<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-22853
GULFMARK OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0526032
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 POST OAK PARKWAY, SUITE 1170 77027
HOUSTON, TEXAS
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(713) 963-9522
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. YES /X/ NO / /
Number of shares of Common Stock, $0.01 Par Value, outstanding as
of October 31, 2000: 8,185,968.
(Exhibit Index Located on Page 21)
<PAGE>2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company. In the opinion of
management, all adjustments, which include reclassifications and
normal recurring adjustments necessary to present fairly the financial
statements for the periods indicated have been made. Certain
information relating to the Company's organization and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been
condensed or omitted in this Form 10-Q pursuant to such rules and
regulations. However, the Company believes that the disclosures
herein are adequate to make the information presented not misleading.
It is recommended that these financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 34,834 $ 28,650
Accounts receivable, net................................................ 23,987 19,639
Prepaids and other...................................................... 1,607 1,365
--------- ---------
Total current assets.................................................. 60,428 49,654
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation
of $41,553,000(unaudited) in 2000 and $40,087,000 in 1999................ 174,266 195,358
INVESTMENT IN UNCONSOLIDATED VENTURE...................................... 641 566
GOODWILL, NET............................................................. 15,778 18,062
OTHER ASSETS.............................................................. 6,335 6,942
--------- ---------
$ 257,448 $ 270,582
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt............. $ 45 $ 55
Accounts payable........................................................ 6,006 8,638
Accrued personnel costs................................................. 1,024 1,185
Accrued interest expense................................................ 3,790 947
Other accrued liabilities............................................... 2,680 3,057
--------- ---------
Total current liabilities............................................. 13,545 13,882
--------- ---------
LONG-TERM DEBT............................................................ 130,091 130,128
DEFERRED TAXES AND OTHER.................................................. 22,927 21,894
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 2,000,000 authorized; no
shares issued......................................................... -- --
Common stock, $.01 par value; 15,000,000 shares authorized;
8,185,968 and 8,136,830 shares issued and outstanding, respectively... 82 81
Additional paid-in capital.............................................. 63,063 62,913
Retained earnings....................................................... 53,482 48,921
Cumulative translation adjustment....................................... (25,742) (7,237)
--------- ---------
Total stockholders' equity............................................ 90,885 104,678
--------- ---------
$ 257,448 $ 270,582
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>4
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
2000 1999 2000 1999
------ ------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES............................................... $20,968 $18,502 $ 55,420 $ 59,251
COSTS AND EXPENSES:
Direct operating expenses............................ 8,663 9,037 25,287 25,918
Bareboat charter expense............................. 1,632 1,769 5,063 5,288
General and administrative expenses.................. 1,573 1,343 4,683 4,456
Depreciation and amortization........................ 3,112 3,077 9,596 9,426
------- ------- -------- --------
14,980 15,226 44,629 45,088
------- ------- -------- --------
OPERATING INCOME....................................... 5,988 3,276 10,791 14,163
OTHER INCOME (EXPENSE):
Interest expense..................................... (2,952) (2,807) (9,208) (8,253)
Interest income...................................... 348 429 989 1,417
Income (loss) from unconsolidated venture............ 217 (329) (294) (365)
Gain on sale of assets............................... 3,601 -- 3,601 --
Other................................................ 253 112 399 190
------- ------- -------- --------
1,467 (2,595) (4,513) (7,011)
------- ------- -------- --------
Income before taxes.................................... 7,455 681 6,278 7,152
INCOME TAX PROVISION................................... (2,154) (117) (1,717) (1,877)
------- ------- -------- --------
NET INCOME............................................. $ 5,301 $ 564 $ 4,561 $ 5,275
======= ======= ======== ========
BASIC EARNINGS PER SHARE:
Net Income ........................................... $ 0.65 $ 0.07 $ 0.56 $ 0.65
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC)............ 8,164 8,129 8,155 8,127
======= ======= ======== ========
DILUTED EARNINGS PER SHARE:
Net Income ......................................... $ 0.63 $ 0.07 $ 0.55 $ 0.64
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED)......... 8,342 8,302 8,315 8,274
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>5
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 4,561 $ 5,274
