e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-22853
GulfMark Offshore, Inc.
(Exact name of Registrant as specified in its charter)
|
|
|
Delaware |
|
76-0526032 |
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.) |
Incorporation or organization) |
|
|
10111 Richmond Avenue, Suite 340 |
|
|
Houston, Texas
|
|
77042 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants 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 the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 filings requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
in S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the registrant as of June 30, 2005, the last business day of the registrants most recently
completed second fiscal quarter was $416,481,078 calculated by reference to the closing price of
$27.31 for the registrants common stock on the NASDAQ National Market on that date.
Number of shares of common stock outstanding as of March 9, 2006: 20,424,325.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12, 13 and 14, will be included in a
definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Exhibit Index Located on Page 64
PART I
ITEMS 1. and 2. Business and Properties
GENERAL BUSINESS
GulfMark Offshore, Inc. is a Delaware corporation that, together with its subsidiaries,
provides offshore marine services primarily to companies involved in offshore exploration and
production of oil and natural gas. Unless otherwise indicated, references to we, us, our and
the Company refer to GulfMark Offshore, Inc. and its subsidiaries. Our vessels transport
materials, supplies and personnel to offshore facilities, as well as move and position drilling
structures. The majority of our operations are conducted in the North Sea, with the balance in
offshore Southeast Asia and the Americas. Periodically, we will contract vessels into other regions
to meet our customers requirements.
GulfMark Offshore, Inc. has the following operating segments: the North Sea, Southeast Asia
and the Americas. Our chief operating decision maker regularly reviews financial information about
each of these operating segments in deciding how to allocate resources and evaluate our
performance. The business within each of these geographic regions has similar economic
characteristics, services, distribution methods and regulatory concerns. All of the operating
segments are considered reportable segments under Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. For
financial information about our operating segments and geographic areas, see Managements
Discussion and Analysis of Financial Condition and Results of Operation Segment Results included
in Part II, Item 7, and Note 9 to our Consolidated Financial Statements included in Part II, Item
8.
Our principal executive offices are located at 10111 Richmond Avenue, Suite 340, Houston,
Texas 77042, and our telephone number at that address is (713) 963-9522. We file annual, quarterly,
and special reports, proxy statements and other information with the SEC. Our SEC filings are
available free of charge to the public over the Internet on our website at http://www.gulfmark.com
and at the SECs website at http://www.sec.gov. Filings are available on our website as soon as
reasonably practicable after we electronically file or furnish them to the SEC. You may also read
and copy any document we file at the SECs Public Reference Room at the following location: 100 F
Street, NE, 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.
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. This industry
employs various types of vessels, referred to broadly as offshore support vessels, or OSVs, that
are used to transport materials, supplies, and personnel and position drilling structures. Offshore
marine service providers are employed by oil and natural gas 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 North Sea,
offshore Southeast Asia, offshore West Africa, offshore Middle East, offshore Brazil and the Gulf
of Mexico are each major markets that employ a large number of vessels. Vessel usage is also
significant in other international markets, including offshore India, offshore Australia, offshore
Trinidad, the Persian Gulf and the Mediterranean Sea. The industry is relatively fragmented, with
more than 20 major participants and numerous small regional competitors. We currently operate our
fleet of 59 offshore supply vessels in the following regions: 34 vessels in the North Sea, 11
vessels offshore Southeast Asia, five vessels offshore Brazil, two vessels in the Mediterranean
Sea, two vessels offshore India, two vessels in the Middle East, two vessels offshore Mexico and
one offshore West Africa. The vessels in the Mediterranean Sea, offshore India, the Middle East
and offshore West Africa are operated out of our North Sea region.
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 influenced by trends in oil
and natural gas prices. Additionally, oil and natural gas prices are affected by a host of
geopolitical and economic forces, including the fundamental principles of supply and demand.
Although commodity prices have remained high by historical standards over the last several years,
upstream expenditures by oil and gas exploration and development companies have been volatile.
Beginning in the second half of 2004 and throughout 2005, oil and natural gas companies have
increased their exploration and development activities, after reduced levels of activities were
experienced in 2002 through early 2004. Each of the major geographic offshore oil and natural gas
production regions has unique characteristics that influence the economics of exploration and
production and consequently the market demand for vessels in support of these activities. While
there is
3
some vessel interchangeability between geographic regions, barriers such as mobilization costs
and vessel suitability restrict migration of some vessels between regions. This is most notably the
case in the North Sea, where vessel design requirements dictated by the harsh operating environment
restrict relocation of vessels into that market. These same design characteristics make the North
Sea capable vessels unsuitable for certain underdeveloped areas where draft restrictions and, to a
lesser degree, higher operating costs restrict migration out of the market. The effect of these
restrictions on vessel movement is to segment various regions into separate markets.
Size of Vessel Fleet
The size of our fleet has changed from 52 vessels on December 31, 2004 to 59 vessels on March
1, 2006. In March 2005, we took delivery of two new build vessels that are under long-term
charters in Mexico. In May 2005, we signed a purchase agreement for a new vessel under
construction in China, which we took delivery of in October 2005 to service the Southeast Asia
region. Also, during 2005, our managed vessel fleet increased by four vessels to 11 as of March 1,
2006. The bareboat chartered vessel obtained in 2005 was returned in 2006. The following table
summarizes the fleet changes since December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bareboat |
|
|
|
|
|
|
|
|
Owned |
|
Chartered |
|
Managed |
|
Total |
|
|
|
Vessels |
|
Vessels |
|
Vessels |
|
Fleet |
|
December 31, 2004 |
|
45 |
|
|
|
|
|
7 |
|
|
|
52 |
|
New Build Program |
|
2 |
|
|
|
|
|
|
|
|
|
2 |
|
Vessel Purchase |
|
1 |
|
|
|
|
|
|
|
|
|
1 |
|
Vessel Additions |
|
|
|
|
1 |
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
48 |
|
|
1 |
|
|
10 |
|
|
|
59 |
|
Vessel Returns |
|
|
|
|
(1 |
) |
|
|
|
|
|
(1 |
) |
Vessel Additions |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2006 |
|
48 |
|
|
0 |
|
|
11 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
Platform Supply Vessels, or 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 or
LgPSVs, range up to 300 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. |
|
|
Anchor Handling, Towing and Supply Vessels, or AHTSs, are used to set
anchors for drilling rigs and to 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, or BHP,
are referred to as small AHTSs or, SmAHTSs, while AHTSs in excess of
10,000 BHP are referred to as large AHTSs, or LgAHTSs. The most
powerful North Sea Class AHTSs have upwards of 25,000 BHP. All our
AHTSs can also function as PSVs. |
|
|
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 one of the only significant
concentrations of pipe carrier capable vessels outside of Scandinavian
control. |
|
|
Standby Rescue Vessels, or Stby, perform a safety patrol function for
an area and are required for all manned locations in the United
Kingdom, or U.K., sector of the North Sea. These vessels typically
remain on station to provide a safety backup to offshore |
4
rigs and production facilities and carry special equipment to rescue personnel. They are equipped
to provide first aid, shelter and, in some cases, function as supply vessels.
|
|
Crewboats, or 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 185 in length, and can be longer with greater cargo carrying
capacities. Vessels in this category are also called fast supply
vessels, or FSVs. They are used primarily to transport cargo on a
time-sensitive basis. We do not currently operate any vessels in this
category. |
|
|
Specialty Vessels, or SpVs, generally have special features to meet
the requirements of specific jobs. The special features can 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,
or FPSOs; diving operations; remotely operated vehicles, or 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. |
|
|
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
currently 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, Ireland, the Norwegian Sea and the area West of Shetlands. Historically, this has been the
most demanding of all 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 have typically been large and well-capitalized entities (such as major oil and gas
companies and state-owned oil and gas companies), in large part because of the significant
financial commitment required in this market. Recently, however, there have also been a number of
independent operators who have begun to move into the North Sea. Projects in the North Sea tend to
be fewer in number but larger in scope, with longer planning horizons than projects in regions with
less demanding environments. Due to these factors, vessel demand in the North Sea has historically
been more stable 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 AHTSs. While supply vessels support the exploration
segment, they also support the production and field construction segments, which generally are not
affected by the volatility in demand for the AHTSs.
Our North Sea-based fleet is oriented toward supply vessels which work in the more stable
segments of production platform support and field development or construction, and includes 30
owned (21 PSVs, 4 AHTSs, and 5 SpV vessels) and 11 managed PSVs. Onshore bases in Aberdeen,
Scotland; Liverpool, England and Sandnes, Norway support these vessels. Vessels that are based in
the North Sea but operate temporarily out of the region are included in our North Sea vessel count
and related statistics, unless deployed to one of our other regions under long-term contracts.
The North Sea market was generally a very stable market from the early 1990s through late
2001 with minor periods of disruption caused by fluctuating expenditures for oil and natural gas
exploration and development, primarily by the major oil companies that dominated this market. In
late 2000, commodity prices and increased drilling activity resulted in improved vessel utilization
and day rates through 2001 and into the first part of 2002. Subsequent to the terrorist attacks on
September 11, 2001, both oil and natural gas prices remained significantly higher; however, despite
these higher commodity price levels, exploration and development activity in the region did not
increase accordingly. At the same time, there was an increase in the number of new build vessels
delivered into the market in 2002 through 2004 which resulted in the 2003-2004 period having the
lowest utilization in the region in the last decade. While the number of high capacity vessels in
this market remained fairly constant over the last ten years at approximately two hundred, delivery
of over four hundred vessels of the same design capacity have gone into service in other
international markets or displaced older equipment in the North Sea. These displaced vessels have
subsequently mobilized to other international markets, either permanently or for temporary
assignments.
There was also a transformation in the customer base in the region that began in 2003 as the
major oil and natural gas companies disposed of prospects and mature producing properties in the
North Sea to independent oil and natural gas companies. This was in part caused by legislative
initiatives in the U.K., which made these properties attractive to the independents. The
independent companies
5
typically had shorter horizons with regard to exploration and development activities than the
major oil and natural gas companies, which in turn resulted in a decline in the availability of
long-term contracts for vessel services at economically attractive day rates. The consequence of
this transformation and curtailment of activities by the major companies was an increase in the
number of vessels available in the spot market which in turn depressed both utilization of vessels
and day rates. In the second quarter of 2004, an increase in long-term drilling rig contracts
occurred in the North Sea, particularly in the Norwegian sector, which specifically related to the
opening of the Barent Sea to exploration activities by the Norwegian government. In addition,
several large projects including the Orman Lange, Snovhit and Alvheim Field developments resulted
in the oil and gas companies that contracted the drilling rigs to tender for vessel services in
support for these rigs. Late in the third quarter of 2004, utilization and day rates for vessels in
the region began to improve with some consistency for the remainder of 2004.
In 2005 there were significant improvements in industry fundamentals as the major oil and
natural gas companies re-initiated capital expenditures in the North Sea as exploration activities
have become more extensive and longer in duration. This has been evidenced by drilling rig
commitments extending throughout 2006 and 2007 with some contracts into 2010. This, coupled with
spending by the independents, created strong demand for vessels. Strong day rates and high
utilization has continued through 2005 and into 2006.
Even though this region typically has weaker periods in the winter months of December through
February, with a few exceptions, utilization and day rates are expected to remain strong throughout
these months. Forward visibility with regard to vessel demand over the balance of 2006 into 2007 is
directly related to drilling and development activities in the region as well as construction work
required in support of these activities and demands outside of the region which will draw vessels
to other international markets. Geopolitical events, the demand for oil and natural gas in both
mature and emerging countries and a host of other factors will influence the expenditures of both
independent and major oil and gas companies in the near term; however, based on current conditions
and the available information regarding future drilling plans for the region, we anticipate a
healthy market throughout the balance of 2006 and into 2007. Currently we are constructing two new
generation LgPSVs in Norway. Both of these vessels are scheduled to be delivered in 2007.
The Southeast Asia Market
The Southeast Asia market is defined 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 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. We currently have
11 vessels deployed in this market.
Vessels in this market are typically smaller than those operating in areas such as the North
Sea. However, 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 Asia fleet. Demand for larger, newer and higher specification vessels is developing
in the region where deepwater projects occur or where oil and natural gas companies employ larger
fleets of vessels. This development led us to mobilize both the Highland Legend from the North Sea
to this market in late 2002 and the Highland Patriot in early 2004 to meet the changing market in
the region, as these vessels are larger than the typical vessels of the region. Additionally in
2004, we sold three of our older vessels serving Southeast Asia and in October 2005, we took
delivery of a new vessel constructed in China, the Sea Intrepid.
Changes in supply and demand dynamics have led, at times, 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.
However, 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 this region would involve
significant cash and opportunity costs. Offshore
6
exploration drilling has increased in the area and is expected to continue for several years.
Currently, we are constructing six new generation AHTS vessels for the region and have purchased
three additional new AHTS vessels, including the Sea Intrepid, that could also work there. Demand
in the area remained strong throughout 2005.
The Americas Market
We define the Americas market as offshore North, Central and South America. Historically, our
activity in the Americas has been in Brazil; however, we now have two AHTS vessels offshore Mexico
on five year primary term contracts with Pemex. Similar to the North Sea, the Brazilian market requires highly sophisticated vessels due to
the harsh operating environment. We have been successful in meeting the market requirements through
owned, managed and bareboat chartered vessels and will look to our existing and new build fleet to
meet the expanding demand for vessels in this 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, many of whom have explored and to some extent will
continue to explore the offshore blocks awarded in the lease sales. This created a demand for
deepwater AHTSs, to some extent, and PSVs in support of the drilling and exploration activities
that has been met primarily from mobilization of vessels from other regions. In addition,
Petrobras, the Brazilian national oil company, continues to expand operations. This expansion has
created, and could continue to create, additional demand for offshore support vessels. We have been
active in bidding on additional work with both Petrobras and the consortiums.
Currently, we operate five vessels in Brazil, including the Brazilian new build Austral
Abrolhos, which was delivered in September 2004 and is contracted through May 2008 to Enterprise
Oil do Brasil Ltda., a subsidiary of the Royal Dutch/Shell Group, in support of its Brazilian
program in the Campos Basin. The Seapower has been operating in Brazil since 1995 under a contract
with Petrobras, which runs into October 2007. The Highland Scout has been contracted to Petrobras
since January 2000 and is contracted into April 2007. The North Stream and the Highland Warrior
were mobilized to the region during 2004 and are contracted through June 2006 and August 2008,
respectively.
We have two new build vessels, Coloso and Titan, under five-year primary-term contracts to
Pemex in the Gulf of Mexico. This represents our first entry into the Mexican market and is
anticipated to create additional future opportunities in the Gulf of Mexico as Pemex increases the
size and capability of the vessel fleet required to support its drilling operations. The vessels
arrived in Mexico from the shipyard in Singapore and began their contracts in late May 2005.
Other Markets
We have contracted our vessels outside of our operating segment regions principally on
short-term charters in places such as offshore West Africa and the Mediterranean region. We
currently have a managed vessel in addition to one of our owned vessels working in support of
drilling operations offshore India, one of our owned vessels operating offshore Nigeria, two owned
vessels operating in the Middle East and two owned vessels operating in the Mediterranean region.
We look to our core markets for the bulk of our term contracts; however, when the economics of a
contract are attractive, or we believe it is strategically advantageous, we will operate our
vessels in markets outside of our core regions. The operations of these vessels are managed
through offices in the North Sea region.
New Vessel Construction and Acquisition Program
During the period 2000-2005, we added thirteen new vessels to the fleet as part of our long
range growth strategynine in the North Sea, three in the Americas and one offshore Southeast Asia.
In continuation of our growth strategy, we committed in 2005 to build six new 10,600 BHP AHTS
vessels for a total cost of approximately $140 million. The vessels are of a new design we
developed in conjunction with the builder and which incorporates Dynamic Positioning 2 (DP-2)
certification. They have a large carrying capacity anticipated to be in excess of 2,700 tons.
Keppel Singmarine Pte, Ltd. will build the vessels in Singapore to meet the growing demand of our
customer base offshore Southeast Asia. The first vessel is scheduled to be delivered in the fourth
quarter of 2007 followed by one approximately each quarter thereafter, with the final delivery in
the fourth quarter of 2008. At the end of 2005, we had spent approximately $20.2 million on this
new vessel construction program.
As a complement to the six new vessels in the construction program, we are acquiring two
vessels already under construction. The first vessel is an identical sister ship to the new build
delivered in 2005 for the Southeast Asia region. Currently being built in China, it is a 5,150
BHP, 70 ton bollard pull AHTS with an estimated cost below $10 million. Delivery is expected
toward the middle of
7
2006. The second acquired vessel is a result of our exercise of a first right of refusal
granted under the previous purchase agreement. This vessel is currently being built by Jaya
Shipbuilding and Engineering PTE LTD at their Batam, Indonesia yard near Singapore. It is a 70
meter, 5,500 BHP, approximately 70 ton bollard pull, DP-2 AHTS with an estimated cost of $14.5
million and is expected to be delivered during the fourth quarter of 2006. The scheduled delivery
dates of these vessels fit well with our new build program delivery schedule with two vessels
delivering in 2006 and the first of the Singapore new builds delivering in 2007.
We also agreed to participate in a joint venture for the construction of two new design large
platform supply vessels, 4,850 deadweight ton diesel electric powered Aker PSV 09 designs, at an
estimated cost of $30 million for each vessel with delivery in 2007. Gulf Offshore N.S. Ltd
(U.K.), or one of our other North Sea region affiliates, will be the majority investor with the
option and intent to purchase 100% of the vessels. At the end of 2005, we purchased 100% of the
first vessel out of the joint venture. The construction cost is based on a fixed contract amount
denominated in Norwegian kroner. On September 30, 2005, we entered into a forward contract to
minimize our foreign currency exchange risk, which is designated as a fair value hedge and expected
to be highly effective as the terms of the forward contract are generally the same as the purchase
commitment. Any gains or losses resulting from the changes in the fair value would adjust the
asset value.
Interest is capitalized in connection with the construction of the vessels. During 2005 and
2004, $0.8 million and $1.6 million, respectively, was capitalized in connection with the
construction of vessels.
8
Our Fleet
Our existing fleet as of March 1, 2006 is 59 vessels. Of these vessels, 48 are owned by us
(see table below) and 11 are under management for other owners.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type |
|
|
|
|
|
Length |
|
BHP |
|
|
DWT |
|
Fleet |
|
Vessel |
|
(a) |
|
Flag |
|
Built |
|
(feet) |
|
(b) |
|
|
(c) |
|
NORTH SEA BASED |
|
Highland Bugler |
|
LgPSV |
|
UK |
|
2002 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
Highland Champion |
|
LgPSV |
|
UK |
|
1979 |
|
265 |
|
|
4,800 |
|
|
|
3,910 |
|
|
|
Highland Citadel |
|
LgPSV |
|
UK |
|
2003 |
|
236 |
|
|
5,450 |
|
|
|
3,200 |
|
|
|
Highland Drummer |
|
LgPSV |
|
UK |
|
1997 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
Highland Eagle |
|
LgPSV |
|
UK |
|
2003 |
|
236 |
|
|
5,450 |
|
|
|
3,200 |
|
|
|
Highland Fortress |
|
LgPSV |
|
UK |
|
2001 |
|
236 |
|
|
5,450 |
|
|
|
3,200 |
|
|
|
Highland Monarch |
|
LgPSV |
|
UK |
|
2003 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
Highland Navigator |
|
LgPSV |
|
UK |
|
2002 |
|
275 |
|
|
9,600 |
|
|
|
4,250 |
|
|
|
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 |
|
|
|
3,080 |
|
|
|
Highland Rover |
|
LgPSV |
|
UK |
|
1998 |
|
236 |
|
|
5,450 |
|
|
|
3,200 |
|
|
|
Highland Star |
|
LgPSV |
|
UK |
|
1991 |
|
265 |
|
|
6,600 |
|
|
|
3,075 |
|
|
|
North Challenger |
|
LgPSV |
|
Norway |
|
1997 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
North Fortune |
|
LgPSV |
|
Norway |
|
1983 |
|
264 |
|
|
6,120 |
|
|
|
3,366 |
|
|
|
North Mariner |
|
LgPSV |
|
Norway |
|
2002 |
|
275 |
|
|
9,600 |
|
|
|
4,400 |
|
|
|
North Prince |
|
LgPSV |
|
UK |
|
1978 |
|
259 |
|
|
6,000 |
|
|
|
2,717 |
|
|
|
North Traveller |
|
LgPSV |
|
Norway |
|
1998 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
North Truck |
|
LgPSV |
|
Norway |
|
1983 |
|
265 |
|
|
6,120 |
|
|
|
3,370 |
|
|
|
North Vanguard |
|
LgPSV |
|
Norway |
|
1990 |
|
265 |
|
|
6,600 |
|
|
|
4,000 |
|
|
|
Safe Truck |
|
LgPSV |
|
UK |
|
1996 |
|
221 |
|
|
5,450 |
|
|
|
3,115 |
|
|
|
Highland Courage |
|
AHTS |
|
UK |
|
2002 |
|
260 |
|
|
16,320 |
|
|
|
2,750 |
|
|
|
Highland Endurance |
|
AHTS |
|
UK |
|
2003 |
|
260 |
|
|
16,320 |
|
|
|
2,750 |
|
|
|
Highland Valour |
|
AHTS |
|
UK |
|
2003 |
|
260 |
|
|
16,320 |
|
|
|
2,750 |
|
|
|
North Crusader |
|
AHTS |
|
Panama |
|
1984 |
|
236 |
|
|
12,000 |
|
|
|
2,064 |
|
|
|
Clwyd Supporter |
|
SpV |
|
UK |
|
1984 |
|
266 |
|
|
10,700 |
|
|
|
1,350 |
|
|
|
Highland Spirit |
|
SpV |
|
UK |
|
1998 |
|
202 |
|
|
6,000 |
|
|
|
1,800 |
|
|
|
Highland Sprite |
|
SpV |
|
UK |
|
1986 |
|
194 |
|
|
3,590 |
|
|
|
1,442 |
|
|
|
Sefton Supporter |
|
SpV |
|
UK |
|
1971 |
|
250 |
|
|
1,620 |
|
|
|
1,219 |
|
|
|
Sentinel |
|
SpV |
|
UK |
|
1979 |
|
266 |
|
|
4,600 |
|
|
|
4,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTHEAST ASIA BASED |
|
Highland Guide |
|
LgPSV |
|
Panama |
|
1999 |
|
218 |
|
|
4,640 |
|
|
|
2,800 |
|
|
|
Highland Legend |
|
PSV |
|
Panama |
|
1986 |
|
194 |
|
|
3,600 |
|
|
|
1,442 |
|
|
|
Highland Patriot |
|
LgPSV |
|
Panama |
|
1982 |
|
233 |
|
|
4,800 |
|
|
|
2,649 |
|
|
|
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 |
|
|
3,900 |
|
|
|
1,000 |
|
|
|
Sea Explorer |
|
SmAHTS |
|
Panama |
|
1981 |
|
192 |
|
|
5,750 |
|
|
|
1,500 |
|
|
|
Sea Intrepid |
|
SmAHTS |
|
Panama |
|
2005 |
|
191 |
|
|
5,150 |
|
|
|
1,500 |
|
|
|
Sea Searcher |
|
SmAHTS |
|
Panama |
|
1976 |
|
185 |
|
|
3,850 |
|
|
|
1,215 |
|
|
|
Sem Courageous |
|
SmAHTS |
|
Malaysia |
|
1981 |
|
191 |
|
|
3,900 |
|
|
|
1,220 |
|
|
|
Sem Valiant |
|
SmAHTS |
|
Malaysia |
|
1981 |
|
191 |
|
|
3,900 |
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAS BASED |
|
Austral Abrolhos(d) |
|
AHTS |
|
Brazil |
|
2004 |
|
215 |
|
|
7,100 |
|
|
|
2,000 |
|
|
|
Highland Scout |
|
LgPSV |
|
Panama |
|
1999 |
|
218 |
|
|
4,640 |
|
|
|
2,800 |
|
|
|
Highland Warrior |
|
LgPSV |
|
Panama |
|
1981 |
|
265 |
|
|
5,300 |
|
|
|
4,049 |
|
|
|
North Stream |
|
LgPSV |
|
Norway |
|
1998 |
|
276 |
|
|
9,600 |
|
|
|
4,585 |
|
|
|
Seapower |
|
SpV |
|
Panama |
|
1974 |
|
222 |
|
|
7,040 |
|
|
|
1,205 |
|
|
|
Coloso |
|
SmAHTS |
|
Mexico |
|
2005 |
|
199 |
|
|
5,916 |
|
|
|
1,674 |
|
|
|
Titan |
|
SmAHTS |
|
Mexico |
|
2005 |
|
199 |
|
|
5,916 |
|
|
|
1,674 |
|
|
|
|
(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 |
|
|
SpV Specialty vessel, including towing and oil spill response |
(b) |
|
Brake horsepower. |
(c) |
|
Deadweight tons. |
(d) |
|
The Austral Abrolhos is subject to an annual right of its charterer to purchase the vessel
during the term of the charter, which commenced May 2, 2003 and, subject to the charterers
right to extend, terminates May 2, 2016, at a purchase price in the first year of $26.8
million declining to an adjusted purchase price of $12.9 million in the thirteenth year. |
The table above does not include 11 managed vessels.
