Attached files
file | filename |
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EX-31.1 - EX-31.1 - GULFMARK OFFSHORE INC | h68366exv31w1.htm |
EX-31.2 - EX-31.2 - GULFMARK OFFSHORE INC | h68366exv31w2.htm |
EX-32.1 - EX-32.1 - GULFMARK OFFSHORE INC | h68366exv32w1.htm |
EX-32.2 - EX-32.2 - GULFMARK OFFSHORE INC | h68366exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
GULFMARK OFFSHORE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
(State or other jurisdiction of incorporation)
001-33607
(Commission file number)
(Commission file number)
76-0526032
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
10111 Richmond Avenue, Suite 340, Houston, Texas | 77042 | |
(Address of principal executive offices) | (Zip Code) |
(713) 963-9522
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
Number of shares of Common Stock, $0.01 par value, outstanding as of October 29, 2009:
25,838,598
GulfMark Offshore, Inc.
Index
Index
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Table of Contents
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands, except par value amount) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 198,103 | $ | 100,761 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $957 and $408,
respectively |
83,955 | 101,434 | ||||||
Other accounts receivable |
5,059 | 3,467 | ||||||
Prepaid expenses and other |
13,478 | 7,236 | ||||||
Total current assets |
300,595 | 212,898 | ||||||
Vessels and equipment at cost, net of accumulated depreciation of $225,643 and
$182,283, respectively |
1,132,951 | 1,035,436 | ||||||
Construction in progress |
44,904 | 134,077 | ||||||
Goodwill |
129,955 | 123,981 | ||||||
Fair value hedges |
14,722 | 7,801 | ||||||
Intangibles, net of accumulated amortization of $3,604 and $1,442,
respectively |
30,994 | 33,156 | ||||||
Deferred costs and other assets |
7,547 | 9,618 | ||||||
Total assets |
$ | 1,661,668 | $ | 1,556,967 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | 48,807 | $ | 18,970 | ||||
Accounts payable |
19,815 | 15,085 | ||||||
Income taxes payable |
11,028 | 3,037 | ||||||
Other accrued liabilities |
32,373 | 37,800 | ||||||
Total current liabilities |
112,023 | 74,892 | ||||||
Long-term debt |
414,677 | 462,941 | ||||||
Long-term income taxes: |
||||||||
Deferred tax liabilities |
93,681 | 116,172 | ||||||
Other tax liabilities |
25,087 | 27,913 | ||||||
Other long term liabilities |
25,015 | 20,206 | ||||||
Stockholders equity: |
||||||||
Preferred stock, no par value; 2,000 authorized; no shares issued |
| | ||||||
Common stock, $0.01 par value; 30,000 shares authorized; 25,840 and 25,351 shares
issued and outstanding, respectively |
254 | 250 | ||||||
Additional paid-in capital |
359,413 | 352,843 | ||||||
Retained earnings |
582,476 | 520,630 | ||||||
Accumulated other comprehensive income (loss) |
49,125 | (17,157 | ) | |||||
Treasury stock |
(6,275 | ) | (6,852 | ) | ||||
Deferred compensation expense |
6,192 | 5,129 | ||||||
Total stockholders equity |
991,185 | 854,843 | ||||||
Total liabilities and stockholders equity |
$ | 1,661,668 | $ | 1,556,967 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands except per share amounts) | ||||||||||||||||
Revenue |
$ | 90,764 | $ | 124,616 | $ | 304,215 | $ | 289,857 | ||||||||
Costs and expenses: |
||||||||||||||||
Direct operating expenses |
39,508 | 46,482 | 119,122 | 104,092 | ||||||||||||
Drydock expense |
6,398 | 3,504 | 11,278 | 9,826 | ||||||||||||
General and administrative expenses |
11,556 | 11,123 | 33,661 | 29,321 | ||||||||||||
Depreciation and amortization |
13,533 | 13,463 | 39,049 | 31,726 | ||||||||||||
(Gain) loss on sale and involuntary
disposal of assets |
4 | (2,347 | ) | (5,497 | ) | (18,757 | ) | |||||||||
Impairment charge |
| | 46,247 | | ||||||||||||
Total costs and expenses |
70,999 | 72,225 | 243,860 | 156,208 | ||||||||||||
Operating income |
19,765 | 52,391 | 60,355 | 133,649 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(5,146 | ) | (5,151 | ) | (15,229 | ) | (7,268 | ) | ||||||||
Interest income |
128 | 385 | 264 | 977 | ||||||||||||
Foreign currency gain (loss) and other |
532 | 134 | (884 | ) | (185 | ) | ||||||||||
Other |
| 2,144 | | 2,508 | ||||||||||||
Total other expense |
(4,486 | ) | (2,488 | ) | (15,849 | ) | (3,968 | ) | ||||||||
Income before income taxes |
15,279 | 49,903 | 44,506 | 129,681 | ||||||||||||
Income tax (provision) benefit |
(2,577 | ) | (4,484 | ) | 17,340 | (5,217 | ) | |||||||||
Net income |
$ | 12,702 | $ | 45,419 | $ | 61,846 | $ | 124,464 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.50 | $ | 1.83 | $ | 2.46 | $ | 5.33 | ||||||||
Diluted |
$ | 0.50 | $ | 1.78 | $ | 2.44 | $ | 5.19 | ||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
25,235 | 24,865 | 25,116 | 23,358 | ||||||||||||
Diluted |
25,485 | 25,445 | 25,343 | 23,994 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
For the Nine Months Ended September 30, 2009
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
For the Nine Months Ended September 30, 2009
Accumulated | Deferred | |||||||||||||||||||||||||||||||
Additional | Other | Treasury Stock | Compen- | Total | ||||||||||||||||||||||||||||
Common | Paid-In | Retained | Comprehensive | Share | sation | Stockholders | ||||||||||||||||||||||||||
Stock | Capital | Earnings | Income/(Loss) | Shares | Value | Expense | Equity | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2008 |
$ | 250 | $ | 352,843 | $ | 520,630 | ($17,157 | ) | 211 | ($6,852 | ) | $ | 5,129 | $ | 854,843 | |||||||||||||||||
Net income |
61,846 | 61,846 | ||||||||||||||||||||||||||||||
Issuance of common stock |
2 | 6,963 | 6,965 | |||||||||||||||||||||||||||||
Exercise of stock options |
2 | 694 | 696 | |||||||||||||||||||||||||||||
Deferred compensation plan |
(1,087 | ) | 8 | 577 | 1,063 | 553 | ||||||||||||||||||||||||||
Unrealized gain on cash flow hedges |
1,848 | 1,848 | ||||||||||||||||||||||||||||||
Translation adjustment |
64,434 | 64,434 | ||||||||||||||||||||||||||||||
Balance at September 30, 2009 |
$ | 254 | $ | 359,413 | $ | 582,476 | $ | 49,125 | 219 | ($6,275 | ) | $ | 6,192 | $ | 991,185 | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 61,846 | $ | 124,464 | ||||
Adjustments to reconcile net income from operations to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
39,049 | 31,726 | ||||||
Gain on sale of assets |
(5,497 | ) | (18,757 | ) | ||||
Impairment charge on assets under construction |
46,247 | | ||||||
Amortization of stock based compensation |
5,708 | 4,258 | ||||||
Amortization of deferred financing costs on debt |
528 | 535 | ||||||
Provision for doubtful accounts receivable, net of write-offs |
542 | 141 | ||||||
Deferred income tax expense (benefit) |
(22,245 | ) | 3,301 | |||||
Foreign currency transaction loss |
1,361 | 188 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
20,230 | (8,888 | ) | |||||
Prepaids and other |
(5,760 | ) | 673 | |||||
Accounts payable |
3,110 | 817 | ||||||
Accrued liabilities and other |
(6,447 | ) | (9,943 | ) | ||||
Net cash provided by operating activities |
138,672 | 128,515 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of vessels and equipment |
(40,411 | ) | (93,125 | ) | ||||
Proceeds from disposition of vessels and equipment |
8,893 | 23,948 | ||||||
Cash received with acquisition of business |
| 31,028 | ||||||
Consideration paid for acquired business |
| (152,621 | ) | |||||
Net cash used in investing activities |
(31,518 | ) | (190,770 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt |
| 163,399 | ||||||
Repayments of debt |
(18,477 | ) | (101,798 | ) | ||||
Proceeds from exercise of stock options |
694 | 163 | ||||||
Proceeds from issuance of stock |
588 | 362 | ||||||
Net cash provided by (used in) financing activities |
(17,195 | ) | 62,126 | |||||
Effect of exchange rate changes on cash |
7,383 | (539 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
97,342 | (668 | ) | |||||
Cash and cash equivalents at beginning of the period |
100,761 | 40,119 | ||||||
Cash and cash equivalents at end of the period |
$ | 198,103 | $ | 39,451 | ||||
Supplemental cash flow information: |
||||||||
Interest paid, net of interest capitalized |
$ | 18,032 | $ | 9,445 | ||||
Income taxes paid, net |
$ | 2,595 | $ | 2,854 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL INFORMATION
The condensed consolidated financial statements of GulfMark Offshore, Inc. and its
subsidiaries included herein have been prepared by us without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, or SEC. Unless otherwise
indicated, references to we, us, our and the Company refer collectively to GulfMark
Offshore, Inc. and its subsidiaries. Certain information relating to our organization and footnote
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP, has been condensed or omitted in this Form 10-Q
pursuant to such rules and regulations. However, we believe that the disclosures herein are
adequate to make the information presented not misleading. The consolidated balance sheet as of
December 31, 2008, has been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by U.S. GAAP for complete financial
statements. It is recommended that these financial statements be read in conjunction with our
consolidated financial statements and notes thereto included in our Form 10-K for the
year ended December 31, 2008.