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................ 9,596 9,426
Amortization of deferred financing costs................................. 422 710
Deferred and other income tax provision.................................. 1,620 1,754
Gain on sale of equipment................................................ (3,601) --
Change in operating assets and liabilities:
Accounts receivable.................................................. (6,047) 2,181
Prepaids and other................................................... (324) (922)
Accounts payable..................................................... (1,408) 402
Other accrued liabilities............................................ 2,119 2,571
Other, net............................................................... (110) (880)
------- -------
Net cash provided by operating activities............................ 6,828 20,516
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of vessels and equipment....................................... (5,244) (11,123)
Expenditures for drydocking and main engine overhaul..................... (2,064) (2,109)
Proceeds from disposition of equipment................................... 8,450 --
------- -------
Net cash provided by (used in) investing activities.................. 1,142 (13,232)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options........................................ 152 40
Repayments of debt....................................................... (31) (31)
------- -------
Net cash provided by financing activities............................. 121 9
Effect of exchange rate changes on cash.................................... (1,907) 3
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................. 6,184 7,296
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD....................... 28,650 32,007
------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................. $ 34,834 $ 39,303
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized................................. $ 5,738 $ 4,705
======= =======
Income taxes paid.......................................................... $ 97 $ 123
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>6
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The consolidated financial statements include the accounts of
GulfMark Offshore, Inc, and its majority owned subsidiaries
("GulfMark" or the "Company"). Investments in unconsolidated
subsidiaries are accounted for using the equity method. All
significant intercompany accounts and transactions between GulfMark
and its subsidiaries have been eliminated.
The Company operates offshore support vessels, principally in the
North Sea, Southeast Asia and Brazil. 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.
(2) EARNINGS PER SHARE ("EPS")
Basic EPS is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the
period. Diluted EPS is computed using the treasury stock method for
common stock equivalents. Certain options are excluded as their
effect is anti-dilutive. The details of the EPS calculations for
three and nine months ended September 30, 2000 and 1999 are as follows
(in thousands except per share data):
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------------- -------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income per share, basic.................. $5,301 8,164 $ 0.65 $4,561 8,155 $ 0.56
========= =========
Dilutive effect of common stock options...... -- 178 -- 160
------ ----- ------ -----
Net Income per share, diluted................ $5,301 8,342 $ 0.63 $4,561 8,315 $ 0.55
====== ===== ========= ====== ===== =========
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------------- --------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income per share, basic.................. $ 564 8,129 $ 0.07 $5,275 8,127 $ 0.65
========= =========
Dilutive effect of common stock options...... -- 173 -- 147
------ ------ ------ -----
Net Income per share, diluted................ $ 564 8,302 $ 0.07 $5,275 8,274 $ 0.64
====== ====== ========= ====== ===== =========
</TABLE>
(3) NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
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 was to be effective beginning in 2000;
however, in June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities Deferral of the
Effective Date" which delayed the effective date to fiscal years
beginning after June 15, 2000. The Company does not currently expect
the adoption of this statement to have a material effect on its
financial position or results of operations.
(4) COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for
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the three and nine months ended September 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands) September 30, September 30,
----------------- ------------------
2000 1999 2000 1999
------- ------- --------- -------
<S> <C> <C> <C> <C>
Net income......................................... $ 5,301 $ 564 $ 4,561 $ 5,275
Foreign currency translation adjustments,
net of tax of $(7,931) and $(2,577) for 2000
and $2,516 and $(605) for 1999, respectively..... (6,013) 5,870 (18,505) (1,411)
------- ------- -------- -------
Comprehensive income (loss)........................ $ (712) $ 6,434 $(13,944) $ 3,864
======= ======= ======== =======
</TABLE>
The Company's only accumulated comprehensive income item relates to
its cumulative foreign currency translation adjustment.
