Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain or be identified by the words “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “believe,” “foresee,” “should,” “could,” “would,” “may,” “might,” “will,” “project,” “forecast,” “budget” and similar expressions. In addition, any statement concerning future financial performance (including, without limitation, future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by or against us, which may be provided by management, are also forward-looking statements as so defined. Statements made by us in this report that contain forward-looking statements may include, but are not limited to, information concerning our possible or assumed future results of operations and statements about the following subjects:

 

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the proposed Tidewater Merger (as hereinafter defined), including the expected timing and completion of the Tidewater Merger;

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the effects of our Chapter 11 Case (as hereinafter defined) on our operations, including our relationships with employees, regulatory authorities, customers, suppliers, banks, insurance companies and other third parties, and agreements;

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the effects of our Chapter 11 Case on our company and on the interests of various constituents, including holders of our common stock and debt instruments;

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our ability to access the public capital markets;

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our ability to continue as a going concern in the long term;

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the potential adverse effects of our Chapter 11 Case on our liquidity, results of operations, or business prospects;

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our ability to execute our business plan;

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the cost, availability and access to capital and financial markets;

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tax planning;

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market conditions and the effect of such conditions on our future results of operations;

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demand for marine supply and transportation services;

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supply of vessels and companies providing services;

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future capital expenditures and budgets for capital and other expenditures;

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sources and uses of and requirements for financial resources;

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market outlook;

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operations outside the United States;

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contractual obligations;

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cash flows and contract backlog;

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timing and cost of completion of vessel upgrades, construction projects and other capital projects;

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asset impairments and impairment evaluations;

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assets held for sale;

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business strategy;

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growth opportunities;

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competitive position;

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expected financial position;

 

 

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interest rate and foreign exchange risk;

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debt levels and the impact of changes in the credit markets and credit ratings for our debt;

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timing and duration of required regulatory inspections for our vessels;

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plans and objectives of management;

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effective date and performance of contracts;

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outcomes of legal proceedings;

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compliance with applicable laws;

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declaration and payment of dividends; and

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availability, limits and adequacy of insurance or indemnification.

 

These types of statements are based on current expectations about future events and inherently are subject to a variety of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those expected, projected or expressed in forward-looking statements. It should be understood that it is not possible to predict or identify all risks, uncertainties and assumptions. Factors that could impact these areas and our overall business and financial performance and cause actual results to differ from these forward-looking statements include, but are not limited to, assumptions, risks and uncertainties associated with:

 

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the risk factors discussed in Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017 and in Part II, Item 1A “Risk Factors” in this report;

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the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement (as hereinafter defined) ;

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the risk that our stockholders may not adopt the Merger Agreement;

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the risk that the necessary regulatory approvals, if any, for the proposed Tidewater Merger may not be obtained or may be obtained subject to conditions that are not anticipated;

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risks that any of the closing conditions to the proposed Tidewater Merger may not be satisfied in a timely manner;

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risks related to disruption of management time from ongoing business operations due to the proposed Tidewater Merger;

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risks related to our incurrence of transaction and related costs in connection with the proposed Tidewater Merger, which may be greater than we anticipate;

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failure to realize the benefits expected from the proposed Tidewater Merger;

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the effect of the announcement of the proposed Tidewater Merger on our ability to retain customers and retain key personnel and maintain relationships with suppliers;

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the effect of the announcement of the proposed Tidewater Merger on the trading prices of our securities and on our operating results and business generally;

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potential litigation in connection with the proposed Tidewater Merger;

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operational risk;

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volatility in oil and natural gas prices or significant and sustained or additional declines in oil and natural gas prices;

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sustained weakening of demand for our services;

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general economic and business conditions;

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the business opportunities that may be presented to and pursued or rejected by us;

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insufficient access to sources of liquidity;

 

 

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changes in law or regulations including, without limitation, changes in tax laws;

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fewer than anticipated deepwater and ultra-deepwater drilling units operating in the Gulf of Mexico, the North Sea, offshore Southeast Asia or in other regions in which we operate;

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unanticipated difficulty in effectively competing in or operating in international markets;

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the level of fleet additions by us and our competitors that could result in overcapacity in the markets in which we compete;

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advances in exploration and development technology;

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dependence on the oil and natural gas industry;

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drydocking delays or cost overruns on construction projects or insolvency of shipbuilders;

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inability to accurately predict vessel utilization levels and day rates;

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lack of shipyard or equipment availability;

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unanticipated customer suspensions, cancellations, rate reductions or non-renewals;

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uncertainty caused by the ability of customers to cancel some long-term contracts for convenience;

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further reductions in capital expenditure budgets by customers;

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ongoing capital expenditure requirements;

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uncertainties surrounding deepwater permitting and exploration and development activities;

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risks relating to our compliance with the Jones Act with respect to the U.S. citizenship requirements, and risks relating to the repeal, amendment or administrative weakening of the Jones Act or changes in the interpretation of the Jones Act;

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uncertainties surrounding environmental and government regulations that could result in reduced exploration and production activities or that could increase our operations costs and operating requirements;

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catastrophic or adverse sea or weather conditions;

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risks of foreign operations, risk of war, sabotage, piracy, cyber-attack or terrorism;

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public health threats;

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disagreements with our joint venture partners;

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assumptions concerning competition;

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risks relating to leverage, including potential difficulty in maintaining compliance with covenants in our material debt or other obligations;

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risks of currency fluctuations; and

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the shortage of or the inability to attract and retain qualified personnel.

 

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. There can be no assurance that we have accurately identified and properly weighed all of the factors that 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.

