UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-22853
GULFMARK OFFSHORE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 76-0526032
incorporation or organization) (I.R.S. Employer Identification No.)
4400 POST OAK PARKWAY, SUITE 1170
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 963-9522
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information Statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. YES [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based upon the price at which the stock was sold as of March 5, 2002:
$156,790,000.
Number of shares of common stock outstanding as of March 5, 2002:
8,199,137.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III Items 10,11,12 and 13 will be included
in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.
Exhibit Index Located on Page 41.
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TABLE OF CONTENTS
PAGE
----
PART I
Items1.
and 2. Business and Properties..................................................................... 3
General Business....................................................................... 3
The Company............................................................................ 3
Item 3. Legal Proceedings........................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......................................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 12
Item 6. Selected Consolidated Financial Data........................................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................. 20
Item 8. Consolidated Financial Statements and Supplementary Data.................................... 21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.................................................................. 37
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 37
Item 11. Director and Executive Officer Compensation................................................. 37
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 37
Item 13. Certain Relationships and Related Transactions.............................................. 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 37
2
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL BUSINESS
GulfMark Offshore, Inc. is a Delaware corporation that provides offshore
marine services primarily to companies involved in offshore exploration and
production of oil and natural gas. Our vessels transport drilling materials,
supplies and personnel to offshore facilities, as well as move and position
drilling structures. The majority of our operations are conducted in the North
Sea, with the balance in offshore Southeast Asia, Brazil and West Africa.
Periodically, we will charter vessels into other regions to meet our customers'
requirements.
Our principal executive offices are located at 4400 Post Oak Parkway, Suite
1170, Houston, Texas 77027-3414, and our telephone number at that address is
(713) 963-9522.
THE COMPANY
OFFSHORE MARINE SERVICES INDUSTRY OVERVIEW
Our customers employ our vessels to provide services supporting the
construction, positioning and ongoing operation of offshore oil and natural gas
drilling rigs and platforms ("Offshore Marine Services"). This industry employs
various types of vessels, referred to broadly as offshore support vessels, that
are used to transport materials, supplies, equipment and personnel. Offshore
Marine Service providers are employed by oil companies that are engaged in the
offshore exploration and production of oil and natural gas and related services.
Services provided by companies in this industry are performed in numerous
locations worldwide. The Gulf of Mexico, the North Sea, offshore Southeast Asia,
offshore West Africa and offshore Brazil are each major markets that employ a
significant number of vessels. Vessel usage is also significant in other
international areas, including India, Australia, the Persian Gulf and the
Mediterranean Sea. The industry is relatively fragmented, with more than 20
major participants and numerous small regional competitors. Historically, few of
these competitors have participated in all five of these major markets. We
operate our fleet of 53 offshore supply vessels in four of the five major
markets: 36 in the North Sea, 12 in Southeast Asia, 3 in Brazil and 2 in West
Africa.
Our business is directly impacted by the level of activity in worldwide
offshore oil and natural gas exploration, development and production, which, in
turn, is impacted by 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. Each of the major geographic
offshore oil and gas production regions has unique characteristics that
influence the economics of exploration and production and consequently the
market for vessels in support of these activities. While there is some vessel
interchangeability between geographic regions, barriers such as mobilization
costs and vessel suitability restrict migration of vessels between regions. This
is most notably the case in the North Sea, where vessel design requirements
dictated by the harsh operating environment restrict migration of vessels into
that market and, to a lesser degree, high operating costs restrict migration out
of the market. The effect of these restrictions on vessel migration is to
segment various regions into separate markets.
GROWTH IN SIZE OF VESSEL FLEET
The size of our vessel fleet has grown from 47 vessels on December 31, 2000
to 53 vessels on March 5, 2002, due in large part to three transactions in which
we acquired eight existing vessels, plus the delivery of the first three of nine
newbuild vessels. Our managed fleet was reduced by five vessels, three of which
we acquired. The expansion of the owned fleet from 30 to 41 vessels during the
same period was the major factor affecting operating income in 2001. This
expansion is also expected to provide the opportunity for growth in operating
income in future periods. The first of the transactions was the acquisition of
the Stirling Fyne, renamed the Highland Patriot, for $6.9 million in April 2001,
whereupon it was immediately chartered for one year, plus options of the
charterer for extensions, at an attractive day rate. In June 2001, we acquired
five vessels through the acquisition of Sea Truck Holding, AS ("Sea Truck") in
Norway for approximately $61.8 million, of which $38.6 million was in cash and
$23.2 million was the assumption of existing Sea Truck debt. Four of the vessels
(Stream Truck, Stout Truck, Sound Truck and Safe Truck) were under term charters
at the time of the acquisition with the fifth vessel (Zacharias) under a
bareboat charter with an obligation to sell the vessel in 2003. In July 2001, we
took delivery of the Highland Fortress, the first of nine newbuild vessels to be
delivered over the 2001-2003 period. This vessel immediately went on contract
for a primary term of three years, with options at an attractive day rate. In
August 2001 we acquired two previously managed vessels (Clwyd Supporter and
Sefton Supporter) from Clear Seas Offshore, Ltd. ("Clear Seas"), for
approximately $8.9 million in assumed debt. Both of these vessels have charters
extending through June 2002, plus options. At the end of February 2002, we took
delivery of two vessels under our newbuild program, the Highland Navigator and
North Mariner. Both of these vessels are contracted under term charters
beginning in March 2002,
3
for three and five year primary terms, respectively, with options. The following
table reconciles the fleet size at the beginning of 2001 through March 5, 2002:
BAREBOAT
OWNED CHARTERED MANAGED TOTAL
VESSELS VESSELS VESSELS FLEET
------- --------- ------- -----
JANUARY 1, 2001 .......................... 30 4 13 47
Highland Patriot ...................... 1 -- -- 1
Sea Truck Acquisition ................. 5 -- (1) 4
Clear Seas Vessels .................... 2 -- (2) --
Newbuild Program ...................... 1 -- -- 1
Other ................................. -- -- (2) (2)
DECEMBER 31, 2001 ........................ 39 4 8 51
Newbuild Program ...................... 2 -- -- 2
MARCH 5, 2002 ............................ 41 4 8 53
VESSEL CLASSIFICATIONS
Offshore support vessels generally fall into seven functional
classifications derived from their primary or predominant operating
characteristics or capabilities. However, these classifications are neither
precise nor rigid, and it is not unusual for a vessel to fit into more than one
of the categories. These functional classifications are: (i) platform supply
vessel, (ii) anchor handling, towing and supply vessel, (iii) construction
support vessel, (iv) standby rescue vessel, (v) crewboat, (vi) specialty vessel
and (vii) utility vessel.
o PLATFORM SUPPLY VESSELS ("PSVS") serve drilling and production facilities
and support offshore construction and maintenance work. They are
differentiated from other offshore support vessels by their cargo handling
capabilities, particularly their large capacity and versatility. PSVs
utilize space on deck and below deck and are used to transport supplies
such as fuel, water, drilling fluids, equipment and provisions. PSVs range
in size from 150' to 200'. Large PSVs ("LgPSVs") range up to 275' in
length, with a few vessels somewhat larger, and are particularly suited for
supporting large concentrations of offshore production locations because of
their large, clear after deck and below deck capacities. The majority of
the LgPSVs we operate function primarily in this classification but are
also capable of service in construction support.
o ANCHOR HANDLING, TOWING AND SUPPLY VESSELS ("AHTS") are used to set anchors
for drilling rigs and tow mobile drilling rigs and equipment from one
location to another. In addition, these vessels typically can be used in
limited supply roles when they are not performing anchor handling and
towing services. They are characterized by shorter after decks and special
equipment such as towing winches. Vessels of this type with less than
10,000 brake horsepower ("BHP") are referred to as small AHTS vessels
("SmAHTS"), while AHTS vessels in excess of 10,000 BHP are referred to as
large AHTS vessels ("LgAHTS"). The most powerful North Sea Class AHTS
vessels have up to 25,000 BHP. From time to time, all of our AHTS vessels
also function as PSVs.
o CONSTRUCTION SUPPORT VESSELS are vessels such as pipe-laying barges or
specially designed vessels, such as pipe carriers, used to transport the
large cargos of material and supplies required to support the construction
and installation of offshore platforms and pipelines. A large number of our
LgPSVs also function as pipe carriers. Our North Sea fleet has the
distinction of being the only significant concentration of pipe carrier
capable vessels outside of Scandinavian control.
o STANDBY RESCUE VESSELS ("STBY") perform a safety patrol function for an
area and are required for all manned locations in the United Kingdom sector
of the North Sea. These vessels typically remain on station to provide a
safety backup to offshore rigs and production facilities and carry special
equipment to rescue personnel. They are equipped to provide first aid and
shelter and, in some cases, also function as supply vessels.
o CREWBOATS ("CREW") transport personnel and cargo to and from production
platforms and rigs. Older crewboats (early 1980s build) are typically 100'
to 120' in length and are designed for speed and to transport personnel.
Newer crewboat designs are generally larger, 130' to 165' in length and can
be longer with greater cargo carrying capacities. They are used primarily
to transport cargo on a time-sensitive basis.
o SPECIALTY VESSELS ("SPV") generally have special features to meet the
requirements of specific jobs. The special features include large deck
spaces, high electrical generating capacities, slow controlled speed and
varied propulsion thruster configurations, extra berthing facilities and
long-range capabilities. These vessels are primarily used to support
floating production storing and offloading ("FPSOs"), diving operations,
remotely operated vehicles ("ROVs"), survey operations and seismic data
gathering, as well as oil recovery, oil spill response and well
stimulation. Some of our owned vessels frequently provide specialty
functions, and two managed vessels are currently chartered for specialty
functions.
o UTILITY VESSELS are typically 90' to 150' in length and are used to provide
limited crew transportation, some transportation of oilfield support
equipment and, in some locations, standby functions. We do not operate any
vessels in this category.
THE NORTH SEA MARKET
We define the North Sea market as offshore Norway, Denmark, the
Netherlands, Germany, Great Britain and Ireland, the Norwegian Sea and the area
West of Shetlands. Historically, this has been the most demanding of all
4
exploration frontiers due to harsh weather, erratic sea conditions, significant
water depth and long sailing distances. Exploration and production operators in
the North Sea market are typically large and well-capitalized entities (such as
major oil companies and state-owned oil companies), in large part because of the
significant financial commitment required in this market. Projects in the region
tend to be fewer in number but larger in scope, with longer planning horizons
than projects in regions with less demanding environments, such as the Gulf of
Mexico. Consequently, vessel demand in the North Sea has generally been steadier
and less susceptible to abrupt swings than vessel demand in other regions.
This market can be broadly divided into three areas: exploration,
production platform support and field development or construction. Support of
the more volatile exploration segment of the market represents the primary
demand for AHTS vessels. While supply vessels support the exploration segment,
they also support the production and field construction segments, which
generally are not affected by frequent short-term swings in demand. However,
since AHTS vessels are capable of performing in a supply role, the availability
of AHTS vessels during prolonged periods of weakness in the exploration segment,
as was experienced during 1999 and the first half of 2000, can put downward
pressure on PSV demand.
Our North Sea fleet is oriented toward supply vessels which work in the
more stable segments of production platform support and field development or
construction, and includes 28 owned and bareboat chartered vessels (22 PSVs, 2
AHTS vessels, and 4 SpV) and 8 managed vessels (4 PSVs, 1 AHTS vessels and 3
SpVs). Onshore bases in Aberdeen, Scotland and Liverpool, England support these
vessels.
During the period of 1995-1998, the North Sea market experienced
consistently high vessel utilization rates and increasing day rates. Increased
drilling rig requirements during 1995 and 1996 led to a shortage of high
specification drilling rigs. A number of long-term drilling contracts were
signed during that period and, as demand increased in other regions, orders for
new drilling rigs were placed. Accelerated activity in construction and
development projects added to the demand for supply vessel services and by 1997
vessel demand was very strong. The positive market dynamics continued into the
first quarter of 1998. A drop in oil prices in the latter half of 1998 and into
the first quarter of 1999 resulted in significant reductions in spending plans
for 1999 and caused demand for vessel services in 1999 to fall well below that
experienced in 1997 and 1998. A number of the large integrated oil companies
were merged and the consolidation process in the industry had an adverse
near-term effect on the market for support vessel services. This slowdown in
demand occurred in a period when a number of vessels entered the marketplace
well ahead of the drilling rigs they were built to support. Most of these
vessels were ordered in 1997 and 1998 in response to increased construction in
the drilling industry and were delivered by the end of 1999. The vessel
deliveries aggravated an oversupply condition caused by the reduction in
development activity but was mitigated somewhat by vessels utilized in fiber
optic cable installation and maintenance activity. In the second quarter of
2000, in response to higher commodity pricing and some increase in drilling
activity, this market began to improve. This was at first evidenced by increased
utilization rates for offshore support vessels and was followed by an
improvement in day rates. The steady recovery continued throughout the balance
of the year, with demand outside of the North Sea accelerating price recovery as
deepwater locations in international markets competed for the available vessels.
These factors allowed day rates and utilization to escalate to levels similar to
those experienced during the high point of 1998. At the end of 2000 and
throughout 2001, rates continued to improve, and, during the latter half of
2001, were above those experienced in the previous peak period of 1998, despite
lower oil and natural gas prices.
The supply of vessels to the region has been a function of newbuild vessels
delivered to the market and the migration of vessels to other markets, either
permanently or for temporary assignments. The demand for existing vessels
outside of the North Sea and the expanded role for deepwater projects in
worldwide locations left the North Sea fleet largely in balance through the end
of 1998. As oil and gas activity levels declined after the precipitous oil price
drop in 1998-1999 and a number of newbuild vessels entered the market in advance
of new deepwater drilling rigs which had been delayed, an excess of supply
resulted and caused day rates and utilization to fall. The excess supply began
to be absorbed in 2000 as vessels moved out of the North Sea in support of
drilling rigs in other deepwater markets and as activity levels improved in the
region. During the second half of 2000 and throughout 2001, many companies
committed to a number of newbuild vessels with deliveries scheduled from 2001
through 2003. Industry sources have identified approximately 65 vessels outside
of the United States and Canada which are scheduled to be delivered over the two
year period 2002-2003. These newbuild vessels are generally designed to meet the
expanding demand for deepwater support vessels not only in the North Sea but in
the other major deepwater markets of the world.