(5) VESSEL ACQUISITIONS
The Company entered into an agreement with Bender Shipbuilding &
Repair, Inc. of Mobile, Alabama for the construction of two 217 foot
offshore support vessels. The specifications of these vessels were
developed jointly between the Company and the shipyard to allow the
vessels to operate in both U.S. and international waters. The first
vessel was delivered in August 1999 and the second vessel was
delivered in September 1999.
During the quarter ended September 30, 2000, the Company entered
into separate contracts with a Norwegian shipyard to construct two
platform supply vessels ("PSVs"). The total commitment related to
these vessels is approximately $34.0 million denominated in Norwegian
Kroner ("NOK"). The first vessel, which will be similar to the
Company's 1998 built lengthened UT755, the Highland Rover, is expected
to be delivered in the third quarter of 2001. The 236 foot vessel
will be equipped with an advanced dynamic positioning system ("DP
II"), expanded accommodations and a moon pool for the launching of
remotely operated vehicles ("ROVs"). The second vessel under
construction is a 275 foot UT745 design PSV similar to a vessel
managed by the Company, the Ace Nature. The Company has exercised an
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<PAGE>9
option to add DP II to this vessel. This vessel is expected to be
completed in early 2002.
In connection with the contracted payment dates to the shipyard
for these vessels, the Company has fixed its U.S. Dollar commitment by
entering into a contract for the delivery of the required NOK. As of
September 30, 2000, there was an unrecognized gain of approximately
$1.1 million related to this currency hedge.
Interest is capitalized in connection with the construction of
vessels. Capitalized interest associated with new vessel construction
during the three and nine month periods ended September 30, 1999 was
$0.3 million and $1.0 million, respectively. Nominal interest was
capitalized during the comparable 2000 periods.
(6) OPERATING SEGMENT INFORMATION
The operations of the Company are reported in a single business
segment, offshore marine services. The business operates offshore
support vessels in various geographic locations. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We provide marine support and transportation services to
companies involved in the offshore exploration and production of oil
and natural gas. Our vessels transport drilling materials, supplies
and personnel to offshore facilities, as well as move and position
drilling structures. The majority of our operations are conducted in
the North Sea and, with the exception of three vessels operating in
Brazil and one vessel in West Africa, the balance of our operations
are conducted in Southeast Asia. Our fleet has grown in both size and
capability from an original 11 vessels acquired in late 1990 to our
present level of 46 vessels through strategic acquisitions and new
construction of technologically advanced vessels, partially offset by
dispositions of certain older, less profitable vessels. Our fleet
includes 30 owned vessels, 4 bareboat chartered vessels, and 12
managed vessels.
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<PAGE>10
Our results of operations are affected primarily by dayrates,
fleet utilization and the number and type of vessels in our fleet.
Utilization and dayrates, in turn, are influenced principally by the
demand for vessel services from the exploration and production sectors
of the oil and natural gas industry. This demand has historically
been a function of the prices for oil and natural gas, with increased
activity when prices are higher and decreased activity when prices
fall. The supply of vessels to meet this fluctuating demand is
related directly to the perception of future activity in both the
drilling and production phases of the oil and natural gas industry as
well as the availability of capital to build new vessels to meet the
changing market requirements. Although prices for oil and natural gas
have remained high for the last several quarters, the level of
exploration and development expenditures has not accelerated as
quickly in the international markets as we had anticipated.
Our results of operations during the quarter ended September 30,
2000 reflect continued strong dayrates and increased utilization, as
demand for our vessels improved. Sustained drilling and
construction activity in all our operating regions resulted in the
highest utilization rates thus far this year.
We bareboat charter vessels with revenues and operating expenses
reported in the same income/expense categories as our owned vessels.
The chartered vessels, however, incur bareboat charter fees instead of
depreciation expense. Bareboat charter fees are generally higher than
the depreciation expense on owned vessels of similar age and
specification. The operating income realized from these vessels is
therefore adversely affected by the higher costs associated with the
bareboat charter fees. These vessels are included in calculating
fleet dayrates and utilization in the applicable periods.
In addition, we provide management services to other vessel
owners for a fee. We do not include charter revenues and vessel
expenses of these vessels in our operating results. However,
management fees are included in operating revenues. These vessels
have been excluded for purposes of calculating fleet rates per day
worked and utilization in the applicable periods.