 

 

The risks and uncertainties included here are not exhaustive. Other sections of this report and our other filings with the Securities and Exchange Commission, or SEC, include additional factors that could adversely affect our business, results of operations and financial performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements included in this report are based only on information currently available to us and speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or beliefs with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based. In addition, in certain places in this report, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity. While we believe that each of these reports is reliable, we have not independently verified the information included in such reports. We specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2018

(In thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

 

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements (including the notes thereto) and Item 1A, “Risk Factors” included elsewhere in this report and our audited consolidated financial statements and the notes thereto, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017. Unless otherwise indicated, references to “we,” “us,” “our” and the “Company” refer collectively to GulfMark Offshore, Inc., a Delaware corporation, and its subsidiaries.

 

On May 17, 2017, GulfMark Offshore, Inc. filed a voluntary petition, or the Chapter 11 Case, under chapter 11 of title 11 of the United States Code, or the Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware, or the Bankruptcy Court. On October 4, 2017, the Bankruptcy Court entered an order, or the Confirmation Order, approving our Amended Chapter 11 Plan of Reorganization, as confirmed, or the Plan. On November 14, 2017, or the Effective Date, the Plan became effective pursuant to its terms and we emerged from the Chapter 11 Case.

 

Merger Agreement

 

On July 15, 2018, GulfMark Offshore, Inc. entered into an Agreement and Plan of Merger, or the Merger Agreement, with Tidewater Inc., or Tidewater. As provided in, and subject to the terms and conditions of, the Merger Agreement, GulfMark Offshore, Inc. will become a wholly-owned subsidiary of Tidewater, or the Tidewater Merger. The Tidewater Merger is expected to close in the fourth quarter of 2018, subject to possible extension under circumstances described in the Merger Agreement.

 

Upon consummation of the Tidewater Merger, each issued and outstanding share of our common stock, par value $0.01 per share, or Common Stock, other than any shares held in treasury, will be converted into the right to receive 1.100, or the Exchange Ratio, shares of Tidewater common stock, par value $0.001 per share, or Tidewater Common Stock. At the effective time of the Tidewater Merger, each of our outstanding warrants, or the GulfMark Warrants, will be converted automatically into a warrant representing a right to acquire Tidewater Common Stock, subject to Jones Act limitations on the foreign ownership of Tidewater, except that the number of shares of Tidewater Common Stock subject to such GulfMark Warrant will be adjusted to reflect the Exchange Ratio as provided in the Merger Agreement. In addition, all of our restricted stock units that are outstanding as of the effective time of the Tidewater Merger, or the GulfMark Rollover RSUs, will be converted automatically into a substantially similar award for Tidewater Common Stock, with the number of shares of Tidewater Common Stock subject to such GulfMark Rollover RSUs being adjusted in accordance with the Exchange Ratio.

 

The consummation of the Tidewater Merger and the other transactions contemplated by the Merger Agreement, which we refer to collectively as the Transactions, is subject to the satisfaction or waiver of certain customary conditions including, among things, (i) the adoption of the Merger Agreement by our stockholders, (ii) the approval of the share issuance by the stockholders of Tidewater, (iii) the absence of a material adverse effect for Tidewater and the absence of a material adverse effect for GulfMark and (iv) the effectiveness under the Securities Act of 1933, as amended, of Tidewater’s registration statement on Form S-4 registering shares of Tidewater Common Stock to be issued pursuant to the Merger Agreement (which registration statement on Form S-4 (Registration No. 333-227111) Tidewater filed on August 30, 2018 and amended on October 15, 2018 and the SEC declared effective on October 16, 2018. The Merger Agreement provides that we and Tidewater may mutually agree to terminate the Merger Agreement before completing the Transactions and further provides that one party may be required to pay a termination fee to the other party ($35 million by Tidewater to us or $13 million by us to Tidewater) if the Transactions are not consummated under certain circumstances.

 

 

As described in the Joint Proxy Statement/Prospectus contained in Tidewater’s registration statement on Form S-4 (Registration No. 333-227111), a special meeting of stockholders of GulfMark Offshore, Inc. will be held on November 15, 2018, at 9:00 a.m. Eastern Time at the offices of Gibson Dunn & Crutcher LLP in New York, New York, for purposes of, among other things, voting on a proposal to adopt the Merger Agreement and voting on a proposal to approve, on a non-binding advisory basis, certain compensation that may be paid or become payable to certain of our named executive officers in connection with the Tidewater Merger. See Item 1A, “Risk Factors” in Part II of this report.

 

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, and also move and position drilling structures. A substantial portion of our operations is international. Our fleet has grown in both size and capability, from 11 vessels in 1990 to our present number of 68 vessels, through strategic acquisitions and the new construction of technologically advanced vessels, partially offset by dispositions of certain older, less profitable vessels. As of November 13, 2018, our fleet included 65 owned vessels, 33 of which were stacked, and three managed vessels, none of which were stacked.

 

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. As discussed below, the decline in the price of oil since 2014 has materially and negatively impacted our results of operations.

 

We also provide management services to other vessel owners for a fee. Management fees are included in 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 October through February. Operations in our other areas, although involving some seasonal factors, tend to remain more consistent throughout the year. Activity in the U.S. Gulf of Mexico may be slower during the hurricane season from June through November, although following a hurricane, activity may increase as there may be a greater demand for vessel services as repair and remediation activities take place.