We recorded a small number of immaterial adjustments relating to the first half of 2009 in the
current period. The only item impacted was estimated income tax provision (benefit), and the net
impact of rectifying the year to date total was to increase that amount and to decrease net income
by $1.2 million in the three months ended September 30, 2009. We do not believe the
net adjustment
is quantitatively and qualitatively material to our consolidated financial statements for the
fiscal year or to the trend in earnings throughout 2009.
In the opinion of management, all adjustments, which include reclassification and normal
recurring adjustments necessary to present fairly the financial statements for the periods
indicated have been made. All significant intercompany accounts have been eliminated. Certain
reclassifications of previously reported information may be made to conform with current year
presentation.
We provide offshore marine support and transportation services primarily to companies involved
in the offshore exploration and production of oil and natural gas. Our vessels transport 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, offshore Southeast Asia and the
Americas. We also contract vessels into other regions to meet our customers requirements.
Basic Earnings Per Share, or 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. The details of our EPS calculation are as
follows (in thousands, except per share amounts):
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Three Months Ended | Three Months Ended | |||||||||||||||||||||||
September 30, 2009 | September 30, 2008 | |||||||||||||||||||||||
Per Share | Per Share | |||||||||||||||||||||||
Income | Shares | Amount | Income | Shares | Amount | |||||||||||||||||||
Earnings per share, basic |
$ | 12,702 | 25,235 | $ | 0.50 | $ | 45,419 | 24,865 | $ | 1.83 | ||||||||||||||
Dilutive effect of common stock options and unvested
restricted stock |
| 250 | | 580 | ||||||||||||||||||||
Earnings per share, diluted |
$ | 12,702 | 25,485 | $ | 0.50 | $ | 45,419 | 25,445 | $ | 1.78 | ||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, 2009 | September 30, 2008 | |||||||||||||||||||||||
Per Share | Per Share | |||||||||||||||||||||||
Income | Shares | Amount | Income | Shares | Amount | |||||||||||||||||||
Earnings per share, basic |
$ | 61,846 | 25,116 | $ | 2.46 | $ | 124,464 | 23,358 | $ | 5.33 | ||||||||||||||
Dilutive effect of common stock options and unvested
restricted stock |
| 227 | | 636 | ||||||||||||||||||||
Earnings per share, diluted |
$ | 61,846 | 25,343 | $ | 2.44 | $ | 124,464 | 23,994 | $ | 5.19 | ||||||||||||||
(2) | COMPREHENSIVE INCOME |
The components of comprehensive income, net of related tax, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net income |
$ | 12,702 | $ | 45,419 | $ | 61,846 | $ | 124,464 | ||||||||
Comprehensive income: |
||||||||||||||||
Unrealized gain (loss) on cash flow hedge |
(158 | ) | (2,967 | ) | 1,848 | (2,967 | ) | |||||||||
Foreign currency translation |
10,523 | (64,230 | ) | 64,434 | (48,958 | ) | ||||||||||
Total comprehensive income (loss) |
$ | 23,067 | ($21,778 | ) | $ | 128,128 | $ | 72,539 | ||||||||
Our accumulated other comprehensive income item relates primarily to our cumulative
foreign currency translation adjustments, and adjustments related to the cash flow hedges.
(3) IMPAIRMENT CHARGE
In March 2009, we notified a shipyard building three of the vessels in our new build program
that they were in default under the construction contract. The default arose as a result of
non-performance under the terms of the contract caused by financial difficulties of the shipyard.
Construction on these vessels has stopped and we are evaluating our remedies under the contract and
under applicable law. In April 2009, we concluded that we had a material impairment and recognized
a charge of $46.2 million in the first quarter pertaining to the construction in progress related
to this contract. That charge represented the full amount of our investment in these
vessels. The shipyard building the three vessels is in Chapter 11 bankruptcy proceedings.
8
Table of Contents
(4) RIGDON ACQUISITION
As previously disclosed, on July 1, 2008, we acquired 100% of Rigdon Marine Holdings and
Rigdon Marine Corporation. The unaudited pro forma effect assuming that the transaction was
consummated as of the beginning of the period indicated is presented in the following table (in
thousands, except earnings per share):
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Revenue |
$ | 304,215 | $ | 344,857 | ||||
Operating income |
60,355 | 153,758 | ||||||
Net income |
61,846 | 128,667 | ||||||
Basic earnings per share |
$ | 2.46 | $ | 5.17 |
(5) FLEET EXPANSION AND RENEWAL PROGRAM
During 2009 we have taken delivery of five of the 12 vessels that were under construction at
December 31, 2008. In addition, we sold the Highland Sprite in March 2009,
for approximately $5.1
million and realized a gain on the sale of approximately $3.2 million. In late February 2009, one
of our vessels in Southeast Asia, the Sea Searcher, was damaged in a ship fire. The companys
insurance underwriters deemed the vessel a constructive total loss and a gain on the involuntary
conversion of approximately $1.4 million was recognized in the first quarter related to this event.
In March 2009, we notified a shipyard building three of the vessels in our new build program that
they were in default under the construction contract. Construction on these vessels has stopped and
in April 2009, we concluded that we had a material impairment and recognized a charge of $46.2
million in the first quarter of 2009. In addition, we recognized a gain on the sale of the Sefton
Supporter of approximately $0.9 million in the second quarter of 2009. This was a special purpose
vessel that has not been included in our published vessel counts and which was located in the North
Sea. In 2009, a decision was made to no longer operate the Clwyd Supporter, which is located in the
North Sea region. Based on that decision the vessel is classified as an asset held for sale and is
included in prepaid expenses and other current assets on the balance sheet as of
September 30, 2009,
in the amount of $2.4 million. The following table illustrates the details of the vessels added and
disposed of since December 31, 2008.
