Exhibit 99.2

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

GulfMark Offshore, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of GulfMark Offshore, Inc. and consolidated subsidiaries (the Company) as of December 31, 2017 (Successor) and 2016 (Predecessor), the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the periods of November 15, 2017 to December 31, 2017 (Successor), January 1, 2017 to November 14, 2017 (Predecessor), and for the years ended December 31, 2016 and 2015 (Predecessor), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 (Successor) and 2016 (Predecessor), and the results of its operations and its cash flows for the periods of November 15, 2017 to December 31, 2017 (Successor), January 1, 2017 to November 14, 2017 (Predecessor) and for the years ended December 31, 2016 and 2015 (Predecessor), in conformity with U.S. generally accepted accounting principles.

New Basis of Presentation

As discussed in Note 1 to the consolidated financial statements, on October 4, 2017, the United States Bankruptcy Court in the District of Delaware entered an order confirming the Company’s plan for reorganization under Chapter 11 of the Bankruptcy Code, which became effective on November 14, 2017. Accordingly, the accompanying consolidated financial statements have been prepared in conformity with Accounting Standards Codification 852-10, Reorganizations , for the Successor as a new entity with assets, liabilities and a capital structure having carrying amounts not comparable with prior periods as described in Note 2.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2011.

/s/ KPMG LLP

Houston, Texas

April 2, 2018

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

		Successor				Predecessor
		December 31,
		2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	64,613			$	8,822
Trade accounts receivable, net of allowance for doubtful accounts of $3,470 and $2,482, respectively			20,378				22,043
Other accounts receivable			7,471				7,650
Inventory			1,323				7,465
Prepaid expenses			4,319				3,799
Other current assets			5,416				1,813
Total current assets			103,520				51,592
Vessels, equipment, and other fixed assets at cost, net of accumulated depreciation and amortization of $4,392 and $468,817, respectively			363,845				970,522
Construction in progress			283				24,698
Deferred costs and other assets			4,307				5,713
Total assets		$	471,955			$	1,052,525
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt		$	—			$	483,326
Accounts payable			12,770				11,666
Income and other taxes payable			1,540				3,678
Accrued personnel costs			5,040				9,109
Accrued interest expense			451				8,163
Accrued restructuring charges			7,458				—
Accrued professional fees			1,825				5,791
Other accrued liabilities			3,406				3,514
Total current liabilities			32,490				525,247
Long-term debt			92,365				—
Long-term income taxes:
Deferred income tax liabilities			2,992				56,716
Other income taxes payable			18,374				17,768
Other liabilities			1,244				3,173
Stockholders’ equity:
Successor:
Preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued			—				—
Common stock, $0.01 par value; 25,000 shares authorized; 7,043 shares issued and 7,042 outstanding			70				—
Additional paid-in capital			317,932				—
Retained earnings			3,511				—
Accumulated other comprehensive income			2,977				—
Treasury stock			(70	)			—
Deferred compensation			70				—
Predecessor:
Preferred stock, $0.01 par value; 2,000 shares authorized; no shares issued			—				—
Class A Common stock, $0.01 par value; 60,000 shares authorized; 29,104 shares issued and 27,122 outstanding; Class B Common Stock $.01 par value; 60,000 shares authorized; no shares issued			—				278
Additional paid-in capital			—				411,983
Retained earnings			—				241,207
Accumulated other comprehensive loss			—				(148,402	)
Treasury stock, at cost			—				(64,580	)
Deferred compensation			—				9,135
Total stockholders’ equity			324,490				449,621
Total liabilities and stockholders’ equity		$	471,955			$	1,052,525

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

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

		Successor				Predecessor
		Period from November 15, 2017				Period from January 1, 2017
		Through December 31, 2017				Through November 14, 2017				Year Ended December 31,
										2016				2015
Revenue		$	13,593			$	88,229			$	123,719			$	274,806
Costs and expenses:
Direct operating expenses			9,859				69,821				83,165				169,837
Drydock expenses			—				5,432				4,662				15,387
General and administrative expenses			3,407				32,369				37,663				47,280
Pre-petition restructuring charges			1				17,861				—				—
Depreciation and amortization			4,425				47,721				58,182				72,591
Impairment charges			—				—				162,808				152,103
Loss on sale of assets and other			—				5,207				8,564				1,160
Total costs and expenses			17,692				178,411				355,044				458,358
Operating loss			(4,099	)			(90,182	)			(231,325	)			(183,552	)
Other income (expense):
Interest expense			(1,343	)			(28,815	)			(33,486	)			(36,946	)
Interest income			57				26				133				260
Gain on extinguishment of debt			—				—				35,912				458
Reorganization items			(969	)			(319,922	)			—				—
Other financing costs			—				—				(11,287	)			—
Foreign currency loss and other			(439	)			(270	)			(2,384	)			(1,088	)
Total other expense			(2,694	)			(348,981	)			(11,112	)			(37,316	)
Loss before income taxes			(6,793	)			(439,163	)			(242,437	)			(220,868	)
Income tax benefit			10,304				38,244				39,458				5,633
Net income (loss)		$	3,511			$	(400,919	)		$	(202,979	)		$	(215,235	)
Earnings (loss) per share:
Basic		$	0.35			$	(15.47	)		$	(8.09	)		$	(8.70	)
Diluted		$	0.35			$	(15.47	)		$	(8.09	)		$	(8.70	)
Weighted average shares outstanding:
Basic			9,998				25,917				25,094				24,729
Diluted			9,998				25,917				25,094				24,729