 

 

Our operating costs are primarily a function of fleet configuration. The most significant direct operating cost is wages paid to vessel crews, followed by repairs and maintenance. 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, modifications designed to ensure compliance with applicable regulations and maintaining certifications for our vessels with various international classification societies. The demands of the market, the expiration of existing contracts, the commencement of new contracts, seasonal factors and customer preferences can influence the timing of drydocks to some extent. As a result of the current market downturn, we have taken some vessels out of service (also referred to as stacking) and deferred a number of drydocks as part of our cost cutting initiatives. The deferred drydocks will eventually be required to be performed prior to returning the vessels to active service.

 

Oil Price Impact

 

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. In particular, the oil price is significantly influenced by actions of OPEC. Beginning in late 2014, the oil and gas industry experienced a significant decline in the price of oil that continued into early 2016 with the oil price dipping to less than $30 per barrel and causing an industry-wide downturn. Prices have gradually recovered since early 2016 to recent averages in our areas of operation of approximately $70 per barrel as of the date of this report, although prices are subject to significant uncertainty and have continued to fluctuate below such level.

 

Markets

 

North Sea. We continue to expect significant activity in the North Sea region during the remainder of 2018 continuing into 2019. We also expect the continued focus on operator savings and oversupply of offshore supply vessels, or OSVs, to adversely impact vessel day rates. Although cost efficiencies are currently a priority of operators, we believe the North Sea region remains viable long-term with several large field developments in the United Kingdom and Norwegian sectors forecasted by industry analysts, along with decommissioning work and projects in the renewables sector. We expect these factors, combined with an upturn in drilling in remote northerly areas such as the Barents Sea, Kara Sea and offshore Greenland, to drive demand in the North Sea region in the coming years, although we can provide no assurance as to when these developments may occur.

 

Southeast Asia. The Southeast Asia resource basin consists predominantly of shallow water mature fields where production drilling is expected to continue throughout 2018. It is apparent that operators, both national oil companies and independent operators, are experiencing significant pressure to reduce their costs in light of depressed oil prices and as a result their capital expenditure budgets may continue to fall. As of the date of this report, we generally expect exploration drilling activities to remain at current levels through the remainder of 2018 continuing into 2019 in the Southeast Asian markets, resulting in a continuation of current market conditions for anchor handling, towing and support vessels, or AHTSs, although further declines in commodity prices or reductions of operators’ capital budgets would result in additional downward pressure on drilling activities in this region, and therefore on market conditions for AHTSs.

 

 

Americas. During the first nine months of 2018, we experienced some recovery in the Americas but there was also continuing pressure on our utilization and day rates in all areas in which we operate. We expect the recovery to continue into 2019 and expect increased activity in 2019 compared to 2018 levels. In December 2013, Mexico’s Congress approved a constitutional reform to allow private investment in Mexico’s energy sector which effectively ended the state controlled (Petróleos Mexicanos) 75-year monopoly on oil and natural gas extraction and production. We anticipate Mexico to be a growing market for expanded deepwater activity when market conditions improve. We plan to continue to actively pursue opportunities in the area as they arise.

 

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 – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

Results of Operations

 

The table below sets forth, by region, revenues, the average day rates and utilization for our vessels and the average number of vessels owned or chartered during the periods indicated. This fleet generates substantially all of our revenues and operating income or loss. We use the information that follows to evaluate the performance of our business.

 

		Successor				Predecessor				Successor				Predecessor
		Three Months Ended September 30, 2018				Three Months Ended September 30, 2017				Nine Months Ended September 30, 2018				Nine Months Ended September 30, 2017
Revenues by Region (000's) (a):
North Sea Based Fleet (b)		$	16,996			$	16,134			$	49,267			$	45,068
Southeast Asia Based Fleet			1,250				1,973				4,856				7,282
Americas Based Fleet			9,568				7,698				24,510				22,455
Average Rates Per Day Worked (c):
North Sea Based Fleet (b)		$	12,463			$	10,653			$	12,017			$	10,381
Southeast Asia Based Fleet			4,628				5,525				4,720				5,465
Americas Based Fleet			8,555				8,419				7,727				8,347
Overall Utilization (c):
North Sea Based Fleet			54.0	%			65.2	%			54.9	%			62.9	%
Southeast Asia Based Fleet			29.4	%			37.6	%			37.6	%			45.8	%
Americas Based Fleet			39.1	%			31.9	%			38.6	%			30.7	%
Average Owned Vessels (d):
North Sea Based Fleet (b)			27.0				25.0				27.0				24.9
Southeast Asia Based Fleet			10.0				10.0				10.0				10.0
Americas Based Fleet			29.0				31.0				29.0				31.5
Total			66.0				66.0				66.0				66.4

 

 

(a)	Includes owned and managed vessels.

(b)	Revenues for vessels in the North Sea based fleet are primarily earned in British Pounds Sterling (GBP), Norwegian Kroner (NOK) and Euros, and have been converted to U.S. Dollars (US$) at the average exchange rate for the period. See “- Currency Fluctuations and Inflation” below for exchange rates.

(c)	Average rate 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 total number of days of availability in the period.

(d)	Average number of vessels is calculated based on the aggregate number of vessel days available during each period divided by the number of calendar days in such period. Includes owned vessels only and is adjusted for vessel additions and dispositions occurring during each period.

 

 

 

Comparison of the Three Months Ended September 30, 2018 (Successor) with the Three Months Ended September 30, 2017 (Predecessor)

 

For the Successor three months ended September 30, 2018, we had a net loss of $11.2 million, or $1.12 per diluted share, on revenues of $27.8 million. During the Predecessor three months ended September 30, 2017, we had a net loss of $24.6 million, or $0.94 per diluted share, on revenues of $25.8 million.

