<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 June 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.)
5 POST OAK PARK, SUITE 1170 77027
Houston, Texas
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(713) 963-9522
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES /X/
NO / /
Number of shares of Common Stock, $0.01 Par Value,
outstanding as of August 11, 2000: 8,161,399.
(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.
2
<PAGE>3
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> June 30, December 31,
2000 1999
--------- -------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 20,162 $ 28,650
Accounts receivable, net................................................ 22,941 19,639
Prepaids and other...................................................... 2,630 1,365
-------- -------
Total current assets.................................................. 45,733 49,654
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation
of $43,590,000(unaudited) in 2000 and $40,087,000 in 1999................ 183,330 195,358
INVESTMENT IN UNCONSOLIDATED VENTURE...................................... 484 566
GOODWILL, NET............................................................. 16,746 18,062
OTHER ASSETS.............................................................. 7,322 6,942
-------- --------
$253,615 $270,582
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt............. $ 49 $ 55
Accounts payable........................................................ 5,756 8,638
Accrued personnel costs................................................. 966 1,185
Accrued interest expense................................................ 947 947
Other accrued liabilities............................................... 2,726 3,057
-------- --------
Total current liabilities............................................. 10,444 13,882
-------- --------
LONG-TERM DEBT............................................................ 130,101 130,128
DEFERRED TAXES AND OTHER.................................................. 21,547 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;
8,161,399 and 8,136,830 shares issued and outstanding, respectively... 82 81
Additional paid-in capital.............................................. 62,988 62,913
Retained earnings....................................................... 48,182 48,921
Cumulative translation adjustment....................................... (19,729) (7,237)
-------- --------
Total stockholders' equity............................................ 91,523 104,678
-------- --------
$253,615 $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 Six Months Ended
June 30, June 30,
---------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES............................................... $ 20,039 $ 19,622 $ 34,452 $ 40,749
COSTS AND EXPENSES:
Direct operating expenses............................ 8,653 8,690 16,624 16,881
Bareboat charter expense............................. 1,675 1,764 3,431 3,519
General and administrative expenses.................. 1,503 1,470 3,110 3,113
Depreciation and amortization........................ 3,391 3,229 6,484 6,349
-------- ------- ------- -------
15,222 15,153 29,649 29,862
-------- ------- ------- -------
OPERATING INCOME....................................... 4,817 4,469 4,803 10,887
OTHER INCOME (EXPENSE):
Interest expense..................................... (3,116) (2,695) (6,256) (5,446)
Interest income...................................... 315 409 641 988
Loss from unconsolidated venture..................... (152) (36) (511) (36)
Other................................................ 78 186 147 78
-------- ------- ------- -------
(2,875) (2,136) (5,979) (4,416)
-------- ------- ------- -------
Income (loss) before taxes............................. 1,942 2,333 (1,176) 6,471
INCOME TAX PROVISION................................... (529) (530) 437 (1,760)
-------- ------- ------- -------
NET INCOME (LOSS)...................................... $ 1,413 $ 1,803 $ (739) $ 4,711
======== ======= ======= =======
BASIC EARNINGS PER SHARE:
Net Income (Loss)..................................... $ 0.17 $ 0.22 $ (0.09) $ 0.58
======== ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC)............ 8,161 8,129 8,150 8,126
======== ======= ======= =======
DILUTED EARNINGS PER SHARE:
Net Income (Loss)..................................... $ 0.17 $ 0.22 $ (0.09) $ 0.57
======== ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED).......... 8,317 8,268 8,150 8,260
======== ======= ======= =======
</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>
Six Months Ended
June 30,
----------------------
2000 1999
------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................... $ (739) $ 4,711
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................ 6,484 6,349
Deferred and other income tax provision.................................. (437) 1,670
Change in operating assets and liabilities:
Accounts receivable.................................................. (4,501) 922
Prepaids and other................................................... (1,724) 125
Accounts payable..................................................... (1,895) (1,085)
Other accrued liabilities............................................ (772) (135)
Other, net............................................................... 20 (254)
-------- --------
Net cash provided by (used in) operating activities.................. (3,564) 12,303
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of vessels and equipment....................................... (2,188) (7,216)
Expenditures for drydocking and main engine overhaul..................... (2,018) (1,277)
-------- --------