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

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

		Successor				Predecessor
		Period from November 15				Period from January 1
		Through December 31, 2017				Through November 14, 2017				Year Ended December 31,
										2016				2015
						(In thousands)
Net income (loss)		$	3,511			$	(400,919	)		$	(202,979	)		$	(215,235	)
Comprehensive income:
Foreign currency and other gain (loss)			2,977				29,301				(52,168	)			(65,569	)
Total comprehensive income (loss)		$	6,488			$	(371,618	)		$	(255,147	)		$	(280,804	)

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

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

		Common Stock at $0.01 Par Value				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (loss)				Treasury Stock								Deferred Compensation				Total Stockholders’ Equity
																		Shares				Share Value
Predecessor
Balance at December 31, 2014		$	271			$	410,641			$	659,403			$	(30,665	)			(2,484	)		$	(78,441	)		$	7,544			$	968,753
Net loss			—				—				(215,235	)			—				—				—				—				(215,235	)
Issuance of common stock			3				9,890				—				—				—				—				—				9,893
Deferred compensation plan			—				(3,242	)			—				—				(104	)			(1,176	)			1,176				(3,242	)
Treasury stock activity (net)			—				—				—				—				45				3,695				—				3,695
Forfeiture of dividends			—				—				13				—				—				—				—				13
Translation adjustment			—				—				—				(65,569	)			—				—				—				(65,569	)
Balance at December 31, 2015			274				417,289				444,181				(96,234	)			(2,543	)			(75,922	)			8,720				698,308
Net loss			—				—				(202,979	)			—				—				—				—				(202,979	)
Issuance of common stock			4				6,265				—				—				—				—				—				6,269
Deferred compensation plan			—				(11,571	)			—				—				(263	)			(415	)			415				(11,571	)
Treasury stock activity (net)			—				—				—				—				220				11,757				—				11,757
Dividends paid			—				—				5				—				—				—				—				5
Translation adjustment			—				—				—				(52,168	)			—				—				—				(52,168	)
Balance at December 31, 2016			278				411,983				241,207				(148,402	)			(2,586	)			(64,580	)			9,135				449,621
Net loss			—				—				(400,919	)			—				—				—				—				(400,919	)
Issuance of common stock			18				3,718				—				—				—				—				—				3,736
Deferred compensation plan			—				(29,685	)			—				—				(945	)			(193	)			193				(29,685	)
Treasury stock activity (net)			—				—				—				—				842				29,892				—				29,892
Stock compensation tax adjustment			—				—				5,931				—				—				—				—				5,931
Translation adjustment			—				—				—				29,301				—				—				—				29,301
Balance at November 14, 2017 (Predecessor)			296				386,016				(153,781	)			(119,101	)			(2,689	)			(34,881	)			9,328				87,877
Cancellation of Predecessor equity			(296	)			(386,016	)			153,781				119,101				2,689				34,881				(9,328	)			(87,877	)
Balance at November 14, 2017 (Predecessor)		$	—			$	—			$	—			$	—				—			$	—			$	—			$	—
Successor
Issuance of Successor common stock-
Rights offering		$	43			$	124,936			$	—			$	—				—			$	—			$	—			$	124,979
Backstop commitment premium			4				7,496				—				—				—				—				—				7,500
Exchange of claims			23				185,500				—				—				—				—				—				185,523
Net income			—				—				3,511				—				—				—				—				3,511
Deferred compensation plan			—				—				—				—				(2	)			(70	)			70				—
Translation adjustment			—				—				—				2,977				—				—				—				2,977
Balance at December 31, 2017		$	70			$	317,932			$	3,511			$	2,977				(2	)		$	(70	)		$	70			$	324,490

