of common stock equivalents using the treasury stock
method. Any differences related to computing fully diluted earnings
per share were not material.
(3) PENDING ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
("FASB")issued SFAS No. 128 "Earnings Per Share" which is effective
for years beginning after December 15, 1997. SFAS NO. 128 revises the
methodology to be used in computing earnings per share ("EPS") such
that the computations required for primary and fully diluted EPS are
to be replaced with "basic" and "diluted" EPS. Basic EPS is computed
by dividing net income by the weighted average number of shares of
common stock outstanding during the year. Diluted EPS is computed in
the same manner as fully diluted EPS, except that, among other
changes, the average share price for the period is used in all cases
when applying the treasury stock method to potentially diluted
outstanding options. The statement requires restatement for all prior
period earnings per share data presented. Earnings per share
calculated in accordance with SFAS No. 128 would not be materially
different for the periods presented.
In June 1997, the FASB issued SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," both effective for fiscal
years beginning after December 15, 1997. Management believes adoption
of these statements will not have a material effect on the Company's
financial position, operations or cash flows and will impact financial
statement disclosure only.
(4) VESSEL ACQUISITIONS
In December 1994, the Company contracted with a shipyard in
Norway for the construction of two UT 755 design vessels for
deployment in the North Sea. The first vessel, the Highland Piper,
was delivered on March 15, 1996. The second vessel, the Highland
Drummer was delivered on January 3, 1997. Included in capital
expenditures for the nine months ended September 30, 1997 is $12.9
million related to the final construction payment on the Highland
Drummer. Funding for this payment was provided through additional
borrowings of approximately $7.3 million under an existing credit
facility. In connection with the delivery of these two vessels, the
Company is entitled to receive a subsidy from the Norwegian government
equal to 9.5% of the gross construction price. The Company has
accounted for subsidies as a reduction of the purchase price of the
vessels.
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<PAGE>8
The Company entered into a contract in November 1996 with a
shipyard to construct an enhanced UT 755 design supply vessel at a
price of approximately $18 million denominated in Norwegian Kroner.
The new vessel (Highland Rover) will be a modified version of the
Company's recently delivered Highland Piper (March 1996) and Highland
Drummer (January 1997). This new vessel is a multipurpose design
which adds dynamic positioning and additional length and
accommodations to the standard UT 755 design. This vessel, scheduled
for delivery in the first quarter of 1998, will be available to
participate in the growing demand for deep water, remotely operated
vehicle ("ROV") support, standard supply duties and specialized
services in the North Sea.
In connection with the final payment to the shipyard for the
Highland Rover, the Company entered into a forward contract to hedge
approximately 92.8 million Norwegian Kroner (approximately $13.1
million) of its commitment on the Highland Rover against unfavorable
fluctuations in the British Pound Sterling to Norwegian Kroner
exchange rate. The unrealized loss of $0.8 million as of September
30, 1997, is not reflected in the accompanying financial statements.
The vessel is expected to be delivered in early 1998 at which time any
realized gain or loss will be included in the cost of the vessel, but
will be offset by the corresponding change in the price of the vessel
due to the exchange rate fluctuation.
In April 1997 the Company purchased an unfinished supply vessel
hull from a Singapore shipyard. The completion of the hull is
currently in progress by a U.K. shipyard and estimated costs for
completion are approximately $13 million. The hull may be completed
as a platform supply vessel, anchor-handling, tug, supply vessel or as
an FPSO support vessel. The final determination for completion of the
vessel will be based on market interest and will be made in sufficient
time for the shipyard to make the planned August 1998 delivery.
Additionally, the Company has entered into an agreement with
Bender Shipbuilding & Repair, Inc, of Mobile, Alabama, for the
construction of two vessels at an approximate total cost of $22
million. Delivery of the 220' offshore support vessels is anticipated
in January and June 1999. The specifications of these vessels were
developed jointly between the Company and the shipyard for use in
international applications. The Company also has an option to
construct two additional vessels under this agreement.
In August 1996, the Company purchased six offshore supply vessels
in Southeast Asia from Maritime (Pte), Limited (the "Maritime
Acquisition"). Funding for the Maritime Acquisition was provided
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through a new $7.0 million bank facility and a drawdown under existing
loan facilities.
