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| GLF > SEC Filings for GLF > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
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, 2008.
Results of Operations
The table below sets forth, by region, the average day rates and utilization
for our vessels and the average number of vessels owned or chartered during the
periods indicated. This fleet generates substantially all of our revenues and
operating profit. We use the information that follows to evaluate the
performance of our business.
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues by Region (000's) (a):
North Sea Based Fleet (c) $ 40,722 $ 59,169 $ 130,957 $ 173,129
Southeast Asia Based Fleet 19,114 21,094 56,300 57,497
Americas Based Fleet 30,928 44,353 116,958 59,231
Rates Per Day Worked (a) (b):
North Sea Based Fleet (c) $ 20,171 $ 23,449 $ 20,820 $ 23,389
Southeast Asia Based Fleet 21,180 18,844 21,033 17,062
Americas Based Fleet 16,894 16,815 16,605 16,164
Overall Utilization (a) (b):
North Sea Based Fleet 90.5 % 94.1 % 89.3 % 93.9 %
Southeast Asia Based Fleet 85.8 % 97.2 % 88.9 % 93.2 %
Americas Based Fleet 57.3 % 93.9 % 76.2 % 91.7 %
Average Owned/Chartered Vessels (a) (d):
North Sea Based Fleet (c) 24.0 27.0 25.0 27.4
Southeast Asia Based Fleet 11.7 12.8 11.3 13.5
Americas Based Fleet 35.8 31.0 34.6 14.8
Total 71.5 70.8 70.9 55.7
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(a) Includes all owned or bareboat chartered vessels.
(b) Rate per day worked is defined as total charter revenues divided by number of days worked. Utilization rate is defined as the total days worked divided by total days of availability in the period.
(c) Revenues for vessels in the North Sea based fleet are primarily earned in Pound Sterling (GBP), Norwegian Kroner (NOK) and Euros, and have been converted to U.S. Dollars (US$) at the average exchange rate for the period. The average equivalent exchange rate per one US$ for the periods indicated is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
1 US$= 1 US$=
GBP 0.609 0.528 0.648 0.513
NOK 6.106 5.359 6.468 5.244
Euro 0.699 0.665 0.732 0.657
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(d) Average number of vessels is calculated based on the aggregate number of vessel days available during each period divided by the number of calendar days in such period. Includes owned and bareboat vessels only, and is adjusted for vessel additions and dispositions occurring during each period.
Comparison of the Three Months Ended September 30, 2009 with the Three Months
Ended September 30, 2008
For the quarter ended September 30, 2009, we had net income of $12.7 million,
or $0.50 per diluted share, on revenues of $90.8 million. For the same period in
2008, net income was $45.4 million, or $1.78 per diluted share on revenues of
$124.6 million.
Our revenues for the quarter ended September 30, 2009, decreased
$33.9 million, or 27%, compared to the third quarter of 2008. The decrease in
revenue was due mainly to lower utilization in all regions, as a result of the
weakening of the overall global economy which resulted in a decline of
$17.9 million. In addition, revenue declined by $4.2 million as overall capacity
decreased as a result of several 2008 and early 2009 vessel sales, partially
offset by the addition to the fleet of new build vessels in 2009. Also,
contributing $11.8 million to the decrease in revenue was the combination of the
currency effect and the decrease in overall day rates from $19,710 in the third
quarter of 2008 to $19,077 in the current year quarter.
North Sea
Revenues in the North Sea region decreased by $18.4 million, or 31%, to
$40.7 million in the third quarter of 2009. The combination of the strengthening
of the U.S. Dollar and the decrease in day rates from $23,449 in the third
quarter of 2008 to $20,171 in the current year quarter, contributed
$10.3 million to the decrease in revenue. The region also experienced a decrease
of $6.7 million in capacity resulting primarily from the sale of two vessels and
the decision to remove a vessel from service in 2009. Utilization decreased from
94.1% in the third quarter of 2008 to 90.5% in the current quarter, decreasing
revenue by $1.4 million. Operating income decreased $14.1 million from the prior
year quarter due mainly to the decrease in revenue offset by lower operating
costs. Drydock expense increased by $1.2 million due to 36 additional drydock
days. Depreciation expense decreased by $1.0 million mainly due to fewer
vessels.