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

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Successor				Predecessor
		Period from November 15				Period from January 1, 2017
		to December 31, 2017				to November 14, 2017				Year Ended December 31,
										2016				2015
						(In thousands)
Cash flows from operating activities:
Net income (loss)		$	3,511			$	(400,919	)		$	(202,979	)		$	(215,235	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			4,425				47,721				58,182				72,591
Amortization of deferred financing costs			275				10,314				3,254				2,394
Amortization of stock-based compensation			—				2,805				5,209				6,735
Provision for doubtful accounts receivable, net of write offs			—				879				1,801				(862	)
Deferred income tax provision (benefit)			(9,658	)			66,004				(38,456	)			(3,784	)
Loss on sale of assets			—				5,207				8,564				1,160
Impairment charges			—				—				162,808				152,103
Gain on extinguishment of debt			—				—				(35,912	)			(458	)
Other financing costs			—				—				5,988				—
Foreign currency (gain) loss			392				(428	)			1,025				(160	)
Reorganization items, net			—				188,286				—				—
Change in operating assets and liabilities —
Accounts receivable			(1,275	)			3,205				15,144				47,317
Prepaids and other			714				(3,229	)			1,677				214
Accounts payable			424				238				(593	)			(8,602	)
Other accrued liabilities and other			(8,064	)			16,099				(9,051	)			(10,056	)
Net cash (used in) provided by operating activities			(9,256	)			(63,818	)			(23,339	)			43,357
Cash flows from investing activities:
Purchases of vessels, equipment and other fixed assets			(141	)			(24,983	)			(16,188	)			(35,428	)
Release of deposits held in escrow			—				—				—				3,683
Proceeds from disposition of vessels, equipment and other fixed assets			—				3,065				6,529				8,910
Net cash used in investing activities			(141	)			(21,918	)			(9,659	)			(22,835	)
Cash flows from financing activities:
Proceeds from debt, net of direct financing cost			—				227,443				—				—
Repayments of debt			—				(187,637	)			—				—
Rights offering proceeds			—				124,979				—				—
Repuchase of 6.375% senior notes			—				—				(33,448	)			(542	)
Repayment of revolving loan facility			—				—				(5,000	)			(91,000	)
Borrowings under revolving loan facility, net			—				—				65,194				47,000
Debt issuance costs			(862	)			(9,398	)			(971	)			(3,566	)
Other financing costs			—				(4,299	)			(5,988	)			—
Proceeds from issuance of stock			—				—				380				827
Net cash provided by (used in) financing activities			(862	)			151,088				20,167				(47,281	)
Effect of exchange rate changes on cash			(67	)			765				(286	)			(2,087	)
Net increase (decrease) in cash and cash equivalents			(10,326	)			66,117				(13,117	)			(28,846	)
Cash and cash equivalents at beginning of year			74,939				8,822				21,939				50,785
Cash and cash equivalents at end of year		$	64,613			$	74,939			$	8,822			$	21,939
Supplemental cash flow information:
Interest paid, net of interest capitalized		$	1			$	7,514			$	30,820			$	29,834
Income taxes paid, net		$	—			$	1,456			$	2,124			$	2,048

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

GULFMARK OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

GulfMark Offshore, Inc. and its subsidiaries (collectively referred to as “we”, “us”, “our” or the “Company”) own and operate offshore supply vessels, principally in the North Sea, offshore Southeast Asia and offshore the Americas. The vessels provide transportation of materials, supplies and personnel to and from offshore platforms and drilling rigs. Some of these vessels also perform anchor handling and towing services.

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 the 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. For a more detailed discussion of our bankruptcy proceedings and our emergence from bankruptcy, see Note 2.

On the Effective Date, we adopted and applied the relevant guidance with respect to the accounting and financial reporting for entities that have emerged from bankruptcy proceedings, or Fresh Start Accounting. Under Fresh Start Accounting, our balance sheet on the Effective Date reflects all of our assets and liabilities at their fair values. Our emergence and the adoption of Fresh Start Accounting resulted in a new reporting entity, or the Successor, for financial reporting purposes. To facilitate our discussion and analysis of our vessels, financial condition and results of operations herein, we refer to the reorganized company as the Successor for periods subsequent to November 14, 2017 and the Predecessor for periods prior to November 15, 2017. For a more detailed discussion, including the disclosure of our final Predecessor balance sheet as of November 14, 2017 and our beginning Successor balance sheet as of November 15, 2017, see Note 2.

Principles of Consolidation

Our consolidated financial statements include our accounts and those of our majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The accompanying consolidated financial statements include significant estimates for allowance for doubtful accounts receivable, depreciable lives of vessels and equipment, income taxes and commitments and contingencies. While we believe current estimates are reasonable and appropriate, actual results could differ from these estimates.

Cash and Cash Equivalents

Our investments, consisting of U.S. Government securities and commercial paper with original maturities of up to three months, are included in cash and cash equivalents in the accompanying consolidated balance sheets and consolidated statements of cash flows.

Vessels and Equipment

Vessels and equipment are stated at cost, net of accumulated depreciation, which is provided by the straight-line method over their estimated useful life. At the date of emergence from bankruptcy, we adopted new accounting policies to reflect our change in estimates related to useful lives of our vessels and estimated salvage value of our vessels. The Successor is depreciating the cost of our vessels over 20 years to an estimated salvage value of five percent of original cost. The Predecessor depreciated the cost of our vessels over 25 years to an estimated salvage value of 15 percent of original cost. Interest is capitalized in connection with the construction of vessels. The capitalized interest is included as part of the asset to which it relates and is depreciated over the asset’s estimated useful life. In  the Successor 2017 period we did not capitalize any interest. In the Predecessor 2017 period we capitalized $0.1 million and in the Predecessor years ended December 31, 2016 and 2015 we capitalized $2.6 million and $5.0 million, respectively. Office equipment, furniture and fixtures, and vehicles are depreciated over two to five years.

We incur significant costs for each vessel every 30 months for scheduled drydocks which are required to maintain our vessels in class. At the date of emergence from bankruptcy, the Successor adopted an accounting policy whereby we capitalize drydock costs and amortize the expense over 30 months. The Predecessor expensed drydock costs as they were incurred.

