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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934
Commission file number 000-22853
GULFMARK OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 76-0526032
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 POST OAK PARK, 77027
SUITE 1170, (Zip Code)
HOUSTON, TEXAS
(Address of principal executive offices)
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Registrant's telephone number, including area code: (713) 963-9522
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information Statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
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 [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based upon the price at which the stock was sold as of March 10,
1998: $96,600,000.
Number of shares of common stock outstanding as of March 10, 1998:
7,976,237.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.
(Exhibit Index located on page 52)
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1.
and 2. Business and Properties..................................... 3
General Business............................................ 3
Offshore Marine Services Industry........................... 3
The Company................................................. 8
Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related 14
Stockholder Matters.......................................
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations.................................
Item 8. Consolidated Financial Statements and Supplementary Data.... 24
Item 9. Changes in and Disagreements With Accountants on Accounting 47
and Financial Disclosure..................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 47
Item 11. Director and Executive Officer Compensation................. 47
Item 12. Security Ownership of Certain Beneficial Owners and 47
Management................................................
Item 13. Certain Relationships and Related Transactions.............. 47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 47
8-K.......................................................
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PART I
ITEM 1. AND 2. BUSINESS AND PROPERTIES
GENERAL BUSINESS
The Company was incorporated on December 4, 1996 under the name of "New
GulfMark, Inc.," a wholly owned subsidiary of the corporation then known as
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. operations, an erosion control business
("Ercon"), and its holding of common stock of Energy Ventures, Inc. (now known
as EVI, Inc. ("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") in accordance with the Agreement and Plan of Distribution dated
December 5, 1996 (the "Distribution Agreement") among the Company, the
Predecessor and EVI. Following the Distribution, on May 1, 1997, a subsidiary of
EVI was merged (the "Merger") with and into the Predecessor, whose assets then
consisted primarily of Ercon and an investment in approximately 4.5 million
shares of EVI common stock (adjusted to reflect EVI's 2 for 1 split in May
1997). Immediately after the Merger, the Predecessor ceased public trading of
its common stock.
The Consolidated Financial Statements included 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1 and 5 to the Consolidated Financial Statements of the Company.
In connection with the Distribution, two shares of the Company's Common
Stock were issued for each share of the Predecessor's common stock.
The Company provides offshore marine services to companies involved in
offshore exploration and production of oil and natural gas. The Company's
vessels transport drilling materials, supplies and personnel to offshore
facilities, as well as move and position drilling structures. The majority of
the Company's operations are conducted in the North Sea and, with the exception
of one vessel operating offshore Brazil, the balance are conducted in Southeast
Asia. See Note 12 to the consolidated financial statements for an analysis of
these geographic regions.
The principal executive offices of the Company are located at 5 Post Oak
Park, Suite 1170, Houston, Texas 77027-3414, and its telephone number at that
address is (713) 963-9522.
RECENT DEVELOPMENTS
On February 10, 1998, the Company completed the acquisition of 96% of the
common stock of Brovig Supply, ASA, ("Brovig") a publicly traded ship-owning
company in Norway. Brovig owns 5 vessels currently operating in the North Sea.
The Company expects to acquire the remaining shares near the end of the first
quarter of 1998. The purchase consideration of $73.0 million consisted of cash
provided from funds on hand, L10 million ($16.7 million) provided by a 9 month
bridge bank facility and the assumption of approximately NOK 277 million ($37.4
million) of debt. The fleet acquired consists of the Skandi Hawk, Skandi
Fortune, North Crusader, North Prince and the North Challenger and is very
similar to the Company's vessels currently deployed in the North Sea.
THE OFFSHORE MARINE SERVICES INDUSTRY
OVERVIEW
The offshore marine services industry employs vessels to provide services
that support the construction, positioning and ongoing operation of offshore oil
and natural gas drilling rigs and platforms ("Offshore Marine Services"). The
industry employs various types of vessels, referred to broadly as offshore
support vessels, that are used
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to transport materials, supplies, equipment and personnel. Offshore Marine
Services providers are employed by oil companies that are engaged in the
offshore exploration and production of oil and natural gas. Services provided by
companies in this industry are performed in numerous locations worldwide. In
excess of 100 vessels are being employed in each of the following major markets:
the Gulf of Mexico, the North Sea, offshore Southeast Asia, offshore West Africa
and the Persian Gulf. Vessel usage is also significant in other international
areas, including offshore Brazil, India, Australia and the Mediterranean Sea.
The industry is relatively fragmented, with more than 20 major participants and
numerous small regional competitors. Historically, few of these competitors have
participated in all five of the major markets. As of March 10, 1998, the Company
operates a fleet of 34 offshore support vessels, primarily in the North Sea (20
vessels) and Southeast Asia (13 vessels). Additionally, the Company operates one
vessel offshore Brazil. The Company expects delivery of six additional new
vessels by the end of 1998, three of which will be bareboat chartered, one will
be owned and two will be managed. See Note 12 to the Consolidated Financial
Statements for further information regarding geographic regions.
The Offshore Marine Services industry is directly impacted by the level of
activity in worldwide offshore oil and natural gas exploration, development and
production, which, in turn, is impacted by changes in oil and natural gas
prices. Oil and natural gas prices are affected by a host of geopolitical and
economic forces, including the fundamental principles of supply and demand.
Declines in oil and natural gas prices in the early 1980s and concerns relating
to the stability of prices that followed resulted in a significant reduction in
exploration and development activity worldwide. This decline in activity,
coupled with the overbuilding of new vessels in the early 1980s, resulted in an
oversupply of offshore support vessels. While there is some vessel
interchangeability between geographic regions, barriers such as mobilization
costs and vessel suitability restrict migration of excess capacity. This is most
notably the case in the North Sea, where vessel design requirements dictated by
the harsh operating environment restrict migration of vessels into that market
and, to a lesser degree, high operating costs restrict migration out of the
market. The effect of these restrictions on vessel migration is to segment
various regions into separate markets. These markets for Offshore Marine
Services are affected differently by the above-described forces because of each
area's unique blend of political, operating and economic factors.
Contract or charter durations vary from single day to multi-year in length,
based upon many different factors that vary by market. Historically, term
charters in the Offshore Marine Services industry have generally extended from
six months to one year in length. Additionally, there have been "evergreen"
charters (also known as "life of field" or "forever" charters), and at the other
end of the spectrum, there have been "spot" charters, which can vary from single
voyage to short duration charters of less than six months. Longer duration
charters are more common where equipment is not as readily available or specific
equipment is required. In the North Sea, multi-year charters have been more
common, and the Company believes that term charters constitute the majority of
the market. Term charters in Southeast Asia are currently somewhat less common
than in the North Sea and generally are two years or shorter in length. In
addition, charters for vessels in support of floating production, storage and
offloading ("FPSO") are typically "life of field" or "full production horizon"
charters. Charter periods, particularly in the North Sea, have tended to
increase recently with the award of a number of five-year charters and several
charters of longer duration.
VESSEL CLASSIFICATIONS
Offshore support vessels generally fall into seven functional
classifications derived from their primary or predominant operating
characteristics or capabilities. However, these classifications are neither
precise nor rigid, and it is not unusual for a vessel to fit in more than one of
these categories. These functional classifications are: (i) platform supply
vessels, (ii) anchor handling, towing and supply vessels, (iii) construction
support vessels, (iv) standby rescue vessels, (v) crewboats, (vi) specialty
vessels and (vii) utility vessels.
- PLATFORM SUPPLY VESSELS ("PSVS") serve drilling and production facilities
and support offshore construction and maintenance work. They are
differentiated from other offshore support vessels by their cargo
handling capabilities, particularly their large capacity and versatility.
Utilizing space on deck and below deck, they are used to transport
supplies such as fuel, water, drilling fluids, equipment and provisions.
PSVs range in size from 150(#) to 200(#). Large PSVs ("LgPSVs") range up
to 275(#) and are particularly suited for supporting large concentrations
of offshore production locations because of their large clear after decks
and below deck capacities. The Company operates 14 LgPSVs in the North
Sea (twelve of which are owned by the Company) that function primarily in
this classification but also are capable of service in construction
support. In
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addition, the Company operates two PSVs in the North Sea and one in
Southeast Asia that operate exclusively in this function and 11 SmAHTS
vessels (as defined below) in Southeast Asia that often support
production operations as PSVs.
- ANCHOR HANDLING, TOWING AND SUPPLY VESSELS ("AHTS") are used to set
anchors for drilling rigs and tow mobile drilling rigs and equipment from
one location to another. In addition, these vessels typically can be used
in limited supply roles when they are not performing anchor handling and
towing services. They are characterized by large horsepower (up to 18,000
brake horsepower ("BHP") for the most powerful North Sea Class AHTS
vessels), shorter after decks and special equipment such as towing
winches. Vessels of this type with less than 7,000 BHP are referred to as
small AHTS vessels ("SmAHTS"), while AHTS vessels in excess of 10,000 BHP
are referred to as large AHTS vessels ("LgAHTS"). The Company operates
two AHTS vessels in the North Sea one which is owned and 11 in Southeast
Asia. From time to time, all of the Company's AHTS vessels function as
PSVs.
- CONSTRUCTION SUPPORT VESSELS are vessels such as pipelaying barges or
specially designed vessels, such as pipe carriers, used to transport the
large cargos of material and supplies required to support the
construction and installation of offshore platforms and pipelines. As
indicated in the PSV section above, the Company operates 14 vessels
(twelve of which are owned by the Company) fitting the definition of pipe
carriers (LgPSVs). The Company's North Sea fleet has the distinction of
being the only significant concentration of pipe carrier capable vessels
outside of Scandinavian control.
- STANDBY RESCUE VESSELS ("STBY") perform a safety patrol function for an
area and are required for all manned locations in the United Kingdom
sector of the North Sea. These vessels typically remain on station to
provide a safety backup to offshore rigs and production facilities and
carry special equipment to rescue personnel. They are equipped to provide
first aid and shelter and, in some cases, also function as supply
vessels. The Company does not own any vessels of this type, but presently
manages two specialty vessels which operate in this capacity.
- CREWBOATS ("CREW") transport personnel and cargo to and from production
platforms and rigs. Older crewboats (early 1980s build) are typically
100(#) to 120(#) in length and are designed for speed and to transport
personnel. Newer crewboat designs are generally larger, 130(#) to 165(#)
in length, and have greater cargo carrying capacities. They are used
primarily to transport cargo on a time-sensitive basis. The Company owns
one of these vessels currently operating in Southeast Asia.
- SPECIALTY VESSELS ("SPV") generally have special features to meet the
requirements of specific jobs. The special features include large deck
spaces, high electrical generating capacities, slow controlled speed and
varied propulsion thruster configurations, extra berthing facilities and
long range capabilities. These vessels are primarily used to support
FPSOs, diving operations, ROVs, survey operations and seismic data
gathering, as well as oil recovery, oil spill response and well
stimulation. Two of the Company's owned vessels, the Highland Fortress
and the Highland Rover, frequently provides specialty functions, and two
managed vessels are chartered for specialty functions (the Clwyd
Supporter and the Sefton Supporter).
- UTILITY VESSELS are typically 90(#) to 150(#) in length and are used to
provide limited crew transportation, some transportation of oilfield
support equipment and, in some locations, standby functions. The Company
does not operate any vessels in this category.
THE NORTH SEA MARKET
The Company defines the North Sea market as offshore Norway, Denmark, the
Netherlands, Germany, Great Britain and Ireland, the Norwegian Sea and the area
West of Shetlands. Historically, this has been the most demanding of all
exploration frontiers due to harsh weather, erratic sea conditions, significant
water depth and long sailing distances. Exploration and production operators in
the North Sea market are typically large and well capitalized entities (such as
major oil companies and state owned oil companies), in large part because of the
significant financial commitment required in this market. Projects in the region
tend to be fewer in number, but larger in scope, with longer planning horizons,
than projects in regions with less demanding environments, such as the
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Gulf of Mexico. Consequently, vessel demand in the North Sea is generally more
steady and less susceptible to abrupt swings than vessel demand in other
regions.
The market can be broadly divided into three areas: exploration, production
platform support and field development or construction. Support of the volatile
exploration segment of the market represents the primary demand for AHTS
vessels. While supply vessels also support the exploration segment, they
additionally support the production and field construction segments, which
generally are not affected by frequent short-term swings in demand. However,
since AHTS vessels are capable of performing in a supply role during periods of
weakness in the exploration segment, the availability of AHTS vessels can put
downward pressure on PSV demand.
The Company's North Sea fleet is oriented toward supply vessels which work
in the more stable segments of production platform support and field development
or construction and includes fifteen owned vessels (14 PSVs and 1 AHTS) and five
managed vessels (two PSVs, one AHTS vessels and two SpVs). These vessels are
supported by onshore bases in Aberdeen, Scotland and Liverpool, England.
Over the past three years, the North Sea market has experienced
consistently high vessel utilization rates and increasing day rates. A number of
long-term drilling contracts were signed during 1995, increasing the demand for
vessels in 1996. Drilling activity continued to increase during 1996 and 1997,
as many semisubmersible drilling units were relocated to the North Sea. In
addition, the Company believes that long-term construction projects underway
indicate the North Sea market for construction support vessels will be strong
throughout 1998 and further indicates that demand in the region should continue
to be strong through 1999 and potentially 2000.
Countering the effect of expected improvements in demand from increased
exploration and construction activity is the increase in new vessel
construction. Limited new construction occurred in 1990 and 1991, and only a few
vessels were delivered between 1990 and 1995. In 1995 and 1996, the first
significant construction activity since the early 1980s occurred, with a number
of orders placed for delivery in 1996 and 1997. Market sources identify a total
of approximately 50 vessels on order in the North Sea region as of December 31,
1997 with anticipated delivery in 1998 or 1999. All of the new deliveries to
date have been chartered, and the Company believes that the market is capable of
absorbing the number of vessels currently on order.
THE SOUTHEAST ASIA MARKET
The Company defines the Southeast Asia market as offshore Asia bounded
roughly on the west by the Indian subcontinent and on the north by China. This
market includes offshore Brunei, Cambodia, Indonesia, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam. The design requirements for
vessels in this market are generally similar to the requirements in the Gulf of
Mexico. However, advanced exploration technology and rapid growth in energy
demand among many Pacific Rim countries have led to more remote drilling
locations, which has increased both the overall demand in this market and the
technical requirements for vessels. The Company believes that several major
exploration and production projects, which are currently in the planning stages,
will significantly increase the demand for Offshore Marine Services in the
Southeast Asia market.
The current shortage of vessels in the Gulf of Mexico has reduced the
universe of economically viable vessels available to be utilized in Southeast
Asia. Past practice has been for U.S. operators to transfer vessels out of the
Gulf of Mexico to work out their remaining useful lives in the Southeast Asia
market. In recent years, however, there has been pressure (most notably from
Malaysia) to upgrade offshore support vessel capabilities by establishing limits
on the age of vessels working in certain countries' territorial waters and
encouraging construction of new vessels designed particularly to operate in this
region.
In the Gulf of Mexico, there is currently little vessel attrition because
day rates are at levels that make substantial rehabilitation economic even with
relatively moderate extensions of vessel life. At the same time, there have been
announcements of meaningful new construction activity for Gulf of Mexico
vessels. An increase in the supply of Gulf of Mexico vessels may increase the
supply of vessels in Southeast Asia, although not all vessels currently
operating in the Gulf of Mexico would be able to operate in the Southeast Asia
market. Furthermore, transferring a vessel from the Gulf of Mexico market to
Southeast Asia would involve significant cash and opportunity costs.