THE SOUTHEAST ASIA MARKET
We define the Southeast Asia market as offshore Asia bounded roughly on the
west by the Indian subcontinent and on the north by China. This market includes
offshore Brunei, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines,
Singapore, Thailand and Vietnam. The design requirements for vessels in this
market are generally similar to the requirements of the shallow water Gulf of
Mexico. However, advanced exploration technology and rapid growth in energy
demand among many Pacific Rim countries have led to more remote drilling
locations, which has increased both the overall demand in this market and the
technical requirements for vessels. We believe that a number of exploration and
5
production projects planned or underway could increase the future demand for
Offshore Marine Services in the Southeast Asia market.
The Southeast Asia market differs country by country, but the competitive
environment is broadly characterized by a large number of small companies, in
contrast to many of the other major offshore exploration and production areas of
the world, where a few large operators dominate the market. Affiliations with
local companies are generally necessary to maintain a viable marketing presence.
Our management has been involved in the region since the mid-1970s, and we
currently maintain long-standing business relationships with a number of local
companies.
Vessels in this market are typically smaller than those operating in areas
such as the North Sea. Yet, the varying weather conditions, annual monsoons and
long distances between supply centers in Southeast Asia have allowed for a
variety of vessel designs to compete in this market, each suited for a
particular set of operating parameters. Vessels designed for the Gulf of Mexico
and other areas where moderate weather conditions prevail have historically made
up the bulk of the Southeast Asian fleet. In the middle part of the 1990s there
was pressure (most notably from Malaysia) to upgrade offshore vessel
capabilities by establishing limits on the age of vessels working in certain
countries' territorial waters and encouraging construction of new vessels
designed particularly to operate in this region. Demand for new vessels is
developing in the region where deepwater projects occur or where oil and gas
companies employ larger fleets of vessels. This trend toward newer vessels is
less likely to be a factor in vessel selection during a period of reduced
expenditures, as was experienced in part of 1999 and during much of 2000.
Changes in supply and demand dynamics have led at times, most recently
during 1999, to an excess number of vessels in markets such as the Gulf of
Mexico. It is possible that vessels currently located in the Arabian/Persian
Gulf area, West Africa or the Gulf of Mexico could relocate to Southeast Asia.
Not all vessels currently located in those regions would be able to operate in
Southeast Asia. Furthermore, transferring a vessel from the Gulf of Mexico to
Southeast Asia would involve a significant cash and opportunity cost.
Historically, there has been some movement between these operating areas, but
vessel movements have not been a major factor in the Southeast Asia vessel
market.
Indonesia is the only member of OPEC in the region. Oil and natural gas
exploration activity in Indonesia has historically focused on oil exploration.
Several large projects have now been identified that would exploit gas reserves.
Indonesian-based operations utilize the largest number of service vessels in the
region. Demand in Indonesia has seen a number of peaks and valleys during the
past decade. In 1992, demand softened as exploration activities were reduced
while some of the major oil companies renegotiated their production royalty and
tax structures with local authorities. This reversed somewhat in 1993 and 1994,
as some agreements were reached. However, in 1995, the oil companies pressed for
further modifications to their production royalty and tax structures and reduced
their exploration budgets, resulting in lower-than-expected activity in 1995 and
only marginal improvement in 1996 and 1997. The market improved in early 1998 as
part of a general improvement throughout Southeast Asia but turned lower in 1999
as a result of an overall worldwide slowdown in exploration and development
expenditures. During 2000, as markets in other regions rebounded, this market
lagged behind with several brief upturns only to be followed by contractions
back to the previously reduced levels. During 2001, activity levels improved and
both day rates and utilization were consistently higher than at any time in the
prior two years. Subsequent to the end of 2001, activity levels have remained
relatively high and day rates have also continued to be steady.
In the first quarter of 2000, we secured a contract for one of the newbuild
vessels completed in 1999 to work for a major oil company in Indonesia. This
development was important because it marked a shift from the historical demand
of the commodity type vessels which have dominated this market in the past to
newer, more technologically advanced service vessels. This contract, which was
originally for two years, was extended at a higher day rate until August of
2002.
THE BRAZILIAN MARKET
Similar to the North Sea, the Brazilian market requires highly
sophisticated vessels due to the harsh operating environment. We have
experienced success in meeting the market requirements through owned, managed
and bareboat chartered vessels and will look to our existing and newbuild fleet
to meet the expanding demand for vessels in this important market.
Over the last several years, the Brazilian government has opened up the
petroleum industry to private investment. The early bid rounds resulted in
extensive commitments by major international oil companies and consortiums of
independents, which have explored and will continue to explore the offshore
blocks awarded in the lease sales. This has created a demand for deepwater AHTS
and PSV vessels in support of the drilling and exploration activities that has
been met primarily from mobilization of vessels from other regions. As this
activity increases throughout 2002-2003 to meet the commitments of the oil
companies to the Brazilian government, there will be a growing demand for
offshore support vessels. In addition, Petroleo Brasiliero S.A. ("Petrobras"),
the Brazilian national oil company, has announced expansion plans for the next
several years which will create additional demand for offshore support vessels.
We have been active in
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bidding on additional work with both Petrobras and the consortiums and believe
we will be successful in the award of a contract for additional vessels in the
region.
The Seapower has been operating in Brazil since 1995 under a contract with
Petrobras, which runs into October 2003. The Leopard Bay, an AHTS vessel built
by Sanko Steamship Co. Ltd., ("Sanko") and bareboat chartered by us for three
years, began a three-year contract with Petrobras in November 1998 which was
extended into June 2002. During 2000, we exercised our option to extend the
bareboat charter for this vessel for an additional year through June 2003. We
contracted a third vessel, the Highland Scout, to Petrobras in January 2000 for
an initial period of six months which was extended several times during that
year. At the end of 2001, we extended the contract for an additional year at a
higher day rate. In the first quarter of 2001, we mobilized two of our managed
PSVs, the Torm Kestrel and Waveny Castle, to Brazil to work for BP in support of
their drilling program offshore Belem, Brazil. Both of these vessels were
returned to the North Sea on the completion of the drilling program in mid-
2001.
THE WEST AFRICAN MARKET
During January 2000, we mobilized a bareboat chartered vessel from the
North Sea market to Equatorial Guinea under a two-year contract with a major
international oil company which was subsequently extended into 2003. This marked
our entry into this market and was viewed as an important step for us in meeting
the growing demand for deepwater capable vessels in the emerging West African
Offshore Marine Services market. In 2001, we mobilized one of our managed AHTS
vessels to West Africa in support of a construction/cable installation program.
With the notable exploration successes which have been publicized by both major
oil companies and independents operating in the area, we believe that the market
in this region has one of the highest potentials for attracting North Sea
capable vessels. The heightened level of offshore expenditures has created an
increase in the demand for vessels to support drilling operations in this
region, as evidenced by the increase in vessel contracts awarded over the period
1999-2001. We believe that further demand will be created for both AHTS vessels
and PSVs as expenditures to further delineate and exploit the deepwater
discoveries are initiated by the international oil companies. This has been
further evidenced in the first several months of 2002 as bid activity has
increased for projects in Nigeria, Angola and Equatorial Guinea. We will look to
our current fleet of vessels in addition to our newbuild vessels to meet the
requirements of this market.
NEW VESSEL CONSTRUCTION PROGRAM
In response to the improving worldwide market conditions, during the second
half of 2000 we committed to the construction of nine new North Sea class
vessels with a Norwegian shipbuilder. This shipyard previously constructed
several of our other newbuilds including the UT 755 design PSVs. The program
includes six PSVs and three AHTSs with all vessels designed to be
multi-functional in that they will be capable of supporting underwater remotely
operated vehicle ("ROV") operations as well as traditional offshore support
operations. All of the vessels are being built to Rolls Royce/Ulstein
specifications and include two UT 745 and four UT 755 PSVs plus three UT 722
AHTS vessels. The timing of this construction program was chosen based on the
increased demand for deepwater and ultra-deepwater capable vessels. Many of the
same construction supervisors utilized in our successful construction program
during 1996 - 1999 have been mobilized to manage the new program. One PSV, the
Highland Fortress was delivered in July 2001 and two vessels were delivered in
February 2002. Two additional deliveries are scheduled in the third and fourth
quarter of 2002. The remaining four vessels are scheduled for delivery in 2003.
The first three vessels have been delivered on time and on budget. The remaining
vessels to be delivered are anticipated to meet the same cost and delivery
criteria. The delivery dates are expected to precede the termination dates of
the four current bareboat chartered vessels. The total estimated cost of the
program is approximately $185 million. To date we have spent $69.0 million,
including $33.2 million in 2002. The construction cost for the vessels is based
on a fixed price contract denominated in Norwegian Kroner. Additionally, we have
systematically entered into forward contracts to minimize our foreign currency
exchange risk. The following table outlines the cost and contracted delivery
schedule of the program:
VESSEL VESSEL TYPE DELIVERY DATE COST (MILLIONS)
------ ----------- ------------- ---------------
UT 755L (Highland Fortress).. PSV July 12, 2001 $ 14.0
UT 745 (Highland Navigator).. PSV February 27, 2002 18.8
UT 745 (North Mariner)....... PSV February 28, 2002 19.7
UT 755 (Highland Bugler)..... PSV 3rd Qtr. 2002 12.5
UT 722L (Highland Courage)... AHTS 4th Qtr. 2002 30.2
UT 755L...................... PSV 1st Qtr 2003 15.0
UT 755....................... PSV 2nd Qtr 2003 13.0
UT 722L...................... AHTS 3rd Qtr 2003 31.0
UT 722L...................... AHTS 4th Qtr 2003 31.0
Total Cost $ 185.2
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OUR FLEET
Our existing fleet as of March 5, 2002 includes 53 vessels. Of these
vessels, 41 are owned by us (one of which, the Zacharias, is under an
installment sale which obligates the charterer to purchase the vessel not later
than April 2003), four are bareboat chartered from other owners and eight are
under management for other owners. Additionally, there are six remaining vessels
to be delivered as part of our newbuild program in Norway. Several of these
vessels may replace four of the bareboat chartered vessels, all of which will be
returned during the years 2003-2004.
TYPE LENGTH BHP DWT
FLEET VESSEL (A) FLAG DELIVERY (FEET) (B) (C)
NORTH SEA BASED (D)
Owned Clwyd Supporter SpV UK 1984 266 10,700 1,400
Highland Champion LgPSV UK 1979 265 4,800 3,910
Highland Drummer LgPSV UK 1997 221 5,450 3,115
Highland Fortress LgPSV UK 2001 236 5,450 3,200
Highland Legend PSV UK 1986 194 3,590 1,442
Highland Navigator LgPSV UK 2002 275 9,600 4,320
Highland Patriot LgPSV UK 1982 233 4,800 2,649
Highland Pioneer LgPSV UK 1983 224 5,400 2,500
Highland Piper LgPSV UK 1996 221 5,450 3,115
Highland Pride LgPSV UK 1992 265 6,600 3,075
Highland Rover LgPSV UK 1998 236 5,450 3,200
Highland Spirit SpV UK 1998 202 6,000 1,800
Highland Sprite SpV UK 1986 194 3,590 1,442
Highland Star LgPSV UK 1991 265 6,600 3,075
Highland Warrior LgPSV Bermuda 1981 265 5,300 4,049
North Prince LgPSV UK 1978 259 6,000 2,717
Safe Truck LgPSV UK 1996 221 5,450 3,115
Sefton Supporter SpV UK 1971 250 1,620 1,233
North Challenger LgPSV Norway 1997 221 5,450 3,115
North Crusader AHTS Norway 1984 236 12,000 2,064
North Fortune LgPSV Norway 1983 264 6,120 3,366
North Mariner LgPSV Norway 2002 275 9,600 4,320
North Vanguard LgPSV Norway 1990 265 6,600 4,000
Sound Truck LgPSV Norway 1983 265 6,120 3,370
Stout Truck LgPSV Norway 1998 221 5,450 3,115
Stream Truck LgPSV Norway 1998 276 9,600 4,320
Highland Bugler (e) LgPSV TBD 2002 221 5,450 3,115
Highland Courage (e) AHTS TBD 2002 260 16,320 2,000
TBN UT 755 (e) LgPSV TBD 2003 221 5,450 3,115
TBN UT 755L (e) LgPSV TBD 2003 236 5,450 3,200
TBN UT 722L (e) AHTS TBD 2003 260 16,320 2,000
TBN UT 722L (e) AHTS TBD 2003 260 16,320 2,000
Chartered Mercury Bay LgPSV Bermuda 1998 221 5,450 3,115
Monarch Bay LgPSV Bermuda 1998 221 5,450 3,115
Torm Heron (f) AHTS Bermuda 1999 241 15,000 2,900
SOUTHEAST ASIA BASED
Owned Highland Guide LgPSV US 1999 218 4,640 2,800
Sea Conquest SmAHTS Panama 1977 185 3,850 1,142
Sea Diligent SmAHTS Panama 1981 192 4,610 1,219
Sea Eagle SmAHTS Panama 1976 185 3,850 1,215
Sea Endeavor SmAHTS Panama 1981 191 4,000 1,000
Sea Explorer SmAHTS Panama 1981 192 5,750 1,420
Sea Searcher SmAHTS Panama 1976 185 3,850 1,215
Searunner Crew Panama 1982 120 2,720 126
Seawhip SmAHTS Panama 1983 192 3,900 1,200
Seawitch SmAHTS Panama 1983 192 3,900 1,200
Sem Courageous SmAHTS Malaysia 1981 191 4,000 1,000
Sem Valiant SmAHTS Malaysia 1981 191 4,000 1,000
BRAZIL BASED
Owned Highland Scout LgPSV US 1999 218 4,640 2,800
Seapower SpV Panama 1974 222 7,040 1,205
Chartered Leopard Bay AHTS Bermuda 1998 241 15,000 2,900
(a) Legend: LgPSV - Large platform supply vessel
PSV - Platform supply vessel
AHTS - Anchor handling, towing and supply vessel
SmAHTS - Small anchor handling, towing and supply vessel
Crew - Crewboat
SpV - Specialty vessel, including towing and oil spill response
(b) Brake horsepower.
(c) Deadweight tons.
(d) The Zacharias, acquired as part of the Sea Truck acquisition, is under a
bareboat charter and has a provision requiring the charterer to purchase
the vessel no later than April 2003 and is not included herein.
(e) Vessel currently under construction in Norwegian shipyard.
(f) Operated pursuant to 50/50 joint venture agreement with Torm U.K. Limited,
through May 2002
Note: Eight additional vessels are under management agreements for other owners.