Major renovation costs and modifications that extend the life or usefulness of the related assets are capitalized and depreciated over the assets’ estimated remaining useful lives. Maintenance and repair costs are expensed as incurred. Included in the consolidated statements of operations for the Successor 2017 period is $1.5 million of maintenance and repairs. In the Predecessor 2017 period and the Predecessor years ended December 31, 2016 and 2015, we recorded $9.0 million, $9.3 million and $19.3  million, respectively, of costs for maintenance and repairs.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever there is evidence that the carrying amount of such assets may not be recoverable. This review consists of comparing the carrying amount of the asset with its expected future undiscounted cash flows before tax and interest costs. If the asset’s carrying amount is less than such cash flow estimate, it is written down to its fair value on a discounted cash flow basis. Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions. Any impairment recognized is permanent and may not be restored. See Note 3 for the results of our impairment analyses.

Fair Value of Financial Instruments

Our financial instruments consist primarily of accounts receivable and payable (which are stated at carrying value which approximates fair value) and long-term debt. Periodically, we enter into forward derivative contracts to hedge our exposure to interest rate or foreign currency fluctuations. In the past, we have had open positions in such derivative contracts that are considered financial instruments for which we would disclose certain fair value information. As of December  31, 2017 for the Successor and December  31, 2016 for the Predecessor, there were no forward derivative open contracts.

Deferred Costs and Other Assets

Deferred costs and other assets consist primarily of deferred financing costs for revolving credit arrangements, deferred vessel mobilization costs and deferred drydock costs. Deferred financing costs are amortized over the expected term of the related debt. Should the debt for which a deferred financing cost has been recorded terminate by means of payment in full, tender offer or lender termination, the associated deferred financing costs would be immediately expensed.

In connection with new long-term contracts, costs incurred that directly relate to mobilization of a vessel from one region to another are deferred and recognized over the primary contract term. Should either party terminate the contract prior to the end of the original contract term, the deferred amount would be immediately expensed. Costs of relocating vessels from one region to another without a contract are expensed as incurred.

Revenue Recognition

Revenue from charters for offshore marine services is recognized as performed based on contractual charter rates and when collectability is reasonably assured. Currently, charter terms range from as short as several days to as long as 5  years in duration. Management services revenue is recognized in the period in which the services are performed.

Income Taxes

We recognize the amount of current year income taxes payable or refundable and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns previously filed. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates and laws in effect for the years in which the differences are expected to reverse. The likelihood and amount of future taxable income and tax planning strategies are included in the criteria used to determine the timing and amount of net deferred tax assets recognized for net operating loss and tax credit carry-forwards in our consolidated financial statements. These deferred tax assets are, when appropriate, reduced by a valuation allowance resulting in net deferred tax assets that are more likely than not to be realized.

A significant amount of judgment in our use of assumptions and estimates is required in our methodology for determining and recording income taxes. In some instances we use forecasts of expected operations and related tax implications and we consider the possibility of implementing tax planning strategies. Such variables can result in uncertainty and measurable variation between anticipated and actual results can occur. Changes to these variables as a result of unforeseen events may have a material impact on our income tax accounts.

In recent years we have had operations in over 40 countries and are or have been subject to a significant number of taxing jurisdictions. Our income earned in these jurisdictions is taxed on various bases, including actual income earned, deemed profits, and revenue based withholding taxes. Our income tax determinations involve the interpretation of applicable tax laws, tax treaties, and related tax rules and regulations of those jurisdictions. Changes in tax law, currency/repatriation controls and interpretation of local tax laws by the relevant tax authority could impact our income tax liabilities or assets in those jurisdictions.

On December 22, 2017, the statute originally named the Tax Cuts and Jobs Act, or the 2017 Tax Act, was signed into law making significant changes to the Internal Revenue Code, or the Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017 as well as a one-time transition tax related to the U.S. taxation of foreign earnings and profits that had not been previously taxed in the U.S. We have estimated our provision for income taxes in accordance with the 2017 Tax Act guidance available as of the date of this report and as a result have recorded $15.2 million as additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted.

On December 22, 2017, Staff Accounting Bulletin No. 118, or SAB 118, was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. In accordance with SAB 118, we have determined that the $15.2 million of the deferred tax benefit recorded in connection with the one-time transition tax on foreign earnings and profits and the remeasurement of certain deferred tax assets and liabilities are provisional amounts and represent a reasonable estimate at December 31, 2017. Any subsequent adjustment to these amounts will be recorded to income tax expense in the quarter of 2018 when the analysis is complete.

In addition, we also account for uncertainty in income taxes by utilizing a more likely than not, or greater than 50% probability, minimum recognition threshold for measurement of a tax position taken or expected to be taken in a tax return that would be sustained upon examination by the relevant tax authorities. We recognize penalties and/or interest related to uncertain tax benefits as a component of income tax expense. Numerous factors contribute to our evaluation and estimation of our tax positions and related tax liabilities and /or benefits, which may be adjusted periodically and may be resolved differently than we anticipate. See Note 7.