The Southeast Asia market differs country by country, but the competitive
environment is broadly characterized by a large number of small companies, in
contrast to many of the other major offshore exploration and production
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areas of the world, where a few large operators dominate the market.
Affiliations and joint ventures with local companies are generally necessary to
maintain a viable marketing presence. The Company's management has been involved
in the region since the mid-1970s, and the Company currently maintains
long-standing business relationships with a number of local companies.
Vessels in this market are typically smaller than in certain other areas,
such as the North Sea. Yet, the varying weather conditions, annual monsoons and
long distances between supply centers in Southeast Asia have allowed for a
variety of vessel designs to compete in this market, each suited for a
particular set of operating parameters.
Indonesia is the only member of the Organization of Petroleum Exporting
Countries ("OPEC") in the region. Oil and natural gas exploration activity in
Indonesia has historically focused on oil exploration. Vessel demand in this
country softened in 1992, as exploration activities were reduced while some of
the major oil companies renegotiated their production royalty and tax structures
with local authorities. This reversed somewhat in 1993 and 1994, as some
agreements were reached. However, in 1995, the oil companies pressed for further
modifications to their production royalty and tax structures and reduced their
exploration budgets, resulting in lower-than-expected activity in 1995 and only
marginal improvement in 1996 and 1997. In 1998, the Indonesian market is
somewhat more uncertain as the effects of the recent turmoil in these economies
will only be determined as the year progresses.
The rapid economic growth of many countries in the Pacific Rim up to the
end of 1997 resulted in increased demand for energy and a related increase in
oil and natural gas exploration. Decisions by local governments to implement
policies that will reduce dependence on energy supplies from the Middle East
stimulated additional interest in exploration in Southeast Asia. Virtually every
country in the region has known or potential reserves for oil and natural gas.
However, exploration activity suffered during 1993 and 1994, when oil prices
declined, and has been slow to recover. Exploration budgets for the region were
higher in 1997, but there has been a reduction in available drilling rigs
because rigs have been redeployed to meet demand that has accelerated faster in
other areas of the world. There are no outward indications of a reduction in
planned activity in 1998; however, many of the countries where activity is
ongoing have experienced financial difficulties. In particular, the economies of
Malaysia, Thailand and Indonesia have been hard hit. This is likely to result in
a reduction in energy demand. Whether it will reduce exploration and production
activity remains to be seen.
THE BRAZILIAN MARKET
The Seapower has been operating in Brazil since 1995 under a contract which
extends through May 1999 with Petrobras, the Brazilian national oil company.
During the second quarter of 1998 the Company will take delivery of the Leopard
Bay, an AHTS being built by Sanko Shipping and bareboat chartered by the Company
for three years. This vessel will immediately mobilize to Brazil to begin a
3-year contract with Petrobras. Although, in the past, Brazil has experienced
periods of high inflation and changing political climates, the Company has
experienced no problems with its operations in this market. As the Brazilian
government continues to privatize the oil and natural gas industry, the Company
expects that additional charter opportunities may become available.
Similar to the North Sea, the Offshore Marine Services market in Brazil
requires a large number of highly sophisticated vessels due to the harsh
operating environment. The Company's ability to secure (and subsequently renew)
a multi-year commitment payable substantially in U.S. Dollars is an example of
the terms and conditions offered to attract such high quality vessels.
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THE COMPANY
THE COMPANY'S FLEET
The fleet as of March 10, 1998 includes 34 vessels, 27 of which are owned
(25 are mortgaged under various debt agreements), two are bareboat chartered and
five are under management. The following table summarizes information with
respect to each of these vessels, as well as twelve additional vessels currently
under construction as indicated with*:
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TYPE LENGTH BHP DWT
LOCATION VESSEL (A) FLAG BUILT (FEET) (B) (C)
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OWNED
TBD Bender #1* LgPSV TBD 1999 218 4,640 2,800
TBD Bender #2* LgPSV TBD 1999 218 4,640 2,800
OWNED
North Sea Gallant Project* TBD TBD 1998 TBA TBA TBA
North Sea Highland Rover(d) LgPSV UK 1998 236 5,450 3,700
North Sea Highland Drummer LgPSV UK 1997 221 5,450 3,115
North Sea Highland Piper LgPSV UK 1996 221 5,450 3,115
North Sea Highland Pride LgPSV UK 1992 265 6,600 4,000
North Sea Highland Star LgPSV UK 1991 265 6,600 4,000
North Sea Highland Fortress LgPSV UK 1982 255 6,120 3,200
North Sea Highland Warrior LgPSV Bermuda 1981 265 5,300 3,890
North Sea Highland Champion LgPSV UK 1979 265 4,800 3,320
North Sea Highland Legend PSV UK 1986 194 3,590 1,442
North Sea Highland Sprite PSV UK 1986 194 3,590 1,442
North Sea Skandi Hawk(e) LgPSV Norway 1990 265 6,600 4,000
North Sea Skandi Fortune(e) LgPSV Norway 1983 264 6,120 3,366
North Sea North Crusader(e) AHTS Norway 1984 236 12,000 2,064
North Sea North Challenger(e) LgPSV Norway 1997 221 5,450 3,115
North Sea North Prince(e) LgPSV UK 1978 259 6,000 2,717
CHARTERED
North Sea Ace Mercury* LgPSV Bermuda 1998 221 5,450 3,115
North Sea Sanko 755 #2* LgPSV Bermuda 1998 221 5,450 3,115
North Sea TormMark* AHTS UK 1999 241 15,000 2,900
MANAGED
North Sea Sea Truck LgPSV UK 1979 266 4,600 2,477
North Sea Clwyd Supporter SpV UK 1984 266 10,700 1,400
North Sea Sefton Supporter SpV UK 1971 250 1,620 1,233
North Sea Portosalvo AHTS UK 1982 227 12,750 2,085
North Sea Safe Truck LgPSV UK 1996 221 5,450 2,800
North Sea Sea Truck New Build* LgPSV UK 1998 275 7,200 4,590
North Sea Sanko 755 #3* LgPSV Bermuda 1998 221 5,450 3,115
North Sea Torm 1* AHTS UK 1999 241 15,000 2,900
North Sea Torm 2* AHTS UK 1999 241 15,000 2,900
North Sea Gargano* LgPSV UK 1999 236 5,450 3,700
OWNED
Southeast Sem Courageous SmAHTS Malaysia 1981 191 4,000 1,000
Asia
Southeast Sem Valiant SmAHTS Malaysia 1981 191 4,000 1,000
Asia
Southeast Seawhip SmAHTS Panama 1983 192 3,900 1,200
Asia
Southeast Seawitch SmAHTS Panama 1983 192 3,900 1,200
Asia
Southeast Sea Explorer SmAHTS Panama 1981 192 5,750 1,420
Asia
Southeast Sea Diligent SmAHTS Panama 1981 192 4,610 1,219
Asia
Southeast Sea Endeavor SmAHTS Panama 1981 191 4,000 1,000
Asia
Southeast Sea Conquest SmAHTS Panama 1977 185 3,850 1,142
Asia
Southeast Sea Searcher SmAHTS Panama 1976 185 3,850 1,215
Asia
Southeast Sea Eagle SmAHTS Panama 1976 185 3,850 1,215
Asia
Southeast Searunner Crew Panama 1982 120 2,720 126
Asia
CHARTERED
Southeast SeaMark South Carolina(f) SmAHTS Panama 1983 180 3,000 1,000
Asia
Southeast SeaMark Mississippi(f) PSV Panama 1982 180 2,250 1,000
Asia
OWNED
Brazil Seapower SpV Panama 1974 222 7,040 1,205
CHARTERED
Brazil Leopard Bay* AHTS Bermuda 1998 241 15,000 2,900
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(a) Legend:
LgPSV -- Large platform supply vessel
PSV -- Platform supply vessel
AHTS -- Anchor handling, towing and supply vessel
SmAHTS -- Small anchor handling, towing and supply vessel
Crew -- Crewboat
SpV -- Specialty vessel, including towing and oil spill response
TBD -- To be determined
(b) Brake horsepower.
(c) Deadweight tons.
(d) This modified and extended UT 755 design PSV was delivered on March 7,
1998.
(e) These vessels were acquired as part of the Brovig Supply ASA acquisition on
February 10, 1998.
(f) The SeaMark South Carolina and SeaMark Mississippi are bareboat chartered
(with a purchase option) through August 1998 to SeaMark Ltd., a Panamanian
corporation owned 51% by the Company and 49% by the vessels' owners.
The vessels in the fleet are capable of transporting supplies and personnel
to offshore drilling platforms and rigs, production platforms and other
installations. Twenty-five of the 27 owned vessels are used primarily for
carriage of cargo. Twelve of those 25 vessels are large PSVs, capable of
supporting offshore construction in the North Sea or large capacity platform
supply duties. Twelve owned vessels are capable of performing anchor handling
and towing services for moving rigs and platforms between locations. The
crewboat is smaller in length and is used primarily to transport crews to and
from offshore facilities.
The fleet summarized above includes the Company's most modern,
technologically sophisticated vessel to date, the Highland Rover, a modified and
extended (236') UT 755 design PSV that was delivered on March 7, 1998. In
addition to the standard capabilities of the technologically advanced UT 755
design, the Highland Rover is equipped with a computer-controlled maneuvering
system (also known as dynamic positioning) and is capable of launching ROVs
through a specialized "moon pool".
The table also reflects several vessels currently under construction. Those
under construction that will be owned include an unfinished supply vessel hull,
the Gallant Project, which is being finished at the U.K. shipyard, George Prior,
Ltd. The Company anticipates that delivery of this vessel will be in October
1998. The hull could be completed as a PSV or an AHTS vessel, although the
Company currently believes that the most attractive potential application may be
as a multipurpose support vessel for the floating production, storage and
offloading ("FPSO") market. For a variety of economic reasons, exploration and
production companies are increasingly employing FPSO structures in lieu of
conventional fixed platform installations. The FPSO market typically employs
more technologically advanced vessels capable of performing multiple functions,
potentially under longer term (even "life of field") charters. The Company
believes that the low cost (estimated at $15 million) and early delivery date of
the Gallant Project should provide a significant competitive advantage in
serving the growing FPSO market. Two additional vessels are under construction
by Bender Shipbuilding and Repair Co., Inc. ("Bender") in Mobile, Alabama. These
vessels are expected to be delivered in early and mid 1999. The Company also has
an option with Bender to construct two additional vessels of similar design.
CUSTOMERS, CHARTER TERMS AND COMPETITION
The Company's principal customers are major integrated oil companies and
large independent oil and natural gas exploration and production companies
working in international markets, as well as foreign government owned or
controlled organizations and companies that provide logistic, construction and
other services to such oil companies and foreign government organizations.
During 1997, as a result of multiple charters in the ordinary course of
business, three customers each accounted for 10% or more of total consolidated
revenues: Aberdeen Services Company (North Sea) ("ASCO") at 16.5%, Shell U.K.
Exploration and Production at 15.4% and European Marine Contractors ("EMC") at
13.2%. ASCO is a logistics coordinator primarily serving major international oil
companies
9
<PAGE> 10
(such as British Petroleum, Conoco and Amoco). EMC is a construction company
jointly owned by Brown & Root and Saipem, a subsidiary of ENI, the Italian
national oil company. The charters with these customers are industry standard
time charters. The charters involved several of the Company's vessels for
periods ranging from just a few days or months to two years. The charters are
generally not cancelable except for unsatisfactory performance by the vessel.
The loss of a major customer could have a material adverse effect on the
Company's financial condition and results of operations until a replacement is
obtained.
As of December 31, 1997, 15 of the Company's owned and bareboat chartered
vessels were on term charters with initial charter periods of one year or
longer. Six were on charters of less than one year but over 30 days and two of
the vessels were on a charter of less than 30 days.
Substantially all of the Company's charters are denominated in Sterling and
U.S. Dollars. The Company reduces currency risk by matching each vessel's
operating expenses to the currency in which it generates revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Currency Fluctuations and Inflation."
Offshore Marine Services companies compete principally on the basis of
suitability of equipment, price and service. Also, in certain foreign countries,
preferences are given to vessels owned by local companies. The Company has
attempted to mitigate some of the impact of such preferences through
affiliations and joint ventures with local companies.
The Company competes with approximately 15-20 similar companies in the
North Sea market and numerous small and large competitors in the Southeast Asia
market. Some of these competitors have significantly greater financial resources
than the Company.
ENVIRONMENTAL AND GOVERNMENT REGULATION
All of the Company's vessels are subject to various international
conventions, including certain safety, environmental and construction standards.
Among the more significant of the conventions applicable to the fleet are: (i)
the International Convention for the Prevention of Pollution of the Sea, 1973,
1979 Protocol, (ii) the International Convention on the Safety of Life at Sea,
1974, 1978 and 1981/1983 Protocol, and (iii) the International Convention on
Standards of Training, Certification and Watchkeeping for Seafarers. These
regulations govern oil spills and other matters of environmental protection,
worker health and safety and the manning, construction and operation of vessels.
The Company believes that it presently is in material compliance with the
environmental laws and regulations to which the Company's operations are
subject. In addition, the countries under which the vessels are flagged require
certain periodic inspections and drydock examinations. Generally, surveys and
inspections are performed by internationally recognized classification
societies. Most of the owned vessels are flagged in Panama, Norway, the United
Kingdom or Malaysia. The Company is not a party to any pending environmental
litigation or other proceeding, and is unaware of any threatened environmental
litigation or proceeding which, if adversely determined, would have a material
adverse effect on the financial condition or results of operations of the
Company. However, the risks of incurring substantial compliance costs and
liabilities and penalties for noncompliance are inherent in Offshore Marine
Service operations. There can be no assurance that significant costs,
liabilities, and penalties will not be incurred by or imposed on the Company in
the future.
OPERATIONAL RISKS AND INSURANCE
The operation of offshore support vessels is subject to various risks, such
as catastrophic marine disasters, adverse weather conditions, mechanical
failures, collisions, oil and hazardous substance spills and navigation errors,
all of which represent a threat to the safety of personnel and to the Company's
vessels, cargo, equipment and other property, as well as the environment. All of
the Company's operations are in foreign waters and, as such, are subject to the
usual risks inherent in doing business in foreign countries. Such risks include
political instability, possible vessel seizure, nationalization of assets,
currency restrictions, exchange rate fluctuations, import/export quotas and
other forms of public and governmental regulation, all of which are beyond the
control of the Company. The occurrence of any of these events could result in
loss of revenue, casualty loss, increased costs or significant liability to
third parties.
10
<PAGE> 11
The Company maintains insurance coverage against the casualty and liability
risks listed above which management considers to be adequate based on industry
standards and the value of the fleet, including hull and machinery insurance for
the vessels, protection and indemnity insurance against liabilities to employees
and third parties for injury, damage or pollution and other customary insurance.
The Company has not in the past experienced a loss in excess of policy limits.
There can be no assurance, however, that such insurance coverage will be
adequate to cover losses that the Company may incur or that adequate insurance
rates that the Company considers commercially reasonable will continue to be
available.