 

Our revenues for the quarter ended September 30, 2018 increased $2.0 million, or 7.8%, compared to the quarter ended September 30, 2017, mainly due to increased revenue in our North Sea and Americas regions. Average day rates increased from $9,272 during the third quarter of 2017 to $10,130 during the third quarter of 2018, resulting in a $4.3 million increase in revenue. Partially offsetting this increase was a decrease in utilization from 45.4% in the quarter ended September 30, 2017 to 43.7% in the quarter ended September 30, 2018, which caused a decrease in revenue of $2.1 million. In addition, the strengthening of the U.S. Dollar during the third quarter of 2018 was responsible for a further revenue decrease of $0.2 million.

 

We had an operating loss of $8.0 million for the three months ended September 30, 2018, compared to an operating loss of $18.2 million during the same period of 2017. In addition to the increase in revenue, drydock expense decreased $1.1 million and depreciation and amortization expense decreased $4.7 million in the third quarter of 2018 compared to the third quarter of 2017. Both of these decreases were attributable to changes in accounting policies related to our adoption of the relevant guidance with respect to the accounting and financial reporting for entities that have emerged from bankruptcy proceedings, or Fresh Start Accounting. Direct operating expenses decreased $1.3 million, as the number of laid up vessels increased during the 2018 quarter compared to the same quarter in 2017. General and administrative expenses decreased $1.1 million in the third quarter of 2018 compared to the same period in 2017 due to a decrease in salaries, partially offset by increased professional fees related to the Tidewater Merger. In addition, during the 2017 quarter we recognized $0.1 million of pre-petition restructuring charges related to our bankruptcy filing and restructuring.

 

North Sea

 

North Sea revenue increased $0.9 million, or 5.3%, for the Successor quarter ended September 30, 2018, compared to the Predecessor quarter ended September 30, 2017. Day rates increased from $10,653 in the third quarter of 2017 to $12,463 in the third quarter of 2018, increasing revenue by $1.8 million. Capacity changes increased revenue by $1.1 million as two vessels were transferred in from the Americas region early in 2018. Partially offsetting these increases was a decrease in utilization from 65.2% in the third quarter of 2017 to 54.0% in the third quarter of 2018, decreasing revenue by $1.8 million. In addition, a strengthening of the U.S. Dollar during the third quarter of 2018 caused a decrease in revenue of $0.2 million. Operating loss decreased from $2.2 million during the quarter ended September 30, 2017 to $0.8 million for the same period in 2018. For the third quarter of 2018, drydock expense decreased $0.1 million and depreciation and amortization expense decreased $0.6 million due mainly to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting. In addition, general and administrative expenses decreased by $0.2 million. Partially offsetting these decreases was an increase in direct operating expenses of $0.3 million mainly related to the larger fleet size in the region during the 2018 quarter.

 

 

Southeast Asia

 

Revenue in Southeast Asia decreased $0.7 million, or 36.6%, for the Successor quarter ended September 30, 2018 compared to the Predecessor quarter ended September 30, 2017. Utilization decreased from 37.6% in the third quarter of 2017 to 29.4% in the third quarter of 2018, resulting in a decrease of $0.3 million in revenue. In addition, day rates decreased from $5,525 in the third quarter of 2017 to $4,628 in the third quarter of 2018, causing a $0.4 million decrease in revenue. We had an operating loss of $3.9 million during the third quarter of 2017 compared to a loss of $1.6 million during the third quarter of 2018. Offsetting the decrease in revenue was a decrease of $1.0 million in direct operating expenses resulting from lower utilization during the third quarter of 2018. In addition, general and administrative expenses decreased $0.5 million due mainly to a decrease in salaries and benefits as a result of lower headcount. Drydock expense decreased $1.1 million and depreciation and amortization expense decreased $0.4 million mainly due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting.

 

Americas

 

Revenue in the Americas increased $1.9 million, or 24.3%, in the Successor third quarter of 2018 compared to the Predecessor third quarter of 2017. Day rates increased from $8,419 during the third quarter of 2017 to $8,555 during the third quarter of 2018, for an increase in revenue of $2.4 million. Utilization increased from 31.9% during the 2017 quarter to 39.1% during the 2018 quarter, resulting in an increase of $2.1 million in revenue. Partially offsetting these increases was a decrease in capacity of $2.6 million related to the transfer of two vessels to the North Sea region at the beginning of 2018. We recorded an operating loss of $1.0 million during the third quarter of 2018 compared to an operating loss of $7.0 million during the third quarter of 2017. Direct operating expenses decreased $0.6 million, due largely to the decrease in fleet size in the region during the third quarter of 2018. In addition, general and administrative expenses decreased $0.2 million mainly as a result of decreases in salaries and benefits due to lower headcount. Depreciation and amortization expense decreased $3.2 million due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting and the decrease in fleet size in the region.

 

Other

 

Other expense decreased $8.6 million, from $11.7 million in the Predecessor third quarter of 2017 to $3.1 million during the Successor third quarter of 2018. During the third quarter of 2017 we recorded a reorganization item charge of $8.9 million related to the bankruptcy. Foreign currency translation gain was $0.4 million during the third quarter of 2017, compared to a loss of $0.2 million during the third quarter of 2018.

 

Tax Rate

 

Our effective tax rate for the Successor third quarter of 2018 was less than 1.0%, compared to a benefit of 17.6% for the Predecessor third quarter of 2017. The change in the effective tax rate from the prior year quarter was primarily attributable to a change in the taxable mix of earnings between our higher and lower tax jurisdictions, recognition of a valuation allowance on certain of our deferred tax assets and the effect of the lower tax rate in the U.S. due to the statute originally named the Tax Cuts and Jobs Act which was passed at the end of 2017.