Foreign Currency Translation

The local currencies of the majority of our foreign operations have been determined to be their functional currencies, except for certain foreign operations whose functional currency has been determined to be the U.S. Dollar, based on an assessment of the economic circumstances of the foreign operations. Assets and liabilities of our foreign affiliates are translated at year-end exchange rates, while revenue and expenses are translated at average rates for the period. As a result, amounts related to changes in assets and liabilities reported in the consolidated statements of cash flows will not necessarily agree to changes in the corresponding balances on the consolidated balance sheets. We consider most intercompany loans to be long-term

investments; accordingly, the related translation gains and losses are reported as a component of stockholders’ equity. Transaction gains and losses are reported directly in the consolidated statements of operations. In the Successor 2017 period, the Predecessor 2017 period and during the Predecessor years ended December 31, 2016 and 2015 we reported net foreign currency losses in the amounts of $0.1 million, $0.3 million, $2.4  million and $1.1  million, respectively.

Concentration of Credit Risk

We extend credit to various companies in the energy industry that may be affected by changes in economic or other external conditions. Our policy is to manage our exposure to credit risk through credit approvals and limits. Our trade accounts receivable are aged based on contractual payment terms and an allowance for doubtful accounts is established in accordance with our written corporate policy. The age of the trade accounts receivable, customer collection history and management’s judgment as to the customer’s ability to pay are considered in determining whether an allowance is necessary. For the Successor period ended December 31, 2017, there were no significant write-offs or increases in our allowance for doubtful accounts and no customer accounted for 10% or more of the Successor’s total consolidated revenue. For the Predecessor period ended November 14, 2017, the Predecessor reserved $1.0 million related to Southeast Asia and Americas customers and had revenue from one customer in the Americas which accounted for 10% or more of total consolidated revenue, totaling $9.0 million or 10.2% of total consolidated revenue. In 2016, the Predecessor reserved $1.8 million related to three Southeast Asia customers. For the year ended December 31, 2016, no customer accounted for 10% or more of the Predecessor’s total consolidated revenue. For the year ended December  31, 2015, the Predecessor had revenue from one customer in the North Sea and one customer in the Americas which each accounted for 10% or more of total consolidated revenue, totaling $32.4 million and $31.9 million, respectively, or 23.5% of total consolidated revenue.

Stock-Based Compensation

The Predecessor had share-based compensation plans covering officers and other employees as well as the Predecessor Board of Directors. Stock-based grants made under the Predecessor’s stock plans were recorded at fair value on the date of the grant and the cost was recognized ratably over the vesting period for the restricted stock and the stock options. The fair value of stock option awards was determined using the Black-Scholes option-pricing model. Restricted stock awards were valued using the market price of the Predecessor’s Class A common stock on the grant date. Our stock-based compensation plans are more fully described in Note 9.

Our employee stock purchase plan would be considered compensatory whereby it allowed all of our U.S. employees and employees of participating subsidiaries to acquire shares of the Predecessor’s Class A common stock at 85% of the fair market value of the Class A common stock under a qualified plan as defined by Section 423 of the Code. The employee stock purchase plan was terminated in the first quarter of 2017.

Warrants

We account for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. The warrants to acquire shares of Successor common stock at an exercise price of $.01 per share, or the Noteholder Warrants, and the warrants to acquire shares of Successor common stock at an exercise price of $100.00 per share, or the Equity Warrants, both qualify for the scope exception in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, No. 815, “Derivatives and Hedging,” for derivative accounting and therefore qualify for classification as equity. The equity scope exception is subject to review in each subsequent reporting period.

Earnings Per Share

Basic earnings per share, or EPS, is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted EPS is computed using the treasury stock method for common stock equivalents. The Successor issued Noteholder Warrants to purchase common stock to certain of holders of the Predecessor’s long-term debt in the emergence from bankruptcy. The Noteholder

Warrants have an exercise price of $.01 per share and are immediately exercisable. As a result, the Noteholder Warrants are considered to be outstanding shares of common stock and are included in the denominator of both basic and diluted EPS. The Equity Warrants issued to the Predecessor’s stockholders are not participating securities and do not impact basic EPS prior to exercise.

Reclassifications

Certain reclassifications of previously reported information have been made to conform to the current year presentation.

New Accounting Pronouncements

In May 2014, the FASB, issued Accounting Standards Update, or ASU, 2014-09, “Revenue from Contracts with Customers.” The ASU will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the new standard is that a company will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for these goods or services. We have determined that the adoption of this standard will not have a material effect on our financial condition, results of operations, or cash flows. We are adopting this standard effective January 1, 2018 using the retrospective option with practical expedients.