SEASONALITY OF BUSINESS
The operations of the fleet are subject to seasonal factors. Operations in
the North Sea are generally at their highest level during the months from April
to August and at their lowest levels during November to February. Vessels
operating in Southeast Asia are generally at their lowest utilization rates
during the monsoon season, which moves across the Asian continent between
September and early March. The actual monsoon season for a specific Southeast
Asia location is about two months. In addition, operations in any market may be
affected by unusually long or short construction seasons due to, among other
things, abnormal weather conditions.
EMPLOYEES
At December 31, 1997, the Company had 496 employees located in the United
States, the United Kingdom, Southeast Asia and Brazil. Through its contract with
a crewing agency, it participates in collective bargaining arrangements with 343
employees working on its North Sea vessels under agreements covering one-to-two
year periods. The Company has no other collective bargaining agreements.
Relations with the employees are considered satisfactory. To date, the
operations of neither the Company nor its Predecessor have been interrupted by
strikes or work stoppages.
PROPERTIES
The principal executive offices for the Company are located in Houston,
Texas, while operations are headquartered in Lafayette, Louisiana. For local
support, the Company has offices and warehouse facilities in Singapore and
Aberdeen, Scotland. All facilities except the one in Aberdeen, Scotland are
under lease. The Company's operations generally do not require highly
specialized facilities, and suitable facilities are generally available on a
lease basis as required.
ITEM 3. LEGAL PROCEEDINGS
DISTRIBUTION AGREEMENT OBLIGATIONS AND INDEMNITIES
Indemnification Obligations to EVI. The Company has agreed under the
Distribution Agreement to indemnify, defend and hold the Predecessor, EVI and
their respective officers, directors, employees, agents and assigns harmless
from and against any and all liabilities or environmental liabilities
(including, without limitation, reasonable fees and expenses of attorneys,
accountants, consultants and experts) that such parties incur, are subject to a
claim for, or are subject to, that are based upon, arising out of, relating to
or otherwise in respect of: (i) any breach of any covenant or agreement of the
Company contained in the Distribution Agreement or any other agreement
contemplated thereby; (ii) the acts or omissions of the Predecessor or any of
its current or past subsidiaries or affiliated companies ("Predecessor
Companies"), including Ercon, on or before the effective time of the
Distribution; (iii) the acts or omissions of any Predecessor Company (other than
Ercon), the Company or any of the Company's affiliates or the conduct of any
business by them on or after the effective time of the Distribution; (iv) the
Assumed Liabilities (as defined below) under the Distribution Agreement; (v) the
assets being contributed to the Company, regardless of the Predecessor's or any
Predecessor Company's prior use of any such asset; (vi) the conveyance,
assignment, sale, lease or making available of such assets; (vii) the
conveyance, assignment, sale, merger or contribution of the stock or share
capital or assets of Ercon to the Predecessor; (viii) any taxes as a result of
the Contribution, the Distribution or the Merger subsequently being determined
to be a taxable transaction for foreign, Federal, state or local law purposes,
regardless of the theory or reason for the transactions being subject to tax;
(ix) any and all amounts for which the Predecessor or EVI may be liable on
account of any claims, administrative charges, self-insured retentions, deduct-
11
<PAGE> 12
ibles, retrospective premiums or fronting provisions in insurance policies,
including as the result of any uninsured period, insolvent insurance carriers or
exhausted policies, arising from claims by the Predecessor's or any Predecessor
Company's affiliates, or the employees of any of the foregoing, or claims by
insurance carriers of the Predecessor or any Predecessor Company for indemnity
arising from or out of claims by or against the Predecessor or any Predecessor
Company for acts or omissions of the Predecessor or any Predecessor Company, or
related to any current or past business of the Predecessor or any Predecessor
Company or any product or service provided by the Predecessor or any Predecessor
Company in whole or part prior to the effective time of the Distribution; (x)
any liability under the Consolidated Omnibus Budget Reconciliation Act of 1986
with respect to any employees of the Predecessor or any Predecessor Company who
become employees of the Company after the Distribution; (xi) any settlements or
judgments in any litigation commenced by one or more insurance carriers against
the Predecessor or EVI on account of claims by the Company or any Predecessor
Company or employees of the Company or any Predecessor Company; (xii) any and
all liabilities incurred by the Predecessor or EVI pursuant to its obligations
hereunder in seeking to obtain or obtaining any consent or approval to assign,
transfer or lease any interest in any asset or instrument, contract, lease,
permit or benefit arising thereunder or resulting therefrom; (xiii) any
liability relating to the failure to comply with any bulk sales or transfer laws
in connection herewith or with any of the other agreements contemplated hereby;
(xiv) the on-site or off-site handling, storage, treatment or disposal of any
Waste Materials (as defined below) generated by the Predecessor or any
Predecessor Company on or prior to the effective time of the Distribution or any
Predecessor Company (other than Ercon) at any time; (xv) any and all
Environmental Conditions (as defined below) on or prior to the effective time of
the Distribution, known or unknown, existing on, at or underlying any of the
properties owned, leased or operated by the Predecessor or Ercon on or after the
effective time of the Distribution; (xvi) any and all Environmental Conditions,
known or unknown, existing on, at or underlying any of the properties currently
or previously owned or operated by the Predecessor or any Predecessor Company
other than the properties owned, leased or operated by the Predecessor or Ercon
after the effective time of the Distribution; (xvii) any acts or omissions on or
prior to the effective time of the Distribution of the Predecessor or any
Predecessor Company relating to the ownership or operation of the business of
the Predecessor or any Predecessor Company or the properties currently or
previously owned or operated by the Predecessor or any Predecessor Company;
(xviii) any liability relating to any claim or demand by any stockholder of the
Predecessor or EVI with respect to the Contribution, the Distribution, the
Merger or the transactions relating thereto; and (xix) any liability relating to
the Predecessor's 401(k) Plan and the other employee benefit or welfare plans of
the Predecessor or any Predecessor Company arising out of circumstances
occurring on or prior to the effective time.
Covenants of the Company Relating to the EVI Indemnification. The Company
agreed in the Distribution Agreement that it will not, and will cause its
subsidiaries not to, merge, convert into another entity, engage in a share
exchange for a majority of its shares, liquidate or transfer, assign or
otherwise convey or allocate, directly or indirectly, in one or more
transactions, whether or not related, a majority of the Company's assets
(determined in good faith by a board resolution prior to the transaction on a
fair value and consolidated basis) to any person unless the acquiring person (i)
expressly assumes the obligations of the Company under the Distribution
Agreement, (ii) executes and delivers to the Predecessor and EVI an agreement
agreeing to be bound by each and every provision of the Distribution Agreement
as if the acquiring person were the Company and (iii) has a net worth on a pro
forma basis after giving effect to the acquisition or business combination equal
to or greater than that of the Company (on a consolidated basis).
Certain Definitions Under the Distribution Agreement. For purposes of the
Distribution Agreement, the following terms have the following meanings:
"Assumed Liabilities" means any and all liabilities and environmental
liabilities other than the Predecessor Retained Liabilities (as defined below)
to which the Predecessor or any of the assets being contributed to the
Predecessor may now or at any time in the future become subject (whether
directly or indirectly, including by reason of the Predecessor or any
Predecessor Company, excluding Ercon, owning, controlling or operating any
business or assets of any person (including any current or past affiliate)),
resulting from, arising out of or relating to (i) any Predecessor Company, (ii)
any taxes to which the Predecessor or any Predecessor Company may be obligated
for periods ending on or before the effective time of the Distribution, (iii)
any obligation, matter, fact, circumstance or action or omission by any person
in any way relating to or arising from the business, operations or assets of the
Predecessor or Ercon that existed on or prior to the effective time of the
Distribution, (iv) any product or service
12
<PAGE> 13
provided by the Predecessor or any Predecessor Company prior to the effective
time of the Distribution, (v) the Contribution, the Distribution, the Merger or
any of the other transactions contemplated by the Distribution Agreement, (vi)
previously conducted operations of the Predecessor or any Predecessor Company or
(vii) the assets contributed to the Company.
"Environmental Conditions" means any pollution, contamination, degradation,
damage or injury caused by, related to, arising from or in connection with the
generation, handling, use, treatment, storage, transportation, disposal,
discharge, release or emission of any Waste Materials.
"Environmental Laws" means all laws, rules, regulations, statutes,
ordinances, decrees or orders of any governmental entity now or at any time in
the future in effect relating to (i) the control of any potential pollutant or
protection of the air, water or land, (ii) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation and (iii)
exposure to hazardous, toxic or other substances alleged to be harmful. The term
"Environmental Laws" includes, without limitation, (1) the terms and conditions
of any license, permit, approval or other authorization by any governmental
entity and (2) judicial, administrative or other regulatory decrees, judgments
and orders of any governmental entity. The term "Environmental Laws" includes,
but is not limited to the following statutes and the regulations promulgated
thereunder: the Clean Air Act, 42 U.S.C. sec. 7401 et seq., the Clean Water Act,
33 U.S.C. sec. 1251 et seq., the Resource Conservation Recovery Act, 42 U.S.C.
sec. 6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C.
sec. 11011 et seq., the Toxic Substances Control Act, 15 U.S.C. sec. 2601 et
seq., the Water Pollution Control Act, 33 U.S.C. sec. 1251, et seq., the Safe
Drinking Water Act, 42 U.S.C. sec. 300f et seq., the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. sec. 9601, et seq., and any
state, county or local regulations similar thereto.
The "Predecessor Retained Liabilities" means, and is limited solely to, (i)
accounts payable relating to the business of Ercon that are reflected on the
balance sheet of the Predecessor at the effective time of the Distribution, (ii)
accounts payable reflected on the balance sheet of the Predecessor at the
effective time of the Distribution and agreed to by EVI and (iii) the
obligations of the Predecessor and Ercon that arise after the effective time of
the Distribution (other than obligations relating to matters existing or
occurring on or prior to the effective time of the Distribution and
indemnification, warranty and product liability, wrongful death or property
claims associated with actions or omissions prior to the effective time of the
Distribution or any business conducted prior to the effective time of the
Distribution), including those obligations set forth under the express terms of
the contracts of the Predecessor relating to the operations of Ercon.
"Waste Materials" means any (i) toxic or hazardous materials or substances,
(ii) solid wastes, including asbestos, polychlorinated biphenyls, mercury,
buried contaminants, chemicals, flammable or explosive materials, (iii)
radioactive materials, (iv) petroleum wastes and spills or releases of petroleum
products and (v) any other chemical, pollutant, contaminant, substance or waste
that is regulated by any governmental entity under any Environmental Law (as
defined above).
LEGAL PROCEEDINGS
Various legal proceedings and claims that arise in the ordinary course of
business may be instituted or asserted against the Company relating to the
Offshore Marine Services operations. Additionally, the Company may be subject to
claims for indemnification by the Predecessor and EVI pursuant to the Company's
indemnity obligations under the indemnities described above under "Distribution
Agreement Obligation and Indemnities." Although the outcome of litigation cannot
be predicted with certainty, management believes, based on discussions with its
legal counsel and in consideration of reserves recorded, that the outcome of
these legal actions will not have a material adverse effect upon the
consolidated financial position and results of operations of the Company. The
Company cannot predict whether any such claims may be made in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq National Market under the symbol
"GMRK." The following table sets forth the range of high and low sales prices
for Common Stock for the periods indicated, as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
May 1, 1997 (first post-Distribution trading day; "when
issued" basis)............................................ $14 1/2 $13
Period ended June 30, 1997.................................. $26 $13
Quarter ended September 30, 1997............................ $35 1/4 $25 5/8
Quarter ended December 31, 1997............................. $40 1/2 $25 1/2
</TABLE>
On March 10, 1998, the closing sale price of the Common Stock as reported
by the Nasdaq National Market was $23 1/2 per share.
As of March 10, 1998, there were 2,788 shareholders of record.
The Company has not declared or paid any dividends during the past five
years. The Company currently anticipates that, for the foreseeable future, any
earnings will be retained for the development of the Company's business. The
declaration of dividends is at the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Board of
Directors at such time as may be appropriate in light of future operating
conditions, dividend restrictions of subsidiaries and investees, financial
requirements, general business conditions and other factors. Currently, four of
the Company's subsidiaries, Gulf Offshore N.S. Ltd. (United Kingdom), Gulf
Offshore Far East, Inc. (Panama), Gulf Offshore Marine International, Inc.
(Panama) and Gulf Offshore Shipping Services, Inc. (Panama), are restricted
under certain debt agreements from paying dividends to the Company without the
lender's approval. These subsidiaries own 10 vessels currently operating in the
North Sea and 10 vessels currently operating in Southeast Asia.
14
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Consolidated Financial Statements included herein, as well as the
financial data presented in the table below, 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. The data
presented below should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto included in Item 8 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.................................................... $ 46,019 $ 34,749 $ 27,233 $27,692 $ 22,564
Direct operating expenses................................... 18,231 16,178 15,386 15,171 12,060
General and administrative expenses......................... 5,364 4,523 3,483 3,643 3,280
Depreciation and amortization............................... 6,711 5,013 5,472 5,065 3,752
-------- -------- -------- ------- --------
Operating income............................................ 15,713 9,035 2,892 3,813 3,472
Gain on sale of vessel...................................... -- -- -- 842 --
Interest expense, net....................................... (3,819) (3,467) (2,613) (2,179) (2,047)
Other income (expense), net................................. (73) (86) 180 (12) 68
Income tax provision........................................ (3,626) (1,839) (91) (981) (534)
-------- -------- -------- ------- --------
Income from continuing operations........................... 8,195 3,643 368 1,483 959
Income (loss) from discontinued operations, net of taxes.... (648) 4,796 (2,270) 591 1,685
Loss on disposal of segment, net of taxes................... (1,426) -- -- -- --
-------- -------- -------- ------- --------
Net income (loss)........................................... $ 6,121 $ 8,439 $ (1,902) $ 2,074 $ 2,644
======== ======== ======== ======= ========
Earnings per share from continuing operations (basic)....... $ 1.15 $ 0.55 $ 0.06 $ 0.22 $ 0.14
Weighted average common shares (basic)...................... 7,155 6,676 6,644 6,640 6,624
Earnings per share from continuing operations
(diluted)(a).............................................. $ 1.11 $ 0.54 $ 0.06 $ 0.22 $ 0.14
Weighted average common shares (diluted)(a)................. 7,413 6,782 6,703 6,666 6,664
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in) operating activities
of continuing operations.................................. $ 19,112 $ 8,539 $ 6,389 $ 5,448 $ 2,653
Cash provided by (used in) investing activities............. (37,218) (24,493) (15,093) (258) (16,836)
Cash provided by (used in) financing activities............. 28,658 17,894 9,567 (7,970) 12,810
Effect of exchange rate changes on cash..................... (541) 924 (160) 124 (56)
OTHER DATA:
EBITDA(b)................................................... $ 22,424 $ 14,048 $ 8,364 $ 8,878 $ 7,224
Cash dividends per share.................................... -- -- -- -- --
Total vessels in fleet(c)................................... 30 28 22 20 25
Average number of owned or chartered vessels(d)............. 22.0 17.3 14.0 15.2 14.4
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 25,885 $ 17,234 $ 5,136 $ 2,645 $ 5,195
Vessels and equipment, net.................................. 105,262 87,405 61,343 51,175 53,002
Net assets of discontinued operations(e).................... -- 14,837 19,275 23,512 23,569
Total assets including discontinued operations.............. 154,661 131,307 94,179 87,821 90,727
Total assets excluding discontinued operations.............. 154,661 116,470 74,904 64,309 67,158
Long-term debt(f)........................................... 42,918 50,811 33,600 26,727 30,169
Total stockholders' equity.................................. 85,272 62,016 50,928 53,025 50,388
Total stockholders' equity excluding discontinued
operations(g)............................................. 85,272 47,179 31,653 29,513 26,819
</TABLE>
- ---------------
(a)Earnings per share is based on the weighted average number of shares of
Common Stock and common stock equivalents outstanding.