Our operating costs are primarily a function of fleet size and
utilization levels. The most significant direct operating costs are
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wages paid to vessel crews, maintenance and repairs, and marine
insurance. Generally, fluctuations in vessel utilization have little
effect on fixed cost, but rather, affect only that portion of our
direct operating costs we incur when the vessels are active. As a
result, direct operating costs as a percentage of revenues may
vary substantially due to changes in dayrates and utilization.
In addition to these variable costs, we incur fixed charges
related to the depreciation of our fleet and costs for routine drydock
inspections, maintenance and repairs designed to ensure compliance
with applicable regulations and maintaining certifications for our
vessels with various international classifications. 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 which is 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 we undertake a large number of drydockings in a
particular fiscal quarter, comparative results may be affected due to
the loss of revenue incurred during the drydocking period. For the
nine months ended September 30, 2000, we drydocked seven vessels.
During the quarter ended September 30, 2000 we spent $0.1 million
compared to $0.9 million during the three months ended September 30,
1999.
Results of Operations
The table below sets forth, by region, the average dayrates and
utilization for our vessels and the average number of vessels owned or
chartered during the periods indicated. These vessels generate
substantially all of our revenues and operating profit. The
information that follows is utilized by us to evaluate the performance
of the business.
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Dayrates (a)(b):
North Sea Based Fleet (c) $ 9,447 $ 9,823 $ 8,992 $10,248
Southeast Asia Based Fleet 3,847 3,797 3,860 4,458
Brazil Based Fleet 8,663 10,727 8,144 9,353
Overall Utilization(a)(b):
North Sea Based Fleet (percent) 98.9% 83.5% 89.3% 90.6%
Southeast Asia Based Fleet (percent) 70.4% 69.4% 62.3% 63.7%
Brazil Based Fleet (percent) 99.9% 82.0% 97.3% 90.1%
Average Owned/Chartered Vessels(a)(d)
North Sea Based Fleet 18.3 18.9 18.7 18.3
Southeast Asia Based Fleet 12.0 11.0 12.0 11.0
Brazil Based Fleet 3.0 2.0 3.0 2.0
------- ------- ------- -------
Total 33.3 31.9 33.7 31.3
======= ======= ======= =======
</TABLE>
----------------------
(a) Includes all owned or bareboat chartered vessels.
(b) Dayrates is defined as total charter revenues divided
by number of days worked. Utilization is defined as the total
days worked divided by total days of availability in the period.
(c) Revenues for vessels in the North Sea fleet are primarily earned
in Sterling ("GBP") and have been converted to U.S. Dollars ("US$") at
the average exchange rate (US$/GBP) for the periods indicated.
The average exchange rates were GBP=$1.4761 and GBP=$1.6022 for the
quarters ended September 30, 2000 and 1999, respectively. The
average exchange rates were GBP=$1.5395 and GBP=$1.6142 for the nine
months ended September 30, 2000 and 1999, respectively.
(d) Adjusted for vessel additions and dispositions occurring during
each period.
Comparison of the Three Months Ended September 30, 2000 with the Three
Months Ended September 30, 1999.
Net income for the quarter ended September 30, 2000 was $5.3
million or $0.63 per diluted share on revenues of $21.0 million. Net
income in the comparable 1999 quarter was $0.6 million or $0.07 per
diluted share on revenues of $18.5 million. The current year quarter
includes a pre-tax gain of $3.6 million related to the July 2000 sale
of the Highland Fortress for $8.5 million. Excluding this gain, our
net income per diluted share for the third quarter of 2000 was
approximately $0.33.