(5) DISCONTINUED OPERATIONS
The following selected financial information for discontinued
operations relates to the operations of Ercon and the investment in
4.5 million shares of EVI, is presented for informational purposes
only and does not necessarily reflect what the results of
operations would have been had such discontinued operations
operated as a stand-alone entity. The nine months ended September 30,
1997, includes the operations up to the date of disposition on April
30, 1997.
Summary Operating Data of Discontinued Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Total revenue............................ $ -0- $ 2.6 $ 1.1 $ 4.2
Income (loss), net of taxes.............. $ -0- $ 4.6 $ (0.7) $ 4.4
</TABLE>
(6) REGISTRATION STATEMENT
On July 22, 1997 the Company filed a Registration Statement on
Amendment No. 1 to Form S-1 No. 333-31139 for the offer and sale of
1,125,000 shares of Common Stock of the Company (including 125,000
shares subject to underwriters' over-allotment option). The offering
was underwritten by Lehman Brothers Inc., Jefferies & Company, Inc.
and The Robinson-Humphrey Company, Inc. The Company intends to use
the proceeds of the offering for the Company's ongoing capital
expenditures, including building new vessels and upgrading the
Company's fleet, to prepay indebtedness outstanding under a loan
facility and for other general corporate purposes. The offering
closed on August 14, 1997 on the base shares and August 22, 1997 on
the over-allotment for $32.00 per share before the underwriters'
discount of $1.84 per share. Total proceeds to the Company were $33.4
million after offering costs of $0.6 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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The Company was incorporated on December 4, 1996 under the name
of "New GulfMark, Inc.", a wholly owned subsidiary of GulfMark
International, Inc. (the "Predecessor"). The Company was formed to
facilitate the Predecessor's separation of its international offshore
marine services business from its only U.S. business operation, Ercon,
and its large holding of common stock of EVI. In order to accomplish
this separation, the Predecessor agreed to transfer the assets,
liabilities and operations of its offshore marine services business to
the Company (the "Contribution"). On April 30, 1997, the Contribution
occurred, and the offshore marine services business was separated from
the Predecessor through the distribution of all of the then
outstanding Common Stock of the Company to the Predecessor's common
stockholders (the "Distribution"). Following the Distribution, on May
1, 1997, a subsidiary of EVI was merged with and into the Predecessor,
whose assets then consisted principally of Ercon and its investment in
approximately 4.5 million shares of EVI common stock (adjusted to
reflect EVI's 2 for 1 common stock split in May 1997). Immediately
after the Merger, the Predecessor ceased public trading of its common
stock.
In connection with the Distribution, two shares of the Company's
Common Stock were issued for each share of the Predecessor common
stock. Also, in connection with the Merger, the Predecessor's
stockholders received shares of EVI common stock.
The Company's operations currently consist of the offshore marine
services business, which represents over half of the assets, revenues
and operating income of the businesses, operations and companies
previously constituting the Predecessor. Consequently, the following
Management's Discussion and Analysis of Financial Condition and
Results of Operations, and the Condensed Consolidated Financial
Statements included elsewhere herein, present the net assets and
results of operations of Ercon and the common stock of EVI owned by
the Predecessor as discontinued operations of the Company for all
periods presented.
Unless otherwise indicated, references to "GulfMark" or the
"Company" are (i) for all periods through April 30, 1997, the
effective date of the Contribution and Distribution to the Predecessor
and its consolidated subsidiaries (treating Ercon and the investment
in EVI as discontinued operations for all periods), and (ii) for all
periods subsequent to April 30, 1997, to GulfMark Offshore, Inc. and
its consolidated subsidiaries.
The Company provides marine support and transportation services
to companies involved in the offshore exploration and production of
oil and natural gas. The Company's vessels transport drilling
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materials, supplies and personnel to offshore facilities, as well as
move and position drilling structures. The majority of its operations
are conducted in the North Sea and, with the exception of one vessel
operating in Brazil, the balance of the Company's operations are
conducted in Southeast Asia. The Company's fleet has grown in size
and capability from an original 11 vessels acquired in late 1990 to
its present level of 30 vessels through strategic acquisitions and new
construction of technologically advanced vessels, partially offset by
dispositions of certain older, less profitable vessels. Twenty-one
vessels in GulfMark's fleet are owned, two are bareboat chartered and
seven are managed. The two bareboat charters run through August 1998.