 

 

Comparison of the Nine Months Ended September 30, 2018 (Successor) with the Nine Months Ended September 30, 2017 (Predecessor)

 

For the Successor nine months ended September 30, 2018, we had a net loss of $40.0 million, or $4.00 per diluted share, on revenues of $78.6 million. During the Predecessor nine months ended September 30, 2017, we had a net loss of $190.0 million, or $7.39 per diluted share, on revenues of $74.8 million.

 

Our revenues for the nine months ended September 30, 2018 increased $3.8 million, or 5.1%, compared to the nine months ended September 30, 2017. Average day rates increased from $8,972 during the nine-month period ended September 30, 2017 to $9,484 during the same period in 2018 while utilization remained constant at 45.1% during both periods, resulting, due to a higher day rate mix, in a $1.3 million increase in revenue. The weakness of the U.S. Dollar was responsible for a revenue increase of $2.2 million, while the full nine-month effect of the addition of a new build vessel during the first quarter of 2017 contributed an additional $0.3 million to revenue. Our average fleet size decreased slightly due to the sale of two vessels during the first quarter of 2017. The sold vessels were stacked before they were sold and as a result there was no revenue effect related to the sale.

 

We had an operating loss of $31.1 million for the nine months ended September 30, 2018, compared to an operating loss of $80.9 million during the same period of 2017. Drydock expense decreased $5.7 million and depreciation and amortization expense decreased $13.9 million from the nine months ended September 30, 2017 to the nine months ended September 30, 2018. Both of these decreases were due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting. General and administrative expenses decreased $5.3 million due largely to a decrease in salaries and benefits due to lower headcount, and bad debt expense during the 2018 period, partially offset by the higher professional fees resulting from the Tidewater Merger. In addition, during the first nine months of 2017, we recorded $17.8 million of pre-petition restructuring charges related to our bankruptcy filing and restructuring. Partially offsetting these decreases was an increase in direct operating expenses of $2.1 million, mainly due to an increase in wage related expenses in the North Sea region during the 2018 period and the impact from mobilization of vessels between operating regions during the first quarter of 2018. During the first nine months of 2017, we recognized a loss on sale of asset of $5.2 million mainly related to the sale of two vessels, while during the same period of 2018 we recognized a gain on sale of assets of $0.2 million.

 

North Sea

 

North Sea revenue increased $4.2 million, or 9.3%, for the Successor nine months ended September 30, 2018, compared to the Predecessor nine months ended September 30, 2017. Day rates increased from $10,381 in the first nine months of 2017 to $12,017 in the 2018 period, resulting in an increase of $2.0 million. The U.S. Dollar weakness increased revenue by $2.2 million. Capacity changes increased revenue by $3.2 million mainly due to the transfer of two vessels back to the North Sea region from the Americas region at the beginning of 2018 and the full nine-month effect of a new build vessel delivered during the first quarter of 2017. Offsetting these increases was a decrease in utilization from 62.9% in the first nine months of 2017 to 54.9% in the 2018 period, decreasing revenue by $3.2 million. Operating loss decreased from $13.1 million during the nine months ended September 30, 2017 to $8.3 million in the same period of 2018. For the first nine months of 2018, drydock expense decreased $4.5 million and depreciation and amortization expense decreased $1.6 million due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting. General and administrative expenses decreased $0.3 million from the 2017 period to the 2018 period. Partially offsetting these decreases was an increase in direct operating expenses of $6.1 million, mainly related to the larger fleet size in the region due to the mobilization of two vessels from the Americas and a deductible charge relating to a vessel equipment insurance claim. In the 2017 period we incurred $0.2 million of pre-petition restructuring charges related to our bankruptcy filing and restructuring and during the 2018 period we recognized a gain on sale of asset of $0.2 million related to the sale of vessel spare parts.

 

 

Southeast Asia

 

Revenue in Southeast Asia decreased $2.4 million, or 33.3%, for the Successor nine months ended September 30, 2018 compared to the Predecessor nine months ended September 30, 2017. Day rates decreased from $5,465 in the first nine months of 2017 to $4,720 in the first nine months of 2018, causing $1.2 million of the decrease in revenue. In addition, utilization decreased from 45.8% in the nine months ended September 30, 2017 to 37.6% in the same period of 2018, resulting in a decrease in revenue of $1.2 million. Operating loss for the first nine months of 2018 was $5.0 million compared to $8.4 million for the first nine months of 2017. Partially offsetting the decrease in revenue was a decrease of $2.4 million in direct operating expenses resulting from lower utilization during the first nine months of 2018. General and administrative expenses decreased $1.2 million due mainly to a decrease in salaries and benefits and bad debt expense. In addition, drydock expense decreased $1.1 million and depreciation and amortization expense decreased $1.2 million mainly due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting. During the 2017 period, we also recognized a gain on sale of asset of $0.1 million.