Net cash used in investing activities................................ (4,206) (8,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options........................................ 75 31
Repayments of debt....................................................... (21) (19)
-------- --------
Net cash provided by financing activities............................. 54 12
Effect of exchange rate changes on cash.................................... (772) (206)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................. (8,488) (3,616)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD....................... 28,650 32,007
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................. $ 20,162 $ 35,623
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized................................. $ 5,729 $ 4,976
======== ========
Income taxes paid.......................................................... $ 31 $ 59
======== ========
</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. For the six months ended June 30, 2000,
all options are excluded as their effect is anti-dilutive. The
details of the EPS calculations for three and six months ended June
30, 2000 and 1999 are as follows (in thousands except per share
data):
6
<PAGE>7
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------------- -------------------------
Per Share Per Share
Income Shares Amount Loss Shares Amount
------ ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) per share, basic........... $1,413 8,161 $ 0.17 $ (739) 8,150 $ (0.09)
========= =========
Dilutive effect of common stock options...... 156 --
------ ----- ------ -----
Net income (loss) per share, diluted......... $1,413 8,317 $ 0.17 $ (739) 8,150 $ (0.09)
====== ===== ========= ====== ===== =========
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------------- -------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per share, basic.................. $1,803 8,129 $ 0.22 $4,711 8,126 $ 0.58
========= =========
Dilutive effect of common stock options...... 139 -- 134
------ ----- ------ ------
Net income per share, diluted................ $1,803 8,268 $ 0.22 $4,711 8,260 $ 0.57
====== ===== ========= ======= ====== =========
</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.
<PAGE>8
(4) COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three and six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
----------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (loss)................................. $ 1,413 $ 1,803 $ (739) $ 4,711
Foreign currency translation adjustments,
net of tax of $5,354 and $3,290 for 2000
and $1,224 and $3,120 for 1999, respectively.... (7,676) (2,856) (12,492) (7,281)
------- ------- -------- -------
Comprehensive loss................................ $(6,263) $(1,053) $(13,231) $(2,570)
======= ======= ======== =======
</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'
offshore support vessels. The first vessel was delivered in August
1999 and the second vessel was delivered in September 1999. The
specifications of these vessels were developed jointly between the
Company and the shipyard for use in international applications.
Interest is capitalized in connection with the construction of
vessels. During the three and six months ended June 30, 1999, $0.4
million and $0.7 million was capitalized, respectively.
(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.
8
<PAGE>9
(7) SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the Company completed the sale of
its 1982 built North Sea vessel, the Highland Fortress. Total
proceeds for the sale were approximately $8.5 million resulting in a
pre-tax gain of approximately $3.6 million. Additionally, the
Company contracted with the Norwegian shipyard, Aker Brattvaag, to
build a lengthened UT755 similar to the 1998 built vessel, the
Highland Rover. The total cost of the vessel is expected to be less
than $15 million with delivery during the third quarter of 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
three vessels operating in Brazil and one vessel in West Africa, the
balance is conducted in Southeast Asia. The Company's fleet has
grown in size and capability from eleven vessels originally acquired
in late 1990 to its present level of fifty vessels through strategic
acquisitions and new construction of technologically advanced
vessels. Thirty vessels in GulfMark's fleet are owned, four are
bareboat chartered and sixteen are managed.
The Company's results of operations are affected primarily by
dayrates, 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 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 oil and natural gas production
platforms and exploration and development activities, incremental
demand depends primarily upon drilling activity, which, in turn, is
related to both short-term and long-term trends in oil and natural
gas prices. As a result, trends in oil and natural gas prices may
significantly affect fleet utilization and dayrates.
9
<PAGE>10
The Company's results of operations during the quarter ended
June 30, 2000 reflect improvements in both dayrates and utilization,
as demand for the Company's vessel increased in the Company's primary
operating regions. Increased drilling and construction activity in
the North Sea has resulted in the highest dayrates earned by the
Company during the year. Currently, the North Sea based fleet is
experiencing high rates of utilization as the demand for vessels has
increased to meet the expanded drilling and construction activity.
Towards the latter part of the quarter ended June 30, 2000, the
Company's fleet based in Southeast Asia began to see an increase in
drilling activity, which has in turn stimulated higher levels of bid
activity in support of pending projects. This trend has led to an
increased level of utilization and minor improvement in the rates for
the region.