9
Customers, Contract Terms and Competition
Our principal customers are major integrated oil and natural gas companies, large independent
oil and natural gas exploration and production companies working in international markets, and
foreign government-owned or controlled oil and gas companies. Additionally, our customers also
include companies that provide logistic, construction and other services to such oil and gas
companies and foreign government organizations. The contracts are industry standard time charters
for periods ranging from a few days or months to more than five years. While certain contracts do
contain cancellation provisions, the contracts are generally not cancelable except for
unsatisfactory performance by the vessel. During 2005, under multiple contracts in the ordinary
course of business, one customer, BP, accounted for 11.0% of total consolidated revenues. No other
single customer accounted for 10% or more of our total consolidated revenues for 2005.
Contract or charter durations vary from single-day to multi-year in length, based upon many
different factors that vary by market. 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 a 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 constitute a significant portion of that market. Term charters in the Southeast Asia
region are less common than in the North Sea and generally less than two years in length. In
addition, charters for vessels in support of floating production are typically life of field or
full production horizon charters. As a result of options and 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.
As of March 1, 2006 we have no bareboat chartered vessels in our fleet.
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 are generally less than $10,000 per month per vessel. Currently,
we have 11 vessels under management.
Substantially all of our charters are fixed in British pounds, Norwegian kroner, Brazilian
reais or U.S. dollars. We attempt to reduce currency risk by matching each vessels contract
revenue to the currency in which its operating expenses are incurred. See Managements Discussion
and Analysis of Financial Condition and Results of Operations Currency Fluctuations and
Inflation.
We compete with approximately 10-15 companies in the North Sea market and numerous small and
large competitors in the Southeast Asia and Americas markets 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 portion of our available fleet is committed under contracts of various terms. The following
table outlines the percentage of our forward days under contract as of March 1, 2005 and March 1,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 1, 2006 |
|
As of March 1, 2005 |
|
|
2006 |
|
2007 |
|
2005 |
|
2006 |
|
|
Vessel Days |
|
Vessel Days |
|
Vessel Days |
|
Vessel Days |
North Sea-Based Fleet |
|
|
82.6 |
% |
|
|
41.9 |
% |
|
|
61.3 |
% |
|
|
40.6 |
% |
Southeast Asia-Based Fleet |
|
|
42.7 |
% |
|
|
9.9 |
% |
|
|
59.9 |
% |
|
|
12.7 |
% |
Americas-Based Fleet |
|
|
92.8 |
% |
|
|
73.5 |
% |
|
|
96.6 |
% |
|
|
78.5 |
% |
Overall Fleet |
|
|
75.0 |
% |
|
|
39.2 |
% |
|
|
65.8 |
% |
|
|
40.3 |
% |
These commitments provide us with a forward view of vessel EBITDA in the respective periods
based on the contract rates that are in effect on each of the contracts comprising the forward days
less the estimated costs of operating the vessels in each geographical area. The increase in the
percentage of contracted days at March 1, 2006, as compared to March 1, 2005, for the current year
is
10
primarily a reflection of increased drilling and exploration activity in late 2005 and
continuing into 2006, which resulted in higher demand for support vessels.
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, vessel and port security, 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, or IMO, recently made the regulations of the International
Safety Management Code, or 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 became effective on July 1, 2002. IMO has recently adopted the International
Ship & Port Facility Security Code, or ISPS Code, which became effective on July 1, 2004. The ISPS
Code provides that owners or operators of certain vessels and facilities must provide security and
security plans for their vessels and facilities and obtain appropriate certification of compliance.
We believe all of our vessels presently are certificated in accordance with ISPS Code. 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 these 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.
Seasonality
Operations in the North Sea are generally at their highest levels during the months from April
to August and at their lowest levels during November to February. Vessels operating offshore
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, as well as market demand associated with increased drilling and development
activities.
Employees
At December 31, 2005, we had 1,212 employees located in the United States, the United Kingdom,
Norway, Southeast Asia, Brazil and other areas depending on vessel location. Through our contract
with a crewing agency, we participate in the negotiation of collective bargaining agreements for
953 contract crew members who are members of two North Sea unions, under evergreen employment
agreements, and a Brazilian union. Wages are renegotiated annually in June for the North Sea
union. We have no other collective bargaining agreements; however, we do employ crew members who
are members of national unions but we do not participate in the negotiation of these 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. For local support, we have
offices and warehouse facilities in: Singapore; Aberdeen, Scotland; Liverpool, England; Sandnes,
Norway; Macae, Brazil and Paraiso, Mexico. All facilities, except one owned facility in Aberdeen,
Scotland, are leased. Our operations generally do not require highly specialized facilities, and
suitable facilities are generally available on a lease basis as required.
ITEM 1A. Risk Factors
We rely on the oil and natural gas industry, and volatile oil and natural gas prices impact demand
for our services.
Demand for our services depends on activity in offshore oil and natural gas exploration,
development and production. The level of exploration, development and production activity is
affected by factors such as:
|
|
|
prevailing oil and natural gas prices; |
|
|
|
|
expectations about future prices; |
|
|
|
|
the cost of exploring for, producing and delivering oil and natural gas; |
11
|
|
|
the sale and expiration dates of available offshore leases; |
|
|
|
|
demand for petroleum products; |
|
|
|
|
current availability of oil and natural gas resources; |
|
|
|
|
the rate of discovery of new oil and natural gas reserves in offshore areas; |
|
|
|
|
local and international political and economic conditions; |
|
|
|
|
technological advances; and |
|
|
|
|
ability of oil and natural gas companies to generate or otherwise obtain funds for capital. |
During recent years, the level of offshore exploration, development and production activity
has been volatile. Currently, there is a period of high prices for oil and natural gas, and oil
and natural gas companies have increased their exploration and development activities. This
activity increase began in the second half of 2004 and continued into 2005 and early 2006 after
reduced levels of activity were experienced in 2002-2004 despite high prices for oil and natural
gas during that period. A decline in the worldwide demand for oil and natural gas or prolonged low
oil or natural gas prices in the future below historical oil and gas prices, however, would likely
result in reduced exploration and development of offshore areas and a decline in the demand for our
offshore marine services. Any such decrease in activity is likely to reduce our day rates and our
utilization rates and, therefore, could have a material adverse effect on our financial condition
and results of operations.
An increase in the supply of offshore support vessels would likely have a negative effect on
charter rates for our vessels, which could reduce our earnings.
Charter rates for marine support vessels depend in part on the supply of the vessels. Excess
vessel capacity in the industry may result from:
|
|
|
constructing new vessels; |
|
|
|
|
moving vessels from one offshore market area to another; or |
|
|
|
|
converting vessels formerly dedicated to services other than offshore marine services. |
In the last ten years, construction of vessels of the type operated by us for use in the North
Sea and elsewhere has significantly increased. The addition of new capacity to the worldwide
offshore marine fleet is likely to increase competition in those markets where we presently operate
which, in turn, could reduce day rates, utilization rates and operating margins which would
adversely affect our financial condition and results of operations.
Government regulation and environmental risks reduce our business opportunities and increase
our costs.
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 are
registered. These conventions, laws and regulations govern:
|
|
|
oil spills and other matters of environmental protection; |
|
|
|
|
worker health, safety and training; |
|
|
|
|
construction and operation of vessels; and |
|
|
|
|
vessel and port security. |
We believe that we are in compliance with the laws and regulations to which we are subject.
We are not a party to any material pending regulatory litigation or other proceeding and we are
unaware of any threatened litigation or proceeding, which, if adversely determined, would have a
material adverse effect on our financial condition or results of operations. However, the risks of
incurring substantial compliance costs, liabilities and penalties for noncompliance are inherent in
offshore marine services operations. Compliance with environmental, health, safety and vessel and
port security laws increases our costs of doing business. Additionally, environmental, health,
safety and vessel and port security laws change frequently. Therefore, we are unable to predict
the future costs or other future impact of environmental, health, safety and vessel and port
security laws on our operations. There can be no assurance that we can avoid significant costs,
liabilities and penalties imposed on us as a result of government regulation in the future.
We are subject to hazards customary for the operation of vessels that could adversely affect
our financial performance if we are not adequately insured or indemnified.
Our operations are subject to various operating hazards and risks, including:
|
|
|
catastrophic marine disaster; |
12
|
|
|
adverse sea and weather conditions; |
|
|
|
oil and hazardous substance spills, containment and clean up; |
|
|
|
labor shortages and strikes; |
|
|
|
damage to and loss of drilling rigs and production facilities; and |
|
|
|
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. In such
event, we would experience loss of revenue and possibly property damage, and additionally, third
parties may have significant claims against us for damages due to personal injury, death, their
property damage, pollution and loss of business.
We maintain insurance coverage against substantially all of the casualty and liability risks
listed above, subject to deductibles and certain exclusions. We have renewed our primary insurance
program for the insurance year 2006-2007, and have negotiated terms for renewal in 2007-2008 for
our primary coverage. Additionally, there is no assurance that our insurance coverage will be
available beyond the renewal periods, adequate to cover future claims that may arise.
Substantially all our revenues are derived from our international operations and those
operations are subject to government regulation and operating risks.
We derive substantially all of our revenues from foreign sources. We therefore face risks
inherent in conducting business internationally, such as:
|
|
|
foreign currency exchange fluctuations or imposition of currency exchange controls; |
|
|
|
|
legal and government regulatory requirements; |
|
|
|
|
difficulties and costs of staffing and managing international operations; |
|
|
|
|
language and cultural differences, |
|
|
|
|
potential vessel seizure or nationalization of assets; |
|
|
|
|
import-export quotas or other trade barriers; |
|
|
|
|
difficulties in collecting accounts receivable and longer collection periods; |
|
|
|
|
political and economic instability; |
|
|
|
|
imposition of currency exchange controls; and |
|
|
|
|
potentially adverse tax consequences. |
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, our
subsidiary structure and our operations are in part based on certain assumptions about various
foreign and domestic tax laws, currency exchange requirements 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.
13
Our international operations are vulnerable to currency exchange rate fluctuations and
exchange rate risks.
We are exposed to foreign currency exchange rate fluctuations and exchange rate risks as a
result of our foreign operations. To minimize the financial impact of these risks, we attempt to
match the currency of our debt and operating costs with the currency of the revenue streams. We
occasionally enter into forward foreign exchange contracts to hedge specific exposures, but we do
not speculate in foreign currencies. Because we conduct a large portion of our operations in
foreign currencies, any increase in the value of the U.S. dollar in relation to the value of
applicable foreign currencies could potentially adversely affect our operating revenues when
translated into U.S. dollars.
Vessel construction and repair projects are subject to risks, including delays and cost
overruns, that could have an adverse impact on our results of operations.
Our vessel construction and repair projects are subject to the risks of delay and cost
overruns inherent in any large construction project, including:
|
|
|
shortages of equipment; |
|
|
|
|
unforeseen engineering problems; |
|
|
|
|
work stoppages; |
|
|
|
|
weather interference; |
|
|
|
|
unanticipated cost increases; and |
|
|
|
|
shortages of materials or skilled labor. |
Significant cost overruns or delays in connection with our repair projects would adversely
affect our financial condition and results of operations. Significant delays could also result in
penalties under, or the termination of, most of the long-term contracts under which we plan to
operate our vessels.
Our current operations and future growth may require significant additional capital, and our
substantial indebtedness could impair our ability to fund our capital requirements.
Expenditures required for the repair, certification and maintenance of a vessel typically
increase with vessel age. These expenditures may increase to a level at which they are not
economically justifiable. We cannot assure you that we will have sufficient resources to maintain
our fleet either by extending the economic life of existing vessels through major refurbishment or
by acquiring new or used vessels.
Our industry is highly competitive, which depresses vessel prices and utilization and
adversely affects our financial performance.
We operate in a competitive industry. The principal competitive factors in the marine support
and transportation services industry include:
|
|
|
price, service and reputation of vessel operations and crews; |
|
|
|
|
national flag preference; |
|
|
|
|
operating conditions; |
|
|
|
|
suitability of vessel types; |
|
|
|
|
vessel availability; |
|
|
|
|
technical capabilities of equipment and personnel; |
|
|
|
|
safety and efficiency; |
|
|
|
|
complexity of maintaining logistical support; and |
|
|
|
|
cost of moving equipment from one market to another. |
Many of our competitors have substantially greater resources than we have. Competitive
bidding and downward pressures on profits and pricing margins could adversely affect our business,
financial condition and results of operations.
The operations of our fleet may be subject to seasonal factors.
Operations in the North Sea are generally at their highest levels during the months from April
to August and at their lowest levels during November to February. Vessels operating offshore
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
14
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, as well as market demand associated with increased drilling and
development activities.
We are subject to war, sabotage and terrorism risk.
War, sabotage, and terrorist attacks or any similar risk may affect our operations in
unpredictable ways, including changes in the insurance markets, disruptions of fuel supplies and
markets, particularly oil, and the possibility that infrastructure facilities, including pipelines,
production facilities, refineries, electric generation, transmission and distribution facilities,
could be direct targets of, or indirect casualties of, an act of terror. War or risk of war may
also have an adverse effect on the economy. Terrorist attacks have made it difficult to obtain
insurance coverage, the costs for which has increased and could continue to increase. We will
evaluate the need to maintain this coverage as it applies to our fleet in the future. Instability
in the financial markets as a result of war, sabotage or terrorism could also affect our ability to
raise capital and could also adversely affect the oil, gas and power industries and restrict their
future growth.
We depend on key personnel.
We depend to a significant extent upon the efforts and abilities of our executive officers and
other key management personnel. There is no assurance that these individuals will continue in such
capacity for any particular period of time. The loss of the services of one or more of our
executive officers or key management personnel could adversely affect our operations.
We have previously identified material weaknesses under the Sarbanes-Oxley Act relating to the
effectiveness of our internal controls over financial reporting and we may identify additional
material weaknesses in the future.
As a result of Section 404 of the Sarbanes-Oxley Act, or Sarbanes-Oxley, and the rules issued
thereunder by the SEC and the Public Company Accounting Oversight Board, or PCAOB, we are required
to include a report on our internal controls over financial reporting with our annual report on
Form 10-K beginning with the Form 10-K for the year ended December 31, 2004. Our report must
include an assessment by management on the effectiveness of our internal controls as well as a
report from our independent registered public accounting firm attesting to managements assessment.
Further, our report is required to include a disclosure of any material weakness in our internal
controls over financial reporting we have identified. Managements report on the effectiveness of
our internal controls is contained in Part II, Item 9A(b), and the report from our independent
registered public accounting firm attesting to managements assessment is contained in Part II,
Item 9A(e).
We assessed the effectiveness of our internal control over financial reporting at December 31,
2005 and 2004, and in making this assessment, used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework in
accordance with the standards of the PCAOB. As previously reported, three material weaknesses
were identified as of December 31, 2004. A material weakness was identified related to the
financial statement close process, including insufficient controls over properly analyzing and
reconciling inter-company accounts, maintaining appropriate support and analyses of certain
non-routine accruals, properly analyzing certain deferred cost accounts, and properly assessing the
accounting and reporting implications related to new contractual agreements. We identified a second
material weakness related to the accounting for the effects of foreign currencies, including
insufficient controls over the analysis of the foreign currency translation and transaction impact
on inter-company amounts, as well as amounts owed to third parties denominated in non-functional
currencies. A third material weakness was identified related to accounting for income taxes
associated with new international operations, including insufficient controls over the proper
identification and application of the relevant Brazilian tax rules to the calculation of the tax
provision of our new Brazilian operations. Our lack of adequate accounting and tax resources, in
terms of size, technical expertise and institutional knowledge (due to unusually high levels of
personnel turnover in the finance and accounting organization) to address certain of the financial
and tax reporting aspects of our multi-national operations, was the underlying cause of these
material weaknesses.
In response to the material weaknesses identified in 2004, we implemented a remediation
program, including the establishment of additional controls that are intended to strengthen our
financial reporting and to specifically address the identified material weaknesses as follows:
|
|
|
Financial statement close process. As previously reported, we have enhanced our
corporate accounting function by creating and filling several new positions, including
those of Accounting Manager and Assistant Controller-Financial Reporting, to provide
greater review and analysis of financial results at both the corporate and subsidiary
levels. In the second quarter of 2005, we filled two newly created positions of
Internal Audit Director and Information Technology Director. The Internal Audit
Director has coordinated the ongoing monitoring of Sarbanes-Oxley compliance and has
performed financial and operational audits. The Information Technology Director will
implement a global information |
15
|
|
|
technology strategy for us, and has played a major role in the evaluation of our
information system as we look to improve the automation of both foreign currency and
inter-company transactions. Overall, newly hired staff has and should continue to bring
experience, stability and the skills related to the review and analysis of complex
activity in large multi-national companies. Beginning in the first quarter of 2005, an
outside consultant evaluated and assisted us in establishing improved controls over the
process associated with inter-company transactions. The consultant also assisted in the
training of the new and existing personnel in the execution of the controls and processes
established. As of the end of 2005, this material weakness has been remediated. |
|
|
|
Translation and transaction effects of foreign currency exchange. The outside
consultant also assisted us in implementing procedures to continue to analyze the
foreign currency impact on our inter-company and third party transactions. In addition,
the consultant trained our staff to identify, segregate, analyze and measure the foreign
currency impact on future transactions. Where these processes cannot be automated, we
have established processes to ensure proper review of the required calculations in the
interim, until it is determined whether or not a new information system can automate the
calculations. These steps will enable the appropriate measurement of the foreign
currency translation and transaction impact on our consolidated financial statements as
identified in the material weakness. As of the end of 2005, this material weakness has
been remediated. |
|
|
|
|
Taxes related to new Brazilian operations. During 2005, there has been tremendous
effort made to improve the internal control processes related to taxes and ensure an
appropriate level of research, analysis and review of complex international tax issues
associated with our existing and future tax jurisdictions by proactively training staff,
reviewing tax consequences of transactions, improving documentation, and continuing to
engage third-party tax service providers for more complex areas of our income tax
accounting. We also hired a Corporate Tax Director who began working at GulfMark mid
January 2006. The Corporate Tax Director has extensive international tax experience
with the majority of that experience in oil and gas services industry, including the
marine transportation business segment. This position is responsible for the analysis
and monitoring of taxes in all of our existing tax jurisdictions and related tax
accounting guidance and review. As of the end of 2005, this material weakness has been
remediated. |
We believe that these actions and resulting improvement in controls will strengthen our
disclosure controls and procedures, as well as our internal control over financial reporting, and
have remediated the material weaknesses that we identified in our internal control over financial
reporting at December 31, 2004. We estimate that the remedial steps outlined above cost us
approximately $0.7 million in 2005, excluding reallocation of internal resources. For information
on our disclosure controls, and internal controls over financial reporting, at December 31, 2005,
see Item 9A Controls and Procedures.
Although we have taken the foregoing steps to correct the identified internal control
deficiencies, these measures may not ensure that we will implement and maintain adequate controls
over our financial reporting in the future. Any failure to implement required new or improved
controls, or difficulties encountered in their implementations, could cause us to fail to meet our
future reporting obligations. In addition, we may in the future identify further material
weaknesses or significant deficiencies in our internal controls over financial reporting.
ITEM 1B. Unresolved Staff Comments
NONE
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. 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 an unfavorable outcome of these legal actions would not have a material adverse
effect on our consolidated financial position and results of our operations. We cannot predict
whether any such claims may be made in the future.
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
16
PART II
ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
High |
|
Low |
|
High |
|
Low |
Quarter ended March 31, |
|
$ |
28.34 |
|
|
$ |
19.55 |
|
|
$ |
17.15 |
|
|
$ |
13.28 |
|
Quarter ended June 30, |
|
$ |
28.14 |
|
|
$ |
21.19 |
|
|
$ |
18.59 |
|
|
$ |
13.08 |
|
Quarter ended September 30, |
|
$ |
32.73 |
|
|
$ |
26.49 |
|
|
$ |
17.72 |
|
|
$ |
13.61 |
|
Quarter ended December 31, |
|
$ |
34.84 |
|
|
$ |
26.19 |
|
|
$ |
22.75 |
|
|
$ |
16.00 |
|
For the period from January 1, 2006 through March 8, 2006, the range of low and high sales
prices of our common stock was $25.54 to $34.07, respectively. On March 8, 2006, the closing sale
price of our common stock as reported by the NASDAQ National Market was $26.05 per share. At March
8, 2006, there were 565 stockholders of record.
We have not declared or paid cash dividends during the past five years. Pursuant to the terms
of the indenture under which the Senior 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.
Equity compensation plan information required by this item may be found in Note 7 of the
Notes to the Consolidated Financial Statements in Part II, Item 8 herein.
On July 21, 2004, we sold $160,000,000 of 7.75% Senior Notes due 2014, or the Old Notes, to
Lehman Brothers, Inc., Jefferies & Company, Inc. and Morgan Stanley & Co. The Old Notes were sold
privately under exemptions from registration from the provisions of Section 5 of the Securities Act
provided by Rule 144A and Regulation S. As a condition to the sale of the Old Notes, we entered
into a registration rights agreement with the initial purchasers, pursuant to which we filed a
registration statement on Form S-4, Reg. No. 333-120521, enabling holders of the Old Notes to
exchange them for publicly registered notes, or the Exchange Notes, with essentially the same
terms. On June 10, 2005, we closed the exchange offer for the Old Notes.
The net proceeds from our sale of the Old Notes were approximately $156.1 million. We used a
portion of the proceeds from the sale of the Old Note (i) to repurchase $130,000,000 aggregate
principal amount and to pay accrued and unpaid interest of our then outstanding 8.75% senior notes
due 2008 in the tender offer for those notes and their subsequent redemption, (ii) to repay a
portion of indebtedness under our credit facilities, (iii) to pay fees and expenses, and (iv) for
general corporate purposes, including the payment of other debt. We did not receive any proceeds
from the exchange offer.
Lehman Brothers Inc. acted as sole dealer-manager in connection with the tender offer for our
8.75% senior notes due 2008 and was an initial purchaser in the offering of the Old Notes. Lehman
Brothers Inc. received customary fees in the amount of $0.3 million and $1.9 million, respectively,
plus reimbursement of certain expenses for those services.
See also Note 4 to our Consolidated Financial Statements Long Term Debt.