 

Americas

 

Revenue in the Americas increased $2.1 million, or 9.2%, in the Successor nine months ended September 30, 2018 compared to the Predecessor nine months ended September 30, 2017. Although day rates decreased from $8,347 during the first nine months of 2017 to $7,727 during the first nine months of 2018, revenue increased by $3.4 million mainly due to the contract mix within the region. In addition, utilization increased from 30.7% in the first nine months of 2017 to 38.6% in the first nine months of 2018, which increased revenue $6.7 million. Partially offsetting these increases in revenue was a change in capacity which reduced revenue by $8.1 million resulting from the transfer of two vessels from the Americas region into the North Sea region at the beginning of 2018. We recorded an operating loss of $5.5 million during the first nine months of 2018 compared to an operating loss of $26.1 million during the first nine months of 2017. Direct operating expenses decreased $1.7 million from the nine months ended September 30, 2017, largely due to the decrease in fleet size as a result of the mobilization of two vessels out of the region and continued cost cutting measures. In addition, general and administrative expenses decreased $1.8 million mainly as a result of decreases in salaries and benefits and bad debt expense. Depreciation and amortization expense decreased $9.7 million and drydock expense decreased $0.2 million due to significantly lower Fresh Start Accounting values for our vessels and changes in accounting policies related to Fresh Start Accounting and the decrease in fleet size in the region. During the 2017 period we also recognized a loss on sale of two vessels of $5.3 million.

 

 

Other

 

Other expense decreased $31.8 million, from $41.3 million in the Predecessor first nine months of 2017 to $9.5 million during the Successor first nine months of 2018. The change was due mainly to $9.7 million of expense related to the write off of debt issuance costs associated with our revolving credit facilities and former senior notes during the first quarter of 2017 and lower interest expense related to our restructured debt subsequent to our emergence from bankruptcy. In the first nine months of 2017 we recorded a $14.0 million reorganization item charge related to the bankruptcy, compared to $0.4 million recorded during the 2018 period. Foreign currency translation loss was $0.7 million for the Successor nine months ended September 30, 2018 compared to the minimal loss by the Predecessor in the nine months ended September 30, 2017.

 

Tax Rate

 

Our effective tax rate for the Successor nine months ended September 30, 2018 was a benefit of 1.6%, compared to an expense of 55.5% for the Predecessor nine months ended September 30, 2017. The change in the effective tax rate from the prior year was primarily attributable to a change in the taxable mix of earnings between our higher and lower tax jurisdictions, recognition of a valuation allowance in 2017 on certain of our deferred tax assets and the effect of the lower tax rate in the U.S. due to the statute originally named the Tax Cuts and Jobs Act which was passed at the end of 2017.

 

Liquidity, Capital Resources and Financial Condition

 

On May 17, 2017, GulfMark Offshore, Inc. filed the Chapter 11 Case under the Bankruptcy Code in the Bankruptcy Court, and on October 4, 2017, the Bankruptcy Court entered the Confirmation Order approving the Plan. On the Effective Date, November 14, 2017, the Plan became effective pursuant to its terms and we emerged from the Chapter 11 Case.

 

Our liquidity requirements are generally associated with our need to service debt, fund working capital, maintain our fleet, and, when market conditions are favorable, finance the construction of new vessels and acquire or improve equipment or vessels. Proceeds from the issuance of debt and equity, 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 primarily by the supply and demand for offshore drilling for crude oil and natural gas.

 

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. In particular, the oil price is significantly influenced by actions of OPEC. Beginning in late 2014, the oil and gas industry experienced a significant decline in the price of oil that continued into early 2016 with the oil price dipping to less than $30 per barrel and causing an industry-wide downturn. Prices have gradually recovered since early 2016 to recent averages in our areas of operation of approximately $70 per barrel as of the date of this report, although prices are subject to significant uncertainty and have continued to fluctuate below such level.

 

 

In the months immediately following the beginning of the industry downturn in late 2014, we prioritized cash cost reductions by, among other measures, reducing office staff and mariners, reducing compensation to remaining staff and mariners, and stacking vessels, including eliminating crews for stacked vessels and deferring required drydocks. We were successful in significantly reducing our cost structure with direct operating expenses dropping by over 65% from 2014 to 2017 and general and administrative costs decreasing by over 40%. However, our revenues declined in the same comparative period by approximately 80%. We filed a voluntary petition for bankruptcy in May 2017. In the bankruptcy, our focus was to reduce debt and infuse additional capital. In the bankruptcy, we eliminated almost $450 million of long term debt (plus accrued interest), restructured our bank financing and infused $125 million in cash for new equity. We expect operating cash flows to continue to be marginal in the near term. Upon emerging from bankruptcy, we had $100 million in long-term debt outstanding with the capacity to borrow an additional $25 million under our Revolving Credit Facility described below. See “– Resources and Liquidity.” At September 30, 2018, we had approximately $37.5 million in cash on hand and $23.4 million in borrowing capacity under our Revolving Credit Facility and, under the agreement governing our $100 million Term Loan Facility and our $25 million Revolving Credit Facility (both discussed below), repayment provisions and some of the restrictive financial covenants do not become fully effective until 2020. Our future results will depend on our ability to maintain a low-cost structure and the level to which the industry recovers. We believe we have sufficient cash on hand plus borrowing capacity under our Revolving Credit Facility to supplement our operations to enable us to continue to fund our operations and to service our existing debt.

 

On July 15, 2018, GulfMark Offshore, Inc. entered into the Merger Agreement with Tidewater, whereby GulfMark Offshore, Inc. will become a wholly-owned subsidiary of Tidewater. The Tidewater Merger is subject to approval by the stockholders of both entities and certain other conditions and, if approved, is expected to close in the fourth quarter of 2018, subject to possible extension under circumstances described in the Merger Agreement. See “–Merger Agreement” and Item 1A, “Risk Factors” in Part II of this report.

    

Cash and Working Capital

 

At September 30, 2018, our cash on hand totaled $37.5 million and net working capital was $51.4 million.

