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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, 2011
GULFMARK OFFSHORE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
001-33607
(Commission file number)
76-0526032
(I.R.S. Employer Identification No.)
         
10111 Richmond Avenue, Suite 340, Houston, Texas
    77042  
(Address of principal executive offices)
  (Zip Code)
(713) 963-9522
(Registrant’s 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 þ          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   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 Class A Common Stock, $0.01 par value, outstanding as of October 19, 2011: 26,552,640
(Exhibit Index Located on Page 27)
 
 

 


 

GulfMark Offshore, Inc.
Index
         
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    Number
       
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 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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PART 1. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    September 30,     December 31,  
    2011     2010  
    (In thousands, except par value amount)  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 112,966     $ 97,195  
Trade accounts receivable, net of allowance for doubtful accounts of $154 and $283, respectively
    80,677       66,714  
Other accounts receivable
    10,488       10,326  
Prepaid expenses and other
    16,443       16,645  
 
           
Total current assets
    220,574       190,880  
 
           
 
               
Vessels, equipment, and other fixed assets at cost, net of accumulated depreciation of $320,945 and $282,395, respectively
    1,150,994       1,191,280  
Construction in progress
    11,111       2,920  
Goodwill
    31,767       31,987  
Intangibles, net of accumulated amortization of $9,370 and $7,208, respectively
    25,228       27,390  
Deferred costs and other assets
    23,774       19,993  
 
           
Total assets
  $ 1,463,448     $ 1,464,450  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Current portion of long-term debt
  $ 33,333     $ 33,333  
Accounts payable
    16,273       15,130  
Income and other taxes payable
    4,418       4,066  
Accrued personnel costs
    22,134       23,417  
Accrued interest expense
    2,648       5,757  
Other accrued liabilities
    7,270       7,676  
 
           
Total current liabilities
    86,076       89,379  
 
           
Long-term debt
    268,146       293,095  
Long-term income taxes:
               
Deferred tax liabilities
    102,845       102,509  
Other income taxes payable
    21,285       19,400  
Cash flow hedge
    4,577       6,807  
Other liabilities
    6,718       7,303  
Stockholders’ equity:
               
Preferred stock, no par value; 2,000 authorized; no shares issued
           
Class A Common Stock, $0.01 par value; 60,000 shares authorized; 26,553 and 26,269 shares issued and 26,533 and 26,013 outstanding, respectively; Class B Common Stock $0.01 per value; 60,000 shares authorized; no shares issued
    262       259  
Additional paid-in capital
    376,747       370,218  
Retained earnings
    562,757       536,468  
Accumulated other comprehensive income
    34,918       39,137  
Treasury stock, at cost
    (8,985 )     (7,228 )
Deferred compensation expense
    8,102       7,103  
 
           
Total stockholders’ equity
    973,801       945,957  
 
           
Total liabilities and stockholders’ equity
  $ 1,463,448     $ 1,464,450  
 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
 
                       
    2011     2010     2011     2010  
    (In thousands except per share amounts)  
Revenue
  $ 103,778     $ 94,479     $ 281,978     $ 271,912  
Costs and expenses:
                               
Direct operating expenses
    48,103       41,729       139,328       127,456  
Drydock expense
    5,726       7,242       15,933       20,365  
General and administrative expenses
    11,859       10,236       34,192       33,423  
Depreciation and amortization
    14,896       14,492       44,554       42,444  
(Gain) loss on sale of assets
          (5,201 )     10       (5,095 )
Impairment charge
                      97,665  
 
                       
Total costs and expenses
    80,584       68,498       234,017       316,258  
 
                       
Operating income (loss)
    23,194       25,981       47,961       (44,346 )
 
                       
Other income (expense):
                               
Interest expense
    (5,757 )     (5,807 )     (17,114 )     (15,858 )
Interest income
    195       597       379       739  
Foreign currency gain (loss) and other
    (2,803 )     (603 )     (2,786 )     158  
 
                       
Total other expense
    (8,365 )     (5,813 )     (19,521 )     (14,961 )
 
                       
Income (loss) before income taxes
    14,829       20,168       28,440       (59,307 )
Income tax (provision) benefit
    (664 )     (961 )     (2,151 )     9,326  
 
                       
Net income (loss)
  $ 14,165     $ 19,207     $ 26,289     $ (49,981 )
 
                       
Earnings (loss) per share:
                               
Basic
  $ 0.54     $ 0.74     $ 1.01     $ (1.96 )
 
                       
Diluted
  $ 0.54     $ 0.73     $ 1.00     $ (1.96 )
 
                       
Weighted average shares outstanding:
                               
Basic
    25,869       25,599       25,793       25,512  
 
                       
Diluted
    25,989       25,737       25,922       25,512  
 
                       
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2011
                                                                 
                                                  Deferred        
            Additional             Accumulated Other                     Compen-     Total  
    Common     Paid-In     Retained     Comprehensive                     sation     Stockholders’  
    Stock     Capital     Earnings     Income     Treasury Stock     Expense     Equity  
                                            Share                  
                                    Shares     Value                  
    (In thousands)  
Balance at December 31, 2010
  $ 259     $ 370,218     $ 536,468     $ 39,137       (256 )   $ (7,228 )   $ 7,103     $ 945,957  
Net income
                26,289                               26,289  
Issuance of common stock
    2       5,029                                     5,031  
Exercise of stock options
    1       1,469                                     1,470  
Deferred compensation plan
          31                   (39 )     (1,757 )     999       (727 )
Unrealized gain on cash flow hedge
                      1,246                         1,246  
Translation adjustment
                      (5,465 )                       (5,465 )
     
Balance at September 30, 2011
  $ 262     $ 376,747     $ 562,757     $ 34,918       (295 )   $ (8,985 )   $ 8,102     $ 973,801  
     
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
    (In thousands)  
Cash flows from operating activities:
               
Net income (loss)
  $ 26,289     $ (49,981 )
Adjustments to reconcile net income (loss) from operations to net cash provided by operations:
               
Depreciation and amortization
    44,554       42,444  
(Gain) loss on sale of assets
    10       (5,095 )
Impairment charge
          97,665  
Stock based compensation
    4,556       4,275  
Deferred financing costs
    1,260       1,199  
Provision for doubtful accounts receivable, net of write-offs
    (133 )     174  
Deferred income tax benefit
    (314 )     (4,363 )
Foreign currency transaction (gain) loss
    2,433       (151 )
Change in operating assets and liabilities:
               
