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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-22853
GULFMARK OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 76-0526032
incorporation or organization) (I.R.S. Employer Identification No.)
5 POST OAK PARK, SUITE 1170, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
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 22,
1999: $45,901,722.
Number of shares of common stock outstanding as of March 22, 1999: 8,123,365.
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 48.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I ----
<S> <C> <C>
Items1.
and 2. Business and Properties....................................................... 3
General Business.............................................................. 3
Offshore Marine Services Industry............................................. 4
The Company................................................................... 9
Properties.................................................................... 12
Item 3. Legal Proceedings............................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders........................... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..... 14
Item 6. Selected Consolidated Financial Data.......................................... 15
Item 7. Management's Discussion and Analysis of financial Condition and Results
of Operations........................................................... 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................... 24
Item 8. Consolidated Financial Statements and Supplementary Data...................... 25
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.................................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 44
Item 11. Director and Executive Officer Compensation................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 44
Item 13. Certain Relationships and Related Transactions................................ 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 44
</TABLE>
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL BUSINESS
GulfMark Offshore, Inc. (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 Weatherford International, Inc. ("WFT")). 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 WFT. Following the
Distribution, on May 1, 1997, a subsidiary of WFT 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 WFT common stock. Immediately
after the Merger, the Predecessor ceased public trading of its common stock.
The Consolidated Financial Statements included herein present the
results of operations of Ercon and the common stock of WFT owned by the
Predecessor as discontinued operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 4 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 two vessels operating offshore Brazil, the balance are conducted in Southeast
Asia. See Note 10 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.
SIGNIFICANT TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1998
Brovig Acquisition
In the first quarter of 1998, the Company acquired Brovig Supply ASA
(renamed Gulf Offshore Norge AS) ("Brovig"), a vessel-owning company based in
Norway. The Company added five vessels to its fleet as a result of the Brovig
acquisition, consisting of four large platform supply vessels, including a newly
constructed vessel delivered in December 1997, and one large anchor handling,
towing and supply vessel. The purchase consideration for the Brovig acquisition
was approximately $73.0 million, including the assumption of approximately NOK
277 million ($37.4 million) of indebtedness.
Senior Notes Offering
In June 1998, the Company completed a private placement of $130 million
aggregate principal amount of its 8.75% Senior Notes due 2008 (the "Notes"),
which will mature June 1, 2008 (the "Senior Notes Offering"). The Notes were
subsequently exchanged for a series of 8.75% Senior Notes, the form and terms of
which are identical in all material respects to the form and terms of the Notes,
except that they are registered under the Securities Act of 1933, as
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amended, and, therefore, are not subject to transfer restrictions. The majority
of the net proceeds received by the Company in connection with the Senior Notes
Offering was used to repay in full certain of the Company's then outstanding
debt. The balance of the proceeds was available for general corporate purposes,
including capital expenditures associated with new vessel construction.
New Credit Facility
Simultaneously with the closing of the Senior Notes Offering, the
Company entered into a single multicurrency revolving loan agreement (the "New
Credit Facility"). The initial aggregate principal amount of $50.0 million under
the New Credit Facility was increased to $75.0 million in December 1998. The New
Credit Facility is available to provide financing for future acquisitions,
working capital and other general corporate purposes.
Sale of SeaMark Ltd.
In July 1998, the Company sold, for approximately $3.1 million dollars
in cash, its 51% interest in the SeaMark Ltd. joint venture, which operated two
bareboat chartered vessels in Southeast Asia.
For further discussion of the Brovig acquisition, the Senior Notes
Offering, the New Credit Facility and the Sale of SeaMark Ltd., see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 to transport materials, supplies,
equipment and personnel. Offshore Marine Service 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 22, 1999, the Company operates a fleet of 42 offshore
support vessels, primarily in the North Sea (29 vessels) and Southeast Asia (11
vessels). Additionally, the Company operates 2 vessels offshore Brazil. The
Company expects delivery of 7 additional new vessels by the end of 1999, 1 of
which will be bareboat chartered, 2 will be owned and 4 will be managed. See
Note 10 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.
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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.
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
the categories. These functional classifications are: (i) platform supply
vessel, (ii) anchor handling, towing and supply vessel, (iii) construction
support vessel, (iv) standby rescue vessel, (v) crewboat, (vi) specialty vessel
and (vii) utility vessel.
o 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 19 LgPSVs in the North Sea (12 of
which are owned by the Company) that function primarily in this
classification but also are capable of service in construction support. In
addition, the Company operates 2 PSVs in the North Sea that operate
exclusively in this function and 10 SmAHTS vessels (as defined below) in
Southeast Asia that often support production operations as PSVs.
o 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 owns 1 and operates 2
additional AHTS vessels in the North Sea and operates 1 in Brazil, and owns
10 in Southeast Asia. From time to time, all of the Company's AHTS vessels
function as PSVs.
o 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 19 vessels (12 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.
o 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.
o 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.
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They are used primarily to transport cargo on a time-sensitive basis. The
Company owns one of these vessels currently operating in Southeast Asia.
o 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. Four of the
Company's owned vessels, the Highland Spirit, the Highland Fortress, the
Highland Rover, and the Seapower frequently provide specialty functions,
and four managed vessels are chartered for specialty functions (the Clwyd
Supporter, the Sefton Supporter, the Austral Horizon and the Atlantic
Horizon).
o 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 Gulf of
Mexico. Consequently, vessel demand in the North Sea is generally steadier 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 during
prolonged periods of low oil prices, as currently being experienced, 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 18 owned and bareboat chartered vessels
(16 PSV's, 1 AHTS, and 1 SpV) and 11 managed vessels (5 PSV's, 2 AHTS vessels
and 4 SpVs). Onshore bases in Aberdeen, Scotland and Liverpool, England support
these vessels.
During the past four years, the North Sea market has experienced
consistently high vessel utilization rates and increasing day rates. Increased
drilling rig requirements during 1995 and 1996 led to a shortage of high
specification drilling rigs. A number of long-term drilling contracts were
signed during that period and, as demand increased in other regions, orders for
new drilling rigs were placed. Accelerated activity in construction and
development projects added to the demand for supply vessel services and by 1997
vessel demand was very strong. The positive market dynamics continued through to
the end of 1998. However, a drop in oil price in the latter half of 1998
resulted in significant reductions in spending plans for 1999. Demand for vessel
services in 1999 is expected to be well below that experienced in 1997 and 1998.
Construction projects approved and initiated prior to the recent budget
reductions appear likely to provide some market strength during the course of
1999 and again during the summer of 2000. Construction demand and continued
requirements for support for existing production should provide a stable base
and allow utilization in the region to remain at reasonable levels.
The balance of supply and demand in the North Sea market will be
influenced by the delivery of new construction vessels. 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
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orders placed for delivery in 1996 and subsequent years. Demand for existing
vessels outside of the North Sea and the expanded role for deep-water projects
in worldwide locations left the regional fleet largely in balance through to the
end of 1998. Reduced budgets and delayed delivery of new construction deepwater
capable drilling units is likely to reduce near term demand for vessels outside
of the North Sea. Market sources identify a total between 40 and 50 vessels on
order in the North Sea region as of December 31, 1998 with anticipated delivery
in 1999 or 2000. A lack of demand outside of the North Sea could create an
oversupply situation in the North Sea.
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 future demand for Offshore Marine Services in
the Southeast Asia market.
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 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 those operating 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. Vessels designed for the Gulf of
Mexico and other areas where moderate weather conditions prevail have
historically made up the bulk of the Southeast Asian fleet. In the middle part
of the 1990s there has been pressure (most notably from Malaysia) to upgrade
offshore 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. This is less likely
to be a factor in vessel selection during a period of reduced expenditures.
Changes in supply and demand dynamics could lead to an excess number of
vessels in markets such as the Gulf of Mexico. It is possible that vessels
currently located in the Arabian/Persian Gulf area, West Africa or the Gulf of
Mexico could relocate to Southeast Asia. Not all vessels currently located in
those regions would be able to operate in Southeast Asia. Furthermore,
transferring a vessel from the Gulf of Mexico to Southeast Asia would involve a
significant cash and opportunity cost. Historically there has been some movement
between operating areas, but vessel movements have not been a major factor in
the Southeast Asia vessel market.
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. Several large projects
have now been identified that would exploit gas reserves. Indonesian-based
operations utilize the largest number of service vessels in the region. Demand
in Indonesia has seen a number of peaks and valleys during the decade. In 1992,
demand softened 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. The market improved in early 1998 as part
of a general improvement throughout Southeast Asia. The economic uncertainty and
the effects of the recent political turmoil have and will reduce activity in the
short term and may reduce vessel demand during 1999. The pace of development of
major projects may be slowed, but they will lead to increased demand for vessel
services in the long run.
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
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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. Activity during 1998 was quite
strong despite the economic difficulties that spread through the region during
the early months of the year. Despite reduced oil demand in Asia, vessel
activity was reasonably firm throughout the year. The economic difficulties in
Malaysia, Thailand, Indonesia and other Asian countries continue. Activity in
the region will continue to be influenced by the economic climate. While
drilling activity may be reduced in the short term the drive to develop local
sources of hydrocarbons continues and significant potential for future activity
remains.
THE BRAZILIAN MARKET
The Seapower has been operating in Brazil since 1995 under a contract
which runs into October 1999 with Petroleo Brasiliero S.A. ("Petrobras"), the
Brazilian national Oil Company. The Leopard Bay, an AHTS built by Steamship Co.
Ltd., ("Sanko") and bareboat chartered by the Company for three years, began a
three-year contract with Petrobras in November 1998. The Brazilian government
has undertaken a program that has opened the country to international oil
companies either through joint ventures with Petrobras or possibly through
competition for drilling concessions. There has been considerable discussion
concerning partial privatization of Petrobras that would allow it to have
greater access to capital markets. However, recent concern about the Brazilian
economy has led to devaluation of the currency, and inflation and could have a
significant effect on the Brazilian economy. This could lead to a reduction in
activity and reduced demand for vessel services. During previous periods of high
inflation and changing political climates, the Company has experienced no
problems with its operations in this market. Recent commitments, subsequent to
the economic concern, to joint ventures by international operators are
encouraging. The Company believes that additional charter opportunities are
likely to develop in the future.
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 high quality vessels.
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THE COMPANY
THE COMPANY'S FLEET
The fleet as of March 22, 1999 includes 42 vessels, 30 of which are
capable of operating in one or more areas of the North Sea (i.e. the "North Sea
Capable" vessels as distinguished from the standard vessels) the most
technologically demanding of the five major offshore markets of the world. In
total 28 of the vessels are owned by the Company, 3 are bareboat chartered from
other owners and 11 are under management for other owners. The following table
summarizes information with respect to each of these vessels, as well as 7
additional vessels currently under construction as indicated with*:
<TABLE>
<CAPTION>
TYPE LENGTH BHP DWT
LOCATION VESSEL (A) FLAG BUILT (FEET) (B) (C)
- ------------------- --------------------------- --------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH SEA CAPABLE VESSELS
OWNED
North Sea Highland Spirit (d) SpV UK 1998 202 6,000 1,800
North Sea Highland Rover 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 North Prince (e) LgPSV UK 1978 259 6,000 2,717
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
TBD Highland Guide* LgPSV TBD 1999 218 4,640 2,800
TBD Highland Scout* LgPSV TBD 1999 218 4,640 2,800
CHARTERED
North Sea Mercury Bay LgPSV Bermuda 1998 221 5,450 3,115
North Sea Monarch Bay LgPSV Bermuda 1998 221 5,450 3,115
Brazil Leopard Bay AHTS Bermuda 1998 241 15,000 2,900
North Sea Torm Heron* AHTS Bermuda 1999 241 15,000 2,900
MANAGED
Worldwide Austral Horizon SpV Panama 76/98 297 4,400 1,641
Worldwide Atlantic Horizon SpV Bahamas 88/99 394 7,390 6,700
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 Sea Truck LgPSV UK 1979 266 4,600 2,477
North Sea Safe Truck LgPSV UK 1996 221 5,450 2,800
North Sea Torm Kestrel LgPSV Bermuda 1998 221 5,450 3,115
North Sea Torm Osprey AHTS UK 1999 241 15,000 2,900
North Sea Torm Eagle* AHTS UK 1999 241 15,000 2,900
North Sea Gargano* LgPSV UK 1999 236 5,450 3,700
North Sea Waveny Castle LgPSV UK 1999 221 5,450 3,115
North Sea Waveny Fortress* LgPSV TBD 1999 221 5,450 3,115
North Sea Ace Nature LgPSV Bermuda 1999 276 9,600 4,320
North Sea Ace TBN* LgPSV Bermuda 1999 276 9,600 4,320
OTHER VESSELS
OWNED
Southeast Asia Sem Courageous SmAHTS Malaysia 1981 191 4,000 1,000
Southeast Asia Sem Valiant SmAHTS Malaysia 1981 191 4,000 1,000
Southeast Asia Seawhip SmAHTS Panama 1983 192 3,900 1,200
Southeast Asia Seawitch SmAHTS Panama 1983 192 3,900 1,200
Southeast Asia Sea Explorer SmAHTS Panama 1981 192 5,750 1,420
Southeast Asia Sea Diligent SmAHTS Panama 1981 192 4,610 1,219
Southeast Asia Sea Endeavor SmAHTS Panama 1981 191 4,000 1,000
Southeast Asia Sea Conquest SmAHTS Panama 1977 185 3,850 1,142
Southeast Asia Sea Searcher SmAHTS Panama 1976 185 3,850 1,215
Southeast Asia Sea Eagle SmAHTS Panama 1976 185 3,850 1,215
Southeast Asia Searunner Crew Panama 1982 120 2,720 126
Brazil Seapower SpV Panama 1974 222 7,040 1,205
</TABLE>
(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
9
<PAGE> 10
(b) Brake horsepower.