9
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Vessel Additions Since December 31, 2008 | ||||||||||||||||||||||||||||
Year | Length | Month | ||||||||||||||||||||||||||
Vessel | Region | Type (1) | Built | (feet) | BHP(2) | DWT (3) | Delivered | |||||||||||||||||||||
Swordfish |
Americas | Crew | 2009 | 176 | 7,200 | 314 | Feb-09 | |||||||||||||||||||||
Sea Cherokee |
SEA | AHTS | 2009 | 250 | 10,700 | 2,700 | Mar-09 | |||||||||||||||||||||
Blacktip |
Americas | FSV | 2009 | 181 | 7,200 | 543 | Apr-09 | |||||||||||||||||||||
Tiger |
Americas | FSV | 2009 | 181 | 7,200 | 543 | Jul-09 | |||||||||||||||||||||
Sea Comanche |
SEA | AHTS | 2009 | 250 | 10,700 | 2,700 | Jul-09 |
1) | AHTS Anchor handling, towing and supply vessel | |
FSV Fast supply vessel | ||
PSV Platform supply vessel | ||
SpV Specialty vessel, including towing and oil response | ||
SmAHTS Small anchor handling, towing and supply vessel | ||
2) | BHP Breakhorse power | |
3) | DWT Deadweight tons |
Vessels Disposed of Since December 31, 2008(1) | ||||||||||||||||||||||||||||
Year | Length | Month | ||||||||||||||||||||||||||
Vessel | Region | Type | Built | (feet) | BHP | DWT | Disposed | |||||||||||||||||||||
Highland Sprite |
N.Sea | SpV | 1986 | 194 | 3,590 | 1,442 | Mar-09 | |||||||||||||||||||||
Sea Searcher |
SEA | SmAHTS | 1976 | 185 | 3,850 | 1,215 | Mar-09 |
1) | Does not include the disposition of the Sefton Supporter. |
The following table updates our new build program for the delivery of the five vessels
listed above and eliminates the three vessels under construction involved in the impairment
mentioned in Note 3.
Vessels Currently Under Construction | ||||||||||||||||||||||||||||
Expected | Length | Expected | ||||||||||||||||||||||||||
Vessel | Region | Type | Delivery | (feet) | BHP | DWT | Cost | |||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||
Aker 726 |
N. Sea | PSV | Q4 2009 | 284 | 10,600 | 4,850 | $ | 45.4 | ||||||||||||||||||||
Aker 727 |
N. Sea | PSV | Q2 2010 | 284 | 10,600 | 4,850 | $ | 45.4 | ||||||||||||||||||||
Remontowa 20 |
AHTS | Q2 2010 | 230 | 10,000 | 2,150 | $ | 26.9 | |||||||||||||||||||||
Remontowa 21 |
AHTS | Q3 2010 | 230 | 10,000 | 2,150 | $ | 26.9 |
Interest is capitalized in connection with the construction of vessels. During the three
month periods ended September 30, 2009 and 2008, $0.7 million and $2.9 million of interest,
respectively, was capitalized. During the nine month periods ended September 30, 2009 and 2008,
$3.1 million and $7.8 million, respectively, was capitalized.
10
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(6) LONG-TERM DEBT
Our long-term debt consisted of the following:
September 30 | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Secured Reducing Revolving Loan Facility |
$ | 80,000 | $ | 84,250 | ||||
Senior Facility |
138,807 | 153,035 | ||||||
Subordinated Facility |
85,000 | 85,000 | ||||||
7.75% Senior Notes due 2014 |
160,000 | 160,000 | ||||||
463,807 | 482,285 | |||||||
Less: Current maturities of long-term debt |
(48,807 | ) | (18,970 | ) | ||||
Debt discount, net |
(323 | ) | (374 | ) | ||||
Total |
$ | 414,677 | $ | 462,941 | ||||
The terms relating to the Secured Reducing Revolving Loan Facility and the 7.75% Senior
Notes are described in our Annual Report on Form 10-K for the year ended December 31, 2008. In
October 2009, we negotiated a term sheet for a new credit facility, the proceeds of which will be
used to pay down the Senior Facility and the Subordinated Facility. Following is a description of
the Senior Facility and the Subordinated Facility and a description of the proposed new facility
and its effect on the classification of the Senior Facility and the Subordinated Facility as of
September 30, 2009.
$224 Million Senior Secured Credit Facility Agreement (Senior Facility) and $85 Million
Subordinated Secured Credit Facility Agreement (Subordinated Facility)
The Senior Facility bears interest at the rate of LIBOR plus 125 basis points and principal is
due at the rate of 0.833% per month of the outstanding principal on each vessel beginning one month
after delivery of the vessel with a final payment due on maturity (currently $19 million per year).
The Senior Facility is subject to financial covenants consistent with those of our Secured Reducing
Revolving Credit Loan Facility. At September 30, 2009, we were in compliance with all covenants.
The Subordinated Facility bears interest at the rate of LIBOR plus 200 basis points. There are
no scheduled principal repayments before the maturity date and no principal payments may be made
until the Senior Facility is repaid in full. The Subordinated Facility is also subject to the same
financial covenants as the Senior Facility and contains other customary covenants and events of
default. At September 30, 2009, we were in compliance with all covenants.
Both facilities mature on June 30, 2010. As a result, the outstanding balances under the
Senior Facility and the Subordinated Facility as of June 30, 2009, were classified as current
portion of long-term debt in our balance sheet as of June 30, 2009. At September 30, 2009, as a
result of the new debt to be issued in the fourth quarter of 2009, we reclassified $175.0 million
of the outstanding balances to long-term debt.
During the fourth quarter we executed a credit approved term sheet to refinance $200 million
of the indebtedness that is otherwise maturing on June 30, 2010. Our intention is to complete this
refinancing by December 31, 2009. The new facility is expected to be secured with first priority
mortgages on 23 vessels in the Americas region fleet and will be subject to financial and other
covenants. The replacement facility will be a long-term facility with an expected maturity date of
December 31, 2012.
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(7) FAIR VALUE MEASUREMENTS
Each asset and liability required to be carried at fair value is classified under one of the
following criteria:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data
Level 3: Unobservable inputs that are not corroborated by market data
Financial Instruments
Fair Value Hedges for Purchase Commitment We maintain fair value hedges associated with firm
contractual commitments for future vessel payments denominated in a foreign currency. These forward
contracts are designated as fair value hedges and are highly effective, as the terms of the forward
contracts are the same as the purchase commitment under the new build contract. We recognize the
fair value of our derivative assets as a Level 2 valuation. We determined the fair value of our
financial instrument position based upon the forward contract price and the foreign currency
exchange rate as of September 30, 2009. At September 30, 2009, the fair value of our derivatives
was approximately $14.7 million.
Interest Rate Cash Flow Hedges We have interest rate swap agreements for a portion of our Senior
Facility indebtedness that has the effect of fixing the floating component of the interest rate at
4.725% on approximately $89.6 million of the Senior Facility. The interest rate swaps are
accounted for as cash flow hedges. We recognize the fair value of our derivative assets as a Level
2 valuation. We determined the fair value of our derivative financial instrument position based
upon a series of calculations that include present value calculations, involving our principal
amount and estimated future LIBOR rates. We report changes in the fair value of cash flow hedges
in accumulated other comprehensive income and as of September 30, 2009, $4.2 million has been
recorded.