The Company's results of operations are affected primarily by day
rates, fleet utilization and the number and type of vessels in its
fleet. These factors are driven by trends within the oil and natural
gas exploration and production industry, which generally affect the
demand for vessels, as well as by trends impacting the broader economy
and capital markets, which generally affect the supply of vessels.
While offshore support vessels service existing oil and natural gas
production platforms and exploration and development activities,
incremental demand depends primarily upon drilling activity, which, in
turn is related to both short-term and long-term trends in oil and
natural gas prices. As a result, trends in oil and natural gas prices
may significantly affect fleet utilization and day rates.
An additional factor affecting operating earnings is the mix of
vessels owned versus bareboat chartered by the Company. Owned and
bareboat chartered vessels generate operating revenues and may incur
expenses at similar rates. However, chartered vessels also incur
bareboat hire expense instead of depreciation expense, which is
generally less than charter hire expense.
In addition, the Company provides management services to other
vessel owners for a fee. Charter revenues and vessel expenses of such
vessels are not included in the Company's operating results, but
management fees are included in operating revenues. These vessels,
the Company's only crewboat and a standby rescue vessel that was
chartered by the Company through December 31, 1996, have been excluded
for purposes of calculating fleet rates per day worked and utilization
in the applicable periods.
The Company's operating costs are primarily a function of fleet
size and utilization levels. The most significant direct operating
costs are wages paid to vessel crews, maintenance and repairs and
marine insurance. Generally, fluctuations in vessel utilization
affect only that portion of the Company's direct operating costs that
are incurred when the vessels are active. As a result, direct
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operating costs as a percentage of revenues may vary substantially due
to changes in day rates and utilization.
In addition to these variable costs, the Company incurs fixed
charges related to the depreciation of its fleet and costs for routine
drydock inspections, maintenance and repairs designed to ensure
compliance with applicable regulations and maintaining certifications
for its vessels with various international classification societies.
Maintenance and repair expenses and marine inspection amortization
charges are generally determined by the aggregate number of
drydockings and other repairs undertaken in a given period. Costs
incurred for drydock inspection and regulatory compliance are
capitalized and amortized over the period between such drydockings,
typically two to three years.
Under applicable maritime regulations, vessels must be drydocked
twice in a five-year period for inspection and routine maintenance and
repair. Should the Company undertake a large number of drydockings in
a particular fiscal quarter, comparative results may be affected. For
the nine months ended September 30, 1997, the Company completed the
drydocking of ten vessels at an aggregate cost of $2.9 million, as
compared to five drydockings at an aggregate cost of $1.1 million in
the comparable period of 1996.
The Company contracted with a Norwegian shipyard in December 1994
for the construction of two UT 755 design platform supply vessels
("PSVs") for deployment in the North Sea. Delivery of the first
vessel, the Highland Piper, was made on March 15, 1996. The second
vessel, the Highland Drummer, was delivered January 3, 1997. The
Company made the final payment on the Highland Piper and interim
construction payments on the Highland Drummer (a total of $11.5
million) during 1996 and a final payment on the Highland Drummer of
$12.9 million in 1997. Funding of $7.3 million in 1997 was provided
by additional borrowings under existing credit facilities.
In August 1996, the Company purchased six offshore supply vessels
in Southeast Asia from Maritime (Pte), Limited (the "Maritime
Acquisition"). Funding for the Maritime Acquisition was provided
through a new $7.0 million bank facility and a drawdown under existing
loan facilities.
On November 1, 1996, the Company entered into a contract with a
Norwegian shipyard to construct the Highland Rover, an enhanced UT 755
design PSV, at a price of approximately $18.0 million denominated in
Norwegian Kroner. This new vessel, scheduled for delivery in March
1998, will be available to participate in the growing demand for
deepwater ROV support, standard supply duties and specialized services
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in the North Sea. The Company made interim construction payments of
$0.9 million in 1996 and has made $1.6 million of payments in 1997.
One additional payment of $0.8 million is required to be made in
December 1997. Final payment is due upon delivery of the vessel. The
Company anticipates financing the cost of the vessel through some
combination of additional borrowings available under a facility with
one of the Company's primary lenders, proceeds from the recently
completed offering of Common Stock of the Company and existing funds.