(c) Deadweight tons.
(d) Formerly called the "Gallant Project".
(e) These vessels were acquired as part of the Brovig Supply ASA acquisition on
February 10, 1998.
The fleet summarized above includes two owned vessels delivered in
1998. 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".
Additionally, the fleet includes the Highland Spirit (formerly known as
the Gallant project), which was delivered in November 1998. The vessel is
currently working on a five-year contract as a multipurpose support vessel for
an FPSO installation. 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 table also reflects two owned vessels currently under construction with
Bender Shipbuilding and Repair Co. Inc. with delivery expected in April and June
1999. The Company also has an option 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 1998, under multiple charters in the ordinary course of business, one
customer accounted for 10% or more of total consolidated revenues. This
customer, European Marine Contractors ("EMC"), is a construction company jointly
owned by Brown & Root and Saipem, a subsidiary of ENI, the Italian national oil
company, which accounted for 14.6% of the Company's consolidated revenues. The
charters with EMC are industry standard time charters involving several of the
Company's vessels for periods ranging from 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.
Substantially all of the Company's charters are fixed in Sterling,
Norwegian Kroner 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.
10
<PAGE> 11
FLEET AVAILABILITY
As of December 31, 1998, 12 of the Company's owned and bareboat
chartered vessels were on term charters extending one year or longer. Twenty-six
were on charters of less than one year but over 30 days and four of the vessels
were on a charter of less than 30 days.
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.
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 at 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
Asian 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.
11
<PAGE> 12
EMPLOYEES
At December 31, 1998, the Company had 776 employees located in the
United States, the United Kingdom, Norway, Southeast Asia and Brazil. Through
its contract with a crewing agency, it participates in collective bargaining
arrangements with 522 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
GENERAL
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 WFT pursuant to the Company's
indemnity obligations under the indemnities described below 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.
DISTRIBUTION AGREEMENT OBLIGATIONS AND INDEMNITIES
Indemnification Obligations to WFT. The Company has agreed under the
Distribution Agreement to indemnify, defend and hold the Predecessor, WFT 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 WFT may be liable on
account of any claims, administrative charges, self-insured retentions,
deductibles, 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
12
<PAGE> 13
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 WFT 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 WFT 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 WFT 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 WFT 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 WFT 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 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.
13
<PAGE> 14
"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 WFT 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).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 the Company's Common Stock for the periods indicated, as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C>
Quarter ended March 31, 1998......................................... $ 33.50 $ 18.00
Quarter ended June 30, 1998.......................................... $ 38.00 $ 22.63
Quarter ended September 30, 1998..................................... $ 25.00 $ 11.75
Quarter ended December 31, 1998...................................... $ 19.25 $ 10.25
</TABLE>
On March 22, 1999, the closing sale price of the Company's Common Stock
as reported by the Nasdaq National Market was $12 1/8 per share. As of March 22,
1999, there were 2,710 shareholders of record.
The Company has not declared or paid any dividends during the past five
years. Pursuant to the terms of the indenture under which the Notes are issued,
the Company may be restricted from declaring or paying dividends; however, 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
14
<PAGE> 15
appropriate in light of future operating conditions, dividend restrictions of
subsidiaries and investees, financial requirements, general business conditions
and other factors.
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 WFT 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,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA :
Revenues ................................ $ 86,194 $ 46,019 $ 34,749 $ 27,233 $ 27,692
Direct operating expenses ............... 34,102 18,231 16,178 15,386 15,171
General and administrative expenses ..... 5,718 5,364 4,523 3,483 3,643
Depreciation and amortization ........... 11,345 6,711 5,013 5,472 5,065
-------- -------- -------- -------- --------
Operating income ........................ 35,029 15,713 9,035 2,892 3,813
Gain on sale of assets .................. 2,930 -- -- -- 842
Interest expense, net ................... (8,208) (3,819) (3,467) (2,613) (2,179)
Other income (expense), net ............. (146) (73) (86) 180 (12)
Income tax provision .................... (8,816) (3,626) (1,839) (91) (981)
-------- -------- -------- -------- --------
Income from continuing operations ....... 20,789 8,195 3,643 368 1,483
Income (loss) from discontinued
operations, net of taxes ........... -- (648) 4,796 (2,270) 591
Loss on disposal of segment, net of taxes -- (1,426) -- -- --
-------- -------- -------- -------- --------
Net income (loss) ....................... $ 20,789 $ 6,121 $ 8,439 $ (1,902) $ 2,074
======== ======== ======== ======== ========
Earnings per share from continuing
operations (basic) ................. $ 2.58 $ 1.15 $ 0.55 $ 0.06 $ 0.22
Weighted average common shares (basic) .. 8,047 7,155 6,676 6,644 6,640
Earnings per share from continuing
operations (diluted) (a) ........... $ 2.52 $ 1.11 $ 0.54 $ 0.06 $ 0.22
Weighted average common shares
(diluted) (a) ...................... 8,255 7,413 6,782 6,703 6,666
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in) operating
activities of continuing operations $ 32,471 $ 19,112 $ 8,539 $ 6,389 $ 5,448
Cash provided by (used in) investing
activities ......................... (62,142) (37,218) (24,493) (15,093) (258)
Cash provided by (used in) financing
activities ......................... 36,475 28,658 17,894 9,567 (7,970)
Effect of exchange rate changes on cash . (682) (541) 924 (160) 124
OTHER DATA:
EBITDA (b) .............................. $ 46,374 $ 22,424 $ 14,048 $ 8,364 $ 8,878
Cash dividends per share ................ -- -- -- -- --
Total vessels in fleet (c) .............. 38 30 28 22 20
Average number of owned or chartered
vessels(d) ......................... 28.7 23.0 18.3 15.0 16.2
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............... $ 32,007 $ 25,885 $ 17,234 $ 5,136 $ 2,645
Vessels and equipment, net .............. 192,615 105,262 87,405 61,343 51,175
Net assets of discontinued operations (e) -- -- 14,837 19,275 23,512
Total assets including discontinued
operations ......................... 271,369 154,661 131,307 94,179 87,821
Total assets excluding discontinued
operations ......................... 271,369 154,661 116,470 74,904 64,309
Long-term debt (f) ...................... 130,136 42,918 50,811 33,600 26,727
Total stockholder's equity excluding
discontinued operations (g) ........ 108,490 85,272 47,179 31,653 29,513
</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 may 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.
15
<PAGE> 16
(c) Includes managed vessels in addition to those that are owned and chartered.
See pages 5 and 9 for further information concerning the Company's fleet.
(d) Includes owned and chartered vessels only. Adjusted for additions and
dispositions occurring during each period. See pages 5 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.
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 WFT. 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 WFT was merged with and into the Predecessor, whose
assets then consisted principally of Ercon and its investment in WFT common
stock. 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
WFT common stock. See Note 4 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
results of operations of Ercon and the common stock of WFT owned by the
Predecessor as discontinued operations of the Company for all periods presented.
See Note 4 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 WFT 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 two vessels 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 42 vessels through strategic acquisitions and new construction
of technologically advanced vessels, partially offset by dispositions of certain
older, less profitable vessels. Of the vessels in GulfMark's fleet, 28 are
owned, 3 are bareboat chartered from other owners and 11 are managed.
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
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<PAGE> 17
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. There were significant declines in oil and gas prices during the
year ended December 31, 1998. Current trends in market prices, if continued,
would have a material adverse effect on the Company's results of operations.
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.
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 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,
1998, the Company completed the drydocking of 6 vessels at an aggregate cost of
$1.3 million, versus 14 vessels drydocked at an aggregate cost of $4.0 million
in 1997 and 5 vessels at an aggregate cost of approximately $1.2 million in
1996.
Over the last several years, the Company has been actively expanding its
fleet by the construction of new vessels, by the acquisition of existing
equipment from the resale market and by bareboat chartering vessels owned by
others. Owned or chartered newbuilds added to the fleet during the past three
years as well as those currently under construction are as follows:
VESSEL DELIVERY DATE
o Highland Piper (owned) March 1996
o Highland Drummer (owned) January 1997
o Highland Rover (owned) March 1998
o Leopard Bay (chartered) June 1998
o Mercury Bay (chartered) July 1998
o Monarch Bay (chartered) October 1998
o Highland Spirit (owned)* November 1998
o Highland Guide (owned) April 1999 (anticipated)
o Torm Heron (chartered) May 1999 (anticipated)
o Highland Scout (owned) June 1999 (anticipated)
*Formerly referred to as the "Gallant Project"
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<PAGE> 18
Total expenditures made for the construction of vessels during the years
ended December 31, 1998, 1997 and 1996 were $37.4 million, $23.2 million, and
$12.4 million, respectively. At December 31, 1998, remaining expenditures under
existing construction contracts was approximately $9.6 million.
The following list indicates the owned or chartered vessels that were added
to the fleet from the resale market in the past five years:
VESSEL ACQUISITION DATE
o Sea Explorer (owned) August 1996
o Sea Diligent (owned) August 1996
o Sea Conquest (owned) August 1996
o Sea Endeavor (owned) August 1996
o Sea Eagle (owned).. August 1996
o Sea Searcher (owned) August 1996
o North Prince (owned) February 1998
o Skandi Hawk (owned) February 1998
o Skandi Fortune (owned) February 1998
o North Crusader (owned) February 1998
o North Challenger (owned) February 1998
The six vessels acquired in 1996 were purchased from Maritime (Pte),
Limited (the "Maritime Acquisition") at an aggregate cost of $10.5 million while
the five vessels acquired in 1998 resulted from the Brovig acquisition for a
total cost of approximately $73 million, including debt assumed.
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,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Rates Per Day Worked (a) (b):
North Sea Capable Fleet (c) .......... $ 12,068 $ 9,930 $ 8,819
Other (Primarily Southeast Asia) ..... 4,859 3,830 3,228
Overall Utilization (a) (b):
North Sea Capable Fleet (c) .......... 97.8% 96.5% 95.1%
Other (Primarily Southeast Asia) ..... 84.6% 75.4% 75.6%
Average Owned or Chartered Vessels (a) (d):
North Sea Capable Fleet .............. 15.7 9.0 7.8
Other (Primarily Southeast Asia) ..... 13.0 14.0 10.5
--------- --------- ---------
Total ............................ 28.7 23.0 18.3
========= ========= =========
</TABLE>
(a) Includes all owned or bareboat chartered vessels. Managed vessels are not
included.
(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 of availability in the period.
(c) Revenues for vessels in the North Sea fleet are primarily earned in
Sterling ((pound)) and have been converted to U.S. dollars ($) at the
average exchange rate ($/(pound)) for the periods indicated. The average
exchange rates for the years ended December 31, 1998, 1997 and 1996 were
(pound) = $1.66, (pound) = $1.64 and (pound) = $1.56, respectively.
(d) Adjusted for vessel additions and dispositions occurring during each
period.
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<PAGE> 19
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
In spite of the downturn in oil and gas prices, during the year ended
December 31, 1998, the Company reported record results. These results were
achieved in part because of the Company's high level of forward contract cover
at the beginning of 1998. Additionally, the Company's presence within
international markets, particularly the North Sea, has further provided some
insulation to current industry conditions. The length of the planning horizons
and the high level of costs to fund exploration and production in these areas
requires a long term view of the industry.
During 1998, the Company experienced considerable growth in the size of its
fleet. All of the expansion occurred in the fleet based in the North Sea. The
single largest addition was the acquisition of the Norwegian vessel owning
company, Brovig Supply ASA, in February 1998. This company owned a large AHTS
and four large PSVs including a newly constructed vessel delivered in December
1997. Combined, these vessels accounted for approximately half of the Company's
revenue and earnings increases when compared to 1997. Each of these vessels is
working in the North Sea. Additional revenue and earnings growth came from the
March 1998 delivery of the newbuild Highland Rover and the November 1998
delivery of the newbuild Highland Spirit. These vessels began three and five
year contracts, respectively, upon delivery. Combined they contributed 15% of
the earnings improvements during 1998. Three additional newbuild bareboat
chartered vessels built for Sanko Steamship Co. Ltd., were added to the fleet
during 1998: the Leopard Bay, the Mercury Bay and the Monarch Bay were added to
the fleet in June, July and October, respectively. While these vessels
contributed approximately $6 million to the revenue increases, their operating
margins are not as high as owned vessels because the bareboat fees are higher
than depreciation expense on similarly priced vessels. In addition to the vessel
additions in the North Sea, other vessels operating in the North Sea experienced
improvements in dayrates and utilization due in significant part to the expanded
1998 construction season. The Highland Fortress, one of the Company's vessels
particularly attractive to construction support charterers, accounted for almost
10% of the Company's increase in operating earnings for the year.
In Southeast Asia, the fleet saw considerable improvement in 1998 compared
to 1997 with average dayrates improving more than 25% and the average
utilization rate for these vessels increasing to 85% from 75% in the prior year.
Results for the year ended December 31, 1998 also benefited from the inclusion
of a pre-tax gain of approximately $2.9 million ($0.23 per diluted share, net of
tax) for the July cash sale of the Company's 51% owned joint venture, SeaMark
Ltd. ("SeaMark"), which operated two bareboat chartered vessels in Southeast
Asia. Despite the decreases in revenues associated with the disposition of the
two SeaMark vessels, revenues in Southeast Asia increased from $12.8 million in
1997 to 17.4 million in 1998.