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<PAGE>13
Revenues for our North Sea based fleet increased by $1.5 million
while revenues for our Southeast Asia based fleet increased by $0.3
million compared to the same quarter a year ago. The average North
Sea dayrate declined slightly from $9,823 in the third quarter of
1999, when many of the vessels were working on the spot market, to
$9,447 in the current year's third quarter, when most vessels were
working under term contracts of various duration. These rate
reductions were more than offset by the increase in utilization (from
83.5% for the third quarter of 1999 to 98.9% for the same quarter in
2000). Our 2000 revenues benefited from the addition of the Highland
Pioneer in December 1999 and the commencement of operations for the
Highland Guide and Highland Scout during the first quarter of the
year. These benefits were partially offset by the sale of the
Highland Fortress during July 2000. Average dayrates and utilization
for Southeast Asia of $3,847 and 70.4% for the quarter ended September
30, 2000, improved from the $3,797 and 69.4% for the same quarter in
1999.
Operating income increased $2.7 million between the quarter ended
September 30, 1999 and September 30, 2000, from $3.3 million in 1999
to $6.0 million in 2000. This increase reflects higher revenues
coupled with the decrease in direct operating expenses in the 2000
period.
Interest expense increased in the quarter ended September 30,
2000 compared to the same quarter in 1999 primarily due to changes in
the amount of interest capitalized in the two periods. Our
capitalized interest associated with new vessel construction was $0.3
million for the 1999 period, with nominal interest capitalized in the
2000 period.
Our tax rate of approximately 27.3% for the nine months ended
September 30, 2000 reflects our estimated effective tax rate for the
year.
Comparison of the Nine Months Ended September 30, 2000 with the Nine
Months Ended September 30, 1999.
Net income for the nine months ended September 30, 2000 was $4.6
million, or $0.55 per diluted share, on $55.4 million in revenues.
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<PAGE>14
Excluding the gain on the sale of the Highland Fortress, our year to
date 2000 earnings were approximately $0.24 per diluted share. This
compares to $0.64 per diluted share ($5.3 million), for the same
period in 1999.
Decreases in the average dayrate and utilization in each of our
major market areas were partially offset by the commencement of
operations for three new vessels added during late 1999. Operating
costs remained fairly constant in the two year-to-date periods due to
cost control efforts in place during 2000 including the layup of two
of our North Sea vessels during the first quarter of 2000.
Our depreciation expense for the 2000 period increased by $0.2
million primarily as a result of newly acquired vessels. Interest
expense was $1.0 million higher in the first nine months of 2000 than
the comparable period in 1999 because of the capitalized interest
associated with new vessel construction in 1999.
Liquidity and Capital Resources
Our ongoing liquidity requirements are generally associated with
our need to service debt, fund working capital, acquire or improve
equipment and make other investments. Since our inception, we have
been active in the acquisition of additional vessels through both the
resale market and new construction. Bank financing and internally
generated funds have provided funding for these activities.
We have a $75 million credit facility with three banks. This
credit facility contains covenants which require us to not exceed a
maximum leverage ratio and to maintain a specified interest coverage
ratio and a minimum net worth, on a consolidated basis. We were in
compliance with all of the covenants of this agreement except for the
interest coverage ratio which was not met as a result of operations
for the fourth quarter of 1999 and the first quarter of 2000. We
received a waiver of this requirement for the twelve month period
ended September 30, 2000. We cannot assure you that we will meet the
interest coverage ratio requirement in future periods, as compliance
is dependent on the results of operations, nor can we assure you that
future waivers will be granted under the credit facility.
At September 30, 2000, we had total long-term debt of $130.1
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<PAGE>15
million. Scheduled interest repayments are expected to total $5.7
million for the remainder of 2000.
We currently have approximately $46.9 million of net working
capital, including $34.8 million of cash and cash equivalents. Timing
differences affecting the cash flow from operations during the quarter
include the increase in revenue late in the quarter and the related
increase in the accounts receivable balances. Capital expenditures for
drydocking for the remainder of 2000 are expected to be less than $1.5
million, and expenditures related to the vessels under construction in
Norway (see note 5 to the Consolidated Financial Statements) are
expected to be approximately $1.4 million during the remainder of
2000. Additionally, we have full availability under our $75 million
credit facility.
Net cash provided by operating activities was $6.8 million for
the nine month period ended September 30, 2000 as compared to $20.5
million for the same period in 1999. Operating income in the current
period reflects the adjustment for the non-operating gain from the
sale of the Highland Fortress. Additionally, timing differences
include the increases in accounts receivable balances related to the
improvement in revenue during the latter portion of the period.