In March 1997, the Company entered into a contract to hedge 92.8
million Norwegian Kroner (approximately $13.1 million) of its
commitment on the Highland Rover against unfavorable fluctuations in
the British Pound Sterling to Norwegian Kroner exchange rate. Upon
delivery, any gain or loss under the hedging contract (a loss of
approximately $0.8 million as of September 30, 1997) will be included
in the cost of the vessel, but will be offset by the corresponding
change in the price of the vessel due to the exchange rate
fluctuation.
The Company has entered into agreements with two shipyards for
the construction of a total of three vessels. The first commitment
relates to the completion of an unfinished hull purchased by the
Company from a Singapore shipyard in April 1997. The completion of
the hull is currently in progress with George Prior Engineering, a
U.K. shipyard. Total costs for completion of the hull are estimated
at $13 million. The hull may be completed as a platform supply
vessel, anchor-handling, tug, supply vessel or as an FPSO support
vessel. The final choice will be determined based on market interest
and will be made in time for the shipyard to make the planned August
1998 completion. The Company made an initial payment of $2.5 million
in October 1997 and is scheduled to make an additional $2.5 million
payment in December 1997. The balance of the payments will be made in
1998.
The Company has also entered into an agreement with Bender
Shipbuilding and Repair, Inc., of Mobile, Alabama, for the
construction of two vessels at an approximate total cost of $22
million. Delivery of the 220' offshore support vessels is anticipated
in January and June 1999. The Company made an initial payment of $2.2
million in October 1997 and is expected to make additional payments
beginning in 1998 based on the completion of certain milestones. A
total of $14.5 million is anticipated to be paid in 1998 with the
balance due in 1999.
The Company has not obtained a commitment for financing the
vessels at this time but anticipates funding their completion through
a combination of additional bank financing, proceeds from the recently
completed stock offering and the use of existing funds.
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Results of Operations
The table below sets forth, by region, the average day and
utilization rates for the Company's vessels and the average number of
vessels owned or chartered during the periods indicated. These
vessels generate substantially all of the Company's revenues and
operating profit. The information detailed below is utilized by the
Company's management to evaluate the performance of the business.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Rates Per Day Worked (a)(b):
North Sea Fleet (c) $ 9,799 $ 8,752 $ 9,869 $ 8,230
Southeast Asia Fleet(d) 4,237 3,225 3,893 3,300
Overall Utilization(a):
North Sea Fleet 99.9% 96.5% 96.5% 94.8%
Southeast Asia Fleet(d) 89.4% 76.3% 72.1% 77.1%
Average Owned/Chartered Vessels(a)(e)
North Sea Fleet 9.0 8.0 9.0 7.7
Southeast Asia Fleet(d) 13.0 11.0 13.0 8.3
------ ------ ------ ------
Total 22.0 19.0 22.0 16.0
====== ====== ====== ======
</TABLE>
- ----------------------
(a) Includes all owned or bareboat chartered PSVs and AHTS vessels.
The Company's only crewboat and only standby rescue vessel
(which was chartered until December 31, 1996) are excluded, as are all
managed vessels.
(b) Rates per day worked is defined as total charter revenues divided by
number of days worked and utilization rate is total days worked
divided by total days in the period.
(c) Revenues for vessels in the North Sea fleet is earned in Sterling
(GBP) and has been converted to US Dollars (US$) at the average
exchange rate (US$/GBP) for the periods indicated. The average
rates were GBP=$1.627 and GBP=$1.555 for the quarters ended September 30,
1997 and 1996, respectively. The average rates for the nine months
ended September 30, 1997 and 1996 were GBP=$1.633 and GBP=$1.537,
respectively.
(d) Includes the vessel operating in Brazil.
(e) Adjusted for vessel additions and dispositions occurring during
each period.
Comparison of the Three Months Ended September 30, 1997 with the Three
Months Ended September 30, 1996.
Changes in the Company's fleet significantly affected the
comparability of the three month period ended September 30, 1997 to
the same period in 1996. The Company added the Highland Drummer, a
14
<PAGE>15
large PSV, to the North Sea fleet on January 3, 1997, and 6 vessels
acquired from Maritime to the Southeast Asia fleet in August 1996.
Revenues in the quarter ended September 30, 1997 increased 37%
over the same period in 1996. Income from continuing operations more
than doubled from $1.2 million ($0.17 per share) in 1996 to $2.6
million ($0.35 per share) in 1997.
