XNYS:TDW Tidewater Inc Annual Report 10-K Filing - 3/31/2012

Effective Date 3/31/2012

XNYS:TDW (Tidewater Inc): Fair Value Estimate
Premium
XNYS:TDW (Tidewater Inc): Consider Buying
Premium
XNYS:TDW (Tidewater Inc): Consider Selling
Premium
XNYS:TDW (Tidewater Inc): Fair Value Uncertainty
Premium
XNYS:TDW (Tidewater Inc): Economic Moat
Premium
XNYS:TDW (Tidewater Inc): Stewardship
Premium
 
Form 10-K
Table of Contents
Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

March 31, 2012 For the fiscal year ended March 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission file number: 1-6311

Tidewater Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   LOGO   72-048776
(State of incorporation)     (I.R.S. Employer Identification No.)

 

601 Poydras St., Suite 1900

New Orleans, Louisiana

    70130
(Address of principal executive offices)     (Zip Code)

Registrant’s telephone number, including area code: (504) 568-1010

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

  

Name of each exchange on which registered

Common Stock, par value $0.10    New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨


Table of Contents
Index to Financial Statements

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer x    Accelerated filer ¨        Non-accelerated filer ¨      Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No x

As of September 30, 2011, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was $2,162,374,995 based on the closing sales price as reported on the New York Stock Exchange of $42.50.

As of April 30, 2012, 51,252,071 shares of Tidewater Inc. common stock $0.10 par value per share were outstanding. Registrant has no other class of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2012 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s last fiscal year is incorporated by reference into Part III of this Annual Report on Form 10-K.


Table of Contents
Index to Financial Statements

TIDEWATER INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2012

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENT

     4   

PART I

     4   

ITEM 1.

   BUSINESS      4   

ITEM 1A.

   RISK FACTORS      17   

ITEM 1B.

   UNRESOLVED STAFF COMMENTS      24   

ITEM 2.

   PROPERTIES      24   

ITEM 3.

   LEGAL PROCEEDINGS      24   

ITEM 4.

   MINE SAFETY DISCLOSURE      24   

PART II

        25   

ITEM 5.

   MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES      25   

ITEM 6.

   SELECTED FINANCIAL DATA      27   

ITEM 7.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      28   

ITEM 7A.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      70   

ITEM 8.

   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA      72   

ITEM 9.

   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE      72   

ITEM 9A.

   CONTROLS AND PROCEDURES      72   

ITEM 9B.

   OTHER INFORMATION      73   

PART III

        74   

ITEM 10.

   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      74   

ITEM 11.

   EXECUTIVE COMPENSATION      74   

ITEM 12.

   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS      74   

ITEM 13.

   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE      74   

ITEM 14.

   PRINCIPAL ACCOUNTING FEES AND SERVICES      74   

PART IV

        75   

ITEM 15.

   EXHIBITS, FINANCIAL STATEMENT SCHEDULES      75   

SIGNATURES OF REGISTRANT

     80   

 

3


Table of Contents
Index to Financial Statements

FORWARD-LOOKING STATEMENT

In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, this Annual Report on Form 10-K and the information incorporated herein by reference contain certain forward-looking statements which reflect the company’s current view with respect to future events and financial performance. All such forward-looking statements are subject to risks and uncertainties, and the company’s future results of operations could differ materially from its historical results or current expectations reflected by such forward-looking statements. Some of these risks are discussed in this report and in Item 1A. “Risk Factors” and include, without limitation, volatility in worldwide energy demand and oil and gas prices; fleet additions by competitors and industry overcapacity; changes in capital spending by customers in the energy industry for offshore exploration, field development and production; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; uncertainty of global financial market conditions and difficulty in accessing credit or capital; acts of terrorism and piracy; significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation, especially in higher political risk countries where we operate; foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight following the Deepwater Horizon incident; and enforcement of laws related to the environment, labor and foreign corrupt practices.

Forward-looking statements, which can generally be identified by the use of such terminology as “may,” “expect,” “anticipate,” “estimate,” “forecast,” “believe,” “think,” “could,” “continue,” “intend,” “seek,” “plan,” and similar expressions contained in this report, are predictions and not guarantees of future performance or events. Any forward-looking statements are based on the company’s assessment of current industry, financial and economic information, which by its nature is dynamic and subject to rapid and possibly abrupt changes. The company’s actual results may differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments that affect us will be those that we anticipate and have identified. The forward-looking statements should be considered in the context of the risk factors listed above and discussed in greater detail elsewhere in this Annual Report on Form 10-K. Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events or developments.

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. The company does so for the convenience of our investors and potential investors and in an effort to provide information available in the market that will lead to a better understanding of the market environment in which the company operates. The company specifically disclaims any responsibility for the accuracy and completeness of such information and undertakes no obligation to update such information.

PART I

ITEM 1.    BUSINESS

Tidewater Inc., a Delaware corporation that is a listed company on the New York Stock Exchange under the symbol “TDW”, provides offshore service vessels and marine support services to the global offshore energy industry through the operation of a diversified fleet of marine service vessels. The company was incorporated in 1956 and conducts its operations through wholly-owned United States (U.S.) and international subsidiaries, as well as through joint ventures in which Tidewater has majority and sometimes minority interests (where required to satisfy local ownership or content requirements). Unless otherwise required by the context, the term “company” as used herein refers to Tidewater Inc. and its consolidated subsidiaries.

About Tidewater

The company provides offshore vessel services in support of all phases of offshore exploration, field development and production, including towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore

 

4


Table of Contents
Index to Financial Statements

construction, ROV operations, and seismic support; and a variety of specialized services such as pipe and cable laying. The size and composition of the company’s offshore service vessel fleet includes vessels that are operated under joint ventures, as well as vessels that have been stacked or withdrawn from service.

The company has one of the broadest operating global footprints in the offshore energy industry with operations in most of the world’s significant crude oil and natural gas exploration and production offshore regions so we can be close to our customers. Our wide operating footprint facilitates strong customer relationships and the ability to react quickly to local market conditions and changing customer needs. The company is also one of the most experienced international operators in the offshore energy industry with over five decades of international experience.

At March 31, 2012, the company had 342 vessels (of which 10 were owned by joint ventures, 67 were stacked and two were withdrawn from service) available to serve the global energy industry. Please refer to Note (1) of Notes to Consolidated Financial Statements included in Item 8 of this report for additional information regarding our stacked vessels and vessels withdrawn from service.

The company also operates two shipyards, which construct, modify and repair vessels. The shipyards perform both repair work and new construction work for outside customers, as well as the construction, repair and modification of the company’s own vessels.

Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with other energy service companies, our business activity is largely dependent on the level of drilling and exploration activity by our customers. Our customers’ business activity, in turn, is dependent on crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce reserves.

Offices and Facilities

The company’s worldwide headquarters and principal executive offices are located at 601 Poydras Street, Suite 1900, New Orleans, Louisiana 70130, and its telephone number is (504) 568-1010. The company’s U.S. marine operations are based in Amelia, Louisiana; Oxnard, California; and Houston, Texas. The company’s shipyards and shipyard operations are located in Houma, Louisiana. We conduct our international operations through facilities and offices located in over 30 countries. Our principal international offices and/or warehouse facilities, most of which are leased, are located in Rio de Janeiro and Macae, Brazil; Ciudad Del Carmen, Mexico; Port of Spain, Trinidad; Aberdeen, Scotland; Cairo, Egypt; Luanda and Cabinda, Angola; Lagos and Onne Port, Nigeria; Douala, Cameroon; Singapore; Perth, Australia; Shenzhen, China; Port Moresby, Papua New Guinea; Al Khobar, Kingdom of Saudi Arabia, and Dubai, United Arab Emirates. The company’s operations generally do not require highly specialized facilities, and suitable facilities are generally available on a lease basis as required.

Business Segments

During the quarter ended September 30, 2011, our International and United States segments were reorganized to form four new operating segments. We now manage and measure our business performance in four distinct operating segments which are based on our geographical organization: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe. Management decided to revise its reporting segments, largely because the company’s Sub-Saharan Africa/Europe and Latin American business regions had gained greater significance as a percentage of consolidated revenues and operating profit, while our former United States segment had declined in significance to consolidated revenues and operating profit. Prior period disclosures have been recast to reflect the change in reportable segments.

Our Americas segment includes the activities of our North American operations, which include the U.S. GOM and U.S. coastal waters of the Pacific and Atlantic oceans, Mexico, Trinidad and Brazilian operations. The Asia/Pacific segment includes our Australian and Southeast Asia and Pacific operations. Middle East/North Africa includes our operations in Egypt, the Arabian Gulf and India. Lastly, our Sub-Saharan Africa/Europe segment includes operations conducted along the East and West Coasts of Africa as well as operations around the Caspian Sea and the North Sea.

 

5


Table of Contents
Index to Financial Statements

The principal customers in each of these business segments are major and independent oil and natural gas exploration, field development and production companies; foreign government-owned or government-controlled organizations and other companies that explore and produce oil and natural gas; drilling contractors; and other companies that provide various services to the offshore energy industry, including but not limited to, offshore construction companies, diving companies and well stimulation companies.

The company’s vessels are geographically dispersed throughout the major offshore crude oil and natural gas exploration and development areas of the world. Although the company considers, among other things, mobilization costs and the availability of suitable vessels in its fleet deployment decisions, and cabotage rules in certain international countries occasionally restrict the ability of the company to move vessels between markets, the company’s diverse, mobile asset base and the wide geographic distribution of its vessel assets enable the company to respond relatively quickly to changing market conditions. As such, significant variations between various regions tend to be of a short-term duration, as we routinely move vessels between and within geographic regions.

Revenues in each of our segments are derived primarily from vessel time charter contracts that are generally three months to three years in duration as determined by customer requirements, and from time charter contracts on a “spot” basis, which is a short-term agreement (one day to three months) to provide offshore marine services to a customer for a specific short-term job. The base rate of hire for a term contract is generally a fixed rate, though some charter arrangements include clauses to recover specific additional costs.

In each of our business segments, and depending on vessel capabilities and availability, our vessels operate in the shallow, intermediate and deepwater offshore markets of the respective regions. The deepwater offshore market continues to be a growing sector in the offshore crude oil and natural gas markets due to technological developments that have made such exploration feasible. It is the one sector that has not experienced significant negative effects from the 2008-2009 global economic recession, largely because deepwater exploration and development typically involves significant capital investment and multi-year development plans. Such projects are generally underwritten by the participating exploration, development and production companies using relatively conservative assumptions in regards to crude oil and natural gas prices and therefore are not as susceptible to short-term fluctuations in the price of crude oil and natural gas. However, the April 2010 Deepwater Horizon incident did negatively affect the level of drilling activity off the continental shelf of the U.S. Gulf of Mexico (GOM) while the U.S. Department of the Interior, through the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE) evaluated the causes of the incident and announced plans for enhanced regulatory and safety oversight as a condition to granting additional drilling and exploration permits. The BOEMRE resumed deepwater exploration and drilling permitting by February 2011, although the pace of permitting has been slow. Also, in our Americas segment, drilling activity in the shallow and intermediate waters of the U.S. GOM has been negatively impacted by low natural gas prices.

Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report for a greater discussion of the company’s segments, including the macroeconomic environment we operated under. In addition, please refer to Note (14) of Notes to Consolidated Financial Statements included in Item 8 of this report for segment, geographical data and major customer information.

Geographic Areas of Operation

The company’s fleet is deployed in the major global offshore oil and gas areas of the world. The principal areas of the company’s operations include the U.S. GOM, the Persian/Arabian Gulf, and areas offshore Australia, Brazil, China, Egypt, India, Indonesia, Malaysia, Mexico, Thailand, Trinidad, and West and East Africa. The company regularly evaluates the deployment of its assets and repositions its vessels based on customer demand, relative market conditions, and other considerations.

 

6


Table of Contents
Index to Financial Statements

Revenues and operating profit derived from our marine operations along with total marine assets for our segments for the fiscal years ended March 31 are summarized below:

 

(In thousands)                           
      2012     2011     2010       

Revenues:

        

Vessel revenues:

        

Americas

   $         324,529        362,825        393,270     

Asia/Pacific

     153,752        176,877        170,358     

Middle East/North Africa

     109,489        92,151        93,379     

Sub-Saharan Africa/Europe

     472,698        419,360        481,155     

Other operating revenues

     6,539        4,175        30,472       
   $ 1,067,007        1,055,388        1,168,634     

 

Marine operating profit:

        

Vessel activity:

        

Americas

   $ 56,003        49,341        37,533     

Asia/Pacific

     16,125        22,308        49,049     

Middle East/North Africa

     805        18,990        29,936     

Sub-Saharan Africa/Europe

     97,142        82,993        145,032       
     170,075        173,632        261,550     

Corporate expenses

     (40,379     (46,361     (51,432  

Goodwill impairment

     (30,932                

Gain on asset dispositions, net

     17,657        13,228        28,178     

Other operating expenses

     (2,867     (1,163     2,034       

Operating income

   $ 113,554        139,336        240,330     

 

Total marine assets:

        

Americas

   $ 1,031,903        975,210        1,072,215     

Asia/Pacific

     654,357        583,569        436,985     

Middle East/North Africa

     405,625        369,122        192,938     

Sub-Saharan Africa/Europe

     1,565,260        1,325,657        1,174,202       

Total marine assets

   $ 3,657,145        3,253,558        2,876,340     

 

Please refer to Item 7 of this report and Note (14) of Notes to Consolidated Financial Statements included in Item 8 of this report for further disclosure of segment revenues, operating profits, and total assets by geographical areas in which the company operates.

Our Global Vessel Fleet

The company continues a disciplined vessel construction, acquisition and replacement program that was initiated with the intent of assuring the company’s presence in nearly all major oil and gas producing regions of the world through the replacement of aging vessels in the company’s fleet with fewer, larger, and more technologically sophisticated vessels. Since calendar 2000, the company has purchased and/or constructed 238 vessels at a total cost of approximately $3.4 billion and at March 31, 2012, has an additional 25 vessels under construction or committed to be purchased at a total cost of approximately $616.7 million. To date, the company has generally funded its vessel programs from its operating cash flows, funds provided by three private debt placements totaling $890 million in senior unsecured notes, a $125 million term bank loan, borrowings under revolving credit facilities, and various sales-leaseback arrangements.

The company’s strategy contemplates organic growth through the construction of vessels at a variety of shipyards worldwide and possible acquisitions of recently built vessels and/or other owners and operators having attractive offshore supply vessels and/ or vessel operations. The company has the largest number of new offshore supply vessels among its competitors in the industry, but it also has the largest number of older offshore supply vessels for which management regularly evaluates disposition and other alternatives. The company intends to pursue its long-term fleet replenishment and modernization strategy on a disciplined basis and, in each case, will carefully consider whether proposed investments and transactions have the appropriate risk/reward profile.

The average age of the company’s 330 owned or chartered vessel fleet (excluding joint-venture vessels and vessels withdrawn from service) in its fleet at March 31, 2012 is approximately 14.0 years. The average age of 215 newer vessels in the fleet (defined as those that have been acquired or constructed since calendar year 2000 as part of the company’s new build and acquisition program as discussed below) is approximately 5.7 years. The remaining 115 vessels have an average age of 29.6 years. Of the company’s 330 vessels,

 

7


Table of Contents
Index to Financial Statements

72 are deepwater class vessels, 185 are in the non-deepwater towing-supply/supply class vessels, 52 are crew/utility class vessels and 21 are offshore tugs.

At March 31, 2012, the company had agreements to acquire three vessels and commitments to build 22 vessels at a number of different shipyards around the world (with one of these vessels being constructed in the United States by the company’s wholly-owned shipyard, Quality Shipyards, L.L.C.) at a total cost, including contract costs and other incidental costs, of approximately $616.7 million. Of the 22 new-build vessels, two are anchor handling towing supply (AHTS) vessels and have 8,200 brake horsepower (BHP), 15 are platform supply vessels (PSVs) ranging between 1,900 and 6,360 deadweight tons of cargo capacity, one is a fast crew/supply boat and four are crewboats. Scheduled delivery for these newbuild vessels began in April 2012, with delivery of the final vessel expected in May 2014. The company currently is experiencing substantial delay with one fast, crew/supply boat under construction in Brazil that was originally scheduled to be delivered in September of 2009. A discussion of this matter is disclosed in the “Vessel Count, Dispositions, Acquisitions and Construction Programs” section of Item 7 and Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report.