The Company bareboat charters vessels with revenues and
operating expenses reported in the same income/expense categories as
the Company's owned vessels. The chartered vessels, however, incur
bareboat charter expense instead of depreciation. Bareboat charter
expense is, 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, 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;
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.
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 have
no effect on fixed cost, but rather, affect only that portion of the
Company's direct operating costs that are incurred 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.
10
<PAGE>11
In addition to these variable costs, the Company incurs fixed
charges related to the depreciation of its fleet and costs for
routine drydock inspections, maintenance and repairs designed to
ensure compliance with applicable regulations and maintaining
certifications for its vessels with various international
classification. Maintenance and repair expenses and marine
inspection amortization charges are generally determined by the
aggregate number of drydockings and other repairs undertaken in a
given period. Costs incurred for drydock inspection and regulatory
compliance are capitalized and amortized over the period between such
drydockings, typically two to three years.
Under applicable maritime regulations, vessels must be drydocked
twice in a five-year period for inspection and routine maintenance
and repair. Should the Company undertake a large number of
drydockings in a particular fiscal quarter, comparative results may
be affected due to the loss of revenue incurred during the drydocking
period. For the six months ended June 30, 2000, seven vessels were
required to be drydocked. Total expenditures for drydocking made
during the quarter ended June 30, 2000 were $0.7 million compared to
$0.3 million during the three months ended June 30, 1999.
Results of Operations
The table below sets forth, by region, the average dayrate and
utilization rates for the Company's vessels and the average number of
vessels owned or chartered during the periods indicated. These
vessels generate substantially all of the Company's revenues and
operating profit. The information that follows is utilized by the
Company's management to evaluate the performance of the business.
1
<PAGE>12
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Rates Per Day Worked (a)(b):
North Sea Capable Fleet (c) $ 9,507 $10,139 $ 8,638 $10,449
Southeast Asia Based Fleet 3,870 4,799 3,866 4,841
Brazil Based Fleet 8,600 8,033 7,869 8,740
Overall Utilization(a)(b):
North Sea Capable Fleet (percent) 92.8% 93.7% 85.6% 94.4%
Southeast Asia Based Fleet (percent) 62.7% 58.0% 58.2% 60.8%
Brazil Based Fleet (percent) 97.1% 89.9% 95.9% 94.3%
Average Owned/Chartered Vessels(a)(d)
North Sea Capable Fleet 19.0 18.0 19.0 18.0
Southeast Asia Based Fleet 12.0 11.0 12.0 11.0
Brazil Based Fleet 3.0 2.0 3.0 2.0
------- ------- ------- -------
Total 34.0 31.0 34.0 31.0
======= ======= ======= =======
</TABLE>
----------------------
(a) Includes all owned or bareboat chartered vessels.
(b) Rates per day worked is defined as total charter revenues divided
by number of days worked. Utilization rate is defined as the total
days worked divided by total days of availability in the period.
(c) Revenues for vessels in the North Sea capable fleet are primarily earned
in Sterling (GBP) and have been converted to US Dollars (US$) at
the average exchange rate (US$/GBP) for the periods indicated.
The average rates were GBP=$1.5543 and GBP=$1.6069 for the quarters
ended June 30, 2000 and 1999, respectively. The average rates were
GBP=$1.5710 and GBP=$1.6202 for the six months ended June 30, 2000
1999, respectively.
(d) Adjusted for vessel additions and dispositions occurring during
each period.
12
<PAGE>13
Comparison of the Three Months Ended June 30, 2000 with the Three
Months Ended June 30, 1999.
Net earnings for the quarter ended June 30, 2000 were $1.4
million or $0.17 per diluted share on revenues of $20.0 million. Net
earnings for the comparable 1999 quarter were $1.8 million or $0.22
per diluted share on revenues of $19.6 million.
Revenues for the Company's North Sea and Southeast Asia based
fleets decreased slightly ($0.4 million and $0.1 million,
respectively) when compared to the same quarter a year ago. These
decreases were offset by an increase in the Brazil based fleet of
$0.9 million. Each region reflected the impact of an additional
vessel over the prior year period; the Highland Pioneer in the North
Sea, the Highland Guide in Southeast Asia and the Highland Scout in
Brazil. The average North Sea dayrate and utilization have declined
from $10,139 and 93.7%, respectively in the second quarter of 1999 to
$9,507 and 92.8% in 2000. Average dayrates for Southeast Asia were
$3,870 and $4,799 for the quarters ending June 30, 2000 and 1999,
respectively, while utilization rates increased slightly from 58.0%
to 62.7% in the current quarter. The Company's Brazilian fleet
reflected improvements in both dayrate and utilization primarily due
to changes in the vessel mix with the addition of the new vessel.