17
ITEM 6. Selected Consolidated Financial Data
The data that follows should be read in conjunction with our Consolidated Financial Statements
and the notes thereto included in Item 8 and Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in Item 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
(Dollars in thousands) |
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
204,042 |
|
|
$ |
139,312 |
|
|
$ |
129,900 |
|
|
$ |
133,919 |
|
|
$ |
114,063 |
|
Direct operating expenses |
|
|
82,803 |
|
|
|
71,239 |
|
|
|
69,836 |
|
|
|
58,007 |
|
|
|
43,403 |
|
Drydock expense (a) |
|
|
9,192 |
|
|
|
8,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bareboat charter expense |
|
|
3,864 |
|
|
|
1,410 |
|
|
|
6,505 |
|
|
|
9,287 |
|
|
|
8,931 |
|
General and administrative expenses |
|
|
19,572 |
|
|
|
15,666 |
|
|
|
10,801 |
|
|
|
10,027 |
|
|
|
7,623 |
|
Depreciation and amortization |
|
|
28,875 |
|
|
|
26,137 |
|
|
|
28,031 |
|
|
|
21,414 |
|
|
|
15,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
59,736 |
|
|
|
15,894 |
|
|
|
14,727 |
|
|
|
35,184 |
|
|
|
38,779 |
|
Interest expense |
|
|
(19,017 |
) |
|
|
(17,243 |
) |
|
|
(12,988 |
) |
|
|
(12,149 |
) |
|
|
(12,770 |
) |
Interest income |
|
|
569 |
|
|
|
276 |
|
|
|
238 |
|
|
|
1,211 |
|
|
|
1,201 |
|
Debt refinancing costs |
|
|
|
|
|
|
(6,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets |
|
|
|
|
|
|
2,282 |
|
|
|
16 |
|
|
|
181 |
|
|
|
|
|
Other income (expense), net |
|
|
484 |
|
|
|
1,517 |
|
|
|
(1,267 |
) |
|
|
2,493 |
|
|
|
(1,501 |
) |
Income tax (provision) benefit |
|
|
(3,382 |
) |
|
|
6,476 |
|
|
|
(192 |
) |
|
|
(2,959 |
) |
|
|
12,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle |
|
$ |
38,390 |
|
|
$ |
2,678 |
|
|
$ |
534 |
|
|
$ |
23,961 |
|
|
$ |
37,922 |
|
Cumulative effect on prior years of change in accounting
principle net of $773 related tax effect (a) |
|
|
|
|
|
|
(7,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
|
$ |
23,961 |
|
|
$ |
37,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts per common share (basic): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle |
|
$ |
1.92 |
|
|
$ |
0.13 |
|
|
$ |
0.03 |
|
|
$ |
1.25 |
|
|
$ |
2.31 |
|
Cumulative effect on prior years of change in accounting principle |
|
|
|
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.92 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
|
$ |
1.25 |
|
|
$ |
2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (basic) |
|
|
20,031 |
|
|
|
19,938 |
|
|
|
19,919 |
|
|
|
19,132 |
|
|
|
16,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts per common share (diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle |
|
$ |
1.86 |
|
|
$ |
0.13 |
|
|
$ |
0.03 |
|
|
$ |
1.22 |
|
|
$ |
2.26 |
|
Cumulative effect on prior years of change in accounting principle |
|
|
|
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.86 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
|
$ |
1.22 |
|
|
$ |
2.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (diluted) (b) |
|
|
20,666 |
|
|
|
19,938 |
|
|
|
20,272 |
|
|
|
19,566 |
|
|
|
16,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
$ |
64,913 |
|
|
$ |
25,561 |
|
|
$ |
20,150 |
|
|
$ |
34,872 |
|
|
$ |
37,535 |
|
Cash used in investing activities |
|
|
(43,343 |
) |
|
|
(40,404 |
) |
|
|
(91,575 |
) |
|
|
(88,299 |
) |
|
|
(80,363 |
) |
Cash provided by (used in) financing activities |
|
|
(15,674 |
) |
|
|
23,005 |
|
|
|
68,646 |
|
|
|
39,720 |
|
|
|
31,526 |
|
Effect of exchange rate changes on cash |
|
|
765 |
|
|
|
1,031 |
|
|
|
1,707 |
|
|
|
1,192 |
|
|
|
(812 |
) |
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (c) |
|
|
88,611 |
|
|
|
42,031 |
|
|
|
42,758 |
|
|
|
56,598 |
|
|
|
54,106 |
|
Cash dividends per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total vessels in fleet (d) |
|
|
59 |
|
|
|
52 |
|
|
|
53 |
|
|
|
55 |
|
|
|
51 |
|
Average number of owned or chartered vessels (e) |
|
|
47.2 |
|
|
|
45.6 |
|
|
|
46.8 |
|
|
|
43.5 |
|
|
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
(In thousands) |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
24,190 |
|
|
$ |
17,529 |
|
|
$ |
8,336 |
|
|
$ |
9,619 |
|
|
$ |
22,671 |
|
Vessels and equipment including construction in progress, net |
|
|
510,446 |
|
|
|
538,978 |
|
|
|
485,502 |
|
|
|
379,208 |
|
|
|
262,364 |
|
Total assets |
|
|
613,915 |
|
|
|
632,718 |
|
|
|
575,501 |
|
|
|
486,547 |
|
|
|
352,051 |
|
Long-term debt (f) |
|
|
247,685 |
|
|
|
258,022 |
|
|
|
236,589 |
|
|
|
165,233 |
|
|
|
180,669 |
|
Total stockholders equity |
|
|
320,096 |
|
|
|
316,157 |
|
|
|
292,128 |
|
|
|
254,779 |
|
|
|
133,392 |
|
|
|
|
(a) |
|
Effective January 1, 2004, we began expensing the costs associated with drydocks.
Previously, these costs were capitalized and amortized over 30 months. As a result of this
change, we recorded a non-cash cumulative effect charge of $7.3 million, net of tax. See Note
1 Change in Accounting Principle in our Notes to Consolidated Financial Statements
included in Part II, Item 8. |
|
(b) |
|
Earnings per share is based on the weighted average number of shares of common stock and
common stock equivalents outstanding. |
|
(c) |
|
EBITDA is defined as net income (loss) before cumulative effect of change in accounting principle,
interest expense, interest income, income tax (benefit) provision, debt refinancing
costs, and depreciation and amortization. Adjusted EBITDA is calculated by adjusting EBITDA
for certain items that we believe are non-cash or unusual, consisting of: (i) gain on sale of
assets; (ii) loss |
18
|
|
|
|
|
from unconsolidated ventures; (iii) minority interest; and (iv) other (income) expense, net.
EBITDA and Adjusted EBITDA are not measurements of financial performance under generally accepted
accounting principles, or GAAP, and should not be considered as an alternative to cash flow data,
a measure of liquidity or an alternative to operating income or net income as indicators of our
operating performance or any other measures of performance derived in accordance with GAAP.
EBITDA and Adjusted EBITDA are presented because we believe they are used by security analysts,
investors and other interested parties in the evaluation of companies in our industry. However,
because EBITDA and Adjusted EBITDA are not measurements determined in accordance with GAAP and
are thus susceptible to varying calculations, EBITDA and Adjusted EBITDA as presented may not be
comparable to other similarly titled measures used by other companies or comparable for other
purposes. |
The following table summarizes the calculation of EBITDA and Adjusted EBITDA for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
(In thousands) |
|
Net income (loss) |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
|
$ |
23,961 |
|
|
$ |
37,922 |
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
7,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19,017 |
|
|
|
17,243 |
|
|
|
12,988 |
|
|
|
12,149 |
|
|
|
12,770 |
|
Interest income |
|
|
(569 |
) |
|
|
(276 |
) |
|
|
(238 |
) |
|
|
(1,211 |
) |
|
|
(1,201 |
) |
Debt refinancing costs |
|
|
|
|
|
|
6,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision |
|
|
3,382 |
|
|
|
(6,476 |
) |
|
|
192 |
|
|
|
2,959 |
|
|
|
(12,213 |
) |
Depreciation and amortization |
|
|
28,875 |
|
|
|
26,137 |
|
|
|
28,031 |
|
|
|
21,414 |
|
|
|
15,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
89,095 |
|
|
|
45,830 |
|
|
|
41,507 |
|
|
|
59,272 |
|
|
|
52,605 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets |
|
|
|
|
|
|
(2,282 |
) |
|
|
(16 |
) |
|
|
(181 |
) |
|
|
|
|
Other (i) |
|
|
(484 |
) |
|
|
(1,517 |
) |
|
|
1,267 |
|
|
|
(2,493 |
) |
|
|
1,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
88,611 |
|
|
$ |
42,031 |
|
|
$ |
42,758 |
|
|
$ |
56,598 |
|
|
$ |
54,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Includes foreign currency transaction adjustments.
(d) |
|
Includes managed vessels in addition to those that are owned and chartered at the end of the
applicable period. See Our Fleet in Items 1 and 2 for further information concerning our
fleet. |
(e) |
|
Average number of vessels is calculated based on the aggregate number of vessel days
available during each period divided by the number of calendar days in such period. Includes
owned and bareboat chartered vessels only, and is adjusted for additions and dispositions
occurring during each period. |
(f) |
|
Excludes current portion of long-term debt. |
ITEM 7. Managements 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.
Our Business Strategy
Our goal is to enhance our position as a premier provider of offshore marine services in
international markets by achieving higher vessel utilization rates, relatively stable growth rates
and returns on investments that are superior to those of our competitors. Key elements in
implementing our strategy include:
Developing and maintaining a large, modern, diversified and technologically advanced fleet: Our
fleet size, location and profile allow us to provide a full range of services to our customers from
platform supply work to specialized floating, production, storage and offloading, or FPSO support,
including anchor handling and remotely operated vehicle, or ROV, operations. We regularly upgrade
our fleet to improve capability, reliability and customer satisfaction. We also seek to take
advantage of attractive opportunities to acquire or build new vessels to expand our fleet. We took
delivery of 10 new build vessels between 2001 and 2004, and acquired a vessel in December 2004.
Additionally, two new build vessels were delivered in the second quarter of 2005. Also in 2005, we
committed to build 11 new vessels, one of which was delivered during the fourth quarter. We
believe our relatively young fleet, which requires less maintenance and refurbishment work during
required drydockings than older fleets, allows for less downtime, resulting in more dependable
operations for both our customers and us.
19
Enhancing fleet utilization through development of specialty applications for our vessels: We
operate some of the most technologically advanced vessels available. Our highly efficient,
multiple-use vessels provide our customers maximum flexibility and are constructed with design
elements such as dynamic positioning, firefighting, moon pools, ROV handling and oil spill response
capabilities. In addition, we design and equip new build vessels specifically to meet customer
needs.
Focusing on attractive international markets: We have elected to conduct our current operations
mainly in the North Sea, offshore Southeast Asia and offshore Americas markets because we believe
there are higher barriers to entry, lower volatility of day rates and greater potential for
increasing day rates in those markets than in other markets. Furthermore, our operating experience
in these markets has enabled us to anticipate and profitably respond to trends in these markets,
such as the increasing demand for multi-function vessels met by our recent additions to our North
Sea fleet. In addition, we have capacity, under appropriate market conditions, to alter the
geographic focus of our operations to a limited degree by shifting vessels between our existing
markets and by entering new ones as they develop economically and become more profitable.
Managing our risk profile through chartering arrangements: We utilize various contractual
arrangements in our fleet operations, including long-term charters, short-term charters, sharing
arrangements and vessel pools. Sharing arrangements provide us and our customers the opportunity to
benefit from rising charter rates by subchartering the contracted vessels to third parties at
prevailing market rates during any downtime in the customers operations. We operate and
participate in pooling arrangements where vessels of similar specifications enter into a marketing
alliance. We believe these contractual arrangements help us reduce volatility in both day rates and
vessel utilization and are beneficial to our customers.
General
We provide marine support and transportation services to companies involved in the offshore
exploration and production of oil and natural gas. Our vessels transport drilling materials,
supplies and personnel to offshore facilities, as well as move and position drilling structures.
The majority of our operations are based in the North Sea with 34 vessels operating from the area.
We also have 11 vessels operating in Southeast Asia, five vessels in Brazil, two in the
Mediterranean Sea, two vessels in India, two in the Middle East, one in West Africa and two vessels
in Mexico. Our fleet has grown in both size and capability, from an original 11 vessels in 1990 to
our present number of 59 vessels, through strategic acquisitions and new construction of
technologically advanced vessels, partially offset by dispositions of certain older, less
profitable vessels. At March 1, 2006, our fleet includes 48 owned vessels and 11 managed vessels.
Our results of operations are affected primarily by day rates, fleet utilization and the
number and type of vessels in our fleet. Utilization and day rates, in turn, are influenced
principally by the demand for vessel services from the exploration and production sectors of the
oil and natural gas industry. The supply of vessels to meet this fluctuating demand is related
directly to the perception of future activity in both the drilling and production phases of the oil
and natural gas industry as well as the availability of capital to build new vessels to meet the
changing market requirements.
From time to time, we bareboat charter vessels with revenues and operating expenses reported
in the same income and expense categories as our owned vessels. The chartered vessels, however,
incur bareboat charter fees instead of depreciation expense. Bareboat charter fees are generally
higher than the depreciation expense on owned vessels of similar age and specification. The
operating income realized from these vessels is therefore adversely affected by the higher costs
associated with the bareboat charter fees. These vessels are included in calculating fleet day
rates and utilization in the applicable periods.
We also provide management services to other vessel owners for a fee. We do not include
charter revenues and vessel expenses of these vessels in our operating results. However, management
fees are included in operating revenues. These vessels have been excluded for purposes of
calculating fleet rates per day worked and utilization in the applicable periods.
Our operating costs are primarily a function of fleet configuration and utilization levels.
The most significant direct operating costs are wages paid to vessel crews, maintenance and
repairs, and marine insurance. Generally, fluctuations in vessel utilization have little effect on
direct operating costs in the short term. 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 direct operating costs, we incur fixed charges related to the depreciation of
our fleet and costs for routine drydock inspections, maintenance and repairs designed to ensure
compliance with applicable regulations and maintaining certifications for our vessels with various
international classification societies. The aggregate number of drydockings and other repairs
undertaken in a given period generally determines maintenance and repair expenses. The demands of
the market, the expiration of existing contracts,
20
the start of new contracts, and the availability allowed by our customers have
influenced, and will continue to influence the timing of drydocks.
Critical Accounting Policies and Estimates
The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain
information that is pertinent to managements discussion and analysis. The preparation of financial
statements in conformity with GAAP 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.
Change in Accounting Principle
Effective January 1, 2004, we began expensing the costs associated with the periodic
requirements of the various classification societies, which requires each vessel to be placed in
drydock twice in a five-year period. Generally, drydock costs include refurbishment of structural
components as well as major overhauls of operating equipment, and is subject to scrutiny by the
relevant classification society. Previously, costs incurred in connection with drydockings were
capitalized and amortized over 30 months, which approximated the period between required
drydockings.
The industrys accounting practices have historically allowed three methods to account for
these expenditures: (1) defer and amortize, (2) accrue in advance, and (3) expense as incurred.
There are no authoritative criteria for determining a preferable method of accounting for drydock
expenditures. However, we have determined that expensing these costs as incurred is the method
predominantly used in our industry peer group and is a more rational basis for recognizing major
maintenance expenditures in our financial statements.
As a result of this change, we recorded a non-cash cumulative effect charge of $7.3 million,
net of tax ($0.36 per basic and diluted common share), in the consolidated statement of operations
for 2004. The effect of the change in accounting principle in 2004 also decreased income before the
cumulative effect of change in accounting principle by approximately $1.9 million by reversing the
current drydock amortization expense of $7.1 million and recognizing the expense for current
drydock expenditures of $9.0 million. The following table illustrates the pro forma effects of
retroactive application of this change in accounting principle on net income and earnings per share
if we had expensed drydock costs in prior years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
2002 |
|
2001 |
|
|
(In thousands) |
Net income, as reported |
|
$ |
534 |
|
|
$ |
23,961 |
|
|
$ |
37,922 |
|
Net income, pro forma |
|
|
588 |
|
|
|
24,023 |
|
|
|
36,089 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.03 |
|
|
$ |
1.25 |
|
|
$ |
2.31 |
|
Basic pro forma |
|
|
0.03 |
|
|
|
1.26 |
|
|
|
2.20 |
|
Diluted as reported |
|
|
0.03 |
|
|
|
1.22 |
|
|
|
2.26 |
|
Diluted pro forma |
|
|
0.03 |
|
|
|
1.23 |
|
|
|
2.15 |
|
Allowance for Doubtful Accounts
Our customers are primarily major and independent oil and gas companies and oil service
companies. Given our experience where our historical losses have been insignificant and our belief
that our related credit risks are minimal, our major and independent oil and gas company and oil
service company customers are granted credit on customary business terms. Our exposure to foreign
government-owned and controlled oil and gas companies, as well as companies that provide logistics,
construction or other services to such oil and natural gas companies, may result in longer payment
terms; however, we monitor our aged accounts receivable on an ongoing basis and provide an
allowance for doubtful accounts on a case-by-case basis as conditions warrant. We make critical
estimates for the allowance for doubtful accounts based on the age of the receivable, collection
history from the particular customer and managements judgment of the ability of the customer to
pay. Historically, we have collected appreciably all of our accounts receivable balances. In 2005,
we wrote-off approximately $1.2 million deemed to be uncollectible, which primarily represented one
customer that had been included in the 2004 allowance for doubtful accounts. At December 31, 2005
and 2004, respectively, we provided an allowance for doubtful accounts of $0.1 million and $1.3
million. Additional allowances for doubtful accounts may be necessary as a result of our ongoing
assessment of our customers ability to pay. Because amounts due from individual customers can
21
be significant, future adjustments to our allowance for doubtful accounts could be material if one or
more individual customer balances are deemed uncollectible. If an account receivable were deemed
uncollectible and all reasonable collection efforts were exhausted, the balance would be removed
from accounts receivable and the allowance for doubtful accounts.
In the fourth quarter of 2004, our Audit Committee adopted a management recommendation
regarding the allowance for doubtful accounts receivable for significantly aged receivables. See
BusinessInternal Controls.
Deferred Costs
Since inception, we have capitalized the costs associated with the periodic requirements of
the various classification societies, which requires the vessels to be placed in drydock twice in a
five-year period. Generally, drydocking costs include refurbishment of structural components as
well as major overhaul of operating equipment, subject to scrutiny by the relevant classification
society. Historically, these costs have been amortized over a 30-month period. As discussed in the
Change in Accounting Principle section above, we have changed our accounting for these costs.
Effective January 1, 2004, we began expensing these costs as incurred. A charge of $7.3 million,
net of tax ($0.36 per basic and diluted common share), reflecting the cumulative effect of this
accounting change was recorded at January 1, 2004.
In connection with new long-term contracts, incremental costs incurred that directly relate to
mobilization of a vessel from one region to another are deferred and recognized over the primary
contract term. Should the contract be terminated by either party prior to the end of the contract
term, the deferred amount would be immediately expensed. In contrast, costs of relocating vessels
from one region to another without a contract are expensed as incurred.
Deferred financing costs are capitalized as incurred and are amortized over the expected term of
the related debt. Should the specific debt terminate by means of payment in full, tender offer or
lender termination, the associated deferred financing costs would be immediately expensed. In the
third quarter of 2004, a charge of $6.5 million was recognized relating to the retirement of our
8.75% senior notes. Those costs included $4.4 million from the payment of tender offer premiums and $2.1 million from the write-off of
unamortized debt issuance costs and unamortized debt discount.
Long-Lived Assets and Goodwill
Our long-lived tangible assets consist primarily of vessels and construction-in-progress. Our
goodwill primarily relates to the 1998 acquisition of Brovig Supply AS and the 2001 acquisition of
Sea Truck Holding AS. The determination of impairment of all long-lived assets, including goodwill,
is conducted when indicators of impairment are present and at least annually on December 31 for
goodwill. Impairment testing on tangible long-lived assets is performed on an asset-by-asset basis
and impairment testing on goodwill is performed on a reporting-unit basis for the reporting units
where the goodwill is recorded.
The implied fair value of any asset or reporting unit is determined by discounting the
projected future operating cash flows or by using other fair value approaches based on a multiple
of earnings measurement. Management makes critical estimates and judgments to determine projected
future operating cash flow, particularly in regard to projected revenues and costs. An impairment
indicator is deemed to exist if the implied fair value of the asset or reporting unit is less than
the book value.
At December 31, 2005 and 2004, we performed our impairment test and determined there was no
goodwill impairment. There are many assumptions and estimates underlying the determination of the
implied fair value of the reporting unit, such as future expected utilization and the average day
rates for the vessels, vessel additions and attrition, operating expenses and tax rates. Although
we believe our assumptions and estimates are reasonable, deviations from our estimates by actual
performance could result in an adverse material impact on our results of operations. Examples of
events or circumstances that could give rise to an impairment of an asset (including goodwill)
include: prolonged adverse industry or economic change; significant business interruption;
unanticipated competition that has the potential to dramatically reduce our earning potential;
legal issues; or the loss of key personnel.
Income Taxes
A significant portion of our earnings originate in the North Sea, a region in which certain
jurisdictions including the United Kingdom and Norway provide alternative taxing structures created
specifically for qualified shipping companies, referred to as tonnage tax regimes. The tonnage
tax regimes provide for a tax based on the net tonnage weight of a qualified vessel, resulting in
significantly lower taxes than those that would apply if we were not a qualified shipping company
in those jurisdictions. Under the applicable tonnage tax regime, earnings from our qualified
shipping activities in Norway are not currently taxed. The Norwegian
22
tonnage tax regime includes, among other things, provisions that will, upon (i) the voluntary or involuntary exit from the
tonnage tax regime, (ii) the payment of a dividend, and/or (iii) complete liquidation, trigger an
ordinary 28% income tax on the qualified shipping companys statutory accumulated untaxed net
earnings, if any. If the Company were to exit from the tonnage tax regime ((i) or (iii) above),
the computation of the amount subject to tax at 28% would be equal to (a) the market value of all
the assets owned within the tonnage tax regime less (b) the amount of any undistributed previously
taxed earnings at the beginning of the exit year and (c) paid-in-share capital, including any
premiums. The resulting exit computation taxable gain or loss would, subject to certain conditions,
be recognized over five years beginning with the exit year. In the case of an actual dividend
((ii) above), the amount subject to tax would be limited to the amount of the dividend grossed-up
for such taxes. We have not recorded a tax provision for any of these three possible taxable
events, and should any of these events occur in the future, we will have to record a 28% income tax expense in the
period in which such event does occur. At December 31, 2005, the accumulated untaxed book
earnings for our qualified Norwegian shipping activities was approximately $23.5 million, which, if
paid as a dividend, would result in a tax liability of approximately $6.6 million. We believe that
the likelihood is remote that we will trigger any of these events and have to pay income tax on
some or all of the accumulated untaxed net earnings under Norways tonnage tax regime. The United
Kingdom tonnage tax regime provisions do not include similar requirements for possible future
taxation of shipping activities income. The tonnage tax regimes in the North Sea significantly
reduce the cash required for taxes in that region.
Almost all of our tax provision is for taxes in regions outside of the United Kingdom and
Norway. Should our operations structure change or should the tonnage tax regime laws change, we
could be required to provide for taxes at rates much higher than currently reflected in our
consolidated financial statements. Additionally, if our pre-tax earnings in a higher tax
jurisdiction increase, there could be a significant increase in our annual effective tax rate.
That increase could cause volatility in the comparison of our effective tax rate from period to
period.
In 2004, we reduced a deferred income tax liability from $4.9 million to $0.3 million related
to certain of the Companys amended 2001, 2002 and 2003 U.K. corporation tax returns, which had
then recently been reviewed, or examined, by and agreed with the U.K. Inland Revenue, thereby,
finalizing U.K. taxes for those tax returns.
The American Jobs Creation Act of 2004 increased the foreign tax credit carryforwards period
to ten years. We have $2.3 million of such foreign tax credit carryforwards that begin to expire
in 2009. A valuation allowance has been established against the full amount of these credits less
the tax benefit of the deduction. We, also, have certain foreign operating loss carryforwards of
approximately $6.0 million for which we have established a full valuation allowance. We have
considered estimated future taxable income in the relevant tax jurisdictions to utilize these
credit and loss carryforwards and have considered what we believe to be ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation allowance. This
information is based on estimates and assumptions including projected taxable income. If these
estimates and related assumptions change in the future or if we determine that we would not be able
to realize other deferred tax assets in the future, an adjustment to the valuation allowance would
be recorded in the period such determination was made.
