Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (12-30-13 10:45 PM)

Description

GULFMARK OFFSHORE INC. Former Director ROBERT B ROBERT B bought 51,739 shares on 12-19-2013 at $ 44.81

BUSINESS OVERVIEW

The Company

GulfMark Offshore, Inc., a Delaware corporation, was incorporated in 1996. On February 24, 2010, GulfMark Offshore, Inc., (“Old GulfMark”) merged with and into its wholly owned subsidiary, New GulfMark Offshore, Inc., a Delaware corporation (‘‘New GulfMark”), pursuant to an agreement and plan of reorganization, with New GulfMark as the surviving corporation (such transaction, the “Reorganization”). The Reorganization was adopted by the stockholders and New GulfMark changed its name from “New GulfMark Offshore, Inc.” to “GulfMark Offshore, Inc”. The business, operations, assets and liabilities of New GulfMark after the Reorganization are the same as business, operations, assets and liabilities of Old GulfMark immediately prior to the Reorganization. The Reorganization was effected primarily to better position us to benefit from and adhere to U.S. maritime laws and regulations.

We provide offshore marine services primarily to companies involved in the offshore exploration and production of oil and natural gas. Our vessels transport materials, supplies and personnel to offshore facilities, as well as move and position drilling structures. The majority of our operations are conducted in the North Sea, offshore Southeast Asia and offshore in the Americas. We also contract vessels into other regions to meet our customers’ requirements. We currently operate a fleet of 78 offshore supply vessels (“OSVs”) in the following regions: 33 vessels in the North Sea, 16 vessels offshore Southeast Asia, and 29 vessels offshore the Americas. Our fleet is one of the world’s youngest, largest and most geographically balanced, high specification OSV fleets. Our owned vessels have an average age of approximately ten years.

We have the following operating segments: the North Sea (“N. Sea”), Southeast Asia (“SEA”) 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” For financial information about our operating segments and geographic areas, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segment Results” included in Part II, Item 7, and Note 13 to our Consolidated Financial Statements included in Part II, Item 8.

Unless otherwise indicated, references to “we”, “us”, “our” and the “Company” refer to GulfMark Offshore, Inc., its subsidiaries and its predecessors.
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 current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). This annual report on Form 10-K for the year ended December 31, 2012 includes as exhibits all required Sarbanes-Oxley Act Section 302 certifications by our CEO and CFO regarding the quality of our public disclosure. In addition, our CEO certifies annually to the New York Stock Exchange (“NYSE”) that he is not aware of any violation by the Company of the NYSE corporation governance listing standards. 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 SEC’s 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 SEC’s 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.

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 and related infrastructure, and substantially all of our revenue is derived from providing these services. This industry employs various types of OSVs that are used to transport materials, supplies and personnel, and to move 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 U.S. 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 and offshore Trinidad, the Persian Gulf, the Mediterranean Sea, offshore Russia and emerging East Africa. The industry is relatively fragmented with a combination of multi-national and regional competitors.

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. In addition, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. The characteristics and current marketing environment in each region are discussed later in greater detail. 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 some vessel interchangeability between geographic regions, barriers such as mobilization costs, vessel suitability and cabotage restrict migration of some vessels between regions. This is most notable in the North Sea, where vessel design requirements dictated by the harsh operating environment restrict relocation of vessels into that market and in the U.S. Gulf of Mexico, where entry into the market is subject to the Jones Act restrictions. Conversely, these same design characteristics make North Sea capable vessels unsuitable for other areas where draft restrictions and, to a lesser degree, higher operating costs, restrict migration.

WORLDWIDE FLEET

In addition to the vessels we own, we manage a number of vessels for third-party owners, providing support services ranging from chartering assistance to full operational management. Although these managed vessels provide limited direct financial contribution, the added market presence can provide a competitive advantage for the manager.

Vessel Classifications
Offshore supply vessels generally fall into seven functional classifications derived from their primary or predominant operating characteristics or capabilities. However, these classifications are not rigid, and it is not unusual for a vessel to fit into more than one of the categories. These functional classifications are:


Anchor Handling, Towing and Support Vessels (“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 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 (“SmAHTSs”) while AHTSs in excess of 10,000 BHP are referred to as large AHTSs (“LgAHTSs”). The most powerful North Sea class AHTSs have upwards of 25,000 BHP. All of our AHTSs can also function as PSVs.


Platform Supply Vessels (“PSVs”) serve drilling and production facilities and support offshore construction and maintenance work. They are differentiated from other offshore supply 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 feet. Large PSVs (“LgPSVs”) typically range up to 300 feet 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 servicing construction support.


Fast Supply or Crew Vessels (“FSVs/Crewboat”) transport personnel and cargo to and from production platforms and rigs. Older crewboats (early 1980s build) are typically 100 to 120 feet in length, and are designed for speed and to transport personnel. Newer crewboat designs are generally larger, 130 to 185 feet in length, and can be longer with greater cargo carrying capacities. Vessels in the larger category are also called fast supply vessels. They are used primarily to transport cargo on a time-sensitive basis.


Specialty Vessels (“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 (FPSOs); diving operations; remotely operated vehicles (“ROVs”); survey operations and seismic data gathering; as well as oil recovery, oil spill response and well stimulation. Some of our owned vessels frequently provide specialty functions.


Standby Rescue Vessels (“Stby”) perform a safety patrol function for an area and are required for all manned locations in the North Sea and in some other locations where oil and natural gas exploitation occurs. These vessels typically remain on station to provide a safety backup to offshore rigs and production facilities and carry special equipment to rescue personnel. They are equipped to provide first aid, shelter and, in some cases, function as support vessels.


Construction Support Vessels are vessels such as pipe-laying barges, diving support vessels 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.


Utility Vessels are typically 90 to 150 feet in length and are used to provide limited crew transportation, some transportation of oilfield support equipment and, in some locations, standby functions.

Vessel Construction / Acquisitions / Divestitures

In the third quarter of 2011, our Board of Directors approved the initiation of a new-build construction program. We began the program in the North Sea region where we contracted with three shipyards to build a total of six PSVs. The estimated total cost of these initial six vessels is $228.0 million. In late 2011, we exercised an option with one of the shipyards to build an additional vessel at an estimated cost of $60.0 million. The first of these vessels is scheduled to be delivered in the second quarter of 2013 and the last is scheduled to be delivered in the first quarter of 2014.

In June 2012, we signed an agreement with a U.S. shipyard to build two U.S. flagged PSVs for the U.S. Gulf of Mexico at an estimated total cost of $72.0 million. We expect deliveries of these two vessels in the third and fourth quarters of 2013. In July 2012, we signed agreements with another U.S. shipyard to build an additional two U.S. flagged PSVs at an estimated total cost of $96.0 million. We expect delivery of these vessels in the third quarter of 2014 and the first quarter of 2015.