Depreciation and interest expense, net of interest income, for the year
increased 69% and 115%, respectively, from 1997 as a result of the vessel
acquisitions described above and the Senior Notes Offering completed by the
Company in June 1998.
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 in 1996. 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 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
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<PAGE> 20
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, as 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 shares of WFT, Inc. held by the Company.
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. Historically, bank financing and internally generated funds have
provided funding for these activities.
In June 1998, the Company sold $130 million of 8.75% Senior Notes (the
"Notes"). Net proceeds from the sale totaled $124,723,000 after a discount of
$430,300 and offering costs of $4,846,700. The net proceeds were used to repay
substantially all the outstanding indebtedness of the Company under various bank
credit facilities which were secured by mortgages on many of the Company's
vessels.
Interest on the Notes is payable semi-annually each June 1 and December 1.
The Notes do not require any payments of principal prior to their stated
maturity on June 1, 2008, but pursuant to the indenture under which the Notes
are issued, the Company is required to make offers to purchase the Notes upon
the occurrence of certain events, such as asset sales or a change in control of
the Company. The Notes are not redeemable at the option of the Company prior to
June 1, 2001.
The Notes are general unsecured obligations of the Company and rank
equally in right of payment with all existing and future unsecured senior
indebtedness of the Company, which may include borrowings under the New Credit
Facility, and senior to all future subordinated indebtedness of the Company. The
Notes will be effectively subordinated to (i) all future secured obligations of
the Company to the extent of the assets securing such obligations and (ii) all
existing and future indebtedness and other obligations of the Company's
subsidiaries and trade payables incurred in the ordinary course of business.
Under certain circumstances, the Company's payment obligations under the Notes
may be jointly and severally guaranteed on a senior unsecured basis by one or
more of the Company's subsidiaries.
The indenture under which the Notes are issued imposes operating and
financial restrictions on the Company. Such restrictions affect, and in many
cases limit or prohibit, among other things, the ability of the Company to incur
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<PAGE> 21
additional indebtedness, make capital expenditures, create liens, sell assets
and make dividend or other payments.
Simultaneous with the closing of the Senior Notes Offering, in June 1998,
the Company also entered into the New Credit Facility with two banks for a total
of $50 million. On December 8, 1998, an additional lender was added which
increased the facility to $75 million. The New Credit Facility has two tranches.
Tranche 1 is unsecured and is available for general corporate purposes. The
maximum commitment amount is limited to $30 million. Interest on outstanding
balances under Tranche 1 accrues at LIBOR plus a margin ranging from 1.0% to
1.375% as determined by the Company's ratio of funded debt to total
capitalization ("Leverage Ratio").
Tranche 2 is available to finance the acquisition of (i) up to 50% of the
acquisition costs of shares in another company (a "Share Acquisition") or (ii)
up to 65% of the purchase price of a vessel (a "Vessel Acquisition"). Drawings
under Tranche 2 will be secured, in the case of a Share Acquisition, by the
capital stock of the acquired company or, in the case of a Vessel Acquisition,
(i) by a first priority mortgage, (ii) by an assignment of earnings and
insurance and (iii) by an assignment of charters over one year. The maximum
committed amount is $45 million. The interest on outstanding balances under
Tranche 2 is LIBOR plus 0.80% to 1.25% depending on the Company's Leverage
Ratio. Both tranches shall begin to reduce beginning on September 8, 2001, and
shall be fully reduced by June 8, 2003.
As of December 31, 1998, the Company had cash on hand of $32 million. Cash
flows from operations for the year ended December 31, 1998, were $32.5 million
compared to $19.1 million in the previous year. The increase in operating cash
flow was attributable to the significant increase in the number of vessels in
the Company's fleet during 1997 and 1998 as well as to higher dayrates and
utilization.
Cash flows for investing activities for the years ended December 31, 1998
and 1997 were $62.1 and $37.2 million, respectively. The Company's primary
capital expenditure requirements are for the construction of new vessels, the
acquisition of vessels from the resale market as well as the funds required for
the drydocking of its vessels every two to three years. The years ended December
31, 1998 and 1997 included $25.5 million and $8.4 million, respectively, for the
purchase of shares of Brovig Supply ASA, a Norwegian publicly traded shipowner
with five vessels. Additionally, during 1998, payments for the newbuilds owned
by the Company were made with respect to the Highland Rover, delivered in March
1998, the Highland Spirit, delivered in November 1998, as well as progress
payments for the Highland Guide and the Highland Scout due to be delivered in
1999. At December 31, 1998, the total remaining commitment for the two vessels
under construction is approximately $9.6 million with $3.8 million remaining as
of March 22, 1999. Investing activities are also impacted by the number of
vessels required to be drydocked. In 1998, there were six vessels drydocked at
an aggregate cost of $1.3 million compared to fourteen vessels drydocked in 1997
at an aggregate cost of $4.0 million.
Cash flows for financing activities was $36.5 million for the year ended
December 31, 1998 and $28.7 million for the 1997 period. The 1998 period
included the sale of the Notes in June while the 1997 period included the
drawdown of facilities related to the construction of vessels. Additionally, in
August 1997, the Company sold 1,125,000 shares of its common stock for net
proceeds of $33.4 million.
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 its 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
assurances that such 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 conducted
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 operating costs are in Sterling. The North Sea
fleet generated $64.2 million in revenues, $28.6
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<PAGE> 22
million in operating income and $25.1 million of cash flows from operations for
the year ended December 31, 1998. In 1998, the Sterling/U.S. dollar exchange
rate ranged from a high of (pound) = U.S.$1.71 to a low of (pound) = U.S. $1.61
with an average of (pound) = $1.66 for the year. As of March 22, 1999, the
Sterling/U.S. Dollar exchange rate was (pound) = U.S.$1.63.
Prior to the issuance of the Notes, the Company reduced its exposure to
currency fluctuations by arranging for the debt financing associated with a
vessel and its operating costs to be denominated in the same currency in which
it earned revenue. Under these conditions the effect on cash flows of a
fluctuation in the exchange rate is largely offset by the effect on same
currency denominated borrowings.
With the completion of the Senior Notes Offering in June 1998, the
Company's debt is entirely denominated in U.S. dollars, while a substantial
portion of the Company's revenue continues to be generated in Sterling. The
Company has evaluated these conditions and has determined that it is in the best
interest of the Company not to use any financial instruments to hedge this
exposure under present conditions.
The Company's decision is based on a number of factors including among
others, (i) the cost of using such instruments in relation to the risks of
currency fluctuations, (ii) the propensity for adjustments in Sterling
denominated vessel day rates over time to compensate for changes in the
purchasing power of Sterling as measured in U.S. dollars, (iii) the Company's
strong cash position substantially held in U.S. dollars, (iv) the level of
dollar denominated borrowings available to the Company and (v) the conditions in
the Company's dollar generating regional markets. One or more of these factors
may change and the Company, in response, may begin to use financial instruments
to hedge risks of currency fluctuations.
The Company will from time to time hedge known liabilities denominated in
foreign currencies to reduce the effects of exchange rate fluctuations on the
Company's financial results. At December 31, 1998, the Company did not have any
foreign currency exchange contracts outstanding.
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 $0.4 million in 1998, $1.1
million in 1997 and $1.6 million for 1996. Beginning in 1998, charters in
Malaysia have been primarily fixed in U.S. dollars with only a portion fixed in
Malaysian ringgits which approximately equals the Company's local expenses.
Malaysian currency rates had been relatively stable during most of this decade,
however, beginning in July 1997, most currencies in Southeast Asia began to
weaken against the U.S. dollar. During 1998, the Malaysian ringgit averaged
M$=U.S.$0.26 and was M$=U.S.$0.26 at December 31, 1998. The Company does not
currently hedge this currency. Where currency risks are potentially high, the
Company normally accepts only a small percentage of charter hire in local
currency and the remainder is paid in U.S. dollars.
Reflected in the accompanying balance sheet at December 31, 1998, is a
$1.5 million cumulative translation adjustment primarily relating to the lower
Sterling exchange rate as of December 31, 1998 in comparison to the exchange
rate when the Company invested capital in its United Kingdom subsidiaries.
Changes in the cumulative translation adjustment are non-cash items that are
primarily attributable to investments in vessels and dollar denominated loans
between companies in the North Sea.
To date, general inflationary trends have not had a material effect on
the operating revenues or expenses of the Company.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and presenting
comprehensive income in the financial statements and is effective for the
Company beginning in 1998. The adoption of this statement resulted in an
additional statement 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
No. 131 redefines how operating segments are determined and requires
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<PAGE> 23
disclosure of certain financial and descriptive information about a company's
operating segments. SFAS No. 131 required additional disclosures beginning in
1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 will be effective beginning in 2000. The
Company does not expect the adoption of this statement to have a material effect
on its financial position or results of operations.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four so that date sensitive systems may fail or produce erroneous results
on or before January 1, 2000 because the year 2000 will be interpreted as the
year 1900. The Company has been conducting a comprehensive review of its
computer systems to ensure that all of its significant computer systems will be
able to process dates from and after January 1, 2000 without critical failure.
Computerized systems are integral to the Company's operations, particularly for
accounting and administrative software applications used throughout its
locations. Computerized systems are furthermore used for communication,
navigational and other systems aboard certain of the Company's vessels. Most of
the Company's software applications are licensed through commercial third party
software developers with whom the Company has maintenance contracts. Each of
these software developers have already modified and released newer versions of
their product that are Y2K compliant. The Company has implemented or is in the
process of implementing these Y2K compliant versions. The Company expects to
complete the implementation of both Y2K compliant accounting and administrative
software and related hardware by the end of the quarter ending June 30, 1999.
Each of the upgrades in software versions was provided as part of the Company's
maintenance agreement with the provider or were part of routine version
upgrades. Costs for the upgrade of hardware are expected to be minimal. The
Company does not expect the costs to modify its hardware and software to be Y2K
compliant will be material to its financial condition or results of operations.
The Company is in the process of reviewing the date-aware systems that are
used aboard its vessels with completion expected by the second quarter of 1999.
While the status of this review does not yet permit management to accurately
forecast costs of making all such systems Y2K compliant, estimates associated
therewith are expected to be complete by the second quarter of 1999.
The Company's computer systems are not widely integrated with the systems
of its suppliers and customers. A potential Y2K risk attributable to third
parties would be from a temporary disruption in certain materials and services
provided by third parties. Major suppliers have been contacted regarding Y2K
compliance, and recently, the Company added Y2K compliance requirements to all
of its purchasing contracts. An assessment of Y2K third-party risk is scheduled
for completion by the second quarter of 1999.
At present, the Company has not developed a contingency plan to address all
areas of risk associated with Y2K compliance but expects to develop a plan, if
needed, beginning in the second quarter of 1999. The Company is committed to
ensuring that it is fully Y2K ready and believes that, when completed, its plans
will adequately address the above-mentioned risks.
Based upon the Y2K risk assessment work performed thus far, the Company
believes the most likely Y2K-related failures would be related to a disruption
of materials and services provided by third parties. Although the Company does
not expect that such disruptions would have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that the Company's belief is correct or that its risk assessments are,
in fact, accurate. The Company believes that the upgrades to its hardware and
software systems, in conjunction with any contingency plans developed prior to
January 1, 2000, will permit a transition through that date without significant
interruption in its business or operations, however, such assessment is
predicated on the timely completion of the above referenced software
modifications. Should these modifications and upgrades be delayed or the
Company's contingency plans fail, the Y2K issue could have a material impact on
the Company's financial condition or results of operations. In addition, there
can be no assurance that the Company's vendors, suppliers and other parties with
whom the Company does business will successfully resolve their Y2K problems. In
the event of any such failures or
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<PAGE> 24
other Y2K failures, there can be no assurance that, despite the Company's
contingency plans, there will not be a material adverse effect on the Company's
financial condition or results of operations.
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 requirements, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The Company's financial instruments that are potentially sensitive to
changes in interest rates include the Company's Senior Notes which were issued
on June 8, 1998. These notes, which are due June 1, 2008, have a stated interest
rate of 8.75% and an effective interest rate of 8.8%. At December 31, 1998, the
fair value of these notes, based on quoted market prices, was approximately
$118.3 million, as compared to a carrying amount of $129.6 million.