Operating expenses remained constant between the two periods
resulting in the net increases in revenues being reflected in higher
operating income. During the quarter ended June 30, 1999, the
Company capitalized approximately $0.4 million in interest costs
related to the construction of two vessels. With the completion of
these vessels in 1999, no interest was capitalized during 2000.
1
<PAGE>14
Comparison of the Six Months Ended June 30, 2000 with the Six Months
Ended June 30, 1999.
Revenues for the six months ended June 30, 2000 were $34.5
million compared to $40.7 million in the same period in 1999. Net
income decreased $5.5 million to a loss of $0.7 million ($0.09 per
diluted share) in 2000 from net income of $4.7 million ($0.57 per
diluted share) in 1999. Increases in the fleet size in all regions
partially offset the reductions in dayrate and utilization
experienced in the North Sea and Southeast Asia.
Overall operating income decreased from $10.9 million in the
1999 period to $4.8 million in 2000. These decreases were primarily
caused by the revenue decreases discussed above, while operating
expenses, including depreciation, remained fairly stable between the
periods. The increased costs of operating additional vessels was
partially offset by lower exchange rates in the UK and Norwegian
sectors.
Liquidity and Capital Resources
The Company's ongoing liquidity requirements are generally
associated with its need to service debt, fund working capital,
acquire or improve equipment and make other investments. Since its
inception, the Company has been active in the acquisition of
additional vessels through both the resale market and new
construction. Bank financing and internally generated funds have
provided funding for these activities.
The Company has a $75 million credit facility (the "Credit
Facility") with three banks. 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. The Company was 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. The Company has received a
waiver of this requirement for the period ended June 30, 2000. There
can be no assurance that the Company will meet the interest coverage
requirement in future periods as compliance is dependent on the
results of operations, nor can there be any assurance that future
waivers will be granted under the agreement.
14
<PAGE>15
At June 30, 2000, the Company had total long-term debt of $130.1
million. Scheduled interest repayments are expected to total $5.7
million for the remainder of 2000.
The Company's current financial position reflects approximately
$35.3 million of net working capital, including $20.2 million of cash
and equivalents. The Company's cash flow from operations during the
current quarter reflects the semi-annual interest payment of $5.7
million. Other 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. Budgeted capital expenditures for drydocking for the
remainder of 2000 are expected to be less than $1.5 million, while
expenditures related to the new vessel to be built in Norway (see
note 7) are expected to be approximately $3.0 million during 2000.
Additionally, the Company has $75 million of availability under its
credit facility.
Net cash used by operating activities was $3.6 million for the
six month period ended June 30, 2000 as compared to cash provided of
$12.3 million for the same period in 1999. In addition to lower
earnings in the current period, timing differences include the late
increase in accounts receivable balances related to the improvement
in revenue during the latter portion of the period.
Net cash used in investing activities was $4.2 million and $8.5
million for the six months ended June 30, 2000 and 1999,
respectively. The 1999 period includes progress payments for the
construction of two vessels which were delivered in August and
September of 1999, while the 2000 period includes conversion costs
for the Highland Sprite. In the six month period ended June 30,
2000, the Company drydocked 7 vessels compared to 4 vessel
drydockings in the same prior year period.
The Company entered into a contract for the construction and
delivery of a lengthened UT755 platform supply vessel subsequent to
the end of the quarter. The contract cost for the completion of this
vessel is expected to be less than $15.0 million, excluding
capitalized interest. Delivery of the vessel is anticipated during
the third quarter of 2001. The Company also has an option for the
construction of an additional vessel. The Company expects to make
15
<PAGE>16
progress payments of approximately $3.0 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, the
Company finalized the sale of the 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 the Company's 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.
The Company believes that its current reserves of cash and short
term investments, cash flows from operations and access to credit
arrangements will provide sufficient resources to finance internal
operating requirements for the foreseeable future.