During the third quarter of 2012, we placed $52.4 million in escrow related to the two Thoma-Sea new-builds (U.S. flagged PSVs) described in the table below. Progress payments will be drawn from escrow as they become due. The amount held in escrow, $47.0 million at December 31, 2012, is segregated from cash and cash equivalents and is presented in long-term assets on the December 31, 2012 balance sheet.

We did not take delivery of any new-build vessels in 2012. In the first quarter of 2012, we purchased a vessel for operation in the Americas region for a total price of $22.5 million. In the fourth quarter of 2012, we purchased a vessel for operation in the North Sea region for a total price of $28.6 million.
During 2012, we sold four crew boats and one fast supply vessel previously operating in our Americas region for an aggregate price of $40.6 million. Prior to December 31, 2012, we had one vessel that was held for sale and not included in our active fleet numbers. In January 2013, we sold this vessel for a sale price of $0.7 million. As of February 25, 2013, we did not have any vessels classified as held for sale.

Maintenance of Our Vessels and Drydocking Obligations

In addition to repairs, we are required to make expenditures for the certification and maintenance of our vessels, and those expenditures typically increase with age. The demands of the market, the expiration of existing contracts, the start of new contracts, and customer preferences influence the timing of drydocks. Our drydocking expenditures for 2012 totaled $33.3 million. We anticipate approximately $25.5 million in drydocking expenditures in 2013. We had 35 drydocks in 2012 and anticipate 27 drydocks in 2013.

CEO BACKGROUND

ELECTION OF SEVEN DIRECTORS

The Board has nominated seven directors for election at the Annual Meeting. Mr. Streeter, a Board member since 1997, is not a nominee as he is retiring from his position as our President and Chief Executive Officer as of the date of the Annual Meeting. Mr. Gimbel, a Board member since 1970, is not a nominee as he has given notice of his intentions to retire from the Board as of the date of the Annual Meeting. The Board has, by resolution, approved the reduction of the number of directors from eight to seven effective as of the Annual Meeting date. Each director to be elected will hold office until the next Annual Meeting and until such director’s successor is elected and qualified. Each nominee listed below, except Mr. Kneen, is currently a director and was elected as a director by our stockholders. The nominees receiving a plurality of votes cast at the Annual Meeting will be elected as directors. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but will not affect the election outcome.

The Board believes that each of the seven nominees possesses the qualities and experience that it believes our directors should possess, as described in detail below in the section entitled “Our Board of Directors – Selection of Director Nominees.” The nominees for election to the Board, together with their biographical information and the Board’s reasons for selecting them as nominees, are set forth below. No family relationship exists between any of the nominated directors or the executive officers listed in the Executive Officer portion of this Proxy Statement.

Peter I. Bijur serves as a member of the Audit and Compensation Committees and is Chairman of the Governance & Nominating Committee. Mr. Bijur currently serves on the Board of Directors and the Audit Committee of Volvo AB and is the former Chairman of the Board of Directors and Chief Executive Officer of Texaco Inc. where he served from 1996 until his retirement in 2001. Mr. Bijur formerly served as a member of the Board of Trustees of Middlebury College and Mount Sinai-New York University Health. The Board determined that Mr. Bijur should be nominated for election as a director due to his extensive executive experience, including his prior service as the chairman and chief executive officer of a major public corporation, his public company board leadership experience, and his corporate governance expertise.

David J. Butters is Chairman of the Board of Directors and is Chairman of the Compensation Committee. Since September 2008, Mr. Butters has been Chairman, President and Chief Executive Officer of Navigator Holdings Ltd., an international LPG shipping company. Mr. Butters is also currently a member of the Board of Directors of Weatherford International Ltd. Mr. Butters retired from Lehman Brothers, Inc., a subsidiary of Lehman Brothers Holdings Inc. (“Lehman”) in September 2008. He had been employed at Lehman since 1969, most recently holding the position of Managing Director. The Board determined that Mr. Butters should be nominated for election as a director due to his extensive knowledge of the shipping and oil and gas service industries, his experience as a director of public companies, his banking experience and his financial and executive management expertise.

Brian R. Ford is Chairman of the Audit Committee and is the financial expert on the Audit Committee. Mr. Ford was the Chief Executive Officer of Washington Philadelphia Partners, LP from 2008 through 2010. He retired as a partner from Ernst & Young LLP in June 2008 where he had been employed since 1971. Mr. Ford also serves on the Board of Trustees of Drexel University and Drexel University College of Medicine School. The Board determined that Mr. Ford should be nominated for election as a director due to his financial, audit and accounting expertise gained as a partner in a top tier public accounting firm.
Sheldon S. Gordon is a member of the Compensation, Governance & Nominating and Audit Committees. He retired as non-executive Chairman of Union Bancaire Privée International Holdings, Inc. where he served from May 1996 to September 2011. From May 1996 to March 2002, he was Chairman of the Rhone Group LLC with which he continues as a Senior Advisor. Mr. Gordon was a director of Union Bancaire Privée from March 1997 to March 2011 and was a Director of the Holland Balanced Fund from June 1996 to June 2008 and of Ametek, Inc. from 1989 to May 2011. The Board determined that Mr. Gordon should be nominated for election as a director due to his financial and accounting expertise, his experience as a senior executive and director of large multinational corporations, and his strategic business management expertise.

Quintin V. Kneen has been elected by our Board to serve as our President and Chief Executive Officer beginning June 4, 2013. He will continue as Chief Financial Officer until a successor is named. He was named our Executive Vice President and Chief Financial Officer in June 2009. Mr. Kneen joined GulfMark in June 2008 as the Vice President – Finance and was named Senior Vice President– Finance and Administration in December 2008. Previously, he was Vice President-Finance & Investor Relations for Grant Prideco, Inc., serving in executive finance positions at Grant Prideco since June 2003. Prior to joining Grant Prideco, Mr. Kneen held executive finance positions at Azurix Corp. and was an Audit Manager with the Houston office of Price Waterhouse LLP. He holds a Master of Business Administration from Rice University and a Bachelor of Business Administration in Accounting from Texas A&M University, and is a Certified Public Accountant and a Chartered Financial Analyst. The Board determined that Mr. Kneen should be nominated for election as a director due to his extensive financial expertise and his position as our President and Chief Executive Officer.