8
CUSTOMERS, CONTRACT TERMS AND COMPETITION
Our principal customers are major integrated oil companies and large
independent oil and natural gas exploration, production companies working in
international markets, and foreign government owned or controlled oil companies,
as well as companies that provide logistic, construction and other services to
such oil companies and foreign government organizations. During 2001, under
multiple contracts in the ordinary course of business, one customer accounted
for more than 10% of total consolidated revenues: Aberdeen Services Company
("ASCO") at 19.0%. ASCO is a logistics coordinator primarily serving major
international oil companies. The contracts are industry standard time charters
involving several of our vessels for periods ranging from a few days or months
to more than a year. The contracts are generally not cancelable except for
unsatisfactory performance by the vessel. The loss of a major customer could
have a material adverse effect on our financial condition and results of
operations if a replacement is not obtained.
Contract or charter durations vary from single-day to multi-year in length,
based upon many different factors that vary by market. Historically, term
charters in the Offshore Marine Services industry have generally extended from
six months to one year in length. Additionally, there are "evergreen" charters
(also known as "life of field" or "forever" charters), and at the other end of
the spectrum, there are "spot" charters and "short duration" charters, which can
vary from single voyage to charters of less than six months. Longer duration
charters are more common where equipment is not as readily available or specific
equipment is required. In the North Sea, multi-year charters have been more
common, and we believe that term charters constitute the majority of the market.
Term charters in Southeast Asia are currently somewhat less common than in the
North Sea and generally are two years or shorter in length. In the developing
Brazil and West Africa markets, term charters are relatively common due to the
harsh operating conditions, the scarcity of quality equipment and the distance
to larger markets. In addition, charters for vessels in support of floating
production, FPSOs are typically "life of field" or "full production horizon
charters". Because of frequent renewals, the stated duration of charters may
have little correlation with the length of time the vessel is actually
contracted to a particular customer.
Bareboat charters are contracts for vessels, generally for a term in excess
of one year, whereby the owner transfers all market exposure for the vessel to
the charterer in exchange for an arranged fee. The charterer has the right to
market the vessel without direction from the owner. In addition to bareboat
charter fees paid to the owner, the charterer is responsible for providing the
crew and all operating costs for the vessel. No depreciation expense is borne by
the charterer. Bareboat chartered vessels, in comparison to identical owned
vessels with the same day rate, generate the same revenue but less operating
income since bareboat charter expense is generally higher than depreciation
expense and less operating cash flow since bareboat charter expense is a cash
cost.
Managed vessels add to the market presence of the manager but provide
limited direct financial contribution. Management fees are typically based on a
per diem rate and are not subject to fluctuations in the charter hire rates. The
manager is typically responsible for disbursement of funds for operating the
vessel on behalf of the owner. Depending on the level of service provided by the
manager, fees for services range from $5,000 to $10,000 per month per vessel.
Substantially all of our charters are fixed in British pounds, Norwegian
Kroner and U.S. dollars. We attempt to reduce currency risk by matching each
vessel's contract revenue to the currency matching its operating expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Currency Fluctuations and Inflation."
We compete with approximately 15-20 companies in the North Sea market and
numerous small and large competitors in the Southeast Asia market principally on
the basis of suitability of equipment, price and service. Also, in certain
foreign countries, preferences are given to vessels owned by local companies. We
have attempted to mitigate some of the impact of such preferences through
affiliations with local companies. Some of our competitors have significantly
greater financial resources than we do.
FLEET AVAILABILITY
A significant portion of our available fleet is committed under contracts
of various terms. This represents the highest level of forward contract cover in
our history for the current year as well as for one year out. The following
table outlines the percentage of our forward days under contract as of March 5,
2001 and 2002:
AS OF MARCH 5, 2001 AS OF MARCH 5, 2002
------------------------ ------------------------
2001 2002 2002 2003
VESSEL DAYS VESSEL DAYS VESSEL DAYS VESSEL DAYS
----------- ----------- ----------- -----------
North Sea Based Fleet 82.0% 43.9% 88.1% 56.3%
Southeast Asia Based
Fleet 43.4% 1.4% 38.0% 5.4%
Brazil Based Fleet 86.6% 0.0% 80.2% 26.3%
Overall Fleet 68.9% 25.6% 73.5% 40.0%
9
ENVIRONMENTAL AND GOVERNMENT REGULATION
We must comply with extensive government regulation in the form of
international conventions, federal and state laws and regulations in
jurisdictions where our vessels operate and/or are registered. These
conventions, laws and regulations govern matters of environmental protection,
worker health and safety, and the manning, construction and operation of
vessels. We believe that we are in material compliance with all applicable laws
and regulations. The International Maritime Organization recently made the
regulations of the International Safety Management ("ISM") Code mandatory. The
ISM Code provides an international standard for the safe management and
operation of ships, pollution prevention and certain crew and vessel
certifications which is effective, unless extended by governmental authorities,
on July 1, 2002. While we believe the company will be in compliance on the
effective date, no assurance can be given that compliance will be completed on a
timely basis. The risks of incurring substantial compliance costs, liabilities
and penalties for non-compliance are inherent in offshore marine operations.
Compliance with environmental, health and safety laws and regulations increases
our cost of doing business. Additionally, environmental, health and safety laws
change frequently. Therefore, we are unable to predict the future costs or other
future impact of environmental, health and safety laws on our operations. There
is no assurance that we can avoid significant costs, liabilities and penalties
imposed as a result of governmental regulation in the future.
OPERATIONAL RISKS AND INSURANCE
Our operations are subject to various operating hazards and risks,
including:
o adverse sea and weather conditions;
o mechanical failure;
o navigation errors;
o collision;
o oil and hazardous substance spills, containment and clean up;
o labor shortages and strikes;
o damage to and loss of drilling rigs and production facilities; and
o war, sabotage and terrorism risks.
These risks present a threat to the safety of personnel and to our vessels,
cargo, equipment under tow and other property, as well as the environment. We
could be required to suspend our operations or request that others suspend their
operations as a result of these hazards. Third parties may have significant
claims against us for damages due to personal injury, death, property damage,
pollution and loss of business.
We maintain customary insurance coverage for casualty and liability risks.
We have renewed our primary insurance program for the insurance year 2002-2003.
As a result of the events of September 11, 2001, the cost to cover war risks on
our vessels has increased and could substantially increase over prior years'
policies. We will evaluate the need to maintain this coverage as it applies to
our fleet in the future. There is no assurance that our insurance coverage will
be available, or affordable in the future, and if available whether it will be
adequate to cover future claims that may arise.
FOREIGN OPERATIONS
During the past five years, we derived substantially all of our revenues
from foreign sources. We therefore face risks inherent in conducting business
internationally, such as:
o foreign currency exchange fluctuations or imposition of currency
exchange controls;
o legal and governmental regulatory requirements;
o potential vessel seizure or nationalization of assets;
o import-export quotas or other trade barriers;
o difficulties in collecting accounts receivable and longer collection
periods;
o political and economic instability;
o politically adverse tax consequences;
o difficulties and costs of staffing and managing international
operations; and
o language and cultural differences.
In the past, these conditions or events have not materially affected our
operations. However, we cannot predict whether any such conditions or events
might develop in the future. Also, we organized our subsidiary structure and our
operations in part based on certain assumptions about various foreign and
domestic tax laws, currency exchange requirements,
10
and capital repatriation laws. While we believe our assumptions are correct,
there can be no assurance that taxing or other authorities will reach the same
conclusion. If our assumptions are incorrect, or if the relevant countries
change or modify such laws or the current interpretation of such laws, we may
suffer adverse tax and financial consequences, including the reduction of cash
flow available to meet required debt service and other obligations. Any of these
factors could materially adversely affect our international operations and,
consequently, our business, operating results and financial condition.
SEASONALITY OF BUSINESS
Our fleet operations are subject to seasonal factors. Operations in the
North Sea are generally at their highest level during the months from April to
August and at their lowest levels during November to February. Vessels operating
in Southeast Asia are generally at their lowest utilization rates during the
monsoon season, which moves across the Asian continent between September and
early March. The actual monsoon season for a specific Southeast Asian location
is about two months. In addition, operations in any market may be affected by
unusually long or short construction seasons due to, among other things,
abnormal weather conditions.
EMPLOYEES
At December 31, 2001, we had 300 employees located in the United States,
the United Kingdom, Norway, Southeast Asia and Brazil. Additionally, through our
contract with a crewing agency, we participate in collective bargaining
arrangements with 753 contract crew members working on our North Sea vessels
under evergreen employment agreements with wages renegotiated annually in June.
We have no other collective bargaining agreements. Relations with our employees
are considered satisfactory. To date, our operations have not been interrupted
by strikes or work stoppages.
PROPERTIES
Our principal executive offices are located in Houston, Texas, while
operations are headquartered in Lafayette, Louisiana. For local support, we have
offices and warehouse facilities in Singapore and Aberdeen, Scotland. All
facilities except one owned facility in Aberdeen, Scotland are under lease. Our
operations generally do not require highly specialized facilities, and suitable
facilities are generally available on a lease basis as required.
ADDITIONAL INFORMATION
We file annual, quarterly, and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet on our website at http://www.gulfmark.com and at the SEC's website at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
Public Reference Room at the following location: 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
ITEM 3. LEGAL PROCEEDINGS
GENERAL
Various legal proceedings and claims that arise in the ordinary course of
business may be instituted or asserted against us relating to the Offshore
Marine Services operations. Additionally, we may be subject to claims for
indemnification by Weatherford International, Inc. ("Weatherford") under our
indemnity obligations described below. Although the outcome of litigation cannot
be predicted with certainty, we believe, based on discussions with legal counsel
and in consideration of reserves recorded, that the outcome of these legal
actions, if any, would not have a material adverse effect upon our consolidated
financial position and results of our operations. We cannot predict whether any
such claims may be made in the future.
DISTRIBUTION AGREEMENT INDEMNITIES
We were formed as a spin-off from our predecessor and began separate
trading on May 1, 1997. The assets remaining with the predecessor included a
domestic erosion control business known as "Ercon" and an investment in the
common stock of Weatherford. In effecting the spin-off, we agreed to indemnify
Weatherford and certain of its affiliates against:
o liabilities for all past and future claims and litigation against
Weatherford stemming from the predecessor's or our offshore marine
services operations;
o liabilities for claims and litigation against Weatherford or its
current or past subsidiaries and affiliates, including Ercon, arising
out of acts or omissions prior to May 1, 1997; and
o any tax liabilities in the event the spin-off and related transactions
are determined to be taxable.
11
We have established an accrual on our financial statements and maintain
insurance coverage, which we believe is adequate, to cover any contingent
liabilities that may arise under the indemnity. During 2001, we reached an
agreement with Ercon and Weatherford related to prior warranty claims asserted
against Ercon by their customers. This had the effect of reducing the accrual we
had established in 1997; however, there is no assurance that the remaining
accrual is adequate. Any future successor of GulfMark would be required to
assume these indemnity obligations, which may have the effect of delaying,
deferring or preventing a change of control.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ National Market under the symbol
"GMRK." The following table sets forth the range of high and low sales prices
for our common stock for the periods indicated, as reported:
2001 2000
---------------------- ----------------------
HIGH LOW HIGH LOW
--------- --------- --------- --------
Quarter ended March 31.............. $35.00 $23.75 $ 22.50 $ 11.50
Quarter ended June 30............... $39.99 $27.40 $ 26.25 $ 16.75
Quarter ended September 30.......... $34.00 $22.00 $ 31.75 $ 18.50
Quarter ended December 31........... $30.45 $23.10 $ 31.00 $ 21.00
For the quarter ended March 31, 2002 (through March 5, 2002), the range of
low and high sales prices was $26.21 and $39.75, respectively. On March 5, 2002,
the closing sale price of our common stock as reported by the NASDAQ National
Market was $38.50 per share. As of March 7, 2002, there were 788 shareholders of
record.
We have not declared or paid dividends during the past five years. Pursuant
to the terms of the indenture under which the Notes (as hereinafter defined) are
issued, we may be restricted from declaring or paying dividends; however, we
currently anticipate that, for the foreseeable future, any earnings will be
retained for the growth and development of our business. The declaration of
dividends is at the discretion of our Board of Directors. Our dividend policy
will be reviewed by the Board of Directors at such time as may be appropriate in
light of future operating conditions, dividend restrictions of subsidiaries and
investors, financial requirements, general business conditions and other
factors.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Consolidated Financial Statements included herein, as well as the
financial data presented in the table following, present the net assets and
results of operations of Ercon and the common stock of Weatherford owned by our
predecessor as discontinued operations for all periods presented. The data that
follows should be read in conjunction with our Consolidated Financial Statements
and the notes thereto included in Item 8 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA :
Revenues ........................................... $ 114,063 $ 77,702 $ 72,258 $ 86,194 $ 46,019
Direct operating expenses .......................... 43,403 34,060 34,127 30,881 18,231
Bareboat charter expense ........................... 8,931 6,661 7,089 3,221 --
General and administrative expenses ................ 7,623 6,328 6,087 5,718 5,364
Depreciation and amortization ...................... 15,327 12,613 12,420 11,345 6,711
------------ ------------ ------------ ------------ ------------
Operating income ................................... 38,779 18,040 12,535 35,029 15,713
Gain on sale of assets ............................. -- 3,651 -- 2,930 --
Interest expense, net .............................. (11,569) (10,731) (9,501) (8,208) (3,819)
Loss from unconsolidated venture ................... -- (214) (865) -- --
Minority interest .................................. (1,524) -- -- -- --
Other income (expense), net ........................ 23 217 -- (146) (73)
Income tax (provision) benefit ..................... 12,213 (3,056) (308) (8,816) (3,626)
------------ ------------ ------------ ------------ ------------
Income from continuing operations .................. 37,922 7,907 1,861 20,789 8,195
Loss from discontinued operations, net of taxes .... -- -- -- -- (648)
Loss on disposal of segment, net of taxes .......... -- -- -- -- (1,426)
------------ ------------ ------------ ------------ ------------
Net income ......................................... $ 37,922 7,907 $ 1,861 $ 20,789 $ 6,121
============ ===== ============ ============ ============
Earnings per share from continuing
operations (basic) ............................ $ 4.63 $ 0.97 $ 0.23 $ 2.58 $ 1.15
Weighted average common shares (basic) ............. 8,194 8,163 8,129 8,047 7,155
Earnings per share from continuing
operations (diluted) (a) ...................... $ 4.51 $ 0.95 $ 0.22 $ 2.52 $ 1.11
Weighted average common shares (diluted) (a) ....... 8,403 8,326 8,271 8,255 7,413
STATEMENT OF CASH FLOWS DATA:
Cash provided by operating
activities of continuing operations ........... $ 41,755 $ 14,349 $ 16,376 $ 32,471 $ 19,112
Cash used in investing activities .................. (85,241) (6,240) (19,739) (62,142) (37,218)
Cash provided by financing activities .............. 31,530 110 46 36,475 28,658
Effect of exchange rate changes on cash ............ (812) (2,178) (40) (682) (541)
OTHER DATA:
EBITDA (b) ......................................... $ 54,106 $ 30,653 $ 24,955 $ 46,374 $ 22,424
Cash dividends per share ........................... -- -- -- -- --
Total vessels in fleet (c) ......................... 50 47 51 38 30
Average number of owned or chartered vessels(d) ... 38.0 33.6 31.8 28.7 23.0
AS OF DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 21,923 $ 34,691 $ 28,650 $ 32,007 $ 25,885
Vessels and equipment, net ... 262,364 182,628 195,358 192,615 105,262
Total assets ................. 352,051 263,914 270,582 271,369 154,661
Long-term debt (e) ........... 180,669 130,097 130,128 130,136 42,918
Total stockholders' equity ... 133,392 97,587 104,678 108,490 85,272
-------------------------
(a) Earnings per share is based on the weighted average number of shares of
Common Stock and common stock equivalents outstanding.