(b)As used herein, EBITDA is operating income plus depreciation and
amortization. EBITDA can be used by management of the Company as a
supplemental financial measurement in the evaluation of its business and in
establishing its capital budget and should not be considered as an
alternative to net income, as an indicator of the operating performance of
the Company, as an alternative to cash flows or as a measure of liquidity.
Because EBITDA is not uniformly calculated among and across industry groups,
this measure may not be comparable to similarly titled measures reported by
other companies. EBITDA is presented here to provide additional information
about the Company.
(c)Includes managed vessels in addition to those that are owned and chartered.
See pages 8 and 9 for further information concerning the Company's fleet.
(d)Includes owned and chartered PSVs and AHTS vessels only. Adjusted for
additions and dispositions occurring during each period. See pages 8 and 9
for further information concerning the Company's fleet.
(e)Reflects the financial statement information for the non-marine businesses of
the Company's Predecessor.
(f)Excludes current portion of long-term debt.
(g)Discontinued operations were disposed of on May 1, 1997.
15
<PAGE> 16
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, contained
herein. See also "Selected Consolidated Financial Data."
GENERAL
The Company was incorporated on December 4, 1996 under the name of "New
GulfMark, Inc.," a wholly owned subsidiary of 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. 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 in
accordance with the Distribution Agreement. 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 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. See Note 1 to the Consolidated Financial Statements.
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 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. See Notes 1
and 5 to the Consolidated Financial Statements.
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 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 34 vessels through strategic acquisitions and new construction
of technologically advanced vessels, partially offset by dispositions of certain
older, less profitable vessels. Twenty-seven vessels in GulfMark's fleet are
owned, two are bareboat chartered and five 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 charter hire expense instead of
depreciation expense, which is generally less than charter hire expense.
16
<PAGE> 17
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 years.
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 is incurred when the vessels are active. As a
result, direct 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 and maintenance and repairs designed to ensure compliance with
applicable regulations and to maintain 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 period,
comparative results may be affected. For the year ended December 31, 1997, the
Company completed the drydocking of 14 vessels at an aggregate cost of $4.0
million, versus five vessels drydocked at an aggregate cost of $1.2 million in
1996 and six vessels at an aggregate cost of approximately $1.1 million in 1995.
The Company contracted with a Norwegian shipyard in December 1994 for the
construction of two UT 755 design 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.
On November 1, 1996, the Company entered into a contract with a Norwegian
shipyard to construct the Highland Rover, an enhanced UT 755 design LgPSV, at a
price of approximately $17.4 million denominated in Norwegian Kroner. This new
vessel was delivered on March 7, 1998, and is chartered to operate in the
growing demand for deepwater ROV support, standard supply duties and specialized
services in the North Sea. The Company made interim construction payments of
$2.5 million in 1997, and interim construction payments of $0.9 million in 1996.
A final payment of $14.0 million was made on delivery. The Company financed the
cost of the vessel through additional borrowings, proceeds from the August 1997
sale of the Company's Common Stock and existing funds.
In April 1997, the Company acquired an unfinished supply vessel hull from a
Singapore shipyard. In October, the hull was committed to a shipyard in England.
The anticipated cost of completing the hull including the acquisition cost of
the hull is approximately $15.1 million. A total of $7.2 million of the cost was
incurred in 1997 with the balance to be paid in 1998, based on the completion of
certain construction milestones. Delivery of the completed vessel is expected in
October of 1998.
In October 1997, the Company entered into a contract for the construction
and delivery of two platform supply vessels with Bender Shipbuilding and Repair
Co., Inc. in Mobile, Alabama. The contract cost for the completion of each of
these vessels is approximately $11.0 million. Delivery of the first vessel is
expected in early 1999, and the second vessel is anticipated in mid-1999. The
Company also has an option for the construction of two additional vessels. A
total of $2.2 million was paid during 1997 related to these vessels, and an
estimated $14.5 million is expected to be remitted in 1998 with the balance due
in 1999.
During 1997, the Company entered into an agreement to bareboat charter an
AHTS from Sanko Shipping for a three-year period. The anticipated delivery date
for this vessel is during the second quarter of 1998. Additionally, the Company
has entered into agreements to bareboat charter two additional platform supply
vessels from Sanko for similar three-year terms. These vessels are UT 755's
similar to the Company's Highland Piper and Highland Drummer. Anticipated
delivery for these two vessels is during the third quarter of 1998.
17
<PAGE> 18
In December 1995, the Company purchased the Atlantic Warrior (renamed the
Highland Warrior), a 1981-built pipe carrier/PSV that had been bareboat
chartered by the Company since July 1993, when the Company acquired the charter
as part of its acquisition of BP Shipping's offshore assets.
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.
RESULTS OF OPERATIONS
The table below sets forth, by region, the average day and utilization
rates for the Company's PSVs and AHTS vessels and the average number of such
vessels owned or bareboat 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>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Rates Per Day Worked(a)(b):
North Sea Fleet(c)..................................... $9,930 $8,819 $7,840
Southeast Asia Fleet(e)................................ 3,986 3,347 3,146
Overall Utilization(a)(b):
North Sea Fleet........................................ 96.5% 95.1% 96.4%
Southeast Asia Fleet(e)................................ 75.2% 77.5% 80.5%
Average Owned or Chartered Vessels(a)(d):
North Sea Fleet........................................ 9.0 7.8 7.0
Southeast Asia Fleet(e)................................ 13.0 9.5 7.0
------ ------ ------
Total.......................................... 22.0 17.3 14.0
====== ====== ======
</TABLE>
- ---------------
(a) Includes all owned or bareboat chartered PSVs and AHTS vessels. The
Company's only crewboat and only standby rescue vessel (which was chartered
until December 31, 1996) are excluded, as are all managed vessels.
(b) Rates per day worked is defined as total charter revenues divided by number
of days worked. Utilization rate is defined as the total number of days
worked divided by the total number of days in the period.
(c) Revenues for vessels in the North Sea fleet are earned in Sterling (L) and
have been converted to U.S. Dollars ($) at the average exchange rate ($/L)
for the periods indicated. The average exchange rates for the years ended
December 31, 1997, 1996 and 1995 were L = $1.64, L = $1.56 and L = $1.58,
respectively.
(d) Adjusted for vessel additions and dispositions occurring during each
period.
(e) Includes the vessel currently operating in Brazil.
Comparison of the Fiscal Years Ended December 31, 1997 and December 31, 1996.
The year ended December 31, 1997, included significant changes from the
same period last year. Two large PSVs, the Highland Piper and the Highland
Drummer, were purchased and added to the Company's North Sea fleet on March 15,
1996 and January 3, 1997, respectively. The Southeast Asia fleet operated with
an additional six vessels for the full year compared to only five months in the
previous year. Utilization rates in the North Sea remained high and there was an
increase in day rates.
Overall, revenues and earnings for the year ended December 31, 1997
increased sharply as compared to the year ended December 31, 1996. Income from
continuing operations in 1997 was $8.2 million, or $1.11 per share (diluted), as
compared to $3.6 million, or $0.54 per share (diluted), for 1996. Revenues in
1997 increased $11.3 million, or 32%, from the comparable period.
One-half of the revenue increase and two-thirds of the earnings increase
came from the North Sea fleet. In excess of 60% of the increase in revenue and
one-third of the increased earnings were attributable to the additions of the
Highland Piper in March 1996 and the Highland Drummer in January 1997. The
balance of the increases came from
18
<PAGE> 19
broadly improved day rates in the region. The average day rate for the North Sea
fleet was up approximately 13% from the prior year. The rate increases were
caused by both improved market conditions, which accounted for 7% of the
increase, and a favorable move in the Sterling to U.S. Dollar exchange rate,
which accounted for the additional increase. The average utilization rate for
the North Sea fleet increased from 95% in 1996 to 97% in 1997.
In Southeast Asia, revenues increased approximately 65%, or $5.0 million,
and vessel earnings increased more than 94%, or $3.1 million. The addition of
six vessels in the Maritime Acquisition accounted for 62% of the earnings
increases. In Southeast Asia, the fleet has seen increases in day rates
throughout the year as well as improvements in utilization rates. Overall
utilization in Southeast Asia was down moderately compared to 1996 because
during the first quarter of 1997, management was unwilling to accept term
charters at the prevailing market rates in that period preferring to operate the
vessel on spot-market charters. The Company was anticipating an improving
market. Beginning in the second quarter of 1997, rates in that region began to
improve and term charters were accepted.
The increase in general and administrative expenses of approximately $0.9
million was attributable to the addition of staff and related costs to support
the increased size of the Company's Singapore operations and to provide
additional support for construction and project work worldwide.
Increases in depreciation of $1.7 million were related to the addition of
the two new vessels in the North Sea and the six additional vessels in Southeast
Asia. Interest expense increased due to debt incurred for the addition of the
vessels indicated above. This increase was partially offset by increased
capitalized interest related to the various vessels under construction. Interest
rates during the two periods were not materially different. Additionally, the
Company realized the benefits of increased interest income related to the
proceeds from the Company's August 1997 equity offering.
The Company reflected an operating loss from discontinued operations of
$0.6 million, compared to a gain of $4.8 million in 1996. The loss in 1997 was
primarily due to provisions for certain legal and tax issues related to Ercon's
operations. The income reflected in 1996 included the gain of approximately $4.1
million from the sale of 300,000 shares of EVI, Inc. held by the Company.
Comparison of the Fiscal Years Ended December 31, 1996 and December 31, 1995.
The number of vessels in the fleet increased from 22 at December 31, 1995
to 28 at December 31, 1996. In March 1996, the Company took delivery of the
Highland Piper, which was immediately chartered. In August 1996, the Company
acquired six offshore supply vessels in Southeast Asia and, effective December
31, 1996, the Company terminated its bareboat charter of the standby rescue
vessel, Atlantic Guardian, and returned it to its owner. In addition, the
Company secured a management contract for the UT 755 Safe Truck, and the
management contract for the Whalley Supporter was terminated. These changes
brought the total fleet to 28 vessels at the end of 1996. Fourteen of the
vessels were in the North Sea fleet, 13 were in the Southeast Asia fleet and one
vessel was operating under a long-term charter offshore Brazil.
Revenues and operating income for 1996 were $34.7 million and $9.0 million,
respectively, compared to $27.2 million and $2.9 million, respectively, for
1995. The increased revenues were primarily attributable to the addition of the
Highland Piper to the North Sea fleet, as well as sharply increased day rates in
the North Sea. The rate increases were most notable late in the period for the
Highland Pride and Highland Fortress. The addition of six vessels to the
Company's Southeast Asia fleet in the Maritime Acquisition also contributed to
the increase in revenue. Approximately 75% of the increase in earnings is
attributable to the North Sea fleet, whose day rates increased sharply while
utilization and operating costs per day remained stable. In addition, the
acquisition of the Highland Warrior late in 1995 contributed significantly to
earnings, while not materially increasing revenue, since it had been under
charter to the Company since 1993. Although depreciation increased as a result
of the acquisition of this vessel, the increase was more than offset by the
elimination of the bareboat charter fee.
The balance of the increase in earnings came from (i) the additions to the
Southeast Asia fleet, (ii) increased utilization of the Seapower, which
commenced a two-year charter in Brazil effective May 1995 (extended through May
1999) and (iii) increased utilization of the crewboat Searunner. The utilization
rate for the Seapower increased to 100%, from 63% in 1995, and the utilization
rate for the Searunner increased to 58%, from 39% in 1995. The average day rate
for the Southeast Asia fleet for 1996 increased approximately 6% over the
average rate for 1995, and
19
<PAGE> 20
the average operating costs per day decreased slightly, while utilization
dropped to approximately 78% from the 1995 level of 81%. These averages include
the vessel in Brazil but do not include the Company's only crewboat, the
Searunner.
The increase in general and administrative expenses of approximately $1.0
million was attributable to the addition of staff to support the increased size
of the Company's Southeast Asia operations and to provide additional support for
construction and project work Company-wide, as well as the generally increased
level of activity.
Earnings benefited from reduced depreciation rates resulting from the
Company's change (effective January 1, 1996) in its estimate of vessel useful
lives from 20 years to 25 years. The effect of this benefit on 1996 earnings was
offset in Southeast Asia by increased depreciation associated with the 1996
Southeast Asia fleet additions and in the North Sea by increased depreciation
associated with the addition of the Highland Piper and Highland Warrior.
Interest expense, net of interest income, increased from $2.6 million in
1995 to $3.5 million in 1996 due to the overall increase in debt associated with
the various vessel additions. These increases were partially offset by a
decrease in average Sterling interest rates for the respective periods from 9.4%
to 7.7%. At December 31, 1996, approximately 81% of the Company's debt was
Sterling denominated.
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 December 31, 1997,
the Company had outstanding debt of $53.4 million, which is borrowed under
various facilities primarily with these banks. These facilities are secured by
preferred ship mortgages on 19 of the Company's vessels and assignments of such
vessels' earnings. Interest on the vessel borrowings accrues at rates between
LIBOR plus 1% and LIBOR plus 1 5/8%. Interest on debt secured by the Company's
Aberdeen, Scotland office accrues at LIBOR plus 2.25%. Debt repayments during
1997 totaled $12.7 million. Scheduled debt repayments related to this debt are
expected to total $10.5 million for 1998. The loan facility agreements place
certain restrictions on the ability of the subsidiaries to pay dividends. Cash
held by these subsidiaries was $4.3 million as of December 31, 1997. In
connection with the March 1998 delivery of the Highland Rover, the Company
restructured its existing debt with one of the banks on June 11, 1997 by
consolidating two facilities and increasing the facility amount by L9.0 million
(approximately $14.8 million) for the final payment on the Highland Rover. The
new debt bears interest at a rate of LIBOR plus 1%. Terms for the new facility
require four quarterly principal payments of L0.57 million and 19 quarterly
installments of L0.77 million. A final installment of L10.7 million is due at
the end of the 24th quarter.
In April 1997, the Company acquired an unfinished supply vessel hull from a
Singapore shipyard. In October, the hull was committed to a shipyard in England.
The anticipated cost of completing the hull including the acquisition cost of
the hull is approximately $15.1 million. A total of $7.2 million of the cost was
paid in 1997 from internal funds with the balance to be paid in 1998, based on
the completion of certain construction milestones. Delivery of the completed
vessel is expected in October of 1998.