Of the three vessels to be purchased, all three are deepwater PSVs. The aggregate approximate purchase price for these vessels is $58.4 million. The company took possession of one of the PSVs, which has 3,000 deadweight tons of cargo capacity, in April 2012 for a total cost of $19.8 million and expects to take possession of the remaining two PSVs, which have 3,500 deadweight tons of cargo capacity, in July 2012 and in September 2012 for a total aggregate cost of $38.6 million.

At March 31, 2012, the company had invested $244.5 million in progress payments towards the construction of 22 vessels and $12.9 million towards the purchase of the three PSVs. At March 31, 2012, the remaining expenditures necessary to complete construction of the 22 vessels currently under construction (based on contract prices) and to fund the acquisition of the three vessels was $359.3 million.

A discussion of the company’s capital commitments, scheduled delivery dates and vessel sales is disclosed in the “Vessel Count, Dispositions, Acquisitions and Construction Programs” section of Item 7 and Note (11) of Notes to Consolidated Financial Statements. The “Vessel Count, Dispositions, Acquisitions and Construction Programs” section of Item 7 also contains a table comparing the actual March 31, 2012 vessel count and the average number of vessels by class and geographic distribution during the three years ended March 31, 2012, 2011 and 2010.

Between April 1999 and March 2012, the company also sold, primarily to buyers that operate outside of our industry, 603 vessels. Most of the vessel sales were at prices that exceeded their carrying values. The vessel sales were accompanied by sales restrictions on competition or else the company determined that the prospects of the vessel competing with our ongoing business were low. In aggregate, proceeds from, and pre-tax gains on, vessel dispositions during this period approximated $650 million and $300 million, respectively.

Our Vessel Classifications

Our vessels regularly and routinely move from one operating area to another, often to and from offshore operating areas of different continents. We disclose our vessel statistical information, such as revenue, utilization and average day rates, by vessel class. Listed below are our five major vessel classes along with a description of the type of vessels categorized in each class and the services the respective vessels typically perform. Tables comparing the average size of the company’s marine fleet by class and geographic distribution for the last three fiscal years are included in Item 7 of this report.

Deepwater Vessels

Included in this vessel class are large (typically greater than 230-feet and/or with at least 2,801 tons in dead weight cargo carrying capacity) PSVs and large, higher-horsepower (generally greater than 10,000 horsepower) AHTS vessels. This vessel class is generally chartered to customers for use in transporting supplies and equipment from shore bases to deepwater and intermediate water depth offshore drilling rigs, platforms and other installations that operate in challenging environments and which typically involve complex projects. Platform supply vessels, which have large cargo capacities [both below deck (liquid mud tanks and dry bulk tanks) and above deck cargo capacities], serve drilling and production facilities and support offshore construction and maintenance work. The deepwater AHTS vessels are equipped to tow drilling rigs and other

 

8


Table of Contents
Index to Financial Statements

marine equipment, as well as to set anchors for the positioning and mooring of drilling rigs. Due to the challenging environment that deepwater offshore rigs, platforms and other installations operate in, our deepwater AHTS and PSVs are outfitted with dynamic positioning (anchorless station-keeping) capabilities, which are primarily driven by safety considerations that preclude vessels from physically mooring to the installations and because our customers demand a high level of safety and technological advancements to meet the more stringent regulatory standards especially in the wake of the Deepwater Horizon incident.

This class of vessel also includes specialty vessels that can support offshore well stimulation, construction work, subsea services and/or have fire fighting capabilities and/or accommodation facilities. These vessels are generally available for routine supply and towing services but are outfitted and primarily intended for specialty services. For example, these vessels can be equipped with a variety of lifting and deployment systems, including large capacity cranes, winches or reel systems. Included in the specialty vessel category is the company’s one multi-purpose platform supply vessel (MPSV), which is designed for subsea service and construction support activities and which is significantly larger in size, more versatile, and more specialized than the PSVs discussed above. The MPSV also commands a higher day rate because the vessel has higher construction cost, operating costs and because of the aforementioned capabilities.

Towing-Supply and Supply Vessels

This is the company’s largest fleet class by number of vessels. Included in this class are non-deepwater towing/supply vessels with horsepower below 10,000 BHP, and non-deepwater platform supply vessels, or PSVs that are generally less than 230 feet. The vessels in this class perform the same functions and services as their deepwater vessel class counterparts except they are generally chartered to customers for use in intermediate and shallow waters.

Crewboats and Utility Vessels

Crewboats and utility vessels are chartered to customers for use in transporting personnel and supplies from shore bases to offshore drilling rigs, platforms and other installations. These vessels are also often equipped for oil field security missions in markets where piracy, kidnapping or other potential violence presents a concern.

Offshore Tugs

Offshore tugs tow floating drilling rigs; assist in the docking of tankers; tow barges; assist pipe laying, cable laying and construction barges; and are used in a variety of other commercial towing operations, including towing barges carrying a variety of bulk cargoes and containerized cargo.

Other Vessels

The company’s “Other Vessels” included inshore tugs and production, line-handling and various other special purpose vessels. Inshore tugs, which are operated principally within inland waters, tow drilling rigs to and from their locations and tow-barges carrying equipment and materials for use principally in inland waters for drilling and production operations. Barges are either used in conjunction with company tugs or are chartered to others. The company sold its remaining “other” type vessels during the first quarter of fiscal 2010.

Revenue Contribution of Main Classes of Vessels

Revenues from vessel operations were derived from the following classes of vessels in the following percentages:

 

      Year Ended March 31,        
      2012      2011      2010        

Deepwater vessels

     44.2%         39.6%         31.9%      

Towing-supply/supply

     44.9%         49.2%         56.9%      

Crew/utility

     7.7%         7.8%         7.9%      

Offshore tugs

     3.2%         3.4%         3.3%        

 

9


Table of Contents
Index to Financial Statements

Shipyard Operations

Quality Shipyards, L.L.C., a wholly-owned subsidiary of the company, operates two shipyards in Houma, Louisiana, that construct, upgrade and repair vessels. The shipyards perform repair work and new construction work for third-party customers, as well as the construction, repair and modification of the company’s own vessels. During the last three fiscal years, Quality Shipyards, L.L.C. has constructed and delivered three 266-foot PSVs, and is currently constructing one 261-foot PSV for the company that is scheduled for delivery in October 2013. One of the 266-foot platform supply vessels was delivered in November 2011, while the other two were delivered at various times during fiscal 2010.

Customers and Contracting

The company’s operations are materially dependent upon the levels of activity in offshore crude oil and natural gas exploration, field development and production throughout the world, which is affected by trends in global crude oil and natural gas pricing, including expectations of future commodity pricing, which are ultimately influenced by the supply and demand relationship for these natural resources. The activity levels of our customers are also influenced by the cost of exploring for and producing crude oil and natural gas, which can be affected by environmental regulations, technological advances that affect energy production and consumption, significant weather conditions, the ability of our customers to raise capital, and local and international economic and political environments, including government mandated moratoriums. A discussion of current market conditions and trends appears under “Macroeconomic Environment and Outlook” in Item 7 of this report.

The company’s principal customers are major and independent oil and natural gas exploration, field development and production companies; foreign government-owned or government-controlled organizations and companies that explore and produce oil and natural gas; drilling contractors; and companies that provide other services to the offshore energy industry, including but not limited to, offshore construction companies, diving companies and well stimulation companies.

In recent years, consolidation of exploration, field development, and production companies has occurred which reduces the number of customers for the company’s vessels and services, and may negatively affect exploration, field development and production activity as consolidated companies generally focus initially on increasing efficiency and reducing costs and delay or abandon exploration activity with less promise. Such activity could adversely affect demand for our vessels, and reduce the company’s revenues. This trend is likely to continue in the future, although for every merger in the industry, there is frequently a start-up company that takes the place of the merged company, in numerical terms, if not in levels of activity.

Our primary source of revenue is derived from time charter contracts on our vessels on a rate per day of service basis; therefore, vessel revenues are recognized on a daily basis throughout the contract period. As noted above, these time charter contracts are generally either on a term or “spot” basis. There are no material differences in the cost structure of the company’s contracts based on whether the contracts are spot or term because the operating costs are generally the same without regard to the length of a contract.

The following table discloses our customers that accounted for 10% or more of total revenues during the years ended March 31:

 

      2012     2011     2010       

Chevron Corporation (including its worldwide subsidiaries and affiliates)

     17.4     16.2     18.3  

Petroleo Brasileiro SA

     14.6     15.4     13.1    

While it is normal for our customer base to change over time as our time charter contracts turn over, the unexpected loss of either or both of these two significant customers could, at least in the short term, have a material adverse effect on the company’s vessel utilization and its results of operations. The five largest customers of the company in aggregate accounted for approximately 43% of our fiscal 2012 total revenues, while the 10 largest customers in aggregate accounted for approximately 59% of the company’s fiscal 2012 total revenues.

 

10


Table of Contents
Index to Financial Statements

Competition

The principal competitive factors for the offshore vessel service industry are the suitability and availability of vessel equipment, price and quality of service. In addition, the ability to demonstrate a strong safety record and attract and retain qualified and skilled personnel are also important competitive factors. The company has numerous competitors in all areas in which it operates around the world, and the business environment in all of these markets is highly competitive.

The company’s diverse, mobile asset base and the wide geographic distribution of its assets generally enable the company to respond relatively quickly to changes in market conditions and to provide a broad range of vessel services to its customers around the world. We believe the company has a competitive advantage because of the size, diversity and geographic distribution of our vessel fleet. Economies of scale and experience level in the many areas of the world in which we operate are also considered competitive advantages as is the company’s strong financial position.

According to ODS-Petrodata, the global offshore supply vessel market at the end of April 2012 had approximately 410 new-build offshore support vessels (PSVs and anchor handlers only), under construction that are expected to be delivered to the worldwide offshore vessel market primarily over the next three years. The current worldwide fleet of these classes of vessels is estimated at approximately 2,745 vessels, of which Tidewater estimates more than 10% are stacked. An increase in worldwide vessel capacity could have the effect of lowering charter rates, particularly when there are lower levels of exploration, field development and production activity. The worldwide offshore marine vessel industry, however, also has a large number of aged vessels, including approximately 725 vessels, or 26%, of the worldwide offshore fleet, that are at least 25 years old and nearing or exceeding original expectations of their estimated economic lives. These older vessels, approximately one-third of which Tidewater estimates are already stacked, could potentially be removed from the market within the next few years if the cost of extending the vessels’ lives is not economically justifiable. Although the future attrition rate of these aging vessels cannot be determined with absolute certainty, the company believes that the retirement of a sizeable portion of these aged vessels could mitigate the potential negative effects of new-build vessels on vessel utilization and vessel pricing. Additional vessel demand could also be created by the addition of new drilling rigs and floating production units that are expected to be delivered and become operational over the next few years, which should help minimize the possible negative effects of the new-build offshore support vessels being added to the offshore support vessel fleet.

Challenges We Confront as an International Offshore Vessel Company

We operate in many challenging operating environments around the world that present varying degrees of political, social, economic and other uncertainties. We operate in markets where risks of expropriation, confiscation or nationalization of our vessels or other assets, terrorism, piracy, civil unrest, changing foreign currency exchange rates and controls, and changing political conditions, may adversely affect our operations. Although the company takes what it believes to be prudent measures to safeguard its property, personnel and financial condition against these risks, it cannot eliminate entirely the foregoing risks, though the wide geographic dispersal of the company’s vessels helps reduce the potential impact of these risks. In addition, immigration, customs, tax and other regulations (and administrative and judicial interpretations thereof) can have a material impact on our ability to work in certain countries and on our operating costs.

In some international operating environments, local customs or laws may require the company to form joint ventures with local owners or use local agents. The company is dedicated to carrying out its international operations in compliance with the rules and regulations of the Office of Foreign Assets Control (OFAC), the Trading with the Enemy Act, the Foreign Corrupt Practices Act (FCPA), and other applicable laws and regulations. The company has adopted policies and procedures to mitigate the risks of violating these rules and regulations.

Sonatide Joint Venture

The company has previously announced that its existing Sonatide joint venture agreement with Sonangol had been extended to May 31, 2012 to allow ongoing joint venture restructuring negotiations to continue.

The company has from time to time also provided updates regarding the status of its continuing negotiations with Sonangol to put its Sonatide joint venture on a more permanent footing after a number of temporary

 

11


Table of Contents
Index to Financial Statements

extensions of the original joint venture agreement. As previously disclosed, in March 2012, Sonangol informed Tidewater that it would not permit further vessel contracting activity by Sonatide until the joint venture negotiations had been resolved to the parties’ mutual satisfaction. As a result, the company has begun deploying vessels (at prevailing market day rates) to other markets as those vessels become available.

The company has recently exchanged proposals and is continuing discussions with Sonangol. In the most recent meeting between the two negotiating teams, only modest progress was made in the restructuring negotiations, and important and fundamental issues regarding the restructured relationship remain outstanding and unresolved. In that meeting, Sonangol and the company discussed a number of topics, up to and including the potential issues associated with a wind up of the existing joint venture in the event restructuring discussions are not ultimately successful. If negotiations relating to putting the Sonatide joint venture on a more permanent footing are ultimately unsuccessful, the company will work toward an orderly wind up of the joint venture. We believe, however, that the joint venture would be allowed to honor existing vessel charter agreements through their contract terms. Even though the global market for offshore supply vessels appears to be well balanced (and the market for deepwater supply vessels is currently strong), there would be financial impacts associated with the wind up of the existing joint venture and the possible redeployment of vessels to other markets, including mobilization costs and costs to redeploy Tidewater shore-based employees to other areas, in addition to lost revenues associated with potential downtime between vessel contracts. These financial impacts could, individually or in the aggregate, be material to our results of operations and cash flows. If there is a need to redeploy vessels which are currently deployed in Angola to other international markets, Tidewater believes that there is sufficient demand for these vessels at prevailing market day rates.

For the year ended March 31, 2012, Tidewater’s Angolan operations generated vessel revenues of approximately $254 million, or 24% of its consolidated vessel revenue, from an average of approximately 93 vessels (14 of which were stacked on average in fiscal 2012), and, for the year ended March 31, 2011, generated vessel revenues of approximately $237 million, or 23% of consolidated vessel revenue, from an average of approximately 97 vessels (13 of which were stacked on average in fiscal 2011). As of March 31, 2012, the carrying value of Tidewater’s investment in the Sonatide joint venture, which is included in “Investments in, at equity, and advances to unconsolidated companies,” is approximately $46 million.

International Labour Organization’s Maritime Labour Convention

The International Labour Organization’s Maritime Labour Convention, 2006 (the “Convention”) seeks to mandate globally, among other things, seafarer working conditions, ship accommodations, wages, conditions of employment, health and other benefits for all ships (and the seafarers on those ships) that are engaged in commercial activities. To date, this Convention has been ratified by 25 countries, namely, Antigua and Barbuda, Australia, the Bahamas, Benin, Bosnia and Herzegovina, Bulgaria, Canada, Croatia, Denmark, Kiribati, Latvia, Liberia, Luxembourg, Marshall Islands, Netherlands, Norway, Panama, Poland, Saint Kitts and Nevis, St. Vincent and the Grenadines, Singapore, Spain, Switzerland, Togo and Tuvalu. Instruments of ratification have been received but registration is pending for Gabon. The aforementioned 26 countries represent more than 50% of the world’s vessel tonnage. If 30 Member States ratify the Convention, then, within 12 months thereof, the Convention will become law. Even though the company believes that the labor changes proposed by this Convention are unnecessary in light of existing international labor laws that govern many of these issues, and the company continues to work with industry representatives to oppose ratification of this Convention, the company continues to assess its seafarer labor relationships, including benefits provided, and to review its fleet operational practices in light of the Convention requirements. Should this Convention become law, the company and its customers’ operations may be negatively affected by future compliance costs.