(b) As used herein, EBITDA is operating income plus depreciation and
amortization. EBITDA is used by management as a supplemental financial
measurement in the evaluation of our business and in establishing our
capital budget and should not be considered as an alternative to net
income, as an indicator of our operating performance, as an alternative to
cash flows or as a measure of liquidity. Because EBITDA is not uniformly
calculated among and across industry groups, this measure may not be
comparable to similarly titled measures reported by other companies. EBITDA
is presented here to provide additional information.
(c) Includes managed vessels in addition to those that are owned and chartered.
See page and 9 for further information concerning our fleet.
(d) Includes owned and chartered vessels only. Adjusted for additions and
dispositions occurring during each period. See page 8 for further
information concerning our fleet.
(e) Excludes current portion of long-term debt.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with our Consolidated
Financial Statements, including the notes thereto, contained herein. See also
"Selected Consolidated Financial Data."
GENERAL
Our operations are affected primarily by day rates, fleet utilization and
the number and type of vessels in our fleet. These factors are driven by trends
within the oil and natural gas exploration and production industry, which
generally affect the demand for vessels, as well as by trends impacting the
broader economy and capital markets, which generally affect the supply of
vessels. While offshore support vessels service existing oil and natural gas
production platforms and exploration and development activities, incremental
demand depends primarily upon drilling activity, which, in turn, is related to
both short-term and long-term trends in oil and natural gas prices. As a result,
trends in oil and natural gas prices may significantly affect fleet utilization
and day rates. There were significant declines in oil and gas prices during 1998
followed by equally significant increases subsequent to the first quarter of
2000. Although commodity prices have rebounded from the levels of 1998-1999,
they have remained somewhat volatile, albeit at a higher average level than at
any sustained time over the past decade. The volatility of prices will continue
to be a factor in the planning for future oil and gas exploration and
development expenditures and the consequent demand for our vessels.
An additional factor affecting operating earnings is the mix of vessels
owned versus bareboat chartered by us. Owned and bareboat chartered vessels
generate operating revenues and may incur expenses at similar rates. However,
chartered vessels also incur bareboat charter hire expense instead of
depreciation expense. Depreciation expense is generally less than bareboat
charter expense.
In addition, we provide management services to other vessel owners for a
fee. Only the management fee charged by us is included in our operating
revenues. The day rates for these vessels are excluded for purposes of
calculating fleet rates per day worked and utilization in all years.
Our operating costs are primarily a function of fleet size and utilization
levels. The most significant direct operating costs are wages paid to vessel
crews, maintenance and repairs and marine insurance. Generally, fluctuations in
vessel utilization affect only that portion of our direct operating costs that
is incurred when the vessels are active. As a result, direct operating costs as
a percentage of revenues may vary substantially due to changes in day rates and
utilization.
In addition to these variable costs, we incur fixed charges related to the
depreciation of our fleet and costs for routine drydock inspections and
maintenance and repairs designed to ensure compliance with applicable
regulations and to maintain certifications for our vessels with various
international classification societies. The aggregate number of drydockings and
other repairs undertaken in a given period generally determines maintenance and
repair expenses and marine inspection amortization charges. Costs incurred for
drydock inspection and regulatory compliance are capitalized and amortized over
30 months, which approximates the period between required drydockings.
Under applicable maritime regulations, vessels must be drydocked twice in a
five-year period for inspection and certification. Should we undertake a large
number of drydockings in a particular fiscal period, comparative results may be
affected. For the year ended December 31, 2001, we completed the drydocking of
15 vessels at an aggregate cost of $4.9 million, versus 11 vessels at an
aggregate cost of $2.4 million in 2000 and 10 vessels drydocked at an aggregate
cost of $2.6 million in 1999.
Over the last several years, we have been actively expanding our fleet
through the construction of new vessels, acquisition of existing equipment from
the resale market and by bareboat chartering vessels owned by others. We
contracted with a Norwegian shipbuilder for the construction of nine North Sea
class vessels for a total of approximately $185 million. Projected cash outflows
for this program for 2002 is $74.2 million, of which $33.2 million has been
expended as of March 5, 2002. To complete this program in 2003, projected cash
outflows are $75.2 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements contain information that is pertinent to management's discussion and
analysis. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of any contingent assets and liabilities. Management believes these
accounting policies involve judgment due to the sensitivity of the methods,
assumptions and estimates necessary in determining the related asset and
liability amounts. We believe we have exercised proper judgment in determining
these estimates based on the facts and circumstances available to management at
the time the estimates were made.
14
Revenue Recognition
Revenues from charters for offshore marine services are recognized as
performed based on contractual charter rates. Currently, charter terms range
from several days to as long as five years in duration. Management services
revenue is recognized as performed in the period in which the services are
provided.
Deferred Drydocking and Deferred Financing Costs
Costs incurred in connection with drydocking are capitalized and amortized
over 30 months, which approximates the period between required drydockings.
Deferred financing costs are capitalized as incurred and are amortized over the
expected term of the related debt.
Goodwill
Goodwill primarily relates to the 1998 acquisition of Brovig Supply and the
June 2001 acquisition of Sea Truck and has been allocated based on the estimated
fair market value of net tangible assets acquired. We assess the recoverability
of the carrying value of goodwill periodically or when events or circumstances
indicate the potential for impairment. Our assessment is based upon the fair
value of the goodwill which is based upon our estimate of future cash flows. If
our estimated undiscounted cash flows are less than the carrying value of the
related goodwill, an impairment would be recognized based upon the discounted
value of such cash flows. Changes in economic conditions of our business could
affect our estimate of future cash flows. Any impairment in goodwill would be
recognized in our operating results.
RESULTS OF OPERATIONS
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000.
Our results for 2001 have continued to follow the general pattern of the
principal markets in which we operate. Although the U.S. market for Marine
Offshore Services fell off during the second half of 2001, we have no presence
in the this market. However, our international markets remained quite strong
with both the North Sea and Southeast Asia regions demonstrating much higher
utilization when compared to 2000. This activity level was reflected in day rate
increases in both the term and spot markets in the North Sea as well as term
rate increases in Southeast Asia. Because of the strong term market, we fixed a
number of our North Sea vessels on multi-year contracts with options for
extensions beyond the primary term and had a number of options for contract
extensions declared by charterers under existing agreements. This has in turn
produced the highest level of forward contract cover in our history.
For the year ended December 31, 2001, we reported net income of $37.9
million, $4.51 per diluted share. Our 2001 results include the pre-2001 deferred
tax recapture of $15.7 million, or $1.87 per share (diluted) recognized in the
second quarter of 2001 for adoption of the tonnage tax regime in the U.K. and
Norway. Excluding the recapture, net income was $22.2 million, or $2.64 per
share (diluted), on revenues of $114.1 million compared to $7.9 million, or
$0.95 per share (diluted) on revenues of $77.7 million for the preceding year.
The increase in revenue was attributable primarily to the expansion of the
fleet during the year through the three separate acquisition transactions
(Highland Patriot, Sea Truck and Clear Seas vessels), the delivery of the
Highland Fortress in July 2001 and the inclusion of the joint venture revenue
from the vessel Torm Heron due to consolidating of the joint venture as a result
of our increased managerial authority over vessel operations. Of the $36.4
million increase in revenue, 41% was due to the increased size of the fleet
while the revenue from the joint venture represented an additional 20% of the
increase. While consolidation of the Torm Heron joint venture resulted in
increased revenue and operating income, it did not affect our net income. Both
higher day rates in all regions and increased utilization in both the North Sea
and Southeast Asia accounted for the balance of the increase in revenue of 23%
and 16% respectively. Operating expenses increased $9.3 million in 2001. Of this
increase, 84% was due to the increased size of the fleet including the joint
venture vessel with the balance resulting from higher operating costs primarily
on the North Sea vessels. Bareboat charter expense increased by $2.3 million
over the previous year due principally to the inclusion of $2.0 million in
bareboat charter fees related to inclusion of the joint venture vessel. General
and administrative expenses increased $1.3 million in 2001 primarily due to the
addition of the Norwegian operating base acquired in the Sea Truck acquisition.
Depreciation expense also increased in 2001 when compared to 2000 by $2.7
million and was related solely to the increase in the size of the fleet. Net
interest expense reflected an increase of $0.8 million due to increased
borrowings related to the Sea Truck acquisition and a decrease in interest
income due to lower average cash balances, offset in part, by an increase in the
amount of capitalized interest related to the newbuild vessel program. The 2000
period also reflected a pre-tax gain of $3.7 million primarily reflecting the
gain on the sale of the old Highland Fortress. Minority interest increased by
$1.5 million and reflects the distribution of profits from the joint venture
vessel included in the operating income categories of the Statements of
15
Income. The following table summarizes average day rates, overall utilization
and average vessels owned or chartered for the comparable periods:
YEAR ENDED DECEMBER 31,
--------------------------------------
INCREASE
2001 2000 (DECREASE)
---------- ---------- ----------
Average Rates Per Day Worked (a) (b):
North Sea Based Fleet (c) ............... $ 10,932 $ 9,101 $ 1,831
Southeast Asia Based Fleet .............. 4,353 4,039 314
Brazil Based Fleet ...................... 9,576 8,382 1,194
Overall Utilization (a) (b):
North Sea Based Fleet (c) ............... 96.9% 92.8% 4.1%
Southeast Asia Based Fleet .............. 86.4% 67.2% 19.2%
Brazil Based Fleet ...................... 93.7% 95.9% (2.2)%
Average Owned or Chartered Vessels (a) (d):
North Sea Based Fleet ................... 23.0 18.6 4.4
Southeast Asia Based Fleet .............. 12.0 12.0 --
Brazil Based Fleet ...................... 3.0 3.0 --
.4
Total ............................... 38.0 33.6 4
(a) Includes all owned or bareboat chartered vessels as well as the joint
venture bareboat chartered vessel. Managed vessels are not included.
(b) Average rates per day worked is defined as total charter revenues divided
by number of days worked. Overall utilization rate is defined as the total
number of days worked divided by the total number of days of availability
in the period.
(c) Revenues for vessels in our North Sea fleet are primarily earned in British
pounds ((pound)) and have been converted to U.S. dollars at the average
exchange rate ($/(pound)) for the periods indicated. The average exchange
rates for the years ended December 31, 2001, and 2000 were (pound) = $1.44
and (pound) = $1.52, respectively. The North Sea Based Fleet includes the
Monarch Bay which is working in West Africa.
(d) Adjusted for vessel additions and dispositions occurring during each
period.
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999.
Our results for 2000 reflected an increase in activity as energy
commodities have shown consistently strong pricing. During the first half of
2000, we were unwilling to fix our fleet on long-term contracts based on our
belief that there would be a recovery in the market during the second half of
the year. Exploration and development expenditures began to show the effects of
the recovery in commodity prices during the second quarter of 2000. Accordingly,
we began fixing our vessels on term work and as such, the utilization levels
were at near capacity in the North Sea fleet and Brazil for the last two
quarters of 2000. Likewise, Southeast Asia began to show improvements in
utilization as the year 2000 progressed, which further caused the day rates in
the region to climb.
We recognized net income of $7.9 million in 2000 compared to $1.9 million
in 1999. Revenues increased to $77.7 million and operating income increased to
$18.0 million in 2000, compared to $72.3 million and $12.5 million in 1999,
respectively. The increase in revenue was attributable to the 1999 expansion of
the fleet with the full year effect of the Highland Guide, Highland Scout and
Highland Pioneer as well as the significant improvement in utilization. These
increases more than offset the impact of the sale of the 1982-built PSV, the
Highland Fortress, in July 2000 and the slight decrease in average day rate.
Operating expenses remained virtually unchanged in part due to our cost control
measures and the weaker exchange rates in both the U.K. and Norway. Net interest
expense reflected an increase of $1.2 million due to a decrease in interest
income of $0.3 million coupled with a reduction in the amount of interest
capitalized of $0.9 million. The 2000 period also reflected a pre-tax gain of
$3.7 million primarily reflecting the gain on sale of the Highland Fortress. The
following table summarizes average day rates, overall utilization and average
vessels owned or chartered for the comparable periods:
16
YEAR ENDED DECEMBER 31,
--------------------------------------
INCREASE
2000 1999 (DECREASE)
---------- ---------- ----------
Average Rates Per Day Worked (a) (b):
North Sea Based Fleet (c) ................ $ 9,101 $ 9,489 $ (388)
Southeast Asia Based Fleet ............... 4,039 4,184 (145)
Brazil Based Fleet ....................... 8,382 9,529 1,147)
Overall Utilization (a) (b):
North Sea Based Fleet (c) ................ 92.8% 88.2% 4.6%
Southeast Asia Based Fleet ............... 67.2% 62.9% 4.3%
Brazil Based Fleet ....................... 95.9% 76.9% 19.0%
Average Owned or Chartered Vessels (a) (d):
North Sea Based Fleet .................... 18.6 18.1 0.5
Southeast Asia Based Fleet ............... 12.0 11.4 0.6
Brazil Based Fleet ....................... 3.0 2.3 0.7
Total ................................ 33.6 31.8 1.8
(a) Includes all owned or bareboat chartered vessels, except the joint venture
bareboat chartered vessel. Managed vessels are not included.
(b) Average rates per day worked is defined as total charter revenues divided
by number of days worked. Overall utilization rate is defined as the total
number of days worked divided by the total number of days of availability
in the period.