In February 2016, the FASB issued ASU 2016-02, “Leases” to increase transparency and comparability among organizations by recognizing all leases on the balance sheet and disclosing key information about leasing arrangements. The main difference between current accounting standards and ASU 2016-02 is the recognition of assets and liabilities by lessees for those leases classified as operating leases under current accounting standards. While we are continuing to assess all potential impacts of these standards, we expect the measurement and recording of our revenues related to the offshore marine support and transportation services to remain substantially unchanged. However, the actual revenue recognition treatment required under the new standard may be dependent on contract-specific terms and may vary in some instances. The new standard is effective for fiscal years beginning after December 15, 2018. We intend to adopt the new lease standard on January 1, 2019.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows  Classification of Certain Cash Receipts and Cash Payments.” The objective of the new standard is to eliminate diversity in practice related to the classification of certain cash receipts and payments by adding or clarifying guidance on eight classification issues related to the statement of cash flows. This standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017. The standard should be applied retrospectively to all periods presented. The adoption of this standard will not have a material effect on our financial condition or results of operations. We are adopting this standard effective January 1, 2018.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory.” This standard requires recognition of tax consequences in the period in which a transfer takes place, with the exception of inventory transfers. There will be an immediate effect on earnings if the tax rates in the tax jurisdictions of the selling entity and buying entity are different. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of this standard will not have a material effect on our financial condition or results of operations. We are adopting this standard effective January 1, 2018.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The ASU is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows and requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of this standard will not have a material effect on our financial condition or results of operations. We are adopting this standard January 1, 2018.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations - Clarifying the Definition of a Business” to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective in annual periods beginning after December 15, 2017. The adoption of this standard will not have a material effect on our financial condition or results of operations. We are adopting this standard effective January 1, 2018.

(2) EMERGENCE FROM BANKRUPTCY PROCEEDINGS AND FRESH START ACCOUNTING

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.

Restructuring Support Agreemen t

On May 15, 2017, the Predecessor entered into a restructuring support agreement, or the RSA, with holders, or the Noteholders, of approximately 50% of the aggregate outstanding principal amount of the Predecessor’s senior notes, to support a restructuring on the terms of the Plan. The RSA provided for, among other things, the Predecessor’s $125 million cash rights offering, or the Rights Offering. Upon emergence from bankruptcy, we implemented the provisions of the RSA in accordance with the Plan on the Effective Date as follows:

 

•

Pursuant to the Rights Offering (subject to Jones Act limitations described below), eligible Noteholders purchased their pro rata share of 60% of the common stock of the Successor, or as applicable, Noteholder Warrants, or the Successor Equity. The Rights Offering was backstopped by certain Noteholders for a 6.0% commitment premium that was paid with an additional 3.6% of the Successor Equity. The participants in the Rights Offering received 4,340,733 shares of common stock and 1,659,269 Noteholder Warrants. In addition, the Noteholders that agreed to backstop the Rights Offering received 360,000 shares of common stock.

 

•

Each holder of the Predecessor’s senior notes received (subject to Jones Act limitations described below) its pro rata share of 35.65% of the Successor Equity, or 2,267,408 shares of common stock and 1,297,590 Noteholder Warrants.

 

•

The Jones Act, which applies to companies that engage in coastwise trade, requires that, among other things, with respect to a publicly traded company, the aggregate ownership of common stock by non-U.S. citizens be not more than 25% of its outstanding common stock. On the Effective Date, certain Noteholders who were eligible to receive common stock of the Successor pursuant to the Plan or the Rights Offering but who were non-U.S. holders received Noteholder Warrants to acquire common stock of the Successor at an exercise price of $.01 per share.

 

•

Outstanding Class A common stock of the Predecessor was cancelled and each holder of such Class A common stock received its pro rata share of (a) common stock representing in the aggregate 0.75% of the Successor Equity, or 75,000 shares, and (b) Equity Warrants with an exercise price of $100 per share for 7.5% of the equity of the Successor, or 810,811 Equity Warrants.

 

•

The Successor Equity purchased in the Rights Offering, issued to pay the backstop premium, issued in exchange for the Predecessor’s senior notes or in exchange for Predecessor’s Class A common stock is subject to dilution by the Successor Equity issued or issuable under the proposed management incentive plan and upon exercise of the Equity Warrants.

 

•

The Predecessor repaid in full its debtor-in-possession financing. Holders of allowed claims arising under administrative expense claims, priority claims and other secured claims of the Predecessor have received or will receive payment in full in cash. The Successor will continue to pay any general unsecured claims in the ordinary course of business.

Fresh Start Accounting

We adopted Fresh Start Accounting on the Effective Date in connection with our emergence from bankruptcy. Upon emergence from the Chapter 11 Case, we qualified for and adopted Fresh Start Accounting in accordance with the provisions set forth in FASB ASC No. 852, “Reorganizations” as (i) holders of existing shares of the Predecessor immediately before the Effective Date received less than 50 percent of the voting shares of the Successor entity and (ii) the reorganization value of the Successor was less than its post-petition liabilities and estimated allowed claims immediately before the Effective Date. Under Fresh Start Accounting, our balance sheet on the date of emergence reflects all of our assets and liabilities at their fair

values. Our emergence and the adoption of Fresh Start Accounting resulted in a new reporting entity, or the Successor, for financial reporting purposes. To facilitate our discussion and analysis of our vessels, financial condition and results of operations herein, we refer to the reorganized company as the Successor for periods subsequent to November 14, 2017 and the Predecessor for periods prior to November 15, 2017. In addition, we adopted new accounting policies related to drydock expenditures and depreciation of our long-lived assets. See Note 1. As a result, our consolidated financial statements and the accompanying notes thereto after November 14, 2017 are not comparable to our consolidated financial statements and the accompanying notes thereto prior to November 15, 2017. Our presentations herein include a “black line” division to delineate and reinforce this lack of comparability. The effects of the Plan and the application of Fresh Start Accounting were reflected in the consolidated balance sheet as of November 14, 2017, and the related adjustments thereto were recorded in the consolidated statement of operations for the Predecessor period ended November 14, 2017.