The Jobs Act also includes specific tax reform related to foreign shipping income. This
legislation favorably impacted us beginning January 1, 2005, with the majority of our foreign
shipping income no longer subject to tax in the United States of America. In 2005, we reviewed our
global operating structure and executed a world-wide restructuring to maximize potential growth and
cash flow, lower income taxes, and create a more favorable corporate structure for the expansion of
our business.
Commitments and Contingencies
We have contingent liabilities and future claims for which we have made estimates of the
amount of the eventual cost to liquidate these liabilities or claims. These liabilities and claims
may involve threatened or actual litigation where damages have not been specifically quantified but
we have made an assessment of our exposure and recorded a provision in our accounts for the
expected loss. Other claims or liabilities, including those related to taxes in foreign jurisdictions, may be estimated based on our experience in
these matters and, where appropriate, the advice of outside counsel or other outside experts. Upon
the ultimate resolution of the uncertainties surrounding our estimates of contingent liabilities
and future claims, our future reported financial results would be impacted by the difference
between our estimates and the actual amounts paid to settle the liabilities. In addition to
estimates related to litigation and tax liabilities, other examples of liabilities requiring
estimates of future exposure include contingencies arising out of acquisitions and divestitures.
Our contingent liabilities are based on the most recent information available to us regarding the
nature of the exposure. Such exposures change from period to period based upon updated relevant
facts and circumstances, which can cause the estimate to change. In the recent past, our estimates
for contingent liabilities have been sufficient to cover the actual amount of our exposure.
23
Multi-employer Pension Obligation
Certain of our subsidiaries participate in an industry-wide, multi-employer, defined benefit
pension fund based in the U.K., the Merchant Navy Officers Pension Fund (MNOPF). We have been
informed of an estimated £234.0 million, or $402.6 million, total fund deficit calculated by the
funds actuary based on the most recent actuary study. Under the direction of a court order, the
deficit is to be remedied through future funding contributions from all participating employers.
In 2005 we received invoices from the MNOPF for $1.8 million, which represents the amount
calculated by the fund as our current share of the deficit. Under the terms of the invoice, we
paid $0.3 million with the remaining due in annual installments over nine years. Accordingly, we
recorded the full amount of $1.8 million as a direct operating expense and the $1.5 million
remaining obligation is recorded as a liability. The amount of our ultimate share of the deficit
could change depending on future actuarial valuations and fund calculations which are due to occur
every three years, the next of which is scheduled for the end of March 2006. Our share of the
funds deficit will be dependent on a number of factors including the updated actuarial study, the
number of participating employers, and the final method used in allocating the required
contribution among participating employers.
Consolidated Results of Operations
Comparison of the Fiscal Years Ended December 31, 2005 and December 31, 2004
Our revenues increased from $139.3 million in 2004 to $204.0 million in 2005, resulting mainly
from continued increased activity in the North Sea that started in late 2004, the full year effect
of two vessel additions in the second half of 2004, the addition early in 2005 of a bareboat
chartered vessel, and the delivery of three new build vessels in the second and fourth quarters of
2005. For the year ended December 31, 2005, net income was $38.4 million, or $1.86 per diluted
share, compared to $2.7 million, or $0.13 per diluted share before the cumulative effect of change
in accounting principle resulting in a charge of $7.3 million, or $0.36 per diluted share for 2004.
Including the cumulative effect of the change in accounting principle, our net loss for 2004 was
$4.6 million, or $0.23 per diluted share.
The North Sea market showed continued improvement, with increases in both day rates and
utilization. Additionally, we experienced an increase in capacity resulting from two vessel
additions in the North Sea, one late in 2004 and one early in 2005, as well as three 2005 new build
additions, two in the Americas region late in the second quarter and one in the Southeast Asia
region in the fourth quarter. Day rates improved during the year in all our regions, indicating
continued strong demand for our vessels.
All our regions experienced an increase in revenue resulting mainly from a $33.6 million
increase in day rates mainly attributable to improved market conditions and stronger exploration
and development activities. Additionally, an increase in capacity of $17.1 million, mainly due to
the vessel additions listed above partially offset by one fewer operating day in 2005, as 2004 was
a leap year, also contributed to the increase in revenues. We also experienced a utilization
increase of $14.0 million, with increases experienced in all of our regions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
Average Rates Per Day Worked (a) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet (c) |
|
$ |
15,530 |
|
|
$ |
11,862 |
|
|
$ |
3,668 |
|
Southeast Asia-Based Fleet |
|
|
5,849 |
|
|
|
5,137 |
|
|
|
712 |
|
Americas-Based Fleet |
|
|
11,518 |
|
|
|
12,137 |
|
|
|
(619 |
) |
Overall Utilization (a) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet (c) |
|
|
91.9 |
% |
|
|
80.9 |
% |
|
|
11.0 |
% |
Southeast Asia-Based Fleet |
|
|
91.6 |
% |
|
|
82.2 |
% |
|
|
9.4 |
% |
Americas-Based Fleet |
|
|
95.6 |
% |
|
|
91.6 |
% |
|
|
4.0 |
% |
Average Owned or Chartered Vessels (a) (d): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet |
|
|
30.8 |
|
|
|
29.4 |
|
|
|
1.4 |
|
Southeast Asia-Based Fleet |
|
|
10.2 |
|
|
|
11.6 |
|
|
|
(1.4 |
) |
Americas-Based Fleet |
|
|
6.2 |
|
|
|
4.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
47.2 |
|
|
|
45.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes all owned or bareboat chartered vessels. Managed vessels are not included. |
24
|
|
|
(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 (£) and
have been converted to U.S. dollars ($) at the average exchange rate ($/£) for the periods
indicated. The average exchange rates for the years ended December 31, 2005, and 2004 were £ =
$1.82 and £ = $1.83, respectively. The North Sea-Based Fleet includes certain vessels working
offshore India, offshore West Africa, offshore the Middle East and the Mediterranean. |
|
(d) |
|
Adjusted for vessel additions and dispositions occurring during each period. |
Direct operating expenses increased $11.6 million in 2005 over 2004. This increase was due
mainly to vessel additions throughout the year coupled with salary and travel costs related to
vessels operating in Africa and Turkey, and higher costs resulting from a stronger Norwegian kroner
compared to the reporting currency. Drydock expense remained somewhat stable, increasing $0.2
million, and bareboat charter expense increased $2.5 million to $3.9 million as we entered into an
additional bareboat charter agreement in 2005. General and administrative expenses increased $3.9
million in 2005, as the implementation of Sarbanes-Oxley related controls and procedures and other
regulatory requirements resulted in higher professional fees and higher salary-related expenses. Depreciation expense increased by $2.7 million from 2004 to 2005 due
mainly to the vessel additions described above.
Interest expense increased $1.8 million due mainly to the higher weighted average interest
rate on our revolving debt. During 2004, we also incurred an expense of $6.5 million related to the
redemption of our $130 million 8.75% senior notes. The gain on sale of assets of $2.3 million in
2004 primarily reflects the sale of three of our oldest Southeast Asia based vessels, the Seawhip,
the Seawitch and the Sea Conquest. Additionally, the income of $0.5 million in the other category
compared to $1.5 million in 2004 was mainly due to the 2004 favorable foreign currency movements on
inter-company accounts anticipated to be settled.
The income tax benefit of $6.5 million for 2004 reflects the reversal of previously provided
deferred tax liabilities for our North Sea operations, as our United Kingdom subsidiary finalized
an Inland Revenue audit relating to tonnage tax. Our tax provision can fluctuate significantly
based on the mix of vessels working in higher tax jurisdictions. As such, income tax expense in
2005 was $3.4 million.
Comparison of the Fiscal Years Ended December 31, 2004 and December 31, 2003
Our revenues increased from $129.9 million in 2003 to $139.3 million in 2004, largely as a
result of the increase in North Sea activity late in the year, the full year effect of 2003 new
build deliveries and the addition of two vessels during the second half of 2004. For the year ended
December 31, 2004, income was $2.7 million, or $0.13 per diluted share before the cumulative effect
of change in accounting principle resulting in a charge of $7.3 million, or $0.36 per diluted
share. Including the cumulative effect of the change in accounting principle, our net loss for 2004
was $4.6 million, or $0.23 per diluted share. For the year ended December 31, 2003, net income was
$0.5 million, or $0.03 per diluted share.
The weakness in exploration and development activities in the North Sea that started in 2002
began showing signs of recovery beginning late in the third quarter of 2004, with increasing day
rates and utilization evident. Additionally, we experienced an increase in capacity resulting from
the full year effect of the four newly built vessels delivered in 2003 and the addition of two
additional vessels to our fleet in 2004, one in September and the other in December. Day rates
improved during the year with the increases in the foreign currency exchange rate between the
British pound and Norwegian kroner against the U.S. dollar being part of the improvement in rates.
Revenue increased in all our regions except Southeast Asia, where the sale of three vessels
during the year and slightly lower utilization resulted in a decrease of $0.4 million in revenue.
In the Americas, revenue levels and average rates increased because of the change in our equipment
mix. Overall, we experienced an increase in capacity of $4.2 million, mainly due to the factors
listed above as well as one additional operating day in 2004. Day rates showed an increase of $8.2
million mainly attributable to stronger British pound and Norwegian kroner against the weak U.S.
dollar, as day rates are generally denominated in international currencies. The decrease in
revenues attributed to lower utilization was $2.9 million, resulting mainly from the weakness in
the North Sea early in the year and the large number of vessels that were working on the spot
market as a result.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2004 |
|
|
2003 |
|
|
(Decrease) |
|
Average Rates Per Day Worked (a) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet (c) |
|
$ |
11,862 |
|
|
$ |
11,042 |
|
|
$ |
820 |
|
Southeast Asia-Based Fleet |
|
|
5,137 |
|
|
|
5,075 |
|
|
|
62 |
|
Americas-Based Fleet |
|
|
12,137 |
|
|
|
11,707 |
|
|
|
430 |
|
Overall Utilization (a) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet (c) |
|
|
80.9 |
% |
|
|
78.3 |
% |
|
|
2.6 |
% |
Southeast Asia-Based Fleet |
|
|
82.2 |
% |
|
|
83.8 |
% |
|
|
(1.6 |
%) |
Americas-Based Fleet |
|
|
91.6 |
% |
|
|
92.8 |
% |
|
|
(1.2 |
%) |
Average Owned or Chartered Vessels (a) (d): |
|
|
|
|
|
|
|
|
|
|
|
|
North Sea-Based Fleet |
|
|
29.4 |
|
|
|
30.8 |
|
|
|
(1.4 |
) |
Southeast Asia-Based Fleet |
|
|
11.6 |
|
|
|
12.0 |
|
|
|
(0.4 |
) |
Americas-Based Fleet |
|
|
4.6 |
|
|
|
4.0 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
45.6 |
|
|
|
46.8 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes all owned or bareboat chartered vessels. 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 (£) and
have been converted to U.S. dollars ($) at the average exchange rate ($/£) for the periods
indicated. The average exchange rates for the years ended December 31, 2004, and 2003 were £ =
$1.83 and £ = $1.63, respectively. The North Sea-Based Fleet includes certain vessels working
in India and West Africa. |
|
(d) |
|
Adjusted for vessel additions and dispositions occurring during each period. |
Direct operating expenses increased $1.4 million in 2004 over 2003. This increase was due to
higher costs resulting from stronger currencies in the operating regions compared to the reporting
currency and change in our equipment mix. Bareboat charter expense decreased $5.1 million to $1.4
million as we returned the last bareboat chartered vessel to its owner during 2004. We currently
have no bareboat chartered vessels in our fleet. General and administrative expenses increased $4.9
million in 2004, as the implementation of Sarbanes-Oxley related controls and procedures and other
regulatory requirements resulted in higher professional fees and higher salary-related expenses.
Also, an increase in the allowance for doubtful accounts of $0.9 million contributed to this
increase. Drydock expense of $9.0 million in 2004 relates to the change in accounting principle
described above and in Note 1 to the Consolidated Financial Statements. Depreciation and
amortization expense decreased by $1.9 million from 2004 to 2003 mainly due to the reclassification
of drydock expense resulting from the change in accounting principle.
Interest expense increased $4.3 million due mainly to the higher outstanding balance and a
higher weighted average interest rate on our line of credit, resulting from the conversion of the
line of credit from U.S. dollars to British pounds at the end of 2003. During 2004, we also incurred an expense of $6.5 million
related to the redemption of our $130 million 8.75% senior notes. The gain on sale of assets of
$2.3 million primarily reflects the sale of three of our oldest Southeast Asia based vessels, the
Seawhip, the Seawitch and the Sea Conquest. Additionally, we reported income in the other category
of $1.5 million, compared to $1.3 million expense in 2003, resulting from favorable foreign
currency movements on inter-company accounts anticipated to be settled.
The income tax benefit of $6.5 million for 2004 reflects the reversal of previously provided
deferred tax liabilities for our North Sea operations, as our United Kingdom subsidiary finalized
an Inland Revenue audit relating to tonnage tax. Substantially all of our tax provision is for
deferred taxes, and can fluctuate significantly based on the mix of vessels working in the higher
tax jurisdictions.
26
Segment Results
As discussed in General Business included in Part I, Items 1 and 2, we operate three
operating segments: the North Sea, Southeast Asia and the Americas, each of which is considered a
reportable segment under SFAS No. 131. Prior to 2004, we reported all operations in a single
segment. In 2004, our segment reporting was changed to conform to the manner in which our chief
operating decision maker reviews, and we manage, our business. Substantially all of our revenues
are derived from and all of our long-lived assets located in foreign jurisdictions.
Management
evaluates segment performance primarily based on operating income.
Cash and debt are managed centrally. Because the regions do not
manage those items, the gains and losses on foreign currency
remeasurements associated with these items are excluded from
operating income. Furthermore, gains and losses from sale of assets
are also excluded from operating income, as strategic decisions
relating to asset acquisitions and divestitures are generally made centrally as well. Management considers segment operating income to be
a good indicator of each segments operating performance from
its continuing operations, as it represents the results of the
ownership interest in operations without regard to financing methods
or capital structures. Each operating segments operating income
is summarized in the following table, and detailed discussions
follow.
Operating Income by Operating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
North Sea |
|
$ |
55,897 |
|
|
$ |
10,591 |
|
|
$ |
5,547 |
|
Southeast Asia |
|
|
10,007 |
|
|
|
6,230 |
|
|
|
8,657 |
|
Americas |
|
|
4,421 |
|
|
|
5,942 |
|
|
|
4,652 |
|
|
|
|
|
|
|
|
|
|
|
Total reportable segment operating income |
|
|
70,325 |
|
|
|
22,763 |
|
|
|
18,856 |
|
Other |
|
|
(10,589 |
) |
|
|
(6,869 |
) |
|
|
(4,129 |
) |
|
|
|
|
|
|
|
|
|
|
Total reportable segment and other operating income |
|
$ |
59,736 |
|
|
$ |
15,894 |
|
|
$ |
14,727 |
|
|
|
|
|
|
|
|
|
|
|
North Sea Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
160,276 |
|
|
$ |
103,190 |
|
|
$ |
96,120 |
|
Operating expenses |
|
|
82,295 |
|
|
|
71,818 |
|
|
|
68,038 |
|
Depreciation and amortization expense |
|
|
22,084 |
|
|
|
20,781 |
|
|
|
22,535 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
55,897 |
|
|
$ |
10,591 |
|
|
$ |
5,547 |
|
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal Year Ended December 31, 2005 and December 31, 2004
Revenues for 2005 increased $57.1 million, compared to 2004. The increase was primarily driven
by increased capacity of $13.0 million due to a full year effect of a vessel acquired in December
2004, the addition of a bareboat chartered vessel early in 2005, and the addition of vessels
mobilized into the region from other parts of the world during the year. Additionally, day rates
increased by $32.0 million principally due to the continued improvement in exploration and
development activities in the North Sea and increases in foreign currency exchange rates between
the Norwegian kroner against the U.S. dollar, and an increase in utilization of $12.0 million due
to the strength in the market. Operating expenses and depreciation expense increased by $10.5
million and $1.3 million, respectively from 2004 to 2005, primarily due to the vessel additions,
and, in the case of the increase in operating expenses, also due to higher salaries and travel
costs related to vessels operating offshore Africa and offshore Turkey, higher vessel utilization,
as well as a $1.8 million pension expense related to the MNOPF as discussed in Critical Accounting
Policies and Estimates.
Comparison of Fiscal Year Ended December 31, 2004 and December 31, 2003
Revenues for 2004 increased $7.1 million, compared to 2003. The increase was primarily driven
by increased capacity of $3.2 million due to a full year effect of newly built vessels delivered in
2003 partially offset by vessels mobilized out of the region and increased day rates of $8.7
million principally due to increases in foreign currency exchange rates between the British pound
and Norwegian kroner against the U.S. dollar, offset by utilization decrease of $4.8 million due
the weaknesses in the market. Operating expenses and depreciation and amortization expense
increased in total by $2.0 million from 2003 to 2004, primarily due to stronger currencies in the
operating region compared to the U.S. dollar. Depreciation and amortization expense also decreased
due to the reversal of drydock amortization and recording drydock expenses as incurred in 2004,
which are now recorded in operating expenses.
27
Southeast Asia Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
19,570 |
|
|
$ |
17,505 |
|
|
$ |
17,907 |
|
Operating expenses |
|
|
6,942 |
|
|
|
8,810 |
|
|
|
6,438 |
|
Depreciation and amortization expense |
|
|
2,621 |
|
|
|
2,465 |
|
|
|
2,812 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
10,007 |
|
|
$ |
6,230 |
|
|
$ |
8,657 |
|
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal Year Ended December 31, 2005 and December 31, 2004
An increase in revenues of $2.1 million in 2005 compared to 2004 can be attributed primarily
to increased day rates of $1.3 million due to improvement in market conditions in the area.
Additionally, utilization increased by $1.2 million in 2005 due mainly to the operation of a vessel
mobilized to the area from another region. Offsetting these increases was a decrease in capacity
directly related to the 2004 sale of three older vessels and one less operating day in 2005
compared to 2004, partially offset by the addition of one new build vessel and mobilization into
the area of an additional vessel from another region. Operating expenses decreased by $1.9 million
due to the decrease in the number of vessels in the region resulting from the above mentioned
vessel sale. Depreciation expense increased by $0.2 million due to the addition of one higher
specification new build vessel, offset by the sale of three older vessels in 2004.
Comparison of Fiscal Year Ended December 31, 2004 and December 31, 2003
Revenues for 2004 decreased by $0.4 million compared to 2003 due primarily to lower day rates
of $0.6 million. Additionally, we experienced lower utilization of $0.2 million due to the sale of
three vessels in 2004, partially offsetting this increase was higher capacity of $0.4 million
resulting from mobilization of a vessel from another location. Operating expenses increased by $2.4
million largely due to the mobilization of a vessel from another
region. Depreciation and
amortization expense decreased due to the reversal of drydock amortization and recording drydock
expense in 2004.
Americas Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
24,196 |
|
|
$ |
18,617 |
|
|
$ |
15,873 |
|
Operating expenses |
|
|
15,814 |
|
|
|
9,925 |
|
|
|
8,676 |
|
Depreciation and amortization expense |
|
|
3,961 |
|
|
|
2,750 |
|
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
4,421 |
|
|
$ |
5,942 |
|
|
$ |
4,652 |
|
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal Year Ended December 31, 2005 and December 31, 2004
Revenues of $24.2 million for 2005 increased by $5.6 million compared to 2004 due to increased
capacity of $4.8 million resulting from the delivery of two new build vessels and the full year
effect of one vessel delivered in the third quarter of 2004. Partially offsetting this increase
was the full year effect of two vessels that were mobilized out of the region in 2004. Utilization
increased by $0.8 million due to market improvement. Operating expenses increased by $5.9 million
resulting mainly from the increased size of the fleet in the area, and depreciation expense
increased by $1.2 million due to the net addition of vessels.
Comparison of Fiscal Year Ended December 31, 2004 and December 31, 2003
Revenues for 2004 increased by $2.7 million compared to 2003 due to increased capacity, day
rate and utilization with the mobilization of the North Stream and the Highland Warrior into the
region, and the delivery of the Austral Abrolhos to the Brazil market in 2004 offset by the
mobilization of the Highland Piper to the North Sea during 2004 and the full year effect of the
return of a
28
bareboat chartered vessel to its owner during 2003. Operating expenses and depreciation
and amortization expense increased in total by $1.5 million due to the net addition of vessels.
Liquidity and Capital Resources
Our ongoing liquidity requirements are generally associated with our need to service debt,
fund working capital, acquire or improve equipment and make other investments. Since inception, we
have been active in the acquisition of additional vessels through both the resale market and new
construction. Bank financing, equity capital and internally generated funds have historically
provided funding for these activities. Internally generated funds are directly related to fleet
activity and vessel day rates, which are ultimately determined by the supply and demand for crude
oil and natural gas.
We anticipate that the cash on hand and future cash flow from operations for the twelve months
ending December 31, 2006, will be adequate to repay our debts due during such period, to make
normal recurring capital additions and improvements, and to meet working capital requirements. We
believe that our current cash and cash flows from operations 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. We are currently renegotiating our revolving debt agreements as
discussed below.
Long-Term Debt
The Multi-currency Bank Credit Facility, which we entered into with a syndicate of five banks,
is presently secured by eight of our vessels. The maximum commitment amount was originally $100
million. During the third quarter of 2004, the facility began its $4 million quarterly reduction
phase, which will continue until the fourth quarter of 2007. A final payment of $44 million will be
due in March 2008. At December 31, 2005, the Multi-currency Bank Credit Facility had a balance of
$59.7 million. 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, or Leverage Ratio. At December
31, 2005, all outstanding borrowings under the Multi-currency Bank Credit Facility were denominated
in British pounds in order to match the currency associated with the revenue stream for the
collateral vessels. As of December 31, 2005, the weighted average interest rate on the outstanding
borrowings under the Credit Facility was 5.8%. The Multi-currency Bank Credit Facility requires us
not to exceed a maximum Leverage Ratio and to maintain a specified interest coverage ratio and a
minimum net worth. We were in compliance with all Multi-currency Bank Credit Facility covenants at
December 31, 2005.
On December 23, 2004, we entered into a new Multi-currency Senior Secured Acquisition Credit
Facility providing for a $50 million revolving credit facility which is secured by eight vessels.
This credit facility has a final maturity date of the earlier of January 31, 2008 or three calendar years from the first
drawdown date. At December 31, 2005, we had $19.7 million outstanding under this credit facility.
Outstanding borrowings on this facility were denominated in U.S. dollars ($12.0 million), with the
balance denominated in British pounds ($7.7 million). As of December 31, 2005, the weighted
average interest rate on the outstanding borrowings under this facility was 5.5%.
We have received a term sheet, subject to a number of conditions, relating to a new $175
million secured revolving credit agreement which will replace our three existing bank credit
agreements and mature in 2012. If we enter into the credit agreement, the loans will be secured by
certain vessels. We are currently reviewing draft loan documents reflecting the term sheet and
expect to close on the new facility by the end of the first quarter of 2006. Any outstanding
balances under the existing agreements will be refinanced with the new facility. In the event we
do not complete the transactions contemplated by the term sheet, we anticipate that we will seek
other lenders or amend our existing credit facilities, none of which expire until 2008.
On July 2, 2004, we commenced a tender offer to purchase all of our outstanding $130 million
aggregate principal amount of 8.75% senior notes due 2008 for cash in an amount up to 103.29% of
the principal amount thereof, plus accrued and unpaid interest. In connection with the tender
offer, we also solicited and received the consent of the holders of our 8.75% senior notes to amend
the indenture governing the 8.75% senior notes to eliminate substantially all of the restrictive
covenants contained in the indenture. We used the net proceeds of the debt offering discussed below
to purchase the 8.75% senior notes, to repay a portion of indebtedness outstanding under the
Multi-currency Bank Credit Facility, and for general corporate purposes.
