GulfMark Offshore announced results of operations for the three months ended March 31, 2010.
For the three months ended March 31, 2010, revenue was $84.7 million. Net income for the period was $21.5 million, or $0.84 per diluted share, and includes a $15.0 million, or $0.59 per diluted share, Norwegian tonnage tax benefit. Net income was $0.25 per diluted share before the special tax benefit.
As previously announced, the Norwegian government declared in February 2010 that the revisions made in 2007 to its tonnage tax regime were unconstitutional. The Company reversed in the first quarter of 2010 the $12.0 million that remained accrued related to the 2007 tax revision and collected in cash $3.0 million during the quarter from the Norwegian government related to payments made in previous years.
Results of Operations
Revenue for the first quarter of 2010 was $84.7 million, in line with the fourth quarter of 2009. Utilization continues to improve in the Americas and the North Sea regions. Utilization in the Americas was 80% in the quarter, a 15 percentage point increase from the fourth quarter rate. Within the Americas, utilization in the Gulf of Mexico increased 19 percentage points, from 62% in the fourth quarter of 2009 to 81% in the first quarter of 2010. Quarterly utilization increased in the North Sea to just over 90%, but decreased in Southeast Asia to 83% percent.
Average day rates for the quarter in each region were down from the fourth quarter of 2009, but the decrease in each of the regions was driven by different factors. The decrease in the average day rate in the North Sea was due to the dollar strengthening against local currencies. Excluding the effect of currency changes, the average day rate was up over 2% from the fourth quarter of 2009. In the Americas, the decrease was due to the mix of vessels employed during the quarter. As the lower day rate vessels returned to work, the average day rate went down. In the Americas, the change in average day rate excluding the effect of vessel mix was an increase of approximately 3% from the fourth quarter of 2009. The decrease in the average day rate in Southeast Asia was due to a decline to both day rates of approximately 4% and also to vessel mix.
Drydock expense was approximately $7.0 million in the first quarter, an increase of $2.5 million from the fourth quarter of 2009. Full year drydock expense is still expected to be approximately $22.3 million.
Direct operating expenses for the first quarter were $43.1 million, down approximately $4.0 million from the fourth quarter of 2009. Fourth quarter direct operating expenses were unusually high and a sequential quarterly decrease was anticipated. The Company continued to put vessels back to work in the Americas region, and labor costs correspondingly increased by approximately $1.0 million. Likewise, two large North Sea vessels delivered in the past two quarters, which increased direct operating expenses in the North Sea by approximately $1.0 million.
Operating income for the first quarter of 2010 was $8.9 million, down slightly from the fourth quarter of 2009. Although lower operating costs contributed $4.0 million of additional operating income, this amount was offset by $2.5 million of higher drydock costs and an increase in general and administrative costs of approximately $1.7 million. The sequential quarterly increase in general and administrative costs was due to two primary factors: the amount was relatively low in the fourth quarter of 2009 due to collecting receivables in that quarter that were previously written off, and higher professional fees in the first quarter primarily associated with the restructuring completed in January.
Bruce Streeter, President and CEO, commented, "We fully met our internal expectations for the first quarter, actually exceeding what we expected for February and March. We previously discussed our view that 2010 would start fairly weak and strengthen to some extent as the year develops. Utilization continued to improve in those areas that have been hardest hit: the Americas and the North Sea. We did anticipate that contract turnover would lead to lower results in Southeast Asia and that did occur. However, even with the loss of utilization between contracts, operating income margin was 57% for the quarter.
"We took delivery of the North Purpose, the second of the Aker 09CD design and the fourth vessel in what I would call our state-of-the-art, very large (284 foot) North Sea platform supply vessel class. As promised, the vessel started a one year plus contract shortly after delivery. We have been in a difficult market, but even so, we are gratified to see these two vessels delivered and gainfully employed. We have two remaining vessels in the newbuild program, the medium sized anchor handlers being built in Poland with delivery planned near the mid-point of the year. These vessels are in the water and in the outfitting, test and trial phase."
Mr. Streeter continued, "We are optimistic about 2010, especially in comparison to the latter part of 2009. Hurricane season in the Gulf of Mexico may result in some softness in the Americas region and the completion of construction work periods in other regions could have a negative impact. However, consistency in the price of oil and our ability to get vessels working has been gratifying. Over the past few years we have found it advantageous to increase the level of drydock activity in the first quarter, and that continued in the first quarter of 2010. We have also continued to move vessels to maximize best opportunities. We took a crewboat out of service late in the quarter to prepare it for a term contract in Mexico that has now started. We also completed modifications and regulatory requirements on a vessel that is now on a term contract in Brazil. Additionally, we have a vessel in the Falklands to support a drilling program and another North Sea unit heading to Trinidad as part of a construction project.
"I should point out that we previously announced that we expected to eliminate the tax liability we established for Norway due to the tax law being deemed unconstitutional. We were quite pleased that we not only could reverse the amount previously accrued, but have already received the cash portion due to us from payments made in previous years. We do caution that there are already plans for a new tax in Norway that, if approved as proposed, would result in our recognizing a new tax liability.
"We continue to focus on the future and are looking for the right value opportunities. Keeping our vessels working in tough times is due in part to maintaining a young, technologically advanced fleet of vessels. We were extremely pleased by both the number and mix of contracts we were able to obtain during the quarter. We will continue to work to meet our customers' expectations and to look for opportunities that allow us to maintain and improve our fleet value, mix and earning capacity."
Liquidity and Capital Commitments
Cash flow from operations totaled $21.9 million in the first quarter. Remaining commitments for the two vessels to be completed under the new build program are approximately $10.0 million. These commitments will fulfill the new build program requirements and are expected to be funded from cash on hand and cash generated from operations. Cash on hand at March 31, 2010 was $48.2 million and the Company has no amount drawn under its $175.0 million revolving credit facility. Total debt at March 31, 2010 was $351.4 million, and debt net of cash on hand was $303.2 million.
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