Government Regulation

The company is subject to various United States federal, state and local statutes and regulations governing the operation and maintenance of its vessels. The company’s U.S. flagged vessels are subject to the jurisdiction of the United States Coast Guard, the United States Customs and Border Protection, and the United States Maritime Administration. The company is also subject to international laws and conventions and the laws of international jurisdictions where the company and its offshore vessels operate.

 

12


Table of Contents
Index to Financial Statements

Under the citizenship provisions of the Merchant Marine Act of 1920 and the Shipping Act, 1916, as amended, the company would not be permitted to engage in the U.S. coastwise trade if more than 25% of the company’s outstanding stock were owned by non-U.S. citizens. For a company engaged in the U.S. coastwise trade to be deemed a U.S. citizen: (i) the company must be organized under the laws of the United States or of a state, territory or possession thereof, (ii) each of the chief executive officer and the chairman of the board of directors of such corporation must be a U.S. citizen, (iii) no more than a minority of the number of directors of such corporation necessary to constitute a quorum for the transaction of business can be non-U.S. citizens and (iv) at least 75% of the interest in such company must be owned by U.S. citizens. The company has a dual stock certificate system to protect against non-U.S. citizens owning more than 25% of its common stock. In addition, the company’s charter provides the company with certain remedies with respect to any transfer or purported transfer of shares of the company’s common stock that would result in the ownership by non-U.S. citizens of more than 24% of its common stock. Based on information supplied to the company by its transfer agent, approximately 18% of the company’s outstanding common stock was owned by non-U.S. citizens as of March 31, 2012.

The laws of the U.S. require that vessels engaged in the U.S. coastwise trade must be built in the U.S. In addition, once a U.S.-built vessel is registered under a non-U.S. flag, it cannot thereafter engage in U.S. coastwise trade. Therefore, the company’s non-U.S. flagged vessels must operate outside of the U.S. coastwise trade. Of the total 342 vessels owned or operated by the company at March 31, 2012, 290 vessels were registered under flags other than the United States and 52 vessels were registered under the U.S. flag. If the company is not able to secure adequate numbers of charters abroad for its non-U.S. flag vessels, even if work would otherwise have been available for such vessels in the United States, these vessels cannot operate in the U.S. coastwise trade, and the company’s financial performance could be affected.

All of the company’s offshore vessels are subject to either United States or international safety and classification standards or sometimes both. U.S. flag towing-supply, supply vessels and crewboats are required to undergo periodic inspections twice within every five year period pursuant to U.S. Coast Guard regulations. Vessels registered under flags other than the United States are subject to similar regulations and are governed by the laws of the applicable international jurisdictions and the rules and requirements of various classification societies, such as the American Bureau of Shipping.

The company is in compliance with the International Ship and Port Facility Security Code (ISPS), an amendment to the Safety of Life at Sea (SOLAS) Convention (1974/1988), and further mandated in the Maritime Transportation and Security Act of 2002 to align United States regulations with those of SOLAS and the ISPS Code. Under the ISPS Code, the company performs worldwide security assessments, risk analyses, and develops vessel and required port facility security plans to enhance safe and secure vessel and facility operations. Additionally, the company has developed security annexes for those U.S. flag vessels that transit or work in waters designated as high risk by the United States Coast Guard pursuant to the latest revision of Marsec Directive 104-6.

Environmental Compliance

During the ordinary course of business, the company’s operations are subject to a wide variety of environmental laws and regulations that govern the discharge of oil and pollutants into navigable waters. Violations of these laws may result in civil and criminal penalties, fines, injunction and other sanctions. Compliance with the existing governmental regulations that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment has not had, nor is expected to have, a material effect on the company. Environmental laws and regulations are subject to change however, and may impose increasingly strict requirements and, as such, the company cannot estimate the ultimate cost of complying with such potential changes to environmental laws and regulations.

All vessels over 79 feet in registered length, regardless of flag, that are operating as a means of transportation within the inland and offshore waters of the U.S. (but not beyond the three nautical mile territorial sea limit) must comply with the Environmental Protection Agency’s National Pollutant Discharge Elimination System (NPDES) Vessel General Permit (VGP) for discharges incidental to the normal operation of vessels. For our vessels, that includes ballast water, bilge water, graywater, cooling water, chain locker effluent, deck wash down and runoff, cathodic protection, and other such type runoff. The company believes that it is in full compliance with the VGP.

 

13


Table of Contents
Index to Financial Statements

The company is also involved in various legal proceedings that relate to asbestos and other environmental matters. In the opinion of management, based on current information, the amount of ultimate liability, if any, with respect to these proceedings is not expected to have a material adverse effect on the company’s financial position, results of operations, or cash flows. The company is proactive in establishing policies and operating procedures for safeguarding the environment against any hazardous materials aboard its vessels and at shore-based locations. Whenever possible, hazardous materials are maintained or transferred in confined areas in an attempt to ensure containment, if accidents were to occur. In addition, the company has established operating policies that are intended to increase awareness of actions that may harm the environment.

Safety

We are committed to ensuring the safety of our operations for both our employees and our customers. The company’s principal operations occur in offshore waters where the workplace environment presents safety challenges. Because the work environment presents these challenges, the company works diligently to maintain workplace safety. Management regularly communicates with its personnel to promote safety and instill safe work habits through company media and safety review sessions. We also regularly conduct safety training meetings for our seamen and shore based staff personnel. We dedicate personnel and resources to ensure safe operations and regulatory compliance. Our Director of Health, Safety and Environmental Management is involved in proactive efforts to prevent accidents and injuries and reviews all incidents that occur throughout the company. In addition, the company employs safety personnel at every operating location who are responsible for administering the company’s safety programs and fostering the company’s safety culture. We believe that every employee is a safety supervisor, and gives each employee the right, the responsibility, and the obligation to stop any operation that the employee deems to be unsafe, whether it is deemed to be, in retrospect, unsafe or not.

Risk Management

The operation of any marine vessel involves an inherent risk of marine losses attributable to adverse sea and weather conditions, mechanical failure, and collisions, as well as, physical damage to the vessel. In addition, the nature of our operations exposes the company to the potential risks of damage to and loss of drilling rigs and production facilities, hostile activities attributable to war, sabotage, pirates and terrorism, as well as business interruption due to political action or inaction, including nationalization of assets by foreign governments. Any such event may result in a reduction in revenues or increased costs. The company’s vessels are generally insured for their estimated market value against damage or loss, including war, acts of terrorism, and pollution risks, but the company does not fully insure for business interruption. The company also carries workers’ compensation, maritime employer’s liability, director and officer liability, general liability (including third party pollution) and other insurance customary in the industry.

The company seeks to secure appropriate insurance coverage at competitive rates by maintaining a self-retention layer up to certain limits on its marine package policy. The company carefully monitors claims and participates actively in claims estimates and adjustments. Estimated costs of self-insured claims, which include estimates for incurred but unreported claims, are accrued as liabilities on our balance sheet.

The continued threat of terrorist activity and other acts of war or hostility have significantly increased the risk of political, economic and social instability in some of the geographic areas in which the company operates. It is possible that further acts of terrorism may be directed against the United States domestically or abroad, and such acts of terrorism could be directed against properties and personnel of U.S.-owned companies such as ours. The resulting economic, political and social uncertainties, including the potential for future terrorist acts and war, could cause the premiums charged for our insurance coverage to increase. The company currently maintains war risk coverage on its entire fleet.

Management believes that the company’s insurance coverage is adequate. The company has not experienced a loss in excess of insurance policy limits; however, there is no assurance that the company’s liability coverage will be adequate to cover potential claims that may arise. While the company believes that it should be able to maintain adequate insurance in the future at rates considered commercially acceptable, it cannot guarantee such with the current level of uncertainty in the markets the company operates.

 

14


Table of Contents
Index to Financial Statements

Raw Materials

The company’s wholly-owned subsidiary, Quality Shipyards, L.L.C., performs both repair work and new construction work for outside customers, as well as the construction, repair and modification of the company’s own vessels. The shipyard operations require raw materials, such as alloy steels in various forms, welding gases, paint, fuels and lubricants, which are available from multiple sources and subject to price volatility. The shipyard does not depend on any one supplier or source for any of these materials. Although shortages for some of these materials and fuels have occurred from time to time, no material shortage currently exists nor does the shipyard anticipate any shortages. The commodity price for iron ore, the main component of steel, is typically volatile, and shortages may occur from time to time.

Seasonality

The company’s global vessel fleet generally has its highest utilization rates in the warmer months when the weather is more favorable for offshore exploration, field development and construction work. Hurricanes, cyclones, monsoon season, and severe weather can impact operations. The company’s U.S. GOM operations can be impacted by the Atlantic hurricane season from the months of June through November, when offshore exploration, field development and construction work tends to slow or halt in an effort to mitigate potential losses and damage that may occur to the offshore oil and gas infrastructure should a hurricane enter the U.S. GOM. However, demand for offshore marine vessels typically increases in the U.S. GOM in connection with repair and remediation work that follows any hurricane damage to offshore crude oil and natural gas infrastructure. The company’s vessels that operate in Southeast Asia and Pacific are impacted by the monsoon season, which moves across the region from November to April. The vessels that operate in Australia are impacted by cyclone season from November to April. Customers in this region, where possible, plan business activities around the cyclone season; however, Australia generally has high trade winds during the non-cyclone season and, as such, the impact of cyclone season on our operations is not significant. Although hurricanes, cyclones, monsoons and other severe weather can impact operations, the company’s business volume is more dependent on crude oil and natural gas pricing, global supply of crude oil and natural gas, and demand conditions for the company’s offshore marine services than any seasonal variation.

Employees

As of March 31, 2012, the company had approximately 7,650 employees worldwide. The company strives to maintain excellent relations with its employees. The company is not a party to any union contract in the United States but through several subsidiaries is a party to union agreements covering local nationals in several countries other than the United States. In the past, the company has been the subject of a union organizing campaign for the U.S. GOM employees by maritime labor unions. These union organizing efforts have abated, although the threat has not been completely eliminated. If the employees in the U.S. GOM were to unionize, the company’s flexibility in managing industry changes in the domestic market could be adversely affected.

 

15


Table of Contents
Index to Financial Statements

Executive Officers of the Registrant

The name of each of our executive officers, together with their respective age and all offices held as of March 31, 2012 is as follows:

 

Name

  

Age

  

Position

Dean E. Taylor

   63   

Chairman of the Board of Directors since 2003. Chief Executive Officer since March 2002. President since October 2001. Executive Vice President from 2000 to 2001. Senior Vice President from 1998 to 2000.

Jeffrey M. Platt

   54   

Chief Operating Officer since March 2010. Executive Vice President since July 2006. Senior Vice President from 2004 to June 2006. Vice President from 2001 to 2004.

Quinn P. Fanning

   48   

Chief Financial Officer since September 2008. Executive Vice President since July 2008. Prior to July 2008, Mr. Fanning was a Managing Director with Citigroup Global Markets Inc. and generally focused on advisory services for the energy industry.

Joseph M. Bennett

   56   

Executive Vice President since June 2008. Chief Investor Relations Officer since 2005. Senior Vice President from 2005 to May 2008. Principal Accounting Officer from 2001 to May 2008. Vice President from 2001 to 2005. Controller from 1990 to 2005.

Bruce D. Lundstrom

   48   

Executive Vice President since August 2008. Senior Vice President from September 2007 to July 2008. General Counsel since September 24, 2007.

On April 18, 2012, Dean E. Taylor, President, Chief Executive Officer and Chairman of the Board announced his retirement as President and Chief Executive Officer of Tidewater Inc. effective May 31, 2012. To succeed Mr. Taylor as President and Chief Executive Officer is Jeffrey M. Platt effective June 1, 2012. Mr. Taylor will continue as Tidewater’s non-executive Chairman of the Board. Succeeding Mr. Platt as Chief Operating Officer is Jeffrey A. Gorski. Mr. Gorski joined Tidewater as Senior Vice President in January 2012.

There are no family relationships between the directors or executive officers of the company. The company’s officers are elected annually by the Board of Directors and serve for one-year terms or until their successors are elected.

Available Information

We make available free of charge, on or through our website (www.tdw.com), our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and amendments to such filings, as soon as reasonably practicable after each is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The SEC maintains a website that contains the company’s reports, proxy and information statements, and the company’s other SEC filings. The address of the SEC’s website is www.sec.gov. Information appearing on the company’s website is not part of any report that it files with the SEC.

We also make available its Code of Business Conduct and Ethics (Code), which is posted on our website, for its directors, chief executive officer, chief financial officer, principal accounting officer, and other officers and employees on matters of business conduct and ethics, including compliance standards and procedures. We will make timely disclosure by a Current Report on Form 8-K and on our website of any change to, or waiver from, the Code of Business Conduct and Ethics for our principal executive and senior financial officers. Any changes or waivers to the Code will be maintained on the company’s website for at least 12 months. A copy of the Code

 

16


Table of Contents
Index to Financial Statements

is also available in print to any stockholder upon written request addressed to Tidewater Inc., 601 Poydras Street, Suite 1900, New Orleans, Louisiana 70130.

ITEM 1A.  RISK FACTORS

We operate globally in challenging and highly competitive markets and thus our business is subject to a variety of risks. Listed below are some of the more critical or unique risk factors identified as affecting or potentially affecting our company and the offshore marine service industry. In addition, we are also subject to a variety of risks and uncertainties not known to us or that we currently believe are not as significant as the risks described below. You should consider these risks when evaluating any of the company’s forward-looking statements. The effect of any one risk factor or a combination of several risk factors could materially affect the company’s results of operations, financial condition and cash flows and the accuracy of any forward-looking statements made in this Annual Report on Form 10-K.

Oil and Gas Prices Are Highly Volatile

Commodity prices for crude oil and natural gas are highly volatile. Prices are extremely sensitive to the respective supply/demand relationship for crude oil and natural gas. High demand for crude oil and natural gas, reductions in supplies and/or low inventory levels for these resources as well as any perceptions about future supply interruptions can cause prices for crude oil and natural gas to rise. Conversely, low demand for crude oil and natural gas, increases in supplies and/or increases in crude oil and natural gas inventories cause prices for crude oil and natural gas to decrease. In addition, global military, political, and economic events, including civil unrest in the Middle East and North Africa oil producing and exporting countries, have contributed to crude oil and natural gas price volatility.

Factors that affect the supply of crude oil and natural gas include, but are not limited to, the following: global demand for the hydrocarbons; the Organization of Petroleum Exporting Countries’ (OPEC) ability to control crude oil production levels and pricing, as well as, the level of production by non-OPEC countries; sanctions imposed by the U.S., the European Union, or other governments against oil producing countries; political and economic uncertainties (including wars, terrorist acts or security operations); advances in exploration and field development technologies; significant weather conditions; and governmental policies/restrictions placed on exploration and production of natural resources.

Prolonged material downturns in crude oil and natural gas prices and/or perceptions of long-term lower commodity prices can negatively impact the development plans of exploration and production companies given the long-term nature of large-scale development projects, which would likely result in a corresponding decline in demand for offshore support vessel services and a reduction in charter rates and/or utilization rates, which would have a material adverse effect on our results of operations, cash flows and financial condition. Higher commodity prices, however, do not necessarily translate into increased demand for offshore support vessel services as increased commodity supply could come from land-based energy markets.

Crude oil pricing volatility has increased in recent years as crude oil has emerged into a financial asset class used for speculative purchase. Traditionally, crude oil futures and options were purchased by the commercial traders for future production in an effort to hedge against price risk. More recently, non-commercial market participants have traded crude oil derivatives to profit off of the price performance of crude oil instead of traditional investments. The extent to which speculation causes excessive crude oil pricing volatility is currently not fully known; however, there is a growing consensus that speculative purchase of crude oil futures and options helped push crude oil prices to record levels in mid-2008.