Accounts receivable
    (15,541 )     (7,799 )
Prepaids and other
    (383 )     (2,765 )
Accounts payable
    1,040       882  
Other accrued liabilities and other
    (9,576 )     (19,125 )
 
           
Net cash provided by operating activities
    54,195       57,360  
Cash flows from investing activities:
               
Purchases of vessels, equipment and other fixed assets
    (15,002 )     (65,452 )
Proceeds from disposition of vessels and equipment
          19,582  
 
           
Net cash used in investing activities
    (15,002 )     (45,870 )
Cash flows from financing activities:
               
Proceeds from borrowings
    10,000       51,000  
Repayments of debt
    (35,000 )     (66,000 )
Debt refinancing cost
          (2,000 )
Proceeds from exercise of stock options
    911       1,069  
Proceeds from issuance of stock
    521       537  
 
           
Net cash used in financing activities
    (23,568 )     (15,394 )
Effect of exchange rate changes on cash
    146       (234 )
 
           
Net increase (decrease) in cash and cash equivalents
    15,771       (4,138 )
Cash and cash equivalents at beginning of the period
    97,195       92,079  
 
           
Cash and cash equivalents at end of the period
  $ 112,966     $ 87,941  
 
           
Supplemental cash flow information:
               
Interest paid, net of interest capitalized
  $ 19,218     $ 15,909  
 
           
Income taxes paid, net
  $ 4,485     $ 4,001  
 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
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 and predecessors. 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, 2010, 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, 2010.
     In the opinion of management, all adjustments, which include reclassification and normal recurring adjustments necessary to present fairly the unaudited condensed consolidated 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 operate our vessels in other regions to meet our customers’ requirements.
Earnings Per Share
     Basic Earnings Per Share, or EPS, is computed by dividing net income (loss) by the weighted average number of shares of Class A Common Stock outstanding during the period. Diluted EPS is computed using the treasury stock method for Class A Common Stock equivalents. The reconciliation between basic and diluted earnings per share from income or loss attributable to Class A Common Stock stockholders, including allocation to participating securities, is as follows:

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    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (In thousands)     (In thousands)  
Income (loss):
                               
Net income (loss) attributable to common stockholders
  $ 14,165     $ 19,207     $ 26,289     $ (49,981 )
Undistributed income allocated to participating securities
    (100 )     (305 )     (268 )      
 
                       
Basic
    14,065       18,902       26,021       (49,981 )
 
                       
Undistributed income allocated to participating securities
    100       305       268        
Undistributed income reallocated to participating securities
    (100 )     (303 )     (267 )      
 
                       
Diluted
  $ 14,065     $ 18,904     $ 26,022     $ (49,981 )
 
                       
Shares:
                               
Basic
                               
Weighted-average common shares outstanding
    25,869       25,599       25,793       25,512  
Dilutive effect of stock options and restricted stock awards
    120       138       129        
 
                       
Diluted
    25,989       25,737       25,922       25,512  
 
                       
Income (loss) per common share:
                               
Basic
  $ 0.54     $ 0.74     $ 1.01     $ (1.96 )
Diluted
  $ 0.54     $ 0.73     $ 1.00     $ (1.96 )
(2) COMPREHENSIVE INCOME
     The components of comprehensive income (loss), net of related tax, are as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (In thousands)     (In thousands)  
Net income (loss)
  $ 14,165     $ 19,207     $ 26,289     $ (49,981 )
Comprehensive income:
                               
Unrealized gain (loss) on cash flow hedge
    578       (329 )     1,246       (1,347 )
Foreign currency translation
    (30,148 )     35,147       (5,465 )     (14,147 )
 
                       
Total comprehensive income (loss)
  $ (15,405 )   $ 54,025     $ 22,070     $ (65,475 )
 
                       
     Our accumulated other comprehensive income (loss) item relates primarily to our cumulative foreign currency translation adjustments, and adjustments related to the cash flow hedge.

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(3) IMPAIRMENT CHARGE
Goodwill
     Our goodwill consists of $31.8 million related to acquisitions in the North Sea region. The determination of impairment of all long-lived assets, goodwill, and intangibles is conducted when indicators of impairment are present and at least annually for goodwill. Impairment testing for goodwill is performed on a reporting unit basis.
     On July 1, 2008, we acquired a 100% ownership interest in a company that operated a large U.S. Gulf of Mexico vessel fleet for $554.7 million, which included $97.7 million of goodwill. We included this acquisition in our Americas segment. In the second quarter of 2010, we assessed our Americas region goodwill for impairment. In our assessment, we evaluated the impact on the segment’s fair value of events in the U.S. Gulf of Mexico, which included the April 20, 2010 explosion and fire on a deepwater drilling rig, the resulting oil spill and the U.S. Department of Interior moratorium on deepwater drilling. We determined, based on our evaluations and testing as prescribed under U.S. GAAP, that an impairment of our Americas region goodwill existed. As a result, we recorded a $97.7 million impairment charge as of June 30, 2010, reflecting all of our Americas region goodwill. The non-cash charge did not impact our liquidity or debt covenant compliance.
(4) VESSEL ACQUISITIONS AND DISPOSITIONS
     As of October 20, 2011, we have one vessel that is being held for sale that is not included in our fleet numbers. We have assessed the value of the vessel during this quarter and at this time we believe that it is recorded at its appropriate value. However, we will continue to assess the value on a quarterly basis and make the proper adjustment, if needed.
     Interest is capitalized in connection with the construction of vessels. We did not capitalize any interest during the three or nine month periods ended September 30, 2011. During the three and nine month periods ended September 30, 2010, $0.1 million and $1.4 million of interest, respectively, was capitalized.
     In the third quarter of 2011, we entered into agreements with three shipyards to construct six new platform supply vessels. Remontowa Shipbuilding SA (“Remontowa”), a Polish company, was contracted to build three vessels, Rosetti Marino S.p.A. (“Rosetti Marino”), an Italian company, was contracted to build two vessels and Simek A/S (“Simek”), a Norwegian company, was contracted to build one vessel. The estimated total cost of the six new-build vessels is $245.0 million. The Remontowa and Rosetti Marino contracts are denominated in Euros and the Simek contract is denominated in Norwegian Kroner. The first of these vessels is scheduled to be delivered in the second quarter of 2013 and the last is scheduled to be delivered in the first quarter of 2014. All six vessels are expected to operate in the North Sea market.