Robert B. Millard is currently Managing Partner of Realm Partners LLC. From 1976 until September 2008, Mr. Millard held various positions, including Managing Director, at Lehman Brothers, Inc. and its predecessors. From September 2008 until December 2008, Mr. Millard was a Managing Director of Barclays Bank. Mr. Millard serves as Lead Independent Director of L-3 Communications Inc. He also serves as Chairman of the Board of the MIT Investment Management Company, on the Boards of Trustees of the MIT Corporation (Executive Committee), The Population Council, Associated Universities Inc. and the Remarque Institute of New York University. He also serves on the Investment Subcommittee of the Finance and Budget Committee of the Council on Foreign Relations. Mr. Millard served as a director of Weatherford International Ltd. from 1989 to January 2012. The Board determined that Mr. Millard should be nominated for election as a director due to his expertise in financial, business and corporate development matters, his experience as a director of public companies, and his extensive experience in the oil and gas service industry.

Rex C. Ross is a member of the Compensation Committee and the Governance & Nominating Committee. From 2004 to 2009, Mr. Ross served as Chairman and director of Schlumberger Technology Corporation, the holding company for all Schlumberger Limited assets and entities in the United States. Prior to his retirement from Schlumberger Limited in May 2004, Mr. Ross held a number of executive management positions during his 11-year career there, including President of Schlumberger Oilfield Services North America; President, Schlumberger GeoQuest; and President of SchlumbergerSema North & South America. Mr. Ross was elected a Director of Enterprise Products Partners L.P. (a publicly traded oil and gas mid-stream services and marketing company) in October 2006 and is a member of its Audit and Conflicts Committee. The Board determined that Mr. Ross should be nominated for election as a director due to his executive management expertise and his knowledge of the oil and gas service industry.

Directors Not Continuing In Office

Bruce A. Streeter has served as our President and Chief Operating Officer since January 1997 and as our Chief Executive Officer since 2006. He served as President of our Marine Division from November 1990 until he became President and Chief Operating Officer. Prior to November 1990, Mr. Streeter was with Offshore Logistics, Inc. for a period of twelve years serving in a number of capacities, including General Manager Marine Division. Mr. Streeter is not a nominee as he is retiring from his position as our President and Chief Executive Officer as of the date of the Annual Meeting.

Louis S. Gimbel, 3rd is a member of the Governance & Nominating Committee. He has served as Chief Executive Officer of S. S. Steiner, Inc. since 1990. He is also Chairman of the Board of Hops Extract Corporation of America and Manager of Stadelman Fruit LLC. Mr. Gimbel is also a member of the Board of Golden Gate Hop Ranches Inc. and Simon H. Steiner, Hopfen, GbmH. S. S. Steiner, Inc. is engaged in the farming, trading, processing, importing and exporting of hops and other specialty crops. Mr. Gimbel is also a trustee for the Monmouth County (WJ) Conservation Foundation. Mr. Gimbel is not a nominee as he has given us notice of his intentions to retire from the Board as of the date of the Annual Meeting.

Required Vote for Election of Directors

Election as directors of the persons nominated in this Proxy Statement will require the vote of the holders of a plurality of the shares of Common Stock present or represented by proxy and entitled to vote at a meeting at which a quorum is present.

In accordance with our corporate governance guidelines, any director nominee who receives a greater number of “WITHHELD” votes than votes “FOR” such election must tender his resignation following certification of the stockholder vote. The Governance & Nominating Committee will recommend to the Board whether such resignation should be accepted, and the Board will promptly disclose on a Current Report on Form 8-K its decision whether to accept or reject the resignation. The nominee director who has tendered his resignation cannot participate in any Board action regarding whether to accept his resignation offer.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION AS DIRECTORS OF THE PERSONS NOMINATED.

MANAGEMENT DISCUSSION FROM LATEST 10K

Our Strategy

Our goal is to enhance our position as a premier provider of offshore marine services 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:

Profitably growing our business: We continually evaluate opportunities to grow our business profitably, as measured by return on capital employed. Such opportunities typically include the acquisition or construction of new OSVs that improve the age and capabilities of our fleet.

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. In addition, we will sell older vessels that no longer meet our objective of maintaining a modern, diversified and technologically advanced fleet. 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 us and for our customers.

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 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 our customer needs.

Focusing on attractive markets: We conduct our operations mainly in the North Sea, offshore Southeast Asia and offshore Americas markets. Our focus on these regions is driven by what we perceive to be higher barriers to entry, lower volatility of day rates (except in the Americas) and greater potential for increasing day rates in these markets than in other markets. Our operating experience in these markets has enabled us to anticipate and profitably respond to trends, such as the increasing demand for multi-function vessels, which we believe will be met through the additions we have made in the past few years to our North Sea and Southeast Asia fleets. In addition, we have the 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 markets 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. We believe a prudent mix of these contractual arrangements helps us reduce volatility in both charter day rates and vessel utilization, while providing us operational flexibility and opportunity to take advantage of improving market conditions.
Opportunistically selling vessels: In order to maintain a modern, technologically advanced fleet, we routinely sell older OSVs that no longer meet our fleet objectives in order to reinvest in newer vessels. Timing of vessel sales is a key attribute to obtaining the best overall sales price, and over the past seven years we have sold 23 vessels with an average age of 22 years for approximately 115% of the combined original cost of these vessels. This is well in excess of the net book value of these vessels, which reflects the depreciated value based on a 15% salvage value and an asset life of 20 to 25 years.
Maintaining a conservative financial profile: We strive to maintain a strong balance sheet with ample liquidity.

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. A substantial portion of our operations are international. Our fleet has grown in both size and capability, from an original 11 vessels in 1990 to our present number of 78 active vessels, through strategic acquisitions and the new construction of technologically advanced vessels, partially offset by dispositions of certain older, less profitable vessels. At February 25, 2013, our active fleet includes 70 owned vessels and 8 managed vessels. In addition, we currently have 11 vessels under construction that have delivery dates ranging from second quarter 2013 through first quarter 2015.

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 revenue and operating expenses reported in the same income and expense categories as our owned vessels. The chartered vessels, however, incur bareboat charter fees instead of depreciation expense. Bareboat charter fees are generally higher than the depreciation expense on owned vessels of similar age and specification. The operating income realized from these vessels is therefore adversely affected by the higher costs associated with the bareboat charter fees. These vessels are included in calculating fleet day rates and utilization in the applicable periods.
We also provide management services to other vessel owners for a fee. We do not include charter revenue and vessel expenses of these vessels in our operating results; however, management fees are included in operating revenue. These vessels are excluded for purposes of calculating fleet rates per day worked and utilization in the applicable periods.

Our operating costs are primarily a function of fleet configuration. The most significant direct operating cost is wages paid to vessel crews, followed by maintenance and repairs and insurance. Generally, fluctuations in vessel utilization have little effect on direct operating costs in the short term and, as a result, direct operating costs as a percentage of revenue may vary substantially due to changes in day rates and utilization.