The following table presents information about our assets (liabilities) measured at fair value
on a recurring basis as of September 30, 2009, and indicates the fair value hierarchy we utilized
to determine such fair value (in millions).
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair Value Hedges |
$ | | $ | 14.7 | $ | | $ | 14.7 | ||||||||
Purchase Commitments |
| (14.7 | ) | | (14.7 | ) | ||||||||||
Cash Flow Hedges |
| (6.1 | ) | | (6.1 | ) | ||||||||||
$ | | $ | (6.1 | ) | $ | | $ | (6.1 | ) | |||||||
The purchase commitments and cash flow hedges are included in other long term liabilities
on the balance sheet as of September 30, 2009.
(8) INCOME TAXES
We consider earnings of certain foreign subsidiaries to be permanently reinvested, and as
such, we have not provided for any U.S. federal or state income taxes on these earnings except for
a portion of our current year foreign earnings that have been or may be distributed in 2009
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and are taxable in the U.S. Our overall tax provision is affected by the mix of our
operations within various taxing jurisdictions. Our North Sea operations based in the United
Kingdom (U.K.) and Norway have a special tax incentive for qualified shipping operations known as a
tonnage tax. These tonnage tax regimes provide for a tax based on the net tonnage weight of a
qualified vessel, resulting in significantly lower taxes than those that would apply if we were not
a qualified shipping company in those jurisdictions. Further, most of our Southeast Asia region
vessels are owned by our Singapore subsidiary, which has an exemption through December 2017 (with
additional extensions available) for vessel profits. During the three months ended September 30,
2009, our income was derived principally from lower tax jurisdictions.
Our tax provision for the nine months ended September 30, 2009 contains several discrete items
including the reversal in the first quarter of a previously recognized liability pertaining to
Norwegian tonnage tax of $6.5 million; the $17.0 million tax effect of the aforementioned
impairment charge (see Note 3); and a $4.5 million reversal of a valuation allowance on previously
recorded foreign tax credits.
(9) COMMITMENTS AND CONTINGENCIES
We have contingent liabilities and future claims for which we have made estimates of the
amount of the eventual cost to liquidate such liabilities or claims. These may involve threatened
or actual litigation where damages have not been specifically quantified but we have made an
assessment of our exposure and recorded a provision in our accounts for the expected loss. Other
claims or liabilities, including those related to taxes in foreign jurisdictions or the
industry-wide, multi-employer, defined benefit pension fund, Merchant Officers Pension Fund in the
U.K., may be estimated based on our experience or estimated liabilities in these matters and, where
appropriate, the advice of outside counsel or other outside experts. During 2009,
we accrued
approximately $1.1 million related to the Merchant Officers Pension Fund based on the latest
information available. Upon the ultimate resolution of the uncertainties surrounding our estimates
of contingent liabilities and future claims, our future reported financial results would be
impacted by the difference between our estimates and the actual amounts paid to settle them. Our
contingent liabilities are based on the most recent information available to us regarding the
nature of the exposure. In the recent past, our estimates for contingent liabilities have been
sufficient to cover the actual amount of our exposure.
(10) NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting Principles, which establishes the
FASB ASC as the sole source of authoritative generally accepted accounting principles. Pursuant to
the provisions of FASB ASC 105, the Company has updated references to GAAP in its financial
statements issued for the period ended September 30, 2009. The adoption of FASB ASC 105 did not
impact the Companys financial position or results of operations.
In April 2009, the FASB issued an update to its guidelines in FASB ASC 820, Fair Value
Measurements and Disclosures, relating to estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased. The guidance includes criteria
for identifying circumstances that indicate a transaction is not orderly. The guidance is
effective for periods ending after June 15, 2009. We have evaluated the updated ASC and have
determined that it will not have an impact on our results of operations or financial position.
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In April 2009, the FASB issued an update to its guidelines in FASB ASC 320, Investments-Debt
and Equity Securities, to provide greater clarity about the credit and noncredit component of an
other-than-temporary impairment event, and to more effectively communicate when an
other-than-temporary impairment event has occurred. This guidance applies to debt securities. We
have evaluated the updated ASC and have determined that it will not have an impact on our results
of operations or financial position.
In April 2009, the FASB issued an update to its guidelines in FASB ASC 825, Financial
Instruments, relating to disclosures about fair value of financial instruments in both interim and
annual financial statements. The guidance is effective for periods ending after June 15, 2009. We
have evaluated the updated ASC and have determined that it will not have an impact on our results
of operating or financial position.
In May 2009, the FASB issued an update to its guidelines in FASB ASC 855, Subsequent Events,
relating to U.S. GAAP for the accounting and disclosure surrounding events that occur subsequent to
the balance sheet date but prior to the date the financial statements are issued or are available
to be issued. The guidance does not significantly change current practice and is effective for
interim and annual periods ending after June 15, 2009, and is to be applied prospectively. The
guidance did not have a material impact on our consolidated financial statements. We evaluated all
events or transactions that occurred after September 30, 2009 up through October 30,
2009, and
during this period no material subsequent events came to our attention other than the debt
refinancing disclosure in Note 6.
In June 2009, the FASB issued an update to its guidelines in FASB ASC 860, Transfers and
Servicing, relating to information requirements about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the risks related to
transferred financial assets. It eliminates the concept of a qualifying special-purpose entity,
changes the requirements for derecognizing financial assets, and requires additional disclosures.
The new guidelines are effective for fiscal years beginning after November 15, 2009. Early adoption
is prohibited. We are evaluating the impact, if any, this update will have on our financial
statements.
In June 2009, the FASB issued an update to its guidelines in FASB ASC 810, Consolidations,
relating to how a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The guidance is effective for
fiscal years beginning after November 15, 2009. We are evaluating the impact, if any, this update
will have on our financial statements.
(11) OPERATING SEGMENT INFORMATION
We operate three segments: the North Sea, Southeast Asia and the Americas, each of which is
considered a reportable segment under FASB ASC 280, Segment Reporting. Our management evaluates
segment performance primarily based on operating income. Cash and debt are managed centrally.
Because the regions do not manage those items, the gains and losses on foreign currency
remeasurements associated with these items are excluded from operating income. Our management
considers segment operating income to be a good indicator of each segments operating performance
from its continuing operations, as it represents the results of the ownership interest in
operations without regard to financing methods or capital structures. Each operating segments
operating income (loss) is summarized in the following table, and detailed discussions below.