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     The following table details our new build program:
                                             
Construction           Expected   Length                   Expected
Yard   Region   Type(1)   Delivery   (feet)   BHP(2)   DWT(3)   Cost
                                        (millions)
Remontowa
  North Sea   LgPSV   Q2 2013     291       9120       5100     $ 41.0  
Remontowa
  North Sea   LgPSV   Q3 2013     291       9120       5100     $ 41.1  
Remontowa
  North Sea   LgPSV   Q3 2013     260       9120       4000     $ 37.7  
Rosetti Marino
  North Sea   LgPSV   Q4 2013     246       7483       3000     $ 32.1  
Rosetti Marino
  North Sea   LgPSV   Q2 2014     246       7483       3000     $ 32.1  
Simek
  North Sea   LgPSV   Q2 2013     304       11265       4700     $ 60.9  
 
(1)     LgPSV — Large Platform Supply Vessel.
 
(2)     BHP — Breakhorse Power
 
(3)     DWT — Deadweight Tons
     In October 2011, we entered into an agreement to sell a vessel from our North Sea fleet for approximately $2.9 million. We expect to record a gain of approximately $2.0 million on the sale which is expected to close on October 21, 2011.
(5) INCOME TAXES
     Our estimated annual effective tax rate, adjusted for unusual tax items, is applied to interim periods’ pretax income (loss). Except for a portion of the current year’s foreign earnings, which have been remitted to the U.S., we consider earnings of our foreign subsidiaries to be permanently reinvested, and as such, we have not provided for any U.S. federal or state income taxes on these permanently reinvested earnings.
     In recent years we repatriated cash from our foreign subsidiaries from current year foreign earnings and recognized U.S. tax expense, net of available credits, on those occasions. The incremental tax rate associated with these repatriations is approximately 30% with no U.S. cash tax requirement due to utilization of U.S. net operating losses.
(6) COMMITMENTS & CONTINGENCIES
     We have contingent liabilities and future claims for which we have made estimates of the amount of the eventual cost to liquidate these liabilities or claims. These liabilities and claims 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, may be estimated based on our experience in these matters and, where appropriate, the advice of outside counsel or other outside experts. Upon the ultimate resolution of the uncertainties surrounding our estimates of contingent liabilities and future claims, our future reported financial results will be impacted by the difference, if any, between our estimates and the actual amounts paid to settle the liabilities. In addition to estimates related to litigation and tax liabilities, other examples of liabilities requiring estimates of future exposure include contingencies arising out of acquisitions and divestitures. Our contingent liabilities are based on the most recent information available to us regarding the nature of the exposure. Such exposures change from period to period based upon updated relevant facts and circumstances, which can cause our estimates to change. In the recent past, our estimates for contingent liabilities have been sufficient to cover the actual amount of our exposure. We do not believe that the outcome of these matters will have a material adverse effect on our business, financial condition, or results of operations.
     We have recently been made aware that a Brazilian state in which we have operated vessels has asserted that certain companies could be assessed for state import taxes with respect to vessels that have operated within Brazilian coastal waters. We have neither been formally assessed nor threatened with this tax. No accrual has been recorded as of September 30, 2011 for any liabilities associated with a possible future assessment. We can’t predict whether any such tax assessment may be made in the future.

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(7) DERIVATIVE FINANCIAL INSTRUMENTS
     Derivative instruments are accounted for at fair value. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For a derivative instrument designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change in fair value together with the offsetting gain or loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Other Comprehensive Income (“OCI”) and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in current period results of operations. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in current period results of operations.
     Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss we could incur if a counterparty were to default on a derivative contract. We deal with investment grade counterparties and monitor the overall credit risk and exposure to individual counterparties. We do not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is the unrealized gains, if any, on such derivative contracts. We do not require, nor do we post, collateral or security on such contracts.
Hedging Strategy
     We are exposed to certain risks relating to our ongoing business operations. As a result, we enter into derivative transactions to manage certain of these exposures that arise in the normal course of business. The primary risks managed by using derivative instruments are foreign currency exchange rate and interest rate risks. Fluctuations in these rates and prices can affect our operating results and financial condition. We manage the exposure to these market risks through operating and financing activities and through the use of derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.
     We periodically enter into foreign currency forward contracts which are designated as fair value hedges and are highly effective, as the terms of the forward contracts are the same as the purchase commitments under the related contract. Any gains or losses resulting from changes in fair value are recognized in income with an offsetting adjustment to income for changes in the fair value of the hedged item such that there is no net impact in the consolidated statements of operations. As of September 30, 2011, we had no open foreign currency forward contracts.
     We entered into an interest rate swap with the objective of reducing our exposure to interest rate risk for $100.0 million of our $200.0 million Facility Agreement variable-rate debt. At September 30, 2011, our interest rate derivative instrument has an outstanding notional amount of $100.0 million and is designated as a cash flow hedge. The terms of this swap, including reset dates and floating rate indices, match those of our underlying variable-rate debt and no ineffectiveness has been recorded.
Early Hedge Settlement
     During December 2009, we cash settled certain interest rate swap contracts prior to their scheduled settlement dates. As a result of these transactions, we paid $6.4 million in cash, which represented the fair value of these contracts at the date of settlement. Unrecognized losses of

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$0.7 million are recorded as of September 30, 2011 in accumulated OCI related to these interest rate swap contracts. This balance will be amortized into interest expense through December 31, 2012 based on forecasted payments as of the settlement date.
     The following table quantifies the fair values, on a gross basis, of all our derivative contracts and identifies the balance sheet location as of September 30, 2011 and December 31, 2010 (dollars in thousands):
                                                                 