In October 1997, the Company entered into a contract for the construction
and delivery of two platform supply vessels with Bender Shipbuilding and Repair
Co., Inc. in Mobile, Alabama. The contract cost for the completion of each of
these vessels is approximately $11.0 million. Delivery of the first vessel is
expected in early 1999, and the second vessel is anticipated in mid-1999. The
Company also has an option for the construction of two additional vessels. A
total of $2.2 million was paid out of existing funds during 1997 related to
these vessels, and an estimated $14.5 million is expected to be remitted in 1998
with the balance due in 1999.
In connection with the construction of the three vessels mentioned above
the Company expects to fund the remaining payments through the use of internal
funds and through the restructuring of its existing facilities or through the
creation of new facilities secured by the vessels.
20
<PAGE> 21
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
$19.1 million for the year ended December 31, 1997, as compared to $8.5 million
for the same period in 1996. This increase resulted primarily from the increase
in earnings.
Net cash used in investing activities was $37.2 million and $24.5 million
for the years ended December 31, 1997 and 1996, respectively. Each of these
periods reflects significant vessel acquisitions. In 1996, the Company took
delivery of the Highland Piper and six vessels from Maritime. In 1997, the
Company took delivery of the Highland Drummer and made an $8.4 million
investment in the common stock of Brovig Supply, ASA, a publicly traded
Norwegian ship owning company. In February 1998, the Company completed the
acquisition of 96.1% of all of the outstanding stock for a total cash investment
of approximately $35.6 million. This acquisition was funded through a 9 month
bridge facility with a bank totaling L10 million ($16.7 million) and from
existing funds. Also during the year ended December 31, 1997, the Company
experienced a higher level of expenditures related to an increase in the number
of vessels that were drydocked from five in 1996 to fourteen in 1997.
Net cash provided by financing activities was $28.7 million for the year
ended December 31, 1997 and $17.9 million for the year ended December 31, 1996.
Both periods included large inflows from financing transactions related to the
vessel deliveries described above. 1997 included proceeds from the stock
offering in August 1997, as well as partial financing related to the delivery of
the Highland Drummer. In 1996, the Company took delivery of the Highland Piper,
which was entirely funded with additional debt. In connection with the Brovig
Supply acquisition above, in February the Company borrowed L10 million under a 9
month bridge facility. The Company anticipates repaying this facility in
connection with the restructuring of its existing facilities and or the creation
of new facilities related to that operation.
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. However, the ability of the Company to fund working capital,
capital expenditures and debt service in excess of cash on hand will be
dependent upon the success of the Company's operations. To the extent that
internal sources are insufficient to meet those cash requirements, the Company
intends to seek other debt or equity financing; however the Company can give no
assurance that such other debt or equity financing would be available on terms
acceptable to the Company.
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. The North Sea fleet
generated $31.7 million in revenues, $14.5 million in operating income and $12.4
million of cash flows from operations for the year ended December 31, 1997. In
1997 the Sterling/U.S. Dollar exchange rate ranged from a high of L = U.S.$1.70
to a low of L = U.S. $1.58 with an average of L = $1.64 for the year. As of
March 10, 1998, the Sterling/U.S. Dollar exchange rate was L = U.S.$1.64.
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 $43.8 million; or 80% of
total debt as of December 31, 1997.
Reflected in the accompanying balance sheet for December 31, 1997, is a
$1.6 million cumulative translation adjustment primarily relating to the lower
Sterling exchange rate as of December 31, 1997 in comparison to the exchange
rate when the Company invested capital in its United Kingdom subsidiaries.
Changes in the cumulative
21
<PAGE> 22
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.
Historically, certain of the Company's Southeast Asia charters were
denominated in Malaysian ringgits, as were a portion of its operating costs.
Revenues fixed in this currency were approximately $1.1 million in 1997 and $1.6
million for 1996. Beginning in 1998, charters in Malaysia have been fixed in
U.S.$ with a portion approximately equal to local expenses fixed in Malaysian
ringgit. Malaysian currency rates had been relatively stable during most of this
decade. 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.$0.26 and was M$=U.S.$0.26 at December 31, 1997. Subsequent to year-end,
the exchange rate has fallen to as low as M$=U.S.$0.21. For most of the decade
prior to July 1997, the exchange rate stayed within 3% of M$=U.S.$0.40. 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.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which became effective December 15, 1997. SFAS No.
128 revises the methodology to be used in computing earnings per share ("EPS")
to require that the computations of primary and fully diluted EPS be replaced
with computations of "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 using the treasury stock
method for common stock equivalents. The statement requires restatement for all
prior period EPS data presented. EPS calculated in accordance with SFAS No. 128
was not materially different for the periods presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and presenting comprehensive income in the financial statements and
will be effective for the Company beginning in 1998. At present, management
believes that the adoption of this statement will result only in additional
disclosures relating to fluctuations in the cumulative translation adjustment.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. SFAS No. 131 may require additional disclosures and will be effective
for the Company beginning in 1998.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with routine version
upgrades to its existing software, the Year 2000 problem will not pose
significant operating problems for the Company's computer systems. However, if
such upgrades are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company.
FORWARD-LOOKING STATEMENTS
This Form 10-K, particularly the sections entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
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 natural gas industry, ongoing capital
expenditure require-
22
<PAGE> 23
ments, uncertainties surrounding environmental and government regulation, risks
relating to leverage, risks of foreign operations, assumptions concerning
competition and risks of currency fluctuations and other matters. There can be
no assurance that the Company has accurately identified and properly weighed 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.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed within the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this form 10-K.
23
<PAGE> 24
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark Offshore, Inc.:
We have audited the accompanying consolidated balance sheets of GulfMark
Offshore, Inc., a Delaware corporation (successor to GulfMark International,
Inc., see Note 1 to the consolidated financial statements), and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GulfMark Offshore, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Houston, Texas
February 23, 1998
24
<PAGE> 25
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 25,885 $ 17,234
Accounts receivable....................................... 10,505 8,939
Prepaids and other........................................ 633 675
-------- --------
Total current assets.............................. 37,023 26,848
NET ASSETS OF DISCONTINUED OPERATIONS....................... -- 14,837
VESSELS AND EQUIPMENT, at cost, net of accumulated
depreciation of $23,641,000 in 1997 and $19,504,000 in
1996...................................................... 105,262 87,405
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY..................... 8,388 --
OTHER ASSETS................................................ 3,988 2,217
-------- --------
$154,661 $131,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term
debt................................................... $ 10,506 $ 9,341
Accounts payable.......................................... 3,839 1,931
Other accrued liabilities................................. 3,261 1,628
-------- --------
Total current liabilities......................... 17,606 12,900
LONG-TERM DEBT.............................................. 42,918 50,811
DEFERRED TAXES AND OTHER.................................... 8,255 5,079
MINORITY INTEREST........................................... 610 501
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 2,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $0.01 par value; 15,000,000 shares
authorized; 7,915,962 and 6,679,904 shares issued and
outstanding, respectively.............................. 79 67
Additional paid-in capital................................ 60,487 26,793
Retained earnings......................................... 26,271 36,676
Cumulative translation adjustment......................... (1,565) (1,520)
-------- --------
Total stockholders' equity........................ 85,272 62,016
-------- --------
$154,661 $131,307
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 26
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES.................................................... $46,019 $34,749 $27,233
------- ------- -------
COST AND EXPENSES:
Direct operating expenses................................. 18,231 16,178 15,386
General and administrative expenses....................... 5,364 4,523 3,483
Depreciation and amortization............................. 6,711 5,013 5,472
------- ------- -------
30,306 25,714 24,341
------- ------- -------
OPERATING INCOME............................................ 15,713 9,035 2,892
------- ------- -------
OTHER INCOME (EXPENSES):
Interest expense.......................................... (4,803) (3,936) (2,801)
Interest income........................................... 984 469 188
Minority interest......................................... (109) (86) 106
Other..................................................... 36 -- 74
------- ------- -------
(3,892) (3,553) (2,433)
------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 11,821 5,482 459
INCOME TAX PROVISION........................................ 3,626 1,839 91
------- ------- -------
INCOME FROM CONTINUING OPERATIONS........................... 8,195 3,643 368
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of taxes.... (648) 4,796 (2,270)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net of taxes... (1,426) -- --
------- ------- -------
NET INCOME (LOSS)........................................... $ 6,121 $ 8,439 $(1,902)
======= ======= =======
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations......................... $ 1.15 $ 0.55 $ 0.06
Income (loss) from discontinued operations, net of
taxes.................................................. (0.09) 0.71 (0.35)
Loss on disposal of discontinued operations, net of
taxes.................................................. (0.20) -- --
------- ------- -------
Net income (loss)......................................... $ 0.86 $ 1.26 $ (0.29)
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (basic)................. 7,155 6,676 6,644
======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations......................... $ 1.11 $ 0.54 $ 0.06
Income (loss) from discontinued operations, net of
taxes.................................................. (0.09) 0.70 (0.34)
Loss on disposal of discontinued operations, net of
taxes.................................................. (0.19) -- --
------- ------- -------
Net income (loss)......................................... $ 0.83 $ 1.24 $ (0.28)
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (diluted)............... 7,413 6,782 6,703
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 27
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE TOTAL
$0.01 PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT EQUITY
--------- ---------- -------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994......... $ 66 $26,593 $ 30,139 $(3,773) $ 53,025
Net loss........................... -- -- (1,902) -- (1,902)
Issuance of common stock........... 1 177 -- -- 178
Translation adjustment............. -- -- -- (373) (373)
------- ------- -------- ------- --------
Balance at December 31, 1995......... 67 26,770 28,237 (4,146) 50,928
Net income......................... -- -- 8,439 -- 8,439
Issuance of common stock........... -- 23 -- -- 23
Translation adjustment............. -- -- -- 2,626 2,626
------- ------- -------- ------- --------
Balance at December 31, 1996......... 67 26,793 36,676 (1,520) 62,016
Net income......................... -- -- 6,121 -- 6,121
Issuance of common stock........... 12 33,694 -- -- 33,706
Disposition of discontinued
operations (Note 5)............. -- -- (16,526) 1,086 (15,440)
Translation adjustment............. -- -- -- (1,131) (1,131)
------- ------- -------- ------- --------
Balance at December 31, 1997......... $ 79 $60,487 $ 26,271 $(1,565) $ 85,272
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 6,121 $ 8,439 $ (1,902)
(Income) loss from discontinued operations, net of
taxes................................................ 648 (4,796) 2,270
Loss on disposal of discontinued operations, net of
taxes................................................ 1,426 -- --
-------- -------- --------
Income from continuing operations...................... 8,195 3,643 368
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations --
Depreciation and amortization........................ 6,711 5,013 5,472
Deferred and other income tax provision.............. 3,445 1,707 (18)
Minority interest.................................... 109 86 (106)
Change in operating assets and liabilities --
Accounts receivable.................................. (1,781) (3,445) 1,020
Inventory, prepaids and other........................ 36 530 (85)
Accounts payable..................................... 2,102 1,003 42
Other accrued liabilities............................ 258 595 (779)
Other, net........................................... 37 (593) 475
-------- -------- --------
Cash provided by continuing operations............... 19,112 8,539 6,389
Cash flows from discontinued operations.............. (1,360) 9,234 1,788
-------- -------- --------
Net cash provided by operating activities......... 17,752 17,773 8,177
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of vessels and equipment......................... (24,863) (23,263) (14,121)
Expenditures for drydocking and main engine overhaul...... (3,967) (1,230) (1,141)
Investment in Brovig Supply............................... (8,388) -- --
Proceeds from sales of equipment.......................... -- -- 169
-------- -------- --------
Net cash used in investing activities............. (37,218) (24,493) (15,093)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of direct financing costs......... 7,690 22,227 25,098
Repayments of debt........................................ (12,738) (4,356) (15,709)
Proceeds from issuance of stock, net of offering costs.... 33,706 23 178
-------- -------- --------
Net cash provided by financing activities......... 28,658 17,894 9,567
Effect of exchange rate changes on cash................... (541) 924 (160)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 8,651 12,098 2,491
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 17,234 5,136 2,645
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 25,885 $ 17,234 $ 5,136
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized................ $ 4,682 $ 3,613 $ 2,793
======== ======== ========
Income taxes paid......................................... $ 101 $ 180 $ 167
======== ======== ========
</TABLE>
28
<PAGE> 29
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND AND ORGANIZATION:
On April 30, 1997, the stockholders of GulfMark International, Inc., (the
"Predecessor") approved a transaction (the "Contribution") to transfer the
assets, liabilities and operations of its offshore marine services business (the
"Marine Business") to GulfMark Offshore, Inc. ("GulfMark"), a new wholly owned
subsidiary of the Predecessor. Immediately after the transfer of the Marine
Business, the Predecessor completed a spin-off of GulfMark by distributing all
of the common stock of GulfMark to the Predecessor's stockholders (the
"Distribution"). Following the Distribution, on May 1, 1997, a subsidiary of
Energy Ventures, Inc. (now known as 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 in May 1997).
Although the separation of the Marine Business from the remainder of the
operations of the Predecessor was structured as a "spin-off" of GulfMark for
legal, tax and other reasons, GulfMark succeeded to certain important aspects of
the Predecessor's business, organization and affairs, namely: (i) the Marine
Business conducted by 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 GulfMark; (iii) GulfMark's
management is substantially the same as the management of the Predecessor; and
(iv) 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. Reference is made to Note 5, "Discontinued Operations
and Disposition of Assets."
In connection with the Distribution, two shares of GulfMark common stock
($0.01 par value) were issued for each share of the Predecessor common stock
($1.00 par value). Also in connection with the Merger, the Predecessor
stockholders received shares of EVI common stock. The total value of the EVI
stock received by the Predecessor's stockholders was approximately $148 million
in the aggregate. Subsequent to the Distribution and Merger, the stockholders'
equity of GulfMark Offshore, Inc. relates solely to the shares of GulfMark
common stock issued in the Distribution and represents the historical retained
earnings of the Marine Business. Numbers of shares and per share information
have been adjusted to reflect the Distribution.
For purposes of these financial statements, "GulfMark" or the "Company"
refers to the Predecessor and its subsidiaries prior to the Contribution, the
Distribution and the Merger and to GulfMark Offshore, Inc. and its subsidiaries
subsequent to the Contribution, the Distribution and the Merger.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
As of March 10, 1998, the Company operates 34 offshore support vessels,
principally in the North Sea and Southeast Asia. The vessels provide
transportation of materials, supplies and personnel to and from offshore
platforms and drilling rigs. Some of these vessels also perform anchor handling
and towing services.
Principles of Consolidation
The consolidated financial statements include the accounts of GulfMark and
its majority owned subsidiaries. Investments in unconsolidated subsidiaries are
accounted for on the equity method. All significant intercompany accounts and
transactions between GulfMark and its subsidiaries have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
29
<PAGE> 30
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
U.S. Government securities and commercial paper with original maturities of
up to three months are included in cash and cash equivalents in the accompanying
consolidated balance sheets and consolidated statements of cash flows.
Liquidity
The Company's management currently expects that its cash flow from
operations in combination with cash on hand and other sources, including
short-term loans, debt restructuring, new debt, new equity and/or by delaying a
portion of planned capital or other expenditures will be sufficient to satisfy
the Company's short-term and long-term working capital needs, planned
investments, capital expenditures, debt and other payment obligations.