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Operating Income (Loss) by Operating Segment
Southeast | ||||||||||||||||||||
North Sea | Asia | Americas | Other | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Quarter Ended September 30, 2009 |
||||||||||||||||||||
Revenue |
$ | 40,722 | $ | 19,114 | $ | 30,928 | $ | | $ | 90,764 | ||||||||||
Direct operating expenses |
19,150 | 2,469 | 17,889 | | 39,508 | |||||||||||||||
Drydock expense |
2,833 | 1,040 | 2,525 | | 6,398 | |||||||||||||||
General and administrative expenses |
2,822 | 520 | 2,296 | 5,918 | 11,556 | |||||||||||||||
Depreciation and amortization expense |
4,336 | 1,879 | 7,097 | 221 | 13,533 | |||||||||||||||
(Gain) loss on sale of assets |
3 | | 1 | | 4 | |||||||||||||||
Operating income (loss) |
$ | 11,578 | $ | 13,206 | $ | 1,120 | $ | (6,139 | ) | $ | 19,765 | |||||||||
Quarter Ended September 30, 2008 |
||||||||||||||||||||
Revenue |
$ | 59,169 | $ | 21,094 | $ | 44,353 | $ | | $ | 124,616 | ||||||||||
Direct operating expenses |
23,677 | 4,493 | 18,312 | | 46,482 | |||||||||||||||
Drydock expense |
1,628 | (211 | ) | 2,087 | | 3,504 | ||||||||||||||
General and administrative expenses |
2,837 | 511 | 2,765 | 5,010 | 11,123 | |||||||||||||||
Depreciation and amortization expense |
5,328 | 1,512 | 6,452 | 171 | 13,463 | |||||||||||||||
Gain on sale of assets |
(6 | ) | (2,340 | ) | (1 | ) | | (2,347 | ) | |||||||||||
Operating income (loss) |
$ | 25,705 | $ | 17,129 | $ | 14,738 | $ | (5,181 | ) | $ | 52,391 | |||||||||
Southeast | ||||||||||||||||||||
North Sea | Asia | Americas | Other | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Nine Months Ended September 30, 2009 |
||||||||||||||||||||
Revenue |
$ | 130,957 | $ | 56,300 | $ | 116,958 | $ | | $ | 304,215 | ||||||||||
Direct operating expenses |
55,985 | 6,535 | 56,602 | | 119,122 | |||||||||||||||
Drydock expense |
5,150 | 2,089 | 4,039 | | 11,278 | |||||||||||||||
General and administrative expenses |
7,777 | 1,931 | 6,599 | 17,354 | 33,661 | |||||||||||||||
Depreciation and amortization expense |
12,557 | 5,141 | 20,745 | 606 | 39,049 | |||||||||||||||
Gain on sale of assets |
(4,055 | ) | (1,438 | ) | (4 | ) | | (5,497 | ) | |||||||||||
Impairment charge |
| | 46,247 | | 46,247 | |||||||||||||||
Operating income (loss) |
$ | 53,543 | $ | 42,042 | $ | (17,270 | ) | $ | (17,960 | ) | $ | 60,355 | ||||||||
Nine Months Ended September 30, 2008 |
||||||||||||||||||||
Revenue |
$ | 173,129 | $ | 57,497 | $ | 59,231 | $ | | $ | 289,857 | ||||||||||
Direct operating expenses |
68,358 | 9,862 | 25,872 | | 104,092 | |||||||||||||||
Drydock expense |
6,750 | 234 | 2,842 | | 9,826 | |||||||||||||||
General and administrative expenses |
8,996 | 1,423 | 3,897 | 15,005 | 29,321 | |||||||||||||||
Depreciation and amortization expense |
18,249 | 4,698 | 8,312 | 467 | 31,726 | |||||||||||||||
Gain on sale of assets |
(13,043 | ) | (5,713 | ) | (1 | ) | | (18,757 | ) | |||||||||||
Operating income (loss) |
$ | 83,819 | $ | 46,993 | $ | 18,309 | $ | (15,472 | ) | $ | 133,649 | |||||||||
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We provide offshore marine support and transportation services primarily 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 North Sea, offshore Southeast Asia, offshore West Africa, offshore Middle East,
offshore Brazil and the Gulf of Mexico are each major markets that employ a large number of
vessels. Vessel usage is also significant in other international markets, including offshore India,
offshore Australia, offshore Trinidad, the Persian Gulf and the Mediterranean Sea. The industry is
relatively fragmented, with more than 20 major participants and numerous small regional
competitors. We currently operate a fleet of 91 offshore support vessels in the following regions:
40 vessels in the North Sea, 14 vessels offshore Southeast Asia, and 37 vessels in the Americas.
Our owned fleet is one of the worlds youngest, largest and most geographically balanced, high
specification offshore support vessel fleets and our owned vessels have an average age of
approximately seven years.
Our results of operations are directly impacted by the level of activity in worldwide offshore
oil and natural gas exploration, development and production. This activity is in turn influenced
by trends 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. Over
the last few years commodity prices have been at record highs, resulting in oil and natural gas
companies increasing exploration and development activities. However, as a result of the world
economic crisis, commodity prices have declined and we have experienced a reduction in the level of
activity.
The operations of our fleet may be subject to seasonal factors. Operations in the North Sea
are often at their highest levels from April to August, and at their lowest levels from November to
February. Operations in our other areas, although involving some seasonal factors, tend to remain
more consistent throughout the year. We have historically, to the extent possible, accomplished
the majority of our regulatory drydocks during these seasonal decreases in demand in order to
minimize downtime during our traditionally peak demand periods. When a vessel is drydocked, we
incur not only the drydocking cost but also the loss of revenue from the vessel during the drydock
period. The demands of the market, the expiration of existing contracts, the start of new
contracts and the availability allowed by our customers influence the timing of drydocks throughout
the year. During the first nine months of 2009, we completed 377 drydock days, compared to 339
drydock days completed in the same period last year.
We provide management services to other vessel owners for a fee, which is included in revenue.
Charter revenues and vessel expenses of these managed vessels are not included in our operating
results. These vessels are excluded for purposes of calculating fleet rates per day worked and
utilization in the applicable periods.
In addition to direct operating costs, we incur fixed charges related to the depreciation of
our fleet and costs for routine drydock inspections, which are maintenance and repairs designed to
ensure compliance with applicable regulations and maintaining certifications for our vessels with
various international classification societies.
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Critical Accounting Policies
There have been no changes to the critical accounting policies used in our reporting of
results of operations and financial position. For a discussion of our critical accounting policies
see Managements Discussion and Analysis of Financial Condition and Results of Operations in our
Form 10-K for the year ended December 31, 2008.
Results of Operations
The table below sets forth, by region, the average day rates and utilization for our vessels
and the average number of vessels owned or chartered during the periods indicated. This fleet
generates substantially all of our revenues and operating profit. We use the information that
follows to evaluate the performance of our business.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues by Region (000s) (a): |
||||||||||||||||
North Sea Based Fleet (c) |
$ | 40,722 | $ | 59,169 | $ | 130,957 | $ | 173,129 | ||||||||
Southeast Asia Based Fleet |
19,114 | 21,094 | 56,300 | 57,497 | ||||||||||||
Americas Based Fleet |
30,928 | 44,353 | 116,958 | 59,231 | ||||||||||||
Rates Per Day Worked (a) (b): |
||||||||||||||||
North Sea Based Fleet (c) |
$ | 20,171 | $ | 23,449 | $ | 20,820 | $ | 23,389 | ||||||||
Southeast Asia Based Fleet |
21,180 | 18,844 | 21,033 | 17,062 | ||||||||||||
Americas Based Fleet |
16,894 | 16,815 | 16,605 | 16,164 | ||||||||||||
Overall Utilization (a) (b): |
||||||||||||||||
North Sea Based Fleet |
90.5 | % | 94.1 | % | 89.3 | % | 93.9 | % | ||||||||
Southeast Asia Based Fleet |
85.8 | % | 97.2 | % | 88.9 | % | 93.2 | % | ||||||||
Americas Based Fleet |
57.3 | % | 93.9 | % | 76.2 | % | 91.7 | % | ||||||||
Average Owned/Chartered Vessels (a) (d): |
||||||||||||||||
North Sea Based Fleet (c) |
24.0 | 27.0 | 25.0 | 27.4 | ||||||||||||
Southeast Asia Based Fleet |
11.7 | 12.8 | 11.3 | 13.5 | ||||||||||||
Americas Based Fleet |
35.8 | 31.0 | 34.6 | 14.8 | ||||||||||||
Total |
71.5 | 70.8 | 70.9 | 55.7 | ||||||||||||
(a) | Includes all owned or bareboat chartered vessels. | |
(b) | Rate 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 based fleet are primarily earned in Pound Sterling (GBP), Norwegian Kroner (NOK) and Euros, and have been converted to U.S. Dollars (US$) at the average exchange rate for the period. The average equivalent exchange rate per one US$ for the periods indicated is as follows: |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
1 US$= | 1 US$= | |||||||||||||||
GBP |
0.609 | 0.528 | 0.648 | 0.513 | ||||||||||||
NOK |
6.106 | 5.359 | 6.468 | 5.244 | ||||||||||||
Euro |
0.699 | 0.665 | 0.732 | 0.657 |
(d) | Average number of vessels is calculated based on the aggregate number of vessel days available during each period divided by the number of calendar days in such period. Includes owned and bareboat vessels only, and is adjusted for vessel additions and dispositions occurring during each period. |
Comparison of the Three Months Ended September 30, 2009 with the Three Months Ended September 30,
2008
For the quarter ended September 30, 2009, we had net income of $12.7 million, or $0.50 per
diluted share, on revenues of $90.8 million. For the same period in 2008, net income was $45.4
million, or $1.78 per diluted share on revenues of $124.6 million.