The Highland Drummer accounted for almost one-fourth of the
increase in revenues and 20% of the increase in earnings. The vessels
acquired from Maritime accounted for 43% and 38% of the increases in
revenues and earnings, respectively. Other increases came from the
continuing increases in day rates in the North Sea and dramatic
improvements in day rates and utilization in Southeast Asia that began
during the second quarter.
The Company also had increases in its general and administrative
expenses of $0.2 million primarily as a result of the additional staff
necessary to support the increased size of the fleet as well as the
Company's fleet expansion in progress.
The Company's depreciation expense for the period increased by
$0.3 million as a result of the newly acquired vessels. Interest
expense for the period was up by $0.2 million from the comparable
period related to the acquisition of the new vessels. This increase
was partially offset by increases in interest income related to the
temporary investment of the proceeds of the Company's recent stock
offering which yielded $33.4 million to the Company.
In the three month period ended September 30, 1996, the Company
reflected income from discontinued operations of $4.6 million related
to the operations of Ercon and the Company's investment in EVI shares.
These operations were disposed of as a result of the spin-off of the
Company on April 30, 1997. The largest component of the income from
discontinued operations in 1996 relates to the sale of 11.8% of the
Company's investment in EVI, Inc. Net gain from the sale was $4.1
million.
Comparison of the Nine Months Ended September 30, 1997 with the Nine
Months Ended September 30, 1996.
Changes in the Company's fleet were significant between the two
periods. The 1997 period included nine months's use of the Highland
Piper, a large PSV in the North Sea, which was added March 15, 1996.
Additionally, the Company added a sister ship to the Highland Piper,
the Highland Drummer to the North Sea fleet on January 3, 1997. The
nine months ended September 30, 1997, also includes full usage of the
15
<PAGE>16
6 vessels acquired from Maritime (August 1996) in the Southeast Asia
fleet compared to only 2 months in 1996.
Revenues for the nine months ended September 30, 1997 increased
42% over the same period in 1996. Income from continuing operations
increased $3.2 million to $5.3 million ($0.76 per share) in 1997 from
$2.1 million ($0.31 per share) in 1996.
The North Sea fleet accounted for almost 60% of the increases in
revenues and 75% of the increases in earnings. The Highland Drummer
and Highland Piper represented just over one-half of the North Sea
revenue increases and one-third of the earnings increases with the
remaining increases coming from a 20% improvement in day rates.
Approximately 85% of the revenues and earnings increases in Southeast
Asia were attributable to the vessels acquired from Maritime.
Additional increases were attained from the recent improvements in day
rates and utilization that began late in the second quarter of 1997.
The Company also had increases in its general and administrative
expenses of $0.8 million primarily as a result of the additional staff
necessary to support the increased size of the fleet.
The Company's depreciation expense for the period increased by
$1.4 million as a result of the newly acquired vessels. Interest
expense for the period was up $1.0 million from the comparable period
related to the new debt for the acquisition of the new vessels.
In the nine month period ended September 30, 1997, the Company
reflected a loss from discontinued operations, net of taxes, of $0.6
million related to the operations of Ercon and the Company's
investment in EVI shares. In the nine month period ended September
30, 1996, income from discontinued operations, net of taxes was $4.4
million including an after tax gain on the sale of 11.8% of the
Company's investment in EVI, Inc. of $4.1 million.
Liquidity and Capital Resources
The Company's ongoing liquidity requirements arise primarily from
its need to service debt, fund working capital, acquire or improve
equipment and make other investments. Since its inception, the
Company has been active in the acquisition of additional vessels
through both the resale market and new construction. Bank financing
and internally generated funds have provided funding for these
activities. Currently, the Company has significant lending
relationships with two major European commercial banks. At September
30, 1997, the Company had outstanding debt of $56.0 million, all of
which is borrowed under various facilities with these banks. These
16
<PAGE>17
facilities are secured by preferred ship mortgages on 18 of the
Company's vessels and assignments of such vessels' earnings. Interest
on the borrowings accrues at rates between LIBOR plus 1% and LIBOR
plus 2.25%. Scheduled debt repayments are expected to total $2.7
million for the remainder of 1997. The loan facility agreements place
certain restrictions on the ability of the subsidiaries to pay
dividends. Cash held by these subsidiaries was $4.9 million as of
September 30, 1997. In connection with the pending completion of the
Highland Rover's construction, the Company restructured its existing
debt with one of the banks on June 11, 1997 by consolidating two
facilities together and increasing the facility amount by GBP 9.0
million (approximately $14.4 million) for the final payment (expected
March 1998) at an interest rate of LIBOR plus 1%. Terms for the new
facility require four quarterly principal payments of 0.57 million
pounds and 19 quarterly installments of 0.77 million pounds. A final
installment of 10.7 million pounds is due at the end of the 24th
quarter.