Changes in the Level of Capital Spending by Our Customers

Our principal customers are major and independent oil and natural gas exploration, field development and production companies; foreign government-owned or -controlled organizations and companies that explore and produce oil and natural gas; drilling contractors; and companies that provide other services to the offshore energy industry, such as, offshore construction companies, diving companies and well stimulation companies. Demand for our vessels, and thus our results of operations are highly dependent on the level of capital spending for exploration and field development by the companies that operate in the energy industry. The energy industry’s level of capital spending is substantially related to current and expected future demand for hydrocarbons and the prevailing commodity prices of crude oil and, to a lesser extent, natural gas. When

 

17


Table of Contents
Index to Financial Statements

commodity prices are low, or when our customers believe that they will be low in the future, our customers generally reduce their capital spending budgets for onshore and offshore drilling, exploration and field development. The level of offshore crude oil and natural gas exploration, development and production activity has historically been volatile, and that volatility is likely to continue.

Other factors that influence the level of capital spending by our customers that are beyond our control include: worldwide demand for crude oil and natural gas; the cost of offshore exploration and production of crude oil and natural gas, which can be affected by environmental regulations; significant weather conditions; technological advances that affect energy production and consumption; local and international economic and political environment; the availability and cost of financing.

Consolidation of the Company’s Customer Base

Oil and natural gas companies, energy companies and drilling contractors have undergone consolidation, and additional consolidation is possible. Consolidation reduces the number of customers for the company’s equipment, and may negatively affect exploration, field development and production activity as consolidated companies focus on increasing efficiency and reducing costs and delay or abandon exploration activity with less promise. Such activity could adversely affect demand for the company’s vessels and reduce the company’s revenues.

The Offshore Marine Service Industry is Highly Competitive

We operate in a highly competitive industry, which could depress vessel charter rates and utilization and adversely affect our financial performance. We compete for business with our competitors on the basis of price; reputation for quality service; quality, suitability and technical capabilities of vessels; availability of vessels; safety and efficiency; cost of mobilizing vessels from one market to a different market; and national flag preference. In addition, competition in international markets may be adversely affected by regulations requiring, among other things, local construction, flagging, ownership or control of vessels, the awarding of contracts to local contractors, the employment of local citizens and/or the purchase of supplies from local vendors that favor or require local ownership. In general, declines in the level of offshore drilling and development activity by the energy industry negatively affects the demand for our vessels and results in downward pressure on day rates. Extended periods of low vessel demand and/or low day rates reduce the company’s revenues.

Risk Associated With the Loss of a Major Customer

We derive a significant amount of revenue from a few customers. For the years ended March 31, 2012, 2011 and 2010, the five largest customers accounted for approximately 43%, 45%, and 47%, respectively, of the company’s total revenues, while the 10 largest customers accounted for a respective 59%, 63%, and 62% of our total revenues. While it is normal for our customer base to change over time as our time charter contracts turn over, our results of operations, financial condition and cash flows could be materially adversely affected if one or more of these customers decide to interrupt or curtail their activities; terminate their contracts with us; fail to renew existing contracts; and/or refuse to award new contracts, and we were unable to contract our vessels with new customers at comparable day rates.

Unconventional Natural Gas Sources are Exerting Downward Pricing Pressures on the Price of Natural Gas

The rise in production of unconventional gas resources (onshore shale plays resulting from technological advancements in horizontal drilling and fracturing) in North America and the commissioning of a number of new large Liquefied Natural Gas (LNG) export facilities around the world are contributing to an over-supplied natural gas market. While production of natural gas from unconventional sources is still a relatively small portion of the worldwide natural gas production, it is increasing because improved drilling efficiencies are lowering the costs of extraction. There is a significant oversupply of natural gas inventories in the United States in part due to the increase of unconventional gas in the market. Prolonged increases in the worldwide supply of natural gas, whether from conventional or unconventional sources, will likely continue to weigh on natural gas prices. A prolonged period of low natural gas prices would likely have a negative impact on development plans of exploration and production companies (at least in regards to development plans primarily targeting natural gas), which in turn, may result in a decrease in demand for offshore support vessel services. This effect could be particularly acute in our Americas segments, specifically our shallow water U.S. GOM operations, which is

 

18


Table of Contents
Index to Financial Statements

more oriented towards natural gas than crude oil production, and therefore more sensitive to the changes in the market pricing for natural gas than to changes in the market pricing of crude oil.

Challenging Macroeconomic Conditions

Uncertainty about future global economic market conditions makes it challenging to forecast operating results and to make decisions about future investments. The success of our business is both directly and indirectly dependent upon conditions in the global financial and credit markets that are outside of our control and difficult to predict. Uncertain economic conditions may lead our customers to postpone capital spending in response to tighter credit and reductions in income or asset values. Similarly, when lenders and institutional investors reduce, and in some cases, cease to provide funding to corporate and other industrial borrowers, the liquidity and financial condition of our customers can be adversely impacted. These factors may also adversely affect our liquidity and financial condition. Factors such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls, and national and international political circumstances (including wars, terrorist acts or security operations) can have a material negative effect on our business and operations, which in turn would reduce our revenues and profitability.

Prolonged material economic downturns in crude oil and natural gas prices can negatively affect the development plans of exploration and production companies. In addition, a prolonged recession may result in a decrease in demand for offshore support vessel services and a reduction in charter rates and/or utilization rates, which would have a material adverse effect on the company’s results of operations, cash flows and financial condition. Prior to mid-2008, oil and gas companies had increased their respective exploration and field development activities in response to a very favorable pricing environment for oil and gas that existed at that time. Worldwide demand for crude oil and natural gas dropped precipitously and energy prices sharply declined as a result of a 2008-2009 global economic recession. Several years later, there are signs that economic improvement is underway; however, the pace of recovery and demand for energy and, in turn, offshore supply vessel services is still recovering. In addition, the recent increases in crude oil prices, resulting from higher demand for hydrocarbons and civil unrest in the Middle East and North African oil producing and exporting countries, renewed economists’ concerns that high energy prices could imperil the economic recovery, although high commodity pricing generally bodes well for the energy industry.

Potential Overcapacity in the Offshore Marine Industry

Over the past decade, as offshore exploration and production activities increasingly focused on deepwater well exploration, field development and production, offshore service companies, such as ours, constructed specialized offshore vessels that are capable of supporting complex deepwater and deep well (defined by well depth rather than water depth) projects that are generally located in challenging environments. During this time, construction of offshore vessels increased significantly in order to meet customer demands. Excess offshore supply vessel capacity usually exerts downward pressure on charter day rates. Excess capacity can occur when newly constructed vessels enter the market and also when vessels migrate between market areas. While the company is committed to the construction of additional vessels, it has also sold and/or scrapped a significant number of vessels over the last several years. A discussion about the aging of the company’s fleet, which has necessitated the company’s new vessel construction programs, appears in the “Vessel Count, Dispositions, Acquisitions and Construction Programs” section of Item 7 in this report.

The offshore supply vessel market has approximately 410 new-build offshore support vessels (platform supply vessels and anchor handlers only), under construction that are expected to be delivered to the worldwide offshore vessel market primarily over the next three years, according to ODS-Petrodata. The current worldwide fleet of these classes of vessels is estimated at approximately 2,745 vessels, according to the same source. An increase in vessel capacity could result in increased competition in the company’s industry which may have the effect of lowering charter rates and utilization rates, which, in turn, would result in lower revenues to the company.

In addition, the provisions of the Shipping Act restricting engagement of U.S. coastwise trade to vessels controlled by U.S. citizens may from time to time be circumvented by foreign competitors that seek to engage in trade reserved for vessels controlled by U.S. citizens and otherwise qualifying for coastwise trade. A repeal, suspension or significant modification of the Shipping Act, or the administrative erosion of its benefits, permitting vessels that are either foreign-flagged, foreign-built, foreign-owned, foreign-controlled or foreign-

 

19


Table of Contents
Index to Financial Statements

operated to engage in the U.S. coastwise trade, could also result in excess vessel capacity and increased competition especially for our vessels that operate in North America.

Risks Associated with Vessel Construction and Maintenance

The company has a number of vessels currently under construction, and it may construct additional vessels in response to current and future market conditions. In addition, the company routinely engages shipyards to drydock vessels for regulatory compliance and to provide repair and maintenance services. Construction projects and drydockings are subject to risks of delay and cost overruns, resulting from shortages of equipment, materials and skilled labor; lack of shipyard availability; unforeseen design and engineering problems; work stoppages; weather interference; unanticipated cost increases; unscheduled delays in the delivery of material and equipment; financial and other difficulties at shipyards including labor disputes and shipyard insolvency; and inability to obtain necessary certifications and approvals.

A significant delay in either construction or drydockings of vessels could have a material adverse effect on our ability to fulfill contract commitments and to realize timely revenues with respect to vessels under construction, conversion or other drydockings. Significant cost overruns or delays for vessels under construction could also adversely affect the company’s financial condition, results of operations or cash flows. The demand for vessels currently under construction may diminish from levels originally anticipated. If the company fails to obtain favorable contracts for newly constructed vessels, such failure could have a material adverse effect on the company’s revenues and profitability.

Also, difficult economic market conditions and/or prolonged distress in credit and capital markets may hamper the ability of shipyards to meet their scheduled deliveries of new vessels or the ability of the company to renew its fleet through new vessel construction or acquisitions. In addition, there is always the risk of insolvency of the shipyards that construct or drydock our vessels, which could adversely affect our new construction or repair programs, and consequently, adversely affect our financial condition, results of operations or cash flows.

Risks Associated with Operating Internationally

We operate in various regions throughout the world, which exposes us to many risks inherent in doing business in countries other than the United States, some of which have recently become more pronounced. Our customary risks of operating internationally include political and economic instability within the host country; possible vessel seizures or nationalization of assets and other governmental actions by the host country (please refer to Item 7 in this report and Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report for a discussion of our Venezuelan operations regarding vessel seizures); foreign government regulations that favor or require the awarding of contracts to local competitors; an inability to recruit and retain management of overseas operations; difficulties in collecting accounts receivable and longer collection periods, changing taxation policies, fluctuations in currency exchange rates, revaluations, devaluations and restrictions on repatriation of currency; and import/export quotas and restrictions or other trade barriers - most of which are beyond the control of the company.

The company is also subject to acts of piracy and kidnappings that put its assets and personnel at risk. The increase in the level of these criminal or terrorist acts over the last few years has been well-publicized. As a marine services company that operates in offshore, coastal or tidal waters, the company is particularly vulnerable to these kinds of unlawful activities. Although the company takes what it considers to be prudent measures to protect its personnel and assets in markets that present these risks, it has confronted these kinds of incidents in the past, and there can be no assurance it will not be subjected to them in the future.

The continued threat of terrorist activity and other acts of war or hostility have significantly increased the risk of political, economic and social instability in some of the geographic areas in which the company operates. It is possible that further acts of terrorism may be directed against the United States domestically or abroad and such acts of terrorism could be directed against properties and personnel of U.S.-owned companies such as ours. To date, the company has not experienced any material adverse effects on its results of operations and financial condition as a result of terrorism, political instability or war.

 

20


Table of Contents
Index to Financial Statements

Risks Associated with Doing Business Through Joint Ventures

The company operates in several foreign areas through a joint venture with a local company, in some cases as a result of local laws requiring local company ownership. While the joint venture partner may provide local knowledge and experience, entering into joint ventures inevitably requires us to surrender a measure of control over the assets and operations devoted to the joint venture, and occasions may arise when we do not agree with the business goals and objectives of our partner or other factors may arise that make the continuation of the relationship unwise or untenable. Any such disagreements or discontinuation of the relationship could disrupt our operations and affect the continuity of our business. If we are unable to resolve issues with a joint venture partner, we may decide to terminate the joint venture and either locate a different partner and continue to work in the area or seek opportunities for our vessels in another area. The unwinding of an existing relationship could prove to be difficult or time-consuming, and the loss of revenue related to the termination or unwinding of a joint venture and costs related to the sourcing of a new partner or the mobilization of vessels to another area could adversely affect our financial condition, results of operations or cash flows.

International Operations Exposed to Currency Devaluation and Fluctuation Risk

Since we are a global company, our international operations are exposed to foreign currency exchange rate risks on all charter hire contracts denominated in foreign currencies. For some of our international contracts, a portion of the revenue and local expenses are incurred in local currencies and the company is at risk of changes in the exchange rates between the U.S. dollar and foreign currencies. We generally do not hedge against any foreign currency rate fluctuations associated with foreign currency contracts that arise in the normal course of business, which exposes us to the risk of exchange rate losses. Gains and losses from the revaluation of our assets and liabilities denominated in currencies other than our functional currency are included in our consolidated statements of operations. Foreign currency fluctuations may cause the U.S. dollar value of our non-U.S. results of operations and net assets to vary with exchange rate fluctuations. This could have a negative impact on our results of operations and financial position. In addition, fluctuations in currencies relative to currencies in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

To minimize the financial impact of these items, the company attempts to contract a significant majority of its services in U.S. dollars. In addition, the company attempts to minimize its financial impact of these risks, by matching the currency of the company’s operating costs with the currency of revenue streams when considered appropriate. The company continually monitors the currency exchange risks associated with all contracts not denominated in U.S. dollars.

Operational Hazards Inherent to the Offshore Marine Vessel Industry

The operation of any marine vessel involves inherent risk that could adversely affect our financial performance if we are not adequately insured or indemnified. Our operations are also subject to various operating hazards and risks, including risk of catastrophic marine disaster; adverse sea and weather conditions; mechanical failure; navigation errors; collisions and property losses to the vessel; damage to and loss of drilling rigs and production facilities; war, sabotage, pirate and terrorism risks; and business interruption due to political action or inaction, including nationalization of assets by foreign governments.

These risks present a threat to the safety of personnel and to our vessels, cargo, equipment under tow and other property, as well as the environment. Any such event may result in a reduction in revenues, increased costs, property damage, and additionally, third parties may have significant claims against us for damages due to personal injury, death, property damage, pollution and loss of business. We carry what we consider to be prudent levels of liability insurance and our vessels are generally insured for their estimated market value against damage or loss, including war, terrorism acts, and pollution risks, but the company does not fully insure for business interruption. Our insurance coverages are subject to deductibles and certain exclusions. We can provide no assurance, however, that our insurance coverages will be available beyond the renewal periods, that we will be able to obtain insurance for all operational risks and that our insurance policies will be adequate to cover future claims that may arise.

 

21


Table of Contents
Index to Financial Statements

Compliance with the Foreign Corrupt Practices Act and Similar Worldwide Anti-Bribery Laws

Our global operations require us to comply with a number of U.S. and international laws and regulations, including those involving anti-bribery and anti-corruption. In order to effectively compete in certain foreign jurisdictions, the company seeks to establish joint ventures with local operators or strategic partners. As a U.S. corporation, we are subject to the regulations imposed by the Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business or obtaining an improper business benefit. We have adopted proactive procedures to promote compliance with the FCPA, but we may be held liable for actions taken by our strategic or local partners or agents even though these partners or agents may not themselves be subject to the FCPA. Any determination that we have violated the FCPA (or any other applicable anti-bribery laws in countries in which the company does business) could have a material adverse effect on our business, results of operations, and cash flows. A discussion of the company’s FCPA internal investigation is disclosed in the “Completion of Internal Investigation and Settlements with United States and Nigerian Agencies” section of Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report.

Compliance with Complex and Developing Laws and Regulations

Our operations are subject to many complex and burdensome laws and regulations. Stringent federal, state, local and foreign laws and regulations governing worker health and safety and the manning, construction and operation of vessels significantly affect our operations. Many aspects of the marine industry are subject to extensive governmental regulation by the United States Coast Guard and the United States Customs and Border Protection and their foreign equivalents, and to regulation by private industry organizations such as the American Bureau of Shipping, the Oil Companies International Marine Forum, and the International Marine Contractors Association.

Our operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental protection. Compliance with such laws and regulations may require installation of costly equipment, increased manning or operational changes. Some environmental laws impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject the company to liability without regard to whether the company was negligent or at fault.