Our revenues for the quarter ended September 30, 2009, decreased $33.9 million, or 27%,
compared to the third quarter of 2008. The decrease in revenue was due mainly to lower utilization
in all regions, as a result of the weakening of the overall global economy which resulted in a
decline of $17.9 million. In addition, revenue declined by $4.2 million as overall capacity
decreased as a result of several 2008 and early 2009 vessel sales, partially offset by the addition
to the fleet of new build vessels in 2009. Also, contributing $11.8 million to the decrease in
revenue was the combination of the currency effect and the decrease in overall day rates from
$19,710 in the third quarter of 2008 to $19,077 in the current year quarter.
North Sea
Revenues in the North Sea region decreased by $18.4 million, or 31%, to $40.7 million in the
third quarter of 2009. The combination of the strengthening of the U.S. Dollar and the decrease in
day rates from $23,449 in the third quarter of 2008 to $20,171 in the current year quarter,
contributed $10.3 million to the decrease in revenue. The region also experienced a decrease of
$6.7 million in capacity resulting primarily from the sale of two vessels and the decision to
remove a vessel from service in 2009. Utilization decreased from 94.1% in the third quarter of 2008
to 90.5% in the current quarter, decreasing revenue by $1.4 million. Operating income decreased
$14.1 million from the prior year quarter due mainly to the decrease in revenue offset by lower
operating costs. Drydock expense increased by $1.2 million due to 36 additional drydock days.
Depreciation expense decreased by $1.0 million mainly due to fewer vessels.
Southeast Asia
Revenues for our Southeast Asia based fleet decreased by $2.0 million to $19.1 million in the
third quarter of 2009. Utilization decreased from 97.2% in the third quarter of 2008 to 85.8%
in the current year quarter which decreased revenue by $2.1 million. Capacity increased revenue by
$1.2 million as a result of the additions of two vessels in 2009,
and the full year effect of the
addition of a vessel in the third quarter of 2008. This is partially offset by the sale of four of
our older vessels in 2008. Even though day rates increased from the prior year quarter, the
negative effect of the mix of days worked to vessels on lower day rates reduced revenue by $1.1
million. Operating income was $13.2 million in the third quarter of 2009 compared to $17.1 million
in
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the same 2008 quarter. The decrease is due mainly to the decrease in revenue coupled with the
decrease of the gain on asset sales of $2.3 million, partially offset by lower operating costs.
Americas
The Americas region revenues decreased by $13.4 million, or 30% to $30.9 million in the third
quarter of 2009. Utilization decreased from 93.9% in the third quarter of 2008 to 57.3% in the
current year quarter resulting mainly from the drop in natural gas prices and its effect on the rig
utilization in the Gulf of Mexico, which contributed $14.4 million to the lower revenue. Offsetting
the utilization decrease was the addition of five new vessels which added $1.3 million to revenue.
The overall mix in day rates and currency fluctuations in the current quarter compared to the prior
year quarter negatively impacted revenue by $0.3 million. Operating income was $1.1 million in the
third quarter of 2009 compared to $14.7 million in the third quarter of 2008. The decrease is due
mainly to the decrease in revenue.
Other
Other expenses in the third quarter of 2009 increased by $2.0 million compared to the prior
year quarter resulting primarily from the refund of ISS tax in Brazil which was collected in the
third quarter of 2008.
Tax Provision
Our tax provision for the third quarter of 2009 was $2.6 million, compared to $4.5 million in
the third quarter of 2008. The decrease resulted primarily from the lower overall pre-tax earnings,
offset by a slightly higher effective tax rate in the third quarter of 2009 stemming from the
domestic tax impact of dividends from our foreign subsidiaries.
Comparison of the Nine Months Ended September 30, 2009 with the Nine Months Ended September 30,
2008
For the nine months ended September 30, 2009, we had net income of $61.8 million, or $2.44 per
diluted share, on revenues of $304.2 million. During the same period in 2008, net income was
$124.5 million, or $5.19 per diluted share, on revenues of $289.9 million.
Our year to date revenue increased 5% or $14.4 million year over year. The increase was due
mainly to the Rigdon Acquisition, which contributed $57.8 million to the increase. Throughout
2009, we also added five new vessels that were under construction at the end of 2008 and we
experienced the loss of revenue from six vessels that were sold in 2008 and early 2009. The net
reduction in vessel count reduced revenue by $0.1 million. As a result of the weaker global economy
overall utilization decreased from 93.1% in the nine month period of 2008 to 82.9% in the same
period of 2009, which reduced revenue by $12.2 million. Day rates decreased from $19,963 in the
nine months ended September 30, 2008, to $18,961 in the same period of 2009. The combination of
day rates and currency exchange rates resulted in a $31.1 million decrease in revenue.
Operating income decreased by $73.3 million, from $133.6 million in 2008 to $60.3 million this
year. The decrease is due largely to the $46.2 million impairment charge resulting from a shipyard
defaulting on the construction of three vessels. Also contributing to the decrease was an increase
in operating cost related to the increase in vessel count and a smaller gain on sale of assets of
$13.3 million.
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North Sea
North Sea revenue decreased 24%, or $42.2 million in 2009 compared to 2008. The effect of the
strengthening of the U.S. Dollar and the decrease in day rates from $23,389 in 2008 to $20,820 in
2009 contributed $27.3 million to the decrease in revenue. Capacity impact decreased revenue by
$11.4 million related primarily to the full year effect of the 2008 vessel sales and the additional
vessel sale in 2009. In 2008, we also mobilized two vessels to other regions. Overall utilization
decreased from 93.9% in 2008 to 89.3% in the current year, representing $3.5 million in lower
revenue. Operating income decreased by $30.3 million compared to 2008, resulting primarily from the
decrease in revenue coupled with the decrease of $9.0 million of gains on asset sales, offset by
lower operating and general and administrative costs.
Southeast Asia
Revenue for our Southeast Asia based fleet decreased by $1.2 million, from $57.5 million in
the first nine months of 2008 to $56.3 million in the same 2009 period. Capacity had a positive
impact of $3.8 million on revenue as a result of the two new vessels added in 2009 and the full
year effect of the two vessels added in 2008. Offsetting the addition was the disposal of five
vessels and the mobilization of a vessel to the Americas region in 2008. Overall utilization
decreased from 93.2% to 88.9%, representing $3.2 million in lower revenue. Day rates increased from
$17,062 in 2008 to $21,033 in 2009, however revenue decreased $1.8 million as the mix of days
worked related to high rate vessels was negative. Operating income decreased from $47.0 million in
2008 to $42.0 million in 2009 due to the decrease in revenues and the decrease of the gain on asset
sales coupled with higher drydock costs, which were offset by lower operating costs. Drydock
expense increased by $1.8 million due to 42 additional drydock days in 2009.