On August 14, 1997, the Company closed its offering to sell
1,000,000 shares of its common stock. On August 22, 1997, the
underwriters purchased an additional 125,000 shares of stock pursuant
to their over allotment option. Total proceeds to the Company were
$33.4 million net of offering costs of $0.6 million.
Net cash provided by operating activities of continuing operations
was $11.6 million for the nine month period ended September 30, 1997,
as compared to $4.5 million for the same period in 1996. This
increase resulted primarily from the increase in earnings.
Net cash used in investing activities was $19.6 million and $24.5
million for the nine months ended September 30, 1997 and 1996,
respectively. Each of these periods reflect significant vessel
acquisitions. In 1997, the Company took delivery of the Highland
Drummer while in 1996, the Company took delivery of the Highland Piper
and six vessels from Maritime. In the nine months period ended
September 30, 1997, the Company experienced a higher level of
expenditures related to the routine drydockings of ten of its vessels,
as compared to five drydockings in the same prior year period.
Net cash provided by financing activities was $32.1 million for
the period ended September 30, 1997 and $20.2 million for the period
ended September 30, 1996. Both periods included large inflows from
financing transactions. The 1997 period included proceeds from the
stock offering in August 1997. In the comparable 1996 period, the
Company took delivery of the Highland Piper which was entirely funded
with additional debt.
17
<PAGE>18
Substantially all of the Company's tax provision is for deferred
taxes. The net operating loss available in the United Kingdom is
primarily the result of accelerated depreciation allowances under
United Kingdom tax law.
The Company believes that the current reserves of cash and short
term investments, cash flows from operations and access to various
credit arrangements will provide sufficient resources to finance
internal operating requirements.
Currency Fluctuations and Inflation
Substantially all of the operations of the Company are overseas,
therefore it is exposed to currency fluctuations and exchange rate
risks. Charters for vessels in the North Sea fleet are primarily
denominated in Sterling and substantially all the operating costs are
in Sterling. North Sea operations generated $23.6 million in
revenues, $11.0 million in operating income and $10.6 million of cash
flows from operations for the nine months ended September 30, 1997.
In 1997 the Sterling/U.S. Dollar exchange rate ranged from a high of
GBP = U.S.$1.696 to a low of GBP = U.S. 1.579. For the nine month and
three month periods ended September 30, 1997, the average Sterling to
U.S. Dollar exchange rate was 1.633 and 1.627, respectively. The
exchange rates in the comparable 1996 periods were 1.537 and 1.555,
respectively. As of September 30, 1997, the Sterling/U.S. Dollar
exchange rate was GBP = U.S.$1.6185.
The Company reduces its exposure to currency fluctuations by
arranging for the debt financing on, and operating expenses of, each
vessel to be in the same currency in which the vessel's revenues will
be earned. The effect on cash flows of these fluctuations in the
Sterling/Dollar exchange rates is largely offset by the Sterling
dominated borrowings which accounted for $45.7 million; or 82% of
total debt as of September 30, 1997.
Reflected in the accompanying balance sheet for September 30,
1997, is a $2.3 million cumulative translation adjustment primarily
relating to the lower Sterling exchange rate as of September 30, 1997
in comparison to the exchange rate when the Company invested capital
in its United Kingdom subsidiaries. Changes in the cumulative
translation adjustment are non-cash items that are primarily
attributable to investments in vessels and are partially offset by the
Sterling denominated debt associated with the North Sea fleet.
Certain of the Company's Southeast Asia charters are denominated
in Malaysian ringgits as were a portion of its operating costs.
Revenues fixed in this currency were approximately $1.6 million for
18
<PAGE>19
1996. Revenues fixed in Malaysian ringgit in the nine month period
ended September 30, 1997 were $0.7 million. Malaysian currency rates
have been relatively stable until the early part of this quarter.