    Asset Derivatives     Liability Derivatives  
    September 30, 2011     December 31, 2010     September 30, 2011     December 31, 2010  
    Balance             Balance             Balance             Balance        
Derivatives designed as   Sheet     Fair     Sheet     Fair     Sheet     Fair     Sheet     Fair  
hedging instruments   Location     Value     Location     Value     Location     Value     Location     Value  
Interest rate swaps
          $             $     Cash flow hedges   $ 4,577     Cash flow hedges   $ 6,807  
 
                                                       
 
          $             $             $ 4,577             $ 6,807  
 
                                                       
     The following tables quantify the amount of gain or loss recognized during the three and nine months ended September 30, and identify the consolidated statements of operations location:
                                         
                    Location of Gain or (Loss)     Amount of Gain or (Loss)  
    Amount of Gain or (Loss)     Reclassified from     Reclassified from  
Derivatives in cash flow   Recognized in OCI on     Accumulated OCI into     Accumulated OCI into  
hedging relationships   Derivative     Income     Income  
    Nine Months Ended September 30,             Nine Months Ended September 30,  
    2011     2010             2011     2010  
    (in thousands)             (in thousands)  
Interest rate contracts
  $ (697 )   $ (4,501 )   Interest expense   $ (2,385 )   $ (1,969 )
                                         
    Three Months Ended September 30,             Three Months Ended September 30,  
    2011     2010             2011     2010  
    (in thousands)             (in thousands)  
Interest rate contracts
  $ (21 )   $ (1,299 )   Interest expense   $ (846 )   $ (652 )
(8) 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.
     We have a fixed-for-floating interest rate swap agreement that has the effect of fixing the LIBOR interest rate component on $100.0 million of the outstanding balance on our $200.0 million Facility Agreement. The fixed rate component of the swap is set at 4.145% and the swap matures with the Facility Agreement on December 31, 2012. The interest rate swap is accounted

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for as a cash flow hedge. The consolidated balance sheet discloses the cash flow hedge in the liability section, reflecting the fair value of the interest rate swap which was $4.6 million at September 30, 2011. For the three and nine month periods ended September 30, 2011, $0.6 and $1.3 million related to this interest rate swap was reclassified from other comprehensive income to interest expense, respectively. We expect to reclassify $1.6 million of deferred losses related to this interest rate swap and the previously settled interest rate swap to interest expense during the next 12 months. We recognize the fair value of our derivative swaps as a Level 2 valuation. We determined the fair value of our interest rate swap based on the contractual fixed rate in the swap agreement and the forward curve of three month LIBOR supplied by the bank as of September 30, 2011.
     The following table presents information about our assets (liabilities) measured at fair value on a recurring basis as of September 30, 2011 and indicates the fair value hierarchy we utilized to determine such fair value (in millions).
                                 
    Level 1     Level 2     Level 3     Total  
Cash Flow Hedges
  $     $ 4.6     $     $ 4.6  
 
                       
     The following table presents information about our assets (liabilities) measured at fair value on a recurring basis as of December 31, 2010 and indicates the fair value hierarchy we utilized to determine such fair value (in millions).
                                 
    Level 1     Level 2     Level 3     Total  
Cash Flow Hedges
  $     $ 6.8     $     $ 6.8  
 
                       
(9) NEW ACCOUNTING PRONOUNCEMENTS
     In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. ASU 2011-04 will be effective for interim and annual periods beginning after Dec. 15, 2011, with early adoption permitted. We believe that the adoption of this standard will not materially expand our consolidated financial statement footnote disclosures.
     In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for interim and annual periods beginning after Dec. 15, 2011, with early adoption permitted. The adoption of ASU 2011-05 will not have a material impact on our consolidated financial statements.

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     In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), which amends the guidance in ASC 350-20, “Intangibles — Goodwill and Other – Goodwill”. Under ASU 2011-08, entities have the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. We adopted ASU 2011-08 in the third quarter of 2011 with no material impact on our consolidated financial statements.
     In September 2011, the FASB issued ASU No. 2011-09, “Compensation — Retirement Benefits — Multiemployer Plans (Subtopic 715-80)” (“ASU 2011-09”). ASU 2011-09 requires that employers provide additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. The additional quantitative and qualitative disclosures will provide users with more detailed information about an employer’s involvement in multiemployer pension plans. ASU 2011-09 will be effective for fiscal years ending after December 15, 2011, with early adoption permitted. We are currently evaluating the effect that ASU 2011-09 will have on our consolidated financial statements.
(10) 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 segment’s 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 segment’s operating income (loss) is summarized in the following table, and detailed discussions below.

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Operating Income (Loss) by Operating segment
                                         
    North     Southeast                              
    Sea     Asia     Americas     Other     Total  
                    (In thousands)                  
Quarter Ended September 30, 2011
                                       
Revenue
  $ 49,176     $ 16,660     $ 37,942     $     $ 103,778  
Direct operating expenses
    20,999       3,409       23,695             48,103  
Drydock expense
    2,999       2,023       704             5,726  
General and administrative expenses
    3,195       762       2,005       5,897       11,859  
Depreciation and amortization expense
    4,924       2,427       7,078       467       14,896  
(Gain) loss on sale of assets
                             
     
Operating income (loss)
  $ 17,059     $ 8,039     $ 4,460     $ (6,364 )   $ 23,194  
     
 
                                       
Quarter Ended September 30, 2010
                                       
Revenue
  $ 38,340     $ 17,867     $ 38,272     $     $ 94,479  
Direct operating expenses
    19,105       3,204       19,420             41,729  
Drydock expense
    3,614       488       3,140             7,242  
General and administrative expenses
    2,485       633       1,533       5,585       10,236  
Depreciation and amortization expense
    4,704       2,463       7,016       309       14,492  
(Gain) loss on sale of assets
    (5,246 )           45             (5,201 )
     
Operating income (loss)
  $ 13,678     $ 11,079     $ 7,118     $ (5,894 )   $ 25,981  
     
                                         
    North     Southeast                              
    Sea     Asia     Americas     Other     Total  
                    (In thousands)                  
Nine Months Ended September 30, 2011
                                       
Revenue
  $ 128,411     $ 47,873     $ 105,694     $     $ 281,978  
Direct operating expenses
    62,440       9,158       67,730             139,328  
Drydock expense
    8,440       3,963       3,530             15,933  
General and administrative expenses
    9,118       2,197       6,204       16,673       34,192  
Depreciation and amortization expense
    14,681       7,309       21,316       1,248       44,554  
(Gain) loss on sale of assets
                10             10  
Impairment charge
                             