Americas
Our Americas region revenue increased $57.7 million, from $59.2 million in 2008 to $117.0
million in 2009. The increase in revenue is due primarily to the July 1, 2008, Rigdon Acquisition,
which contributed $57.8 million to the increase. Also contributing $7.5 million to the increase was
the mobilization of two vessels into the region. Rig utilization has declined significantly in the
Gulf of Mexico which has reduced our utilization from 91.7% in 2008 to 76.2% in 2009, representing
$5.5 million in lower revenue. Day rates increased slightly, but the effect of currency and overall
mix of days worked related to higher day rate vessels resulted in a $2.1 million decrease in
revenue. Excluding the $46.2 million impairment charge, operating income increased $10.7 million
from 2008 resulting primarily from the effect of the Rigdon Acquisition.
Other
In the nine months ended September 30, 2009, other expenses totaled $15.8 million, an increase
of $11.9 million from 2008. The increase was due primarily to higher interest expense
of $8.0 million as a result of higher interest incurred on outstanding debt assumed through
the Rigdon Acquisition and the impact of the refund of ISS tax in Brazil which was collected in the
third quarter of 2008.
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Tax Provision
Our tax provision for the nine months ended September 30, 2009, was a benefit of $17.3 million
compared to a provision of $5.2 million in the same period in 2008. The difference is principally
due to three discrete items in 2009: a reversal of a previously recognized tax pertaining to
Norwegian tonnage tax of $6.5 million; the $17.0 million tax effect of the aforementioned
impairment charge; and the $4.5 million reversal of the valuation allowance on previously recorded
foreign tax credits, as they are expected to be utilized in the future. The remainder of the
difference relates primarily to the domestic tax impact of dividends from our foreign subsidiaries.
Liquidity, Capital Resources and Financial Condition
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 inception, we
have been active in the acquisition of additional vessels through both the resale market and new
construction. Bank financing, equity capital and internally generated funds have historically
provided funding for these activities. Internally generated funds are directly related to fleet
activity and vessel day rates, which are generally dependent upon the demand for our vessels which
is ultimately determined by the supply and demand of crude oil and natural gas.
On July 1, 2008, in conjunction with the Rigdon Acquisition we assumed a $224 million Senior
Secured Credit Facility held with a syndicate of banks led by DVB Bank NV as agent, and a $85
million Subordinated Secured Credit Facility held by DVB Bank NV. Both facilities mature on June
30, 2010, and, as such, the combined outstanding liability of $209.6 million as of June 30, 2009,
was classified from long term to current.
During the fourth quarter we executed a credit approved term sheet to refinance $200 million
of the indebtedness that is otherwise maturing on June 30, 2010. Our intention is to complete this
refinancing by December 31, 2009. The new facility is expected to be secured with first priority
mortgages on 23 vessels in the Americas region fleet and will be subject to financial and other
covenants. The replacement facility will be a long-term facility with an expected maturity date of
December 31, 2012. At September 30, 2009, as a result of the new debt to be issued in the fourth
quarter of 2009, we reclassified $175.0 million of the outstanding balances to long-term debt.
Net working capital at September 30, 2009, was $188.6 million. Cash on hand at September 30,
2009, totaled $198.1 million. Net cash provided by operating activities was $47.4 million for the
three months ended September 30, 2009, and cash used in investing activities for the same three
months was $11.2 million.
We anticipate that our current level of cash on hand, cash flows from operations, and
availability under our credit facility will be adequate to repay our debts due and will provide
sufficient resources to finance our operating requirements. However, our ability to fund working
capital, capital expenditures and debt service in excess of cash on hand will be dependent upon
the success of our operations. To the extent that existing sources are insufficient to meet those
cash requirements, we would seek other debt or equity financing; however, we can give no assurances
that such debt or equity financing would be available on acceptable terms.
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Currency Fluctuations and Inflation
The majority of our operations are international; therefore we are exposed to currency
fluctuations and exchange rate risks. Charters for vessels in the North Sea fleet are primarily
denominated in Pounds Sterling (GBP) with a portion denominated in Norwegian Kroner (NOK) and
Euros. Mostly all of our operating costs are denominated in the same currency as charter hire in
order to reduce the risk of currency fluctuations. For the periods indicated, the average
equivalent exchange rate per one U.S. Dollar (US$) were:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
1 US$= | 1 US$= | |||||||||||||||
GBP |
0.609 | 0.528 | 0.648 | 0.513 | ||||||||||||
NOK |
6.106 | 5.359 | 6.468 | 5.244 | ||||||||||||
Euro |
0.699 | 0.665 | 0.732 | 0.657 |
Our North Sea based fleet generated $40.7 million in revenue and $11.6 million in operating
income for the three months ended September 30, 2009, and $131.0 million in revenue and $53.5
million in operating income for the nine months ended September 30, 2009.
Reflected in the accompanying balance sheet as of September 30, 2009, is $49.1 million in
accumulated other comprehensive income that fluctuates based on differences in foreign currency
exchange rates as of each balance sheet date. Also included in accumulated other comprehensive
income is a loss of $4.2 million related to the cash flow hedges. Changes in other comprehensive
income are primarily non-cash items that are attributable to investments in vessels and dollar
based capitalization between our parent company and our foreign subsidiaries.
After evaluating the U.S. Dollar debt, we have determined that it is in our best interest not
to use any financial instruments to hedge the exposure of our revenue and costs of operations to
currency fluctuations 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 currency denominated vessel day rates over time to compensate for changes in the purchasing power of the currency as measured 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 with regards to our revenue and
costs of operations. However, in 2007, we entered into forward currency contracts to
specifically hedge the foreign currency exposure related to firm contractual commitments in the
form of future vessel payments. These hedging relationships were formally documented at inception
and the contracts have been and continue to be highly effective. As a result, by design, there is
an exact offset between the gain or loss exposure in the related underlying contractual commitment.
The balance sheet reflects the change in the fair value of the foreign currency contracts and
purchase commitments of $14.7 million, an increase of $6.9 million from year-end 2008.
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We also have interest rate swap agreements for a portion of the Senior Secured Credit Facility
indebtedness that has fixed the interest rate at 4.725% on a portion of the Senior Secured Credit
Facility. These interest rate swaps are accounted for as cash flow hedges. We report changes in the
fair value of the cash flow hedges in accumulated other comprehensive income. The consolidated
balance sheet also contains cash flow hedges within other long term liabilities, reflecting the
fair value of the interest rate swaps which was $6.1 million at September 30, 2009. For the nine
months ended September 30, 2009, $3.0 million has been reclassified from other comprehensive income
to interest expense. We expect to reclassify $2.9 million of deferred loss on the interest rate
swaps to interest expense during the next 12 months.