Vessels and Equipment
Vessels and equipment is stated at cost, net of accumulated depreciation,
which is provided by the straight-line method. Prior to January 1, 1996, vessels
were depreciated over a useful life of 20 years. During the first quarter of
1996, management completed an evaluation of the useful life used for
depreciating vessels in light of recent vessel performance, changes in the
materials available to protect vessel hulls and industry practice. Based on the
results, it was determined that a useful life of 25 years for the Company's
vessels was a better estimate than the 20 years used previously. Therefore,
effective January 1, 1996, the estimated useful life was extended to 25 years.
The impact of the change on net income for the year ended December 31, 1996, was
an increase of approximately $1,202,000, or $0.18 per share (diluted). Interest
is capitalized in connection with the construction of vessels. The capitalized
interest is included as part of the asset to which it relates and is amortized
over the asset's estimated useful life. In 1997, $249,000 was capitalized. In
1996 and 1995, no interest was capitalized as amounts were immaterial.
Equipment, furniture and fixtures are depreciated over two to five years.
Maintenance and repairs that do not extend the useful life of the asset and are
not attributable to drydockings of vessels are charged to operations as
incurred. Major renovation costs and modifications are capitalized and amortized
over the estimated remaining useful life. Included in the consolidated
statements of income for 1997, 1996 and 1995 is $2,630,000, $1,920,000 and
$1,457,000, respectively, of costs for maintenance and repairs.
Other Assets
Other assets consist primarily of deferred drydocking costs and deferred
loan costs. Costs incurred in connection with drydocking are capitalized and
amortized over approximately a two to three year period, which approximates the
period between required drydockings. Deferred loan costs are amortized over the
expected term of the loan.
Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share." 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 were 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
using the treasury stock method for common stock equivalents. The Company
adopted SFAS No. 128 in the fourth quarter of 1997 and restated EPS for all
periods presented. The details of the earnings per share
30
<PAGE> 31
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculations for continuing operations for the years ended December 31, 1997,
1996 and 1995 are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
Income from continuing operations per share, basic.......... $8,195 7,155 $1.15
=====
Dilutive effect of common stock options..................... -- 258
------ -----
Income from continuing operations per share, diluted........ $8,195 7,413 $1.11
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
Income from continuing operations per share, basic.......... $3,643 6,676 $0.55
=====
Dilutive effect of common stock options..................... -- 106
------ -----
Income from continuing operations per share, diluted........ $3,643 6,782 $0.54
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
Income from continuing operations per share, basic.......... $ 368 6,644 $0.06
=====
Dilutive effect of common stock options..................... -- 59
------ -----
Income from continuing operations per share, diluted........ $ 368 6,703 $0.06
====== ===== =====
</TABLE>
Pending Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and presenting comprehensive income in the financial statements and
will be effective for the Company beginning in 1998. At present, management
believes that the adoption of this statement will result only in additional
disclosures relating to fluctuations in the cumulative translation adjustment.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. SFAS No. 131 may require additional disclosures and will be effective
for the Company beginning in 1998.
Revenue Recognition
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates. Currently, charters terms range from
several days to as much as five years in duration.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. SFAS No. 109 also requires that the
likelihood and amount of future taxable income be included in the criteria used
to
31
<PAGE> 32
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determine the timing and amount of tax benefits recognized for net operating
losses and tax credit carryforwards in the financial statements. The Marine
Business has been included in consolidated federal income tax returns filed by
the Predecessor. However, the tax expense reflected in the consolidated
statements of income and the tax liabilities reflected in the consolidated
balance sheets have been prepared on a separate return basis as though the
Marine Business had filed stand-alone income tax returns, except for the
utilization of net operating loss (NOL) carryforward benefits. These benefits
have been allocated by the Predecessor to the Marine Business based on the
Marine Business' pro rata share of the Predecessor's actual pre-tax financial
statement earnings for each year. Had this allocation not been made, the pro
forma income from continuing operations would have been $3,643,000 (unaudited)
and $264,000 (unaudited) for the years ended December 31, 1996 and 1995,
respectively.
Allocation of Shared Services
Certain costs relating to the Company's general and administrative services
(including management personnel who provide legal, tax, accounting, treasury,
strategic planning and public policy services) have been directly charged to
either continuing or discontinued operations based upon actual utilization or
have been allocated based upon proportional operating expenses, number of
employees, external revenues, average capital and/or average equity. The Company
charges for services at fully distributed cost. The Marine Business' share of
these direct and indirect allocations was $1,381,000 and $764,000 for the years
ended December 31, 1996 and 1995, respectively. For the year ended December 31,
1997, no costs were allocated or charged to discontinued operations.
Although management considers the above allocation methods to be
reasonable, due to the relationship between the Marine Business and the
Predecessor, the terms of some or all of the transactions and allocations
discussed above may not necessarily be indicative of that which would have
resulted had the Marine Business been a stand-alone entity. Had the Marine
Business operated as a separate entity, management estimates that expense for
the years ended December 31, 1996 and 1995, would have been $1,534,000 and
$1,007,000, respectively.
Foreign Currency Translation
Assets and liabilities of the Company's foreign affiliates, other than
those located in highly inflationary countries, are translated at year-end
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
stockholders' equity, except for those associated with highly inflationary
countries that are reported directly in the consolidated statements of income.
Transaction gains and losses are reported directly in the consolidated
statements of income.
Concentration of Credit Risk
The Company extends credit to various companies in the energy industry that
may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit risk through credit
approvals and limits. Historically, write-offs for doubtful accounts have been
insignificant. At December 31, 1997 and 1996, the Company had no allowance for
doubtful accounts.
Reclassifications
Certain reclassifications have been made to amounts previously reported to
conform with the current year presentation.
(3) VESSEL ACQUISITIONS
In November 1996 the Company entered into a contract with a Norwegian
shipyard to construct an enhanced UT 755 design supply vessel at a price of
approximately $17.4 million denominated in Norwegian Kroner. The new
32
<PAGE> 33
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vessel is a modified version of the Highland Piper and Highland Drummer which
were delivered in 1996 and 1997, respectively. This vessel, delivered during the
first quarter of 1998, will participate in the growing demand for deepwater
remotely operated vehicle ("ROV") support, standard supply duties and
specialized services in the North Sea. The Company made an interim construction
payment of $2.5 million in 1997, and interim construction payments totaling $0.9
million for the year ended December 31, 1996. A final payment of $14.0 million
(unaudited) was made on March 7, 1998, upon delivery of the vessel. The Company
financed the cost of the vessel through additional borrowings, proceeds from the
August 1997 sale of the Company's common stock and existing funds.
In April 1997, the Company acquired an unfinished supply vessel hull from a
Singapore shipyard. In October, the hull was committed to a shipyard in England.
The anticipated cost of completing the hull including the acquisition cost of
the hull is approximately $15.1 million. A total of $7.2 million of the cost was
incurred in 1997 with the balance to be paid in 1998, based on the completion of
certain construction milestones. Delivery of the completed vessel is expected in
October of 1998.
In October 1997, the Company entered into a contract for the construction
and delivery of two platform supply vessels with Bender Shipbuilding and Repair
Co., Inc. in Mobile, Alabama. The contract cost for the completion of each of
these vessels is approximately $11.0 million. Delivery of the first vessel is
expected in early 1999, and the second vessel is anticipated in mid-1999. The
Company also has an option for the construction of two additional vessels. A
total of $2.2 million was paid during 1997 related to these vessels, and an
estimated $14.5 million is expected to be remitted in 1998 with the balance due
in 1999.
Including the final payment on the Highland Rover, the total commitments
related to the vessel additions described above is $36.4 million in 1998 and
$5.3 million in 1999.
In December 1994, the Company contracted with a shipyard in Norway for the
construction of two new 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 year ended December 31, 1996, is a total of
$11,508,000 related to the final construction payment on the Highland Piper and
interim construction payments on the Highland Drummer. Final payment of
$12,850,000 was made in 1997 upon delivery of the Highland Drummer. Funding of
$7,254,000 was provided through additional borrowings under existing credit
facilities. In connection with the delivery of these two vessels, the Company
received 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.
On August 2, 1996, the Company purchased six offshore supply vessels from
Maritime (Pte), Limited, which operated in Southeast Asia. Funding for this
acquisition was provided through a new $7.0 million bank facility and a drawdown
available under existing facilities. The new facility requires 10 semiannual
payments beginning in 1997.
On December 21, 1995, the Company acquired the Highland Warrior, a
1981-built pipe carrier/PSV which had been bareboat chartered by the Company
since July 1993. Included in capital expenditures for 1995 is $13.3 million
related to interim construction payments on the Highland Piper and the purchase
of the Highland Warrior.
(4) INVESTMENT IN BROVIG SUPPLY
Beginning in the fourth quarter of 1997, the Company began acquiring shares
of common stock in Brovig Supply, ASA, ("Brovig") a publicly traded ship-owning
company in Norway. Brovig owns 5 vessels currently operating in the North Sea.
As of December 31, 1997, the Company had acquired approximately 25% of the
outstanding stock at a cost of approximately $8.4 million. For the year ended
December 31, 1997, the Company's share of Brovig's earnings using the equity
method of accounting was not material to the Company's consolidated results of
operations. Subsequent to year-end, the Company made a public offer for the
remaining shares of the common stock of Brovig in accordance with the
regulations of the Oslo stock exchange. On February 10, 1998, the Brovig
shareholders tendered shares such that the Company's percentage had increased to
96.1%. The Company has the right and obligation to acquire the remaining shares.
The total expected purchase consideration of $73.0 million
33
<PAGE> 34
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consists consisted of cash provided from funds on hand, L10 million ($16.7
million) provided by a bank facility and the assumption of approximately NOK 277
million ($37.4 million)of debt. The acquisition will be accounted for as a
purchase; accordingly, the purchase price will be allocated to the underlying
assets and liabilities based on their estimated fair values on the date of
acquisition. On February 10, 1998, the Company changed its method of accounting
for Brovig from the equity method to the consolidated method upon achieving
effective control.
(5) DISCONTINUED OPERATIONS AND DISPOSITION OF ASSETS
As discussed in Note 1, on May 1, 1997, GulfMark International, Inc.
completed a spin-off of the Marine Business by distributing all of the common
stock of its wholly owned subsidiary, GulfMark Offshore, Inc. to its
stockholders. Immediately following the Distribution, GulfMark International,
Inc., whose remaining assets consisted solely of Ercon and an investment of
approximately 4.5 million shares of EVI common stock (the "Merged Assets"),
merged with a subsidiary of EVI. Accordingly, for all periods presented in the
accompanying financial statements, the financial position, results of operations
and cash flows of the Merged Assets are reflected as discontinued operations.
Summarized financial information of the discontinued operations is presented in
the following tables:
NET ASSETS OF DISCONTINUED OPERATIONS (IN THOUSANDS):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996
------------------
<S> <C>
Current Assets.............................................. $ 1,494
Investment in EVI........................................... 37,061
Other Non-Current Assets.................................... 682
--------
Total Assets................................................ 39,237
Current Liabilities......................................... (1,754)
Deferred Taxes & Other Non-Current Liabilities.............. (22,646)
--------
Net Assets.................................................. $ 14,837
========
</TABLE>
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------------- ------- -------
(THROUGH
APRIL 30, 1997)
<S> <C> <C> <C>
Operating Data:.......................................
Revenues............................................ $1,066 $ 6,994 $ 8,844
Direct operating expenses........................... 811 3,922 5,963
Selling, general and administrative expenses........ 932 2,068 2,323
------ ------- -------
Operating income (loss)............................. (677) 1,004 558
Equity in earnings of EVI........................... -- -- 761
Gain on sale of EVI shares.......................... -- 6,264 --
Income tax (expenses) benefit....................... 29 (2,472) (3,589)
------ ------- -------
Income (loss) from discontinued operations, net of
taxes............................................ $ (648) $ 4,796 $(2,270)
====== ======= =======
</TABLE>
In addition to the loss from discontinued operations, the Company's
operating results for the year ended December 31, 1997 include a charge of $1.4
million, net of taxes, for expenses incurred in connection with the Merger.
Certain liabilities associated with the Merged Assets of approximately $0.6
million were retained by the Company.
34
<PAGE> 35
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHORT-TERM BORROWINGS
On July 8, 1993, the Company entered into a one-year loan facility
agreement with a bank under which the Company could borrow up to L3,300,000.
This facility was renewed on each anniversary date. At December 31, 1996 and
1995 the Company had borrowings of L2,100,000 ($3,596,000) and L600,000
($932,000), respectively, under this facility. In connection with the sale of
the Company's stock in August of 1997, (see Note 9) the Company repaid this
facility.
(7) LONG-TERM DEBT
The Company's long-term debt at December 31, 1997 and 1996, consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving $18,505,000 credit facility (L8,750,000
($14,445,000) and $4,060,000 tranches); tranches reduced
by L1,250,000 and $580,000, respectively, semiannually
beginning December 31, 1996, with final payment due in
2000; interest at 1 5/8% over the lending bank's LIBOR
rate (8.9% as of December 31, 1997)....................... $18,505 $17,087
Loan facility payable in British Pound Sterling; quarterly
principal payments of L570,000 ($941,000) beginning
September 19, 1997; final payment of L5,455,000
($9,005,000) due June 19, 2003; interest at 1% over
lending bank's LIBOR rate (8.8% as of December 31, 1997).
Additional L9,000,000 ($14,857,000) available upon
providing additional collateral........................... 28,765 --
Loan facility payable in British Pound Sterling; maximum of
L380,000 ($627,000) for purchase and completion of
Aberdeen office building; facility to be repaid in 120
equal monthly payments upon completion of building;
interest at 2.25% over lending bank's LIBOR rate (10.1% as
of December 31, 1997)..................................... 554 --
Loan facility payable in British Pound Sterling;
restructured in 1997...................................... -- 25,294
Loan facility payable in British Pound Sterling;
restructured in 1997...................................... -- 7,175
Revolving $5,600,000 credit facility; facility reduces by
$700,000 semiannually beginning January 31, 1997, with
final payment due in 2001; interest at 1 5/8% over the
lending bank's LIBOR rate (7.6% as of December 31, 1997).. 5,600 7,000
------- -------
53,424 56,556
Less: Current maturities of long-term debt.................. 10,506 5,745
------- -------
$42,918 $50,811
======= =======
</TABLE>
Each of the above facilities is secured by mortgages on various vessels, as
well as assignments of such vessels' earnings. The loan facility agreements
restrict Gulf Offshore N.S. Ltd., Gulf Offshore Far East, Inc., Gulf Offshore
Shipping Services, Inc. and Gulf Offshore Marine International, Inc., the
subsidiaries that own the mortgaged vessels, from making dividends or other
distributions to their parent without consent of the lenders. The amount of net
assets restricted under these loan provisions was $59.0 million as of December
31, 1997, and includes cash and cash equivalents of $4.3 million.
35
<PAGE> 36
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $10,506
1999........................................................ 10,506
2000........................................................ 13,150
2001........................................................ 5,219
2002........................................................ 3,819
Thereafter.................................................. 10,224
-------
Total............................................. $53,424
=======
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into an agreement to bareboat charter an
anchor handling, towing, supply vessel from Sanko Shipping for a three-year
period. The anticipated delivery date for this vessel is during the second
quarter of 1998. Additionally, the Company has entered into agreements to
bareboat charter two additional platform supply vessels from Sanko for similar
three year terms. These vessels are UT 755's similar to the Company's Highland
Piper and Highland Drummer. Anticipated delivery for these two vessels is during
the third quarter of 1998.