EXCHANGE RATE SENSITIVITY
Other than trade accounts receivable and trade accounts payable, the
Company does not currently have financial instruments that are sensitive to
foreign currency exchange rates. Other information required under Item 7A has
been incorporated into Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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<PAGE> 25
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, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, comprehensive income, and cash flows
for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GulfMark
Offshore, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Houston, Texas
March 3, 1999
25
<PAGE> 26
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
------------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 32,007 $ 25,885
Accounts receivable, net ................................................... 19,612 10,505
Prepaids and other ......................................................... 2,210 633
--------- ---------
Total current assets ..................................................... 53,829 37,023
--------- ---------
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation of
$31,839,000 in 1998 and $23,641,000 in 1997 ................................ 192,615 105,262
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY ....................................... -- 8,388
GOODWILL, net of accumulated amortization ..................................... 17,689 --
OTHER ASSETS .................................................................. 7,236 3,988
--------- ---------
$ 271,369 $ 154,661
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt ................ $ 60 $ 10,506
Accounts payable ........................................................... 7,030 3,839
Accrued personnel costs .................................................... 1,314 583
Accrued interest expense ................................................... 955 187
Other accrued liabilities .................................................. 2,930 2,491
--------- ---------
Total current liabilities ................................................ 12,289 17,606
--------- ---------
LONG-TERM DEBT ................................................................ 130,136 42,918
DEFERRED TAXES AND OTHER ...................................................... 20,454 8,255
MINORITY INTEREST ............................................................. -- 610
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; 8,123,365 and
7,915,962 shares issued and outstanding, respectively .................... 81 79
Additional paid-in capital ................................................. 62,812 60,487
Retained earnings .......................................................... 47,060 26,271
Cumulative translation adjustment .......................................... (1,463) (1,565)
--------- ---------
Total stockholders' equity ............................................... 108,490 85,272
--------- ---------
$ 271,369 $ 154,661
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 27
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES ................................................... $ 86,194 $ 46,019 $ 34,749
-------- -------- --------
COST AND EXPENSES:
Direct operating expenses ............................... 34,102 18,231 16,178
General and administrative expenses ..................... 5,718 5,364 4,523
Depreciation and amortization ........................... 11,345 6,711 5,013
-------- -------- --------
51,165 30,306 25,714
-------- -------- --------
OPERATING INCOME .......................................... 35,029 15,713 9,035
-------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense, net ................................... (9,425) (4,803) (3,936)
Interest income ......................................... 1,217 984 469
Minority interest ....................................... (152) (109) (86)
Gain on sale of joint venture interest (Note 5) ......... 2,930 -- --
Other ................................................... 6 36 --
-------- -------- --------
(5,424) (3,892) (3,553)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ..................................... 29,605 11,821 5,482
INCOME TAX PROVISION ....................................... 8,816 3,626 1,839
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS .......................... 20,789 8,195 3,643
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of taxes ................................ -- (648) 4,796
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS, net of taxes ................................ -- (1,426) --
-------- -------- --------
NET INCOME ................................................. $ 20,789 $ 6,121 $ 8,439
======== ======== ========
BASIC EARNINGS PER SHARE:
Income from continuing operations ....................... $ 2.58 $ 1.15 $ 0.55
Income (loss) from discontinued operations, net of taxes -- (0.09) 0.71
Loss on disposal of discontinued operations, net of taxes -- (0.20) --
-------- -------- --------
Net income .............................................. $ 2.58 $ 0.86 $ 1.26
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (basic) ................ 8,047 7,155 6,676
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations ....................... $ 2.52 $ 1.11 $ 0.54
Income (loss) from discontinued operations, net of taxes -- (0.09) 0.70
Loss on disposal of discontinued operations, net of taxes -- (0.19) --
-------- -------- --------
Net income .............................................. $ 2.52 $ 0.83 $ 1.24
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (diluted) .............. 8,255 7,413 6,782
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<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, 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 4) .... -- -- (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
Net income ................ -- -- 20,789 -- 20,789
Issuance of common stock .. 2 2,325 -- -- 2,327
Translation adjustment .... -- -- -- 102 102
--------- --------- --------- --------- ---------
Balance at December 31, 1998 . $ 81 $ 62,812 $ 47,060 $ (1,463) $ 108,490
========= ========= ========= ========= =========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income .................................................... $20,789 $ 6,121 $ 8,439
Comprehensive income:
Foreign currency gain (loss), net of tax of $44, ($485), and
$1,293 ................................................... 102 (1,131) 2,626
------- ------- -------
Total comprehensive income .................................... $20,891 $ 4,990 $11,065
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 20,789 $ 6,121 $ 8,439
(Income) loss from discontinued operations, net of taxes . -- 648 (4,796)
Loss on disposal of discontinued operations, net of taxes -- 1,426 --
--------- --------- ---------
Income from continuing operations ........................ 20,789 8,195 3,643
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations --
Depreciation and amortization ....................... 11,345 6,711 5,013
Amortization of deferred financing costs ............ 887 410 229
Deferred and other income tax provision ............. 8,523 3,445 1,707
Gain on sale of joint venture interest .............. (2,930) -- --
Minority interest ................................... 152 109 86
Change in operating assets and liabilities --
Accounts receivable ................................. (6,610) (1,781) (3,445)
Prepaids and other .................................. (1,801) 36 530
Accounts payable .................................... 2,493 2,102 1,003
Other accrued liabilities ........................... 380 258 595
Other, net .......................................... (757) (373) (822)
--------- --------- ---------
Net cash provided by continuing operations .......... 32,471 19,112 8,539
Cash flows from discontinued operations ............. -- (1,360) 9,234
--------- --------- ---------
Net cash provided by operating activities ....... 32,471 17,752 17,773
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of vessels and equipment ............................ (38,345) (24,863) (23,263)
Expenditures for drydocking and main engine overhaul ......... (1,344) (3,967) (1,230)
Investment in Brovig ......................................... (25,543) (8,388) --
Proceeds from sale of joint venture interest ................. 3,090 -- --
--------- --------- ---------
Net cash used in investing activities ........... (62,142) (37,218) (24,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of direct financing costs ............ 156,162 7,690 22,227
Repayments of debt ........................................... (120,366) (12,738) (4,356)
Proceeds from issuance of stock, net of offering costs ....... 679 33,706 23
--------- --------- ---------
Net cash provided by financing activities ....... 36,475 28,658 17,894
Effect of exchange rate changes on cash ...................... (682) (541) 924
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 6,122 8,651 12,098
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 25,885 17,234 5,136
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 32,007 $ 25,885 $ 17,234
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized ................... $ 7,832 $ 4,682 $ 3,613
========= ========= =========
Income taxes paid ............................................ $ 947 $ 101 $ 180
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
GulfMark Offshore, Inc., ("GulfMark" or the "Company") was formerly a part
of GulfMark International, Inc. (the "Predecessor) until it was spun-off in
1997. See Note 4 for additional information regarding the spin-off.
Nature of Operations
The Company operates 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
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 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 over the estimated useful life of
25 years. 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 1998, 1997
and 1996, interest of $1,627,000, $249,000 and $18,000 was capitalized,
respectively. Office 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 1998, 1997 and 1996 is $4,715,000,
$2,630,000 and $1,920,000, respectively, of costs for maintenance and repairs.
Other Assets
Other assets consist primarily of deferred drydocking costs and deferred
issuance costs. Costs incurred in connection with drydocking are capitalized and
amortized over approximately a two to three year period, which
30
<PAGE> 31
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximates the period between required drydockings. Deferred issuance costs
are amortized over the expected term of the related debt.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." SFAS
No. 128 revised 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 prior periods. The detail of the earnings per
share calculations for continuing operations for the years ended December 31,
1998, 1997 and 1996 are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------------------------------
<S> <C> <C> <C>
Income from continuing operations per share, basic ..... $20,789 8,047 $ 2.58
=======
Dilutive effect of common stock options ................ -- 208
------- -------
Income from continuing operations per share, diluted ... $20,789 8,255 $ 2.52
======= ======= =======
</TABLE>
<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>
Recent and 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 is
effective for the Company beginning in 1998. The adoption of this statement
resulted in the inclusion of a statement of comprehensive income and 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 required additional disclosures beginning in 1998.
31
<PAGE> 32
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 will be effective beginning in 2000. The
Company does not expect the adoption of this statement to have a material effect
on its financial position or results of operations.
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 determine the timing and amount of tax benefits recognized for net operating
losses and tax credit carryforwards in the financial statements. The Company has
been included in consolidated federal income tax returns filed by the
Predecessor through April 30, 1997. 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 Company 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 Company based on the Company's 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) for the year ended
December 31, 1996.
Allocation of Shared Services
Certain costs relating to general and administrative services (including
management personnel who provided legal, tax, accounting, treasury, strategic
planning and public policy services) were directly charged to either continuing
or discontinued operations based upon actual utilization or were allocated based
upon proportional operating expenses, number of employees, external revenues,
average capital and/or average equity. Charges were allocated at fully
distributed cost. The Company's share of these direct and indirect allocations
was $1,381,000 for the year ended December 31, 1996. For the years ended
December 31, 1997 and 1998, 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 Company 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 Company been
a stand-alone entity. Had the Company operated as a separate entity, management
estimates that expense for the year ended December 31, 1996, would have been
$1,534,000.
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.
32
<PAGE> 33
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1998 and 1997, the Company had $50,000 and $0 of
allowance for doubtful accounts, respectively.
Reclassifications
Certain reclassifications have been made to amounts previously reported to
conform with the current year presentation.
(2) VESSEL ACQUISITIONS
Over the last several years, the Company has been actively expanding
the fleet through the construction of new vessels as well as the acquisition of
existing equipment from the resale market. Owned newbuilds added to the fleet
during the past three years as well as those currently under construction are as
follows:
VESSEL DELIVERY DATE
o Highland Piper March 1996
o Highland Drummer January 1997
o Highland Rover March 1998
o Highland Spirit* November 1998
o Highland Guide April 1999
o Highland Scout June 1999
*Formerly referred to as the "Gallant Project"
Total expenditures made for the construction of vessels during the years
ended December 31, 1998, 1997 and 1996 were $37.4 million, $23.2 million, and
$12.4 million, respectively. As of December 31, 1998, remaining commitments
under existing construction contracts was approximately $9.6 million.
In August 1996, the Company purchased six offshore supply vessels from
Maritime (Pte), Limited for operation in Southeast Asia. Total cost for this
acquisition was approximately $10.5 million.
(3) BROVIG SUPPLY ACQUISITION
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 which owned five vessels 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.
On February 10, 1998, the Company acquired additional shares of Brovig such that
its total ownership was approximately 96.1%. The balance of the shares was
acquired on March 26, 1998. The purchase consideration of $73.0 million
consisted of cash provided from funds on hand, (pound)10 million ($16.7 million)
provided by a bank facility and the assumption of approximately NOK 277 million
($37.4 million)of debt.
The acquisition was accounted for as a purchase; accordingly, the purchase
price was allocated to the underlying assets and liabilities based on their fair
values on February 10, 1998. The excess of the purchase price over the fair
market value of the net tangible assets acquired has been recorded as goodwill
and is being amortized over 40 years on a straight-line basis. Accumulated
amortization at December 31, 1998 totaled $0.3 million.
The consolidated financial statements included herein reflect the results
of Brovig from February 10, 1998. The following unaudited pro forma results of
operations have been prepared assuming that the acquisition had occurred
33
<PAGE> 34
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
at the beginning of each period. This pro forma information is not necessarily
indicative of the results of operations that would have occurred had the
acquisition been made on those dates or of results which may occur in the
future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Revenues............................................... $88,048 $60,360
Operating income....................................... 35,449 18,872
Income from continuing operations...................... 20,761 7,638
Per share data:
Income from continuing operations (basic).............. $ 2.58 $ 1.07
Income from continuing operations (diluted)............ 2.51 1.03
</TABLE>
(4) DISCONTINUED OPERATIONS AND DISPOSITION OF ASSETS
On April 30, 1997, the stockholders of 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., a 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 Weatherford
International, Inc. ("WFT")) 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 WFT common stock.
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 WFT investment as
discontinued operations.
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 WFT common stock. The total value of the WFT
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.
Immediately following the Distribution, the Predecessor, whose remaining
assets consisted solely of Ercon and an investment of approximately 4.5 million
shares of WFT common stock (the "Merged Assets"), merged with a subsidiary of
WFT. Accordingly, for all periods presented in the accompanying financial
statements, the 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 table:
34
<PAGE> 35
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (IN THOUSANDS): YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
--------------- ------------
(through
April 30, 1997)
<S> <C> <C>
Operating Data:
Revenues ..................................................... $ 1,066 $ 6,994
Direct operating expenses .................................... 811 3,922
Selling, general and administrative expenses ................. 932 2,068
---------- ----------
Operating income (loss) ...................................... (677) 1,004
Equity in earnings of WFT .................................... -- --
Gain on sale of WFT shares ................................... -- 6,264
Income tax (expenses) benefit ................................ 29 (2,472)
---------- ----------
Income (loss) from discontinued operations, net of taxes ..... $ (648) $ 4,796
========== ==========
</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.
(5) SALE OF JOINT VENTURE INTEREST
During July 1998, the Company, sold for approximately $3.1 million
cash, its interest in a 51% owned joint venture, SeaMark Ltd., which operated
two bareboat chartered vessels in Southeast Asia. The after tax gain from the
transaction of approximately $1.9 million ($0.23 per diluted share) is included
in the Company's results for the year ended December 31, 1998.
(6) LONG-TERM DEBT
The Company's long-term debt at December 31, 1998 and 1997, consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
8.75% Senior Notes due 2008, interest payable semi-annually ................... $ 130,000 $ --
Loan facility payable in British Pound Sterling; maximum of (pound)380,000
($627,000) for purchase and completion of Aberdeen office building; facility
to be repaid in 120 equal monthly payments beginning June 1998; interest at
2.25% over lending bank's LIBOR rate (9.23% as of December 31, 1998) .......... 602 554
Revolving $18,505,000 credit facility; repaid in June 1998 .................... -- 18,505
Loan facility payable in British Pound Sterling to a bank; repaid in June 1998 -- 28,765
Revolving $5,600,000 credit facility; repaid in June 1998 ..................... -- 5,600
--------- ---------
130,602 53,424
--------- ---------
Less: Current maturities of long-term debt .................................... (60) (10,506)
Debt discount, 8.75% Senior Notes due 2008, net ...................... (406) --
--------- ---------
$ 130,136 $ 42,918
========= =========
</TABLE>
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>
1999................................................ $ 60
2000................................................ 60
2001................................................ 60
2002................................................ 60
2003................................................ 60
Thereafter.......................................... 130,302
---------
Total...................................... $ 130,602
=========
</TABLE>
8.75% SENIOR NOTES DUE 2008
On June 8, 1998, the Company completed the sale of $130 million aggregate
principal amount of 8.75% Senior Notes Due 2008 (the "Initial Notes") which will
mature on June 1, 2008. The offering was made pursuant to Rule 144A of the
Securities Act of 1933 as amended. The Initial Notes were issued at a discount
to yield 8.8%. The net proceeds were used to repay substantially all the
outstanding indebtedness of the Company under various credit facilities which
were secured by mortgages on many of the Company's vessels. The market value of
the Notes is potentially sensitive to changes in interest rates. At December 31,
1998, the fair value of the Notes, based on quoted market prices, was
approximately $118.3 million, as compared to a carrying amount of $129.6
million, net of discount.