Reorganization Value

As part of Fresh Start Accounting, we were required to determine the Reorganization Value of the Successor upon emergence from the Chapter 11 Case. Reorganization value represents the fair value of the Successor’s total assets prior to the consideration of liabilities and is intended to approximate the amount a willing buyer would pay for our assets immediately after a restructuring. The reorganization value, which was derived from the Successor’s enterprise value, was allocated to our individual assets based on their estimated fair values (except for deferred income taxes) in accordance with FASB ASC No. 805, “Business Combinations.” The amount of deferred income taxes recorded was determined in accordance with FASB ASC No. 740, “Income Taxes.”

Enterprise value represents the estimated fair value of our long-term debt and shareholders’ equity. The Successor’s enterprise value, as approved by the Bankruptcy Court in support of the Plan, was estimated to be within a range of $300 million to $400 million. Based on the estimates and assumptions utilized in our Fresh Start Accounting process, we estimated the Successor’s enterprise value to be approximately $336 million. Fair values are inherently subject to significant uncertainties and contingencies beyond our control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially.

The following table reconciles the enterprise value to the estimated fair value of our Successor common stock as of the Effective Date (in thousands, except shares outstanding):

 

Enterprise value		$	335,862
Plus: Cash and cash equivalents			74,939
Less: Fair value of debt			(92,799	)
Less: Fair value of warrants			(88,228	)
Fair value of Successor common stock		$	229,774
Shares outstanding as of November 14, 2017			7,041,521

The following table reconciles the enterprise value to the reorganization value of the Successor’s assets as of the Effective Date (in thousands):

 

Enterprise value		$	335,862
Plus: Cash and cash equivalents			74,939
Plus: Current liabilities			36,138
Plus: Non-current liabilities excluding long-term debt			35,075
Reorganization value		$	482,014

Reorganization Items

Our consolidated statements of operations for the Successor period ended December 31, 2017 and the Predecessor period ended November  14, 2017 include reorganization items which reflect gains recognized on the settlement of liabilities subject to compromise and costs and other expenses associated with the bankruptcy proceedings, principally professional fees as well as the Fresh Start Accounting adjustments. Similar costs that were incurred during the pre-petition periods have been reported as pre-petition restructuring charges in our consolidated statements of operations.

The following table summarizes the components included in reorganization items, in our consolidation statements of operations for the periods presented (in thousands):

 

		Successor												Predecessor
		November 15 Through December 31, 2017												January 1 Through November 14, 2017
Gains on the settlement of liabilities subject to compromise		$	—											$	(342,969	)
Fresh start accounting adjustments			—												633,970
Legal and professional fees and expenses			969												28,921
Total reduction in value of assets		$	969											$	319,922

Valuation Process

The fair values of the Successor’s assets were determined with the assistance of a third-party valuation expert. The reorganization value was allocated to our individual assets and liabilities based on their estimated fair values. Our principal assets are our platform supply vessels. For purposes of estimating the fair value of our vessels we used a combination of the discounted cash flow method (income approach) that we discounted at rates ranging between 18% to 29%, the guideline public company method (market approach) and the cost approach. The income approach was utilized to estimate the fair value of vessels that generated positive returns on projected cash flows over the remaining economic useful life of the vessels. The market approach was used to estimate the fair value of vessels with projected cash flow losses. The fair value of our other personal property was determined utilizing cost approach adjusted, as needed, for asset type, age, physical deterioration and obsolescence.

The spare parts inventory were valued primarily using a combination of either (i) a cost approach that incorporated depreciation and obsolescence to the extent applicable on an asset-by-asset basis or (ii) market data for comparable assets to the extent that such information was available.

The remaining reorganization value is attributable to cash and cash equivalents and working capital assets including accounts receivable and prepaids. Accounts receivable were subjected to analysis on an individual basis and reserved to the extent appropriate. The remaining assets approximate their fair values on the Effective Date.

Liabilities on the Effective Date include borrowings under our Term Loan Facility, working capital liabilities, long-term deferred income tax, other long-term income taxes payable and other liabilities which are primarily multi-employer pension obligations. The fair value of borrowings under our Term Loan Facility was determined by reviewing the agreement governing the Term Loan Facility, analyzing the terms and comparing the interest rate to market rates. It was determined that the face value of the borrowings under our Term Loan Facility approximates fair value. See Note 5. Our working capital liabilities are obligations in the ordinary course of business and their carrying amounts approximate their fair values. The multi-employer pension obligations were valued at the present value of amounts expected to be paid. Other income taxes payable reflects amounts expected to be paid for income tax related penalties and interest as well as liabilities for uncertain tax positions.

The fair value of the Noteholder Warrants was determined utilizing the closing trading price of our common stock, subsequent to the Effective Date, less the $0.01 strike price. The fair value of the Equity Warrants was determined utilizing the Black Scholes Valuation model.

Although we believe the assumptions and estimates used to develop enterprise value and reorganization value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment.