Net cash provided by investing activities was $1.1 million for
the nine months ended September 30, 2000 compared to a use of cash of
$13.2 million for the 1999 period. The 1999 period includes progress
payments for the construction of two vessels which were delivered in
August and September of 1999. The 2000 period includes proceeds for
the sale of the Highland Fortress less the conversion costs for the
Highland Sprite and progress payments for our two vessels currently
under construction in Norway. In the nine month period ended
September 30, 2000, we drydocked 7 vessels compared to 4 vessel
drydockings in the same prior year period.
During the quarter ended September 30, 2000, we entered into
separate contracts with a Norwegian shipyard to construct two platform
supply vessels ("PSVs"). The total commitment related to these
vessels is approximately $34.0 million denominated in Norwegian Kroner
("NOK"). The first vessel, which will be similar to our 1998 built
lengthened UT755, the Highland Rover, is expected to be delivered in
the third quarter of 2001. The 236 foot vessel will be equipped with
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<PAGE>16
an advanced dynamic positioning system ("DP II"), expanded
accommodations and a moon pool for the launching of remotely operated
vehicles ("ROVs"). The second vessel under construction is a 275 foot
UT745 design PSV similar to a vessel we manage, the Ace Nature. We
have exercised an option to add DP II to this vessel which is expected
to be completed in early 2002.
We expect to make progress payments of approximately $1.4 million
during 2000 and will fund the cost of construction of the vessel with
existing cash, future cash flows and the credit facility. On July 31,
2000, we finalized the sale of the 1982 built vessel, Highland
Fortress for total proceeds of approximately $8.5 million. This sale
resulted in a pre-tax gain of $3.6 million.
Substantially all of our tax provision is for deferred taxes.
The net operating loss carryforward available in the United Kingdom is
primarily the result of accelerated depreciation allowances under
United Kingdom tax law.
We believe 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 our
operating requirements. However, our ability to fund working capital,
capital expenditures and debt service in excess of cash on hand
depends on the success of our operations. To the extent that internal
sources are insufficient to meet those cash requirements, we intend to
seek other debt or equity financing. We cannot assure you that such
debt or equity financing would be available on terms acceptable to us.
Currency Fluctuations and Inflation
In areas where currency risks are potentially high, we normally
accept only a small percentage of charter hire in local currency. The
remainder is paid in U.S. Dollars.
Substantially all of our operations are international; therefore
we are exposed to currency fluctuations and exchange rate risks.
Charters for vessels in the North Sea fleet are primarily denominated
in Sterling ("GBP") with a portion denominated in NOK. Operating
costs are substantially denominated in the same currency as charter
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hire in order to reduce the risk of currency fluctuations. For the
three months ended September 30, 2000, currency fluctuations in GBP
and NOK did not have a material impact on the results of our
operations. As of September 30, 2000, the NOK/U.S. Dollar exchange
rate was 1 USD = NOK 9.09, while the average GBP/U.S. Dollar exchange
rate was 1 GBP = $1.476. The average exchange rates in the comparable
1999 period were 1 USD = 7.76 NOK and 1 GBP = $1.602. Our North Sea
based fleet generated $15.8 million in revenues and $5.0 million in
operating income for the three months ended September 30, 2000.
Reflected in the accompanying balance sheet as of September 30,
2000, is a $25.7 million cumulative translation adjustment primarily
relating to the lower GBP and NOK exchange rate as of September 30,
2000 compared to the exchange rate when we invested capital in these
markets. Changes in the cumulative translation adjustment are non-
cash items that are attributable to investments in vessels and dollar
denominated loans between us and our foreign subsidiaries.