On July 24, 1998, the Company commenced an exchange offer (the "Exchange
Offer") through which it offered to exchange all of the Initial Notes for a
series of 8.75% Senior Notes (the "Exchange Notes" and, together with the
Initial Notes, the "Notes") which are identical in all material respects to the
Initial Notes, except that they are registered under the Securities Act of 1933,
as amended. The Exchange Offer was completed on August 24, 1998.
Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year commencing December 1, 1998. Up to 35% of the Notes may be redeemed
prior to June 1, 2001 at the option of the Company at a price of 108.75% with
proceeds from a public equity offering. Otherwise, the Notes are not redeemable
until June 1, 2003. Thereafter, at the Company's option, the Notes will be
subject to redemption in whole or in part, at redemption prices expressed as a
percentage of principal amounts plus accrued and unpaid interest, if any, to the
redemption date. If redeemed during the twelve month period beginning on June 1
of the years indicated below, the redemption amount is as follows:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003....................... 104.375%
2004....................... 102.917%
2005....................... 101.458%
2006 and thereafter........ 100.000%
</TABLE>
The Company incurred approximately $4.8 million in costs associated with
the sale of the Notes including $3.9 million of underwriters' discount. These
debt issuance costs are included in other assets in the consolidated balance
sheet and will be amortized over the term of the Notes. The Notes were issued
under an indenture (the "Indenture") between the Company and State Street Bank
and Trust Company, N.A., as Trustee. The Indenture contains covenants including,
among other provisions, limitations on the ability of the Company to incur
additional indebtedness, make capital expenditures, create liens, sell assets
and make dividend and other payments.
BANK CREDIT FACILITY
Simultaneously with the sale of the Notes, on June 8, 1998, the Company
entered into an agreement for a multicurrency reducing revolving credit facility
(the "New Credit Facility") with certain banks (the "Lenders") for a total of
$50 million. On December 8, 1998, an additional lender was added that increased
the Credit Facility to $75 million. The Credit Facility contains two tranches.
As of December 31, 1998, none of the Credit Facility has been drawn.
36
<PAGE> 37
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Tranche 1 is available for general corporate purposes and is unsecured. The
maximum committed amount is $30 million. Interest accrues under Tranche 1 at
LIBOR plus a margin ranging from 1.0% to 1.375% per annum based upon the
Company's ratio of funded debt to total capitalization ("Leverage Ratio").
Tranche 2 is available to finance the acquisition of (i) up to 50% of the
acquisition costs of shares in another company (a "Share Acquisition") or (ii)
up to 65% of the purchase price of a vessel (a "Vessel Acquisition"). Drawings
under Tranche 2 will be secured, in the case of a Share Acquisition, by the
capital stock of the acquired company or, in the case of Vessel Acquisition, (i)
a first priority mortgage, (ii) an assignment of earnings and insurance and
(iii) an assignment of charters over one year. The maximum committed amount
under Tranche 2 is $45 million. The interest rate on Tranche 2 is LIBOR plus a
margin ranging from 0.80% to 1.25% per annum as determined by the Company's
Leverage Ratio. Both tranches begin to reduce September 8, 2001. Each quarter
thereafter, the Credit Facility will further reduce such that the Credit
Facility is fully reduced by June 8, 2003.
Until termination of the Credit Facility, a commitment fee is payable on a
quarterly basis, at a rate of 0.5% per annum on the average unfunded portion of
the Credit Facility.
The Credit Facility requires the Company, on a consolidated basis, to not
exceed a maximum Leverage Ratio, and to maintain a specified interest coverage
ratio and a minimum net worth.
(7) INCOME TAXES
Income from continuing operations before income taxes attributable to
domestic and foreign operations was (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
U.S........................................................ $ (2,741) $ (528) $ (498)
Foreign.................................................... 32,346 12,349 5,980
-------- ------- --------
$ 29,605 $11,821 $ 5,482
======== ======= ========
</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>
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
DEFERRED DEFERRED DEFERRED
CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL
--------- --------- ------- --------- --------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S............. $ 37 $ 2,856 $ 2,893 $ -- $ 691 $ 691 $ -- $ -- $ --
Foreign......... 256 5,667 5,923 181 2,754 2,935 132 1,707 1,839
--------- --------- ------- --------- ------- ------- ------- -------- -------
$ 293 $ 8,523 $ 8,816 $ 181 $ 3,445 $ 3,626 $ 132 $ 1,707 $ 1,839
========= ========= ======= ========= ======= ======= ======= ======== =======
</TABLE>
37
<PAGE> 38
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforwards .................. $ 7,381 $ 7,958
Non-deductible accruals ........................... 1,764 2,506
Valuation allowance ............................... -- (622)
-------- --------
9,145 9,842
Deferred tax liabilities --
Depreciation ...................................... (18,281) (15,465)
Foreign income not currently recognizable ......... (9,611) (911)
Other ............................................. (897) (529)
-------- --------
(28,789) (16,905)
Net deferred tax liability ................... $(19,644) $ (7,063)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory income tax rate ... 34.0% 34.0% 34.0%
Effect of international operations ....... (4.2) (3.3) (0.5)
------ ------ ------
29.8% 30.7% 33.5%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
---------- -----------
<S> <C> <C>
Foreign tax purposes --
Net operating losses................ $ 24,604 Indefinite
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into an agreement to bareboat charter an
anchor handling, towing, supply vessel, the Leopard Bay, from Sanko Steamship
Co. Ltd., ("Sanko") for a three-year period which was delivered during the
second quarter of 1998. Additionally, the Company has entered into agreements to
bareboat charter two platform supply vessels, the Mercury Bay (July 1998) and
the Monarch Bay (October 1998), from Sanko for similar three year terms. The
latter two vessels are similar to the Company's Highland Piper and Highland
Drummer.
Subsequent to year end, on February 1, 1999, the Company agreed to an
arrangement between a bank and the owner of the Clwyd Supporter and the Sefton
Supporter, (the "Vessels") whereby under certain circumstances, the bank would
have the right to put the Vessels to the Company. The Vessels are currently
under contract in the North Sea through July 2001. In the event the contracts
are not extended for a three-year period, in July 2001 the bank shall have the
right to put the Vessels to the Company at a maximum total cost of (pound)6
million ($9.9 million). All cash flow generated from the operations of the
Vessels will be under the control of the Company and will be restricted as long
as the debt is outstanding. The put price would be reduced to the extent the
owner's outstanding mortgage on the Vessels, less restricted cash on hand, is
less than (pound)6 million. Additionally, in connection with this agreement, in
July 2001, the Company has the right to call the Vessels for a like amount
without regard to the status of the contract extension. In the event that
neither the put nor the call are exercised, in July 2001 the Company will be
entitled to a fee of (pound)0.5 million ($0.8 million).
38
<PAGE> 39
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1998, the Company had long-term operating leases for office
space, automobiles, and office equipment. Aggregate operating lease expense for
the years ended December 31, 1998, 1997 and 1996 was $376,000, $423,000 and
$380,000, respectively. Future minimum rental commitments under these leases are
as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $ 315
2000.............................................. 139
2001.............................................. 91
2002.............................................. 26
2003.............................................. 11
Thereafter........................................ --
---------
Total.................................... $ 582
=========
</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 4, the Company has
agreed to indemnify WFT and certain of its 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 costs of $0.6 million. Additionally,
the Company received approximately $0.3 million in proceeds from the exercise of
stock options.
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 4, 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 which follows 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 the Company's 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.
39
<PAGE> 40
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Under the terms of the Company's 1987 Employee Stock Option Plan (the "1987
Employee Plan"), options were granted to employees to purchase the Company's
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 1987 Employee Plan expired and, therefore, as of
December 31, 1998, no additional shares were reserved for granting of options
under this plan.
In May 1998, the stockholders approved the GulfMark Offshore, Inc. 1997
Incentive Equity Plan (the "1997 Plan"). The 1997 Plan replaced the 1987
Employee Plan, a maximum of 200,000 shares are reserved for issuance and awards
of restricted stock. Stock options generally become exercisable in 1/3
increments over a three year period and to the extent not exercised, expire on
the tenth anniversary of the date of grant.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ----------------------
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 .......................... 472,577 $ 5.05 217,200 $ 9.48 140,000 $ 6.50
Cancelled ......................... -- -- (217,200) 9.48 -- --
Option Adjustment ................. -- -- 533,635 3.86 -- --
Granted ........................... 49,500 32.63 50,000 13.75 84,000 13.94
Exercised ......................... (207,403) 3.30 (111,058) 3.23 (6,800) 3.34
-------- --------- --------
Outstanding at end of year ........ 314,674 $ 10.54 472,577 $ 5.05 217,200 $ 9.48
========= ========= ========
Weighted average fair value of options granted
during the year ............................... $ 11.75 $ 4.32 $ 3.06
Exercisable shares and weighted average exercise price as of December 31, 1998 ........... 203,994 $ 5.26
Shares available for future grants as of December 31, 1998................................ 304,810
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
- ------------------------ ----------------- ----------------
<S> <C> <C>
$3.00 to $5.37.................................................. 191,104 $ 4.31
$7.94 to $13.75................................................. 74,070 $ 11.86
$32.625......................................................... 49,500 $ 32.63
--------
314,674 $ 10.54
========
</TABLE>
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 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
40
<PAGE> 41
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. The
fair value for the 1998, 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 5.0%, 5.25% and
5.0%; a weighted average volatility factor of the expected market price of the
Company's stock of .30, .23 and .14; no expected dividends; and weighted average
expected option lives of 5, 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>
1998 1997 1996
-------------------------- ------------------------ ------------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations........... $ 20,789 $ 20,635 $ 8,195 $ 8,118 $ 3,643 $ 3,554
Net income............... 20,789 20,635 6,121 6,044 8,439 8,350
Earnings per common
share from continuing
operations (basic)... $ 2.58 $ 2.56 $ 1.15 $ 1.13 $ 0.55 $ 0.53
Earnings per common
share (basic)........ 2.58 2.56 0.86 0.84 1.26 1.25
Earnings per common
share from continuing
operations (diluted). $ 2.52 $ 2.50 $ 1.11 $ 1.10 $ 0.54 $ 0.52
Earnings per common
share (diluted)...... 2.52 2.50 0.83 0.82 1.24 1.23
Preferred Stock
</TABLE>
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.
(10) OPERATING SEGMENT INFORMATION
Business Segments
The operations of GulfMark Offshore, Inc. are contained in a single
business segment -- offshore marine services. The business operates 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 the vessels also perform anchor handling
and towing services.
41
<PAGE> 42
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Geographic Regions
Information by geographical area is based on the location where services
were performed. General corporate expenses incurred in the United States have
not been allocated to foreign operations for purposes of this disclosure.
<TABLE>
<CAPTION>
UNITED EUROPE BRAZIL
STATES (PRIMARILY UK) FAR EAST AND OTHER TOTAL
--------- -------------- ---------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
1998 --
Revenues .................. $ -- $ 61,936 $ 21,246 $ 3,012 $ 86,194
Long-lived assets ......... 13,624 161,691 16,838 462 192,615
1997 --
Revenues .................. $ -- $ 29,132 $ 15,365 $ 1,522 $ 46,019
Long-lived assets ......... 2,288 84,502 17,892 580 105,262
1996 --
Revenues .................. $ -- $ 25,552 $ 7,732 $ 1,465 $ 34,749
Long-lived assets ......... 60 69,288 17,311 746 87,405
</TABLE>
Major Customers
For the years ended December 31, 1998, 1997 and 1996, 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,
------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Customer A.................................... 14.6% 13.2% <10%
Customer B.................................... <10% 16.5% 15.4%
Customer C.................................... <10% 15.4% 14.2%
</TABLE>
42
<PAGE> 43
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(11) UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the two years ended December 31,
1998, are as follows (in thousands except for per share amounts):
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Revenues ...................................... $ 16,046 $ 22,447 $ 24,334 $ 23,367
Operating income .............................. 6,524 10,216 10,521 7,768
Income from continuing operations
Income .................................... 3,467 5,330 8,199 3,793
Per share (basic) ......................... 0.43 0.67 1.01 0.47
Per share (diluted) ....................... 0.42 0.65 0.99 0.46
Net income
Income .................................... 3,467 5,330 8,199 3,793
Per share (basic) ......................... 0.43 0.67 1.01 0.47
Per share (diluted) ....................... 0.42 0.65 0.99 0.46
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
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
</TABLE>
43
<PAGE> 44
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 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.