In addition to direct operating costs, we incur fixed charges related to the depreciation of our fleet and costs for routine drydock inspections and modifications designed to ensure compliance with applicable regulations and maintaining certifications for our vessels with various international classification societies. The 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, the start of new contracts, and customer preferences influence the timing of drydocks.

Critical Accounting Policies and Estimates

The Consolidated Financial Statements, including notes thereto, contained in Part II, Item 8 contain information that is pertinent to management’s 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.

Income Taxes

The majority of our non-U.S. based operations are subject to foreign tax systems that provide significant incentives to qualified shipping activities. Our U.K. and Norway based vessels are taxed under “tonnage tax” regimes having a ten year term and are renewable. Our U.K. regime was renewed in November 2010 for another ten years. Our qualified Singapore based vessels are exempt from Singapore taxation through December 2017 with extensions available in certain circumstances beyond 2017. The tonnage tax regimes provide for a tax based on the net tonnage weight of a qualified vessel. These foreign tax beneficial structures continued to result in our earnings incurring significantly lower taxes than those that would apply if we were not a qualified shipping company in those jurisdictions. The tonnage tax regimes in the North Sea significantly reduce the cash required for taxes in that region.

In February 2010, the Norway Supreme Court ruled 2007 tax legislation to be unconstitutional retroactive taxation and we reversed our existing tonnage tax liability and received a refund of pre-2007 tonnage taxes that had been paid in 2008 and 2009, which resulted in our recording an approximately $15.0 million tax benefit in our 2010 tax provision. In June 2010, Norway’s Minister of Finance published revised rules for the taxation of pre-2007 tonnage tax profits permitting a qualified tonnage tax company to elect one of two systems, or methods, to determine and pay tax on its untaxed shipping profits as of December 31, 2006. We decided to elect the simplified tax system, which beginning in 2011 requires three equal annual installment payments of the tax that is calculated as ten percent (10%) of two-thirds of the untaxed tonnage tax profits. Under this system we recorded a $4.9 million tax provision. The net result of the 2010 Norwegian tonnage tax law changes was a $10.1 million tax benefit recorded in our 2010 tax provision. Our final liability to settle under the simplified tax system is included in our December 31, 2012 balance sheet as a $1.8 million current income tax payable.

Our overall effective tax rate is substantially lower than the U.S. federal statutory income tax rate because our Southeast Asia and North Sea operations are tonnage tax qualified shipping activities that are taxed at relatively low rates or that are otherwise tax exempt. Should our operational structure change or should the laws that created these shipping tax regimes change, we could be required to provide for taxes at rates much higher than those currently reflected in our consolidated 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. Any such increase could cause volatility in the comparisons of our effective tax rate from period to period.

U.S. foreign tax credits can be carried forward for ten years. We have $7.6 million of such foreign tax credit carryforwards that begin to expire in 2013. In 2012 we established a $3.1 million valuation allowance for certain of our foreign tax credits. We also have certain foreign net operating loss carryforwards that result in net deferred tax assets of approximately $1.2 million after valuation allowances. We have considered estimated future taxable income in the relevant tax jurisdictions to utilize these tax 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 provided in the period such determination was made.

Mexico’s tax law includes a revenue based tax, which in effect is an alternative minimum tax payable to the extent that the revenue based tax exceeds the current income tax liability. The revenue based tax rate is 17.5%. Effective January 1, 2010, Mexico enacted changes to corporate income tax rates as follows: 2010 through 2012 – 30%; 2013 – 29%; and 2014 and beyond 28%. However, in December 2012 Mexico tax legislation extended the 30% rate for 2013 and delayed the rate reductions by one year.

Based on a more likely than not, or greater than 50% probability, recognition threshold and criteria for measurement of a tax position taken or expected to be taken in a tax return, we evaluate and record in certain circumstances an income tax asset/liability for uncertain income tax positions. Numerous factors contribute to our evaluation and estimation of our tax positions and related tax liabilities and/or benefits, which may be adjusted periodically and may ultimately be resolved differently than we anticipate. We also consider existing accounting guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Accordingly, we continue to recognize income tax related penalties and interest in our provision for income taxes and, to the extent applicable, in the corresponding consolidated balance sheet presentations for accrued income tax assets and liabilities, including any amounts for uncertain tax positions.

Long-Lived Assets, Goodwill and Intangibles

Our long-lived tangible assets consist primarily of vessels and construction-in-progress. Our goodwill primarily relates to the 2001 acquisition of Sea Truck Holding AS and the 1998 acquisition of Brovig Supply AS. Our identifiable intangible assets relate to the value assigned to customer relationships as a result of our acquisition of Rigdon Marine Corporation and Rigdon Marine Holdings, LLC, in July 2008 (the “Rigdon Acquisition”). The determination of impairment of all long-lived assets, goodwill, and intangibles is conducted when indicators of impairment are present and at least annually, for goodwill. In assessing goodwill for impairment, we analyze certain qualitative factors that affect the value, including goodwill, of a segment. 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.

In assessing potential impairment related to our long-lived assets, the assets’ carrying values are compared with undiscounted expected future cash flows. If the carrying value of any long-lived asset is greater than the related undiscounted expected future cash flows, we measure impairment by comparing the fair value of the asset with its carrying value.

At least annually, we assess whether goodwill is impaired based on certain qualitative factors. If those factors indicate that it is more likely than not that impairment of goodwill has occurred, we will proceed to step one of the goodwill impairment process. Under step one, we assess whether impairment exists by comparing the fair value of each reporting unit to its carrying value, including goodwill. We use a combination of two valuation methods, a market approach and an income approach, to estimate the fair value of our reporting unit.

We had classified one of our North Sea vessels as an asset held for sale. In the fourth quarter of 2011, we determined that the carrying value of this asset was less than our estimate of the amount we would realize in a sale. As a result, we reduced the carrying value by $1.8 million. During 2012, we reduced the carrying value of this asset by an additional $1.2 million. These amounts were based on third party appraisals and sales agreements and are included in our results of operations as impairment charges. We sold this vessel in January 2013 for total proceeds of $0.7 million, which approximated the carrying value of the vessel at December 31, 2012.

In the Rigdon Acquisition, we made a significant acquisition of vessels in the U.S. Gulf of Mexico component of our Americas region. In conjunction with the acquisition, we recorded $97.7 million of goodwill. In the second quarter of 2010, we assessed our Americas region goodwill for impairment. In our assessment, we evaluated the impact on the segment’s fair value due to the Macondo Incident, the resulting oil spill and the drilling moratorium. Based on the factors discussed above, which were incorporated into our evaluations and testing as prescribed under U.S. GAAP, we determined that an impairment of our Americas region goodwill existed, and accordingly we recorded a $97.7 million impairment charge as of June 30, 2010, reflecting all of our Americas region goodwill. The non-cash charge did not impact our liquidity or debt covenant compliance.