(c) Revenues for vessels in our North Sea fleet are primarily earned in British
pounds ((pound)) and have been converted to U.S. dollars at the average
exchange rate ($/(pound)) for the periods indicated. The average exchange
rates for the years ended December 31, 2000, and 1999 were (pound) = $1.52
and (pound) = $1.62, respectively. The North Sea Based Fleet includes the
Monarch Bay which is working in West Africa.
(d) Adjusted for vessel additions and dispositions occurring during each
period.
LIQUIDITY AND CAPITAL RESOURCES
Our ongoing liquidity requirements arise primarily from 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. As of
March 5, 2002, we have six new vessels under construction in Norway.
Historically, bank financing and internally generated funds have provided
funding for these activities. Our existing credit facility provides for
borrowings up to $47 million in two separate tranches. The amount outstanding
under the existing credit facility is $43.6 million. We have recently executed a
commitment letter for a new $100 million credit facility (the "New Credit
Facility") which will replace the existing facility. This New Credit Facility is
expected to close on March 31, 2002. Estimated cash flow from operations, cash
balances on hand and the New Credit Facility should be adequate to meet the
requirements of the newbuild program and routine capital expenditures for
drydocking and enhancements to our existing fleet.
The New Credit Facility will be with three banks and will be secured by
certain assets. The maximum commitment amount will be limited to $100 million
depending on the value of the assets included in the borrowing base. Interest on
outstanding balances accrues at LIBOR plus a margin ranging from 1.2% to 1.5%
depending on our ratio of funded debt to total capitalization ("Leverage
Ratio"). Based on the Leverage Ratio in effect as of December 31, 2001, the
margin would be 1.3%. The New Credit Facility will begin quarterly reductions in
availability of $4 million 30 months after closing with a final reduction of $40
million at maturity, six years after closing. The New Credit Facility will also
require us not to exceed a maximum Leverage Ratio and to maintain a specified
interest coverage ratio and a minimum net worth.
LONG TERM DEBT
Our current debt structure includes $130 million of senior unsecured notes
(the "Notes"). We pay interest semi-annually each June 1 and December 1 at the
annual coupon rate of 8.75%. The Notes do not require payments of principal
prior to their maturity on June 1, 2008, but we are required to make offers to
purchase the Notes upon the occurrence of certain events, such as asset sales or
a change in control of the Company.
The Notes are general unsecured obligations and rank equally in right of
payment with all existing and future unsecured senior indebtedness and are
senior to all future subordinated indebtedness. The Notes will be effectively
subordinated to all future secured obligations to the extent of the assets
securing such obligations and all existing and future indebtedness and other
obligations of our subsidiaries and trade payables incurred in the ordinary
course of business. Under certain circumstances, our payment obligations under
the Notes may be jointly and severally guaranteed on a senior unsecured basis by
one or more of our subsidiaries.
17
The indenture under which the Notes are issued imposes operating and
financial restrictions on us. These restrictions affect, and in many cases limit
or prohibit, among other things, our ability to incur additional indebtedness,
make capital expenditures, create liens, sell assets and make dividend or other
payments.
We also have two credit facilities relating to each of our recent
acquisitions of Sea Truck and Clear Seas. The Sea Truck debt, consisting of
three tranches, each secured by a vessel, totaled $21.7 million as of December
31, 2001. This debt amortizes in various quarterly amounts until maturity in
2008. The debt related to the acquisition from Clear Seas totaled $8.4 million
and is secured by two vessels. This debt amortizes quarterly until its maturity
in 2006.
CURRENT YEAR CASH FLOW
As of December 31, 2001, we had cash on hand of $21.9 million. Cash flows
from operations for the year ended December 31, 2001, were $41.8 million
compared to $14.3 million in the previous year. The increase in operating cash
flow was attributable to the improvements in operating income in the year.
Cash flows used for investing activities for the years ended December 31,
2001 and 2000 were $85.2 million and $6.2 million, respectively. Our capital
expenditures in 2001 included $45.7 million related to vessel and other fixed
assets and $34.7 million for the acquisition of Sea Truck shares. Subsequent to
year end, in February 2002, we took delivery of two additional vessels in our
newbuild program. The aggregate of these final payments was approximately $31.1
million, $18.8 million of which was funded from our existing credit facility,
with the balance funded from cash on hand. The number of vessels required to be
drydocked also impacts investing activities as vessels must be drydocked every
two to three years to meet regulatory requirements. In 2001, there were 15
vessels drydocked at an aggregate cost of $4.9 million compared to 11 vessels
drydocked in 2000 at an aggregate cost of $2.4 million. We have budgeted
approximately $6.0 million to drydock 21 vessels in 2002.
Substantially all of our tax provision is for deferred taxes. The tonnage
tax regime in lieu of income taxes in both the U. K. and Norway substantially
reduces the cash required for taxes in each of these regions. We have estimated
that based on the number of vessels working wholly within their respective
tonnage tax regions, our overall effective tax rate for 2002 will be
approximately 12%.
DEBT AND OTHER CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at December 31,
2001 and the effect these obligations are expected to have on liquidity and cash
flows in future periods (In millions).
2002 2003 2004 2005 2006 THEREAFTER
-------- -------- -------- -------- -------- ----------
Repayment of Long-Term Debt ...... $ 4.4 $ 4.5 $ 4.6 $ 4.7 $ 4.8 $ 162.3
Newbuild Program Commitments ..... 74.2 75.2 -- -- -- --
Bareboat Charter Commitments ..... 8.5 6.9 1.0 -- -- --
Non-Cancelable operating leases .. 0.2 0.1 0.1 -- -- 0.1
Total ............................ $ 87.3 $ 86.7 $ 5.7 $ 4.7 $ 4.8 $ 162.4
We believe that our current reserves of cash and short-term investments,
cash flows from operations and access to various credit arrangements will
provide sufficient resources to finance our operating requirements. However, our
ability to fund working capital, capital expenditures and debt service in excess
of cash on hand 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.
OTHER COMMITMENTS
We execute letters of credit, performance bonds and other guarantees in the
normal course of business that ensure our performance or payments to third
parties. The aggregate notional value of these instruments was $3.0 million at
December 31, 2001. All of these instruments have an expiration date within one
year. In the past, no significant claims have been made against these financial
instruments. Management believes the likelihood of demand for payment under
these instruments is minimal and expects no material cash outlays to occur in
connection with these instruments.
CURRENCY FLUCTUATIONS AND INFLATION
Substantially all of our operations are conducted overseas; therefore we
are exposed to currency fluctuations and exchange rate risks. Contracts for
vessels in the North Sea fleet are primarily denominated in British pounds.
Operating
18
costs for these vessels are generally in either British pounds or Norwegian
Kroner. The North Sea fleet generated 77.7% of our total consolidated revenue
for the year ended December 31, 2001. In 2001, the British pound/U.S. dollar
exchange rate ranged from a high of (pound) = U.S. $1.50 to a low of (pound) =
U.S. $1.37 with an average of (pound) = U.S. $1.44 for the year. As of March 5,
2002, the exchange rate was (pound) = U.S. $1.43.
With the issuance of the Notes in June 1998, our debt is primarily
denominated in U.S. dollars, while a substantial portion of our revenue
continues to be generated in British pounds. We have evaluated these conditions
and have determined that it is in our interest not 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:
(i) the cost of using such instruments in relation to the risks of
currency fluctuations;
(ii) the propensity for adjustments in British pounds denominated vessel
day rates over time to compensate for changes in the purchasing power
of British pounds as measured in U.S. dollars;
(iii) our strong cash position substantially held in U.S. dollars;
(iv) the level of dollar denominated borrowings available to us; and
(v) the conditions in our 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. At December 31, 2001, we had several contracts to hedge specific
obligations to make payments in Norwegian Kroner related to our current
construction program effectively fixing our purchase price in U.S. dollars.
Based on the exchange rate on December 31, 2001, the unrealized gain from the
hedge contracts totaled approximately $0.3 million. Upon delivery of the
vessels, any exchange rate benefit (cost) will be reflected in the net purchase
price of the vessels.
Reflected in the accompanying balance sheet at December 31, 2001, is a
$24.7 million cumulative translation adjustment primarily relating to the lower
British pounds and Norwegian Kroner exchange rate as of December 31, 2001 in
comparison to the exchange rate when we invested capital in our subsidiaries.
Changes in the cumulative translation adjustment are non-cash items that are
primarily attributable to investments in vessels and dollar denominated
inter-company loans.
To date, general inflationary trends have not had a material effect on our
operating revenues or expenses. One of the major consumables for the fleet is
diesel fuel, the price of which has escalated significantly over the last year.
Except for one contract which has a cost flow-through provision, fuel is
provided by our customers; therefore, escalating fuel prices have not and will
not adversely affect our operating cost structure.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS No. 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). SFAS 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001. The adoption of this
statement had no impact on our consolidated results of operations and financial
position for the year ended December 31, 2001. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. We will adopt the statement
effective January 1, 2002. Under SFAS No. 142, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests. The effect of eliminating goodwill amortization
would have increased 2001 net income, before income taxes, by $0.5 million or
$0.05 per share (diluted). Other intangible assets will continue to be amortized
over their useful lives. In 2002, we will perform the first step of the required
two-step impairment tests of goodwill and indefinite-lived intangible assets as
of January 1, 2002 and have not yet determined what the effect of these tests
will be on our consolidated results of operations and financial position.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The statement is effective for fiscal years beginning after December 15,
2001. We will adopt this statement effective January 1, 2002. This statement
establishes a single accounting model for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired. Additionally, the
statement expands the definition of a discontinued operation from a segment of
business to a component of an entity that has been disposed of or is classified
as held for sale and can be clearly distinguished, operationally and for
reporting purposes, from the rest of the entity. The results of operations of a
component classified as held for sale shall be reported in discontinued
operations in the period incurred. Adoption of this statement will not have a
significant effect on our consolidated results of operations and financial
position.
19
FORWARD-LOOKING STATEMENTS
This Form 10-K, particularly the sections entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
contains certain forward-looking statements and other statements that are not
historical facts concerning, among other things, market conditions, the demand
for marine support services and future capital expenditures. Such statements are
subject to certain risks, uncertainties and assumptions, including, without
limitation, operational risk, dependence on the oil and natural gas industry,
delay or cost overruns on construction projects, ongoing capital expenditure
requirements, uncertainties surrounding environmental and government regulation,
risks relating to leverage, risks of foreign operations, risk of war, sabotage
or terrorism, assumptions concerning competition, and risks of currency
fluctuations and other matters. There can be no assurance 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 such analysis will be
successful. Important factors that could cause actual results to differ
materially from our expectations are disclosed within the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere in this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
Our financial instruments that are potentially sensitive to changes in
interest rates include the Notes, which are due June 1, 2008. They have a stated
interest rate of 8.75% and an effective interest rate of 8.8%. At December 31,
2001, the fair value of these notes, based on quoted market prices, was
approximately $119.6 million, as compared to a carrying amount of $129.7
million.