On July 21, 2004, we issued $160 million aggregate principal amount of 7.75% senior notes due
2014. The 7.75% senior notes pay interest semi-annually on January 15 and July 15, commencing
January 15, 2005 and contain the following redemption provisions:
29
|
|
At any time before July 15, 2007, we may redeem up to 35% of the 7.75%
senior notes with net cash proceeds of certain equity offerings, as
long as at least 65% of the aggregate principal amount of the 7.75%
senior notes issued pursuant to the indenture remains outstanding
after the redemption. |
|
|
|
Prior to July 15, 2009, we may redeem all or part of the 7.75% senior
notes by paying a make-whole premium, plus accrued and unpaid interest
and, if any, liquidation damages. |
|
|
|
The 7.75% senior notes may be callable beginning on July 15 of 2009,
2010, 2011, and 2012 and thereafter at redemption prices of 103.875%,
102.583%, 101.292% and 100% of the principal amount plus accrued
interest. |
The 7.75% senior 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 7.75% senior notes are 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 7.75%
senior notes may be jointly and severally guaranteed on a senior unsecured basis by one or more of
our subsidiaries.
The indenture under which the 7.75% senior notes are issued imposed operating and financial
restrictions on us. These restrictions affect, and in many cases limited or prohibited, among other
things, our ability to incur additional indebtedness, make capital expenditures, create liens, sell
assets and make dividends or other payments. We were in compliance with all indenture covenants at
December 31, 2005.
We also have a credit facility relating to our 2001 acquisition of Sea Truck Holding AS
consisting of three tranches, each secured by certain vessels. In December 2005, we paid off one of
the three tranches and had $10.7 million outstanding on the additional two tranches as of December
31, 2005. This debt amortizes in various quarterly amounts until maturity in 2008.
Current Year Cash Flow
At December 31, 2005, we had cash on hand of $24.2 million. Cash provided by operating
activities for the year ended December 31, 2005, was $64.9 million compared to $25.6 million in the
previous year. The increase was primarily attributable to higher operating income reflecting a
continued strengthening of the North Sea market and new vessel additions during 2005.
Cash used in investing activities for the years ended December 31, 2005 and 2004 was $43.3
million and $40.4 million, respectively. In 2004, we sold three of our oldest Southeast Asia
vessels for $5.9 million. The proceeds from this sale decreased the reported cash used in
investing activities. Before this decrease, cash used in investing activities decreased by $2.9
million from 2004 to 2005, mainly due to lower expenditures relating to purchases of vessels and
equipment in 2005.
In 2005, we used $15.7 million in financing activities, while in 2004, we had $23.0 million
provided by financing activities. The reason for the change is the increased amount of repayments
of debt as a proportion of borrowings in 2005 compared to 2004.
Most all of our tax liabilities are for deferred taxes. The tonnage tax regimes in both the
U.K. and Norway reduce the cash required for taxes in each of these regions. Our tax provision can
therefore fluctuate greatly depending on the mix of income from low tax jurisdictions of the U.K.
and Norway versus income outside of these areas. We experienced an increase in the number of our
vessels working outside the North Sea in 2005.
Debt and Other Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2005 and the effect
these obligations are expected to have on liquidity and cash flows in future periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
Repayment of Long-Term
Debt, Excluding Debt Discount
of $0.6 million |
|
$ |
2.1 |
|
|
$ |
38.1 |
|
|
$ |
50.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
160.0 |
|
New Build Program Commitments |
|
|
41.3 |
|
|
|
104.4 |
|
|
|
23.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cancelable Operating Leases |
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
1.1 |
|
Other |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44.1 |
|
|
$ |
143.1 |
|
|
$ |
73.7 |
|
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
$ |
162.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
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 $10.9 million at December 31, 2005. All of these instruments have an
expiration date within two years. 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 from these instruments.
Transactions with Related Parties
For information regarding transactions with related parties, see Note 8 to our Consolidated
Financial Statements included in Part II, Item 8.
Currency Fluctuations and Inflation
In areas where currency risks are potentially high, we normally accept only a small percentage
of charter hire in local currency. The remainder is paid in U.S. dollars. Substantially all of our
operations are international, therefore we are exposed to currency fluctuations and exchange rate
risks. Charters for vessels in the North Sea fleet are primarily denominated in British pounds with
a portion denominated in Norwegian kroner. Operating costs are substantially denominated in the
same currency as charter hire in order to reduce the risk of currency fluctuations. The North Sea
fleet generated 79% of our total consolidated revenue for the year ended December 31, 2005. In
2005, the British pound/U.S. dollar exchange rate ranged from a high of £ = U.S. $1.93 to a low of
£ = U.S. $1.71 with an average of £ = U.S. $1.82 for the year. During the same period the
Norwegian kroner/U.S. dollar exchange rate ranged from a high of kr = U.S. $0.165 to a low of kr =
U.S. $0.147 with an average of kr = U.S. $0.155. At March 1, 2006, the exchange rates were £ =
U.S. $1.75 and kr = U.S. $0.149.
Our outstanding debt of $249.8 million includes $171.4 million denominated in U.S. dollars
with the balance denominated in British pounds. A substantial portion of our revenue is 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:
|
|
the cost of using hedging instruments in relation to the risks of currency fluctuations; |
|
|
|
the propensity for adjustments in British pound-denominated vessel day rates over time to compensate for changes in the
purchasing power of British pounds as measured in U.S. dollars; |
|
|
|
the level of U.S. dollar-denominated borrowings available to us; and |
|
|
|
the conditions in our U.S. dollar-generating regional markets. |
One or more of these factors may change and, in response, we may begin to use financial
instruments to hedge risks of currency fluctuations. We will from time to time hedge known
liabilities denominated in foreign currencies to reduce the effects of exchange rate fluctuations
on our financial results, such as the fair value hedge associated with the purchase of vessels in our joint venture. See Business New
Vessel Construction and Acquisition Program.
Reflected in the accompanying balance sheet at December 31, 2005, is a $41.7 million
accumulated other comprehensive income primarily relating to the higher British pound and Norwegian
kroner exchange rate at December 31, 2005 in comparison to the exchange rate when we invested
capital in these markets. Changes in the accumulated other
comprehensive income are non-cash items that
are primarily attributable to investments in vessels and U.S. dollar-based capitalization between
the parent company and its foreign subsidiaries. The current year change reflects the strengthening
in the U.S. dollar compared to the functional currencies of our major operating subsidiaries,
particularly in the U.K. and Norway. To date, general inflationary trends have not had a material
effect on our operating revenues or expenses. One of the major consumables for the fleet is diesel
fuel, the price of which has escalated significantly over the
31
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 in all probability will not adversely affect our operating cost structure.
New Accounting Pronouncements
The following new accounting standard was issued, but had not yet been adopted by GulfMark as of
December 31, 2005: SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123R).
In December of 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123R,
which replaces SFAS No. 123 and supercedes APB No. 25. SFAS No. 123R requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first interim or annual period
after December 31, 2005. The pro forma disclosures previously permitted under SFAS No. 123 no
longer will be an alternative to financial statement recognition. Under SFAS No. 123R, we must
determine the appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used at the date of
adoption. The transition methods include modified prospective and retroactive adoption options.
Under the retroactive option, prior periods may be restated either as of the beginning of the year
of adoption or for all periods presented. The modified prospective method requires that
compensation expense be recorded for all unvested awards at the beginning of the first quarter of
adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all
unvested awards beginning in the first period restated.
We adopted SFAS No. 123R effective January 1, 2006 using the modified prospective application
method where compensation cost will be recognized related to new awards and to awards modified,
repurchased, or cancelled after the required effective date. Additionally, compensation cost for
portion of awards for which the requisite service has not been rendered that are outstanding as of
January 1, 2006 shall be recognized as if the requisite service is rendered on or after the
required effective date. As of January 1, 2006, all of our stock option awards are fully vested.
Under the modified prospective method, vested equity awards outstanding at the effective date
create no additional compensation expense. Only new awards granted after January 1, 2006 would
continue to be measured and charged to expense over remaining requisite service. Our employee
stock purchase plan would be considered compensatory under SFAS No. 123R whereby it allows all of
our U.S. employees and participating subsidiaries to acquire shares of common stock at 85% of the
fair market value of the common stock under a qualified plan as defined by Section 423 of the
Internal Revenue Service. The plan has a look-back option that establishes the purchase price as
an amount based on the lesser of the stocks market price at the grant date or its market price at
the exercise date. The total value of the look-back option imbedded in the plan is calculated using the component approach where each award is computed as the sum
of 15% of a share of non-vested stock, a call option on 85% of a share of non-vested stock, and a
put option on 15% of a share of non-vested stock.
Forward-Looking Statements
This Form 10-K, particularly the sections entitled Managements 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 and transportation 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. These statements are based on
certain assumptions and analyses made by us in light of our experience and perception of historical
trends, current conditions, expected future developments and other factors we believe are
appropriate under the circumstances. Such statements are subject to risks and uncertainties,
including the risk factors discussed above, general economic and business conditions, the business
opportunities that may be presented to and pursued by us, changes in law or regulations and other
factors, many of which are beyond our control. 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 Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations, Business and elsewhere
in this Form 10-K.
32
|
|
|
ITEM 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk |
Interest Rate Sensitivity
At December 31, 2005, we had financial instruments that are potentially sensitive to changes
in interest rates including our 7.75% senior notes, which are due July 15, 2014. They have a stated
interest rate of 7.75% and an effective interest rate of 7.8%. At December 31, 2005, the fair value
of these notes, based on quoted market prices, was approximately $167.2 million, as compared to a
carrying amount of $159.4 million.
Exchange Rate Sensitivity
We operate in a number of international areas and are involved in transactions denominated in
currencies other than U.S. dollars, which exposes us to foreign currency exchange risk. At various
times we may utilize forward exchange contracts, local currency borrowings and the payment
structure of customer contracts to selectively hedge exposure to exchange rate fluctuations in
connection with monetary assets, liabilities and cash flows denominated in certain foreign
currency. Other information required under Item 7A has been provided in Managements Discussion
and Analysis of Financial Condition and Results of Operations. Other than trade accounts receivable and trade accounts payable, we do not currently have financial instruments
that are sensitive to foreign currency exchange rates.
33
|
|
|
ITEM 8. |
|
Consolidated Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of GulfMark Offshore, Inc and subsidiaries:
We have audited the accompanying consolidated balance sheet of GulfMark Offshore, Inc. and
subsidiaries as of December 31, 2005, and the related consolidated statements of operations,
stockholders equity, comprehensive income, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall 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 consolidated financial position of GulfMark Offshore, Inc. and subsidiaries
as of December 31, 2005, and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of GulfMark Offshore, Inc. and subsidiaries
internal control over financial reporting as of December 31, 2005, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 9, 2006 expressed an unqualified opinion on
managements assessment of internal control over financial reporting and an unqualified opinion on
the effectiveness of internal control over financial reporting.
UHY Mann Frankfort Stein & Lipp CPAs, LLP
Houston, Texas
March 9, 2006
34
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of GulfMark Offshore, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of GulfMark Offshore, Inc. and
subsidiaries as of December 31, 2004 and the related consolidated statements of operations,
stockholders equity, comprehensive income, and cash flows for each of the two years in the period
ended December 31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of GulfMark Offshore, Inc. and subsidiaries at
December 31, 2004, and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 2004 the Company changed
its method of accounting for drydock expenditures.
Houston, Texas
March 31, 2005
35
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
24,190 |
|
|
$ |
17,529 |
|
Trade accounts receivable, net of allowance for doubtful accounts of
$57 in 2005 and $1,280 in 2004 |
|
|
38,039 |
|
|
|
34,627 |
|
Other accounts receivable |
|
|
3,661 |
|
|
|
3,168 |
|
Prepaids and other |
|
|
3,468 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
69,358 |
|
|
|
57,484 |
|
|
|
|
|
|
|
|
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation of
$154,457 in 2005 and $139,457 in 2004 |
|
|
485,417 |
|
|
|
520,574 |
|
CONSTRUCTION IN PROGRESS |
|
|
25,029 |
|
|
|
18,404 |
|
GOODWILL |
|
|
27,628 |
|
|
|
30,218 |
|
FAIR VALUE HEDGE |
|
|
1,085 |
|
|
|
|
|
DEFERRED COSTS AND OTHER ASSETS |
|
|
5,398 |
|
|
|
6,038 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
613,915 |
|
|
$ |
632,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
2,113 |
|
|
$ |
19,494 |
|
Accounts payable |
|
|
16,195 |
|
|
|
14,808 |
|
Accrued personnel costs |
|
|
7,706 |
|
|
|
7,320 |
|
Accrued interest expense |
|
|
6,539 |
|
|
|
5,981 |
|
Other accrued liabilities |
|
|
1,864 |
|
|
|
1,933 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
34,417 |
|
|
|
49,536 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
|
247,685 |
|
|
|
258,022 |
|
DEFERRED TAX LIABILITIES |
|
|
9,382 |
|
|
|
9,003 |
|
UNREALIZED LOSS ON FAIR VALUE HEDGE |
|
|
1,085 |
|
|
|
|
|
OTHER LIABILITIES |
|
|
1,250 |
|
|
|
|
|
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,000 shares authorized; no shares issued |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 30,000 shares authorized; 20,373 and
20,134 shares issued and outstanding, respectively |
|
|
202 |
|
|
|
201 |
|
Additional paid-in capital |
|
|
125,177 |
|
|
|
122,105 |
|
Retained earnings |
|
|
153,004 |
|
|
|
114,614 |
|
Accumulated other comprehensive income |
|
|
41,713 |
|
|
|
79,237 |
|
Treasury stock, at cost |
|
|
(2,017 |
) |
|
|
(1,344 |
) |
Deferred compensation expense |
|
|
2,017 |
|
|
|
1,344 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
320,096 |
|
|
|
316,157 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
613,915 |
|
|
$ |
632,718 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
36
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except per share amounts) |
|
REVENUES |
|
$ |
204,042 |
|
|
$ |
139,312 |
|
|
$ |
129,900 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
82,803 |
|
|
|
71,239 |
|
|
|
69,836 |
|
Drydock expense |
|
|
9,192 |
|
|
|
8,966 |
|
|
|
|
|
Bareboat charter expense |
|
|
3,864 |
|
|
|
1,410 |
|
|
|
6,505 |
|
General and administrative expenses |
|
|
19,572 |
|
|
|
15,666 |
|
|
|
10,801 |
|
Depreciation and amortization |
|
|
28,875 |
|
|
|
26,137 |
|
|
|
28,031 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
144,306 |
|
|
|
123,418 |
|
|
|
115,173 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
59,736 |
|
|
|
15,894 |
|
|
|
14,727 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(19,017 |
) |
|
|
(17,243 |
) |
|
|
(12,988 |
) |
Interest income |
|
|
569 |
|
|
|
276 |
|
|
|
238 |
|
Debt refinancing cost |
|
|
|
|
|
|
(6,524 |
) |
|
|
|
|
Gain on sale of assets |
|
|
|
|
|
|
2,282 |
|
|
|
16 |
|
Foreign currency gain (loss) and other |
|
|
484 |
|
|
|
1,517 |
|
|
|
(1,267 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(17,964 |
) |
|
|
(19,692 |
) |
|
|
(14,001 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and
cumulative effect of change in accounting principle |
|
|
41,772 |
|
|
|
(3,798 |
) |
|
|
726 |
|
Income tax (provision) benefit |
|
|
(3,382 |
) |
|
|
6,476 |
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle |
|
|
38,390 |
|
|
|
2,678 |
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect on prior years of change in accounting
principle net of $773 related tax effect |
|
|
|
|
|
|
(7,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic before cumulative effect of change in an accounting
principle |
|
$ |
1.92 |
|
|
$ |
0.13 |
|
|
$ |
0.03 |
|
Cumulative effect on prior years of change in accounting principle |
|
|
|
|
|
|
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.92 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Diluted before cumulative effect of change in an accounting
principle |
|
$ |
1.86 |
|
|
$ |
0.13 |
|
|
$ |
0.03 |
|
Cumulative effect on prior years of change in accounting principle |
|
|
|
|
|
|
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.86 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
20,031 |
|
|
|
19,938 |
|
|
|
19,919 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
20,666 |
|
|
|
19,938 |
|
|
|
20,272 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
37
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Three Years Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock at |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Total |
|
|
|
0.01 Par |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehen- |
|
|
|
|
|
|
|
|
|
|
Compen- |
|
|
Stockholders |
|
|
|
Value |
|
|
Capital |
|
|
Earnings |
|
|
sive Income |
|
|
Treasury Stock |
|
|
sation |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance at December 31, 2002 |
|
$ |
199 |
|
|
$ |
120,569 |
|
|
$ |
118,711 |
|
|
$ |
15,300 |
|
|
|
(36 |
) |
|
$ |
(543 |
) |
|
$ |
543 |
|
|
$ |
254,779 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534 |
|
Issuance of common stock |
|
|
1 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365 |
|
Deferred compensation plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(355 |
) |
|
|
355 |
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
$ |
200 |
|
|
$ |
120,933 |
|
|
$ |
119,245 |
|
|
$ |
51,750 |
|
|
|
(61 |
) |
|
$ |
(898 |
) |
|
$ |
898 |
|
|
$ |
292,128 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,631 |
) |
Issuance of common stock |
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
Exercise of stock options |
|
|
1 |
|
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522 |
|
Tax benefit of options exercised |
|
|
|
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389 |
|
Deferred compensation plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
(446 |
) |
|
|
446 |
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
201 |
|
|
$ |
122,105 |
|
|
$ |
114,614 |
|
|
$ |
79,237 |
|
|
|
(91 |
) |
|
$ |
(1,344 |
) |
|
$ |
1,344 |
|
|
$ |
316,157 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
38,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,390 |
|
Issuance of common stock |
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282 |
|
Exercise of stock options |
|
|
1 |
|
|
|
2,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,119 |
|
Tax benefit of options exercised |
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
672 |
|
Deferred compensation plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(673 |
) |
|
|
673 |
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
$ |
202 |
|
|
$ |
125,177 |
|
|
$ |
153,004 |
|
|
$ |
41,713 |
|
|
|
(116 |
) |
|
$ |
(2,017 |
) |
|
$ |
2,017 |
|
|
$ |
320,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
38
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Years Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Net income (loss) |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency income (loss) |
|
|
(37,524 |
) |
|
|
27,487 |
|
|
|
36,450 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
866 |
|
|
$ |
22,856 |
|
|
$ |
36,984 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
39
GULFMARK OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
Adjustments to reconcile net income (loss) from operations to net
cash provided by operations |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
28,875 |
|
|
|
26,137 |
|
|
|
28,031 |
|
Redemption premium on early extinguishment of debt |
|
|
|
|
|
|
4,442 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
1,083 |
|
|
|
471 |
|
|
|
1,123 |
|
Write-off of deferred financing costs on extinguished debt |
|
|
|
|
|
|
2,082 |
|
|
|
|
|
Amortization of stock-based compensation |
|
|
729 |
|
|
|
325 |
|
|
|
43 |
|
Provision for doubtful accounts receivable, net of write offs |
|
|
67 |
|
|
|
903 |
|
|
|
324 |
|
Deferred income tax provision (benefit) |
|
|
1,040 |
|
|
|
(7,889 |
) |
|
|
(191 |
) |
Gain on sale of assets |
|
|
|
|
|
|
(2,282 |
) |
|
|
(16 |
) |
Disposition of assets |
|
|
9 |
|
|
|
|
|
|
|
|
|
Foreign currency transaction (gain) loss |
|
|
1,266 |
|
|
|
(938 |
) |
|
|
677 |
|
Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
7,309 |
|
|
|
|
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,976 |
) |
|
|
2,060 |
|
|
|
(2,310 |
) |
Prepaids and other |
|
|
(499 |
) |
|
|
1,464 |
|
|
|
458 |
|
Accounts payable |
|
|
1,920 |
|
|
|
468 |
|
|
|
(3,490 |
) |
Other accrued liabilities and other |
|
|
9 |
|
|
|
(4,360 |
) |
|
|
2,447 |
|
Expenditures for drydocking costs |
|
|
|
|
|
|
|
|
|
|
(7,480 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
64,913 |
|
|
|
25,561 |
|
|
|
20,150 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of vessels and equipment |
|
|
(43,343 |
) |
|
|
(46,264 |
) |
|
|
(91,595 |
) |
Proceeds from disposition of equipment |
|
|
|
|
|
|
5,860 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(43,343 |
) |
|
|
(40,404 |
) |
|
|
(91,575 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt, net of direct financing costs |
|
|
12,280 |
|
|
|
185,423 |
|
|
|
84,217 |
|
Repayments of debt |
|
|
(29,749 |
) |
|
|
(158,434 |
) |
|
|
(15,999 |
) |
Redemption premium on early extinguishment of debt |
|
|
|
|
|
|
(4,442 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
1,513 |
|
|
|
196 |
|
|
|
106 |
|
Proceeds from issuance of stock |
|
|
282 |
|
|
|
262 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(15,674 |
) |
|
|
23,005 |
|
|
|
68,646 |
|
Effect of exchange rate changes on cash |
|
|
765 |
|
|
|
1,031 |
|
|
|
1,707 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
6,661 |
|
|
|
9,193 |
|
|
|
(1,072 |
) |
CASH AT BEGINNING OF YEAR |
|
|
17,529 |
|
|
|
8,336 |
|
|
|
9,408 |
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF YEAR |
|
$ |
24,190 |
|
|
$ |
17,529 |
|
|
$ |
8,336 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of interest capitalized |
|
$ |
16,412 |
|
|
$ |
7,087 |
|
|
$ |
13,722 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
2,824 |
|
|
$ |
277 |
|
|
$ |
383 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
40
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. and its subsidiaries, (the Company, we or us) own and operate
offshore support vessels, principally in the North Sea, offshore Southeast Asia, and offshore the
Americas. 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
Our consolidated financial statements include our accounts and those of our majority-owned
subsidiaries. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America (U.S.) requires us 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. The accompanying consolidated financial statements include
significant estimates for allowance for doubtful accounts receivable, depreciable lives of vessels
and equipment, income taxes, valuation of goodwill and commitments and contingencies. While we
believe current estimates are reasonable and appropriate, actual results could differ from these
estimates.
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 depreciated over the assets estimated useful life. In 2005, 2004,
and 2003, interest of $0.8 million, $1.6 million, and $1.8 million was capitalized, respectively.
Office equipment, furniture and fixtures are depreciated over two to five years.
Major renovation costs and modifications that extend the life or usefulness of the related
assets are capitalized and amortized over the assets estimated remaining useful lives. Maintenance
and repair costs are expensed as incurred. Included in the consolidated statements of operations
for 2005, 2004 and 2003, are $9.6 million, $7.9 million, and $7.7 million, respectively, for costs
for maintenance and repairs.
Goodwill
Goodwill primarily relates to the 1998 acquisition of Brovig Supply AS and the 2001
acquisition of Sea Truck Holding AS. Effective January 1, 2002, we adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. In connection with
the adoption of SFAS No. 142, we ceased amortizing goodwill. Under SFAS No. 142, goodwill is no
longer amortized but is tested for impairment using a fair value approach, at least annually on
December 31. Management performed the required impairment testing and determined that there have
been no impairments of goodwill for any of the years presented.
Multi-employer Pension Obligation
Certain of our subsidiaries participate in an industry-wide, multi-employer, defined benefit
pension fund based in the U.K., the Merchant Navy Officers Pension Fund (MNOPF). We have been
informed of an estimated £234.0 million, or $402.6 million, total fund deficit calculated by the
funds actuary based on the most recent actuary study. Under the
direction of a court order, the deficit is to be remedied through future funding contributions
from all participating employers.