Drydocking, Mobilization and Financing Costs

The periodic requirements of the various classification societies requires 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. We expense these costs as incurred.

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.

Allowance for Doubtful Accounts

Our customers are primarily major and independent oil and gas companies, national oil 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 in accordance with our written corporate policy. This formalized policy ensures there is a critical review of our aged accounts receivable to evaluate the collectability of our receivables and to establish appropriate allowances for bad debt. This policy states that a reserve for bad debt is to be established if an account receivable is outstanding a year or longer. The amount of such reserve to be established by management is based on the facts and circumstances relating to the particular customer.

Historically, we have collected appreciably all of our accounts receivable balances; however, in 2012, the amount increased significantly due to a customer that declared bankruptcy. At December 31, 2012 and 2011 we provided an allowance for doubtful accounts of $3.2 million and $0.2 million, respectively. Additional allowances for doubtful accounts may be necessary as a result of our ongoing assessment of our customers’ ability to pay, particularly in the event of deteriorating economic conditions. Since amounts due from individual customers can 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.

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 will be impacted by the difference, if any, between our estimates and the actual amounts paid to settle the liabilities. In addition to estimates related to litigation and tax liabilities, other examples of liabilities requiring estimates of future exposure include contingencies arising out of acquisitions and divestitures. Our contingent liabilities are based on the most recent information available to us regarding the nature of the exposure. Such exposures change from period to period based upon updated relevant facts and circumstances, which can cause the estimate to change. In the recent past, our estimates for contingent liabilities have been sufficient to cover the actual amount of our exposure.

We have recently been made aware that a Brazilian state in which we have operated vessels has asserted that certain companies could be assessed for state import taxes with respect to vessels that have operated within Brazilian coastal waters. We have neither been formally assessed nor threatened with this tax. No accrual has been recorded as of December 31, 2012 for any liabilities associated with a possible future assessment. We cannot predict whether any such tax assessment may be made in the future.

Multi-employer Pension Obligation

Certain current and former U.K. subsidiaries are participating in a multi-employer retirement fund known as the Merchant Navy Officers Pension Fund (“MNOPF”). At December 31, 2012, we had $4.7 million accrued related to this liability, which reflects all obligations assessed on us by the fund’s trustee. We continue to have employees who participate in the MNOPF and will as a result continue to make routine payments to the fund as those employees accrue additional benefits over time. The status of the fund is calculated by an actuarial firm every three years. The last assessment was completed in March 2012, however the results will not be published until the second quarter of 2013. The amount and timing of additional potential future obligations relating to underfunding depends on a number of factors, but principally on future fund performance and the underlying actuarial assumptions. Our share of the fund’s deficit is dependent on a number of factors including future actuarial valuations, asset performance, the number of participating employers, and the final method used in allocating the required contribution among participating employers. In addition, our obligation could increase if other employers no longer participated in the plan. We made contributions to the plan of $0.8 million, $0.3 million and $0.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. Our contributions do not make up more than five percent of total contributions to the plan.

In addition, we participate in the Merchant Navy Ratings Pension Fund (“MNRPF”) in a capacity similar to our participation in the MNOPF. While historically we have not been required to contribute to any deficit in the MNRPF due to a recent change in the plan rules we have been advised that we will be required to make contributions beginning in 2013. We have also been advised that the actuarial valuation as at March 31, 2011 (the most recent valuation available) identified a total plan deficit. We have accrued an estimate of our share of this deficit totaling $0.1 million during 2012 in anticipation of this obligation.

Cancellation of Split Dollar Life Insurance Plans

In June 2011, we cancelled the split dollar insurance agreements (the “Collateral Assignments”) under which we paid the split-dollar life insurance policy premiums (the “Premiums”) for our President and Chief Executive Officer and our Executive Vice President – Operations. Upon cancellation and pursuant to the term of the Collateral Assignments, we were repaid the Premiums by each covered individual and are no longer obligated to make any future premium payments on the policies. We continue to have a supplemental income plan with participation agreements, as amended, for each covered individual under which we will provide each covered individual, six months after retirement, a cash payment equal to the Premiums.

Off-Balance Sheet Arrangements

We have evaluated our off-balance sheet arrangements, and have concluded that we do not have any material relationships with unconsolidated entities or financial partnerships that have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulations S-K). Based on this evaluation we believe that no disclosures relating to off-balance sheet arrangements are required.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

We provide marine support and transportation services to companies involved in the offshore exploration and production of oil and natural gas. Our vessels transport drilling materials, supplies and personnel to offshore facilities, as well as move and position drilling structures. A substantial portion of our operations are international. Our fleet has grown in both size and capability, to our present number of 79 active vessels, through strategic acquisitions and the new construction of technologically advanced vessels, partially offset by dispositions of certain older, less profitable vessels. At October 22, 2013, our active fleet includes 72 owned vessels and seven 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 offshore exploration and production sectors of the oil and natural gas industry. The supply of vessels to meet this fluctuating demand is related directly to the perception of future activity in both the drilling and production phases of the oil and natural gas industry as well as the availability of capital to build new vessels to meet the changing market requirements. From time to time, we bareboat charter vessels with revenue and operating expenses reported in the same income and expense categories as our owned vessels. The chartered vessels, however, incur bareboat charter fees instead of depreciation expense. Bareboat charter fees are generally higher than the depreciation expense on owned vessels of similar age and specification. The operating income realized from these vessels is therefore adversely affected by the higher costs associated with the bareboat charter fees. These vessels are included in calculating fleet day rates and utilization in the applicable periods.

We also provide management services to other vessel owners for a fee. We do not include charter revenue and vessel expenses of these vessels in our operating results; however, management fees are included in operating revenue. These vessels are excluded for purposes of calculating fleet rates per day worked and utilization in the applicable periods.

The operations of our fleet may be subject to seasonal factors. Operations in the North Sea are often at their highest levels from April to August and at their lowest levels from November to February. Operations in our other areas, although involving some seasonal factors, tend to remain more consistent throughout the year.

Our operating costs are primarily a function of fleet configuration. The most significant direct operating cost is wages paid to vessel crews, followed by maintenance and repairs and insurance. Generally, fluctuations in vessel utilization have little effect on direct operating costs in the short term and, as a result, direct operating costs as a percentage of revenue may vary substantially due to changes in day rates and utilization.