The Company's 51% owned company, SeaMark Ltd., has bareboat chartered
certain vessels from the 49% owner, a U.S. owner/operator, at a combined rate of
less than $2,000 per day.
At December 31, 1997, the Company had long-term operating leases for office
space and automobiles. Aggregate lease expense on operating leases for 1997,
1996 and 1995 was $423,000, $380,000 and $440,000, respectively. Future minimum
rental commitments under these operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $329
1999........................................................ 257
2000........................................................ 123
2001........................................................ 68
2002........................................................ 5
Thereafter.................................................. --
----
Total............................................. $782
====
</TABLE>
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
these legal actions will not have a material adverse effect upon the
consolidated financial position or results of operations of the Company.
In connection with the transactions described in Note 1, the Company has
agreed to indemnify EVI and certain of their affiliates against liabilities for
claims and litigation relating to periods prior to May 1, 1997. The Company has
established accruals which it believes to be adequate to cover such claims, and
believes that claims, if any, will not have a material adverse effect on the
consolidated financial position and results of operations of the Company.
(9) STOCKHOLDERS' EQUITY
Issuance of Stock
In August 1997, the Company closed an offering to sell 1,125,000 shares of
common stock (including the underwriters' overallotment). Total proceeds to the
Company were $33.4 million net of offering cost of $0.6 million. Additionally,
the Company received approximately $0.3 million in proceeds from the exercise of
stock options.
36
<PAGE> 37
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options and Stock Option Plans
As part of the Contribution and Distribution, the Company assumed the
obligations of the Predecessor under its various Stock Option Plans.
Additionally, as discussed in Note 1, in conjunction with the Distribution, two
shares of GulfMark Offshore, Inc.'s common stock were issued for each share of
the Predecessor's common stock. Accordingly, the total number of shares under
option agreements has been modified and all references to shares in these
financial statements have been adjusted. Furthermore, in connection with these
transactions, optionees were entitled to an adjustment in the number of shares
under their agreements in order to preserve the intrinsic value of the options
prior to these transactions. After the adjustment, the ratio of the exercise to
fair market value of the shares and the total intrinsic value was the same as
before these transactions. Accordingly, no compensation expense was recognized.
The table below reflects the adjustment as a cancellation of the existing
options and a reissue of adjusted options.
Under the terms of the Company's Amended and Restated 1993 Non-Employee
Director Stock Option Plan (the "Director Plan"), options to purchase 10,000
shares of Common Stock were granted to each of the Company's five non-employee
directors in 1993 and 1996. Additionally, options to purchase 10,000 shares of
Common Stock are to be granted to each new non-employee director upon his or her
election. The exercise price of options granted under the Director Plan is fixed
at the market price at the date of grant. In May 1996, the number of shares
reserved for issuance under this Plan was increased from 100,000 to 400,000. The
options are for a term of ten years.
Under the terms of the Company's 1987 Employee Stock Option Plan (the
"Employee Plan"), options were granted to employees to purchase Common Stock at
specified prices. The Employee Plan also provides for stock appreciation rights
("SARS") that give the optionee the right, subject to certain conditions, to
surrender an option and receive cash and/or shares of Common Stock having a
value equal to the appreciation from date of grant of such option. On May 20,
1997, the Employee Plan expired and therefore as of December 31, 1997, no
additional shares were reserved for granting of options under this plan.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 217,200 $ 9.48 140,000 $ 6.50 169,934 $6.40
Cancelled................................ (217,200) 9.48 -- -- -- --
Option Adjustment........................ 533,635 3.86 -- -- -- --
Granted.................................. 50,000 13.75 84,000 13.94 -- --
Exercised................................ (111,058) 3.23 (6,800) 3.34 (29,934) 5.94
-------- ------- -------
Outstanding at end of year............... 472,577 $ 5.05 217,200 $ 9.48 140,000 $6.50
======== ======= =======
Weighted average fair value of options
granted during the year................ $ 4.32 $ 3.06 N/A
Exercisable as of December 31, 1997................................................ 367,220
Shares available for future grants as of December 31, 1997......................... 154,310
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
- ------------------------ ----------- --------------
<S> <C> <C> <C>
$1.32 to $3.10...................................................... 241,265 $ 2.75
$5.37 to $7.94...................................................... 181,312 $ 5.71
$13.75.............................................................. 50,000 $13.75
-------
472,577 $ 5.05
=======
</TABLE>
37
<PAGE> 38
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Historically, the Company has used stock options as a long-term incentive
for its employees, officers and directors under the above-mentioned stock option
plans. The exercise price of options granted is equal to or greater than the
market price of the underlying stock on the date of the grant. Accordingly,
consistent with the provisions of Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), no compensation
expense has been recognized in the accompanying financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation. The pronouncement defines a fair-value based method of
accounting for an employee stock option or similar equity instrument. SFAS No.
123 also allows an entity to continue to measure compensation cost for those
instruments using the intrinsic value-based method of accounting prescribed by
APB No. 25. The Company has elected to follow APB No. 25 and related
interpretations in accounting for employee stock options because the valuation
models prescribed for use by SFAS No. 123 to determine the fair value of options
were not developed for use in valuing employee stock options. In accordance with
APB No. 25, because the exercise price of the Company's employee stock options
equaled the market price of the underlying stock on the date of the grant, no
compensation expense has been recognized in the accompanying financial
statements.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its employee stock options under the fair-value method described above. No
fair-value calculations are required for 1995 as there were no options issued
during that period. The fair value for the 1997 and 1996 options was estimated
at the date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions, respectively: Risk-free interest rates
of 5.25% and 5.0%; a weighted average volatility factor of the expected market
price of the Company's stock of .23 and .14; no expected dividends; and weighted
average expected option lives of 5 and 4 years.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair-value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted after 1994 are
required to be considered in the pro forma calculations.
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income from continuing operations..... $8,195,000 $8,118,000 $3,643,000 $3,554,000
Net income............................ 6,121,000 6,044,000 8,439,000 8,350,000
Earnings per common share from
continuing operations (basic)....... $ 1.15 $ 1.13 $ 0.55 $ 0.53
Earnings per common share (basic)..... 0.86 0.84 1.26 1.25
Earnings per common share from
continuing operations (diluted)..... $ 1.11 $ 1.10 $ 0.54 $ 0.52
Earnings per common share (diluted)... 0.83 0.82 1.24 1.23
</TABLE>
Preferred Stock
The Company is authorized by its Certificate of Incorporation to issue up
to 2,000,000 shares of no par value preferred stock. No shares have been issued.
38
<PAGE> 39
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
Income from continuing operations before income taxes attributable to
domestic and foreign operations was (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------ ----
<S> <C> <C> <C>
U.S........................................................ $ (528) $ (498) $371
Foreign.................................................... 12,349 5,980 88
------- ------ ----
$11,821 $5,482 $459
======= ====== ====
</TABLE>
The components of GulfMark Offshore, Inc.'s tax provisions attributable to
income from continuing operations are as follows as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- --------------------------
DEFERRED DEFERRED DEFERRED
AND AND AND
CURRENT OTHER TOTAL CURRENT OTHER TOTAL CURRENT OTHER TOTAL
------- -------- ------ ------- -------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. ....................... $ -- $ 691 $ 691 $ -- $ -- $ -- $ -- $ -- $--
Foreign..................... 181 2,754 2,935 132 1,707 1,839 109 (18) 91
---- ------ ------ ---- ------ ------ ---- ---- ---
$181 $3,445 $3,626 $132 $1,707 $1,839 $109 $(18) $91
==== ====== ====== ==== ====== ====== ==== ==== ===
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The components of the net
deferred tax liability as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforwards.......................... $ 7,958 $ 8,668
Non-deductible accruals................................... 2,506 1,381
Foreign tax credits....................................... -- 224
Alternative minimum tax credits........................... -- 597
Other tax credits......................................... -- 175
Valuation allowance....................................... (622) (267)
-------- --------
9,842 10,778
-------- --------
Deferred tax liabilities --
Depreciation.............................................. (15,465) (12,866)
Foreign income not currently recognizable................. (911) (1,017)
Other..................................................... (529) (301)
-------- --------
(16,905) (14,184)
-------- --------
Net deferred tax liability........................ $ (7,063) $ (3,406)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory income tax rate...................... 34.0% 34.0% 34.0%
Effect of international operations.......................... (3.3) (0.5) 8.4
Utilization of U.S. net operating loss carryforwards........ -- -- (22.6)
----- ----- -----
30.7% 33.5% 19.8%
===== ===== =====
</TABLE>
39
<PAGE> 40
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
------- ----------
<S> <C> <C>
U.S. tax purposes --
Net operating losses...................................... $ 1,797 2012
Foreign tax purposes --
Net operating losses...................................... $22,264 Indefinite
</TABLE>
(11) UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the two years ended December 31,
1997, are as follows (in thousands except for per share amounts):
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Revenues........................................... $ 9,679 $11,352 $12,642 $12,346
Operating income................................... 2,492 3,699 4,839 4,683
Income from continuing operations
Income.......................................... 1,044 1,670 2,626 2,855
Per share (basic)............................... 0.16 0.25 0.36 0.36
Per share (diluted)............................. 0.15 0.24 0.35 0.35
Net income (loss)
Income (loss)................................... (1,030) 1,670 2,626 2,855
Per share (basic)............................... (0.15) 0.25 0.36 0.36
Per share (diluted)............................. (0.15) 0.24 0.35 0.35
1996
Revenues........................................... $ 6,623 $ 7,870 $ 9,204 $11,052
Operating income................................... 903 1,938 2,731 3,463
Income from continuing operations
Income.......................................... 210 722 1,158 1,553
Per share (basic)............................... 0.03 0.11 0.17 0.23
Per share (diluted)............................. 0.03 0.11 0.17 0.23
Net income
Income.......................................... 47 756 5,711 1,925
Per share (basic)............................... 0.01 0.11 0.86 0.29
Per share (diluted)............................. 0.01 0.11 0.84 0.28
</TABLE>
(12) OPERATING SEGMENT INFORMATION
Business Segments
The operations of GulfMark Offshore, Inc. are contained in a single
business segment -- offshore marine services. The business operated 34 offshore
support vessels as of March 10, 1998, principally in the North Sea and Southeast
Asia. The vessels provide transportation of materials, supplies and personnel to
and from offshore platforms and drilling rigs. Some of the vessels also perform
anchor handling and towing services.
Geographic Regions
Information by geographical area is based on the location where services
were performed. Operating income represents revenues less operating expenses and
is not reduced for interest expense and income taxes. General
40
<PAGE> 41
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corporate expenses incurred in the United States have not been allocated to
foreign operations for purposes of this disclosure.
<TABLE>
<CAPTION>
EUROPE
UNITED (PRIMARILY BRAZIL
STATES U.K.) FAR EAST AND OTHER TOTAL
------- ---------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997 --
Revenues.......................... $ -- $29,132 $15,365 $1,522 $ 46,019
Operating income (loss)........... (2,860) 13,319 4,938 316 15,713
Identifiable assets............... 30,286 95,989 27,448 938 154,661
1996 --
Revenues.......................... $ -- $25,552 $ 7,732 $1,465 $ 34,749
Operating income (loss)........... (2,513) 9,813 1,473 262 9,035
Identifiable assets............... 6,574 85,036 23,805 1,055 116,470
1995 --
Revenues.......................... $ -- $20,176 $ 6,142 $ 915 $ 27,233
Operating income (loss)........... (1,564) 4,027 639 (210) 2,892
Identifiable assets............... 2,153 60,318 10,939 1,494 74,904
</TABLE>
Major Customers
For the years ended December 31, 1997, 1996 and 1995, GulfMark Offshore,
Inc. had major customers who comprised more than 10% of revenues. The loss of a
major customer could have an adverse effect on the Company's financial condition
and results of operations until new charters are obtained.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Customer A.................................................. 16.5% 15.4% 15.2%
Customer B.................................................. 15.4% 14.2% <10%
Customer C.................................................. 13.2% <10% 12.9%
Customer D.................................................. <10% <10% 12.9%
</TABLE>
41
<PAGE> 42
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $21,561 $ 6,087
Prepaids and other........................................ 408 458
Investment in Brovig...................................... 8,388 --
------- -------
Total current assets.............................. $30,357 $ 6,545
INVESTMENTS IN SUBSIDIARIES................................. 43,877 35,479
NET ASSETS OF DISCONTINUED OPERATIONS....................... -- 14,837
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $558,000 in 1997 and $503,000 in 1996..... 522 553
ACCOUNTS AND NOTES RECEIVABLE FROM SUBSIDIARIES............. 14,521 6,148
OTHER ASSETS................................................ 29 22
------- -------
$89,306 $63,584
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 3,002 $ 1,058
DEFERRED TAXES AND OTHER.................................... 1,032 510
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 2,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $0.01 par value; 15,000,000 shares
authorized; 7,915,962 and 6,679,904 shares issued and
outstanding, respectively.............................. 79 67
Additional paid-in capital................................ 60,487 26,793
Retained earnings......................................... 26,271 36,676
Cumulative translation adjustment......................... (1,565) (1,520)
------- -------
Total stockholders' equity........................ 85,272 62,016
------- -------
$89,306 $63,584
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
42
<PAGE> 43
SCHEDULE I -- (CONTINUED)
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES.................................................... $ 1,223 $ 1,223 $ 1,582
------- ------- -------
COST AND EXPENSES:
Direct operating expenses................................. 16 78 91
Selling, general and administrative expenses.............. 2,461 2,208 1,875
------- ------- -------
2,477 2,286 1,966
------- ------- -------
OPERATING LOSS.............................................. (1,254) (1,063) (384)
------- ------- -------
OTHER INCOME (EXPENSES):
Equity in earnings of subsidiaries........................ 9,415 4,411 164
Interest income........................................... 727 242 568
Other, net................................................ (1) -- 71
------- ------- -------
10,141 4,653 803
------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 8,887 3,590 419
INCOME TAX (PROVISION) BENEFIT.............................. (692) 53 (51)
------- ------- -------
INCOME FROM CONTINUING OPERATIONS........................... 8,195 3,643 368
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of taxes.... (648) 4,796 (2,270)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net of taxes... (1,426) -- --
------- ------- -------
NET INCOME (LOSS)........................................... $ 6,121 $ 8,439 $(1,902)
======= ======= =======
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations......................... $ 1.15 $ 0.55 $ 0.06
Income (loss) from discontinued operations, net of
taxes.................................................. (0.09) 0.71 (0.35)
Loss on disposal of discontinued operations, net of
taxes.................................................. (0.20) -- --
------- ------- -------
Net income (loss)......................................... $ 0.86 $ 1.26 $ (0.29)
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (basic)................. 7,155 6,676 6,644
======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations......................... $ 1.11 $ 0.54 $ 0.06
Income (loss) from discontinued operations, net of
taxes.................................................. (0.09) 0.70 (0.34)
Loss on disposal of discontinued operations, net of
taxes.................................................. (0.19) -- --
------- ------- -------
Net income (loss)......................................... $ 0.83 $ 1.24 $ (0.28)
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (diluted)............... 7,413 6,782 6,703
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
43
<PAGE> 44
SCHEDULE I -- (CONTINUED)
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE TOTAL
$0.01 PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT EQUITY
--------- ---------- -------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $ 66 $26,593 $ 30,139 $(3,773) $ 53,025
Net loss................................ -- -- (1,902) -- (1,902)
Issuance of common stock................ 1 177 -- -- 178
Translation adjustment.................. -- -- -- (373) (373)
------- ------- -------- ------- --------
Balance at December 31, 1995.............. 67 26,770 28,237 (4,146) 50,928
Net income.............................. -- -- 8,439 -- 8,439
Issuance of common stock................ -- 23 -- -- 23
Translation adjustment.................. -- -- -- 2,626 2,626
------- ------- -------- ------- --------
Balance at December 31, 1996.............. 67 26,793 36,676 (1,520) 62,016
Net income.............................. -- -- 6,121 -- 6,121
Issuance of common stock................ 12 33,694 -- -- 33,706
Disposition of discontinued
operations........................... -- -- (16,526) 1,086 (15,440)
Translation adjustment.................. -- -- -- (1,131) (1,131)
------- ------- -------- ------- --------
Balance at December 31, 1997.............. $ 79 $60,487 $ 26,271 $(1,565) $ 85,272
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
44
<PAGE> 45
SCHEDULE I -- (CONTINUED)
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operations................... $ (1,333) $ 8,783 $ 1,988
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to subsidiaries, net........... (8,487) (4,315) (1,126)
Purchase of property and equipment, net................... (24) (23) 115
Investment in Brovig Supply ASA........................... (8,388) -- --
-------- ------- -------
Net cash used in investing activities....................... (16,899) (4,338) (1,011)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and other, net..................... 33,706 23 178
-------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 15,474 4,468 1,155
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................................... 6,087 1,619 464
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 21,561 $ 6,087 $ 1,619
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ -- $ -- $ --
Income taxes paid......................................... -- 479 --
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
45
<PAGE> 46
SCHEDULE I -- (CONTINUED)
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The nature and location of the Company's operations is discussed in Note 12
as well as in Part I. Item I -- Business.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
U.S. Government securities and commercial paper with original maturities of
up to three months are included in cash and cash equivalents in the accompanying
Condensed Balance Sheets and Condensed Statements of Cash Flows.