Southeast Asia
Revenues for our Southeast Asia based fleet decreased by $2.0 million to
$19.1 million in the third quarter of 2009. Utilization decreased from 97.2% in
the third quarter of 2008 to 85.8% in the current year quarter which decreased
revenue by $2.1 million. Capacity increased revenue by $1.2 million as a result
of the additions of two vessels in 2009, and the full year effect of the
addition of a vessel in the third quarter of 2008. This is partially offset by
the sale of four of our older vessels in 2008. Even though day rates increased
from the prior year quarter, the negative effect of the mix of days worked to
vessels on lower day rates reduced revenue by $1.1 million. Operating income was
$13.2 million in the third quarter of 2009 compared to $17.1 million in
the same 2008 quarter. The decrease is due mainly to the decrease in revenue
coupled with the decrease of the gain on asset sales of $2.3 million, partially
offset by lower operating costs.
Americas
The Americas region revenues decreased by $13.4 million, or 30% to
$30.9 million in the third quarter of 2009. Utilization decreased from 93.9% in
the third quarter of 2008 to 57.3% in the current year quarter resulting mainly
from the drop in natural gas prices and its effect on the rig utilization in the
Gulf of Mexico, which contributed $14.4 million to the lower revenue. Offsetting
the utilization decrease was the addition of five new vessels which added
$1.3 million to revenue. The overall mix in day rates and currency fluctuations
in the current quarter compared to the prior year quarter negatively impacted
revenue by $0.3 million. Operating income was $1.1 million in the third quarter
of 2009 compared to $14.7 million in the third quarter of 2008. The decrease is
due mainly to the decrease in revenue.
Other
Other expenses in the third quarter of 2009 increased by $2.0 million
compared to the prior year quarter resulting primarily from the refund of ISS
tax in Brazil which was collected in the third quarter of 2008.
Tax Provision
Our tax provision for the third quarter of 2009 was $2.6 million, compared to
$4.5 million in the third quarter of 2008. The decrease resulted primarily from
the lower overall pre-tax earnings, offset by a slightly higher effective tax
rate in the third quarter of 2009 stemming from the domestic tax impact of
dividends from our foreign subsidiaries.
Comparison of the Nine Months Ended September 30, 2009 with the Nine Months
Ended September 30, 2008
For the nine months ended September 30, 2009, we had net income of
$61.8 million, or $2.44 per diluted share, on revenues of $304.2 million. During
the same period in 2008, net income was $124.5 million, or $5.19 per diluted
share, on revenues of $289.9 million.
Our year to date revenue increased 5% or $14.4 million year over year. The
increase was due mainly to the Rigdon Acquisition, which contributed
$57.8 million to the increase. Throughout 2009, we also added five new vessels
that were under construction at the end of 2008 and we experienced the loss of
revenue from six vessels that were sold in 2008 and early 2009. The net
reduction in vessel count reduced revenue by $0.1 million. As a result of the
weaker global economy overall utilization decreased from 93.1% in the nine month
period of 2008 to 82.9% in the same period of 2009, which reduced revenue by
$12.2 million. Day rates decreased from $19,963 in the nine months ended
September 30, 2008, to $18,961 in the same period of 2009. The combination of
day rates and currency exchange rates resulted in a $31.1 million decrease in
revenue.
Operating income decreased by $73.3 million, from $133.6 million in 2008 to
$60.3 million this year. The decrease is due largely to the $46.2 million
impairment charge resulting from a shipyard defaulting on the construction of
three vessels. Also contributing to the decrease was an increase in operating
cost related to the increase in vessel count and a smaller gain on sale of
assets of $13.3 million.
North Sea
North Sea revenue decreased 24%, or $42.2 million in 2009 compared to 2008.
The effect of the strengthening of the U.S. Dollar and the decrease in day rates
from $23,389 in 2008 to $20,820 in 2009 contributed $27.3 million to the
decrease in revenue. Capacity impact decreased revenue by $11.4 million related
primarily to the full year effect of the 2008 vessel sales and the additional
vessel sale in 2009. In 2008, we also mobilized two vessels to other regions.
Overall utilization decreased from 93.9% in 2008 to 89.3% in the current year,
representing $3.5 million in lower revenue. Operating income decreased by
$30.3 million compared to 2008, resulting primarily from the decrease in revenue
coupled with the decrease of $9.0 million of gains on asset sales, offset by
lower operating and general and administrative costs.