In addition to direct operating costs, we incur fixed charges related to (i) the depreciation of our fleet, (ii) costs for routine drydock inspections, (iii) modifications designed to ensure compliance with applicable regulations, and (iv) maintaining certifications for our vessels with various international classification societies. The number of drydockings and other repairs undertaken in a given period generally determines our maintenance and repair expenses. The demands of the market, the expiration of existing contracts, the start of new contracts, seasonal factors and customer preferences influence the timing of drydocks. During the first nine months of 2013, we completed 650 drydock days, compared to 544 in the same period last year.

Critical Accounting Policies

There have been no changes to the critical accounting policies used in our reporting of results of operations and financial position. For a discussion of our critical accounting policies see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2012.

Results of Operations

Comparison of the Three Months Ended September 30, 2013 with the Three Months Ended September 30, 2012

For the quarter ended September 30, 2013, net income was $32.3 million, or $1.23 per diluted share on revenues of $121.8 million. For the same 2012 period, net income was $13.0 million, or $0.49 per diluted share on revenues of $101.9 million.

Our revenues for the quarter ended September 30, 2013 increased $19.9 million or 20% compared to the third quarter of 2012. An increase in average day rates from $17,953 in the second quarter of 2012 to $21,108 in the current year quarter increased revenue by $13.4 million, which was offset by currency effects and other factors that negatively impacted revenue by $0.7 million. Overall utilization increased from 87.6% in the prior year quarter to 90.0% in the current year quarter which positively impacted revenue by $2.7 million. Increased capacity during the quarter increased revenue by $4.5 million.

Operating income for the quarter was $40.4 million compared to $17.5 million for the prior year quarter. The increase is due primarily to higher revenue. Also contributing to the increase in quarterly income was the increase in gain on sale of assets of $2.1 million. Direct operating cost increased by $6.4 million due mainly to the new vessel additions and higher crew wages and benefits. Drydock cost decreased by $7.1 million due to the decrease in drydock days. General and administrative expense was lower than the prior year quarter by $0.9 million.

North Sea

Revenues in the North Sea region increased by $9.3 million, or 22%, to $51.1 million in the third quarter of 2013 compared to the same period of 2012. Approximately $4.6 million of the increase resulted from higher day rates, which increased 19% in the current year quarter. Utilization decreased from 93.1% in the third quarter of 2012 to 92.0% in the current year quarter, and revenue decreased by $0.3 million. Capacity positively impacted revenue by $5.0 million, resulting from the effect of the delivery of three new build vessels into the region in 2013 and the full year effect of a vessel purchased in the fourth quarter of 2012, offset by the sale of two older vessels. Operating income increased by $11.7 million compared to the prior year quarter due primarily to the increase in revenue and the gain on sale of two vessels in the quarter. This was offset by higher direct operating expenses due mainly to higher crew salaries and benefits and higher depreciation expense resulting from the additional vessel deliveries. General and administrative expense was consistent with the prior year quarter.

Southeast Asia

Revenues for our Southeast Asia region increased from the prior year quarter by 7%, to $18.8 million. The increase in revenue is due mainly to the addition of one vessel that was transferred from our Americas region. The additional vessel contributed $0.9 million to the increase in revenue. Utilization decreased from 88.7% in the 2012 quarter to 87.8% in the current quarter, but average day rates increased from $14,844 in the prior year quarter to $15,043 in the current quarter. The utilization mix in the higher day rate vessels contributed $0.2 million to the increase in revenue. Operating income for the region was $9.2 million in the third quarter of 2013 compared to $7.9 million in the prior year quarter. The increase in revenue was offset by the increase in direct operating expenses primarily attributable to repairs and maintenance and increased crew wages. Drydock expense was also lower due to less drydock days incurred during the current year quarter. General and administrative expense increased by $0.8 million related to higher salaries and benefits resulting from the operational restructuring that began in late 2012.

Americas

Revenues in the Americas region increased by $9.4 million to $51.9 million in the third quarter of 2013 compared to the same prior year quarter. Day rates increased from $17,939 in the prior year quarter to $22,120 in the current quarter, which increased revenue by $8.3 million. Utilization for the third quarter of 2013 increased from 82.7% to 89.6% increasing revenue by $2.5 million. Capacity decreased revenue by $1.4 million as a result of the departure of one vessel to our Southeast Asia region and the sale of three vessels. Operating income for the region was $16.2 million in the third quarter of 2013 compared to $8.2 million in the prior year quarter. The increase is due mainly to the increase in revenue offset by higher direct operating expenses due mainly to higher crew salaries and wages and lower gain on sale of assets related to the sale of two vessels in the region during the prior year. Drydock expense decreased due to fewer drydock days during the current year quarter and contributed $3.9 million to the increase in operating income. General and administrative expense increased by $0.3 million from the prior year quarter due mainly to higher salaries and professional fees.

Other

Other expenses in the third quarter of 2013 increased by $1.8 million compared to the prior year quarter due to higher interest costs and currency effects.

Income Taxes

Our effective tax rate for the third quarter of 2013 was 9.6% excluding unusual items. This compares to a 7.1% effective tax rate in the third quarter of 2012, excluding unusual items. The change in the effective tax rate from the prior year was primarily attributable to a change in the mix of earnings between our higher and lower tax jurisdictions.

Comparison of the Nine Months Ended September 30, 2013 with the Nine Months ended September 30, 2012

For the nine months ended September 30, 2013 net income was $45.0 million, or $1.72 per diluted share on revenues of $330.0 million. During the same period in 2012, net income was $24.2 million or $0.92 per diluted share, on revenues of $294.2 million.

Revenue increased $35.9 million period over period due mainly to higher day rates of $20,135 in 2013 compared to $17,526 in 2012, which had a positive impact of $30.5 million. Capacity increased revenue by $4.8 million as we delivered three new build vessels in 2013 and purchased one vessel in late 2012. Average utilization rates increase slightly overall from 85.3% in 2012 to 86.1% in 2013, which also increased revenue by $0.6 million.

Operating income for the nine-month period ended September 30, 2013 was $66.4 million compared to $49.2 million for the same period in 2012. Operating income improved due to the increase in revenue and lower drydock costs. This was offset by the increase in direct operating expense due to higher crew wages, higher repairs and maintenance, higher depreciation expense due to the addition of the new vessels and a smaller gain on sale of assets. General and administrative expense was higher by $2.7 million over the 2012 period due largely to benefits related to the retirement of our previous CEO and higher professional fees.