 

Operating Activities

 

Net cash used in operating activities for the Successor nine-month period ended September 30, 2018 was $30.4 million. Net cash used in operating activities for the Predecessor nine-month period ended September 30, 2017 was $52.2 million. The difference was due primarily to improved operating results and lower general and administrative costs partially offset by negative changes in working capital.

 

Investing Activities

 

Net cash used in investing activities for the Successor nine-month period ended September 30, 2018 was $0.2 million. Net cash used in investing activities for the Predecessor nine-month period ended September 30, 2017 was $21.8 million. The decrease in cash used in investing activities was primarily related to the decreased activity in our new build program which was completed in January 2017.

 

 

Financing Activities

 

Net cash used by financing activities for the Successor nine-month period ended September 30, 2018 was $0.2 million, while net cash provided by financing activities for the Predecessor nine-month period ended September 30, 2017 was $76.1 million. The decrease in cash provided by financing activities during the current year period was primarily due to the decrease in proceeds from borrowings under our revolving loan facilities at the time, partially offset by repayment of borrowings and payments for debt issuance cost.

 

 Resources and Liquidity

 

On November 14, 2017, GulfMark Rederi AS, a subsidiary of GulfMark Offshore, Inc., entered into an agreement, or the Credit Facility Agreement, with DNB Bank ASA, New York Branch, as agent, DNB Capital LLC as revolving and swingline lender, and certain funds managed by Hayfin Capital Management LLP as term lenders, providing for two credit facilities: a senior secured revolving credit facility, or the Revolving Credit Facility, and a senior secured term loan facility, or the Term Loan Facility (or, together, the Facilities). The Revolving Credit Facility provides $25.0 million of borrowing capacity, including $12.5 million for swingline loans and $5.0 million for letters of credit. The Term Loan Facility provides a $100.0 million term loan, which was funded in full on November 14, 2017. Borrowings under the Revolving Credit Facility may be denominated in U.S. Dollars, NOK, GBP and Euros. Both Facilities mature on November 14, 2022. The Credit Facility Agreement contains a number of restrictions that limit our ability to, among other things, sell collateral vessels, borrow money, make investments, incur additional liens on assets, buy or sell assets, merge, or pay dividends.

 

At September 30, 2018, we had $100.0 million in borrowings outstanding under the Term Loan Facility and no loans outstanding under the Revolving Credit Facility. At September 30, 2018, we had an aggregate of $1.6 million of letters of credit outstanding under the Revolving Credit Facility and $23.4 million of unused borrowing capacity under the Revolving Credit Facility. See Note 3 to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report.

 

We may, from time to time, issue debt or equity securities, or a combination thereof, subject to the limitations pursuant to our Credit Facility Agreement and other contractual obligations, to finance capital expenditures, the acquisition of assets and businesses or for general corporate purposes. Our ability to access the capital markets by issuing debt or equity securities will be dependent on our results of operations, our current financial condition, current credit ratings, current market conditions and other factors beyond our control.

 

Off-Balance Sheet Arrangements

 

      At September 30, 2018 and December 31, 2017, we had no off-balance sheet debt or other arrangements required to be disclosed in this report.

 

 

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 denominated in British Pounds Sterling (GBP), Norwegian Kroner (NOK) or Euros (EUR). The North Sea fleet generated 61.1% and 62.7% of our total consolidated revenue for the three- and nine-month periods ended September 30, 2018, respectively. Charters in our Americas fleet can be denominated in Brazilian Reais (BRL) and charters in our Southeast Asia fleet can be denominated in Singapore Dollars (SGD). For the three- and nine-month periods ended September 30, 2018 and 2017, the exchange rates of GBP, NOK, EUR, BRL and SGD against the U.S. Dollar averaged as follows:

 

		Successor				Predecessor				Successor				Predecessor
		Three Months Ended September 30, 2018				Three Months Ended September 30, 2017				Nine Months Ended September 30, 2018				Nine Months Ended September 30, 2017
		1 US$ =				1 US$ =				1 US$ =				1 US$ =
GBP			0.768				0.764				0.740				0.784
NOK			8.242				7.954				8.028				8.294
Euro			0.860				0.851				0.837				0.898
Brazilian Real			3.941				3.162				3.572				3.172
Singapore Dollar			1.368				1.361				1.340				1.389

 

A substantial portion of 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, if any; and

●

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

 

One or more of these factors may change and, in response, we may use financial instruments to hedge risks of currency fluctuations. We may from time to time hedge known liabilities denominated in foreign currencies to reduce the effects of exchange rate fluctuations on our financial results. We do not use foreign currency forward contracts for trading or speculative purposes.

 

Reflected in the accompanying unaudited condensed consolidated balance sheet at September 30, 2018, is $0.7 million in accumulated other comprehensive income, or accumulated OCI, primarily relating to the change in exchange rates at September 30, 2018 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 operations.

 

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There were no material changes in the three months ended September 30, 2018 to the market risk disclosures contained in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

ITEM 4.     CONTROLS AND PROCEDURES

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

 

There were no changes in our internal control over financial reporting identified in connection with such evaluation that occurred during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1A.     RISK FACTORS

 

The risk factors set forth below are updates to certain risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

The proposed acquisition of GulfMark Offshore, Inc. by Tidewater may cause disruption in our business.

 

On July 15, 2018, GulfMark Offshore, Inc. entered into the Merger Agreement with Tidewater, pursuant to which GulfMark Offshore, Inc. will become a wholly-owned subsidiary of Tidewater. The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed Tidewater Merger and restricts us, without Tidewater’s consent, from taking certain specified actions until the Tidewater Merger is completed. These restrictions may affect our ability to execute our business strategies and attain our financial and other goals and may impact our financial condition, results of operations and cash flows.