     
Operating income (loss)
  $ 33,732     $ 25,246     $ 6,904     $ (17,921 )   $ 47,961  
     
 
                                       
Nine Months Ended September 30, 2010
                                       
Revenue
  $ 110,832     $ 50,535     $ 110,545     $     $ 271,912  
Direct operating expenses
    58,570       7,914       60,972             127,456  
Drydock expense
    7,133       4,071       9,161             20,365  
General and administrative expenses
    8,006       1,995       6,080       17,342       33,423  
Depreciation and amortization expense
    13,988       6,464       21,228       764       42,444  
(Gain) loss on sale of assets
    (5,246 )           154       (3 )     (5,095 )
Impairment charge
                97,665             97,665  
     
Operating income (loss)
  $ 28,381     $ 30,091     $ (84,715 )   $ (18,103 )   $ (44,346 )
     

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     We provide marine support and transportation services to companies involved in the offshore exploration and production of oil and natural gas. Our vessels transport drilling materials, supplies and personnel to offshore facilities, as well as move and position drilling structures. A substantial portion of our operations are international. Our fleet has grown in both size and capability, from an original 11 vessels in 1990 to our present number of 89 active vessels, through strategic acquisitions and the new construction of technologically advanced vessels, partially offset by dispositions of certain older, less profitable vessels. At October 20, 2011, our active fleet includes 74 owned vessels and 15 managed vessels. This vessel count does not include the effect of the sale of a North Sea vessel expected to close on October 21, 2011.
     Our results of operations are affected primarily by day rates, fleet utilization and the number and type of vessels in our fleet. Utilization and day rates, in turn, are influenced principally by the demand for vessel services from the offshore exploration and production sectors of the oil and natural gas industry. The supply of vessels to meet this fluctuating demand is related directly to the perception of future activity in both the drilling and production phases of the oil and natural gas industry as well as the availability of capital to build new vessels to meet the changing market requirements. From time to time, we bareboat charter vessels with revenue and operating expenses reported in the same income and expense categories as our owned vessels. The chartered vessels, however, incur bareboat charter fees instead of depreciation expense. Bareboat charter fees are generally higher than the depreciation expense on owned vessels of similar age and specification. The operating income realized from these vessels is therefore adversely affected by the higher costs associated with the bareboat charter fees. These vessels are included in calculating fleet day rates and utilization in the applicable periods.
     We also provide management services to other vessel owners for a fee. We do not include charter revenue and vessel expenses of these vessels in our operating results; however, management fees are included in operating revenue. These vessels are excluded for purposes of calculating fleet rates per day worked and utilization in the applicable periods.
     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.
     Our operating costs are primarily a function of fleet configuration. The most significant direct operating cost is wages paid to vessel crews, followed by maintenance and repairs and insurance. Generally, fluctuations in vessel utilization have little effect on direct operating costs in the short term and, as a result, direct operating costs as a percentage of revenue may vary substantially due to changes in day rates and utilization.
     In addition to direct operating costs, we incur fixed charges related to (i) the depreciation of our fleet, (ii) costs for routine drydock inspections, (iii) modifications designed to ensure compliance with applicable regulations, and (iv) maintaining certifications for our vessels with various international classification societies. The number of drydockings and other repairs undertaken in a given period generally determines our maintenance and repair expenses. The demands of the market, the expiration of existing contracts, the start of new contracts, seasonal factors and customer preferences influence the timing of drydocks. During the first nine months of 2011, we completed 433 drydock days, compared to 525 drydock days completed in the same period last year.

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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 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2010.
Goodwill
     Our goodwill consists of $31.8 million related to acquisitions in the North Sea region. The determination of impairment of all long-lived assets, goodwill, and intangibles is conducted when indicators of impairment are present and at least annually for goodwill. Impairment testing for goodwill is performed on a reporting unit basis.
     On July 1, 2008, we acquired a 100% ownership interest in a company that operated a large U.S. Gulf of Mexico vessel fleet for $554.7 million, which included $97.7 million of goodwill. We included this acquisition in our Americas segment. In the second quarter of 2010, we assessed our Americas region goodwill for impairment. In our assessment, we evaluated the impact on the segment’s fair value of events in the U.S. Gulf of Mexico, which included the April 20, 2010 explosion and fire on a deepwater drilling rig, the resulting oil spill and the U.S. Department of Interior moratorium on deepwater drilling. We determined, based on our evaluations and testing as prescribed under U.S. GAAP, that an impairment of our Americas region goodwill existed. As a result, we recorded a $97.7 million impairment charge as of June 30, 2010, reflecting all of our Americas region goodwill. The non-cash charge did not impact our liquidity or debt covenant compliance.
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.

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    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
         
Revenues by Region (000’s) (a):
                               
North Sea Based Fleet (c)
  $ 49,176     $ 38,340     $ 128,411     $ 110,832  
Southeast Asia Based Fleet
    16,660       17,867       47,873       50,535  
Americas Based Fleet
    37,942       38,272       105,694       110,545  
 
                               
Rates Per Day Worked (a) (b):
                               
North Sea Based Fleet (c)
  $ 21,358     $ 17,637     $ 19,796     $ 16,965  
Southeast Asia Based Fleet
    15,063       16,841       15,177       17,190  
Americas Based Fleet
    14,766       15,830       14,401       14,165  
 
                               
Overall Utilization (a) (b):
                               
North Sea Based Fleet
    96.5 %     91.6 %     92.6 %     93.5 %
Southeast Asia Based Fleet
    87.9 %     85.2 %     84.7 %     87.0 %
Americas Based Fleet
    81.5 %     76.0 %     78.8 %     82.5 %
 
                               
Average Owned/Chartered Vessels (a) (d):
                               
North Sea Based Fleet (c)
    25.0       25.7       25.0       25.1  
Southeast Asia Based Fleet
    14.0       13.9       14.0       12.7  
Americas Based Fleet
    35.0       35.0       35.0       35.4  
         
Total
    74.0       74.6       74.0       73.2  
         
 
(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 shown in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Currency Fluctuations and Inflation” on page 22.
 