41
In 2005 we received invoices from the MNOPF for $1.8 million, which represents the amount
calculated by the fund as our current share of the deficit. Under the terms of the invoice, we
paid $0.3 million during 2005 with the remaining due in annual installments over nine years.
Accordingly, we recorded the full amount of $1.8 million as a direct operating expense in 2005 and
the $1.5 million remaining obligation is recorded as a liability. The amount of our ultimate share
of the deficit could change depending on future actuarial valuations and fund calculations which
are due to occur every three years, the next of which is scheduled for the end of March 2006. Our
share of the funds deficit will be dependent on a number of factors including the updated
actuarial study, the number of participating employers, and the final method used in allocating the
required contribution among participating employers.
Fair Value of Financial Instruments
At December 31, 2005, our financial instruments consist primarily of long-term debt and fair
value hedges associated with a fixed price new build contract denominated in Norwegian kroner. On
September 30, 2005, we entered into a forward contract to minimize our foreign currency exchange
risk to the U.S. dollar. This forward contract is designated as a fair value hedge and is expected
to be highly effective as the terms of the forward contract is generally the same as the purchase
commitment. Any gains or losses resulting from changes in fair value were recognized in income with
an offsetting adjustment to income for changes in the fair value of the hedged item such that there
was no net impact on the income statement. At December 31, 2005, an unrealized loss of $1.1
million is reflected in the consolidated balance sheet as Fair Value Hedge and Unrealized Loss on
Fair Value Hedge.
Deferred Costs and Other Assets
Deferred costs and other assets consist primarily of deferred financing costs and deferred
vessel mobilization costs. Deferred financing costs are amortized over the expected term of the
related debt. Should the debt for which a deferred financing cost has been recorded terminate by
means of payment in full, tender offer or lender termination, the associated deferred financing
costs would be immediately expensed.
In connection with new long-term contracts, incremental costs incurred that directly relate to
mobilization of a vessel from one region to another are deferred and recognized over the primary
contract term. Should the contract be terminated by either party prior to the end of the contract
term, the deferred amount would be immediately expensed. In contrast, costs of relocating vessels
from one region to another without a contract are expensed as incurred.
Effective January 1, 2004, we changed our accounting method for drydocking costs. See Change
in Accounting Principles below.
Revenue Recognition
Revenues from charters for offshore marine services are recognized as performed based on
contractual charter rates and when collectibility is reasonably assured. Currently, charter terms
range from several days to as long as eight years in duration. Management services revenue is
recognized in the period in which the services are performed.
Income Taxes
Income taxes are accounted for in accordance with the provisions of SFAS No. 109, Accounting
for Income Taxes. We recognize 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 and tax planning strategies are included in the
criteria used to determine the timing and amount of tax benefits recognized for net operating loss
and tax credit carryforwards in the consolidated financial statements.
Foreign Currency Translation
The local currencies of the majority of our foreign operations have been determined to be
their functional currencies, except for certain foreign operations whose functional currency has
been determined to be the U.S. dollar, based on an assessment of the economic circumstances of the
foreign operations, in accordance with SFAS No. 52, Foreign Currency Translation. Assets and
liabilities of our foreign affiliates are translated at year-end exchange rates, while revenues and
expenses are translated at average rates for the period. We consider most intercompany loans to be
long-term investments; accordingly, the related translation gains and losses
42
are reported as a
component of stockholders equity. Transaction gains and losses are reported directly in the
consolidated statements of operations. During the years ended December 31, 2005, 2004 and 2003, we
reported net foreign currency gains (losses) in the amount of $0.1 million, $0.6 million and ($1.1)
million, respectively.
Concentration of Credit Risk
We extend credit to various companies in the energy industry that may be affected by changes
in economic or other external conditions. Our policy is to manage our exposure to credit risk
through credit approvals and limits. Our accounts receivable are aged based on contractual payment
terms and an allowance for doubtful accounts is established on a case-by-case basis as conditions
warrant. The age of the receivable, customer collection history and managements judgment as to the
customers ability to pay are considered in determining whether an allowance is necessary.
Historically, write-offs for doubtful accounts have been insignificant. In 2005, however, we
wrote-off approximately $1.2 million deemed to be uncollectible, which primarily represented one
customer that had been included in the 2004 allowance for doubtful accounts.
Under multiple contracts in the ordinary course of business, BP accounted for 11.0% of total
consolidated revenues in 2005 and Petróleo Brasiliero S.A., Petrobras, the Brazilian national
oil company accounted for 10.3% of total consolidated revenues in 2004. No other single customer
accounted for 10% or more of total consolidated revenues for 2005, 2004 or 2003.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) 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 Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. We elected to follow APB No. 25 and
its 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.
In December 2004, the FASB issued SFAS No. 123R Share Based Payment, which replaces SFAS No.
123 and supercedes APB No. 25. SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on
their fair values beginning with the first interim or annual period after December 31, 2005. The
pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to
financial statement recognition. Under SFAS No. 123R, we must determine the appropriate fair value
model to be used for valuing share-based payments, the amortization method for compensation cost
and the transition method to be used at the date of adoption. The transition methods include
modified prospective and retroactive adoption options. Under the modified retroactive option, prior
periods may be restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded for all unvested
awards at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive
methods would record compensation expense for all unvested awards beginning in the first period
restated.
We adopted SFAS No. 123R effective January 1, 2006 using the modified prospective application
method where compensation cost will be recognized related to new awards and to awards modified,
repurchased, or cancelled after the required effective date. Additionally, compensation cost for
portion of awards for which the requisite service has not been rendered that are outstanding at
January 1, 2006 shall be recognized as if the requisite service is rendered on or after the
required effective date. At January 1, 2006, all of our stock option awards are fully vested.
Under the modified
prospective method, vested equity awards outstanding at the effective date create no
additional compensation expense. Only new awards granted after January 1, 2006 would continue to
be measured and charged to expense over remaining requisite service. Our employee stock purchase
plan would be considered compensatory under SFAS No. 123R whereby it allows all of our U.S.
employees and participating subsidiaries to acquire shares of common stock at 85% of the fair
market value of the common stock under a qualified plan as defined by Section 423 of the Internal
Revenue Service. The plan has a look-back option that establishes the purchase price as an amount
based on the lesser of the stocks market price at the grant date or its market price at the
exercise date. The total value of the look-back option imbedded in the plan is calculated using
the component approach where each award is computed as the sum of 15% of a share of non-vested
stock, a call option on 85% of a share of non-vested stock, and a put option on 15% of a share of
non-vested stock.
Pro forma information regarding net income and earnings per share (EPS) is required by SFAS
No. 123 and has been determined as if we had accounted for our employee stock options under the
fair-value method described above. The last granted stock options
43
were in October 2003. The fair
value calculations at the date of grant using the Black-Scholes option pricing model were
calculated with the following weighted average assumptions:
|
|
|
|
|
|
|
2003 |
|
Risk-free interest rate |
|
|
2.2 |
% |
Volatility factor of stock price |
|
|
0.28 |
|
Dividends |
|
|
|
|
Option life |
4 years
|
Calculated fair value per share |
|
$ |
3.58 |
|
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 our net income (loss) and
earnings (loss) 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except per share amounts) |
|
Net income (loss), as reported |
|
$ |
38,390 |
|
|
$ |
(4,631 |
) |
|
$ |
534 |
|
Employee stock-based compensation
included in net income (loss), net
of income taxes |
|
|
481 |
|
|
|
214 |
|
|
|
19 |
|
Pro forma stock-based employee
compensation expenses determined
under fair value- based method,
net of related tax effects |
|
|
(553 |
) |
|
|
(500 |
) |
|
|
(570 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
38,318 |
|
|
$ |
(4,917 |
) |
|
$ |
(17 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic, as reported |
|
$ |
1.92 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
Basic pro forma |
|
$ |
1.91 |
|
|
$ |
(0.25 |
) |
|
$ |
0.00 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted, as reported |
|
$ |
1.86 |
|
|
$ |
(0.23 |
) |
|
$ |
0.03 |
|
Diluted pro forma |
|
$ |
1.85 |
|
|
$ |
(0.25 |
) |
|
$ |
0.00 |
|
Earnings Per Share
Basic EPS is computed by dividing net income (loss) 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. For the year ended December 31, 2004, the common stock
equivalents are excluded as their effect is anti-dilutive. References to the number of shares of
common stock and earnings (loss) per share amounts in the table below have been adjusted to
retroactively reflect the June 30, 2002, two-for-one common stock split. For the years ended
December 31, 2004 and 2003, options to purchase 563,000 shares for each year at prices ranging from
$16.27 to $21.25 were excluded from the calculation, as the results would be anti-dilutive. The
detail of the earnings (loss) per share calculations for continuing operations for the years ended
December 31, 2005, 2004 and 2003 is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
|
Net |
|
|
Weighted |
|
|
Per Share |
|
|
|
Income |
|
|
Average Shares |
|
|
Amount |
|
Income per share, basic |
|
$ |
38,390 |
|
|
|
20,031 |
|
|
$ |
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock options |
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share, diluted |
|
$ |
38,390 |
|
|
|
20,666 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
Net |
|
|
Weighted |
|
|
Per Share |
|
|
|
Loss |
|
|
Average Shares |
|
|
Amount |
|
Loss per share, basic |
|
$ |
(4,631 |
) |
|
|
19,938 |
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, diluted |
|
$ |
(4,631 |
) |
|
|
19,938 |
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 |
|
|
|
Net |
|
|
Weighted |
|
|
Per Share |
|
|
|
Income |
|
|
Average Shares |
|
|
Amount |
|
Income per share, basic |
|
$ |
534 |
|
|
|
19,919 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock options |
|
|
|
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share, diluted |
|
$ |
534 |
|
|
|
20,272 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
44
Impairment of Long-Lived Assets
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets requires that
long-lived assets be reviewed for impairment whenever there is evidence that the carrying amount of
such assets may not be recoverable. This consists of comparing the carrying amount of the asset
with its expected future undiscounted cash flows without interest costs. If the assets carrying
amount is less than such cash flow estimate, it is written down to its fair value on a discounted
cash flow basis. Estimates of expected future cash flows represent managements best estimate based
on currently available information and reasonable and supportable assumptions. Any impairment
recognized in accordance with SFAS No. 144 is permanent and may not be restored. We did not record
any impairment write-downs of our long-lived assets during 2005, 2004 or 2003.
Change in Accounting Principle
Effective January 1, 2004, we began expensing the costs associated with the periodic
requirements of the various classification societies, which requires each vessel to be placed in
drydock twice in a five-year period. Generally, drydock costs include refurbishment of structural
components as well as major overhaul of operating equipment, and is subject to scrutiny by the
relevant classification society. Previously, costs incurred in connection with drydockings were
capitalized and amortized over 30 months, which approximated the period between required
drydockings.
The industrys accounting practices have historically allowed three methods to account for
these expenditures: (1) defer and amortize, (2) accrue in advance, and (3) expense as incurred.
There are no authoritative criteria for determining a preferable method of accounting for drydock
expenditures. However, we have determined that expensing these costs as incurred is the method
predominantly used in our industry peer group and at this time would be a more rational basis for
recognizing major maintenance expenditures in our financial statements. Therefore, we believe that
the change was to an acceptable alternative method, which is preferable based on our particular
circumstances, under accounting principles generally accepted in the U.S., and we adopted the
method of expensing drydock costs in the period incurred effective in 2004.
As a result of this change, we recorded a non-cash cumulative effect charge of $7.3 million,
net of tax ($0.36 per basic and diluted common share), in the consolidated statement of operations
for 2004. The effect of the change in accounting principle in 2004 also decreased income before
cumulative effect of change in accounting principle by approximately $1.9 million by reversing the
current drydock amortization expense of $7.1 million and recognizing the expense for current
drydock expenditures of $9.0 million.
Reclassifications
Certain reclassifications of previously reported information have been made to conform to the
current year presentation. Specifically, consolidated statement of cash flows expenditures for
drydocking costs have been reclassified from cash flows from investing activities to cash flows
from operating activities, for 2003. This reclassification resulted in a reduction in net cash
provided by operating activities (and a corresponding decrease in cash used in investing
activities) of $7.5 million for 2003.
(2) VESSEL ACQUISITIONS
From our inception, we have actively expanded our fleet through the purchase of existing
vessels as well as new construction. During 2004, we took delivery of one new construction vessel
in September, Austral Abrolhos, and in December purchased the Highland Citadel from a private
owner. In 2005, we took delivery of three additional new construction vessels, the Coloso, Titan,
and Sea Intrepid.
In 2005, we made progress payments related to our ongoing new build vessel program. In total,
we spent approximately $24.0 million related to new vessel construction in 2005.
The following table illustrates the delivery timeline of the new build vessels:
45
|
|
|
|
|
Vessel |
|
Scheduled Delivery Date |
|
Type |
Keppel built: |
|
|
|
|
Hull 310 |
|
Q4 2007 |
|
AHTS |
Hull 311 |
|
Q1 2008 |
|
AHTS |
Hull 312 |
|
Q1 2008 |
|
AHTS |
Hull 313 |
|
Q2 2008 |
|
AHTS |
Hull 314 |
|
Q3 2008 |
|
AHTS |
Hull 315 |
|
Q4 2008 |
|
AHTS |
Aker 1 |
|
Q1 2007 |
|
PSV |
Aker 2 |
|
Q3 2007 |
|
PSV |
Sea Guardian |
|
Q2 2006 |
|
AHTS |
Sea Sovereign |
|
Q4 2006 |
|
AHTS |
(3) GOODWILL
The following is a rollforward of our goodwill (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Balance, January 1, |
|
$ |
30,218 |
|
|
$ |
28,775 |
|
|
$ |
27,774 |
|
Adjustment related to income taxes from a prior-period purchase business combination |
|
|
|
|
|
|
(1,268 |
) |
|
|
|
|
Adjustment related to prior-period acquisition costs |
|
|
430 |
|
|
|
|
|
|
|
|
|
Impact of foreign currency translation and adjustments |
|
|
(3,020 |
) |
|
|
2,711 |
|
|
|
1,001 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, |
|
$ |
27,628 |
|
|
$ |
30,218 |
|
|
$ |
28,775 |
|
|
|
|
|
|
|
|
|
|
|
(4) LONG-TERM DEBT
Our long-term debt at December 31, 2005 and 2004, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
7.75% Senior Notes due 2014, interest payable semi-annually |
|
$ |
160,000 |
|
|
$ |
160,000 |
|
Revolving Multi-currency Bank Credit Facility; secured by
mortgages on eight vessels with an aggregate carrying amount of
$180,404 at December 31, 2005; maturing in 2008, interest rate of
LIBOR plus 1.2% to 1.5%, payable periodically based on the tenor
of the underlying LIBOR tranche (weighted average interest rate
5.8% and 6.1% at December 31, 2005 and 2004, respectively) |
|
|
59,701 |
|
|
|
91,963 |
|
Senior Secured Revolving Credit Facility; secured by mortgages on
eight vessels with an aggregate carrying amount of $102,456 at
December 31, 2005; maturing in 2007; interest rate of LIBOR plus
1.2% to 1.5%, payable periodically based on the tenor of the
underlying LIBOR tranche (weighted average interest rate 5.5% and
3.8% at December 31, 2005 and 2004, respectively) |
|
|
19,742 |
|
|
|
8,000 |
|
Bank debt payable in British pounds secured by mortgages on two
vessels with an aggregate carrying amount of $33,254 at December
31, 2005; maturing at various dates through 2008; interest rate
of LIBOR plus 1.0% to 1.125%, payable periodically based on the
tenor of the underlying LIBOR tranche (weighted average interest
rate 5.7% and 6.1% at December 31, 2005 and 2004, respectively) |
|
|
10,665 |
|
|
|
18,199 |
|
Debt owed on partnership interest related to the new build vessels |
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,375 |
|
|
|
278,162 |
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt |
|
|
(2,113 |
) |
|
|
(19,494 |
) |
Debt discount, net |
|
|
(577 |
) |
|
|
(646 |
) |
|
|
|
|
|
|
|
|
|
$ |
247,685 |
|
|
$ |
258,022 |
|
|
|
|
|
|
|
|
The following is a summary of scheduled debt maturities by year (in thousands):
|
|
|
|
|
2006 |
|
$ |
2,113 |
|
2007 |
|
|
38,121 |
|
2008 |
|
|
50,141 |
|
2009 |
|
|
|
|
2010 |
|
|
|
|
Thereafter |
|
|
160,000 |
|
|
|
|
|
Total |
|
$ |
250,375 |
|
|
|
|
|
46
Senior Notes
On July 2, 2004, we commenced a tender offer to purchase all of our outstanding $130 million
aggregate principal amount of 8.75% senior notes due 2008 for cash in an amount up to 103.29% of
the principal amount thereof, plus accrued and unpaid interest to, but excluding, the applicable
settlement date. In connection with the tender offer, we also solicited and received the consent of
the holders of our 8.75% senior notes to amend the indenture governing the 8.75% senior notes to
eliminate substantially all of the restrictive covenants contained in the indenture. We used the
net proceeds of the debt offering discussed below to purchase the 8.75% senior notes, to repay a
portion of indebtedness outstanding and for general corporate purposes.
On July 21, 2004, we issued $160 million aggregate principal amount of 7.75% senior notes due
2014. The 7.75% senior notes pay interest semi-annually on January 15 and July 15, commencing
January 15, 2005 and contain the following redemption provisions:
|
|
At any time before July 15, 2007, we may redeem up to 35% of the 7.75%
senior notes with net cash proceeds of certain equity offerings, as
long as at least 65% of the aggregate principal amount of the 7.75%
senior notes issued pursuant to the indenture remains outstanding
after the redemption. |
|
|
Prior to July 15, 2009, we may redeem all or part of the 7.75% senior
notes by paying a make-whole premium, plus accrued and unpaid
interest, and, if any, liquidated damages. |
|
|
The 7.75% senior notes may be callable beginning on July 15 of 2009,
2010, 2011, and 2012 and thereafter at redemption prices of 103.875%,
102.583%, 101.292%, and 100% of the principal amount plus accrued
interest. |
At
December 31, 2004, we had financial instruments that are potentially sensitive to changes
in interest rates including the 7.75% senior notes, which are due July 15, 2014. They have a stated
interest rate of 7.75% and an effective interest rate of 7.8%. At
December 31, 2004, the fair
value of these notes, based on quoted market prices, was
approximately $169.6 million, as compared
to a carrying amount of $159.4 million.
In the third quarter 2004, we recorded a charge of $6.5 million which was comprised of $4.4
million from the payment of tender offer premiums and $2.1 million from the write-off of
unamortized debt issuance costs and unamortized debt discount related to the 8.75% senior notes.
Bank Credit Facilities
We have a $100 million Multi-currency Bank Credit Facility which is secured by first priority
mortgages on eight of our vessels. The maximum availability on this facility began to reduce in
increments of $4 million each quarter beginning in September 2004 with the balance of $44 million
due in March 2008. The interest rate ranges from LIBOR plus a margin of 1.2% to 1.5% depending on
our Leverage Ratio, as defined in the Multi-currency Bank Credit Facility. Based on the Leverage
Ratio in effect at December 31, 2005, the margin was 1.2%. At December 31, 2005 and 2004, all
outstanding borrowings under the Multi-currency Bank Credit Facility were denominated in British
pounds. We converted the outstanding balance to British pounds during the fourth quarter of 2003 in
order to match the primary currency of the revenue stream for the collateral vessels. The credit
facility includes a commitment fee of one-half the margin on any undrawn portion of the available
facility. We are required, on a consolidated basis, not to exceed a maximum Leverage Ratio and to
maintain a specified interest coverage ratio and a minimum net worth. We were in compliance with
all Multi-currency Bank Credit Facility covenants at December 31, 2005.
On December 23, 2004, we entered into a $50 million Senior Secured Revolving Credit Facility
among Gulf Offshore N.S. Limited, our U.K. wholly-owned subsidiary, Nordea Bank Norge ASA, as
Arranger, and Nordea Bank Finland Plc, as Facility Agent & Security Trustee. This facility is
secured by eight vessels and is limited to the financing of the acquisition of offshore supply
vessels and other related assets in the offshore support industry. The interest rate on this
facility ranges from LIBOR plus a margin of 1.2% to 1.5% depending on our Leverage Ratio. Based on
the Leverage Ratio in
effect at December 31, 2005, the margin was 1.2%. This facility includes a commitment fee
based on the undrawn portion of the available facility. Outstanding borrowings on this facility as
of December 31, 2005 were denominated in U.S. dollars ($12.0 million), and in British pounds ($7.7
million).
In order to allow us to enter into the facility agreement, we requested an amendment to the
negative pledge covenant under the Multi-currency Bank Credit Facility, which was approved by the
lenders under the Multi-currency Bank Credit Facility. Additionally, we requested an amendment to
one of the financial covenants to the Multi-currency Bank Credit Facility, which reduced the
required
47
EBITDA to interest coverage ratio for the period September 30, 2004 through September 30,
2005. Both amendments to the Multi-currency Bank Credit Facility were approved on November 17,
2004.
We have received a term sheet, subject to a number of conditions, relating to a new $175
million secured revolving credit agreement which will replace our three existing bank credit
agreements and mature in 2012. If we enter into the credit agreement, the loans will be secured by
certain vessels. We are currently reviewing draft loan documents reflecting the term sheet and
expect to close on the new facility by the end of the first quarter of 2006. Any outstanding
balances under the existing agreements will be refinanced with the new facility. In the event we
do not complete the transactions contemplated by the term sheet, we anticipate that we will seek
other lenders or amend our existing credit facilities, none of which expire until 2008.
Other Bank Debt
Our other debt is related to and secured by specific assets. The terms of the facilities
contain provisions specific to the assets collateralizing the debt preventing the sale of the
assets without a corresponding reduction in the outstanding debt. Furthermore, certain loans
require minimum net worth and maximum leverage ratios for the borrowing subsidiaries.
Additionally, we also have debt related to a partnership interest we entered into in conjunction
with our new build vessel program.
(5) INCOME TAXES
A significant portion of our earnings originate in the North Sea, a region in which certain
jurisdictions, including the United Kingdom and Norway, provide alternative taxing structures
created specifically for qualified shipping companies, referred to as tonnage tax regimes. The
tonnage tax regimes provide for a tax based on the net tonnage weight of a qualified vessel
resulting in significantly lower taxes than those that would apply if we were not a qualified
shipping company in those jurisdictions. Under the applicable tonnage tax regime, earnings from
our qualified shipping activities in Norway are not currently taxed. The Norwegian tonnage tax
regime includes, among other things, provisions that will, upon (i) the voluntary or involuntary
exit from the tonnage tax regime, (ii) the payment of a dividend, and/or (iii) complete
liquidation, trigger an ordinary 28% income tax on the qualified shipping companys statutory
accumulated untaxed net earnings, if any. If the Company were to exit from the tonnage tax regime
((i) or (iii) above), the computation of the amount subject to
tax at 28% would be equal to (a) the
market value of all of the assets owned within the tonnage tax regime less (b) the amount of any
undistributed previously taxed earnings at the beginning of the exit year and (c) paid-in-share
capital, including any premiums. The resulting exit computation
taxable gain or loss would, subject
to certain conditions, be recognized over five years beginning with the exit year. In the case of
an actual dividend ((ii) above) the amount subject to tax would be limited to the amount of the
dividend grossed-up for such taxes. We have not recorded a tax provision for any of these three
possible taxable events, and should any of these events occur in the
future, we would have to record
a 28% income tax expense in the period in which such event does occur. At December 31, 2005, the
accumulated untaxed book earnings for our qualified Norwegian shipping activities was approximately
$23.5 million, which, if paid as a dividend, would result in a tax liability of approximately $6.6
million. We believe that the likelihood is remote that we will trigger any of these events and
have to pay ordinary income tax on some or all of the accumulated untaxed net earnings under
Norways tonnage tax regime. The United Kingdom tonnage tax regime provisions do not include
similar requirements for possible future taxation of shipping activities income. The tonnage tax
regimes in the North Sea significantly reduce the cash required for taxes in that region.