North Sea

North Sea revenue increased by $9.6 million in the first nine months of 2013 compared to 2012. Increased capacity due to the purchase of a vessel during the fourth quarter of 2012 and the delivery of three new build vessels in 2013, offset by the sale of two older vessels in the third quarter of 2013, increased revenue by $9.7 million. The increase in average day rates from $20,148 in 2012 to $21,559 in 2013, coupled with currency effects, increased revenue by $3.2 million. Utilization decreased from 91.3% in 2012 to 90.1% in 2013, which decreased revenue by $3.3 million. Operating income increased by $5.6 million resulting primarily from the increased revenue offset by a $9.5 million increase in direct operating costs as result of higher repair and maintenance cost and higher crew wages and benefits. Depreciation expense also increased by $2.0 million due to the new vessel additions. General and administrative expense decreased by $0.4 million compared to 2012.

Southeast Asia

Revenue for our Southeast Asia based fleet decreased by $1.7 million to $45.2 million in 2013. Utilization decreased from 82.5% in 2012 to 72.7% in the current period, negatively impacting revenue by $3.4 million. This was partially offset by a small increase in average day rates from $14,448 in 2012 to $14,650 in 2013, which increased revenue by $0.2 million. Capacity positively impacted revenue by $1.5 million with the full year effect of the addition of two vessels transferred in from the Americas region. Operating income decreased from $19.7 million in 2012 to $8.6 million this year. The decrease resulted mainly from the lower revenues coupled with higher direct operating costs and higher depreciation expense due to the arrival of the additional vessels and higher drydock costs, resulting from more drydock days. General and administrative expense increased by $2.2 million from the 2012 period due to higher salaries and benefits resulting from the operational restructuring that began in late 2012.

Americas

Our Americas region revenue increased $28.0 million to $150.5 million in 2013. The increase was due mainly to a 27% increase in average day rates from 2012 to 2013, contributing $27.3 million in revenue. Day rates increased from $16,782 in the first nine months of 2012 to $21,347 for the same period in the current year. Utilization also increased from 82.2% to 89.9% in the current year resulting in a $7.1 million increase in revenues. Capacity negatively impacted revenue by $6.4 million due to the departure of two vessels to our Southeast Asia region in 2013, combined with the full year effect of vessel sales in the prior year and in 2013. Operating income of $42.8 million increased $23.3 million from the 2012 period. The increase is due primarily to the increase in revenue, offset by smaller gains on sale of assets during 2013. Drydock expense decreased by $3.9 million during 2013 due to less drydock days. Depreciation expense decreased by $0.8 million due to the vessels sales and the transfer of vessels to our Southeast Asia region. General and administrative expenses increased by $0.3 million from the prior year.

Other

In the nine months ended September 30, 2013, other expenses totaled $17.7 million, a decrease of $4.5 million from 2012. The decrease was due primarily to the $3.8 million loss incurred in 2012 on the early extinguishment of the Old Notes, combined with lower interest expense in 2013 due to higher capitalized interest, offset by higher foreign currency losses of $0.6 million.

Income Taxes

Our effective tax rate for the first nine months of 2013 was 11.6% excluding unusual items. This compares to a 11.9% effective tax rate for the first nine months of 2012. The change in the effective tax rate from the prior year was primarily attributable to a change in the mix of earnings between our higher and lower tax jurisdictions.

Liquidity, Capital Resources and Financial Condition

Our ongoing liquidity requirements are generally associated with our need to service debt, fund working capital, maintain our fleet, finance the construction of new vessels and acquire or improve equipment or vessels. We plan to continue to be active in the acquisition of additional vessels through both the resale market and new construction. Bank financing, equity capital and internally generated funds have historically provided funding for these activities. Internally generated funds are directly related to fleet activity and vessel day rates, which are generally dependent upon the demand for our vessels which is ultimately determined by the supply and demand for offshore drilling for crude oil and natural gas.

In the third quarter of 2011, the Company approved the initiation of a new-build construction program. We began the program in the North Sea region where we contracted with three shipyards to build a total of six new platform supply vessels (“PSVs”). In late 2011, we exercised an option with one of the shipyards to build an additional PSV. The estimated cost of these seven PSVs is $288.0 million. In June 2012, we signed an agreement with a U.S. shipyard to build two U.S. flagged PSVs for the U.S. Gulf of Mexico. In July 2012, we signed agreements with another U.S. shipyard to build an additional two U.S. flagged PSVs. The estimated total cost of these four PSVs is approximately $168.0 million. As of September 30, 2013, we expect that we will pay another $125 million ($105 million net of amounts previously placed in escrow) in future new build payments through the second quarter of 2015.

On March 12, 2012, we issued $300.0 million aggregate principal amount of 6.375% senior notes due 2022. On December 5, 2012, we issued an additional $200.0 million of senior notes with substantially the same terms as the previous $300.0 million issuance (together with the original issue, the “Senior Notes”). The Senior Notes pay interest semi-annually on March 15 and September 15, and commenced September 15, 2012 for the March 12, 2012 Senior Notes, and March 15, 2013 for the December 5, 2012 Senior Notes.

We used the proceeds from the issuance of the Senior Notes to repay amounts outstanding under our Old Notes and under our Old Facility. The issuance of Senior Notes has allowed us to extend a substantial portion of our debt maturities for ten years and to require only interest payments in the interim.

In the third quarter of 2012, we entered into our Multicurrency Facility Agreement that provides us with $150.0 million of borrowing capacity, secured by our Americas region vessels, through September 2017. In the second quarter of 2013, we entered into an amendment to our Norwegian Facility Agreement allowing us to begin to draw down on the $600.0 million NOK (approximately $100.0 million) of borrowing capacity available, secured by our Norwegian flagged vessels, through September 2017. At September 30, 2013, we were in compliance with all the covenants under these agreements and had no amounts outstanding.

For a discussion of our stock repurchase program and declaration of cash dividend payments, see Part II, Item 2 “Unregistered Sales of Equity Security and Use of Proceeds – Repurchase of Equity Shares”.

We are required to make expenditures for the certification and maintenance of our vessels. We expect our drydocking expenditures to be approximately $23.0 million in 2013, of which we have expensed $20.2 million in the first nine months of 2013.

Net working capital at September 30, 2013, was $117.9 million. Net cash provided by operating activities was $45.6 million and $57.8 million for the three and nine months ended September 30, 2013, respectively. Net cash used in investing activities was $74.4 million and $169.9 million for the three and nine months ended September 30, 2013. Net cash used in financing activities was $6.3 million and $33.0 million during the three and nine months ended September 30, 2013, respectively.