Southeast Asia
Revenue for our Southeast Asia based fleet decreased by $1.2 million, from
$57.5 million in the first nine months of 2008 to $56.3 million in the same 2009
period. Capacity had a positive impact of $3.8 million on revenue as a result of
the two new vessels added in 2009 and the full year effect of the two vessels
added in 2008. Offsetting the addition was the disposal of five vessels and the
mobilization of a vessel to the Americas region in 2008. Overall utilization
decreased from 93.2% to 88.9%, representing $3.2 million in lower revenue. Day
rates increased from $17,062 in 2008 to $21,033 in 2009, however revenue
decreased $1.8 million as the mix of days worked related to high rate vessels
was negative. Operating income decreased from $47.0 million in 2008 to
$42.0 million in 2009 due to the decrease in revenues and the decrease of the
gain on asset sales coupled with higher drydock costs, which were offset by
lower operating costs. Drydock expense increased by $1.8 million due to 42
additional drydock days in 2009.
Americas
Our Americas region revenue increased $57.7 million, from $59.2 million in
2008 to $117.0 million in 2009. The increase in revenue is due primarily to the
July 1, 2008, Rigdon Acquisition, which contributed $57.8 million to the
increase. Also contributing $7.5 million to the increase was the mobilization of
two vessels into the region. Rig utilization has declined significantly in the
Gulf of Mexico which has reduced our utilization from 91.7% in 2008 to 76.2% in
2009, representing $5.5 million in lower revenue. Day rates increased slightly,
but the effect of currency and overall mix of days worked related to higher day
rate vessels resulted in a $2.1 million decrease in revenue. Excluding the
$46.2 million impairment charge, operating income increased $10.7 million from
2008 resulting primarily from the effect of the Rigdon Acquisition.
Other
In the nine months ended September 30, 2009, other expenses totaled
$15.8 million, an increase of $11.9 million from 2008. The increase was due
primarily to higher interest expense of $8.0 million as a result of higher
interest incurred on outstanding debt assumed through the Rigdon Acquisition and
the impact of the refund of ISS tax in Brazil which was collected in the third
quarter of 2008.
Tax Provision
Our tax provision for the nine months ended September 30, 2009, was a benefit
of $17.3 million compared to a provision of $5.2 million in the same period in
2008. The difference is principally due to three discrete items in 2009: a
reversal of a previously recognized tax pertaining to Norwegian tonnage tax of
$6.5 million; the $17.0 million tax effect of the aforementioned impairment
charge; and the $4.5 million reversal of the valuation allowance on previously
recorded foreign tax credits, as they are expected to be utilized in the future.
The remainder of the difference relates primarily to the domestic tax impact of
dividends from our foreign subsidiaries.
Liquidity, Capital Resources and Financial Condition
Our ongoing liquidity requirements are generally associated with our need to
service debt, fund working capital, acquire or improve equipment and make other
investments. Since inception, we have been active in the acquisition of
additional vessels through both the resale market and new construction. Bank
financing, equity capital and internally generated funds have historically
provided funding for these activities. Internally generated funds are directly
related to fleet activity and vessel day rates, which are generally dependent
upon the demand for our vessels which is ultimately determined by the supply and
demand of crude oil and natural gas.
On July 1, 2008, in conjunction with the Rigdon Acquisition we assumed a
$224 million Senior Secured Credit Facility held with a syndicate of banks led
by DVB Bank NV as agent, and a $85 million Subordinated Secured Credit Facility
held by DVB Bank NV. Both facilities mature on June 30, 2010, and, as such, the
combined outstanding liability of $209.6 million as of June 30, 2009, was
classified from long term to current.
During the fourth quarter we executed a credit approved term sheet to
refinance $200 million of the indebtedness that is otherwise maturing on
June 30, 2010. Our intention is to complete this refinancing by December 31,
2009. The new facility is expected to be secured with first priority mortgages
on 23 vessels in the Americas region fleet and will be subject to financial and
other covenants. The replacement facility will be a long-term facility with an
expected maturity date of December 31, 2012. At September 30, 2009, as a result
of the new debt to be issued in the fourth quarter of 2009, we reclassified
$175.0 million of the outstanding balances to long-term debt.
Net working capital at September 30, 2009, was $188.6 million. Cash on hand
at September 30, 2009, totaled $198.1 million. Net cash provided by operating
activities was $47.4 million for the three months ended September 30, 2009, and
cash used in investing activities for the same three months was $11.2 million.
We anticipate that our current level of cash on hand, cash flows from
operations, and availability under our credit facility will be adequate to repay
our debts due and will provide sufficient resources to finance our operating
requirements. However, our ability to fund working capital, capital expenditures
and debt service in excess of cash on hand will be dependent upon the success of
our operations. To the extent that existing sources are insufficient to meet
those cash requirements, we would seek other debt or equity financing; however,
we can give no assurances that such debt or equity financing would be available
on acceptable terms.