Substantially all of our tax provision is for taxes in regions outside the United Kingdom and
Norway. Should our operational structure change or should the laws that created the tonnage tax
regimes change, we could be required to provide for taxes at rates much higher than those currently
reflected in our financial statements. Additionally, if our pre-tax earnings in higher tax
jurisdictions increase, there could be a significant increase in our annual effective tax rate.
That increase could cause volatility in the comparisons of our effective tax rate from period to
period.
During 2004, we reversed certain deferred tax liabilities totaling $6.9 million in the
aggregate; all of which related to certain income tax audits finalized in 2004. Of these audit
related deferred income tax reversals, $5.6 million reduced 2004 income tax expense and the $1.3
million remainder related to an acquired entitys preacquisition deferred income tax liability that
was recorded as an adjustment to the purchase price of that acquired entity.
Income (loss) before income taxes and cumulative effect of change in accounting principle
attributable to domestic and foreign operations was (in thousands):
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
U.S. |
|
$ |
(10,204 |
) |
|
$ |
(17,217 |
) |
|
$ |
(11,869 |
) |
Foreign |
|
|
51,976 |
|
|
|
13,419 |
|
|
|
12,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,772 |
|
|
$ |
(3,798 |
) |
|
$ |
726 |
|
|
|
|
|
|
|
|
|
|
|
The components of our tax provision (benefit) attributable to income (loss) before income
taxes and cumulative effect of change in accounting principle are as follows for the year ended
December 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Current |
|
|
Deferred |
|
|
Total |
|
|
Current |
|
|
Deferred |
|
|
Total |
|
|
Current |
|
|
Deferred |
|
|
Total |
|
U.S. |
|
$ |
44 |
|
|
$ |
(550 |
) |
|
$ |
(506 |
) |
|
$ |
|
|
|
$ |
(2,249 |
) |
|
$ |
(2,249 |
) |
|
$ |
|
|
|
$ |
288 |
|
|
$ |
288 |
|
Foreign |
|
|
2,298 |
|
|
|
1,590 |
|
|
|
3,888 |
|
|
|
1,413 |
|
|
|
(5,640 |
) |
|
|
(4,227 |
) |
|
|
383 |
|
|
|
(479 |
) |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,342 |
|
|
$ |
1,040 |
|
|
$ |
3,382 |
|
|
$ |
1,413 |
|
|
$ |
(7,889 |
) |
|
$ |
(6,476 |
) |
|
$ |
383 |
|
|
$ |
(191 |
) |
|
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our overall tax provision is affected by the mix of our operations within various taxing
jurisdictions. The difference between the provision at the statutory U.S. federal tax rate and the
tax provision attributable to income before income taxes and cumulative effect of change in
accounting principle in the accompanying consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
U.S. federal statutory income tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Effect of foreign operations |
|
|
(27.0 |
) |
|
|
(3.1 |
) |
|
|
(7.6 |
) |
Release of deferred tax liabilities |
|
|
|
|
|
|
138.0 |
|
|
|
|
|
Valuation allowance |
|
|
2.0 |
|
|
|
1.6 |
|
|
|
|
|
Other |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1 |
% |
|
|
170.5 |
% |
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
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 assets and liabilities at December 31, 2005 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Accruals
currently not deductible for tax purposes |
|
$ |
1,085 |
|
|
$ |
652 |
|
Net operating loss carryforwards |
|
|
13,236 |
|
|
|
7,998 |
|
Foreign and other tax credit carryforwards |
|
|
3,107 |
|
|
|
1,778 |
|
|
|
|
|
|
|
|
|
|
$ |
17,428 |
|
|
$ |
10,428 |
|
Less valuation allowance |
|
|
(3,517 |
) |
|
|
(2,666 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
13,911 |
|
|
$ |
7,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
(13,803 |
) |
|
$ |
(7,436 |
) |
Foreign income not currently recognizable |
|
|
(7,199 |
) |
|
|
(2,896 |
) |
Other |
|
|
(2,291 |
) |
|
|
(6,433 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
$ |
(23,293 |
) |
|
$ |
(16,765 |
) |
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(9,382 |
) |
|
$ |
(9,003 |
) |
|
|
|
|
|
|
|
As of December 31, 2005 and 2004, the total net deferred tax liability of $9.4 million and
$9.0 million, respectively, is included in non-current liabilities in the consolidated balance
sheet. The net change in the total valuation allowance for the years ended December 31, 2005 and
2004 was an increase of $0.9 million and $0.1, respectively. As of December 31, 2005, we had net
operating loss carryforwards (NOLs) for income tax purposes totaling $19.1 million in the U.S.,
$6.0 million in Norway, and $17.5 million in Mexico that are, subject to certain limitations,
available to offset future taxable income. These NOLs will begin to expire in the U.S. beginning in
2019 through 2025 and in Mexico beginning in 2016 and we expect to fully utilize these tax losses.
However, it is more likely than not that the Norway NOLs will not be utilized and a full valuation
allowance has been established for such NOLs.
49
Additionally, we have foreign tax credit
carryforwards of $2.3 million that will begin to expire in 2009. A valuation allowance has been
established against the full amount of these credits less the tax benefit of the deduction.
We intend to permanently reinvest a portion of the unremitted earnings of our non-U.S.
subsidiaries in their businesses. As a result, we have not provided for U.S. deferred taxes on the
cumulative unremitted earnings of $147.6 million at December 31, 2005. Management evaluated the
impact of the repatriation provisions of the Jobs Act on our strategy for permanent reinvestment
and concluded that any such repatriation would not be tax efficient nor compatible with the
Companys business practices and plans.
The Jobs Act also provided for reform related to foreign shipping income. This legislation
favorably impacted us beginning January 1, 2005, with the majority of our foreign shipping income
no longer subject to tax in the United States. In 2005, we reviewed our global operating structure
and executed a worldwide restructuring to maximize potential growth and cash flow, including
lowering income taxes, as well as create a more favorable corporate structure for the expansion of
our business.
(6) COMMITMENTS AND CONTINGENCIES
At December 31, 2005, we had long-term operating leases for office space, automobiles, and
office equipment. Aggregate operating lease expense for the years ended December 31, 2005, 2004 and
2003 was $579, $570, and $520 thousand, respectively. Future minimum rental commitments under these
leases are as follows (in thousands):
|
|
|
|
|
2006 |
|
$ |
505 |
|
2007 |
|
|
400 |
|
2008 |
|
|
375 |
|
2009 |
|
|
346 |
|
2010 |
|
|
228 |
|
Thereafter |
|
|
1,123 |
|
|
|
|
|
Total |
|
$ |
2,977 |
|
|
|
|
|
The Austral Abrolhos is subject to an annual right of its charterer to purchase the vessel
during the term of the charter, which commenced May 2, 2003 and, subject to the charterers right
to extend, terminates May 2, 2016, at a purchase price in the first year of $26.8 million declining
to an adjusted purchase price of $12.9 million in the thirteenth year.
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 $10.9 million and $11.7 million at December 31, 2005 and 2004, respectively.
All of these instruments have an expiration date within two years. 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
from these instruments.
We have contingent liabilities and future claims for which we have made estimates of the
amount of the eventual cost to liquidate these liabilities or claims. These liabilities and claims
may involve threatened or actual litigation where damages have not been specifically quantified but
we have made an assessment of our exposure and recorded a provision in our accounts for the
expected loss. Other claims or liabilities, including those related to taxes in foreign
jurisdictions, may be estimated based on our experience in these matters and, where appropriate,
the advice of outside counsel or other outside experts. Upon the ultimate resolution of the
uncertainties surrounding our estimates of contingent liabilities and future claims, our future
reported financial results would be impacted by the difference between our estimates and the actual
amounts paid to settle the liabilities. In addition to estimates related to litigation and tax
liabilities, other examples of liabilities requiring estimates of future exposure include
contingencies arising out of acquisitions and divestitures. Our contingent liabilities are based on
the most recent information available to us regarding the nature of the exposure. Such exposures
change from period to period based upon updated relevant facts and circumstances, which can cause
the estimate to change. In the recent past, our estimates for contingent liabilities have been
sufficient to cover the actual amount of our exposure.
(7) STOCKHOLDERS EQUITY
Common Stock Issuances
We have established an Employee Stock Purchase Plan (the ESPP), which provides employees
with a means of purchasing our
50
common stock. During 2005, 13,220 shares were issued through the ESPP, generating approximately
$0.3 million in proceeds. The provisions of the ESPP are described below in more detail.
A total of 63,000 and 58,700 restricted shares of our stock were granted to certain officers
and key employees in 2005 and 2004, respectively, pursuant to our 1997 Incentive Equity Plan
described below, with an aggregate market value of $2.0 million and $0.9 million, respectively, on
the grant dates. The restrictions terminate at the end of three years and the value of the
restricted shares is being amortized to expense over that period.
Stock Options and Stock Option Plans
Under the terms of our Amended and Restated 1993 Non-Employee Director Stock Option Plan (the
Director Plan), options to purchase 20,000 shares of our common stock were granted to each of our
five non-employee directors in 1993, 1996, 1999 and 2002, and to a newly appointed director in 2001
and 2003. The exercise price of options granted under the Director Plan is fixed at the market
price at the date of grant. A total of 800,000 shares were reserved for issuance under the Director
Plan. The options have a term of ten years.
Under the terms of our 1987 Employee Stock Option Plan (the 1987 Employee Plan), options
were granted to employees to purchase our common stock at specified prices. On May 20, 1997, the
1987 Employee Plan expired and, therefore, no additional shares were reserved for granting of
options under this plan, though options remain outstanding under this plan.
In May 1998, the stockholders approved the GulfMark Offshore, Inc. 1997 Incentive Equity Plan
which replaced the 1987 Employee Plan. A total of 814,000 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. The following table summarizes the activity of our stock
incentive plans during the indicated periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Outstanding at beginning of year |
|
|
1,233,626 |
|
|
$ |
11.69 |
|
|
|
1,271,126 |
|
|
$ |
11.56 |
|
|
|
1,335,264 |
|
|
$ |
11.33 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
14.11 |
|
Forfeitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
|
20.30 |
|
Exercised |
|
|
(150,156 |
) |
|
|
9.57 |
|
|
|
(37,500 |
) |
|
|
7.24 |
|
|
|
(54,138 |
) |
|
|
1.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
1,083,470 |
|
|
$ |
11.98 |
|
|
|
1,233,626 |
|
|
$ |
11.69 |
|
|
|
1,271,126 |
|
|
$ |
11.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable shares and weighted average exercise price |
|
|
1,083,470 |
|
|
$ |
11.98 |
|
|
|
1,167,626 |
|
|
$ |
11.37 |
|
|
|
949,782 |
|
|
$ |
9.34 |
|
Shares available for future grants at December 31, 2005 |
|
|
634,350 |
|
|
|
|
|
|
|
710,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of Exercise Prices |
|
Shares |
|
|
Exercise Price |
|
|
Remaining Life |
|
|
Shares |
|
|
Exercise Price |
|
$2.68 to $3.97 |
|
|
167,070 |
|
|
$ |
2.83 |
|
|
2.3 years |
|
|
167,070 |
|
|
$ |
2.83 |
|
$6.58 to $10.06 |
|
|
338,400 |
|
|
$ |
7.21 |
|
|
5.0 Years |
|
|
338,400 |
|
|
$ |
7.21 |
|
$13.10 to $17.44 |
|
|
469,000 |
|
|
$ |
16.57 |
|
|
7.2 years |
|
|
469,000 |
|
|
$ |
16.57 |
|
$19.37 to $21.25 |
|
|
109,000 |
|
|
$ |
21.10 |
|
|
8.3 years |
|
|
109,000 |
|
|
$ |
21.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,083,470 |
|
|
$ |
11.98 |
|
|
5.9 years |
|
|
1,083,470 |
|
|
$ |
11.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historically, we have used stock options as a long-term incentive for our 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 APB No. 25, no compensation expense has been
recognized in the accompanying financial statements for these options. See Note 1 Stock-Based
Compensation of the Notes to the Consolidated Financial Statements.
ESPP
In May 2002, the shareholders approved our employee stock purchase plan, or ESPP. The ESPP is
available to all our U.S. employees and our participating subsidiaries and is a qualified plan as
defined by Section 423 of the Internal Revenue Code. At the
51
end of each fiscal quarter (the Option
Period) during the term of the ESPP, the employee contributions are used to acquire shares of
common stock at 85% of the fair market value of the common stock on the first or the last day of
the Option Period, whichever is lower. Our U.K. employees are eligible to purchase our stock
through a separate plan modified to meet the requirements of the U.K. tax authorities. The benefits
available to those employees are substantially similar to those in the U.S. These plans are
considered non-compensatory and as such, our financial statements do not reflect any related
expense through December 31, 2005. However, effective January 1, 2006, we adopted SFAS No. 123R,
Share-Based Payment, and expense these costs as compensation. We have authorized the issuance of up
to 400,000 shares of common stock through these plans. At December 31, 2005, there were 332,213
shares remaining in reserve for future issuance. See Note 1 Recent Accounting Pronouncements.
401(k)
We offer a 401(k) plan to all of our U.S. employees and provide matching contribution to those
employees that participate. The matching contributions paid by us totaled $27,000, $7,000 and
$17,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
Executive Deferred Compensation Plan
We maintain an executive deferred compensation plan (the EDC Plan). Under the EDC Plan, a
portion of the compensation for certain of our key employees, 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 our common stock or may be retained by us 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 us. At December 31, 2005, a total of $0.9 million had been deferred into the
Prime plus 2% portion of the plan.
We have established a Rabbi trust to hold the stock portion of benefits under the EDC Plan.
The funds provided to the trust are invested by a trustee independent of us in our 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 in the event of bankruptcy or insolvency. Accordingly,
the common stock held by the trust and our liability under the EDC Plan are included in the
accompanying consolidated balance sheets as treasury stock and deferred compensation expense.
Preferred Stock
We are authorized by our Certificate of Incorporation to issue up to 2,000,000 shares of no
par value preferred stock. No shares have been issued.
Dividends
We have not declared or paid cash dividends during the past five years. Pursuant to the terms
of the indenture under which the Senior Notes 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.
(8) RELATED PARTY TRANSACTIONS
Lehman Brothers, Inc. (Lehman), an affiliate of Lehman Brothers Holdings, Inc., a
significant shareholder, has provided certain investment banking, commercial banking and financial
advisory services to us and our affiliates, for which it has received customary fees and
commissions. Lehman received approximately $2.2 million in fees in 2004 in connection with the
tender offer purchase of our 8.75% senior notes and subsequent issuance of our 7.75% senior notes.
Two of our board members are officers of Lehman.
Two of our executive officers each purchased $100,000 in aggregate principal amount of our
7.75% senior notes. The purchase price paid by our officers for these notes was $97,575 each, which
is equal to the price paid by all other initial purchasers of the 7.75% senior notes.
52
We entered into a purchase and sale agreement with one of our officers to purchase his former
residence in connection with his relocation to our corporate office in Houston, Texas. An offer
was made by a buyer and accepted by us and the transaction should close during the first quarter of
2006.
(9) OPERATING SEGMENT INFORMATION
Business Segments
The Company operates its business based on geographical locations and maintains the following
operating segments: the North Sea, Southeast Asia and the Americas. Our chief operating decision
maker regularly reviews financial information about each of these operating segments in deciding
how to allocate resources and evaluate performance. The business within each of these geographic
regions has similar economic characteristics, services, distribution methods and regulatory
concerns. All of the operating segments are considered reportable segments under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
In prior years, the Company reported all operations in a single operating segment. In 2004,
our segment reporting was changed to conform to the manner in which our chief operating decision
maker reviews, and we manage, our business.
Management evaluates segment performance primarily based on operating income. Cash and debt
are managed centrally. Because the regions do not manage those items, the gains and losses on
foreign currency remeasurements associated with these items are excluded from operating income.
Furthermore, gains and losses from sale of assets are also excluded from operating income, as
strategic decisions relating to asset acquisitions and divestitures are generally made centrally as
well. Management considers segment operating income to be a good indicator of each segments
operating performance from its continuing operations, as it represents the results of the ownership
interest in operations without regard to financing methods or capital structures. All significant
transactions between segments are conducted on an arms-length basis based on prevailing market
prices and are accounted for as such. Operating income and other information regularly provided to
our chief operating decision-maker is summarized in the following table (all amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
Southeast |
|
|
|
|
|
|
|
|
|
|
|
|
Sea |
|
|
Asia |
|
|
Americas |
|
|
Other |
|
|
Total |
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
160,276 |
|
|
$ |
19,570 |
|
|
$ |
24,196 |
|
|
$ |
|
|
|
$ |
204,042 |
|
Operating expenses |
|
|
82,295 |
|
|
|
6,942 |
|
|
|
15,814 |
|
|
|
10,380 |
|
|
|
115,431 |
|
Depreciation and amortization |
|
|
22,084 |
|
|
|
2,621 |
|
|
|
3,961 |
|
|
|
209 |
|
|
|
28,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
55,897 |
|
|
$ |
10,007 |
|
|
$ |
4,421 |
|
|
$ |
(10,589 |
) |
|
$ |
59,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
424,890 |
|
|
$ |
39,349 |
|
|
$ |
96,445 |
|
|
$ |
53,231 |
|
|
$ |
613,915 |
|
Long-lived assets(a) |
|
$ |
390,121 |
|
|
$ |
32,427 |
|
|
$ |
92,340 |
|
|
$ |
28,956 |
|
|
$ |
543,844 |
|
Capital expenditures |
|
$ |
4,026 |
|
|
$ |
9,751 |
|
|
$ |
6,556 |
|
|
$ |
23,009 |
|
|
$ |
43,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
103,190 |
|
|
$ |
17,505 |
|
|
$ |
18,617 |
|
|
$ |
|
|
|
$ |
139,312 |
|
Operating expenses |
|
|
71,818 |
|
|
|
8,810 |
|
|
|
9,925 |
|
|
|
6,728 |
|
|
|
97,281 |
|
Depreciation and amortization |
|
|
20,781 |
|
|
|
2,465 |
|
|
|
2,750 |
|
|
|
141 |
|
|
|
26,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
10,591 |
|
|
$ |
6,230 |
|
|
$ |
5,942 |
|
|
$ |
(6,869 |
) |
|
$ |
15,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
482,128 |
|
|
$ |
31,654 |
|
|
$ |
76,305 |
|
|
$ |
42,631 |
|
|
$ |
632,718 |
|
Long-lived assets(a) |
|
$ |
451,708 |
|
|
$ |
26,074 |
|
|
$ |
72,567 |
|
|
$ |
18,847 |
|
|
$ |
569,196 |
|
Capital expenditures |
|
$ |
19,316 |
|
|
$ |
90 |
|
|
$ |
11,660 |
|
|
$ |
15,198 |
|
|
$ |
46,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
96,120 |
|
|
$ |
17,907 |
|
|
$ |
15,873 |
|
|
$ |
|
|
|
$ |
129,900 |
|
Operating expenses |
|
|
68,038 |
|
|
|
6,438 |
|
|
|
8,676 |
|
|
|
3,990 |
|
|
|
87,142 |
|
Depreciation and amortization |
|
|
22,535 |
|
|
|
2,812 |
|
|
|
2,545 |
|
|
|
139 |
|
|
|
28,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
5,547 |
|
|
$ |
8,657 |
|
|
$ |
4,652 |
|
|
$ |
(4,129 |
) |
|
$ |
14,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
468,364 |
|
|
$ |
31,382 |
|
|
$ |
34,917 |
|
|
$ |
40,838 |
|
|
$ |
575,501 |
|
Long-lived assets(a) |
|
$ |
437,672 |
|
|
$ |
24,890 |
|
|
$ |
31,035 |
|
|
$ |
20,680 |
|
|
$ |
514,277 |
|
Capital expenditures |
|
$ |
77,843 |
|
|
$ |
351 |
|
|
$ |
2,083 |
|
|
$ |
11,318 |
|
|
$ |
91,595 |
|
53
|
|
|
(a) |
|
Goodwill is included in the North Sea segment and vessels under construction are included in
Other until delivered. Revenues, long-lived assets and capital expenditures presented in the
table above are allocated to segments based on the location the vessel is employed, which in
some instances differs from the segment that legally owns the vessel. |
(10) UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the two years ended December 31, 2005 and 2004 are as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
(In thousands, except per share amounts) |
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
48,066 |
|
|
$ |
51,340 |
|
|
$ |
53,048 |
|
|
$ |
51,588 |
|
Operating income |
|
|
15,066 |
|
|
|
13,069 |
|
|
|
18,507 |
|
|
|
13,094 |
|
Net income |
|
|
8,927 |
|
|
|
8,254 |
|
|
|
13,032 |
|
|
|
8,177 |
|
Per share (basic) |
|
|
0.45 |
|
|
|
0.41 |
|
|
|
0.65 |
|
|
|
0.41 |
|
Per share (diluted) |
|
|
0.43 |
|
|
|
0.40 |
|
|
|
0.63 |
|
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
31,559 |
|
|
$ |
32,237 |
|
|
$ |
34,092 |
|
|
$ |
41,424 |
|
Operating income (loss) |
|
|
(115 |
) |
|
|
3,077 |
|
|
|
5,630 |
|
|
|
7,302 |
|
Income (loss) before cumulative effect of accounting change |
|
|
(4,891 |
) |
|
|
(1,116 |
) |
|
|
(212 |
) |
|
|
8,897 |
|
Cumulative effect of accounting change |
|
|
(7,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(12,200 |
) |
|
|
(1,116 |
) |
|
|
(212 |
) |
|
|
8,897 |
|
Per share (basic) before cumulative effect of accounting change |
|
|
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
0.45 |
|
Cumulative effect of accounting change |
|
|
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Per share (diluted) |
|
|
(0.61 |
) |
|
|
(0.06 |
) |
|
|
(0.01 |
) |
|
|
0.44 |
|
Effective January 1, 2004, we changed the method of accounting for drydock costs from
capitalizing and amortizing the cost over 30 months to expensing the cost as incurred. The
previously reported amounts reflected in quarterly reports Form 10-Q for the first three quarters
of 2004 reflect the capitalized and amortized drydock costs. These amounts have been recalculated
to reflect the expensing of the costs as incurred. The effect of this change was to increase net
losses in the first, second and fourth quarters by ($8.3) million, or ($0.42) per diluted share;
($0.4) million, or ($0.02) per diluted share; and ($0.8) million or ($0.04) per diluted share,
respectively, and decrease the net loss in the third quarter by $0.3 million, or $0.02 per diluted
share.
54
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
On May 23, 2005, the Company notified Ernst & Young LLP (E&Y) that it had dismissed E&Y as
its independent registered public accounting firm.
The reports of E&Y on the financial statements of the Company for the years ended December 31,
2004 and 2003 contained no adverse opinion or disclaimer of opinion, and such reports were not
qualified or modified as to uncertainty, audit scope or accounting principle, other than E&Ys
report of managements assessment of the effectiveness of internal control over financial reporting
wherein they concluded that, based on the COSO criteria and the material weaknesses identified by
management, the Company did not maintain effective internal control over financial reporting as of
December 31, 2004.
During the years ended December 31, 2004 and 2003 and through May 23, 2005, there were no
disagreements with E&Y on any accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y, would
have caused it to make reference thereto in connection with its reports on the Companys financial
statements for such years.
The decision to dismiss E&Y as the Companys independent accountants was approved by the Audit
Committee of the Board of Directors and was disclosed in the Companys Form 8-K dated May 26, 2005.
On May 24, 2005, the Company engaged UHY Mann Frankfort Stein & Lipp CPAs LLP as its independent
registered public accounting firm for the year ending December 31, 2005.
ITEM 9A. Controls and Procedures
(a) Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures
that are designed to ensure that information required to be disclosed in the Companys reports
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is accumulated and communicated
to management, including the Companys Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. The Companys management,
with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of
the fiscal year covered by this Annual Report on Form 10-K. The Companys Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual
Report on Form 10-K, the Companys disclosure controls and procedures were effective.