Reorganization adjustments

 

(1)	Represents the net cash payments that occurred on the Effective Date

 

Sources:
Proceeds from the Term Loan		$	100,000
Proceeds from the Rights Offering			124,979
Total sources						$	224,979
Uses:
Repayment of Multi Currency Facility Agreeement		$	72,000
Accrued interest payable on Multi Currency Facility Agreement			958
Repayment of Norwegian Facility Agreement			45,817
Accrued interest payable on Norwegian Facility Agreement			502
Repayment of Debtor in Possession financing			29,000
Accrued interest payable on Debtor in Possession financing			187
Debt issuance costs on the Term Loan and Revolving Credit Facility			6,706
Professional and success fees paid on the Effective Date			4,394
Payment of certain allowed claims			5,376
Total uses							164,940
						$ 60,039

 

(2)	Represents the capitalization of annual administration fee attributable to the $25 million Revolving Credit Facility and the $100 million Term Loan

(3)	Represents capitalization of debt issuance costs attributable to the $25 million Revolving Credit Facility

(4)	Represents repayment of Multi Currency Facility Agreement and Norwegian Facility Agreement

(5)	Represents repayment of Debtor in Possession financing

(6)	Represents payment of allowed claims

(7)	Represents payments of cash obligations under deferred compensation arrangements

(8)	Represents payments of interest payable on the Multi Currency Facility Agreement, the Norwegian Facility Agreement and the Debtor in Possession financing

(9)	Represents accrual for the remaining unpaid administrative expense claims

(10)	Represents initial borrowings under the Term Loan of $100 million, less debt issuance costs of $7.2 million

(11)	Liabilities subject to compromise and gain on settlement of liabilities subject to compromise are as follows:

 

Senior Notes		$	429,640
Accrued interest on the Senior Notes			18,484
Total liabilities subject to compromise		$	448,124
Fair value of equity and warrants issued to Predecessor Noteholders			(105,155	)
Gain on settlement of liabilities subject to compromise		$	342,969

(12)	Represents the cancellation of the Predecessor common stock and related components of the Predecessor equity

(13)

Represents the issuance of Successor equity. The Successor issued approximately 7 million shares of new common stock including approximately 6.9 million shares to the Predecessor Noteholders and 0.1 million shares to the holders of the Predecessor Stock. Also approximately 3 million Noteholder Warrants were issued upon emergence to the Predecessor Noteholders with an exercise price of $0.01 per share which were valued a $29.49 per share. Additionally, approximately 811,000 Equity Warrants were issued to the holders of Predecessor Stock with an exercise price of $100 per share. The value of each Equity Warrant was estimated at $1.27 per share

(14)	Represents the cumulative impact of the reorganization adjustments described above

Fresh Start Adjustments

 

(15)	Represents the Fresh Start Accounting valuation adjustments applied to our vessels and spare parts inventory of the Company, combined with the related tax effects resulting from reduction in the book basis of these assets

(16)	Represents the cumulative impact of the Fresh Start Accounting adjustments discussed above

(3) IMPAIRMENT CHARGES

Reduction in Value of Long-lived Assets and Goodwill

Our tangible long-lived assets consist primarily of vessels and construction-in-progress. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We assess potential impairment by comparing the carrying values of the long-lived assets to the undiscounted cash flows expected to be received from those assets. If impairment is indicated, we determine the amount of impairment expense by comparing the carrying value of the long-lived assets with their fair market value. We base our undiscounted cash flow estimates on, among other things, historical results adjusted to reflect the best estimate of future operating performance. We obtain estimates of fair value of our vessels from independent appraisal firms. Management’s assumptions are an inherent part of our asset impairment evaluation, and the use of different assumptions could produce results that differ from those reported.

Beginning in late 2014, the oil and gas industry experienced a significant decline in the price of oil causing an industry-wide downturn that continues into 2018. Prices continued to decline throughout 2015 and into 2016, reaching a low of less than $30 per barrel in early 2016. Prices began to recover over the remainder of 2016, stabilizing at over $40 per barrel for much of the second and third quarters of 2016 and further increasing to over $50 per barrel by year end. Prices are subject to significant uncertainty and continue to be volatile, declining again in early 2017 before recovering to over $60 per barrel in January 2018. The downturn of the last few years has significantly impacted the operational plans for oil companies, resulting in reduced expenditures for exploration and production activities, and consequently has adversely affected the drilling and support service sector. The decrease in day rates and utilization for offshore vessels has been significant. In addition, the independent appraisal firms have lowered the fair value estimates related to our vessels in each quarter since the fourth quarter of 2014. As a result of these factors, we have performed a number of reviews for impairment since the fourth quarter of 2014.

See the discussions below detailing our impairment analyses and processes for each of goodwill, long-lived assets, intangible assets, vessel components and assets held for sale. The components of reduction in value of assets are as follows (in thousands):

 

		Successor				Predecessor
		November 15 Through December 31, 2017				January 1 Through November 14, 2017				Year Ended December 31,
										2016				2015
Goodwill impairment		$	—			$	—			$	—			$	22,554
Long-lived assets impairment			—				—				160,222				115,489
Intangible asset impairment			—				—				—				13,695
Vessel component impairment			—				—				2,586				365
Total reduction in value of assets		$	—			$	—			$	162,808			$	152,103