EXCHANGE RATE SENSITIVITY
Other than trade accounts receivable and trade accounts payable, we do not
currently have financial instruments that are sensitive to foreign currency
exchange rates. Other information required under Item 7A has been provided in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of GulfMark Offshore, Inc.:
We have audited the accompanying consolidated balance sheets of GulfMark
Offshore, Inc., and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity, comprehensive
income, and cash flows for each of the two years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GulfMark Offshore, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Houston, Texas
February 26, 2002
except for Note 4, as to which the date is
March 1, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark Offshore, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, comprehensive income, and cash flows for the year ended
December 31, 1999 of GulfMark Offshore, Inc., a Delaware corporation, and
subsidiaries. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of GulfMark Offshore, Inc. and subsidiaries for the year ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
Arthur Andersen LLP
Houston, Texas
March 8, 2000
21
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
------------------------
2001 2000
---------- ----------
(IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 21,923 $ 34,691
Accounts receivable, net .......................................................... 29,225 22,136
Prepaids and other ................................................................ 2,072 1,669
---------- ----------
Total current assets ............................................................ 53,220 58,496
---------- ----------
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation of
$56,182,000 in 2001 and $45,101,000 in 2000 ....................................... 262,364 182,628
INVESTMENT IN UNCONSOLIDATED VENTURE ................................................. -- 690
GOODWILL, net of accumulated amortization ............................................ 22,116 16,146
LONG-TERM NOTE RECEIVABLE AND OTHER .................................................. 14,351 5,954
---------- ----------
$ 352,051 $ 263,914
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt ....................... $ 4,360 $ 45
Accounts payable .................................................................. 10,046 6,183
Accrued personnel costs ........................................................... 1,574 1,148
Accrued interest expense .......................................................... 1,312 952
Other accrued liabilities ......................................................... 4,666 3,015
---------- ----------
Total current liabilities ....................................................... 21,958 11,343
---------- ----------
LONG-TERM DEBT ....................................................................... 180,669 130,097
DEFERRED TAX LIABILITIES ............................................................. 13,697 24,887
OTHER LIABILITIES .................................................................... 1,207 --
MINORITY INTEREST .................................................................... 1,128 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 2,000,000 shares authorized; no shares issued ...... -- --
Common stock, $0.01 par value; 15,000,000 shares authorized; 8,199,137 and
8,185,968 shares issued and outstanding, respectively ........................... 82 82
Additional paid-in capital ........................................................ 63,239 63,063
Treasury stock .................................................................... (228) --
Deferred compensation expense ..................................................... 228 --
Retained earnings ................................................................. 94,750 56,828
Cumulative translation adjustment ................................................. (24,679) (22,386)
---------- ----------
Total stockholders' equity ...................................................... 133,392 97,587
---------- ----------
$ 352,051 $ 263,914
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
22
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES ................................... $ 114,063 $ 77,702 $ 72,258
---------- ---------- ----------
COST AND EXPENSES:
Direct operating expenses ............... 43,403 34,060 34,127
Bareboat charter expense ................ 8,931 6,661 7,089
General and administrative expenses ..... 7,623 6,328 6,087
Depreciation and amortization ........... 15,327 12,613 12,420
---------- ---------- ----------
75,284 59,662 59,723
---------- ---------- ----------
OPERATING INCOME ........................... 38,779 18,040 12,535
---------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense ........................ (12,590) (12,239) (11,388)
Interest income ......................... 1,021 1,508 1,887
Loss from unconsolidated venture ....... -- (214) (865)
Minority interest ....................... (1,524) -- --
Gain on sale of assets .................. -- 3,651 --
Other ................................... 23 217 --
---------- ---------- ----------
(13,070) (7,077) (10,366)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES ................. 25,709 10,963 2,169
INCOME TAX (PROVISION) BENEFIT ............. 12,213 (3,056) (308)
---------- ---------- ----------
NET INCOME ................................. $ 37,922 $ 7,907 $ 1,861
========== ========== ==========
EARNINGS PER SHARE:
Basic ................................... $ 4.63 $ 0.97 $ 0.23
========== ========== ==========
Diluted ................................. $ 4.51 $ 0.95 $ 0.22
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ................................... 8,194 8,163 8,129
========== ========== ==========
Diluted ................................. 8,403 8,326 8,271
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
23
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
Common Treasury Stock Total
Stock at Additional Cumulative ---------------- Deferred Stock-
$0.01 Par Paid-In Retained Translation Share Compen- holders'
Value Capital Earnings Adjustment Shares Value sation Equity
---------- ---------- ---------- ----------- ------ ------ -------- ----------
(In thousands)
Balance at December 31, 1998 ....... $ 81 $ 62,812 $ 47,060 $ (1,463) -- $ -- $ -- $ 108,490
Net income ..................... -- -- 1,861 -- -- -- -- 1,861
Issuance of common stock ....... -- 101 -- -- -- -- -- 101
Translation adjustment ......... -- -- -- (5,774) -- -- -- (5,774)
---------- ---------- ---------- ---------- ------ ------ -------- ----------
Balance at December 31, 1999 ....... 81 62,913 48,921 (7,237) -- -- -- 104,678
Net income ..................... -- -- 7,907 -- -- -- -- 7,907
Issuance of common stock ....... 1 150 -- -- -- -- -- 151
Translation adjustment ......... -- -- -- (15,149) -- -- -- (15,149)
---------- ---------- ---------- ---------- ------ ------ -------- ----------
Balance at December 31, 2000 ....... 82 63,063 56,828 (22,386) -- -- -- $ 97,587
Net income ..................... -- -- 37,922 -- -- -- -- 37,922
Issuance of common stock ....... -- 176 -- -- -- -- -- 176
Deferred compensation plan ..... -- -- -- -- (7) (228) 228 --
Translation adjustment ......... -- -- -- (2,293) -- -- -- (2,293)
---------- ---------- ---------- ---------- ------ ------ -------- ----------
Balance at December 31, 2001 ....... $ 82 $ 63,239 $ 94,750 $ (24,679) (7) $ (228) $ 228 $ 133,392
========== ========== ========== ========== ====== ====== ======== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
Net income ........................................................... $ 37,922 $ 7,907 $ 1,861
Comprehensive income (loss):
Foreign currency loss, net of tax of $(199), $(6,492), and $(2,475) .. (2,293) (15,149) (5,774)
---------- ---------- ----------
Total comprehensive income (loss) .................................... $ 35,629 $ (7,242) $ (3,913)
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
24
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 37,922 $ 7,907 $ 1,861
Adjustments to reconcile income from operations
to net cash provided by operations--
Depreciation and amortization ..................... 15,327 12,613 12,420
Amortization of deferred financing costs .......... 579 570 551
Deferred and other income tax provision ........... (12,650) 2,983 159
Gain on sale of equipment ......................... -- (3,651) --
Minority interest ................................. 1,128 -- --
Change in operating assets and liabilities--
Accounts receivable ............................... (3,113) (3,629) (404)
Prepaids and other ................................ (732) (370) 812
Accounts payable .................................. 3,744 (1,485) 1,750
Other accrued liabilities ......................... (1,144) (546) (104)
Other, net ........................................ 698 (43) (669)
---------- ---------- ----------
Net cash provided by operating activities ..... 41,759 14,349 16,376
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of vessels and equipment .......................... (45,691) (12,330) (17,107)
Investment in Sea Truck Holding AS, net of cash acquired ... (34,672) -- --
Expenditures for drydocking and main engine overhaul ....... (4,878) (2,360) (2,632)
Proceeds from disposition of equipment ..................... -- 8,450 --
---------- ---------- ----------
Net cash used in investing activities ......... (85,241) (6,240) (19,739)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of direct financing costs .......... 38,523 -- --
Repayments of debt ......................................... (7,173) (41) (55)
Proceeds from issuance of stock ............................ 176 151 101
---------- ---------- ----------
Net cash provided by financing activities ..... 31,526 110 46
Effect of exchange rate changes on cash .................... (812) (2,178) (40)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (12,768) 6,041 (3,357)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 34,691 28,650 32,007
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 21,923 $ 34,691 $ 28,650
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized ................. $ 11,029 $ 11,275 $ 10,793
========== ========== ==========
Income taxes paid (refunded), net .......................... $ 437 $ (147) $ 146
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
25
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
GulfMark Offshore, Inc., ("GulfMark" or the "Company") owns and operates
offshore support vessels, principally in the North Sea, Southeast Asia, Brazil
and West Africa. The vessels provide transportation of materials, supplies and
personnel to and from offshore platforms and drilling rigs. Some of these
vessels also perform anchor handling and towing services.
Principles of Consolidation
The consolidated financial statements include the accounts of GulfMark and
its majority owned subsidiaries. Investments in unconsolidated ventures are
accounted for using the equity method. All significant intercompany accounts and
transactions between GulfMark and its subsidiaries have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
U.S. Government securities and commercial paper with original maturities of
up to three months are included in cash and cash equivalents in the accompanying
consolidated balance sheets and consolidated statements of cash flows.
Liquidity
The Company's management currently expects that its cash flow from
operations in combination with cash on hand and other sources will be sufficient
to satisfy the Company's short-term and long-term working capital needs, planned
investments, capital expenditures, debt and other payment obligations.
Vessels and Equipment
Vessels and equipment are stated at cost, net of accumulated depreciation,
which is provided by the straight-line method over the estimated useful life of
25 years. Interest is capitalized in connection with the construction of
vessels. The capitalized interest is included as part of the asset to which it
relates and is amortized over the asset's estimated useful life. In 2001, 2000,
and 1999, interest of $1.5 million, $0.1 million, and $1.0 million was
capitalized, respectively. Office equipment, furniture and fixtures are
depreciated over two to five years. Maintenance and repairs that do not extend
the useful life of the asset and are not attributable to drydockings of vessels
are charged to operations as incurred. Major renovation costs and modifications
are capitalized and amortized over the estimated remaining useful life. Included
in the consolidated statements of income for 2001, 2000, and 1999 are $4.0
million, $3.3 million, and $3.7 million, respectively, for costs for maintenance
and repairs.
Investments
In 1999 the Company entered into a joint venture with another operator
which has bareboat chartered the Torm Heron from Sanko Steamship Co., Ltd of
Japan ("Sanko") through May 2002 (the "Torm Heron JV"). During 2001, the joint
venture partner relinquished its participatory rights of management of the
venture in anticipation of the dissolution of the venture in May 2002; thus
giving the Company effective control of the venture. Accordingly, the activity
of the joint venture is consolidated in the period ended December 31, 2001. At
the conclusion of the joint venture, the Company will continue to operate the
vessel for an additional two years to May 2004.
Other Assets
Other assets consist primarily of deferred drydocking costs, a long-term
receivable related to a vessel acquired in the Sea Truck acquisition and
deferred financing costs. Costs incurred in connection with drydocking are
capitalized and amortized over 30 months, which approximates the period between
required drydockings. Deferred financing costs are amortized over the expected
term of the related debt.
26
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Goodwill
Goodwill primarily relates to the 1998 acquisition of Brovig Supply AS and
the June 2001 acquisition of Sea Truck Holding AS ("Sea Truck"). During 2001,
amortization was computed based on a 40 year life. Accumulated amortization at
December 31, 2001 and 2000 totaled $1.6 million and $1.1 million, respectively.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS No. 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). SFAS 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001. The adoption of this
statement had no impact on the Company's consolidated results of operations and
financial position for the year ended December 31, 2001. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. The Company will
adopt the statement effective January 1, 2002. Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives. The Company will perform the
first step of the required two-step impairment tests of goodwill and
indefinite-lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on its consolidated results of
operations and financial position.
The Company assesses the recoverability of the carrying value of goodwill
periodically or when events or circumstances indicate the potential for
impairment. This assessment is based upon the fair value of the goodwill which
is based upon the estimated future cash flows. If the Company's estimated
undiscounted cash flows are less than the carrying value of the related
goodwill, an impairment would be recognized based upon the discounted value of
such cash flows. Changes in economic conditions of the business could affect the
Company's estimate of future cash flows. Any impairment in goodwill would be
recognized in the operating results of the Company.
Earnings Per Share
Basic EPS is computed by dividing net income by the weighted average number
of shares of common stock outstanding during the year. Diluted EPS is computed
using the treasury stock method for common stock equivalents. The detail of the
earnings per share calculations for continuing operations for the years ended
December 31, 2001, 2000 and 1999 is as follows (in thousands except per share
data):
YEAR ENDED DECEMBER 31, 1999
------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
Income from continuing operations per share, basic ......................... $ 37,922 8,194 $ 4.63
========
Dilutive effect of common stock options .................................... -- 209
-------- --------
Income from continuing operations per share, diluted ....................... $ 37,922 8,403 $ 4.51
======== ======== ========
YEAR ENDED DECEMBER 31, 1999
------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
Income from continuing operations per share, basic ......................... $ 7,907 8,163 $ 0.97
========
Dilutive effect of common stock options .................................... -- 163
-------- --------
Income from continuing operations per share, diluted ....................... $ 7,907 8,326 $ 0.95
======== ======== ========
YEAR ENDED DECEMBER 31, 1999
------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
Income from continuing operations per share, basic ......................... $ 1,861 8,129 $ 0.23
========
Dilutive effect of common stock options .................................... -- 142
-------- --------
Income from continuing operations per share, diluted ....................... $ 1,861 8,271 $ 0.22
======== ======== ========
27
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Revenue Recognition
Revenues from charters for offshore marine services are recognized as
performed based on contractual charter rates. Currently, charter terms range
from several days to as long as five years in duration. Management services
revenue is recognized in the period in which the services are performed.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. The likelihood and amount of future taxable income is included in
the criteria used to determine the timing and amount of tax benefits recognized
for net operating losses and tax credit carryforwards in the financial
statements.
Foreign Currency Translation
Assets and liabilities of the Company's foreign affiliates, other than
those located in highly inflationary countries, are translated at year-end
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
stockholders' equity, except for those associated with highly inflationary
countries, which are reported directly in the consolidated statements of income.
Transaction gains and losses are reported directly in the consolidated
statements of income.
Concentration of Credit Risk
The Company extends credit to various companies in the energy industry that
may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit risk through credit
approvals and limits. Historically, write-offs for doubtful accounts have been
insignificant. At December 31, 2001 and 2000, the Company's allowance for
doubtful accounts was $52,000 and $65,000, respectively.
Recent and Pending Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." ("SFAS No. 133") SFAS No. 133 requires that all derivatives,
including foreign currency exchange contracts, be recognized as assets or
liabilities in the consolidated balance sheet and measured at fair value. The
Company has entered into forward contracts to hedge the payments related to the
construction of vessels in Norway (See Note 2) denominated in Norwegian Krone to
limit the effect of exchange rate fluctuations on its acquisition price for
these vessels. These forward contracts are designated as fair value hedges and
are expected to be highly effective as the terms of the forward contracts are
generally the same as the purchase commitments. Any gains or losses resulting
from changes in fair value would be recognized in income with an offsetting
adjustment to income for changes in the fair value of the hedged item. The
adoption of SFAS 133 did not result in a material impact to the Company's
consolidated financial statements.
On the date the Company enters into a derivative contract, management
designates the derivative as a hedge of the identified exposure. The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. In this documentation, the Company specifically
identifies the asset, liability, firm commitment, or forecasted transaction that
has been designated as a hedged item and states how the hedging instrument is
expected to hedge the risks related to this item. The Company formally measures
effectiveness of its hedging relationships both at the inception of the hedge
and on an ongoing basis in accordance with its risk management policy. For all
qualifying and highly effective fair value hedges, the changes in the fair value
of a derivative and the loss or gain on the hedged asset or liability relating
to the risk being hedged are recorded currently in earnings. As of December 31,
2001, an unrealized benefit of $0.3 million on the forward contracts, and an
offsetting unrealized cost of $0.3 million on the underlying hedged
transactions, were recorded as a liability and asset, respectively, in the
consolidated financial statements.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The statement is effective for fiscal years beginning after December 15,
2001. The Company will adopt this statement effective January 1, 2002. This
statement establishes a single accounting
28
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
model for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. Additionally, the statement expands the definition
of a discontinued operation from a segment of business to a component of an
entity that has been disposed of or is classified as held for sale and can be
clearly distinguished, operationally and for reporting purposes, from the rest
of the entity. The results of operations of a component classified as held for
sale shall be reported in discontinued operations in the period incurred.
Adoption of this statement is not expected to have a significant effect on the
Company's consolidated results of operations and financial position.
Reclassifications
Certain reclassifications of previously reported information have been made
to conform with current year presentation.
(2) VESSEL ACQUISITIONS
From its inception, the Company has been active in expanding its fleet through
the purchase of existing vessels as well as new construction. During 2001, the
Company owned fleet grew by eight vessels. Four vessels were acquired in
conjunction with the acquisition of Sea Truck (See Note 3). Two vessels, the
Clywd Supporter and the Sefton Supporter, (the "Clear Seas Vessels") were
acquired in conjunction with a put agreement with a bank (See Note 6). The
Highland Patriot, a 1982 -built PSV, was acquired in the second quarter and one
additional vessel, the Highland Fortress, was delivered as part of the Company's
newbuild construction program which began in 2000. The Company's newbuild
program is with a Norwegian shipbuilder for the construction of a total of nine
vessels. The total cost of this program is expected to be approximately $185
million. As of December 31, 2001, total payments totaling $35.8 million had been
made. Funding for this newbuild program is anticipated to come from existing
cash and future cash flows supplemented by proceeds from the Company's credit
facility.
VESSEL DELIVERY DATE
------ -------------
UT 755L (Highland Fortress).. July 17, 2001
UT 745 (North Mariner)....... February 27, 2002
UT 745 (Highland Navigator).. February 28, 2002
UT 755 (Highland Bugler)..... Q4 2002
UT 722L (Highland Courage)... Q4 2002
TBN UT 755L.................. Q1 2003
TBN UT 755 .................. Q2 2003
TBN UT 722L ................. Q3 2003
TBN UT 722L ................. Q4 2003
(3) SEA TRUCK HOLDING ACQUISITION
In June 2001, the Company acquired 100% of the outstanding shares of common
stock in Sea Truck, a privately held vessel operator in Sandnes, Norway. Total
consideration paid was approximately $61.8 million including the assumption of
$23.2 million of assumed debt. Approximately $18.4 million of the $38.6 million
cash portion of the purchase price was funded from the Company's $75 million
credit facility with the balance funded by cash on hand. Sea Truck owned five
offshore support vessels, including one that is subject to a purchase commitment
from its current bareboat charterer under an installment sales agreement which
matures in April 2003. Accordingly, the Consolidated Balance Sheet as of
December 31, 2001, reflects a receivable of approximately $6.5 million of which
$5.2 million is included in Long-term Note Receivable and Other.