(b) Managements Annual Report on Internal Control over Financial Reporting. The Companys
management is responsible for establishing and maintaining adequate internal control over financial
reporting. The Companys internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation and fair presentation of
published financial statements in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of its assets; |
|
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that its receipts and expenditures are being made only in accordance with
authorizations of its management and directors; and |
|
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on
its financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of the effectiveness of internal control
over financial reporting to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
55
The Companys management assessed the effectiveness of the Companys internal control over
financial reporting at December 31, 2005 and 2004, and in making this assessment, used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Based on this assessment, management identified three material
weaknesses as of December 31, 2004 and no material weaknesses as of December 31, 2005. As of
December 31, 2005, the Companys management determined that the Companys internal control over
financial reporting was effective. Our assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2005, has been audited by UHY Mann Frankfort Stein &
Lipp CPAs, LLP, an independent public accounting firm, as stated in their report which is included
herein.
A 2004 material weakness was identified related to the financial statement close process,
including insufficient controls over properly analyzing and reconciling intercompany accounts,
maintaining appropriate support and analyses of certain non-routine accruals, properly analyzing
certain deferred cost accounts, and properly assessing the accounting and reporting implications
related to new contractual agreements. Management identified a second 2004 material weakness
related to the accounting for the effects of foreign currencies, including insufficient controls
over the analysis of the foreign currency translation and transaction impact of intercompany
amounts, as well as amounts owed to third parties denominated in non-functional currencies. A third
2004 material weakness was identified by management related to accounting for income taxes
associated with new international operations, including insufficient controls over the proper
identification and application of the relevant Brazilian tax rules to the calculation of the tax
provision of the Companys new Brazilian operations. The Companys lack of adequate accounting and
tax resources, in terms of size, technical expertise and institutional knowledge (due to unusually
high levels of personnel turnover in the finance and accounting organization at that time) to
address certain of the financial and tax reporting aspects of its multi-national operations, was
the underlying cause of these material weaknesses.
(c) Changes in Internal Control Over Financial Reporting. There have been improvements in the
Companys internal control over financial reporting since year-end December 31, 2004 to address the
internal control deficiencies identified in 2004 as reported in the Companys Form 10-K. These
improvements, described below, strengthened our disclosure controls and procedures, as well as our
internal controls over financial reporting, and has addressed the material weaknesses that we
identified in our internal controls over financial reporting at December 31, 2004.
(d) Remediation of the Material Weakness in Internal Control over Financial Reporting. In response
to the material weaknesses identified in 2004, we implemented a remediation program, including the
establishment of additional controls, that are intended to strengthen our financial reporting and
to specifically address the identified material weaknesses as follows:
|
|
|
Financial statement close process. As previously reported, we have enhanced our
corporate accounting function by creating and filling several new positions, including
those of Accounting Manager and Assistant Controller-Financial Reporting, to provide
greater review and analysis of financial results at both the corporate and subsidiary
levels. In the second quarter 2005, we filled two newly created positions of Internal
Audit Director and Information Technology Director. The Internal Audit Director has
coordinated the ongoing monitoring of Sarbanes-Oxley compliance and has performed
financial and operational audits. The Information Technology Director will implement a
global information technology strategy for us, and has played a major role in the
evaluation of our information system as we look to improve the automation of both
foreign currency and intercompany transactions. Overall, the newly hired staff has and
should continue to bring experience, stability and the skills related to the review and
analysis of complex activity in large multi-national companies. Beginning in the first
quarter of 2005, an outside consultant evaluated and assisted us in establishing
improved controls over the process associated with intercompany transactions. The
consultant also assisted in the training of the new and existing personnel in the
execution of the controls and processes established. As of the end of 2005, this
material weakness has been remediated. |
|
|
|
|
Translation and transaction effects of foreign currency exchange. The outside
consultant also assisted us in implementing procedures to continue to analyze the
foreign currency impact on our intercompany and third party transactions. In addition,
the consultant trained our staff to identify, segregate, analyze and measure the
foreign currency impact on future transactions. Where these processes cannot be
automated, we have established processes to ensure proper review of the required
calculations in the interim, until it is determined whether or not a new information
system can automate the calculations. These steps will enable the appropriate measurement
of the foreign currency translation and transaction impact on our consolidated financial
statements as identified in the material weakness. As of the end of 2005, this material
weakness has been remediated. |
|
|
|
|
Taxes related to new Brazilian operations. During 2005, tremendous effort was made
to improve the internal control |
56
|
|
|
processes related to taxes and ensure an appropriate
level of research, analysis and review of complex international tax issues associated
with our existing and future tax jurisdictions by proactively training staff, reviewing
tax consequences of transactions, improving documentation, and continuing to engage
third-party tax service providers for more complex areas of our income tax accounting.
We also hired a Corporate Tax Director who began working at the Company mid January,
2006. The Corporate Tax Director has extensive international tax experience with the
majority of that experience in oil and gas services industry, including the marine
transportation business segment. This position is responsible for the analysis and
monitoring of taxes in all of our existing tax jurisdictions and related tax accounting
guidance and review. As of the end of 2005, this material weakness has been remediated. |
We believe that these actions and resulting improvement in controls will strengthen our disclosure
controls and procedures, as well as our internal control over financial reporting, and have
remediated the material weaknesses that we identified in our internal control over financial
reporting at December 31, 2004.
57
(e) Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of GulfMark Offshore, Inc. and its Subsidiaries
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that GulfMark Offshore, Inc. and its subsidiaries
maintained effective internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). GulfMark Offshore, Inc. and its subsidiaries
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that GulfMark Offshore, Inc. and its subsidiaries
maintained effective internal control over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, GulfMark Offshore, Inc. and its subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of GulfMark Offshore Inc. and subsidiaries
and the related consolidated statements of operations, stockholders equity, comprehensive income,
and cash flows for the year then ended, and our report dated
March 9, 2006 expressed an unqualified
opinion.
UHY Mann Frankfort Stein & Lipp CPAs, LLP
Houston, Texas
March 9, 2006
58
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant(1)
ITEM 11. Executive Compensation(1)
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters(1)
ITEM 13. Certain Relationships and Related Transactions(1)
ITEM 14. Principal Accounting Fees and Services(1)
(1) The information required by ITEMS 10, 11, 12, 13 and 14 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 15. Exhibits and Financial Statement Schedules
(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 schedules for the Company have been omitted
because 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, dated December 4, 1996
|
|
Exhibit 3.1 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation, dated
March 6, 1997
|
|
Exhibit 3.2 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.3
|
|
Certificate of Amendment of Certificate of Incorporation, dated May
24, 2002
|
|
Exhibit 3.3 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.4
|
|
Bylaws, dated December 6, 1996
|
|
Exhibit 3.3 to the
Companys Registration
Statement on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
59
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
4.1
|
|
See Exhibit Nos. 3.1, 3.2 and 3.3 for provisions of the Certificate
of Incorporation and Exhibit 3.4 for provisions of the Bylaws
defining the rights of the holders of Common Stock
|
|
Exhibits 3.1, 3.2 and
3.3 to the Companys
quarterly report on Form
10-Q for the quarter
ended September 30, 2002
and the Companys
Registration Statement
on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
|
|
|
|
|
4.2
|
|
Specimen Certificate for GulfMark Offshore, Inc. Common Stock,
$0.01 par value
|
|
Exhibit 4.2 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
4.3
|
|
Indenture, dated July 21, 2004, among GulfMark Offshore, Inc., as
Issuer, and U.S. Bank National Association, as Trustee, including a
form of the Companys 7.75% Senior Notes due 2014
|
|
Exhibit 4.4 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2004 |
|
|
|
|
|
4.4
|
|
Registration Rights Agreement, dated July 21, 2004, among GulfMark
Offshore, Inc. and the initial purchasers
|
|
Exhibit 4.5 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2004 |
|
|
|
|
|
10.1
|
|
GulfMark International, Inc. 1987 Stock Option Plan, as amended*
|
|
Exhibit 10.1 to the
Companys Registration
Statement on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
|
|
|
|
|
10.2
|
|
Amendment to the GulfMark International, Inc. 1987 Stock Option
Plan, as amended*
|
|
Exhibit 10.2 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.3
|
|
GulfMark Offshore, Inc. Instrument of Assumption and Adjustment (
1987 Stock Option Plan, as amended)*
|
|
Exhibit 10.3 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.4
|
|
Form of Incentive Stock Option Agreement ( 1987 Stock Option Plan,
as amended)*
|
|
Exhibit 10.6 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.5
|
|
Form of Amendment No. 1 to Incentive Stock Option Agreement (1987
Stock Option Plan, as amended)*
|
|
Exhibit 10.5 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.6
|
|
GulfMark International, Inc. Amended and Restated 1993 Non-Employee
Director Stock Option Plan*
|
|
Exhibit 10.7 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.7
|
|
Amendment No. 1 to the GulfMark International, Inc. Amended and
Restated 1993 Non-Employee Director Stock Option Plan*
|
|
Exhibit 10.8 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.8
|
|
GulfMark Offshore, Inc. Instrument of Assumption and Adjustment
(Amended and Restated 1993 Non-Employee Director Stock Option
Plan)*
|
|
Exhibit 10.9 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.9
|
|
Form of Stock Option Agreement (Amended and Restated 1993
Non-Employee Director Stock Option Plan)*
|
|
Exhibit 10.12 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.10
|
|
Form of Amendment No. 1 to Stock Option Agreement (Amended and
Restated 1993 Non-Employee Director Stock Option Plan)*
|
|
Exhibit 10.11 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
* |
|
Denotes compensatory arrangements. |
60
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
10.11
|
|
GulfMark Offshore, Inc. 1997 Incentive Equity Plan*
|
|
Exhibit 10.16 to the
Companys annual report
on Form 10-K for the
year ended December 31,
1998 |
|
|
|
|
|
10.12
|
|
Form of Incentive Stock Option Agreement ( 1997 Incentive Equity
Plan *
|
|
Exhibit 10.17 to the
Companys annual report
on Form 10-K for the
year ended December 31,
1998 |
|
|
|
|
|
10.13
|
|
GulfMark Offshore, Inc. Employee Stock Purchase Plan*
|
|
Exhibit 4.4.3 to the
Companys Registration
Statement on Form S-8,
Registration No.
333-84110 filed on March
11, 2002 |
|
|
|
|
|
10.14
|
|
$100 Million Senior Secured Reducing Revolving Multi-Currency
Credit Facility dated June 26, 2002
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
July 3, 2002 |
|
|
|
|
|
10.15
|
|
Letter Agreement Amending the $100 Million Senior Secured Reducing
Revolving Multi-Currency Credit Facility dated June 26, 2002
|
|
Exhibit 10.2 to the
Companys current report
on Form 8-K filed on
December 29, 2004 |
|
|
|
|
|
10.16
|
|
Executive Nonqualified Excess Plan GM Offshore, Inc. Plan Document *
|
|
Exhibit 10.23 to the
Companys annual report
on Form 10-K for the
year ended December 31,
2001 |
|
|
|
|
|
10.17
|
|
Form of the Executive Nonqualified Excess Plan GM Offshore, Inc.
Initial Salary Deferred Agreement *
|
|
Exhibit 10.24 to the
Companys annual report
on Form 10-K for the
year ended December 31,
2001 |
|
|
|
|
|
10.18
|
|
Employment Agreement dated July 1, 2003, made by and between GM
Offshore, Inc. and Bruce A. Streeter*
|
|
Exhibit 10.1 to the
Companys quarterly
report on Form 10-Q for
the quarter ended June
30, 2003 |
|
|
|
|
|
10.19
|
|
Employment Agreement dated July 6, 2003, made by and between GM
Offshore, Inc. and Edward A. Guthrie, Jr.*
|
|
Exhibit 10.2 to the
Companys quarterly
report on Form 10-Q for
the quarter ended June
30, 2003 |
|
|
|
|
|
10.20
|
|
Senior Secured $50 Million Revolving Credit Facility dated December
23, 2004
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
December 29, 2004 |
|
|
|
|
|
10.21
|
|
Supplemental Agreement to Senior Secured $50 Million Revolving
Credit Facility dated January 24, 2005
|
|
Exhibit 10.1 to the
Companys current
report on Form 8-K filed
on January 28, 2005 |
|
|
|
|
|
10.22
|
|
Letter Agreement, dated March 22, 2005, Amending the Senior Secured
$100 Million Multi-currency Revolving Credit Facility, as amended
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.23
|
|
Letter Agreement, dated March 24, 2005, Amending the Senior Secured
$100 Million Multi-currency Revolving Credit Facility, as amended
|
|
Exhibit 10.2 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.24
|
|
Letter Agreement, dated March 24, 2005, Amending the Senior Secured
$50 Million Revolving Credit Facility, as amended
|
|
Exhibit 10.3 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.25
|
|
Letter Agreement, dated May 10, 2005, Amending the Senior Secured
$50 Million Revolving Credit Facility, as amended
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on May
16, 2005 |
|
|
|
|
|
10.26
|
|
Charter Party dated July 31, 2002 between Enterprise Oil do Brasil
Limitada and Gulf Marine [Serviços Maritimos] do Brasil Limitada
|
|
Exhibit 10.30 to the
Companys annual report
on Form 10-K/A for the
year ending December 31,
2004 |
|
|
|
* |
|
Denotes compensatory arrangements. |
61
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
10.27
|
|
General Form Contract between Keppel Singmarine Pte. Ltd. and
GulfMark Offshore, Inc.
|
|
Filed herewith |
|
|
|
|
|
21.1
|
|
Subsidiaries of GulfMark Offshore, Inc.
|
|
Filed herewith |
|
|
|
|
|
23.1
|
|
Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP
|
|
Filed herewith |
|
|
|
|
|
23.2
|
|
Consent of Ernst & Young, LLP
|
|
Filed herewith |
|
|
|
|
|
31.1
|
|
Section 302 Certification for B.A. Streeter
|
|
Filed herewith |
|
|
|
|
|
31.2
|
|
Section 302 Certification for E.A. Guthrie
|
|
Filed herewith |
|
|
|
|
|
32.1
|
|
Section 906 Certification furnished for B.A. Streeter
|
|
Filed herewith |
|
|
|
|
|
32.2
|
|
Section 906 Certification furnished for E.A. Guthrie
|
|
Filed herewith |
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended 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 10, 2006
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 10, 2006 |
|
|
|
|
|
Bruce A. Streeter
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Edward A. Guthrie.
|
|
Executive Vice President, Finance
|
|
March 10, 2006 |
|
|
|
|
|
Edward A. Guthrie
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ Carla S. Mashinski
|
|
Controller
|
|
March 10, 2006 |
|
|
|
|
|
Carla S. Mashinski
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ David J. Butters
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
David J. Butters |
|
|
|
|
|
|
|
|
|
/s/ Peter I. Bijur
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
Peter I. Bijur |
|
|
|
|
|
|
|
|
|
/s/ Marshall A. Crowe.
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
Marshall A. Crowe |
|
|
|
|
|
|
|
|
|
/s/ Louis S. Gimbel, 3rd
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
Louis S. Gimbel 3rd |
|
|
|
|
|
|
|
|
|
/s/ Sheldon S. Gordon.
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
Sheldon S. Gordon |
|
|
|
|
|
|
|
|
|
/s/ Robert B. Millard
|
|
Director
|
|
March 10, 2006 |
|
|
|
|
|
Robert B. Millard |
|
|
|
|
63
INDEX TO EXHIBITS
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
3.1
|
|
Certificate of Incorporation, dated December 4, 1996
|
|
Exhibit 3.1 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation, dated
March 6, 1997
|
|
Exhibit 3.2 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.3
|
|
Certificate of Amendment of Certificate of Incorporation, dated May
24, 2002
|
|
Exhibit 3.3 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2002 |
|
|
|
|
|
3.4
|
|
Bylaws, dated December 6, 1996
|
|
Exhibit 3.3 to the
Companys Registration
Statement on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
|
|
|
|
|
4.1
|
|
See Exhibit Nos. 3.1, 3.2 and 3.3 for provisions of the Certificate
of Incorporation and Exhibit 3.4 for provisions of the Bylaws
defining the rights of the holders of Common Stock
|
|
Exhibits 3.1, 3.2 and
3.3 to the Companys
quarterly report on Form
10-Q for the quarter
ended September 30, 2002
and the Companys
Registration Statement
on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
|
|
|
|
|
4.2
|
|
Specimen Certificate for GulfMark Offshore, Inc. Common Stock,
$0.01 par value
|
|
Exhibit 4.2 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
4.3
|
|
Indenture, dated July 21, 2004, among GulfMark Offshore, Inc., as
Issuer, and U.S. Bank National Association, as Trustee, including a
form of the Companys 7.75% Senior Notes due 2014
|
|
Exhibit 4.4 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2004 |
|
|
|
|
|
4.4
|
|
Registration Rights Agreement, dated July 21, 2004, among GulfMark
Offshore, Inc. and the initial purchasers
|
|
Exhibit 4.5 to the
Companys quarterly
report on Form 10-Q for
the quarter ended
September 30, 2004 |
|
|
|
|
|
10.1
|
|
GulfMark International, Inc. 1987 Stock Option Plan, as amended*
|
|
Exhibit 10.1 to the
Companys Registration
Statement on Form S-4,
Registration No.
333-24141 filed on March
28, 1997 |
|
|
|
|
|
10.2
|
|
Amendment to the GulfMark International, Inc. 1987 Stock Option
Plan, as amended*
|
|
Exhibit 10.2 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.3
|
|
GulfMark Offshore, Inc. Instrument of Assumption and Adjustment (
1987 Stock Option Plan, as amended)*
|
|
Exhibit 10.3 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.4
|
|
Form of Incentive Stock Option Agreement ( 1987 Stock Option Plan,
as amended)*
|
|
Exhibit 10.6 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.5
|
|
Form of Amendment No. 1 to Incentive Stock Option Agreement ( 1987
Stock Option Plan, as amended)*
|
|
Exhibit 10.5 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
* |
|
Denotes compensatory arrangements. |
64
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
10.6
|
|
GulfMark International, Inc. Amended and Restated 1993 Non-Employee
Director Stock Option Plan*
|
|
Exhibit 10.7 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.7
|
|
Amendment No. 1 to the GulfMark International, Inc. Amended and
Restated 1993 Non-Employee Director Stock Option Plan*
|
|
Exhibit 10.8 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.8
|
|
GulfMark Offshore, Inc. Instrument of Assumption and Adjustment
(Amended and Restated 1993 Non-Employee Director Stock Option
Plan)*
|
|
Exhibit 10.9 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.9
|
|
Form of Stock Option Agreement (Amended and Restated 1993
Non-Employee Director Stock Option Plan)*
|
|
Exhibit 10.12 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.10
|
|
Form of Amendment No. 1 to Stock Option Agreement (Amended and
Restated 1993 Non-Employee Director Stock Option Plan)*
|
|
Exhibit 10.11 to the
Companys Registration
Statement on Form S-1,
Registration No.
333-31139 filed on July
11, 1997 |
|
|
|
|
|
10.11
|
|
GulfMark Offshore, Inc. 1997 Incentive Equity Plan*
|
|
Exhibit 10.16 to the
Companys annual report
on Form 10-K for the
year ended December 31,
1998 |
|
|
|
|
|
10.12
|
|
Form of Incentive Stock Option Agreement (1997 Incentive Equity
Plan *
|
|
Exhibit 10.17 to the
Companys annual report
on Form 10-K for the
year ended December 31,
1998 |
|
|
|
|
|
10.13
|
|
GulfMark Offshore, Inc. Employee Stock Purchase Plan*
|
|
Exhibit 4.4.3 to the
Companys Registration
Statement on Form S-8,
Registration No.
333-84110 filed on March
11, 2002 |
|
|
|
|
|
10.14
|
|
$100 Million Senior Secured Reducing Revolving Multi-Currency
Credit Facility dated June 26, 2002
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
July 3, 2002 |
|
|
|
|
|
10.15
|
|
Letter Agreement Amending the $100 Million Senior Secured Reducing
Revolving Multi-Currency Credit Facility dated June 26, 2002
|
|
Exhibit 10.2 to the
Companys current report
on Form 8-K filed on
December 29, 2004 |
|
|
|
|
|
10.16
|
|
Executive Nonqualified Excess Plan GM Offshore, Inc. Plan Document *
|
|
Exhibit 10.23 to the
Companys annual report
on Form 10-K for the
year ended December 31,
2001 |
|
|
|
|
|
10.17
|
|
Form of the Executive Nonqualified Excess Plan GM Offshore, Inc.
Initial Salary Deferred Agreement *
|
|
Exhibit 10.24 to the
Companys annual report
on Form 10-K for the
year ended December 31,
2001 |
|
|
|
|
|
10.18
|
|
Employment Agreement dated July 1, 2003, made by and between GM
Offshore, Inc. and Bruce A. Streeter*
|
|
Exhibit 10.1 to the
Companys quarterly
report on Form 10-Q for
the quarter ended June
30, 2003 |
|
|
|
|
|
10.19
|
|
Employment Agreement dated July 6, 2003, made by and between GM
Offshore, Inc. and Edward A. Guthrie, Jr.*
|
|
Exhibit 10.2 to the
Companys quarterly
report on Form 10-Q for
the quarter ended June
30, 2003 |
|
|
|
|
|
10.20
|
|
Senior Secured $50 Million Revolving Credit Facility dated December
23, 2004
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
December 29, 2004 |
|
|
|
* |
|
Denotes compensatory arrangements. |
65
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
|
|
from the |
Exhibits |
|
Description |
|
Following Documents |
10.21
|
|
Supplemental Agreement to Senior Secured $50 Million Revolving
Credit Facility dated January 24, 2005
|
|
Exhibit 10.1 to the
Companys current
report on Form 8-K filed
on January 28, 2005 |
|
|
|
|
|
10.22
|
|
Letter Agreement, dated March 22, 2005, Amending the Senior Secured
$100 Million Multi-currency Revolving Credit Facility, as amended
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.23
|
|
Letter Agreement, dated March 24, 2005, Amending the Senior Secured
$100 Million Multi-currency Revolving Credit Facility, as amended
|
|
Exhibit 10.2 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.24
|
|
Letter Agreement, dated March 24, 2005, Amending the Senior Secured
$50 Million Revolving Credit Facility, as amended
|
|
Exhibit 10.3 to the
Companys current report
on Form 8-K filed on
April 1, 2005 |
|
|
|
|
|
10.25
|
|
Letter Agreement, dated May 10, 2005, Amending the Senior Secured
$50 Million Revolving Credit Facility, as amended
|
|
Exhibit 10.1 to the
Companys current report
on Form 8-K filed on May
16, 2005 |
|
|
|
|
|
10.26
|
|
Charter Party dated July 31, 2002 between Enterprise Oil do Brasil
Limitada and Gulf Marine [Serviços Maritimos] do Brasil Limitada
|
|
Exhibit 10.30 to the
Companys annual report
on Form 10-K/A for the
year ended December 31,
2004 |
|
|
|
|
|
10.27
|
|
General Form Contract between Keppel Singmarine Pte. Ltd. and
GulfMark Offshore, Inc.
|
|
Filed herewith |
|
|
|
|
|
21.1
|
|
Subsidiaries of GulfMark Offshore, Inc.
|
|
Filed herewith |
|
|
|
|
|
23.1
|
|
Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP
|
|
Filed herewith |
|
|
|
|
|
23.2
|
|
Consent of Ernst & Young, LLP
|
|
Filed herewith |
|
|
|
|
|
31.1
|
|
Section 302 Certification for B.A. Streeter
|
|
Filed herewith |
|
|
|
|
|
31.2
|
|
Section 302 Certification for E.A. Guthrie
|
|
Filed herewith |
|
|
|
|
|
32.1
|
|
Section 906 Certification furnished for B.A. Streeter
|
|
Filed herewith |
|
|
|
|
|
32.2
|
|
Section 906 Certification furnished for E.A. Guthrie
|
|
Filed herewith |
66