Beginning in July 1997, most currencies in Southeast Asia began to
weaken against the U.S. dollar. The Malaysian ringgit fell to as low
as M$=U.S.$0.29 and was M$=U.S.$0.31 at September 30, 1997. Prior to
this time the exchange rate stayed within 3% of M$=U.S.$0.40. In
connection with this decline, the Company began accepting charters
fixed in U.S. dollars with only a small percentage in local currency
to pay for the expenses denominated in that currency. The Company
does not currently hedge this currency. Where currency risks are
potentially high the Company accepts only a small percentage of
charter hire in local currency and the remainder is paid in U.S.
Dollars.
To date, general inflationary trends have not had a material
effect on the operating revenues or expenses of the Company.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and
other statements that are not historical facts concerning, among other
things, market conditions, the demand for marine support services and
future capital expenditures. Such statements are subject to certain
risks, uncertainties and assumptions, including, without limitation,
dependence on the oil and gas industry, ongoing capital expenditure
requirements, uncertainties surrounding environmental and government
regulation, risk relating to leverage, risk of foreign operations
assumptions concerning competition and risk of currency fluctuations
and other matters. There can be no assurance that the Company has
accurately identified and properly weighted all of the factors which
affect market conditions and demand for the Company's vessels, that
the information upon which the Company has relied is accurate or
complete, that the Company's analysis of the market and demand for its
vessels is correct or that the strategy based on such analysis will be
successful.
19
<PAGE>20
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 - Certificate of Incorporation of the Company (incorporated
by reference to Exhibit No. 3.1 to the Registration Statement on Form
S-4 No. 333-24141).
3.2 - Certificate of Amendment to Certificate of Incorporation of
the Company (incorporated by reference to Exhibit No. 3.2 to the
Registration Statement on Form S-4 No. 333-24141).
3.3 - By-laws of the Company (incorporated by reference to
Exhibit No. 3.3 to the Registration Statement on Form S-4 No.
333-24141).
4.1 - See Exhibit Nos. 3.1 and 3.2 for provisions of the
Certificate of Incorporation and By-laws of the Company defining the
rights of the holders of Common Stock.
4.2 - Specimen Certificate for the Company's Common Stock, $0.01
par value (incorporated herein by reference to Exhibit 4.2 of GulfMark
Offshore, Inc.'s Registration Statement on Form S-1, Registration No.
333-31139 filed July 11, 1997).
*27.1 - Financial Data Schedule.
* Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
20
<PAGE>21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GulfMark Offshore, Inc.
(Registrant)
By: /s/ Frank R. Pierce
-----------------------------
Frank R. Pierce
Executive Vice President
(Principal Financial Officer)
Date: November 5, 1997
21
<PAGE>22
EXHIBIT INDEX
Exhibit No. Description
3.1 - Certificate of Incorporation of the Company (incorporated
by reference to Exhibit No. 3.1 to the Registration Statement on Form
S-4 No. 333-24141).
3.2 - Certificate of Amendment to Certificate of Incorporation of
the Company (incorporated by reference to Exhibit No. 3.2 to the
Registration Statement on Form S-4 No. 333-24141).
3.3 - By-laws of the Company (incorporated by reference to
Exhibit No. 3.3 to the Registration Statement on Form S-4 No.
333-24141).
4.1 - See Exhibit Nos. 3.1 and 3.2 for provisions of the
Certificate of Incorporation and By-laws of the Company defining the
rights of the holders of Common Stock.
4.2 - Specimen Certificate for the Company's Common Stock, $0.01
par value (incorporated herein by reference to Exhibit 4.2 of GulfMark
Offshore, Inc.'s Registration Statement on Form S-1, Registration No.
333-31139 filed July 11, 1997).
*27.1 - Financial Data Schedule.
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF GULFMARK OFFSHORE, INC. AS OF
SEPTEMBER 30, 1997, AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,462
<SECURITIES> 0
<RECEIVABLES> 11,156
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,148
<PP&E> 117,708
<DEPRECIATION> 22,164
<TOTAL-ASSETS> 150,144
<CURRENT-LIABILITIES> 15,319
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 81,659
<TOTAL-LIABILITY-AND-EQUITY> 150,144
<SALES> 33,673
<TOTAL-REVENUES> 33,673
<CGS> 13,622
<TOTAL-COSTS> 22,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,831
<INCOME-PRETAX> 7,671
<INCOME-TAX> 2,331
<INCOME-CONTINUING> 5,340
<DISCONTINUED> 2,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,266
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