Further, many of the countries in which the company operates have laws, regulations and enforcement systems that are largely undeveloped, and the requirements of these systems are not always readily discernable even to experienced and proactive participants. Further, these laws, regulations and enforcement systems can be unpredictable and subject to frequent change or reinterpretation, sometimes with retroactive effect, and with associated taxes, fees, fines or penalties sought from the company based on that reinterpretation or retroactive effect. While the company endeavors to comply with applicable laws and regulations, the company’s compliance efforts might not always be wholly successful, and failure to comply may result in administrative and civil penalties, criminal sanctions, imposition of remedial obligations or the suspension or termination of the company’s operations. These laws and regulations may expose the company to liability for the conduct of or conditions caused by others, including charterers or third party agents. Moreover, these laws and regulations could be changed or be interpreted in new, unexpected ways that substantially increase costs that the company may not be able to pass along to its customers. Any changes in laws, regulations or standards that would impose additional requirements or restrictions could adversely affect the company’s financial condition, results of operations or cash flows.

In order to meet the continuing challenge of complying with applicable laws and regulations in jurisdictions where it operates, the company revitalized and strengthened its compliance training, makes available and uses a worldwide compliance reporting system and performs compliance auditing/monitoring. The company appointed its general counsel as its chief compliance officer in fiscal 2008 to help organize and lead these compliance efforts. This strengthened compliance program may from time to time identify past practices that need to be changed or remediated. Such corrective or remedial measures could involve significant expenditures or lead to changes in operational practices that could adversely affect the company’s financial condition, results of operations or cash flows.

We are subject to the Merchant Marine Act of 1936, which provides that, upon proclamation by the President of the United States of a national emergency or a threat to the security of the national defense, the Secretary of Transportation may requisition or purchase any vessel or other watercraft owned by U.S. citizens (including

 

22


Table of Contents
Index to Financial Statements

U.S. corporations), including vessels under construction in the United States. If our vessels were purchased or requisitioned by the U.S. federal government, we would be entitled to be paid the fair market value of the vessels in the case of a purchase or, in the case of a requisition, the fair market value of charter hire, but we would not be entitled to be compensated for any consequential damages suffered. Although the purchase or requisition of one or a few of our vessels for an extended period of time will not cause adverse material negative financial effects to our company, the purchase or requisition of several or a significant number of our vessels for an extended period of time may adversely affect our financial condition, results of operations, and cash flows.

Risk of Changes in Laws Governing U.S. Taxation of Foreign Source Income

We operate globally through various subsidiaries which are subject to changes in applicable tax laws, treaties or regulations in the jurisdictions in which we conduct our business, including laws or policies directed toward companies organized in jurisdictions with low tax rates. We determine our income tax expense based on our interpretation of the applicable tax laws and regulations in effect in each jurisdiction for the period during which we operate and earn income. A material change in the tax laws, tax treaties, regulations or accounting principles, or interpretation thereof, in one or more countries in which we conduct business, or in which we are incorporated or a resident of, could result in a higher effective tax rate on our worldwide earnings, and such change could be significant to our financial results. In addition, our overall effective tax rate could be adversely and suddenly affected by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, or by changes in the valuation of our deferred tax assets and liabilities.

Over 90% of the company’s revenues and net income are generated by its operations outside of the United States. The company’s effective tax rate has averaged approximately 18.8% since fiscal 2006, primarily a result of the passage of The American Jobs Creation Act of 2004, which excluded from the company’s current taxable income in the U.S. income earned offshore through the company’s controlled foreign subsidiaries.

Periodically, tax legislative initiatives are proposed to effectively increase U.S. taxation of income with respect to foreign operations. Whether any such initiatives will win congressional or executive approval and become law is presently unknown; however, if any such initiatives were to become law, and were such law to apply to the company’s international operations, it would result in a materially higher tax expense, which would have a material impact on the company’s financial condition, results of operations or cash flows, and which could cause the company to review the utility of continued U.S. domicile.

In addition, our income tax returns are subject to review and examination by the Internal Revenue Service and other tax authorities where tax returns are filed. The company routinely evaluates the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for taxes. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure or intercompany transfer pricing policies, or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase, and our financial condition and results of operations could be materially adversely affected.

Compliance with Environmental Regulations May Adversely Impact Our Operations and Markets

A variety of regulatory developments, proposals and requirements have been introduced in the U.S. and various other countries that are focused on restricting the emission of carbon dioxide, methane and other gases. If such legislation is enacted, increased cost of energy as well as environmental and other costs and capital expenditures could be necessary to comply with the limitations. These developments may curtail production and demand for hydrocarbons such as crude oil and natural gas in areas of the world where our customers operate and thus adversely affect future demand for the company’s offshore supply vessels, which are highly dependent on the level of activity in offshore oil and natural gas exploration, development and production market. Although it is unlikely that demand for oil and gas will lessen dramatically over the short-term, in the long-term, demand for oil and gas or increased regulation of environmental regulations may create greater incentives for use of alternative energy sources. Unless and until legislation is enacted and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, results of operations and ability to compete. However, any long term material adverse effect on the crude oil and natural gas industry may adversely affect our financial condition, results of operations and cash flows.

 

23


Table of Contents
Index to Financial Statements

The Deepwater Horizon Incident and the Aftereffects of the Drilling Moratorium in the U.S. GOM Could Have a Material Impact on Exploration and Production Activities in United States Coastal Waters

The success and profitability of our operations in the United States are dependent on the level of upstream drilling and exploration activity in the U.S. GOM, and to a lesser extent on the West Coast of the United States and in Alaska. In particular, many of our new-build vessels were designed to operate in deep water off the continental shelf to assist in drilling and exploration efforts in that area. The margins we earn on our deepwater vessels have typically been higher than margins we achieve on other classes of our vessels. Although the BOEMRE is now issuing new drilling permits, the new regulations and requirements could suppress the level of drilling activity and demand for our services, which could have a material adverse effect on our U.S. operations which are part of our Americas segment. In addition, if exploration and production activity migrates from the U.S. GOM to international markets because of the these additional regulations and resulting increase in operating costs in the U.S. GOM, it is also possible that other offshore supply vessel owners will redeploy their respective vessels to international markets where we operate. These mobilizations would increase competition and thus could negatively affect our vessel utilization and day rates in international markets, depending on the number of drilling rigs that exit the U.S. GOM and move to international markets.

Also among the uncertainties that confront the industry are whether Congress will repeal the $75.0 million cap for non-reclamation liabilities under the Oil Pollution Act of 1990 and whether insurance will continue to be available at a reasonable cost and with reasonable policy limits to support drilling and exploration activity in the U.S. GOM. Although the eventual outcome of these developments is currently unknown, we believe that, even in the best case for the industry that we serve, additional regulatory and operational costs will be incurred, and these additional costs may either reduce the level of exploratory activity in the U.S. GOM, reduce demand for our services, or both.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Information on Properties is contained in Item 1 of this report.

ITEM 3.  LEGAL PROCEEDINGS

Shareholder Derivative Suit

In mid-February 2011, an individual claiming to be a Tidewater shareholder filed a shareholder derivative suit in the U.S. District Court for the Eastern District of Louisiana. The defendants in the suit are individual directors and certain officers of Tidewater Inc. Tidewater Inc. is also a nominal defendant in the lawsuit. The suit asserts various causes of action, including breach of fiduciary duty, against the individual defendants in connection with the facts and circumstances giving rise to the settlements with the DOJ and SEC and seeks a number of remedies against the individual defendants and the company as a result. For a discussion of the settlements with the DOJ and SEC regarding matters arising under the United States Foreign Corrupt Practices Act, refer to Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report. While the company will incur costs in connection with the defense of this law suit, the suit does not seek monetary damages against the company. The individual defendants and the company have retained legal counsel. The lawsuit is still in an early stage.

Other Items

Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on the company’s financial position, results of operations, or cash flows. Information related to various commitments and contingencies, including legal proceedings, is disclosed in Note (11) of Notes to Consolidated Financial Statements.

ITEM 4.  MINE SAFETY DISCLOSURE

None.

 

24


Table of Contents
Index to Financial Statements

PART II

ITEM 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Market Prices

The company’s common stock is traded on the New York Stock Exchange under the symbol “TDW.” At March 31, 2012, there were 798 record holders of the company’s common stock, based on the record holder list maintained by the company’s stock transfer agent. The closing price on the New York Stock Exchange Composite Tape on March 30, 2012 (last business day of the month) was $54.02. The following table sets forth for the periods indicated the high and low sales price of the company’s common stock as reported on the New York Stock Exchange Composite Tape and the amount of cash dividends per share declared on Tidewater common stock.

 

Quarter ended    June 30      September 30      December 31      March 31        

Fiscal 2012 common stock prices:

              

High

     $        60.59         $        56.07         $        52.34         $        63.26      

Low

     48.96         43.10         38.83         48.52      

Dividend

     .25         .25         .25         .25      

Fiscal 2011 common stock prices:

              

High

     $        57.08         $        44.99         $        54.15         $        63.55      

Low

     38.65         38.00         42.81         52.44      

Dividend

     .25         .25         .25         .25      

 

Issuer Repurchases of Equity Securities

On May 17, 2012, the company’s Board of Directors authorized the company to spend up to $200.0 million to repurchase shares of its common stock in open-market or privately-negotiated transactions. The effective date of this new authorization is July 1, 2012 through June 30, 2013. The company will use its available cash and, when considered advantageous, borrowings under its revolving credit facility or other borrowings, to fund any share repurchases.

In May 2011, the company’s Board of Directors replaced its then existing July 2009 share repurchase program with a new $200.0 million repurchase program that is in effect through June 30, 2012. The Board of Directors authorized the company to repurchase shares of its common stock in open-market or privately-negotiated transactions. The company uses its available cash and, when considered advantageous, borrowings under its revolving credit facility, or other borrowings, to fund any share repurchases. The company will evaluate share repurchase opportunities relative to other investment opportunities and in the context of current conditions in the credit and capital markets. At March 31, 2012, $165.0 million authorization remains available to repurchase shares under the May 2011 share repurchase program.

The company’s Board of Directors had previously authorized the company in July 2009 to repurchase up to $200.0 million in shares of its common stock in open-market or privately-negotiated transactions. The Board of Directors’ authorization for this repurchase program was replaced in May 2011 when the Board of Directors extended the program.

The value of common stock repurchased, along with number of shares repurchased, and average price paid per share for the years ended March 31, are as follows:

 

(In thousands, except share and per share data)    2012      2011      2010        

Value of common stock repurchased

   $         35,015         19,998              

Shares of common stock repurchased

     739,231         486,800              

Average price paid per common share

   $ 47.37         41.06                

All shares of common stock repurchased during fiscal 2012 occurred in the third quarter ended December 31, 2011, while the shares repurchased during fiscal 2011 occurred during the first quarter ended June 30, 2010.

 

25


Table of Contents
Index to Financial Statements

During the period April 1, 2012 through May 15, 2012, pursuant to the company’s stock repurchase plan discussed in Note (8) of Notes to Consolidated Financial Statements, the company repurchased 435,300 shares of common stock for an aggregated price of $21.4 million, or an average price of $49.28 per share.

Dividend Program

The declaration of dividends is at the discretion of the company’s Board of Directors. The Board of Directors declared the following dividends for the years ended March 31:

 

(In thousands, except per share data)    2012      2011      2010        

Dividends declared

   $       51,370         51,507         51,735      

Dividend per share

     1.00         1.00         1.00        

Performance Graph

The following graph compares the cumulative total stockholder return on the company’s common stock against the cumulative total return of the Standard & Poor’s 500 Stock Index and the cumulative total return of the Value Line Oilfield Services Group Index (the “Peer Group”) over the last five fiscal years. The analysis assumes the investment of $100 on April 1, 2007, at closing prices on March 31, 2007, and the reinvestment of dividends. The Value Line Oilfield Services Group consists of 25 companies including Tidewater Inc.

 

LOGO

 

Indexed returns

Years ended March 31

                                                     
Company name/Index    2007      2008      2009      2010      2011      2012        

Tidewater Inc.

     100         95.03         65.43         85.11         110.03         101.21      

S&P 500

     100         94.92         58.77         88.02         101.79         110.48      

Peer Group

     100         130.87         59.02         97.68         140.90         112.95        

Investors are cautioned against drawing conclusions from the data contained in the graph, as past results are not necessarily indicative of future performance.

 

26


Table of Contents
Index to Financial Statements

The above graph is being furnished pursuant to the Securities and Exchange Commission rules. It will not be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the company specifically incorporates it by reference.

ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth a summary of selected financial data for each of the last five fiscal years. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and the Consolidated Financial Statements of the company included in Item 8 of this report.

 

Years Ended March 31

(In thousands, except ratio and per share amounts)

                                        
      2012     2011 (A)     2010 (B)     2009     2008       

Statement of Earnings Data :

            

Revenues:

            

Vessel revenues

   $         1,060,468        1,051,213        1,138,162        1,356,322        1,215,134     

Other marine services revenues

     6,539        4,175        30,472        34,513        55,037       
   $ 1,067,007        1,055,388        1,168,634        1,390,835        1,270,171     

 

Gain on asset dispositions, net

   $ 17,657        13,228        28,178        27,251        11,449     

 

Provision for Venezuelan operations

   $               43,720                   

 

Goodwill Impairment (C)

   $ 30,932                                 

 

Net earnings

   $ 87,411        105,616        259,476        406,898        348,763     

 

Basic earnings per common share

   $ 1.71        2.06        5.04        7.92        6.43     

 

Diluted earnings per common share

   $ 1.70        2.05        5.02        7.89        6.39     

 

Cash dividends declared per common share (D)

   $ 1.00        1.00        1.00        1.00        .60     

 

Balance Sheet Data (at end of period):

            

Cash and cash equivalents

   $ 320,710        245,720        223,070        250,793        270,205     

 

Total assets

   $ 4,061,618        3,748,116        3,293,357        3,073,804        2,751,780     

 

Current maturities of long-term debt

   $               25,000                   

 

Long-term debt

   $ 950,000        700,000        275,000        300,000        300,000     

 

Capitalized lease obligations

   $                             10,059     

 

Stockholders’ equity

   $ 2,526,357        2,513,944        2,464,030        2,244,678        1,930,084     

 

Working capital

   $ 455,171        395,558        380,915        431,101        431,691     

 

Current ratio

     2.91        3.15        2.86        3.12        3.17     

 

Cash Flow Data:

            

Net cash provided by operating activities

   $ 222,421        264,206        328,261        523,889        486,842     

 

Net cash used in investing activities

   $ (315,081     (569,943     (298,482     (434,055     (272,001  

 

Net cash provided by (used in) financing activities

   $ 167,650        328,387        (57,502     (109,246     (338,442  

 

 

(A)

Fiscal 2011 net earnings includes a $4.4 million, or $0.08 per common share, final settlement with the DOJ and a $6.3 million, or $0.12 per common share, settlement with the Federal Government of Nigeria related to the internal investigation as disclosed in Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report.

(B)

In addition to the Provision for Venezuelan operations separately noted above, fiscal 2010 net earnings includes (1) the reversal of $36.1 million, or $0.70 per common share, of uncertain tax positions related to the resolution of a tax dispute with the U.S. IRS as disclosed in Note (3) of Notes to Consolidated Financial Statements, (2) an $11.4 million, or $0.22 per common share, proposed settlement with the SEC related to the internal investigation as disclosed in Note (11) of Notes to Consolidated Financial Statements, and (3) an $11.0 million, or $0.21 per common share, foreign exchange gain resulting from the devaluation of the Venezuelan bolivar fuerte relative to the U.S. dollar.

(C)

During the quarter ended September 30, 2011, the company recorded a $30.9 million non-cash goodwill impairment charge ($22.1 million after-tax, or $0.43 per share) as disclosed in Note (13) of Notes to Consolidated Financial Statements.

(D)

In May 2008, the company’s Board of Directors authorized the increase of the company’s quarterly dividend from $0.15 per share to $0.25 per share, a 67% increase. The declaration of dividends is at the discretion of the company’s Board of Directors.