Currency Fluctuations and Inflation
The majority of our operations are international; therefore we are exposed to
currency fluctuations and exchange rate risks. Charters for vessels in the North
Sea fleet are primarily denominated in Pounds Sterling (GBP) with a portion
denominated in Norwegian Kroner (NOK) and Euros. Mostly all of our operating
costs are denominated in the same currency as charter hire in order to reduce
the risk of currency fluctuations. For the periods indicated, the average
equivalent exchange rate per one U.S. Dollar (US$) were:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
1 US$= 1 US$=
GBP 0.609 0.528 0.648 0.513
NOK 6.106 5.359 6.468 5.244
Euro 0.699 0.665 0.732 0.657
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Our North Sea based fleet generated $40.7 million in revenue and
$11.6 million in operating income for the three months ended September 30, 2009,
and $131.0 million in revenue and $53.5 million in operating income for the nine
months ended September 30, 2009.
Reflected in the accompanying balance sheet as of September 30, 2009, is
$49.1 million in accumulated other comprehensive income that fluctuates based on
differences in foreign currency exchange rates as of each balance sheet date.
Also included in accumulated other comprehensive income is a loss of
$4.2 million related to the cash flow hedges. Changes in other comprehensive
income are primarily non-cash items that are attributable to investments in
vessels and dollar based capitalization between our parent company and our
foreign subsidiaries.
After evaluating the U.S. Dollar debt, we have determined that it is in our
best interest not to use any financial instruments to hedge the exposure of our
revenue and costs of operations to currency fluctuations under present
conditions. Our decision is based on a number of factors, including among
others:
• the cost of using hedging instruments in relation to the risks of currency
fluctuations,
• the propensity for adjustments in currency denominated vessel day rates over time to compensate for changes in the purchasing power of the currency 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 we, in response, may choose to use financial instruments to hedge risks of currency fluctuations with regards to our revenue and costs of operations. However, in 2007, we entered into forward currency contracts to specifically hedge the foreign currency exposure related to firm contractual commitments in the form of future vessel payments. These hedging relationships were formally documented at inception and the contracts have been and continue to be highly effective. As a result, by design, there is an exact offset between the gain or loss exposure in the related underlying contractual commitment. The balance sheet reflects the change in the fair value of the foreign currency contracts and purchase commitments of $14.7 million, an increase of $6.9 million from year-end 2008.
We also have interest rate swap agreements for a portion of the Senior
Secured Credit Facility indebtedness that has fixed the interest rate at 4.725%
on a portion of the Senior Secured Credit Facility. These interest rate swaps
are accounted for as cash flow hedges. We report changes in the fair value of
the cash flow hedges in accumulated other comprehensive income. The consolidated
balance sheet also contains cash flow hedges within other long term liabilities,
reflecting the fair value of the interest rate swaps which was $6.1 million at
September 30, 2009. For the nine months ended September 30, 2009, $3.0 million
has been reclassified from other comprehensive income to interest expense. We
expect to reclassify $2.9 million of deferred loss on the interest rate swaps to
interest expense during the next 12 months.
To date, general inflationary trends have not had a material effect on our
operating revenues or expenses.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and other
statements that are not historical facts concerning, among other things, market
conditions, the demand for marine and transportation support services and future
capital expenditures. These statements are subject to certain risks,
uncertainties and assumptions, including, without limitation:
• operational risk,
• catastrophic or adverse sea or weather conditions,
• dependence on the oil and gas industry,
• oil and gas prices,
• delay or cost overruns on construction projects or insolvency of the shipbuilders,
• lack of shipyard or equipment availability,
• ongoing capital expenditure requirements,
• uncertainties surrounding environmental and government regulation,
• risks relating to compliance with the Jones Act,
• risk relating to leverage,
• risks of foreign operations,
• risk of war, sabotage or terrorism,
• assumptions concerning competition,
• risks of currency fluctuations and
• other matters.
These statements are based on certain assumptions and analyses made by us in
light of our experience and perception of historical trends, current conditions,
expected future developments and other factors we believe are appropriate under
the circumstances. Such statements are subject to risks and uncertainties,
including the risk factors discussed above and those discussed in our Form 10-K
for the year ended December 31, 2008, filed with the SEC, general economic and
business conditions, the business opportunities that may be presented to and
pursued by us, changes in law or regulations and other factors, many of which
are beyond our control.
We cannot assure you that we have accurately identified and properly weighed
all of the factors which affect market conditions and demand for our vessels,
that the information upon which we have relied is accurate or complete, that our
analysis of the market and demand for our vessels is correct, or that the
strategy based on that analysis will be successful.
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