The acquisition has been accounted for as a purchase and as such, the
purchase price has been allocated to the assets and liabilities of Sea Truck
based on their estimated fair market values on June 21, 2001. The excess of the
purchase price over the fair market value of the net tangible assets acquired
has been recorded as goodwill ($6.7 million) and is subject to final
determination. Prior to the adoption of SFAS 142 in January 2002, this amount
was amortized based on a 40 year life. A final determination of required
purchase accounting adjustments for the acquisition including the allocation of
purchase price to the assets acquired and liabilities assumed based on their
fair values has not yet been made.
The consolidated financial statements included herein include the results
of Sea Truck from June 21, 2001. The following unaudited pro forma results of
operations have been prepared assuming that the acquisition had occurred at the
beginning of each period. This pro forma information is not necessarily
indicative of the results of operations that would have occurred had the
acquisition been made on those dates, or of results which may occur in the
future.
29
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
2001 2000
----------- -----------
Revenues ............... $ 123,358 $ 96,026
Operating income ....... 42,268 22,256
Net income ............. 40,115 7,109
Per share data:
Net income (basic) ..... $ 4.90 $ 0.87
Net income (diluted) ... 4.77 0.88
(4) LONG-TERM DEBT
The Company's long-term debt at December 31, 2001 and 2000, consisted of
the following:
2001 2000
---------- ----------
(IN THOUSANDS)
Revolving Bank Credit Facility; secured by shares of Sea Truck, maturing in
2003, interest rate of LIBOR plus 0.8% to 1.25% (weighted average interest rate
3.0% at December 31, 2001) ............................................................. 24,850 --
Bank debt assumed in Sea Truck acquisition; payable in British pounds; secured
by mortgages on three vessels; maturing at various dates from 2006 and 2008;
interest rate of LIBOR plus 1.0% to 1.125% (weighted average interest rate 5.3%
at December 31, 2001)................................................................... 21,685 --
Bank debt payable in British pounds; secured by mortgages on two vessels,
maturing in 2006, interest rate of LIBOR plus 1.25% (5.3% at December 31, 2001) ....... 8,367 --
Loan facility payable in British pounds; secured by Aberdeen office building; to
be repaid in 120 equal monthly payments through 2008; interest rate of LIBOR
plus 2.25% (6.25% as of December 31, 2001) ............................................. 404 463
8.75% Senior Notes due 2008, interest payable semi-annually ............................ $ 130,000 $ 130,000
---------- ----------
185,306 130,463
---------- ----------
Less: Current maturities of long-term debt ............................................. (4,360) (45)
Debt discount, 8.75% Senior Notes due 2008, net ............................... (277) (321)
---------- ----------
$ 180,669 $ 130,097
========== ==========
The following is a summary of scheduled debt maturities by year (in
thousands):
2002 ....................... $ 4,360
2003 ....................... 4,498
2004 ....................... 4,572
2005 ....................... 4,675
2006 ....................... 4,804
Thereafter ................. 162,397
----------
Total ............. $ 185,306
==========
8.75% SENIOR NOTES DUE 2008
The Company has an aggregate principal of $130 million of 8.75% Senior
Unsecured Notes which mature on June 1, 2008, issued at a discount to yield
8.8%. The market value of the Notes is potentially sensitive to changes in
interest rates. At December 31, 2001, the fair value of the Notes, based on
quoted market prices, was approximately $119.6 million, as compared to a
carrying amount of $129.7 million, net of discount.
Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year through June 1, 2008. The Notes are redeemable in whole or in part, at
redemption prices expressed as a percentage of principal amounts plus accrued
and unpaid interest, if any. If redeemed during the twelve month period
beginning on June 1 of the years indicated below, the redemption amount is as
follows:
30
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR PERCENTAGE
---- ----------
2003....................... 104.375%
2004....................... 102.917%
2005....................... 101.450%
2006 and thereafter........ 100.000%
The Company incurred approximately $4.8 million of costs associated with
the sale of the Notes. These debt issuance costs are included in other assets in
the consolidated balance sheets and are being amortized over the term of the
Notes. The Notes were issued under an indenture (the "Indenture") between the
Company and State Street Bank and Trust Company, N.A., as Trustee. The Indenture
contains covenants including, among other provisions, limitations on the ability
of the Company to incur additional indebtedness, make capital expenditures,
create liens, sell assets and make dividend and other payments.
BANK CREDIT FACILITY
The Company maintains a multi-currency reducing revolving credit facility
with certain banks for a total of $75 million. The credit facility contains an
unsecured tranche and a secured tranche.
Subsequent to year end, on March 1, 2002, the Company has executed a
commitment letter for a new credit facility (the "New Credit Facility")
replacing the above facility. The New Credit Facility will be for a maximum of
$100 million and will be secured by certain assets. The New Credit Facility is
expected to close by March 31, 2002 and will begin reducing by $4 million per
quarter beginning 30 months after the closing, with a final reduction of $40
million at maturity, six years after closing. The interest rate ranges from
LIBOR plus a margin of 1.2% to 1.5% depending on the leverage ratio of the
Company. Based on the Leverage Ratio in effect as of December 31, 2001, the
margin would be 1.3%. The New Credit Facility includes a commitment fee of
1-half the margin on any undrawn portion of the available facility. The New
Credit Facility also requires the Company, on a consolidated basis, to not
exceed a maximum Leverage Ratio and to maintain a specified interest coverage
ratio and a minimum net worth. The previous table of scheduled debt maturities
includes the expected effect of the New Credit Facility.
(5) INCOME TAXES
In June, 2001, the Company qualified for a special tax incentive in the
U.K. This incentive, known as a "Tonnage Tax", replaces the UK corporate tax
with one based on a deemed profit per net vessel ton. The UK Tonnage Tax
incorporates several key features of the Norwegian and Danish shipping tax
regimes. The Company also reevaluated its Norwegian tax position and long-term
Norwegian investment strategy in conjunction with the Sea Truck acquisition. As
a result of this review and approval of entry into the UK Tonnage Tax regime,
the Company reversed certain deferred taxes previously provided in each of those
locations. A total of $15.7 million of deferred taxes related to periods prior
to 2001 was reversed during the quarter ended June 30, 2001.
Income from operations before income taxes attributable to domestic and
foreign operations was (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
U.S. ............. $ (5,441) $ (5,209) $ (3,281)
Foreign .......... 31,149 16,172 5,450
---------- ---------- ----------
$ 25,708 $ 10,963 $ 2,169
========== ========== ==========
The components of the Company's tax provisions attributable to income from
operations are as follows for the year ended of December 31, (in thousands):
2001 2000 1999
-------------------------------- ------------------------------ ------------------------------
DEFERRED DEFERRED DEFERRED
CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL
-------- --------- -------- -------- --------- -------- -------- --------- --------
U.S. ....... $ -- $ 1,495 $ 1,495 $ -- $ 54 $ 54 $ -- $ 19 $ 19
Foreign .... 437 (14,145) (13,708) 73 2,929 3,002 149 140 289
-------- -------- -------- -------- -------- -------- -------- --------
$ 437 $(12,650) $(12,213) $ 73 $ 2,983 $ 3,056 $ 149 $ 159 $ 308
======== ======== ======== ======== ======== ======== ======== ========
31
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The difference between the provision at the statutory U.S. federal income
tax rate and the tax provision attributable to income from continuing operations
in the accompanying Consolidated Financial Statements is analyzed as follows:
2001 2000 1999
------ ------ ------
U.S. federal statutory income tax rate .. 34.0% 34.0% 34.0%
Effect of international operations ...... (20.5) (7.3) (25.3)
Impact of tonnage tax adoption .......... (61.3) -- --
Impact of permanent differences ......... 0.3 1.2 5.5
(47.5)% 27.9% 14.2%
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The components of the net
deferred tax liability as of December 31, 2001 and 2000 are as follows:
DECEMBER 31,
------------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Deferred tax assets--
Net operating loss carryforwards ........... $ 2,831 $ 6,822
Non-deductible accruals .................... 360 5,812
---------- ----------
3,191 12,634
Deferred tax liabilities--
Depreciation ............................... (87) (23,364)
Foreign income not currently recognizable .. (16,662) (13,292)
Other ...................................... (139) (865)
---------- ----------
(16,888) (37,521)
---------- ----------
Net deferred tax liability ............ $ (13,697) $ (24,887)
========== ==========
As of December 31, 2001, the Company had the following carry forward losses
and credits for U.S. income tax purposes totaling $8.3 million that is, subject
to certain limitations, available to offset future taxable income. These NOLs
begins to expire in 2019.
(6) COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to bareboat charter the following
vessels from Sanko Steamship, Ltd. for various terms:
VESSEL NAME BAREBOAT CHARTER EXPIRATION
----------- ---------------------------
Leopard Bay July 2003
Mercury Bay July 2003
Monarch Bay October 2003
Torm Heron* May 2004
* Operated under a 50/50 joint venture with Torm U.K. Limited through May 2002
(See Note 1 - Investments)
Future commitments under these bareboat charters are as follows (in
thousands):
2002 ............... $ 8,531
2003 ............... 6,865
2004 ............... 1,014
2005 & thereafter .. --
----------
Total ..... $ 16,410
==========
On February 1, 1999, the Company agreed to an arrangement between a bank
and Clear Seas Offshore, Ltd., the owner of the Clwyd Supporter and the Sefton
Supporter, whereby under certain circumstances the bank would have the right to
put the vessels to the Company. On August 31, 2001, the Company acquired the
vessels, in accordance with the put agreement in exchange for the assumption by
the Company of approximately $8.7 million of debt. The two vessels operate in
Liverpool Bay in support of the pollution control/standby efforts of an existing
charterer. The Company previously managed these vessels in the UK for six years
where they currently operate under an ongoing contract.
32
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On December 20, 2000, the Company purchased for its short-term investment
account $5.3 million principal amount of commercial paper issued by Pacific Gas
& Electric Company. On January 19, 2001, the principal amount plus accrued
interest came due and Pacific Gas & Electric Company failed to pay the maturing
debt. On March 29, 2001, the commercial paper was sold without any material
adverse effect on the Company's business or financial position.
At December 31, 2001, the Company had long-term operating leases for office
space, automobiles, and office equipment. Aggregate operating lease expense for
the years ended December 31, 2001, 2000 and 1999 was $350,000, $355,000, and
$368,000, respectively. Future minimum rental commitments under these leases are
as follows (in thousands):
2002 ................... $ 168
2003 ................... 147
2004 ................... 96
2005 ................... 35
2006 ................... 35
2007 & thereafter ...... 104
--------
Total ......... $ 585
========
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
these legal actions will not have a material adverse effect upon the
consolidated financial position or results of operations of the Company.
During 1997, the Company was spun-off from its predecessor. In conjunction
with that transaction, the Company agreed to indemnify its predecessor against
liabilities for claims and litigation relating to periods prior to May 1, 1997.
The Company has established accruals and maintains insurance, which it believes
to be adequate to cover such claims. Management believes that claims, if any,
would not have a material adverse effect on the consolidated financial position
and results of operations of the Company.
(7) STOCKHOLDERS' EQUITY
Under the terms of the Company's Amended and Restated 1993 Non-Employee
Director Stock Option Plan (the "Director Plan"), options to purchase 10,000
shares of the Company's Common Stock were granted to each of the Company's five
non-employee directors in 1993, 1996 and 1999, and to a newly appointed director
in 2000. Additionally, options to purchase 10,000 shares of Common Stock are to
be granted to each new non-employee director upon his or her election. The
exercise price of options granted under the Director Plan is fixed at the market
price at the date of grant. A total of 400,000 shares were reserved for issuance
under this Plan. The options are for a term of ten years.
Under the terms of the Company's 1987 Employee Stock Option Plan (the "1987
Employee Plan"), options were granted to employees to purchase the Company's
Common Stock at specified prices. The 1987 Employee Plan also provides for stock
appreciation rights that give the optionee the right, subject to certain
conditions, to surrender an option and receive cash and/or shares of Common
Stock having a value equal to the appreciation from date of grant of such
option. On May 20, 1997, the 1987 Employee Plan expired and, therefore, as of
December 31, 1998, no additional shares were reserved for granting of options
under this plan.
In May 1998, the stockholders approved the GulfMark Offshore, Inc. 1997
Incentive Equity Plan (the "1997 Plan"), which replaced the 1987 Employee Plan.
A total of 350,000 shares were reserved for issuance of options or awards of
restricted stock under this plan. Stock options generally become exercisable in
1/3 increments over a three year period and to the extent not exercised, expire
on the tenth anniversary of the date of grant.
33
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2001 2000 1999
-------------------------- ------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- ---------
Outstanding at beginning of
Year....................... 440,070 $ 13.20 420,208 $ 11.80 314,674 $ 10.54
Granted........................ 105,000 32.65 69,000 14.48 130,750 15.19
Exercised...................... (13,169) 3.78 (49,138) 3.05 (13,465) 7.55
Forfeitures.................... -- -- -- -- (11,751) 20.71
--------- ----------- --------- ----------- --------- ---------
Outstanding at end of year..... 531,901 $ 17.27 440,070 $ 13.20 420,208 $ 11.80
========= ========= =========
Exercisable shares and weighted average exercise price as of December 31, 2001............. 355,733 $ 13.31
Shares available for future grants as of December 31, 2001.................. 159,810
The following table summarizes information about stock options outstanding
at December 31, 2001:
WEIGHTED
NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- --------------
$3.00 to $7.94 ................ 142,001 $ 5.30
$13.16 to $20.12 .............. 239,900 $ 14.74
$26.19 to $38.75 .............. 150,000 $ 32.64
--------
531,901 $ 17.27
Historically, the Company has used stock options as a long-term incentive
for its employees, officers and directors under the above-mentioned stock option
plans. The exercise price of options granted is equal to or greater than the
market price of the underlying stock on the date of the grant. Accordingly,
consistent with the provisions of Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), no compensation
expense has been recognized in the accompanying financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation. The pronouncement defines a fair-value based method of accounting
for an employee stock option or similar equity instrument. SFAS No. 123 also
allows an entity to continue to measure compensation cost for those instruments
using the intrinsic value-based method of accounting prescribed by APB No. 25.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for employee stock options because the valuation models prescribed
for use by SFAS No. 123 to determine the fair value of options were not
developed for use in valuing employee stock options and do not consider factors
such as vesting periods or other selling limitations.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its employee stock options under the fair-value method described above. The
fair value calculations at the date of grant using the Black-Scholes option
pricing model were calculated with the following weighted average assumptions:
2001 2000 1999
---- ---- ----
Risk-free interest rate........... 4.5% 6.0% 5.5%
Volatility factor of stock price.. 0.21 0.50 0.06
Dividends......................... -- -- --
Option life....................... 4 years 4 years 4 years
Calculated fair value per share... $ 8.18 $ 6.61 $ 7.34
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair-value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because,
as
34
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
provided by SFAS No. 123, only the effects of awards granted after 1994 are
required to be considered in the pro forma calculations.