 

27


Table of Contents
Index to Financial Statements

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements as of March 31, 2012 and 2011 and for the years ended March 31, 2012, 2011 and 2010 that we included in Item 8 of this Annual Report on Form 10-K. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. The company’s future results of operations could differ materially from its historical results or those anticipated in its forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A and elsewhere in this report. With respect to this section, the cautionary language applicable to such forward-looking statements described in “Forward-Looking Statements” found before Item 1 of this report is incorporated by reference into this Item 7. The following discussion should also be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and related disclosures of this report.

Fiscal 2012 Business Highlights and Key Focus

During fiscal 2012 the company continued to focus on maintaining its competitive advantages and its market share in international markets, and continued to modernize its vessel fleet to increase future earnings capacity while removing from active service certain older, or traditional, vessels that currently have fewer market opportunities. Key elements of the company’s strategy continue to be the preservation of its strong financial position and the maintenance of adequate liquidity to fund the expansion of its fleet of newer vessels. Operating management focused on safe operations, minimizing unscheduled downtime, and maintaining disciplined cost control.

The company’s strategy contemplates the possible acquisitions of vessels and/or other owners and operators of offshore supply vessels as well as organic growth through the construction of vessels at a variety of shipyards worldwide. The company has the largest number of new vessels among its competitors in the industry, and it also has the largest fleet of older vessels in the industry. Management regularly evaluates alternatives for its older fleet. The company intends to pursue its long-term fleet replenishment and modernization strategy on a disciplined basis and, in each case, will carefully consider whether proposed investments and transactions have the appropriate risk/reward profile.

During the quarter ended September 30, 2011, our International and United States segments were revised to form four new operating segments. We now manage and measure our business performance in four distinct operating segments which are based on our geographical organization: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe. The new segments are reflective of how the company’s chief operating decision maker reviews operating results for the purposes of allocating resources and assessing performance. Management decided to reorganize its reporting segments largely because the company’s Sub-Saharan Africa/Europe and Latin American business regions had gained greater significance as a percentage of consolidated revenues and operating profit, while our former United States segment had decreased in its significance to consolidated revenues and operating profit. Prior period disclosures have been recast to reflect the change in reportable segments.

Although the company’s revenue during fiscal 2012 increased $11.6 million, or a modest 1%, over the revenues earned during fiscal 2011, the company’s consolidated net earnings decreased 17%, or $18.2 million, during fiscal 2012, reflecting a $30.9 million non-cash goodwill impairment charge ($22.1 million after-tax, or $0.43 per share) recorded during the quarter ended September 30, 2011 on the company’s Middle East/North Africa segment as disclosed in Note (15) of Notes Consolidated Financial Statements included in Part I, Item 1 of this report, an $11.1 million, or 8%, increase in general and administrative expenses; and $11.5 million, or 107%, higher interest and debt costs as disclosed in Note (4) of Notes to Consolidated Financial Statements.

Partially offsetting the increase in these expenses was a $4.4 million, or 33%, increase in gain on asset dispositions, net, and a 44%, or $18.9 million, reduction in income taxes due to the expiration of statutes of limitations with respect to tax liabilities that had been established previously for uncertain tax positions as disclosed in Note (3) of Notes to Consolidated Financial Statements and due to lower earnings before income taxes. Other operating revenues increased approximately $2.4 million, or 57%, during the same comparative periods primarily because ship construction at the company’s shipyards increased during the current period.

 

28


Table of Contents
Index to Financial Statements

In January 2011, the company amended and extended its then existing $450 million credit facility (the “previous facility”) and established $575 million in new credit facilities (the “new facilities”) for a five year period maturing January 2016. The new facilities include a $125 million term loan (“term loan”) and a $450 million revolving line of credit (“revolver”). The new facilities revolver and term loan borrowings bear interest at the company’s option at the greater of (i) prime or the federal funds rate plus 0.50 to 1.25%, or (ii) Eurodollar rates, plus margins between 1.50 to 2.25%, based on the company’s consolidated funded debt to total capitalization ratio. In January 2012, the company elected to draw on the entire $125 million term loan facility to fund working capital and for general corporate purposes. Principal repayments of any term loan borrowings are payable in quarterly installments beginning in the quarter ending September 30, 2013 in amounts equal to 1.25% of the total outstanding borrowings as of July 26, 2013.

On August 15, 2011, the company issued $165 million of senior unsecured notes to a group of institutional investors. The multiple series of notes were issued with maturities ranging from approximately eight to 10 years and have a weighted average life to maturity of approximately nine years. The weighted average coupon rate on the notes is 4.42%. The notes may be retired before their respective scheduled maturity dates subject only to a customary make-whole provision. The terms of the notes require that the company maintain a minimum ratio of debt to consolidated total capitalization that does not exceed 55%.

We continued our vessel construction and acquisition program during fiscal 2012 that had begun in calendar year 2000. This program facilitated the company’s entrance into deepwater markets around the world in addition to allowing the company to begin to replace its core towing supply/supply fleet with fewer, larger, and more technologically sophisticated vessels in order to meet our customers’ needs. The vessel construction and acquisition program was initiated with the intent of strengthening the company’s presence in all major oil and gas producing regions of the world through the replacement of aging vessels in the company’s core fleet. During this time, the company has purchased and/or constructed 238 vessels at a total cost of approximately $3.4 billion. Between April 1999 and March 2012, the company also sold, primarily to buyers that operate outside of our industry, 603 vessels. Most of the vessel sales were at prices that exceeded their carrying values. The vessel sales were accompanied by sales restrictions on competition or else the company determined that the prospects of the vessel competing with our ongoing business were low. In aggregate, proceeds from, and pre-tax gains on, vessel dispositions during this period approximated $650 million and $300 million, respectively.

In recent years, the company has generally funded vessel additions with operating cash flow, and funds provided by the July 2003 private placement of $300 million, the September 2010 private placement of $425 million, and the August 15, 2011 private placement of $165 million in senior unsecured notes, borrowings under its revolving credit facilities and $125 million bank term loan and various leasing arrangements.

At March 31, 2012, the company had agreements to acquire three vessels and commitments to build 22 vessels at a number of different shipyards around the world (with one of these vessels being constructed in the United States by the company’s wholly-owned shipyard, Quality Shipyards, L.L.C.) at a total cost, including contract costs and other incidental costs, of approximately $616.7 million. At March 31, 2012, the company had invested $244.5 million in progress payments towards the construction of 22 vessels and $12.9 million towards the purchase of three vessels. At March 31, 2012, the remaining expenditures necessary to complete construction of the 22 vessels currently under construction (based on contract prices) and to fund the acquisition of the three vessels was $359.3 million. A full discussion of the company’s capital commitments, scheduled delivery dates and vessel sales is disclosed in the “Vessel Count, Dispositions, Acquisitions and Construction Programs” section of Item 7 and Note (11) of Notes to Consolidated Financial Statements included in Item 8 of this report.

Macroeconomic Environment and Outlook

The primary driver of our business, and revenues, is the level of our customers’ capital and operating expenditures for oil and natural gas exploration, field development and production. These expenditures, in turn, generally reflect our customers’ expectations for future oil and natural gas prices, economic growth, hydrocarbon demand and estimates of current and future oil and natural gas production. The prices of crude oil and natural gas are critical factors in exploration and production (E&P) companies’ decisions to contract drilling rigs and offshore service vessels in the various international markets or the U.S. GOM, with the various international markets being largely driven by supply and demand for crude oil, and the U.S. GOM being

 

29


Table of Contents
Index to Financial Statements

influenced both by the supply and demand for natural gas (primarily in regards to shallow water activity) and the supply and demand for crude oil (primarily in regards to deepwater activity).

During fiscal 2012, the price of crude oil increased as positive economic news related to consumer spending, improvements in employment data, and higher consumer confidence in the U.S. indicated that the tenuous economic recovery may not be losing its momentum in the U.S. In addition, crude oil prices increased during fiscal 2012 due to potential supply interruptions resulting from geopolitical tensions in the Middle East as Iran threatened to shut down the Strait of Hormuz in an effort to disrupt crude oil supplies as tension mounted between Iran and other nations regarding proposed sanctions related to Iran’s nuclear programs. Prices for crude oil, however, eased slightly as the Organization of Petroleum Exporting Companies (OPEC) announced that member nation Saudi Arabia and other OPEC member nations would be ready to provide additional oil supply in an effort to stabilize crude oil prices should a blockage in the Strait of Hormuz occur. Although signs of an improved economy in the U.S., the world’s largest consumer of crude oil, are promising, and OPEC, at its meeting held in December 2011 noted that global crude oil demand is forecast to improve in calendar year 2012, there is still some downside risks to the global economic recovery due to fiscal and financial uncertainty in certain Euro-zone countries, a prolonged level of relatively high unemployment in the U.S. and other advanced economies, and inflation risks in emerging economies. Based on these uncertainties, OPEC member nations agreed in December 2011 to maintain current crude oil production levels to ensure the supply and demand for crude oil is balanced. In addition, at the Middle East and North Africa 2012 Energy Conference held in late January 2012, OPEC further expressed that it will strive to meet consumer demand, crude oil market stability, and other coordinated efforts to ensure balanced global supply of crude oil at a time when, despite the economic uncertainties, long-term demand for crude oil is expected to grow. Tidewater anticipates that its longer-term utilization and day rate trends for its vessels will be correlated with demand for and the price of crude oil, which in late-April 2012, was trading around $105 per barrel for West Texas Intermediate (WTI) crude and around $120 per barrel for Intercontinental Exchange (ICE) Brent crude. High crude oil prices generally bode well for increases in drilling and exploration activity, which would support increases in demand for the company’s vessels, both in the various global markets and the deepwater sectors of the U.S. GOM (assuming the pace of permits continues to increase).

Throughout fiscal 2012, prices for natural gas were weak due to the rise in production of unconventional gas resources in North America (in part due to increases in onshore shale production resulting from technological advancements in horizontal drilling and hydraulic fracturing) and the commissioning of a number of new, large, Liquefied Natural Gas (LNG) exporting facilities around the world, which have contributed to an over supplied natural gas market. The price of natural gas trended lower during fiscal 2012 and as of mid-April 2012, natural gas was trading in the U.S. in the $1.85 to $2.05 per Mcf range down from the $4.13 to $4.32 range at the start of fiscal 2012. The price for natural gas trended lower as inventories for the resource trended higher because a considerable amount of natural gas is derived as a byproduct of drilling crude oil and natural gas liquids-oriented wells in liquid rich basins onshore. In addition, a relatively mild winter in North America and a slow start to winter in the Euro-Zone depressed weather-related demand for natural gas, thereby adding to supply growth. Natural gas inventories in the U.S. continue to be well over stocked. This dynamic exerts downward pricing pressures on natural gas prices in the U.S. Prolonged increases in the supply of natural gas (whether the supply comes from conventional or unconventional natural gas production or gas produced as a by product of crude oil production) will likely restrain prices for natural gas. Increases in onshore gas production along with a very slow offshore drilling and exploration permitting process in the U.S. GOM and prolonged downturn in natural gas prices can negatively impact the offshore exploration and development plans of E&P companies, which in turn, would result in a decrease in demand for offshore support vessel services, primarily in the Americas segment (specifically our U.S. operations where natural gas is the more predominant exploitable hydrocarbon resource).

Certain oil and gas industry analysts are reporting in their 2012 E&P expenditures (both land-based and offshore) surveys that global capital expenditure budgets for E&P companies are forecast to increase by at least 10% over calendar year 2011 levels. The surveys forecast that international capital spending budgets will increase approximately 11% while North American capital spending budgets are forecast to increase approximately 8%. It is anticipated by these analysts that the North American capital budget increases will primarily be spent onshore rather than offshore, while international E&P spending is expected to be largely offshore, with the strongest markets expected to include Latin America, Africa, Europe, Russia, and the Middle East. Capital expenditure budgets incorporated into the spending surveys were based on an approximate $87 WTI and $98 Brent average prices per barrel of oil. Although E&P companies are using an approximate

 

30


Table of Contents
Index to Financial Statements

$4.08 per mcf average natural gas price for their 2012 capital budgets, natural gas directed drilling is forecast to decline due to weak natural gas prices.

Deepwater activity continues to be a significant segment of the global offshore crude oil and natural gas markets, and it is also a source of growth for the company. Deepwater activity in non-U.S. markets did not experience significant negative effects from the 2008-2009 global economic recession, largely because deepwater oil and gas development typically involves significant capital investment and multi-year development plans. Such projects are generally underwritten by the participating exploration, field development and production companies using relatively conservative assumptions relating to crude oil and natural gas prices. These projects are, therefore, considered less susceptible to short-term fluctuations in the price of crude oil and natural gas. During the past few years, worldwide rig construction increased as rig owners capitalized on the high worldwide demand for drilling and low shipyard and financing costs. Reports published by ODS-Petrodata in late April 2012 suggest that the worldwide movable drilling rig count (currently estimated at approximately 860 movable offshore rigs worldwide, approximately 44% of which are designed to operate in deeper waters) will increase as approximately 185 new-build offshore rigs that are currently on order and under construction are delivered primarily over the next three years. Of the estimated 860 movable offshore rigs worldwide, approximately 615 are currently working. It is further estimated that approximately 54% of the new build rigs are being built to operate in deeper waters, suggesting that the number of rigs designed to operate in deeper waters could grow in the coming years to nearly 50% of the market. Investment is also being made in the floating production unit market, with approximately 70 new floating production units currently under construction and expected to be delivered primarily over the next three years to supplement the current approximately 350 floating production units worldwide.

According to ODS-Petrodata, the global offshore supply vessel market at March 31, 2012 had approximately 410 new-build offshore support vessels (platform supply vessels and anchor handlers only), under construction that are expected to be delivered to the worldwide offshore vessel market primarily over the next three years. The current worldwide fleet of these classes of vessels is estimated at approximately 2,745 vessels, of which Tidewater estimates more than 10% are stacked.

An increase in worldwide vessel capacity would tend to have the effect of lowering charter rates, particularly when there are lower levels of exploration, field development and production activity. The worldwide offshore marine vessel industry, however, also has a large number of aged vessels including approximately 725 vessels, or 26%, of the worldwide offshore fleet, that are at least 25 years old and nearing or exceeding original expectations of their estimated economic lives. These older vessels, approximately one-third of which Tidewater estimates are already stacked, could potentially be removed from the market within the next few years if the cost of extending the vessels’ lives is not economically justifiable. Although the future attrition rate of these aging vessels cannot be determined with certainty, the company believes that the retirement of a sizeable portion of these aged vessels could mitigate the potential combined negative effects of new-build vessels on vessel utilization and vessel pricing. Additional vessel demand could also be created by the addition of new drilling rigs and floating production units that are expected to be delivered and become operational over the next few years, which should help minimize the possible negative effects of the new-build offshore support vessels being added to the offshore support vessel fleet.

Principal Factors That Drive Our Revenues

The company’s revenues, net earnings and cash flows from operations are largely dependent upon the activity level of its offshore marine vessel fleet. As is the case with many other energy service companies, our business activity is largely dependent on the level of drilling and exploration activity of our customers. Our customers’ business activity, in turn, is dependent on crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce reserves. In addition, after the Deepwater Horizon incident in April 2010, the level of drilling activity off the continental shelf of the United States (U.S.) Gulf Of Mexico (GOM) declined while the U.S. government evaluated the causes of the incident and announced a plan for enhanced regulatory and safety oversight as a condition to granting additional drilling and exploration permits.

The company’s revenues in all segments are driven primarily by the company’s fleet size, vessel utilization and day rates. Because a sizeable portion of the company’s operating costs and its depreciation does not change proportionally with changes in revenue, the company’s operating profit is largely dependent on revenue levels.

 

31


Table of Contents
Index to Financial Statements

Principal Factors That Drive Our Operating Costs

Operating costs consist primarily of crew costs, repair and maintenance, insurance and loss reserves, fuel, lube oil and supplies and vessel operating lease expense.

Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors which affect overall crew costs in all segments. In addition, the company’s newer, more technologically sophisticated anchor handling towing supply vessels and platform supply vessels generally require a greater number of specially trained, more highly compensated fleet personnel than the company’s older, smaller and less sophisticated vessels. The company believes that competition for skilled crew personnel may intensify as new-build support vessels currently under construction increase the number of offshore vessels operating worldwide. If competition for personnel intensifies, the company’s crew costs will likely increase.