(3) EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- ----------- ---------------------------------------------------------- ---------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation.............................. Form S-4, Registration No. 333-24141
March 28, 1997
3.2 Certificate of Amendment to Certificate of Incorporation.. Form S-4, Registration No. 333-24141
March 28, 1997
3.3 Bylaws.................................................... Form S-4, Registration No. 333-24141
March 28, 1997
4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the
Certificate of Incorporation and Exhibit 3.3 for
provisions of the By-laws of the Company defining the Form S-4, Registration No. 333-24141
rights of the holders of Common Stock..................... March 28, 1997
4.2 Specimen Certificate for the Company's Common Stock,
$0.01 par value........................................... Form S-1, Registration No. 333-31139
July 11, 1997
4.3 Indenture dated as of June 8, 1998, among the Company
as Issuer and State Street Bank and Trust Company as
Trustee including a form of the Company's 8.75% Senior
Notes Due 2008 ........................................... Form S-4, Registration No. 333-59415
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- ------------ -------------------------------------------------------- ---------------------------------------
<S> <C> <C>
4.4 Registration Rights Agreement dated as of June 8, 1998
among the Company, Lehman Brothers, Chase Securities,
Inc., Jefferies & Company, Inc. and the Robinson-
Humphrey Company.......................................... Form S-4, Registration No. 333-59415
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 Form S-1, Registration No. 333-31139
Stock Option Plan*........................................ July 11, 1997
10.3 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. 1987 Stock Form S-1, Registration No. 333-31139
Option Plan)*............................................. July 11, 1997
10.4 Form of Incentive Stock Option Agreement (GulfMark Form S-1, Registration No. 333-31139
International, Inc. 1987 Stock Option Plan)*.............. July 11, 1997
10.5 Form of Amendment No. 1 to Incentive Stock Option
Agreement (GulfMark International, Inc. 1987 Stock Form S-1, Registration No. 333-31139
Option Plan, as amended)*................................. July 11, 1997
10.6 Form of Incentive Stock Option Agreement (GulfMark Form S-1, Registration No. 333-31139
Offshore, Inc. 1987 Stock Option Plan)*................... July 11, 1997
10.7 GulfMark International, Inc., Amended and Restated Form S-1, Registration No. 333-31139
1993 Non-Employee Director Stock Option Plan*............. July 11, 1997
10.8 Amendment No. 1 to the GulfMark International, Inc.
Amended and Restated 1993 Non-Employee Director Stock Form S-1, Registration No. 333-31139
Option Plan*.............................................. July 11, 1997
10.9 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. Amended and Form S-1, Registration No. 333-31139
Restated 1993 Non-Employee Director Stock Option Plan)*... July 11, 1997
10.10 Form of Stock Option Agreement (GulfMark International,
Inc. Amended and Restated 1993 Non-Employee Director Form S-1, Registration No. 333-31139
Stock Option Plan)*........................................ July 11, 1997
10.11 Form of Amendment No. 1 to Stock Option Agreement
(GulfMark International, Inc. Amended and Restated Form S-1, Registration No. 333-31139
1993 Non-Employee Director Stock Option Plan)*............ July 11, 1997
10.12 Form of Stock Option Agreement (GulfMark Offshore, Form S-1, Registration No. 333-31139
Inc. 1993 Non-Employee Director Stock Option Plan)*....... July 11, 1997
10.13 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. Director Form S-1, Registration No. 333-31139
Stock Option Agreements)*................................. July 11, 1997
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- ------------ -------------------------------------------------------- ---------------------------------------
<S> <C> <C>
10.14 Form of Stock Option Agreement (GulfMark Form S-1, Registration No. 333-31139
International, Inc. Director Stock Options)*.............. July 11, 1997
10.15 Form of Amendment No. 1 to Stock Option Agreement Form S-1, Registration No. 333-31139
(GulfMark International, Inc. Director Stock Options)*.... July 11, 1997
10.16 GulfMark Offshore, Inc. 1997 Incentive Equity Plan*....... Filed herewith
10.17 Form of Incentive Stock Option Agreement (GulfMark
Offshore, Inc. 1997 Incentive Equity Plan *............... Filed herewith
10.18 Loan Agreement dated as of June 11, 1997, made by and
between Christiania Bankog Kreditkasse ASA and Gulf Form S-1, Registration No. 333-31139
Offshore N.S. Limited..................................... July 11, 1997
10.19 Tax Allocation and Indemnification Agreement dated
April 30, 1997 made by and among GulfMark International, Form S-1, Registration No. 333-31139
Inc., GulfMark Offshore, Inc. and Energy Ventures, Inc.... July 11, 1997
10.20 Floating Rate Bridge Loan Facility and Guarantee
Facility dated February 4, 1998 among GulfMark Offshore,
Inc., Christiania Bankog Kreditkasse ASA for itself and as
Agent for the other banks and financial institutions listed. Form 8-K, February 25, 1998
10.21 Multicurrency Revolving Loan Agreement dated June 8, 1998
among the Company, Christiania Bankog Kreditkasse ASA, The
Chase Manhattan Bank, London Branch and others named
therein................................................... Form 10-Q, August 12, 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
On October 29, 1998, the Company filed a report on Form 8-K announcing
the release of its results of operations for the quarter ended September 30,
1998.
On March 4, 1999, the Company filed a report on Form 8-K announcing the
release of its results of operations for the quarter and year ended December 31,
1998
46
<PAGE> 47
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 24, 1999
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>
<S> <C> <C>
/s/ BRUCE A. STREETER President and Director March 24, 1999
- ------------------------------------------ (Principal Executive Officer)
Bruce A. Streeter
/s/ FRANK R. PIERCE Executive Vice President, Finance March 24, 1999
- ------------------------------------------ (Principal Financial Officer)
Frank R. Pierce
/s/ KEVIN D. MITCHELL Controller March 24, 1999
- ------------------------------------------ (Principal Accounting Officer)
Kevin D. Mitchell
/s/ DAVID J. BUTTERS Director March 24, 1999
- ------------------------------------------
David J. Butters
/s/ NORMAN G. COHEN Director March 24, 1999
- ------------------------------------------
Norman G. Cohen
/s/ MARSHALL A. CROWE Director March 24, 1999
- ------------------------------------------
Marshall A. Crowe
/s/ LOUIS S. GIMBEL, 3RD Director March 24, 1999
- ------------------------------------------
Louis S. Gimbel, 3rd
/s/ ROBERT B. MILLARD Director March 24, 1999
- ------------------------------------------
Robert B. Millard
</TABLE>
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
No. DESCRIPTION
-------------- -----------
<S> <C>
10.16 GulfMark Offshore, Inc. 1997 Incentive Equity Plan
10.17 Form of Incentive Stock Option Agreement (GulfMark
Offshore, Inc. 1997 Incentive Equity Plan
21.1 Subsidiaries of GulfMark Offshore, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.16
GULFMARK OFFSHORE, INC.
1997 INCENTIVE EQUITY PLAN
ARTICLE 1
GENERAL
1.1. Purpose. The 1997 Incentive Equity Plan (the "Plan") has been
established by GulfMark Offshore, Inc. (the "Company") to (i) attract and retain
persons eligible to participate in the Plan; (ii) motivate Participants, by
means of appropriate incentives, to achieve long-range goals; (iii) provide
incentive compensation opportunities that are competitive with those of other
similar companies; and (iv) further identify Participants' interests with those
of the Company's other shareholders through compensation that is based on the
Company's common stock; and thereby promote the long-term financial interest of
the Company and the Related Companies, including the growth in value of the
Company's equity and enhancement of long-term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan,
the Committee shall determine and designate, from time to time, from among the
Eligible Employees, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan. In the discretion of
the Committee, a Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to a Participant.
Awards may be granted as alternative to or replacement of awards outstanding
under the Plan, or any other plan or arrangement of the Company or a Related
Company (including a plan or arrangement of a business or entity, all or a
portion of which is acquired by the Company or a Related Company.)
1.3. Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Article 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Article 7 of the Plan).
ARTICLE 2
OPTIONS AND SAR'S
2.1. Options and SARs Definitions.
(a) The grant of an "Option" entitles the Participant to
purchase shares of Stock at an Exercise Price established by the
Committee. Options granted under Article 2 may be either Incentive
Stock Options or Non-Qualified Stock Options, as determined in the
discretion of the Committee. An "Incentive Stock Option" is an Option
that is intended to satisfy the requirements applicable to an
"incentive stock option" described in Section 422(b) of the Code. A
"Non-Qualified Stock Option" is an Option that is not intended to be an
"incentive stock option" as that term is described in Section
Page 1 of 13
<PAGE> 2
422(b) of the Code. To the extent that the aggregate fair market value
of Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year (under
all plans of the Company and all Related Companies) exceeds $100,000,
such options shall be treated as Non-Qualified Stock Options, to the
extent required by Section 422 of the Code.
(b) A stock appreciation right (an "SAR") entitles the
Participant to receive, in cash or Stock (as determined in accordance
with Section 2.6), value equal to all or a portion of the excess of:
(a) the Fair Market Value of a specified number of shares of Stock at
the time of exercise; over (b) an Exercise Price established by the
Committee.
2.2. Exercise Price. The "Exercise Price" of each Option and SAR
granted under Article 2 shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option or
SAR is granted; except that the Exercise Price shall not be less than 100% of
the Fair Market Value of a share of Stock as of the date on which the Option or
SAR is granted.
2.3. Exercise. An Option and an SAR shall be exercisable in accordance
with such terms and conditions and during such periods as may be established by
the Committee. No Option may be exercised by a Participant: (i) prior to the
date on which the Participant completes one continuous year of employment with
the Company or any Related Company, after the date as of which the Option is
granted (provided, however, that the Committee may permit earlier exercise
following the Participant's Date of Termination by reason of death or Disability
or a change in control of the Company); or (ii) after the Expiration Date
applicable to that Option.
2.4 Expiration Date. The "Expiration Date" with respect to an Option
means the date established as the Expiration Date by the Committee at the time
of the grant; provided, however, that the Expiration Date with respect to any
Option shall not be later than the earliest to occur of:
(a) the ten-year anniversary of the date on which the Option
is granted;
(b) if the Participant's Date of Termination occurs by reason
of death or Disability, the one-year anniversary of such Date of
Termination;
(c) if the Participant's Date of Termination occurs by reason
of Retirement, the three-year anniversary of such Date of Termination;
or
(d) if the Participant's Date of Termination occurs for
reasons other than Retirement, death or Disability, the 90-day
anniversary of such Date of Termination.
Page 2 of 13
<PAGE> 3
Notwithstanding the foregoing provisions of this Section 2.4, if the Participant
dies while the Option is otherwise exercisable, the Expiration Date may be later
than the dates set forth above, provided that it is not later than the first
anniversary of the date of death.
2.5. Payment of Option Exercise Price. The payment of the Exercise
Price of an Option granted under Article 2 shall be subject to the following:
(a) Subject to the following provisions of this Section 2.5,
the full Exercise Price for shares of Stock purchased upon the exercise
of any Option shall be paid at the time of such exercise (except that,
in the case of an exercise arrangement approved by the Committee and
described in Section 2.5(c), payment may be made as soon as practicable
after the exercise).
(b) The Exercise Price shall be payable in cash or by
tendering shares of Stock (by either actual delivery of shares or by
attestation, with such shares valued at Fair Market Value as of the day
of exercise), or in any combination thereof, as determined by the
Committee.
(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by authorizing a third
party to sell shares of Stock (or a sufficient portion of the shares)
acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire Exercise
Price and any tax withholding resulting from such exercise.
2.6. Settlement of Award. Distribution following exercise of an Option
or SAR, and shares of Stock distributed pursuant to such exercise, shall be
subject to such conditions, restrictions and contingencies as the Committee may
establish. Settlement of SARs may be made in shares of Stock (valued at their
Fair Market Value at the time of exercise), in cash, or in a combination
thereof, as determined in the discretion of the Committee. The Committee, in its
discretion, may impose such conditions, restrictions and contingencies with
respect to shares of Stock acquired pursuant to the exercise of an Option or an
SAR as the Committee determines to be desirable.
ARTICLE 3
OTHER STOCK AWARDS
3.1. Stock Award Definition. A "Stock Award" is a grant of shares of
Stock or of a right to receive shares of Stock (or their cash equivalent or a
combination of both) in the future.
3.2. Restrictions on Stock Awards. Each Stock Award shall be subject to
such conditions, restrictions and contingencies as the Committee shall
determine. These may include
Page 3 of 13
<PAGE> 4
continuous service and/or the achievement of Performance Measures. The
"Performance Measures" that may be used by the Committee for such Awards shall
be measured by a single goal criterion or multiple goal criteria with the
measurement based on absolute Company or business unit performance and/or on
performance as compared with that of other publicly-traded companies. If the
right to become vested in a Stock Award granted under Article 3 is conditioned
on the completion of a specified period of service with the Company and the
Related Companies, without achievement of Performance Measures or other
objectives being required as a condition of vesting, then the required period of
service for vesting shall be not less than one year (subject to acceleration of
vesting, to the extent permitted by the Committee, in the event of the
Participant's death or Disability or a change in control of the Company).
ARTICLE 4
OPERATION AND ADMINISTRATION
4.1. Effective Date. Subject to the approval of the shareholders of the
Company at the Company's 1998 annual meeting of its shareholders, the Plan shall
be effective as of December 11, 1997 (the "Effective Date"); provided, however,
that, to the extent that Awards are made under the Plan prior to its approval by
shareholders, they shall be contingent on approval of the Plan by the
shareholders of the Company. The Plan shall be unlimited in duration and, in the
event of Plan termination, shall remain in effect as long as any Awards under it
are outstanding; provided, however, that, to the extent required by the Code, no
Incentive Stock Options may be granted under the Plan on a date that is more
than ten years from the date the Plan is adopted or, if earlier, the date the
Plan is approved by shareholders.