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 and
transportation support services and future capital expenditures. These statements are subject to
certain risks, uncertainties and assumptions, including, without limitation:
| operational risk, | ||
| catastrophic or adverse sea or weather conditions, | ||
| dependence on the oil and gas industry, | ||
| oil and gas prices, | ||
| delay or cost overruns on construction projects or insolvency of the shipbuilders, | ||
| lack of shipyard or equipment availability, | ||
| ongoing capital expenditure requirements, | ||
| uncertainties surrounding environmental and government regulation, | ||
| risks relating to compliance with the Jones Act, | ||
| risk relating to leverage, | ||
| risks of foreign operations, | ||
| risk of war, sabotage or terrorism, | ||
| assumptions concerning competition, | ||
| risks of currency fluctuations and | ||
| other matters. |
These statements are based on certain assumptions and analyses made by us in light of our
experience and perception of historical trends, current conditions, expected future developments
and other factors we believe are appropriate under the circumstances. Such statements are subject
to risks and uncertainties, including the risk factors discussed above and those discussed in our
Form 10-K for the year ended December 31, 2008, filed with the SEC,
general economic and business conditions, the business opportunities that may be presented to
and pursued by us, changes in law or regulations and other factors, many of which are beyond our
control.
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
we have relied is accurate or complete, that our analysis of the market and demand for our vessels
is correct, or that the strategy based on that analysis will be successful.
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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
our 7.75% Senior Notes. As of September 30, 2009, the fair value of these notes, based on quoted
market prices, was approximately $156.2 million compared to a carrying amount of $159.7 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 us 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.
Other information required under Item 3 has been included in Managements Discussion and
Analysis of Financial Condition and Results of Operations and is incorporated herein.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Based on their evaluation of our disclosure controls and procedures as of the end of the
period covered by this report, our Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are effective for the period covered by the
report.
(b) Evaluation of internal controls and procedures.
As of December 31, 2008, our management determined that our internal controls over financial
reporting were effective. Our assessment of the effectiveness of our internal controls over
financial reporting as of December 31, 2008, has been audited by UHY LLP, an independent public
accounting firm, as stated in our Form 10-K for the year ended December 31, 2008, filed with the
SEC.
There were no changes in our internal controls over financial reporting that occurred during
the period covered by this report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As previously disclosed in our Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 19, 2009 (Item 5.03 of which is incorporated by reference herein),
we amended our Bylaws to, among other things, change the procedures by which stockholders may
recommend nominees to our board of directors. The amendment to our Bylaws was effective as of
October 13, 2009.
ITEM 6. EXHIBITS
Exhibits
See Exhibit Index for list of Exhibits filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GulfMark Offshore, Inc. (Registrant) |
||||
By: | /s/ Quintin V. Kneen | |||
Quintin V. Kneen | ||||
Executive Vice President & Chief Financial Officer |
||||
Date: October 30, 2009
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EXHIBIT INDEX
Filed Herewith or | ||||
Incorporated by Reference | ||||
from the | ||||
Exhibits | Description | Following Documents | ||
3.1
|
Certificate of Incorporation, dated December 4, 1996 | Incorporated by reference to Exhibit 3.1 to our annual report on Form 10-K for the year ended December 31, 2008 | ||
3.2
|
Certificate of Amendment of Certificate of Incorporation, dated March 6, 1997 | Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-3, Registration No. 333-153459, filed on September 12, 2008 | ||
3.3
|
Certificate of Amendment of Certificate of Incorporation, dated May 24, 2002 | Incorporated by reference to Exhibit 4.3 to our Registration Statement on Form S-3, Registration No. 333-153459, filed on September 12, 2008 | ||
3.4
|
Bylaws, dated December 5, 1996 | Incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-4, Registration No. 333-24141, filed on March 28, 1997 | ||
3.5
|
Amendment No. 1 to Bylaws | Incorporated by reference to Exhibit 3.1 to our Form 8-K/A filed on September 17, 2007 | ||
3.6
|
Amendment to Bylaws, effective as of October 13, 2009 | Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on October 19, 2009 | ||
4.1
|
See Exhibit Nos. 3.1, 3.2 and 3.3 for provisions of the Certificate of Incorporation and Exhibits 3.4, 3.5 and 3.6 for provisions of the Bylaws defining the rights of the holders of Common Stock | Incorporated by reference to Exhibit 3.1 to our annual report on Form 10-K for the year ended December 31, 2008, Exhibits 4.2 and 4.3 to our Registration Statement on Form S-3, Registration No. 333-153459, filed on September 12, 2008, Exhibit 3.3 to our Registration Statement on Form S-4, Registration No. 333-24141, filed on March 28, 1997, Exhibit 3.1 to our Form 8-K/A filed on September 17, 2007, and Exhibit 3.1 to our Form 8-K filed on October 19, 2009 | ||
4.2
|
Specimen Certificate for GulfMark Offshore, Inc. Common Stock, $0.01 par value | Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1, Registration No. 333-31139, filed on July 11, 1997 |
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Filed Herewith or | ||||
Incorporated by Reference | ||||
from the | ||||
Exhibits | Description | Following Documents | ||
4.3
|
Indenture, dated as of July 21, 2004, among GulfMark Offshore, Inc., as Issuer, and U.S. Bank National Association, as Trustee, including a form of the Companys 7.75% Senior Notes due 2014 | Incorporated by reference to Exhibit 4.4 to our quarterly report on Form 10-Q for the quarter ended September 30, 2004 | ||
4.4
|
Registration Rights Agreement, dated July 21, 2004, among GulfMark Offshore, Inc. and the initial purchasers | Incorporated by reference to Exhibit 4.5 to our quarterly report on Form 10-Q for the quarter ended September 30, 2004 | ||
4.5
|
Registration Rights Agreement, dated July 1, 2008, among GulfMark Offshore, Inc. and certain of the Rigdon Shareholders | Incorporated by reference to Exhibit 4.5 to our current report on Form 8-K filed on July 7, 2008 | ||
10.1
|
Form of Amended and Restated Employment Agreement of Bruce A. Streeter, effective as of October 14, 2009 | Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on October 19, 2009 | ||
10.2
|
Form of Amended and Restated Employment Agreement of John E. Leech, effective as of October 14, 2009 | Incorporated by reference to Exhibit 10.2 to our Form 8-K filed on October 19, 2009 | ||
10.3
|
Form of Amended and Restated Employment Agreement of Quintin V. Kneen, effective as of October 14, 2009 | Incorporated by reference to Exhibit 10.3 to our Form 8-K filed on October 19, 2009 | ||
10.4
|
Amendment to the GulfMark Offshore, Inc. 1997 Incentive Equity Plan, effective as of October 13, 2009 | Incorporated by reference to Exhibit 10.4 to our Form 8-K filed on October 19, 2009 | ||
10.5
|
Amendment to the GulfMark Offshore, Inc. 2005 Non-Employee Director Shore Incentive Plan, effective as of October 13, 2009 | Incorporated by reference to Exhibit 10.5 to our Form 8-K filed on October 19, 2009 | ||
10.6
|
GulfMark Offshore, Inc. Severance Benefits Policy, effective as of August 1, 2009 | Incorporated by reference to Exhibit 10.6 to our Form 8-K filed on October 19, 2009 | ||
10.7
|
Amendment to GulfMark Offshore, Inc. Severance Benefits Policy, effective as of October 13, 2009 | Incorporated by reference to Exhibit 10.7 to our Form 8-K filed on October 19, 2009 | ||
10.8
|
Form of Amendment to the GM Offshore, Inc. Executive Non-Qualified Excess Plan, effective as of October 14, 2009 | Incorporated by reference to Exhibit 10.8 to our Form 8-K filed on October 19, 2009 | ||
31.1
|
Section 302 certification for B.A. Streeter | Filed herewith | ||
31.2
|
Section 302 certification for Q.V. Kneen | Filed herewith | ||
32.1
|
Section 906 certification furnished for B.A. Streeter | Filed herewith | ||
32.2
|
Section 906 certification furnished for Q. V. Kneen | Filed herewith |
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