The timing and amount of repair and maintenance costs are influenced by customer demand, vessel age and drydockings mandated by regulatory agencies. A certain number of periodic drydockings are required to meet regulatory requirements. The company will generally incur drydocking costs only if economically justified, taking into consideration the vessel’s age, physical condition, contractual obligations, current customer requirements and future marketability. When the company elects to forego a required drydocking, it stacks and occasionally sells the vessel because it is not permitted to work without valid regulatory certifications. When the company drydocks a productive vessel, the company not only foregoes vessel revenues and incurs drydocking costs, but also continues to incur vessel operating and depreciation costs. In any given period, vessel downtime associated with drydockings and major repairs and maintenance can have a significant effect on the company’s revenues and operating costs.

At times, vessel drydockings take on an increased significance to the company and its financial performance. Older vessels may require more frequent and more expensive repairs and drydockings. Newer vessels (generally those built after 2000), which now account for a majority of the company’s revenues and vessel margin (vessel revenues less vessel operating costs), can also require expensive drydockings, even in the early years of a vessel’s useful life, due to the larger relative size and greater relative complexity of these vessels. Conversely, when the company stacks vessels, the number of drydockings in any period could decline. The combination of these factors can affect drydock costs, which are primarily included in repair and maintenance expense, and incrementally increase the volatility of the company’s revenues and operating income, thus making period-to-period comparisons more difficult.

Although the company attempts to efficiently manage its fleet drydocking schedule, changes in the demand for (and supply of) shipyard services can result in heavy workloads at shipyards and inflationary pressure on shipyard pricing. In recent years, increases in drydocking costs and days off hire (due to vessels being drydocked) have contributed to volatility in repair and maintenance costs and vessel revenue. In addition, some of the more recently constructed vessels are now experiencing their first or second required regulatory drydockings.

Insurance and loss reserves costs are dependent on a variety of factors, including the company’s safety record and pricing in the insurance markets, and can fluctuate over time. The company’s vessels are generally insured for up to their estimated fair market value in order to cover damage or loss resulting from marine casualties, adverse weather conditions, mechanical failure, collisions, and property losses to the vessel. The company also purchases coverage for potential liabilities stemming from third-party losses with limits that it believes are reasonable for its operations. Insurance limits are reviewed annually and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.

Fuel and lube costs can also fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices.

The company also incurs vessel operating costs that are aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, training costs and other miscellaneous costs. Brokers’ commissions are incurred primarily in the company’s non-United States operations where brokers sometimes assist in obtaining work for the company’s vessels. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue. Other costs include, but

 

32


Table of Contents
Index to Financial Statements

are not limited to, satellite communication fees, agent fees, port fees, canal transit fees, vessel certification fees, temporary vessel importation fees and any fines or penalties.

Results of Operations

During the quarter ended September 30, 2011, our International and United States segments were reorganized to form four new operating segments. We now manage and measure our business performance in four distinct operating segments which are based on our geographical organization: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe. The following table compares vessel revenues and vessel operating costs (excluding general and administrative expenses, depreciation expense, provision for Venezuelan operations, goodwill impairment, and gains on asset dispositions) for the company’s vessel fleet and the related percentage of vessel revenue for the years ended March 31. Vessel revenues and operating costs relate to vessels owned and operated by the company.

 

(In thousands)    2012      %     2011      %     2010      %       

Vessel revenues:

                 

Americas

   $ 324,529         31     362,825         35     393,270         35  

Asia/Pacific

     153,752         14     176,877         17     170,358         15  

Middle East/North Africa

     109,489         10     92,151         9     93,379         8  

Sub-Saharan Africa/Europe

     472,698         45     419,360         40     481,155         42    

Total vessel revenues

   $       1,060,468         100     1,051,213         100     1,138,162         100  

 

Vessel operating costs:

                 

Crew costs

   $ 327,762         31     338,126         32     320,229         28  

Repair and maintenance

     103,257         10     110,496         11     104,413         9  

Insurance and loss reserves

     17,507         2     19,601         2     12,948         1  

Fuel, lube and supplies

     76,904         7     61,784         6     56,637         5  

Vessel operating leases

     17,967         2     17,964         2     15,054         1  

Other

     94,740         9     90,619         9     95,978         8    

Total vessel operating costs

   $ 638,137         60     638,590         61     605,259         53  

 

 

The following table compares other operating revenues and costs related to third-party activities of the company’s shipyards, brokered vessels and other miscellaneous marine-related activities for the years ended March 31.

 

(In thousands)    2012             2011             2010               

Other operating revenues

   $ 6,539           4,175           30,472        

Costs of other operating revenues

     7,115                 4,660                 27,387                

 

33


Table of Contents
Index to Financial Statements

The following table presents vessel operating costs by the company’s segments, the related segment vessel operating costs as a percentage of segment vessel revenues, total vessel operating costs and the related total vessel operating costs as a percentage of total vessel revenues for each for the fiscal years ended March 31.

 

(In thousands)    2012     %     2011     %     2010     %       

Vessel operating costs:

              

Americas:

              

Crew costs

   $       112,138        35%        127,715        35%        134,318        34%     

Repair and maintenance

     31,430        10%        49,545        14%        42,237        11%     

Insurance and loss reserves

     5,259        2%        6,855        2%        6,344        2%     

Fuel, lube and supplies

     18,092        6%        14,737        4%        17,089        4%     

Vessel operating leases

     3,643        1%        4,107        1%        4,193        1%     

Other

     19,087        6%        24,808        7%        19,594        5%       
     189,649        58%        227,767        63%        223,775        57%     

Asia/Pacific:

              

Crew costs

   $ 60,777        40%        70,791        40%        50,890        30%     

Repair and maintenance

     13,180        9%        16,620        9%        11,478        7%     

Insurance and loss reserves

     2,257        1%        3,778        2%        2,049        1%     

Fuel, lube and supplies

     13,786        9%        15,900        9%        13,562        8%     

Other

     9,993        6%        9,336        5%        8,197        5%       
     99,993        65%        116,425        66%        86,176        51%     

Middle East/North Africa:

              

Crew costs

   $ 35,375        32%        25,325        27%        22,401        24%     

Repair and maintenance

     16,473        15%        9,172        10%        8,982        10%     

Insurance and loss reserves

     2,995        3%        1,306        1%        663        1%     

Fuel, lube and supplies

     13,217        12%        8,310        9%        5,714        6%     

Vessel operating leases

     1,885        2%                                 

Other

     9,268        8%        6,461        7%        6,098        7%       
     79,213        72%        50,574        55%        43,858        47%     

Sub-Saharan Africa/Europe:

              

Crew costs

   $ 119,472        25%        114,295        27%        112,620        23%     

Repair and maintenance

     42,174        9%        35,159        8%        41,716        9%     

Insurance and loss reserves

     6,996        1%        7,662        2%        3,892        1%     

Fuel, lube and supplies

     31,809        7%        22,837        5%        20,272        4%     

Vessel operating leases

     12,439        3%        13,857        3%        10,861        2%     

Other

     56,392        12%        50,014        12%        62,089        13%       
       269,282        57%        243,824        58%        251,450        52%       

Total vessel operating costs

   $ 638,137        60%        638,590        61%        605,259        53%     

 

 

The following table compares operating income and other components of earnings before income taxes, and its related percentage of total revenues for the years ended March 31.

 

(In thousands)    2012     %     2011     %     2010     %       

Vessel operating profit:

              

Americas

   $       56,003        5%        49,341        5%        37,533        3%     

Asia/Pacific

     16,125        2%        22,308        2%        49,049        4%     

Middle East/North Africa

     805        <1%        18,990        2%        29,936        3%     

Sub-Saharan Africa/Europe

     97,142        9%        82,993        8%        145,032        13%       
     170,075        16%        173,632        17%        261,550        23%     

Corporate expenses

     (40,379     (4%     (46,361     (4%     (51,432     (5%  

Goodwill impairment

     (30,932     (3%                              

Gain on asset dispositions, net

     17,657        2%        13,228        1%        28,178        2%     

Other services

     (2,867     <1%        (1,163     (<1%     2,034        <1%       

Operating income

     113,554        11%        139,336        13%        240,330        21%       

Foreign exchange gain

     3,309        <1%        2,278        <1%        4,094        <1%     

Equity in net earnings of unconsolidated companies

     13,041        1%        12,185        1%        18,107        2%     

Interest income and other, net

     3,440        <1%        5,065        <1%        6,882        1%     

Interest and other debt costs

     (22,308     (2%     (10,769     (1%     (1,679     (<1%    

Earnings before income taxes

   $ 111,036        10%        148,095        14%        267,734        24%     

 

Fiscal 2012 Compared to Fiscal 2011

Consolidated Results.    Although the company’s revenue during fiscal 2012 increased $11.6 million, or a modest 1%, over the revenues earned during fiscal 2011, the company’s consolidated net earnings decreased 17%, or $18.2 million, during fiscal 2012, reflecting a $30.9 million non-cash goodwill impairment charge ($22.1 million after-tax, or $0.43 per share) recorded during the quarter ended September 30, 2011 on the

 

34


Table of Contents
Index to Financial Statements

company’s Middle East/North Africa segment as disclosed in Note (15) of Notes Consolidated Financial Statements included in Part I, Item 1 of this report, an $11.5 million, or 107%, increase in interest and debt costs as disclosed in Note (4) of Notes Consolidated Financial Statements; and an $11.1 million, or 8%, increase in general and administrative expenses.

Partially offsetting the increase in these expenses was a $4.4 million, or 33%, increase in gain on asset dispositions, net, and a 44%, or $18.9 million, reduction in income taxes due to the expiration of statutes of limitations with respect to tax liabilities that had been previously established for uncertain tax positions (as disclosed in Note (3) of Notes to Consolidated Financial Statements) and lower earnings before income taxes. Other operating revenues increased approximately $2.4 million, or 57%, during the same comparative periods primarily because activity at the company’s shipyards increased during the current period.

Vessel operating costs during fiscal 2012 were comparable to those in fiscal 2011. Crew costs decreased approximately 3%, or $10.4 million, during fiscal 2012 as compared to fiscal 2011, primarily because the prior fiscal year included a $6.0 million charge associated with the company’s participation in the Merchant Navy Officers Pension Fund (MNOPF) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Repair and maintenance costs decreased 7%, or $7.2 million, during fiscal 2012, because a greater number of drydockings were performed during fiscal year 2011. In particular, during fiscal 2011, we performed four scheduled drydockings of our largest anchor handling towing supply vessels for an aggregate cost of $14.5 million. Fuel, lube and supply costs increased 24%, or $15.1 million, during fiscal 2012 as compared to fiscal 2011, primarily due to the mobilization of newly delivered vessels and because of vessel mobilizations between operating areas. Costs of other operating revenues increased $2.5 million, or 53%, during the same comparative periods primarily because ship construction activity at the company’s shipyards increased during fiscal 2012.

At March 31, 2012, the company had 330 owned or chartered vessels (excluding joint-venture vessels and vessels withdrawn from service) in its fleet with an average age of 14 years. The average age of 215 newer vessels in the fleet (defined as those that have been acquired or constructed since calendar year 2000 as part of the company’s new build and acquisition program) is 5.7 years. The remaining 115 vessels have an average age of 29.6 years. During fiscal 2012 and 2011, the company’s newer vessels generated $911.5 million and $838.5 million, respectively, of consolidated revenue and accounted for 86%, or $386.1 million, and 80%, or $363.9 million, respectively, of total vessel margin (vessel revenues less vessel operating costs). Vessel operating costs exclude depreciation on the company’s new vessels of $111.6 million and $97.9 million, respectively, during the same comparative periods.

Americas Segment Operations.    Americas-based vessel revenues decreased approximately 11%, or $38.3 million, during fiscal 2012 as compared to fiscal 2011, primarily due to an approximate 6% decrease in average day rates on the deepwater vessels operating in the Americas and because a fewer number of vessels are operating in this segment after the transfer of deepwater vessels to other segments. Revenues on the deepwater vessels declined 19%, or $34.3 million, during the comparative periods. In addition, revenues on our towing supply/supply class of vessels also declined $5.4 million, or 4%, during the same comparative periods primarily due to a fewer number of vessels operating after vessel sales. A $1.9 million, or 8%, increase in revenues generated by offshore tugs, during the same comparative periods, slightly offset revenue declines on the two aforementioned classes of vessels due to an eight percentage point increase in utilization and a 29% increase in average day rates due to stronger demand for this type of vessel in the Americas segment.

Total utilization rates for the Americas-based vessels increased seven percentage points, during fiscal 2012 as compared to fiscal 2011; however, this increase is primarily a result of the sale of 50 older, stacked vessels from the Americas fleet during this two-year period. Vessel utilization rates are calculated by dividing the number of days a vessel works by the number of days the vessel is available to work. As such, stacked vessels depressed utilization rates during the comparative periods because stacked vessels are considered available to work, and as such, are included in the calculation of utilization rates. Within the Americas segment, the company continued to stack, and in some cases dispose of, vessels that could not find attractive charters. At the beginning of fiscal 2012, the company had 39 Americas-based stacked vessels. During fiscal 2012, the company stacked six additional vessels and sold 24 vessels from the previously stacked vessel fleet, resulting in a total of 21 stacked Americas-based vessels as of March 31, 2012.

 

35


Table of Contents
Index to Financial Statements

Vessel operating profit for the Americas-based vessels increased approximately 14%, or $6.7 million, during fiscal 2012 as compared to fiscal 2011, despite a decrease in revenues during the comparative periods, because of a 17%, or $38.1 million, decrease in vessel operating costs (primarily crew costs, repair and maintenance costs, and other vessel costs) and a decrease in depreciation expense, both of which offset the decline in revenues.

Depreciation expense decreased approximately 16%, or $7.3 million, during fiscal 2012 as compared to fiscal 2011, because of the transfer of vessels to other segments and because of vessel sales. Crew costs decreased 12%, or $15.6 million, during the same comparative periods, due to reductions in crew personnel at our U.S. GOM operations as a result of fewer vessels operating in the U.S. GOM market due to the continued aftereffects of the drilling moratorium, and because the prior year’s non-U.S. Americas operations included an allocated $2.1 million charge associated with the company’s participation in the Merchant Navy Officers Pension Fund (MNOPF) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Repair and maintenance costs decreased approximately 37%, or $18.1 million, from the prior fiscal year, due to a fewer number of drydockings being performed during the current periods and because in the prior fiscal year we performed three scheduled drydockings of our largest anchor handling towing supply vessels (for an aggregate cost of $11.1 million).

Asia/Pacific Segment Operations.    Asia/Pacific-based vessel revenues decreased approximately 13%, or $23.1 million, during fiscal 2012 as compared to fiscal 2011, primarily due to a five percentage point decrease in utilization rates on the towing supply/supply class of vessels as a result of weaker demand, particularly for older equipment within this class of vessels and because of vessels transferred out of the segment, which collectively resulted in a $15.7 million decrease in vessel revenues on the Asia/Pacific region’s non-deepwater towing supply/supply class of vessels. Revenues on the deepwater vessels also declined $7.4 million due to a two percentage point decrease in utilization rates on the deepwater vessels operating in this segment, largely due to unanticipated delays on certain customer projects.

Within the Asia/Pacific segment, the company also continued to stack, and in some cases dispose of, vessels that could not find attractive charters. At the beginning of fiscal 2012, the company had 19 Asia/Pacific-based stacked vessels. During fiscal 2012, the company stacked three additional vessels and sold six vessels from the previously stacked vessel fleet, resulting in a total of 16 stacked Asia/Pacific-based vessels as of March 31, 2012.

Asia/Pacific-based vessel operating profit decreased $6.2 million, or 28%, during fiscal 2012 as compared to fiscal 2011, primarily due to lower revenues and higher general and administrative expenses. Declines in revenues were partially offset by an approximate 14%, or $16.4 million, decrease in vessel operating costs (primarily crew costs, repair and maintenance costs, and fuel, lube and supply costs) and also due to a decrease in depreciation expense during the same comparative periods.