(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, 2011 with the Three Months Ended September 30, 2010
     For the quarter ended September 30, 2011, net income was $14.2 million, or $0.54 per diluted share on revenues of $103.8 million. For the same 2010 period, net income was $19.2 million, or $0.73 per diluted share on revenues of $94.5 million.
     Our revenues for the quarter ended September 30, 2011 increased $9.3 million or 9.8% compared to the same quarter of 2010. The increase in revenue was due mainly to a combination of currency effects and day rates, which contributed $6.6 million to revenue. In addition, an increase in utilization from 83% in the prior year quarter to 88% in the current year quarter contributed $4.4 million for the quarter. The increase was partially offset by a decrease in capacity due to the sale of a vessel at the end of the prior year quarter, which negatively impacted revenue by $1.7 million.

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     Operating income for the third quarter of 2011 was $23.2 million compared to $26.0 million for the prior year quarter. The increase in revenue and the decrease in drydock expense was offset by the increase in direct operating cost resulting from higher fuel and consumable expense and higher crew salaries and benefits. General and administrative costs were also higher due to higher salaries and professional fees.
North Sea
     Revenues in the North Sea region increased by $10.8 million, or 28%, to $49.2 million in the third quarter of 2011 compared to the same period of 2010. Approximately $10.6 million of the increase was a result of a combination of currency effects and increased day rates. Day rates increased from $17,637 in the prior year quarter to $21,358 in the third quarter of 2011. Utilization rates increased from 92% in the third quarter of 2010 to 97% in the current year quarter, also contributing $2.0 million to the increase in revenue. The overall revenue increase was partially offset by decreased capacity as a result of the sale of a vessel during 2010, which negatively impacted revenue by $1.8 million. Operating income increased by $3.4 million compared to the prior year quarter due to the increase in revenue and the gain on asset sale. Offsetting this was the increase in direct operating expenses, due mainly to higher salaries and benefits. Drydock expense decreased by $0.6 million as we experienced 30 fewer drydock days. General and administrative expense increased by $0.7 million from the prior year quarter due to increased salaries and professional fees.
Southeast Asia
     Revenues for our Southeast Asia based fleet decreased from the prior year quarter by $1.2 million, or 7%, to $16.7 million. The decrease was primarily attributable to a decrease in day rates from $16,841 in the prior year quarter to $15,063 in the current quarter, which reduced revenue by $1.7 million. Utilization for the third quarter of 2011 increased from 85% to 88% in the current quarter increasing revenue by $0.4 million. Capacity increased revenue by $0.1 million as a result of the addition of a new vessel during the third quarter of 2010. Operating income for Southeast Asia was $8.0 million in the third quarter of 2011 compared to $11.1 million in the prior year quarter. The decrease is due mainly to the decrease in revenue coupled with a $1.5 million increase in drydock expense and a $0.2 million increase in direct operating expense. General and administrative expense increased slightly from the prior year quarter.
Americas
     Revenues in the Americas region decreased by $0.3 million, or 1%, to $37.9 million in the third quarter of 2011 compared to the same prior year quarter. Utilization increased from 76% in the third quarter of 2010 to 82% in the current year quarter which increased revenue by $2.0 million. The combination of day rates and currency effects negatively impacted revenue by $2.3 million as average day rates decreased from $15,830 in the third quarter of 2010 to $14,766 in the current year quarter. Operating income was $4.5 million in the third quarter of 2011, a decrease of $2.7 million from the prior year quarter. The decrease in operating income is due mainly to a $4.3 million increase in direct operating costs resulting from higher crew salaries and benefits and higher operating fees mainly in the Brazil sub-region. Drydock expense decreased by $2.4 million compared to the prior year quarter. General and administrative expense was higher than the prior year quarter by $0.5 million, due to higher salaries and benefits.

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Other
     Other expenses in the third quarter of 2011 increased by $2.6 million compared to the prior year quarter, resulting primarily from the $2.2 million negative effect of foreign currency fluctuations coupled with lower interest income of $0.4 million.
Income Taxes
     Our effective tax rate for the third quarter of 2011 was 7.6% excluding unusual items. This compares to a 6.4% effective tax rate in the third quarter of 2010, excluding unusual items. The change in the effective tax rate from the prior year was primarily attributable to inclusion of the U.S. tax impact for remitting a portion of our 2011 foreign earnings.
Comparison of the Nine Months Ended September 30, 2011 with the Nine Months Ended September 30, 2010
     For the nine months ended September 30, 2011 net income was $26.3 million, or $1.00 per diluted share, on revenues of $282.0 million. During the same period in 2010, we had a net loss of $50.0 million, or $1.96 per diluted share, on revenues of $271.9 million. The 2010 net loss included a $97.7 million goodwill impairment charge.
     Revenues increased $10.1 million period over period due to higher day rates and positive currency effects offset by lower average utilization rates.
     Operating income for the nine-month period ended September 30, 2011 was $48.0 million compared to $53.3 million in 2010, absent the goodwill impairment charge. The decrease is primarily due to increased direct operating and depreciation expenses and lower gains on asset sales, offset by lower drydock expense and higher revenues in 2011. General and administrative expense was also higher than the 2010 period due primarily to higher salaries and professional fees.
North Sea
     North Sea revenue increased by $17.6 million, or 16%, in the first nine months of 2011 compared to 2010. The effect of the weakening U.S. Dollar increased revenue by $8.1 million. The increase in average day rates from $16,965 in 2010 to $19,796 in 2011, also contributed $12.1 million to the increase in revenue. This was partially offset by a decrease in average utilization rates from 94% in 2010 to 93% in 2011, and a reduction in capacity due to a sale of a vessel in 2010, which together decreased revenue by $2.6 million. Operating income increased by $5.4 million resulting primarily from increased revenue. The increase in revenue is offset by an increase in direct operating expenses of $3.9 million resulting from higher crew salaries and wages. Drydock expense also increased by $1.3 million from 2010 due to an increase in drydock days. General and administrative expense was higher than the 2010 period due mainly to an increase in salaries and professional fees.
Southeast Asia
     Revenues for our Southeast Asia based fleet decreased by $2.7 million, or 5%, from $50.5 million in the first nine months of 2010 to $47.9 million in the same 2011 period. The decrease was primarily attributable to a decrease in average day rates, offset by an increase in capacity and utilization. Day rates decreased from $17,190 in 2010 to $15,177 in 2011, which