At September 30, 2013, we had approximately $38.2 million of cash on hand, no amounts drawn under our Multicurrency Facility Agreement or Norwegian Facility Agreement, and $500.0 million outstanding under our Senior Notes. At September 30, 2013, we had approximately $150.0 million of borrowing capacity under our Multicurrency Facility Agreement and $600.0 million NOK (approximately $100.0 million) of borrowing capacity under our Norwegian Facility Agreement.

As of September 30, 2013, approximately 80% of our cash and cash equivalents were held by our foreign subsidiaries. It is our intention to permanently reinvest all of our earnings generated outside the U.S. prior to December 31, 2012 that through that date had not been remitted (unremitted earnings), and as such we have not provided for U.S. income tax expense on these unremitted earnings.

In recent years, we repatriated cash from our foreign subsidiaries from current year foreign earnings and recognized U.S. tax expense, net of available credits, on those occasions. The incremental tax rate associated with these repatriations was approximately 30% with no U.S. cash tax requirement due to utilization of U.S. net operating losses. If any portion of the unremitted earnings were ever foreseen to not be permanently reinvested outside the U.S., or if we elect to repatriate a portion of current year foreign earnings, U.S. income tax expense would be required to be recognized and that expense could be material. Although subject to certain limitations, our U.S. net operating loss carryforwards and foreign tax credit carryforwards could be used to reduce a portion or all of the U.S. cash tax requirements of any such future foreign cash repatriations.

We anticipate that cash on hand, future cash flow from operations for 2013, and access to our revolving credit facilities will be adequate to fund our new-build construction program, to repay our debts due and payable during such period, to complete scheduled drydockings, to make normal recurring capital additions and improvements and to meet operating and working capital requirements. This expectation, however, is dependent upon the success of our operations.

Currency Fluctuations and Inflation

A majority of our operations are international; therefore we are exposed to currency fluctuations and exchange rate risks. In areas where currency risks are potentially high, we normally accept only a small percentage of charter hire in local currency, with the remainder paid in U.S. Dollars. Operating costs are substantially denominated in the same currency as charter hire in order to reduce the risk of currency fluctuations. Charters for vessels in our North Sea fleet are primarily denominated in Pounds Sterling (GBP), with a portion denominated in Norwegian Kroner (NOK) or Euros. The North Sea fleet generated 42% of our total consolidated revenue and $21.1 million in operating income for the three months ended September 30, 2013, and 41% of our total consolidated revenue and $35.0 million in operating income for the nine months ended September 30, 2013. Charters in our Americas fleet can be denominated in Brazilian Reais and charters in our Southeast Asia fleet can be denominated in Singapore Dollars.

Our outstanding debt is denominated in U.S. Dollars, but a substantial portion of our revenue is generated in currencies other than the U.S. Dollar. We have evaluated these conditions and have determined that it is not in our best interest to use any financial instruments to hedge this exposure under present conditions. Our strategy is in part based on a number of factors including the following:


the cost of using hedging instruments in relation to the risks of currency fluctuations;


the propensity for adjustments in these foreign currency denominated vessel day rates over time to compensate for changes in the purchasing power of these currencies as measured in U.S. Dollars;


the level of U.S. Dollar-denominated borrowings available to us; and


the conditions in our U.S. Dollar-generating regional markets.

One or more of these factors may change and, in response, we may begin to use financial instruments to hedge risks of currency fluctuations. We will from time to time hedge known liabilities denominated in foreign currencies to reduce the effects of exchange rate fluctuations on our financial results, such as a fair value hedge associated with the construction of vessels. In this regard, in June 2012, we entered into forward currency contracts to specifically hedge the foreign currency exposure related to firm contractual commitments in the form of future payments for the construction of new vessels. As a result, by design, there was exact offset between the gain or loss exposure in the related underlying contractual commitment. The last of these forward contracts matured in July 2013. There were no open foreign currency contracts at September 30, 2013. We do not use foreign currency forward contracts for trading or speculative purposes.

Reflected in the accompanying consolidated balance sheet at September 30, 2013, is $45.0 million in accumulated OCI primarily relating to the change in exchange rates at September 30, 2013 in comparison with the exchange rates when we invested capital in these markets. Changes in accumulated OCI are non-cash items that are primarily attributable to investments in vessels and U.S. Dollar based capitalization between our parent company and our foreign subsidiaries. The current year activity reflects the changes in the U.S. Dollar compared to the functional currencies of our major operating subsidiaries, particularly in the U.K. and Norway.

To date, general inflationary trends have not had a material effect on our operating revenues or expenses.

Off-Balance Sheet Arrangements

We have evaluated our off-balance sheet arrangements, and have concluded that we do not have any material relationships with unconsolidated entities or financial partnerships that have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K). Based on this evaluation, we believe that no disclosures relating to off-balance sheet arrangements are required.

CONF CALL

Quintin Kneen
Thank you, Greetings everyone and welcome to the third quarter 2013 GulfMark Offshore earnings conference call.

The format for today’s call will be consistent with the format we established last quarter. I will make some prepared remarks on current market conditions and what we anticipate for the remainder of the year. Then I’ll hand it over to Jay to go over the quarterly numbers and updated guidance. Next, David will give us an update on operations around the world and then we’ll open it up for questions.

We are pleased today to be able to report solid third quarter results. Each of our three regions performed well. It seems almost a given but the team in the U.S. Gulf of Mexico drove the Americas region to experience the highest day rate average we have seen since our entry into the Gulf of Mexico in 2008.

Overall revenue in the Americas region was flat on a sequential quarterly basis, as we gave up utilization in return for reinvesting in our Americas fleet via the stretch program. During the third quarter the two vessels in our stretch program were out of service for a total of 101 days or 5.5 percentage points of utilization. This lowered the potential revenue and profit in the Americas region but the return on this investment is strong and is easily justified.

During the fourth quarter we only anticipate about 62 days of out of service related to the stretch program. So we are anticipating a pickup in utilization in the fourth quarter for the Americas region and we are also anticipating a continuing steady increase in the average day rate. Our team in the Americas has done a great job keeping the business firing on all cylinders while simultaneously keeping things moving under the vessel stretch program and a four vessel newbuild program.

In the North Sea the market remained strong throughout the third quarter. Both utilization and average day rate were up on a sequential quarterly basis. As we move into the cold weather season we will experience the typical Q4-Q1 seasonality. Overall revenue in the fourth quarter is going to be flattish to down. The decrease in utilization and average day rig will be partially offset by the recent newbuild deliveries so we will have new – so we have more vessels operating in the region but overall we still anticipate a decrease in revenue next quarter for the North Sea region.

Southeast Asia continues to deliver improving results. We were cautiously optimistic that we could move utilization into the mid 80% range when we discussed the second quarter results and the new management team there did a great a job during the quarter and was able to deliver utilization of 88%.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1279809 Views