Currency Fluctuations and Inflation
Substantially all of the operations of the Company are
international; therefore the Company is 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 Norwegian Kroner. Operating costs are
substantially denominated in the same currency as charter hire in
order to reduce the risk of currency fluctuations. For the three
months ended June 30, 2000, currency fluctuations in Sterling and
Norwegian Kroner did not have a material impact on the results of the
Company's operations. For the quarter ended June 30, 2000, the
average Norwegian Kroner/U.S. Dollar exchange rate was 1 USD = 8.55
Norwegian Kroner, while the average Sterling/U.S. Dollar exchange
rate was 1 GBP = $1.554. The average exchange rates in the
comparable 1999 period were 1 USD = 7.81 Norwegian Kroner and 1 GBP =
$1.607. The Company's North Sea based fleet generated $15.3 million
in revenues and $4.3 million in operating income for the three months
ended June 30, 2000.
1
<PAGE>17
In areas 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.
The accompanying balance sheet as of June 30, 2000, reflects a
$19.7 million cumulative translation adjustment primarily relating to
the lower Sterling and Norwegian Kroner exchange rates as of June 30,
2000, in comparison to the exchange rate when the Company 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 the Company and its
foreign subsidiaries.
With the completion of the Senior Notes Offering in June 1998,
the Company's debt is predominantly denominated in U.S. Dollars,
while a substantial portion of the Company's revenue is generated in
Sterling. The Company has carefully evaluated these conditions and
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 dayrates 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 U.S. Dollar
denominated borrowings available to the Company, and (v) the
conditions in the Company's U.S. Dollar generating regional markets.
One or more of these factors may change and the Company, in response,
may choose 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. As of June
30, 2000, the Company had no foreign currency contracts outstanding.
To date, general inflationary trends have not had a material
effect on the operating revenues or expenses of the Company.
1
<PAGE>18
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and
other statements that are not historical facts concerning, among
other things, market conditions, the demand for marine support
services and future capital expenditures. Such statements are
subject to certain risks, uncertainties and assumptions, including,
without limitation, dependence on the oil and gas industry, 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. 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. Should one
or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from these anticipated, expected or projected.
ITEM 3. 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 notes sold in the
Senior Notes Offering. As of June 30, 2000, the fair value of these
notes, based on quoted market prices, was approximately $121.6
million compared to a carrying amount of $130.0 million.
Exchange Rate Sensitivity
Other than 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 3 has been incorporated into Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
18
<PAGE>19
PART II
OTHER INFORMATION
Item 4. Submission of Matters of a Vote of Security Holders
At the Company's Annual meeting of Stockholders held on May 18,
2000, the stockholders of the Company approved the election of all
nominated directors as follows:
<TABLE>
<CAPTION>
<S>
Nominee In Favor Withheld
------- -------- -------
<C> <C>
David J. Butters 5,486,250 9,872
Norman G. Cohen 5,486,250 9,872
Marshall A. Crowe 5,486,250 9,872
Louis S. Gimbel, 3rd 5,486,250 9,872
Robert B. Millard 5,486,250 9,872
Bruce A. Streeter 5,486,198 9,924
</TABLE>
In addition, the stockholders approved and adopted the Amendment
No. 1 to the GulfMark Offshore, Inc. 1997 Equity Plan. The results
of the voting with respect to the matter were 5,409,199 for, 28,179
against and 58,744 abstaining.
In addition, the stockholders ratified the selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal
year ending December 31, 2000. The results of the voting with
respect to the matter were 5,494,339 for, 1,021 against and 762
abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
*10.1 - Employment Agreement dated July 1, 2000 for Bruce A.
Streeter.
*27.1 - Financial Data Schedule.
* Filed herewith.
19
<PAGE>20
(b) Reports on Form 8-K.
On April 14, 2000, the Company filed a report on Form 8-K
announcing a change in certifying accountant.
On May 10, 2000, the Company filed a report on Form 8-K
announcing the release of the results of its operations for the
quarter ended March 31, 2000.
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.
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.
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: August 11, 2000
2
<PAGE>21
EXHIBIT INDEX
Exhibit No.
*10.1 - Employment Agreement dated July 1, 2000 for Bruce A.
Streeter.
*27.1 - Financial Data Schedule.
* Filed herewith.
21