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decreased revenue by $6.8 million. The increase in fleet size as a result of two vessel deliveries in 2010 contributed $3.1 million to revenue. Utilization decreased from 87% in 2010 to 85% in the current year, however the mix of days worked associated with higher day rate vessels resulted in a $1.0 million increase in revenue. Operating income decreased from $30.1 million in 2010 to $25.2 million in the current year as a result of the lower revenues coupled with higher direct operating and depreciation expenses as a result of the new vessel additions. The decrease was offset by lower drydock costs, as a result of fewer drydock days. General and administrative expense increased slightly from the 2010 period.
Americas
     Our Americas region revenue decreased $4.9 million, or 4%, from $110.6 million in 2010 to $105.7 million in 2011. Utilization decreased from 83% to 79% resulting in an $8.9 million decrease in revenues. The lower utilization was a direct result of tightened regulations in the U.S. Gulf of Mexico. Capacity effect also contributed $1.4 million to the decrease in revenue as a result of one vessel sale during 2010. An increase in day rates from $14,165 in 2010 to $14,401 in 2011, coupled with the foreign currency impact, increased revenue by $5.4 million. Operating income was $6.9 million during the first nine months of 2011 compared to $13.0 million in 2010, excluding the goodwill impairment charge. The decrease is due primarily to the decrease in revenue coupled with higher direct operating cost resulting from higher crew salaries and operating fees in Brazil. Drydock costs decreased $5.6 million as a result of significantly lower drydock costs per day. General and administrative expense also increased by $0.1 million.
Other
     In the nine months ended September 30, 2011, other expenses totaled $19.5 million, an increase of $4.6 million from 2010. The increase was due primarily to higher interest expense due to lower capitalized interest, combined with a $2.9 million negative effect of foreign currency fluctuations and lower interest income of $0.4 million.
Income Taxes
     Our effective tax rate for the first nine months of 2011 was 7.9% excluding unusual items. This compares to a 3.1% effective tax rate for the first nine months of 2010, excluding unusual items. The change in the effective tax rate from the prior year was primarily attributable to inclusion of the U.S. tax impact for remitting a portion of our 2011 foreign earnings.
Liquidity, Capital Resources and Financial Condition
     Our ongoing liquidity requirements are generally associated with our need to service debt, fund working capital, maintain our fleet, finance the construction of new vessels and acquire or improve equipment or vessels. We plan to continue to be 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 for offshore drilling for crude oil and natural gas.
     In the third quarter of 2011, we announced the initiation of a new vessel construction program, adding six new platform supply vessels to our existing fleet. The total cost of these six vessels is anticipated to be $245.0 million dollars for the next three years. We expect to fund

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construction of these vessels with cash on hand and cash flow generated from operations. Anticipated cash commitments for this program over the next three calendar years are $30.0 million during the remainder of 2011, $81.0 million during 2012 and $121.0 million during 2013. We anticipate announcing the addition of new vessels to this program over the next few quarters.
     Interest expense at current rates under our existing debt arrangements, assuming no additional borrowings, is expected to approximate $23.0 million for 2011. Minimum repayments under our existing debt arrangements will be $33.3 million for 2011. These amounts are anticipated to be paid from a combination of cash on hand, cash from operations and additional borrowings.
     In addition, we are required to make expenditures for the certification and maintenance of our vessels. We expect our drydocking expenditures to be $16.7 million in 2011.
     Net working capital at September 30, 2011, was $134.5 million, including $113.0 million in cash. Net cash provided by operating activities was $29.2 million for the three months ended September 30, 2011. For the quarter ended September 30, 2011, net cash used in investing activities was $10.1 million, and net cash used in financing activities was $18.2 million.
     At September 30, 2011, we had approximately $113.0 million of cash on hand and no amounts drawn under our $175.0 million Revolving Loan Facility, $141.7 million borrowed under our Facility Agreement, and $160.0 million outstanding under our Senior Notes.
     As of September 30, 2011, substantially all of our cash and cash equivalents were held by our foreign subsidiaries. It is our intention to permanently reinvest all of our earnings generated outside the U.S. prior to December 31, 2010 that through that date had not been remitted (unremitted earnings), and as such we have not provided for U.S. income tax expense on these unremitted earnings.
     In recent years we repatriated cash from our foreign subsidiaries from current year foreign earnings and recognized U.S. tax expense, net of available credits, on those occasions. The incremental tax rate associated with these repatriations is approximately 30% with no U.S. cash tax requirement due to utilization of U.S. net operating losses.
     If any portion of the unremitted earnings were ever foreseen to not be permanently reinvested outside the U.S., or if we elect to repatriate additional current year foreign earnings, U.S. income tax expense would be required to be recognized and that expense could be material. Although subject to certain limitations, our U.S. net operating loss carryforwards and foreign tax credit carryforwards could be used to reduce a portion or all of the U.S. cash tax requirements of any such future foreign cash repatriations.
     We believe that cash on hand, future cash flow from operations and unused borrowing capacity will be adequate to fund our debt payments, to fund the initial stages of our new build program, to complete scheduled drydockings, to make normal recurring capital additions and improvements and to meet other operating and working capital requirements. This expectation, however, is dependent upon the success of our operations.