4.2. Shares Subject to Plan.
(a) (i) Subject to the following provisions of this
Section 4.2, the maximum number shares of Stock that may be
delivered to Participants and their beneficiaries under the
Plan shall be 200,000 shares of Stock.
(ii) Any shares of Stock granted under the Plan that
are forfeited because of the failure to meet an Award
contingency or condition shall again be available for delivery
pursuant to new Awards granted under the Plan. To the extent
any shares of Stock covered by an Award are not delivered to a
Participant or beneficiary because the Award is forfeited or
canceled, or the shares of Stock are not delivered because the
Award is settled in cash, such shares shall not be deemed to
have been delivered for purposes of determining the maximum
number of shares of Stock available for delivery under the
Plan.
(iii) If the Exercise Price of any stock option
granted under the Plan is satisfied by tendering shares of
Stock to the Company (by either actual delivery or
Page 4 of 13
<PAGE> 5
by attestation), only the number of shares of Stock issued net
of the shares of Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of Stock
available for delivery under the Plan.
(iv) Shares of Stock delivered under the Plan in
settlement, assumption or substitution of outstanding awards
(or obligations to grant future awards) under the plans or
arrangements of another entity shall not reduce the maximum
number of shares of Stock available for delivery under the
Plan, to the extent that such settlement, assumption or
substitution is as a result of the Company or a Related
Company acquiring another entity (or an interest in another
entity).
(b) Subject to Section 4.2(c), the following additional
maximums are imposed under the Plan.
(i) The maximum number of shares of Stock that may be
issued upon exercise of Options intended to be Incentive Stock
Options shall be 200,000 shares.
(ii) The maximum number of shares of Stock that may
be issued in conjunction with Awards granted pursuant to
Article 3 (relating to Stock Awards) shall be 50,000 shares.
(iii) The maximum number of shares that may be
covered by Awards under this Plan granted to any one
individual pursuant to Article 2 (relating to Options and
SARs) shall be 100,000 shares during any three consecutive
calendar years.
(iv) The maximum payment that can be made for awards
granted to any one individual pursuant to Article 3 (relating
to Stock Awards) shall be $500,000 for any single or combined
performance goals established for any annual performance
period. If an Award granted under Article 3 is, at the time of
grant, denominated in shares, the value of the shares of Stock
for determining this maximum individual payment amount will be
the Fair Market Value of a share of Stock on the first day of
the applicable performance period.
(c) In the event of a corporate transaction involving the
Company (including, without limitation, any stock dividend, stock
split, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or exchange of
shares), the Committee may adjust Awards to preserve the benefits or
potential benefits of the Awards. Action by the Committee may include
adjustment of: (i) the number and kind of shares which may be delivered
under the Plan; (ii) the number and kind of shares subject to
outstanding Awards; and (iii) the Exercise Price of outstanding Options
and SARs; as well as any other adjustments that the Committee
determines to be equitable.
Page 5 of 13
<PAGE> 6
4.3. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the
Company shall have no liability for failure to deliver any shares of
Stock under the Plan or make any other distribution of benefits under
the Plan unless such delivery or distribution would comply with all
applicable laws (including, without limitation, the requirements of the
Securities Act of 1933), and the applicable requirements of any
securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance
may be effected on a non-certificated basis, to the extent not
prohibited by applicable law or the applicable rules of any stock
exchange.
4.4. Tax Withholding. Whenever the Company proposes or is required to
distribute Stock under the Plan, the Company may require the recipient to remit
to the Company an amount sufficient to satisfy any Federal, state and local tax
withholding requirements prior to the delivery of any certificate for such
shares or, in the discretion of the Committee, the Company may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of such tax
withholding requirements. Whenever, under the Plan, payments are to be made in
cash, such payments may be net of an amount sufficient to satisfy any Federal,
state and local tax withholding requirements.
4.5. Payment Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock under the Plan as the form of payment for
compensation, grants or rights earned or due under any other compensation plans
or arrangements of the Company or a Related Company.
4.6. Dividends and Dividend Equivalents. An Award may provide the
Participant with the right to receive dividends or dividend equivalent payments
with respect to Stock which may be either paid currently or credited to an
account for the Participant and may be settled in cash or Stock as determined by
the Committee. Any such settlements, and any such crediting of dividends or
dividend equivalents or reinvestment in shares of Stock, may be subject to such
conditions, restrictions and contingencies as the Committee shall establish,
including the reinvestment of such credited amounts in Stock equivalents.
4.7. Payments. Awards may be settled through cash payments, the
delivery of shares of Stock, the granting of replacement Awards, or any
combination thereof as the Committee shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Committee shall determine. The Committee may permit or
require the deferral of any Award payment, subject to such rules and procedures
as it may establish, which may include provisions for the payment or crediting
of interest, or dividend equivalents, including converting such credits into
deferred Stock equivalents. Each Related
Page 6 of 13
<PAGE> 7
Company shall be liable for payment of cash due under the Plan with respect to
any Participant to the extent that such benefits are attributable to the
services rendered for that Related Company by the Participant. Any disputes
relating to liability of a Related Company for cash payments shall be resolved
by the Committee.
4.8. Proceeds. All cash proceeds from the purchase of Stock under this
Plan shall constitute part of the unrestricted general funds of the Company, and
may be used for such corporate purposes as the Company, in its sole and
exclusive discretion, may determine from time to time.
4.9. Transferability. The Committee may, in its discretion, authorize
all or a portion of any Award (other than Incentive Stock Options) to be granted
on terms which permit transfer by the Participant to (i) the spouse, parents,
children, stepchildren, adoptive relationships, sisters, brothers or
grandchildren of the Participant, (ii) a trust or trusts for the exclusive
benefit of the spouse, parents, children, stepchildren, adoptive relationships,
sisters, brothers or grandchildren of the Participant, or (iii) a partnership or
limited liability company in which the spouse, parents, children, stepchildren,
adoptive relationships, sisters, brothers or grandchildren of the Participant
are the only partners or members, as applicable; provided in each case that (x)
there may be no consideration for any such transfer (other than in the case of
Clause (iii), units in the partnership or membership interests in the limited
liability company), (y) the agreement pursuant to which such Awards are granted
must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 4.9, and (z) subsequent
transfers of transferred Awards shall be prohibited except those made in
accordance with this Section 4.9 or by will or by the laws of descent and
distribution or pursuant to a "domestic relations order" as defined in the
Internal Revenue Code or Title I of the Employee Retirement Income Security Act
(or the rules promulgated thereunder). Following transfer, any such Awards shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. The provisions with respect to expiration or
termination set forth in Section 2.4 shall continue to apply with respect to the
original Participant, in which event the Awards shall be exercisable by the
transferee only to the extent and for the periods specified herein. The original
Participant will remain subject to withholding taxes upon exercise of any such
Awards by the transferee. The Company shall have no obligation whatsoever to
provide notice to any transferee of any matter, including without limitation,
early expiration or termination of an Award on account of termination of the
original option pursuant to Section 2.4.
Except as set forth above and in the applicable agreement, no Awards
shall be voluntarily or involuntarily transferred, assigned, sold, pledged,
mortgaged or encumbered by the Participant otherwise than by will or by the laws
of descent and distribution or pursuant to a "domestic relations order" as
defined in the Internal Revenue Code or Title I of the Employee Retirement
Income Security Act (or the rules promulgated thereunder), and all Awards shall
be exercisable, during the Participant's lifetime, only by the Participant. At
the request of a Participant, Stock purchased upon exercise of an Option may be
issued or transferred into the name of the Participant and another person
jointly with rights of survivorship. All Awards issued under this
Page 7 of 13
<PAGE> 8
Plan, and all rights under this Plan, shall not be subject to involuntary
seizure, or other process by any creditor of any holder of any such Awards, and
the Company shall not honor or recognize any such involuntary seizure or other
such process. Except as set forth above, any attempted transfer, assignment,
sale, pledge, mortgage or encumbrance ("Assignment") or any attempted
involuntary seizure or other process shall be null, void and without any effect
whatsoever. Should it be determined, by a court of law or otherwise, that any
such Assignment or involuntary seizure or other process is effective, then all
Awards for which such is effective shall terminate and be forfeited as of the
moment of such involuntary seizure or other process, and shall thereafter be
null, void and without any effect whatsoever.
4.10. Form and Time of Elections. Unless otherwise specified herein,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.11. Agreement With Company. At the time of an Award to a Participant
under the Plan, the Committee may require a Participant to enter into an
agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
4.12. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by
reason of the Plan, acquire any right in or title to any assets, funds
or property of the Company or any Related Company whatsoever,
including, without limitation, any specific funds, assets, or other
property which the Company or any Related Company, in their sole
discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the Stock or
amounts, if any, payable under the Plan, unsecured by any assets of the
Company or any Related Company. Nothing contained in the Plan shall
constitute a guarantee that the assets of such companies shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any employee the right to be
retained in the employ of the Company or any Related Company, nor any
right or claim to any benefit under the Plan, unless such right or
claim has specifically accrued under the terms of the Plan. Except as
otherwise provided in the Plan, no Award under the Plan shall confer
upon the holder thereof any right as a shareholder of the Company prior
to the date on which the individual fulfills all conditions for receipt
of such rights.
Page 8 of 13
<PAGE> 9
4.13. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
4.14. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of the Company. No
failure on the part of the Company or the Board to exercise, and no delay on the
part of the Company or the Board in exercising any right or power established
hereunder shall operate as a waiver of such right or power.
4.15. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
4.16 Headings. The various headings and captions in this Plan are for
convenience only and shall not affect the meaning, construction or
interpretation of this Plan.
ARTICLE 5
COMMITTEE
5.1. Administration. The authority to control and manage the operation
and administration of the Plan shall be vested in a committee (the "Committee")
in accordance with Article 5.
5.2. Selection of Committee. The Committee shall be selected by the
Board, and shall consist of two or more members of the Board. If the Board has
not selected a Committee, the Committee shall consist of the entire Board of
Directors.
5.3. Powers of Committee. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to select from among the Eligible
Employees those persons who shall receive Awards, to determine the time
or times of receipt, to determine the types of Awards and the number of
shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such
Awards, and (subject to the restrictions imposed by Article 6) to
cancel or suspend Awards. In making such Award determinations, the
Committee may take into account the nature of services
Page 9 of 13
<PAGE> 10
rendered by the individual, the individual's present and potential
contribution to the Company's success and such other factors as the
Committee deems relevant.
(b) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to determine the extent to which
Awards under the Plan will be structured to conform to the requirements
applicable to performance-based compensation as described in Code
Section 162(m), and to take such action, establish such procedures, and
impose such restrictions at the time such Awards are granted as the
Committee determines to be necessary or appropriate to conform to such
requirements.
(c) The Committee will have the authority and discretion to
establish terms and conditions of Awards as the Committee determines to
be necessary or appropriate to conform to applicable requirements or
practices of jurisdictions outside of the United States.
(d) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions
of any agreements made pursuant to the Plan, and to make all other
determinations that may be necessary or advisable for the
administration of the Plan.
(e) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding.
(f) Except as otherwise expressly provided in the Plan, where
the Committee is authorized to make a determination with respect to any
Award, such determination shall be made at the time the Award is made,
except that the Committee may reserve the authority to have such
determination made by the Committee in the future (but only if such
reservation is made at the time the Award is granted and is expressly
stated in the Agreement reflecting the Award).
(g) In controlling and managing the operation and
administration of the Plan, the Committee shall act by a majority of
its then members, by meeting or by writing filed without a meeting. The
Committee shall maintain and keep adequate records concerning the Plan
and concerning its proceedings and acts in such form and detail as the
Committee may decide.
5.4. Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
Page 10 of 13
<PAGE> 11
5.5. Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties. The records of the Company and Related
Companies as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.
ARTICLE 6
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that,
subject to Section 4.2(c) (relating to certain adjustments to shares), no
amendment or termination may (i) in the absence of written consent to the change
by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board or (ii) without the approval of the Company's
stockholders, increase (except as provided expressly in this Plan) the total
number of shares reserved for purposes of the Plan.
ARTICLE 7
DEFINED TERMS AND MISCELLANEOUS
7.1 For purposes of the Plan, the terms listed below shall be defined
as follows:
(a) Award. The term "Award" shall mean any award or benefit
granted to any Participant under the Plan, including, without
limitation, the grant of Options, SARs, and Stock Awards.
(b) Board. The term "Board" shall mean the Board of Directors
of the Company.
(c) Code. The term "Code" means the Internal Revenue Code of
1986, as amended. A reference to any provision of the Code shall
include reference to any successor provision of the Code.
(d) Date of Termination. The Participant's "Date of
Termination" shall be the first day occurring on or after the date of
Participant's Agreement, on which the Participant's employment with the
Company and all Related Companies terminates for any reason
(Retirement, death, Disability resignation or discharge); provided that
a termination
Page 11 of 13
<PAGE> 12
of employment shall not be deemed to occur by reason of a transfer of
the Participant between the Company and a Related Company or between
two Related Companies; and further provided that the Participant's
employment shall not be considered terminated while the Participant is
on a leave of absence from the Company or a Related Company approved by
the Participant's employer. If, as a result of a sale, spinoff or other
transaction, the Participant's employer ceases to be the Company or a
Related Company, the occurrence of such transaction shall be treated as
the Participant's Date of Termination for reasons other than
Retirement, death or Disability.
(e) Disability. The term "Disability" means the permanent and
total disability of the Participant as determined by the Committee.