 

In connection with the pending Tidewater Merger, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Tidewater Merger. Employee retention and recruitment may be challenging before the completion of the Tidewater Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company. If, despite our retention and recruiting efforts, key employees depart or prospective key employees fail to accept employment with us because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, our financial results could be adversely affected.

 

 

The proposed Tidewater Merger could also cause disruptions to our business or business relationships, which could have an adverse impact on our results of operations. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

 

The pursuit of the Tidewater Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns could adversely affect our financial results.

 

We could also be subject to litigation related to the proposed Tidewater Merger, which could result in significant costs and expenses. In addition to potential litigation-related expenses, we have incurred and will continue to incur other significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Tidewater Merger, and many of these fees and costs are payable regardless of whether or not the proposed Tidewater Merger is consummated.

 

Failure to complete the proposed Tidewater Merger in a timely manner or at all could negatively impact the market price of our Common Stock, as well as our future business and our financial condition, results of operations and cash flows.

 

The Tidewater Merger is expected to close in the fourth quarter of 2018, subject to possible extension under circumstances described in the Merger Agreement, but we cannot be certain when or if the conditions for the proposed Tidewater Merger will be satisfied or (if permissible under applicable law) waived. The Tidewater Merger cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived, including, among others, the adoption of the Merger Agreement by the holders of our Common Stock, the approval of the share issuance by the stockholders of Tidewater and the receipt of required antitrust and other regulatory approvals, if any. In the event that the Tidewater Merger is not completed for any reason, the holders of our Common Stock will not receive any payment for their shares of our Common Stock in connection with the proposed Tidewater Merger. Instead, we will remain an independent public company and holders of our Common Stock will continue to own their shares of the Common Stock.

 

Additionally, if the Tidewater Merger is not consummated in a timely manner or at all, our ongoing business may be adversely affected, including as follows:

 

●

we may experience negative reactions from financial markets and our Common Stock price could decline;

●

we may experience negative reactions from employees, customers, suppliers or other third parties;

●

management’s focus would have been diverted from pursuing other opportunities that could have been beneficial to us; and

●

the costs of pursuing the Tidewater Merger may be higher than anticipated.

 

 

If the proposed Tidewater Merger is not completed, there can be no assurance that these risks will not materialize and will not materially adversely affect our Common Stock price, business, financial condition, results of operations or cash flows.

 

We and Tidewater may be unable to obtain the approvals required to complete the proposed Tidewater Merger.

 

The consummation of the proposed Tidewater Merger is subject to the satisfaction or waiver of certain closing conditions, including the adoption of the Merger Agreement by our stockholders, the approval of the share issuance by the stockholders of Tidewater and receipt of required antitrust and other regulatory approvals, if any. If GulfMark Offshore, Inc. and Tidewater are unable to obtain these approvals, they may be unable to consummate the proposed Tidewater Merger. As a result, there can be no assurance that the various closing conditions will be satisfied and the proposed Tidewater Merger will be completed or that any required conditions will not materially adversely affect the combined company following the consummation of the Tidewater Merger or will not result in the abandonment or delay of the proposed Tidewater Merger.

 

The Merger Agreement contains provisions that could discourage a potential competing acquirer of GulfMark Offshore, Inc.

 

The Merger Agreement contains provisions that, subject to limited exceptions, restrict our ability to solicit, initiate, or knowingly encourage or facilitate third-party acquisition proposals for a competing transaction. In addition, before our board of directors withdraws, qualifies or modifies its recommendation of the proposed Tidewater Merger or terminates the Merger Agreement to enter into a third-party acquisition proposal, Tidewater generally has an opportunity to offer to modify the terms of the proposed Tidewater Merger. In some circumstances, upon termination of the Merger Agreement, we will be required to pay a termination fee of $13 million.

 

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of GulfMark Offshore, Inc. from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Tidewater Merger, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

 

If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

 

 

ITEM 6.     EXHIBITS

 

Exhibit		Description		Filed or Furnished Herewith or Incorporated by Reference from the Following Documents
2.1		Agreement and Plan of Merger dated July 15, 2018 by and between Tidewater Inc. and GulfMark Offshore, Inc.		Exhibit 2.1 to our Current Report on Form 8-K filed on July 16, 2018
3.1		Amended and Restated Certificate of Incorporation of GulfMark Offshore, Inc.		Exhibit 3.1 to our Registration Statement on Form 8-A filed on November 14, 2017
3.2		Amended and Restated Bylaws of GulfMark Offshore, Inc.		Exhibit 3.2 to our Registration Statement on Form 8-A filed on November 14, 2017
10.1		Letter agreement entered into as of July 15, 2018 between GulfMark Offshore, Inc. and Quintin V. Kneen		Exhibit 10.1 to our Current Report on Form 8-K filed on July 19, 2018
31.1		Section 302 Certification for Q.V. Kneen		Filed herewith
31.2		Section 302 Certification for S.R. Rubio		Filed herewith
32.1		Section 906 Certification furnished for Q.V. Kneen		Furnished herewith
32.2		Section 906 Certification furnished for S.R. Rubio		Furnished herewith
101.INS* 101.SCH* 101.CAL* 101.LAB* 101.PRE* 101.DEF*		XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document

 

 

* The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, are deemed not filed for purposes of section 18 of the Exchange Act, and otherwise, not subject to liability under these sections.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

		GulfMark Offshore, Inc.
	By:	/s/ Samuel R. Rubio
		Samuel R. Rubio
		Senior Vice President and Chief Financial Officer
Date: November 13, 2018

 

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