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Currency Fluctuations and Inflation
     A majority of our operations are international; therefore we are exposed to currency fluctuations and exchange rate risks. In areas where currency risks are potentially high, we normally accept only a small percentage of charter hire in local currency, with the remainder paid in U.S. Dollars. Operating costs are substantially denominated in the same currency as charter hire in order to reduce the risk of currency fluctuations. Charters for vessels in our North Sea fleet are primarily denominated in Pounds Sterling (GBP), with a portion denominated in Norwegian Kroner (NOK) or Euros. The North Sea fleet generated 47.4% of our total consolidated revenue and $17.1 million in operating income for the three months ended September 30, 2011, and 45.5% of our total consolidated revenue and $33.7 million in operating income for the nine months ended September 30, 2011.
     In the third quarter of 2011, the exchange rates of currencies that comprise most of our exposure against the U.S. Dollar averaged as follows:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
    1 US$=   1 US$=
GBP
    0.621       0.645       0.619       0.652  
NOK
    5.497       6.156       5.550       6.074  
Euro
    0.707       0.774       0.711       0.760  
Brazilian Real (BRL)
    1.629       1.749       1.630       1.781  
Singapore Dollar (SGD)
    1.225       1.356       1.247       1.383  
     Our outstanding debt is denominated in U.S. Dollars, but a substantial portion of our revenue is generated in currencies other than the U.S. Dollar. We have evaluated these conditions and have determined that it is not in our best interest to use any financial instruments to hedge this exposure under present conditions. Our strategy is in part based on a number of factors including the following:
    the cost of using hedging instruments in relation to the risks of currency fluctuations;
 
    the propensity for adjustments in these foreign currency denominated vessel day rates over time to compensate for changes in the purchasing power of these currencies 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, in response, we may begin to use financial instruments to hedge risks of currency fluctuations. We will from time to time hedge known liabilities denominated in foreign currencies to reduce the effects of exchange rate fluctuations on our financial results, such as a fair value hedge associated with the construction of vessels. In this regard, 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. As a result, by design, there was exact offset between the gain or loss exposure in the related underlying contractual commitment. These contracts expired in early 2010 and there are no outstanding contracts at September 30, 2011. See Part I, Items 1 and 2 “Business and

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Properties — New Vessel Construction, Acquisition and Divestiture Program, and Drydocking Obligations” of our Form 10-K for the year ended December 31, 2010 for more details. We do not use foreign currency forward contracts for trading or speculative purposes.
     Reflected in the accompanying consolidated balance sheet at September 30, 2011, is $34.9 million in accumulated other comprehensive income primarily relating to the change in exchange rates at September 30, 2011 in comparison with the exchange rates when we invested capital in these markets. Accumulated other comprehensive income related to the changes in foreign currency exchange rates was $37.0 million at September 30, 2011. Also included in accumulated other comprehensive income was a loss of $2.1 million related to our cash flow hedges. Changes in the other comprehensive income are non-cash items that are primarily attributable to investments in vessels and U.S. Dollar based capitalization between our parent company and our foreign subsidiaries. The current year activity reflects the changes in the U.S. Dollar compared to the functional currencies of our major operating subsidiaries, particularly in the U.K. and Norway.
     To date, general inflationary trends have not had a material effect on our operating revenues or expenses.
Off-Balance Sheet Arrangements
We have evaluated our off-balance sheet arrangements, and have concluded that we do not have any material relationships with unconsolidated entities or financial partnerships that have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K). Based on this evaluation, we believe that no disclosures relating to off-balance sheet arrangements are required.
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 natural gas industry,
 
    volatility in oil and natural 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,
 
    uncertainties surrounding deep water permitting and exploration and development activities,
 
    risks relating to compliance with the Jones Act,
 
    risks relating to leverage,
 
    risks of foreign operations,
 
    risk of war, sabotage, piracy or terrorism,
 
    assumptions concerning competition,
 
    risks of currency fluctuations, and
 
    other matters.

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     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, 2010, 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.
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, 2011, the fair value of these notes, based on quoted market prices, was approximately $157.1 million compared to a carrying amount of $159.8 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 currencies. 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 incorporated into Management’s 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 ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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(b) Evaluation of internal controls and procedures.
     As of December 31, 2010, 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, 2010, has been audited by UHY LLP, an independent public accounting firm, as stated in our Form 10-K for the year ended December 31, 2010 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.
PART II. OTHER INFORMATION
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
and Chief Financial Officer 
 
 
Date: October 20, 2011

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INDEX TO EXHIBITS
         
        Filed Herewith or
        Incorporated by Reference
        from the
Exhibits   Description   Following Documents
 
3.1
  Certificate of Incorporation, as amended   Exhibit 3.1 to our current report on Form 8-K filed on February 24, 2010
 
       
3.2
  Bylaws, as amended   Exhibit 3.2 to our current report on Form 8-K filed on February 24, 2010
 
       
4.1
  Description of GulfMark Offshore, Inc. Common Stock   Exhibit 4.1 to our current report on Form 8-K filed on February 24, 2010
 
       
4.2
  Form of U.S. Citizen Stock Certificates   Exhibit 4.2 to our current report on Form 8-K filed on February 24, 2010
 
       
4.3
  Form of Non-U.S. Citizen Stock Certificates   Exhibit 4.3 to our current report on Form 8-K filed on February 24, 2010
 
       
4.4
  Indenture, dated as of July 21, 2004, between GulfMark Offshore, Inc., as the Company, and U.S. Bank National Association, as Trustee, including a form of the Company’s 7.75% Senior Notes due 2014   Exhibit 4.4 to our quarterly report on Form 10-Q for the quarter ended September 30, 2004
 
       
4.5
  First Supplemental Indenture, dated as of February 24, 2010, between GulfMark Offshore, Inc. (f/k/a New GulfMark Offshore, Inc.), as the Company and U.S. Bank Association, as Trustee, for the Company’s 7.75% Senior Notes due 2014   Exhibit 10.1 to our current report on Form 8-K filed on February 24, 2010
 
       
4.6
  Form of Debt Securities Indenture (Including Form of Note for Debt Securities)   Exhibit 4.7 to our Post-Effective Amendment No. 2/A to our Registration Statement on Form S-3 filed on May 14, 2010.
 
       
4.7
  See Exhibit No. 3.1 for provisions of the Certificate of Incorporation and Exhibit 3.2 for provisions of the Bylaws defining the rights of the holders of Common Stock   Exhibits 3.1 and 3.2 to our current report on Form 8-K filed on February 24, 2010
 
       
10.1
  Form of Notice of Stock Award and Stock Award Agreement (2011 Non-Employee Director Share Incentive Plan)   Filed herewith
 
       
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

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        Filed Herewith or
        Incorporated by Reference
        from the
Exhibits   Description   Following Documents
 
32.2
  Section 906 Certification furnished for Q.V. Kneen   Filed herewith
 
       
101
  The following materials from GulfMark Offshore, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Stockholders’ Equity, (iv) Unaudited Condensed Consolidated Statements of Cash Flows and (v) Notes to Unaudited Consolidated Condensed Financial Statements, tagged as blocks of text.   Filed herewith

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