VESSELS AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by the
straight-line method. Prior to January 1, 1996 vessels were depreciated over a
useful life of 20 years. During the first quarter of 1996, management completed
an evaluation of the useful life used for depreciating vessels in light of
recent vessel performance, changes in the materials available to protect vessel
hulls and industry practice. Based on the results, it was determined that a
useful life of 25 years for its vessels was a better estimate than the 20 years
used previously. Therefore, effective January 1, 1996, the estimated useful life
was extended to 25 years. Maintenance and repairs that do not extend the useful
life of the asset and are not attributable to drydockings of vessels are charged
to operations as incurred. Major renovation costs and modifications are
capitalized and amortized over the estimated remaining useful life.
EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share." 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 were 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
using the treasury stock method for common stock equivalents. The Company
adopted SFAS No. 128 in the fourth quarter of 1997 and restated EPS for all
periods presented.
REVENUE RECOGNITION
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in
46
<PAGE> 47
SCHEDULE I -- (CONTINUED)
GULFMARK OFFSHORE, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- (CONTINUED)
the years in which the differences are expected to reverse. SFAS No. 109 also
requires that the likelihood and amount of future taxable income be included in
the criteria used to determine the timing and amount of tax benefits recognized
for net operating losses and tax credit carryforwards in the financial
statements.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously reported to
conform with the current year presentation.
(2) CASH DIVIDENDS PAID BY SUBSIDIARIES
Cash dividends from unconsolidated subsidiaries for 1997, 1996 and 1995
were not significant, and the Company's consolidated subsidiaries have not paid
any cash dividends during the three most recent years. Certain loan facility
agreements entered into by the Company's subsidiaries restrict the amount of
distributions that can be made. The amount of net assets that is subject to such
restrictions is $59.0 million as of December 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT(1)
ITEM 11. EXECUTIVE OFFICER COMPENSATION(1)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(1)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS(1)
- ---------------
(1) The information required by ITEMS 10, 11, 12 and 13 will be included in the
Company's definitive proxy statements to be filed with the Securities and
Exchange Commission within 120 days of the close of its fiscal year and is
hereby incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) and (2) Financial Statements and Financial Statement Schedules.
Consolidated Financial Statements and related Schedule I of the Company are
included in Item 8 (Consolidated Financial Statements and Supplementary Data).
All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
47
<PAGE> 48
(3) Exhibits
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- -------- ----------- ----------------------------------
<C> <S> <C>
3.1 -- Certificate of Incorporation............................. Form S-4, Registration No. 333-24141
3.2 -- Certificate of Amendment to Certificate of
Incorporation............................................. Form S-4, Registration No. 333-24141
3.3 -- Bylaws................................................... Form S-4, Registration 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........ Form S-4, Registration No. 333-24141
4.2 -- Specimen Certificate for the Company's Common Stock,
$0.01 par value........................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.1 -- GulfMark International, Inc. 1987 Stock Option Plan.*.... Form S-4, Registration No. 333-24141
10.2 -- Amendment to the GulfMark International, Inc. 1987 Stock
Option Plan*.............................................. Form S-1, Registration No. 333-31139
July 11, 1997
10.3 -- GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. 1987 Stock Option
Plan).*................................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.4 -- Form of Incentive Stock Option Agreement (GulfMark
International, Inc. 1987 Stock Option Plan).*............. Form S-1, Registration No. 333-31139
July 11, 1997
10.5 -- Form of Amendment No. 1 to Incentive Stock Option
Agreement (GulfMark International, Inc. 1987 Stock Option
Plan, as amended).*....................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.6 -- Form of Incentive Stock Option Agreement (GulfMark
Offshore, Inc. 1987 Stock Option Plan).*.................. Form S-1, Registration No. 333-31139
July 11, 1997
10.7 -- GulfMark International, Inc., Amended and Restated 1993
Non-Employee Director Stock Option Plan*.................. Form S-1, Registration No. 333-31139
July 11, 1997
10.8 -- Amendment No. 1 to the GulfMark International, Inc.
Amended and Restated 1993 Non-Employee Director Stock
Option Plan.*............................................. Form S-1, Registration No. 333-31139
July 11, 1997
10.9 -- GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. Amended and
Restated 1993 Non-Employee Director Stock Option
Plan).*................................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.10 -- Form of Stock Option Agreement (GulfMark International,
Inc. Amended and Restated 1993 Non-Employee Director Stock
Option Plan).*............................................ Form S-1, Registration No. 333-31139
July 11, 1997
10.11 -- Form of Amendment No. 1 to Stock Option Agreement
(GulfMark International, Inc. Amended and Restated 1993
Non-Employee Director Stock Option Plan).*................ Form S-1, Registration No. 333-31139
July 11, 1997
10.12 -- Form of Stock Option Agreement (GulfMark Offshore, Inc.
1993 Non-Employee Director Stock Option Plan).*........... Form S-1, Registration No. 333-31139
July 11, 1997
10.13 -- GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. Director Stock
Option Agreements).*...................................... Form S-1, Registration No. 333-31139
July 11, 1997
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- -------- ----------- ----------------------------------
<C> <S> <C>
10.14 -- Form of Stock Option Agreement (GulfMark International,
Inc. Director Stock Options).*............................ Form S-1, Registration No. 333-31139
July 11, 1997
10.15 -- Form of Amendment No. 1 to Stock Option Agreement
(GulfMark International, Inc. Director Stock Options).*... Form S-1, Registration No. 333-31139
July 11, 1997
10.16 -- Agreement dated October 20, 1995 Amending and Restating
the $5,800,000 and GBP 9,400,000 Loan Facility Agreement
dated July 8, 1993, made by and between The Chase
Manhattan Bank, N.A. and GulfMark North Sea Limited, Gulf
Offshore Marine International, Inc., Gulf Offshore N.S.
Limited and Gulf Offshore Far East, Inc................... Form S-1, Registration No. 333-31139
July 11, 1997
10.17 -- Loan Facility Agreement dated as of July 26, 1996, made
between The Chase Manhattan Bank, Chase Manhattan
International Limited, as Agent, Gulf Offshore Shipping
Services, Inc., GulfMark International, Inc., GulfMark
North Sea Limited and Gulf Offshore Marine International,
Inc....................................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.18 -- Agreement Amending and Restating the GBP 3,300,000 Loan
Facility dated July 8, 1993, made by The ChaseManhattan
Bank, N.A. and GulfMark North Sea Limited, Gulf Offshore
Marine International, Inc., Gulf Offshore N.S. Limited and
Gulf Offshore Far East, Inc.*............................. Form S-1, Registration No. 333-31139
July 11, 1997
10.19 -- Agreement amending Loan Facility dated July 8, 1993 as
amended by an amendment and restatement agreement dated
May 20, 1994 (GBP3,300,000 facility)...................... Form S-1, Registration No. 333-31139
July 11, 1997
10.20 -- Deed of Release and Substitution dated April 30, 1997 by
and among GulfMark Offshore, Inc. and The Chase Manhattan
Bank, GulfMark North Sea Limited, Gulf Offshore Marine
International, Inc., to that certain GBP3,300,000 Facility
Agreement dated October 20, 1995 Amending and Restating
the Loan Facility Agreement dated July 8, 1993............ Form S-1, Registration No. 333-31139
July 11, 1997
10.21 -- Deed of Release and Substitution dated April 30, 1997 by
and among GulfMark Offshore, Inc. and Chase Manhattan
International Limited, as Agent, The Chase Manhattan Bank,
Gulf Offshore Shipping Services, Inc., GulfMark
International, Inc., GulfMark North Sea Limited and Gulf
Offshore Marine International, Inc. relating to a U.S.
$7,000,000 Credit Facility Agreement dated July 8,
1993...................................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.22 -- Deed of Release and Substitution dated April 30, 1997 by
and among GulfMark Offshore, Inc. and Chase Manhattan
International Limited, as Agent, The Chase Manhattan Bank,
The Governor and Company of the Bank of Scotland, GulfMark
North Sea Limited, Gulf Offshore Marine International,
Inc., Gulf Offshore N.S. Limited, and Gulf Offshore Far
East, Inc. relating to a U.S. $5,800,000 and GBP9,400,000
Syndicated Loan Facility dated July 8, 1993 as most
recently amended and restated by an Agreement dated
October 20, 1995.......................................... Form S-1, Registration No. 333-31139
July 11, 1997
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- -------- ----------- ----------------------------------
<C> <S> <C>
10.23 -- Loan Agreement dated as of June 11, 1997, made by and
between Christiania Bank og Kreditkasse ASA and Gulf
Offshore N.S. Limited..................................... Form S-1, Registration No. 333-31139
July 11, 1997
10.24 -- Tax Allocation and Indemnification Agreement dated April
30, 1997 made by and among GulfMark International, Inc.,
GulfMark Offshore, Inc. and Energy Ventures, Inc.......... Form S-1, Registration No. 333-31139
July 11, 1997
10.25 -- Floating Rate Bridge Loan Facility and Guarantee Facility
dated February 4, 1998 among GulfMark Offshore, Inc.,
Christiania Bank og Kreditkasse ASA for itself and as
Agent for the other banks and financial institutions
listed.................................................... Form 8-K, February 25, 1998
21.1 -- Subsidiaries of GulfMark Offshore, Inc................... Filed herewith
23.1 -- Consent of Arthur Andersen LLP........................... Filed herewith
27.1 -- Financial Data Schedule.................................. Filed herewith
</TABLE>
- ---------------
* This contract is a management contract or compensatory plan.
(B) REPORTS ON FORM 8-K
The following report on Form 8-K was filed by the Company:
One report dated February 25, 1998, was filed by the Company on Form 8-K
which announced the acquisition by the Company of approximately 96% of the
outstanding shares of Brovig Supply ASA, a publicly traded Norwegian company.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
GULFMARK OFFSHORE, INC.
(Registrant)
By: /s/ BRUCE A. STREETER
------------------------------------
Bruce A. Streeter
President and Director (Principal
Executive Officer)
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ BRUCE A. STREETER President and Director (Principal March 20, 1998
- ----------------------------------------------------- Executive Officer)
Bruce A. Streeter
/s/ FRANK R. PIERCE Executive Vice President, Finance March 20, 1998
- ----------------------------------------------------- (Principal Financial Officer)
Frank R. Pierce
/s/ KEVIN D. MITCHELL Controller (Principal Accounting March 20, 1998
- ----------------------------------------------------- Officer)
Kevin D. Mitchell
/s/ DAVID J. BUTTERS Director and Chairman of the Board March 20, 1998
- -----------------------------------------------------
David J. Butters
/s/ NORMAN G. COHEN Director March 20, 1998
- -----------------------------------------------------
Norman G. Cohen
/s/ MARSHALL A. CROWE Director March 20, 1998
- -----------------------------------------------------
Marshall A. Crowe
/s/ LOUIS S. GIMBELL, 3rd Director March 20, 1998
- -----------------------------------------------------
Louis S. Gimbell, 3rd
/s/ ROBERT B. MILLARD Director March 20, 1998
- -----------------------------------------------------
Robert B. Millard
</TABLE>
51
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1 -- Subsidiaries of GulfMark Offshore, Inc.
23.1 -- Consent of Independent Public Accountants
27.1 -- Financial Data Schedule
</TABLE>
52
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF GULFMARK OFFSHORE, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY OR ORGANIZATION STATE OR COUNTRY OF INCORPORATION
---------------------------------- ---------------------------------
<S> <C>
Gulf Offshore N.S. Ltd. United Kingdom
GulfMark North Sea Ltd. United Kingdom
S.E.A Personnel Limited United Kingdom
Dianne Operating Ltd. United Kingdom
Gulf Marine Far East PTE, Ltd. Singapore
Gulf Offshore Marine International, Inc. Panama
Gulf Offshore Far East Inc. Panama
SeaMark, Ltd. Panama
Gulf Marine do Brazil, Ltd. Brazil
Semaring Logistics (M) Sdn. Bhd. Malaysia
Chalvoyage (M) Sdn. Bhd. Malaysia
Gulf Offshore Shipping Services Inc. Panama
GM Offshore, Inc. Delaware
GMRK, Inc. Delaware
Brovig Supply ASA Norway
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark Offshore, Inc.:
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10 -K, into the Company's
previously filed Registration Statement File No. 333-33719.
/s/ Arther Andersen LLP
Houston, Texas
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following sets forth financial information extracted from the
consolidated financial statements of Gulfmark Offshore, Inc. as of
December 31, 1997, and the consolidated statement of income for the
year ended December 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,885
<SECURITIES> 0
<RECEIVABLES> 10,505
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,023
<PP&E> 128,903
<DEPRECIATION> (23,641)
<TOTAL-ASSETS> 154,661
<CURRENT-LIABILITIES> 17,606
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 85,193
<TOTAL-LIABILITY-AND-EQUITY> 154,661
<SALES> 46,019
<TOTAL-REVENUES> 46,019
<CGS> 18,231
<TOTAL-COSTS> 30,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,803)
<INCOME-PRETAX> 11,821
<INCOME-TAX> 3,626
<INCOME-CONTINUING> 8,195
<DISCONTINUED> (2,074)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,121
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.11
</TABLE>