(f) Eligible Employee. The term "Eligible Employee" shall mean
any employee of the Company or a Related Company or an individual to
whom a bona fide written offer of employment from the Company or a
Related Company has been extended.
(g) Fair Market Value. The "Fair Market Value" of a share of
Stock shall be determined as follows:
(i) If the Stock is at the time listed or admitted to
trading on any stock exchange, then the "Fair Market Value"
shall be the mean between the lowest and highest reported sale
prices of the Stock on the date in question on the principal
exchange on which the Stock is then listed or admitted to
trading. If no reported sale of Stock takes place on the date
in question on the principal exchange, then the reported
closing asked price of the Stock on such date on the principal
exchange shall be determinative of "Fair Market Value."
(ii) If the Stock is not at the time listed or
admitted to trading on a stock exchange, the "Fair Market
Value" shall be the mean between the lowest reported bid price
and highest reported asked price of the Stock on the date in
question in the over-the-counter market, as such prices are
reported in a publication of general circulation selected by
the Committee and regularly reporting the market price of
Stock in such market.
(iii) If the Stock is not listed or admitted to
trading on any stock exchange or traded in the
over-the-counter market, the "Fair Market Value" shall be as
determined in good faith by the Committee.
(h) Related Company. The term "Related Company" means (i) any
corporation, partnership, joint venture or other entity during any
period in which it owns, directly or indirectly, at least fifty percent
Page 12 of 13
<PAGE> 13
of the voting power of all classes of stock of the Company (or
successor to the Company) entitled to vote; and (ii) any corporation,
partnership, joint venture or other entity during any period in which
at least a fifty percent voting or profits interest is owned, directly
or indirectly, by the Company, by an entity that is a successor to the
Company, or by an entity that is a Related Company by reason of clause
(i) next above.
(i) Retirement. The "Retirement" of a Participant shall mean
the occurrence of a Participant's Date of Termination after completing
at least five years of service and attaining age 65.
(j) Stock. The term "Stock" shall mean shares of common stock
of the Company.
Page 13 of 13
<PAGE> 1
EXHIBIT 10.17
INCENTIVE STOCK OPTION AGREEMENT
(1997 Incentive Equity Plan)
THIS AGREEMENT is entered into as of the Agreement Date (as hereinafter
defined) by and between the Participant (as hereinafter defined) and GulfMark
Offshore, Inc. (the "Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the 1997 Incentive Equity Plan (the "Plan"),
which is incorporated into and forms a part of this Agreement, and the
Participant has been selected by the committee administering the Plan (the
"Committee") to receive an Incentive Stock Option Award under the Plan;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Participant, as follows:
1. Terms of Award. The following terms used in this Agreement shall have
the meanings set forth in this paragraph 1:
a. The "Participant" is .
b. The "Agreement Date" is .
c. The number of "Covered Shares" shall be ___shares of stock.
d. The "Exercise Price" is $___ per share.
e. The "Stated Term" is ten (10) years from the Agreement Date.
The number of Covered Shares and the Exercise Price shall be subject to
adjustment as provided in the Plan. Other terms used in this Agreement are
defined in paragraph 10 or elsewhere in this Agreement.
2. Award and Exercise Price. The Participant is hereby granted an Incentive
Stock Option (the "Option") to purchase the number of Covered Shares of common
stock, $0.01 par value per share, of the Company ("Stock") at the Exercise Price
per share as set forth in paragraph 1. The Option is intended to constitute an
"incentive stock option" as that term is used in section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
3. Date of Exercise. The Option shall become exercisable according to the
following schedule.
As of the following The Option shall become
Anniversary exercisable with respect to
of the Agreement Date: the following percentage of
the Covered Shares:
One year anniversary 33 and one third percent
Two year anniversary 33 and one third percent
Three year anniversary 33 and one third percent
The Option shall not become exercisable in accordance with the foregoing
schedule as of any anniversary if the Participant's Date of Termination (as
defined below) occurs before such anniversary. Exercisability under this
schedule is cumulative, and after the Option becomes exercisable under the
schedule with respect to any portion of the Covered Shares, it shall continue to
be exercisable with respect to that portion of the Covered Shares until the
Option expires.
4. Expiration. The Option shall not be exercisable after the Expiration
Date. The "Expiration Date" shall be the earliest to occur of:
a. if the Participant's Date of Termination occurs by reason of death,
Disability or Retirement, the one-year anniversary of such Date of Termination;
b. if the Participant's Date of Termination occurs for reasons other than
Retirement, death, or Disability, the 90-day anniversary of such Date of
Termination.
If the Participant dies after the Date of Termination and prior to the
occurrence of the Expiration Date, then, notwithstanding the foregoing
provisions of this paragraph 4, the Expiration Date shall be the first
anniversary of the date of death. Notwithstanding anything herein to the
contrary, the Option shall not be exercisable in any event after expiration of
the Stated Term.
5. Forfeiture of Unexercised Options if Participant is Terminated for
Cause. If Participant's employment with the Company is terminated for Cause,
then this Option shall immediately terminate and Participant shall forfeit this
Option, unless this Option is terminated sooner by operation of another term or
condition of this Option or Plan.
<PAGE> 3
6. Method of Option Exercise. The Option may be exercised in whole or in
part by filing a written notice with the Secretary of the Company at its
corporate headquarters prior to the Expiration Date. Such notice shall specify
the number of shares of Stock which the Participant elects to purchase, and
shall be accompanied by payment of the Exercise Price for such shares of Stock
indicated by the Participant's election. Payment shall be by cash or by check
payable to the Company. Except as otherwise provided by the Committee before the
Option is exercised: (i) all or a portion of the Exercise Price may be paid by
the Participant by tendering shares of Stock (either by actual delivery of
shares or by attestation) acceptable to the Committee and having an aggregate
Fair Market Value (as defined in the Plan), valued as of the date of exercise,
equal to the amount of cash that would otherwise be required; and (ii) the
Participant may pay the Exercise Price by authorizing a third party to sell
shares of Stock (or a sufficient portion of the shares) acquired upon exercise
of the Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire Exercise Price and any tax withholding resulting from such
exercise.
7. Tax Withholding. All distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the Participant, and
subject to such rules as may be established by the Committee, such withholding
obligations may be satisfied through the surrender of shares of Stock which the
Participant already owns, or to which the Participant is otherwise entitled
under the Plan.
8. Disqualifying Disposition. In the event that the Participant disposes of
any of the shares of Stock acquired pursuant to an exercise of this Option prior
to the later of (i) two (2) years from the Agreement Date of this Option or (ii)
one (1) year after the date of exercise with respect to such shares, the
Participant shall notify the Company not later than ten (10) days after the date
of such disposition of all the terms and conditions of such disposition. The
Company (or the employing corporation) is hereby authorized to satisfy any
requirement to withhold United States federal or local tax with respect to the
realization of compensation by reason of such disposition out of any cash
compensation then or thereafter payable to the Participant. To the extent that
the Company in its sole discretion determines that such cash compensation is or
may be insufficient to fully satisfy such withholding requirement, upon request
from the Company, the Participant shall deliver to the Company cash in an amount
determined by the Company to be sufficient to satisfy such withholding
requirement.
<PAGE> 4
9. Non-Transferability. The Option granted hereby shall not be voluntarily
or involuntarily transferred, assigned, sold, pledged, mortgaged or encumbered
by the Participant otherwise than by will or by the laws of descent and
distribution, and all Options shall be exercisable, during the Participant's
lifetime, only by the Participant.
10. Definitions. For purposes of this Agreement, the terms listed below
shall be defined as follows:
a. Cause. The term "Cause" means a felony conviction of a Participant or
the failure of a Participant to contest prosecution for a felony, or a
Participant's willful misconduct or dishonesty, or a Participant's failure to
perform his work in accordance with reasonable standards established by the
Company, any of which is directly and materially harmful to the business or
reputation of the Company or any Related Company (as defined in the Plan).
b. Date of Termination. The Participant's "Date of Termination" shall be
the first day occurring on or after the Agreement Date on which the
Participant's employment with the Company and all Related Companies terminates
for any reason, (i.e., Retirement, death, Disability, resignation or discharge);
provided that a termination of employment shall not be deemed to occur by reason
of a transfer of the Participant between the Company and a Related Company or
between two Related Companies; and further provided that the Participant's
employment shall not be considered terminated while the Participant is on a
leave of absence from the Company or a Related Company approved by the
Participant's employer. If, as a result of a sale, spinoff, or other
transaction, the Participant's employer ceases to be the Company or a Related
Company, the occurrence of such transaction shall be treated as the
Participant's Date of Termination for reasons other than Retirement, death, or
Disability.
c. Disability. "Disability" means the permanent and total disability of the
Participant as determined by the Committee.
d. Retirement. "Retirement" of the Participant shall mean the occurrence of
the Participant's Date of Termination after completing at least five (5) years
of service and attaining age sixty-five (65).
e. Plan Definitions. Except where the context clearly implies or indicates
the contrary, capitalized terms used but not defined in this Agreement shall
have the meanings given to such terms in the Plan.
<PAGE> 5
11. Heirs and Successors. This Agreement shall be binding upon, and inure
to the benefit of, the Company and its successors and assigns, and upon any
person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business. In the
event of the Participant's death prior to exercise of this Option, the Option
may be exercised by the estate of the Participant to the extent such exercise is
otherwise permitted by the Agreement. Subject to the terms of the Plan, any
benefits distributable to the Participant under this Agreement that are not paid
at the time of the Participant's death shall be paid at the time and in the form
determined in accordance with the provisions of this Agreement and the Plan, to
the beneficiary designated by the Participant in writing filed with the
Committee in such form and at such time as the Committee shall require. If a
deceased Participant fails to designate a beneficiary, or if the designated
beneficiary of the deceased Participant dies before the Participant or before
complete payment of the amounts distributable under this Agreement, the amounts
to be paid under this Agreement shall be paid to the legal representative or
representatives of the estate of the last to die of the Participant and the
beneficiary.
12. Administration. The authority to manage and control the operation and
administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Committee and
any decision made by it with respect to the Agreement is final and binding.
13. Requirements of Law. The Company shall not be required to sell or issue
any shares upon exercise of the Option if the issuance of such shares shall
constitute a violation by the Participant or the Company of any provisions of
any law or regulation of any governmental authority. The Option shall be subject
to the requirements that, if at any time the Board of Directors of the Company
or the Committee shall determine that the listing, registration or qualification
of the Covered Shares subject thereto upon any securities exchange or under any
state or federal law of the United States or of any other country or
governmental subdivision thereof, or the consent or approval of any governmental
regulatory body, or investment or other representations, are necessary or
desirable in connection with the issue or purchase of the Covered Shares subject
thereto, the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, approval or representation shall
have been effected or obtained free of any conditions deemed unacceptable by the
Board of Directors. If
<PAGE> 6
required at any time by the Board of Directors or the Committee, the Option may
not be exercised until the Participant has delivered an investment letter to the
Company. In addition, specifically in connection with the Securities Act of 1933
(as now in effect or hereafter amended, the "Securities Act"), upon exercise of
the Option, the Company shall not be required to issue the underlying shares
unless the Committee has received evidence satisfactory to it to the effect that
such shares will be issued in compliance with the Securities Act or unless an
opinion of counsel satisfactory to the Company has been received by the Company
to the effect that such registration is not required. Any determination in this
connection by the Committee shall be final, binding and conclusive. In the event
the shares issuable on exercise of the Option are not registered under the
Securities Act, the Company may imprint on the certificate for such shares the
following legend or any other legend which counsel for the Company considers
necessary or advisable to comply with the Securities Act:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any state and may not be sold or transferred except upon registration or
upon receipt by the Corporation of an opinion of counsel satisfactory to
the Corporation, in form and substance satisfactory to the Corporation,
that registration is not required for such sale or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any other affirmative action in order to cause the exercise
of the Option or the issuance of shares of Stock pursuant thereto to comply with
any law or regulation of any governmental authority.
14. Plan Controlling. The terms of this Agreement shall be subject to the
terms of the Plan, a copy of which may be obtained by the Participant from the
office of the Secretary of the Company.
15. Amendment. This Agreement may be amended by written Agreement of the
Participant and the Company, without the consent of any other person.
IN WITNESS WHEREOF, the Participant has executed this Agreement, and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Agreement Date.
<PAGE> 7
------------------------------------------
Participant
Name:
-------------------------------------
GULFMARK OFFSHORE, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<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 Marine do Brazil, Ltd. Brazil
Semaring Logistics (M) Sdn. Bhd. Malaysia
Chalvoyage (M) Sdn. Bhd. Malaysia
GulfMark Norge AS Norway
Gulf Offshore Norge AS Norway
GM Offshore, Inc. Delaware
</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 Statements on Form S-8, File No. 333-33719 and
Form S-4, File No. 333-59415.
Arthur Andersen LLP
Houston, Texas
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 32,007
<SECURITIES> 0
<RECEIVABLES> 19,612
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,829
<PP&E> 224,454
<DEPRECIATION> 31,839
<TOTAL-ASSETS> 271,369
<CURRENT-LIABILITIES> 12,289
<BONDS> 129,594
0
0
<COMMON> 81
<OTHER-SE> 108,409
<TOTAL-LIABILITY-AND-EQUITY> 271,369
<SALES> 0
<TOTAL-REVENUES> 86,194
<CGS> 34,102
<TOTAL-COSTS> 51,165
<OTHER-EXPENSES> 5,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,425
<INCOME-PRETAX> 29,605
<INCOME-TAX> 8,816
<INCOME-CONTINUING> 20,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,789
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.52
</TABLE>