2001 2000 1999
----------------------- ---------------------- -----------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income ..................... $ 37,922 $ 37,466 $ 7,907 $ 7,464 $ 1,861 $ 1,413
Earnings per common ............ $
share (basic) .............. $ 4.63 $ 4.57 $ 0.97 0.91 $ 0.23 $ 0.17
Earnings per common ............ $
share (diluted) ............ $ 4.51 $ 4.46 $ 0.95 0.90 $ 0.22 $ 0.17
Preferred Stock
The Company is authorized by its Certificate of Incorporation to issue up
to 2,000,000 shares of no par value preferred stock. No shares have been issued.
Executive Deferred Compensation Plan
In 2001, the Company implemented an executive deferred compensation plan
(the "EDC Plan"). Under the EDC Plan, a portion of the compensation for certain
key employees of the Company, including officers and directors, can be deferred
for payment after retirement or termination of employment. Under the EDC Plan,
deferred compensation can be used to purchase Company common stock or may be
retained by the Company and earn interest at Prime plus 2%. The first 7.5% of
compensation deferred must be used to purchase common stock and may be matched
by the Company. As of December 31, 2001, a total of $0.2 million had been
deferred into the Prime plus 2% portion of the plan.
The Company has established a "Rabbi" trust to fund the stock portion of
benefits under the EDC Plan. The funds provided to the trust are invested by a
trustee independent of the Company in GulfMark common stock, which is purchased
by the trustee on the open market. The assets of the trust are available to
satisfy the claims of all general creditors of the Company in the event of
bankruptcy or insolvency. Accordingly, the common stock held by the trust and
the liability of the Company under the EDC Plan are included in the accompanying
Consolidated Balance Sheets as Treasury Stock and Deferred Compensation.
(8) OPERATING SEGMENT INFORMATION
Business Segments
The operations of GulfMark Offshore, Inc. are contained in a single
business segment -- offshore marine services. The business operates offshore
support vessels, principally in the North Sea, Southeast Asia, Brazil and West
Africa. The vessels provide transportation of materials, supplies and personnel
to and from offshore platforms and drilling rigs. Some of the vessels also
perform anchor handling and towing services.
Geographic Regions
Information by geographical area is based on the location where services
were performed. General corporate expenses incurred in the United States have
not been allocated to foreign operations for purposes of this disclosure.
UNITED EUROPE WEST AFRICA
STATES (PRIMARILY UK) FAR EAST BRAZIL AND OTHER TOTAL
---------- -------------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
2001 --
Revenues .................... $ 1,652 $ 82,114 $ 16,660 $ 9,578 $ 4,059 $ 114,063
Long-lived assets ........... 539 224,015 25,816 11,994 -- 262,364
2000 --
Revenues .................... $ -- $ 49,027 $ 16,762 $ 8,563 $ 3,350 $ 77,702
Long-lived assets ........... 323 128,288 41,673 12,344 -- 182,628
1999 --
Revenues .................... $ -- $ 49,919 $ 11,602 $ 6,056 $ 4,681 $ 72,258
Long-lived assets ........... 80 155,267 27,428 12,583 -- 195,358
35
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Major Customers
For the years ended December 31, 2001, 2000, and 1999, the Company had
major customers who comprised more than 10% of revenues. The loss of a major
customer could have an adverse effect on the Company's financial condition and
results of operations until new charters are obtained.
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
2001 2000 1999
------- ------- -------
Customer A....................................................... 19.0% 18.2% 15.2%
Customer B....................................................... <10% 11.2% <10%
Customer C....................................................... <10% <10% 12.8%
(9) UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the two years ended December 31,
2001, are as follows. The unaudited quarterly information for the year ended
December 31, 2001, has been reclassified to reflect the 2001 assumption of
controlling interest in the Torm Heron JV. This change had no effect on net
income.
QUARTER
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(in thousands, except per share amounts)
2001
Revenues (1) ................ $ 21,877 $ 26,469 $ 32,832 $ 32,885
Operating Income (2) ........ 5,985 9,301 12,437 11,056
Net Income .............. 2,585 21,587 7,227 6,523
Per share (basic) ....... 0.32 2.63 0.88 0.80
Per share (diluted) ..... 0.31 2.55 0.86 0.78
2000
Revenues .................... $ 14,413 $ 20,039 $ 20,968 $ 22,282
Operating Income (loss) ..... (14) 4,817 5,988 7,249
Net Income (loss) ....... (2,152) 1,413 5,301 3,345
Per share (basic) ....... (0.26) 0.17 0.65 0.41
Per share (diluted) ..... (0.26) 0.17 0.63 0.40
(1) During the fourth quarter of 2001, the Company consolidated the activity
for the year ended December 31, 2001, of a joint venture previously
reported using the equity method of accounting (See Note 1--Investments).
This resulted in an increase in revenues of approximately $885,000,
$2,396,000 and $1,856,000 for the quarters ended March 31, 2001, June 30,
2001 and September 30, 2001, respectively.
(2) As a result of the above described change, Operating Income decreased by
approximately $131,000 for the quarter ended March 31, 2001, and increased
by approximately $1,362,000 and $812,000 for the quarters ended June 30,
2001 and September 30, 2001, respectively.
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On Form 8-K dated April 14, 2000, we reported a change in our
certifying accountants from Arthur Andersen LLP to Ernst & Young LLP. There were
no disagreements with the company's certifying accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT(1)
ITEM 11. EXECUTIVE OFFICER COMPENSATION(1)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(1)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS(1)
(1)The information required by ITEMS 10, 11, 12 and 13 will be included in our
definitive proxy statements to be filed with the Securities and Exchange
Commission within 120 days of the close of our fiscal year and is hereby
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Consolidated Financial Statements of the Company are included in Item 8
(Consolidated Financial Statements and Supplementary Data). All other schedules
for the Company have been omitted since the required information is not present
or not present in an amount sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements or the notes thereto.
(3) EXHIBITS
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
------------ ---------------------------------------------------------- --------------------------------------------
3.1 Certificate of Incorporation.............................. Form.S-4, Registration No. 333-24141
March 28, 1997
3.2 Certificate of Amendment to Certificate of Incorporation.. Form S-4, Registration No. 333-24141
March.28, 1997
3.3 Bylaws.................................................... Form S-4, Registration No. 333-24141
March 28, 1997
4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the
Certificate of Incorporation and Exhibit 3.3 for
provisions of the Bylaws of the Company defining the Form S-4, Registration No. 333-24141
rights of the holders of Common Stock..................... March 28, 1997
4.2 Specimen Certificate for the Company's Common Stock, Form S-1, Registration No. 333-31139
$0.01 par value........................................... July 11, 1997
4.3 Indenture dated June 8, 1998, among the Company as
Issuer and State Street Bank and Trust Company as
Trustee including a form of the Company's 8.75% Senior
Notes due 2008............................................ Form S-4, Registration No. 333-59415
37
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
------------ ---------------------------------------------------------- --------------------------------------------
4.4 Registration Rights Agreement dated as of June 8, 1998
among the Company, Lehman Brothers, Chase Securities,
Inc., Jefferies & Company, Inc. and the Robinson-Humphrey
Company................................................... Form S-4, Registration No. 333-59415
10.1 GulfMark International, Inc. 1987 Stock Option Plan*...... Form.S-4, Registration No. 333-24141
10.2 Amendment to the GulfMark International, Inc. 1987
Stock Option Plan*........................................ Form S-1, Registration No. 333-31139
July 11, 1997
10.3 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. 1987 Stock Form S-1, Registration No. 333-31139
Option Plan)*............................................. July 11, 1997
10.4 Form of Incentive Stock Option Agreement (GulfMark
International, Inc. 1987 Stock Option Plan)*.............. Form S-1, Registration No. 333-31139
July 11, 1997
10.5 Form of Amendment No. 1 to Incentive Stock Option
Agreement (GulfMark International, Inc. 1987 Stock Form S-1, Registration No. 333-31139
Option Plan, as amended)*................................. July 11, 1997
10.6 Form of Incentive Stock Option Agreement (GulfMark
Offshore, Inc. 1987 Stock Option Plan)*................... Form S-1, Registration No. 333-31139
July 11, 1997
10.7 GulfMark International, Inc., Amended and Restated
1993 Non-Employee Director Stock Option Plan*............. Form S-1, Registration No. 333-31139
July 11, 1997
10.8 Amendment No. 1 to the GulfMark International, Inc.
Amended and Restated 1993 Non-Employee Director Stock Form S-1, Registration No. 333-31139
Option Plan*.............................................. July 11, 1997
10.9 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International, Inc. Amended and Form S-1, Registration No. 333-31139
Restated 1993 Non-Employee Director Stock Option Plan)*... July 11, 1997
10.10 Form of Stock Option Agreement (GulfMark International,
Inc. Amended and Restated 1993 Non-Employee Director Form S-1, Registration No. 333-31139
Stock Option Plan)*....................................... July 11, 1997
10.11 Form of Amendment No. 1 to Stock Option Agreement
(GulfMark International, Inc. Amended and Restated Form S-1, Registration No. 333-31139
1993 Non-Employee Director Stock Option Plan)*............ July 11, 1997
10.12 Form of Stock Option Agreement (GulfMark Offshore, Inc.
1993 Non-Employee Director Stock Option Plan)*............ Form S-1, Registration No. 333-31139
July 11, 1997
10.13 GulfMark Offshore, Inc. Instrument of Assumption and
Adjustment (GulfMark International Inc. Director Stock Form S-1, Registration No. 333-31139
Option Agreements)* July 11, 1997
10.14 Form of Stock Option Agreement (GulfMark International,
Inc. Director Stock Options)*............................. Form S-1, Registration No. 333-31139
July 11, 1997
10.15 Form of Amendment No. 1 to Stock Option Agreement
(GulfMark International, Inc. Director Stock Options)*.... Form S-1, Registration No. 333-31139
July 11, 1997
Page 38
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
------------ ---------------------------------------------------------- --------------------------------------------
10.16 GulfMark Offshore, Inc. 1997 Incentive Equity Plan*....... Form 10-K, March 25, 1999
10.17 Form of Incentive Stock Option Agreement (GulfMark
Offshore, Inc. 1997 Incentive Equity Plan*................ Form 10-K, March 25, 1999
10.18 Tax Allocation and Indemnification Agreement dated April
30, 1997 made by and among GulfMark International, Inc., Form S-1, Registration No. 333-31139
GulfMark Offshore, Inc. and Energy Ventures, Inc.......... July 11, 1997
10.19 Multicurrency Revolving Loan Agreement dated June 8, 1998
among the Company, Christiania Bank og Kreditkasse ASA,
The Chase Manhattan Bank, London Branch and others named
therein .................................................. Form 10-Q, August 12, 1998
10.20 Employment Agreement dated July 1, 2000, made by and
between GM Offshore, Inc. and Bruce A. Streeter*.......... Form 10-Q, August 11, 2000
10.21 Employment Agreement dated July 6, 2000, made by and
between GM Offshore, Inc. and Edward A. Guthrie, Jr*...... Form 10-Q, August 14, 2001
10.22 Employment Agreement dated July 1, 2000, made by and
between GM Offshore, Inc. and John E. Leech*.............. Form 10-Q, August 14, 2001
10.23 Executive Nonqualified Excess Plan GM Offshore, Inc.
Plan Document *........................................... Filed herewith
10.24 Form of the Executive Nonqualified Excess Plan GM
Offshore, Inc. Initial Salary Deferred Agreement *........ Filed herewith
21.1 Subsidiaries of GulfMark Offshore, Inc.................... Filed herewith
23.1 Consent of Ernst & Young LLP............................. Filed herewith
23.2 Consent of Arthur Andersen LLP............................ Filed herewith
*This contract is a management contract or compensatory plan.
(b) REPORTS ON FORM 8-K
On October 3, 2001 we furnished a report on Form 8-K announcing the
release of our results of operations for the quarter ended September 30, 2001.
On October 23, 2001 we filed a report on Form 8-K announcing the date
of the upcoming release of our results of operations for the quarter ended
September 30, 2001 and investor conference call.
On October 31, 2001 we filed a report on Form 8-K announcing the
release of our results of operations for the quarter ended September 30, 2001.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
GULFMARK OFFSHORE, INC.
(Registrant)
By: /S/ BRUCE A. STREETER
-----------------------------------------------------
Bruce A. Streeter
President and Director (Principal Executive Officer)
Date: March 8, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ BRUCE A. STREETER President and Director March 8, 2002
--------------------------------------------------- (Principal Executive Officer)
Bruce A. Streeter
March 8, 2002
/s/ EDWARD A. GUTHRIE Executive Vice President, Finance
--------------------------------------------------- (Principal Financial Officer)
Edward A. Guthrie
/s/ KEVIN D. MITCHELL Controller March 8, 2002
--------------------------------------------------- (Principal Accounting Officer)
Kevin D. Mitchell
/s/ DAVID J. BUTTERS Director March 8, 2002
---------------------------------------------------
David J. Butters
/s/ NORMAN G. COHEN Director March 8, 2002
---------------------------------------------------
Norman G. Cohen
/s/ MARSHALL A. CROWE Director March 8, 2002
---------------------------------------------------
Marshall A. Crowe
/s/ LOUIS S. GIMBEL, 3RD Director March 8, 2002
---------------------------------------------------
Louis S. Gimbel, 3rd
/s/ SHELDON S. GORDON Director March 8, 2002
---------------------------------------------------
Sheldon S. Gordon
/s/ ROBERT B. MILLARD Director March 8, 2002
---------------------------------------------------
Robert B. Millard
40
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
----------- -----------------------------------------------------------
10.23 Executive Nonqualified Excess Plan GM Offshore, Inc. Plan
Document
10.24 Form of the Executive Nonqualified Excess Plan GM
Offshore, Inc. Initial Salary Deferred Agreement
21.1 Subsidiaries of GulfMark Offshore, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
41