With the completion of the Senior Notes Offering in June 1998,
our debt is predominantly denominated in U.S. dollars, while a
substantial portion of our revenue is generated in Sterling. We have
carefully evaluated these conditions and determined that it is in our
best interest not to use any financial instruments to hedge this
exposure under present conditions. Our decision is based on a number
of factors, including among others:
- The cost of using hedging instruments in relation to the risks of
currency fluctuations,
- The propensity for adjustments in Sterling denominated vessel
dayrates over time to compensate for changes in the purchasing
power of Sterling as measured in U.S. dollars
- Our strong cash position substantially held in U.S. dollars
- The level of U.S. dollar denominated borrowings available to us,
and
- The conditions in our U.S. dollar generating regional markets.
One or more of these factors may change and we, in response, may
choose to use financial instruments to hedge risks of currency
fluctuations.
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We will from time to time hedge known liabilities denominated in
foreign currencies to reduce the effects of exchange rate fluctuations
on our financial results. As of September 30, 2000, we had foreign
currency contracts related to the approximately NOK 271 million
commitment for the construction of two vessels in Norway. As of
September 30, 2000, we had an unrecognized gain of approximately $1.1
million related to this currency hedge.
To date, general inflationary trends have not had a material
effect on our operating revenues or expenses.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and
other statements that are not historical facts concerning, among other
things, market conditions, the demand for marine support services and
future capital expenditures. These statements are subject to certain
risks, uncertainties and assumptions, including, without limitation:
- dependence on the oil and gas industry,
- oil and gas prices,
- ongoing capital expenditure requirements,
- uncertainties surrounding environmental and government regulation,
- risk relating to leverage,
- risk of foreign operations assumptions concerning competition,
- risk of currency fluctuations, and
- other matters.
We cannot assure you that we have accurately identified and
properly weighed all of the factors which affect market conditions and
demand for our vessels, that the information upon which the Company
has relied is accurate or complete, that our analysis of the market
and demand for its vessels is correct, or that the strategy based on
that analysis will be successful.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our financial instruments that are potentially sensitive to
changes in interest rates include the notes sold in the Senior Notes
Offering. As of September 30, 2000, the fair value of these notes,
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based on quoted market prices, was approximately $123.5 million
compared to a carrying amount of $129.7 million.
Exchange Rate Sensitivity
We operate in a number of international areas and are involved in
transactions denominated in currencies other than U.S. dollars, which
exposes the Company to foreign currency exchange risk. At various
times we may utilize forward exchange contracts, local currency
borrowings and the payment structure of customer contracts to
selectively hedge exposure to exchange rate fluctuations in connection
with monetary assets, liabilities and cash flows denominated in
certain foreign currency. We do not hold or issue forward exchange
contracts or other derivative financial instruments for speculative
purposes. As of September 30, 2000, we had commitments to purchase
approximately NOK 271 million related to our commitment to make
specific NOK shipyard payments for vessels under construction. The
average exchange rate of our commitment is 1 USD=NOK 9.45.
Other information required under Item 3 has been incorporated
into Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
*27.1 - Financial Data Schedule
*10.1 - Amendment No. 2 to the GulfMark Offshore, Inc.
Amended and Restated 1993 Non-Employee Director Stock Option Plan
(b) Reports on Form 8-K.
On August 7, 2000, the Company filed a report on Form 8-K
announcing the sale of a vessel and a construction contract for a
new vessel.
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On August 8, 2000, the Company filed a report on Form 8-K
announcing the release of the results of its operations for the
quarter ended June 30, 2000.
On August 29, 2000, the Company filed a report on Form 8-K
announcing a $125 million shelf registration with the SEC.
On September 18, 2000, the Company filed a report on Form
8-K announcing a contract for construction of a new UT 745 design
supply vessel.
On October 31, 2000, the Company filed a report on Form 8-K
announcing the release of the results of its operations for the
quarter ended September 30, 2000.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GulfMark Offshore, Inc.
(Registrant)
By: /s/ Edward A. Guthrie
-----------------------------
Edward A. Guthrie
Executive Vice President and
Chief Financial Officer
Date: October 31, 2000
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EXHIBIT INDEX
Exhibit No.
*27.1 - Financial Data Schedule
*10.1 - Amendment No. 2 to the GulfMark Offshore, Inc. Amended and
Restated 1993 Non-Employee Director Stock Option Plan
* Filed herewith.
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