Crew costs decreased approximately 14%, or $10.0 million, during fiscal 2012 as compared to fiscal 2011, due to reductions in crew personnel related to the transfer of deepwater vessels to other segments. Crew costs also decreased because the prior year included an allocated $1.0 million charge associated with the company’s participation in the Merchant Navy Officers Pension Fund (MNOPF) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Depreciation expense decreased 18%, or $4.7 million, from the prior fiscal year, due to the transfer of deepwater vessels to other segments and because of vessel sales.

General and administrative expenses increased 33%, or $4.2 million, during fiscal 2012 as compared to fiscal 2011, due to pay raises for the administrative personnel, an increase in office and property costs, and an increase in costs associated with foreign assigned administrative employees (specifically foreign income taxes paid by the company on behalf of expatriate employees). Repair and maintenance costs decreased approximately 21%, or $3.4 million, from the prior fiscal year, due to a fewer number of drydockings being performed during the current periods.

Middle East/North Africa Segment Operations.    Middle East/North Africa-based vessel revenues increased approximately 19%, or $17.3 million, during fiscal 2012 as compared to fiscal 2011, primarily due to a five percentage point increase in utilization rates on the deepwater vessels operating in this segment. This resulted in an $18.1 million increase in deepwater vessel revenues and reflects three deepwater vessels being transferred into the region from other segments during the comparative periods.

 

36


Table of Contents
Index to Financial Statements

As was the case with other segments, within the Middle East/North Africa segment, the company continued to stack, and in some cases dispose of vessels that could not find attractive charters. At the beginning of fiscal 2012, the company had six Middle East/North Africa-based stacked vessels. During fiscal 2012, the company stacked seven additional vessels and sold six vessels from the previously stacked vessel fleet, resulting in a total of seven stacked Middle East/North Africa-based vessels as of March 31, 2012.

Middle East/North Africa-based vessel operating profit decreased approximately $18.2 million, or 96%, during fiscal 2012 as compared to fiscal 2011, which primarily reflects the scaling up of operations in the Middle East/North Africa segment in anticipation of a greater level of business activity. In particular, vessel operating costs increased 57%, or $28.6 million, (primarily crew costs, repair and maintenance costs, fuel, lube and supply costs, and vessel operating leases). In addition, depreciation expense increased approximately 23%, or $3.3 million, during the same comparative periods, and general and administrative expenses increased approximately $3.6 million, or 44%, during the same comparative periods.

Crew costs increased approximately 40%, or $10.1 million, during fiscal 2012 as compared to fiscal 2011, due to an increase in crew personnel related to the addition of vessels to the segment. Repair and maintenance costs increased approximately $7.3 million, or 80%, from the prior fiscal year, largely because the average cost of the drydockings performed during the current periods was higher. Depreciation expense increased, during the same comparative periods, primarily because of the additional vessels transferred to the segment related to the build-up of operations in anticipation of a greater level of business activity. General and administrative expenses increased, from the prior fiscal year, due to an increase in administrative personnel which resulted in higher administrative payroll, an increase in office and property costs, and an increase in costs associated with foreign assigned administrative employees also resulting from the build-up of operations in anticipation of a greater level of business activity.

Fuel, lube and supply costs increased approximately $4.9 million, or 59%, during fiscal 2012 as compared to fiscal 2011, due to an increase in the number of vessels operating in the segment resulting from new vessel deliveries and because of vessels mobilizing into this segment. Vessel operating leases increased approximately $1.9 million, from the prior fiscal year, because two vessels operating under lease arrangements were transferred into the segment.

Sub-Saharan Africa/Europe Segment Operations. Sub-Saharan Africa/Europe-based vessel revenues increased approximately 13%, or $53.3 million, during fiscal 2012 as compared to fiscal 2011, due to an increase in the number of deepwater vessels operating in the segment (due to the delivery of new vessels and vessels mobilizing into this segment), a three percentage point increase in utilization rates, and a 12% increase in average day rates on the deepwater vessels, all of which resulted in a $76.0 million increase in deepwater vessel revenues. Revenue increases generated by the deepwater vessels were partially offset by a decline in revenue experienced by the non-deepwater towing supply/supply class of vessels. Vessel revenue on the towing supply/supply class of vessels decreased approximately 9%, or $20.1 million, from the prior fiscal year, due to a five percentage point decrease in utilization rates and because fewer towing supply/supply class of vessels operated in the segment due to vessel sales and transfers to other segments.

Within the Sub-Saharan Africa/Europe segment, the company continued to stack, and in some cases dispose of vessels that could not find attractive charters. At the beginning of fiscal 2012, the company had 26 Sub-Saharan Africa/Europe-based stacked vessels. During fiscal 2012, the company stacked eight additional vessels and sold 11 vessels from the previously stacked vessel fleet, resulting in a total of 23 stacked Sub-Saharan Africa/Europe-based vessels as of March 31, 2012.

Sub-Saharan Africa/Europe-based vessel operating profit increased approximately 17%, or $14.1 million, during fiscal 2012 as compared to fiscal 2011, primarily due to higher revenues, which were partially offset by an approximate 10%, or $25.5 million, increase in vessel operating costs (primarily crew costs, repair and maintenance costs, and fuel, lube and supply costs); an increase in depreciation expense; and an increase in general and administrative expenses.

Crew costs increased approximately 5%, or $5.2 million, during fiscal 2012 as compared to fiscal 2011, respectively, due to an increase in crew personnel resulting from an increase in the number of deepwater vessels operating in the segment. Repair and maintenance costs, increased approximately 20%, or $7.0 million, from the prior fiscal year, due to a higher number of drydockings being performed during current

 

37


Table of Contents
Index to Financial Statements

periods. Fuel, lube and supplies were higher by approximately 39%, or $9.0 million, during the same comparative periods, due to vessel mobilizations.

Depreciation expense increased approximately 10%, or $5.7 million, during fiscal 2012 as compared to fiscal 2011, primarily because of an increased number of vessels operating in the segment resulting from new vessel deliveries and vessels mobilizing into the segment during the current fiscal year. General and administrative expenses increased 21%, or $8.5 million, respectively, from the prior fiscal year, due to pay raises for the administrative personnel, an increase in office and property costs (primarily office rent and information technology costs), an increase in travel costs, and an increase in costs associated with foreign assigned administrative employees.

Other Items.    Insurance and loss reserves expense decreased $2.1 million, or 11%, during fiscal 2012 as compared to fiscal 2011, due to lower premiums and favorable adjustments to loss reserves during fiscal 2012 resulting from good safety results and loss management efforts.

Gain on asset dispositions, net during fiscal 2012 increased $4.4 million, or 33%, as compared to fiscal 2011, primarily due to lower impairment expense charged during the current fiscal year. Dispositions of vessels can vary from quarter to quarter; therefore, gains on sales of assets may fluctuate significantly from period to period.

The company performed a review of all its assets for asset impairment during fiscal 2012. The below table summarizes the combined fair value of the assets that incurred impairments along with the amount of impairment during the years ended March 31. The impairment charges were recorded in gain on asset dispositions, net.

 

(In thousands)    2012      2011        

Amount of impairment incurred

   $       3,607         8,958      

Combined fair value of assets incurring impairment

     8,175         13,646        

Fiscal 2011 Compared to Fiscal 2010

Consolidated Results.    The company’s consolidated net earnings during fiscal 2011 decreased 59%, or $153.9 million, as compared to fiscal 2010, due primarily to an approximate 10%, or $113.2 million, decrease in total revenues, a $33.3 million, or 6%, increase in vessel operating costs, and a $34.2 million, or 414%, increase in income taxes during the comparative periods as disclosed in Note (3) of Notes to Consolidated Financial Statements included in Item 8 of this report.

During fiscal 2011 vessel utilization rates decreased approximately four percentage points as compared to fiscal 2010 due principally to reduced demand for the company’s older vessels by our customers. E&P customers reduced their capital spending budgets in response to lower hydrocarbon demand and weaker commodity prices precipitated by the 2008-2009 global economic recession. The 2008-2009 global recession resulted in a decrease in demand for offshore support vessel services worldwide. This reduced demand has led to an industry-wide reduction in charter rates and utilization rates on vessels as our customers needed fewer vessels and demanded pricing concessions.

The company recorded $1.1 billion in revenues during fiscal 2011 as compared to $1.2 billion in fiscal 2010, a decrease of approximately $113.2 million, primarily due to an approximate four percentage point reduction in total worldwide utilization and a decrease in the company’s shipyard activity for unaffiliated customers. In part, the decline in revenues reflected the vessel seizures in Venezuela in mid-2009 with fiscal 2010 including $11.3 million of revenues that were generated by the company’s Venezuelan operations. Other operating revenues decreased approximately $26.3 million, or 86%, during the same comparative periods primarily because ship construction at the company’s shipyards was completed on several projects and the shipyard has not been able to secure additional backlog.

Vessel operating costs increased 6%, or $33.3 million, during fiscal 2011 as compared to fiscal 2010. Crew costs increased approximately 6%, or $17.9 million, during fiscal 2011 as compared to fiscal 2010, because of the addition of 29 new vessels to the worldwide fleet. The newer, more technologically sophisticated vessels generally require a greater number of specially trained fleet personnel than the older, traditional vessels. In addition, crew costs increased during the same comparative periods, in part, due to a $6.0 million charge

 

38


Table of Contents
Index to Financial Statements

associated with the company’s participation in the Merchant Navy Officers Pension Fund (MNOPF) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Repair and maintenance costs also increased approximately 6%, or $6.1 million, during the same comparative periods, because a greater number of drydockings were performed during fiscal year 2011. In particular, during fiscal 2011, we performed four scheduled drydockings of our largest anchor handling towing supply vessels (for an aggregate cost of $14.5 million) as compared to one drydocking being performed on the same class of vessel during fiscal 2010 for a total cost of $3.3 million. Vessel operating lease costs increased approximately $2.9 million, or 19%, during fiscal 2011 because the company entered into six additional vessel operating leases during fiscal 2010, as disclosed in Note (10) of Notes to Consolidated Financial Statements and in the “Off-Balance Sheet Arrangements” section of this report. Fuel, lube and supply costs were higher by approximately 9%, or $5.1 million, during fiscal 2011 as compared to fiscal 2010, due to vessel mobilizations on the company’s newly delivered vessels and because of vessel transfers. Insurance and loss reserves increased approximately $6.6 million due to an increase in the number of vessels operating and due to unfavorable development of losses during fiscal 2011. Costs of other operating revenues decreased approximately $22.7 million, or 83%, during the same comparative periods because ship construction at the company’s shipyards was completed on several projects and the shipyard has not been able to secure additional backlog.

At March 31, 2011, the company had 364 owned or chartered vessels (excluding joint-venture vessels and vessels withdrawn from service) in its fleet with an average age of 16.5 years. The average age of 193 newer vessels in the fleet at March 31, 2011 (defined as those that have been acquired or constructed since calendar year 2000 as part of the company’s new build and acquisition program) was 5.4 years. The remaining 171 vessels had an average age of 29.0 years. During fiscal 2011 and 2010, the company’s newer vessels generated $838.5 million and $770.5 million, respectively, of consolidated revenue and accounted for 88%, or $363.9 million, and 74%, or $395.3 million, respectively, of total vessel margin (vessel revenues less vessel operating cost). Vessel operating costs exclude depreciation on the company’s new vessels of $97.9 million and $76.2 million, respectively, during the same comparative periods.

Americas Segment Operations.    Vessel revenues in the Americas segment decreased approximately 8%, or $30.4 million, during fiscal 2011 as compared to fiscal 2010, primarily due to a six percentage point decrease in utilization rates on the towing supply/supply class of vessels operating in the Americas (which resulted in a $20.8 million decline in revenue) mostly due to vessel sales, the transfer of vessels to other segments and weaker demand for this class of vessel (particularly the older towing supply/supply vessels). In addition, revenues in the Americas decreased during fiscal 2011 because of the loss of revenue resulting from the seizure of its Venezuelan operations (including the seizure of 15 vessels) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Our Venezuelan operations contributed no revenues during fiscal 2011 as compared to $11.3 million of revenues contributed during fiscal 2010.

Within the Americas segment, the company stacked and disposed of a number of vessels that could not find attractive charters. At the beginning of fiscal 2011, the company had 48 Americas-based stacked vessels. During fiscal 2011, the company stacked 22 additional vessels, sold 26 vessels from the previously stacked vessel fleet, and returned to service five vessels resulting in a total of 39 stacked Americas-based vessels as of March 31, 2011.

Vessel operating profit for the Americas-based vessels increased approximately 32%, or $11.8 million, because fiscal 2010 vessel operating profit includes a $43.7 million provision for Venezuelan operations as disclosed in Note (11) of Notes to Consolidated Financial Statements. Excluding the Venezuelan provision from the comparatives, vessel operating profit for the Americas-based vessels decreased approximately 39%, or $31.9 million, primarily due to lower revenues in fiscal 2011 as compared to fiscal 2010 and due to a 2%, or $4.0 million, increase in vessel operating costs (primarily repair and maintenance costs and other vessel costs partially offset by lower crew costs and fuel, lube and supply costs) partially offset by a decrease in depreciation expense.

Repair and maintenance costs increased approximately 17%, or $7.3 million, during fiscal 2011 as compared to fiscal 2010 due to a greater number of drydockings being performed during the current fiscal year. In particular, during fiscal 2011, we performed three scheduled drydockings of our largest anchor handling towing supply vessels (for an aggregate cost of $11.1 million) as compared to one drydocking being performed on the same class of vessel during fiscal 2010 for a total cost of $3.3 million. Other vessel costs increased 27%, or $5.2 million, due primarily to the movement of several older vessels out of Brazil after the charters for these vessels had been completed. A number of these vessels were subsequently disposed of.

 

39


Table of Contents
Index to Financial Statements

Depreciation expense decreased approximately 3%, or $1.4 million, during fiscal 2011 as compared to fiscal 2010 because of the transfer of vessels to other segments and because of vessel sales. Crew costs decreased approximately 5%, or $6.6 million, during the same comparative periods, primarily due to fewer vessels operating in the Americas because of vessel sales, vessel transfers to other segments, and the seizure of our Venezuelan fleet of 15 vessels. In addition, crew costs were lower during the comparative periods in the Americas due to the mobilization of two deepwater vessels from the U.S. GOM to other segments (because vessel demand related to the Deepwater Horizon oil spill containment effort had declined significantly) and because of wage reductions for remaining personnel operating in the U.S. GOM. Fuel, lube and supply costs decreased approximately 14%, or $2.4 million, during the same comparative periods because we had a fewer number of newly delivered vessels mobilize into the Americas and a fewer number of intersegment mobilizations.

Asia/Pacific Segment Operations.    Asia/Pacific-based vessel revenues increased approximately 4%, or $6.5 million, during fiscal 2011 as compared to fiscal 2010, primarily due to an approximate 10% increase in average day rates and a two percentage point increase in utilization rates on our deepwater vessels along with an increase in the number of deepwater vessels operating in Asia/Pacific segment following the addition of newly-built and acquired deepwater vessels and the transfer of deepwater class vessels from other segments, which collectively resulted in a $38.1 million increase in revenue on this class of vessels. Revenue declines on our non-deepwater towing supply/supply class of vessels partially offset the revenues earned on the deepwater class vessels. Revenues on the towing supply/supply vessels declined $34.3 million, or 28%, during the same comparative periods, due to a 23 percentage point decrease in utilization rates as a result of weaker demand for this class of vessel (specifically the older vessels in this class) despite a 9% increase in average day rates on this class of vessel.

In fiscal 2011, the company stacked, and in a number of cases disposed of, Asia/Pacific-based vessels that could not find attractive charters. At the beginning of fiscal 2011, the company had 12 Asia/Pacific-based stacked vessels. During fiscal 2011, the company stacked 14 additional vessels and sold seven vessels from the previously stacked vessel fleet, resulting in a total of 19 stacked Asia/Pacific-based vessels as of March 31, 2011.

Asia/Pacific-based vessel operating profit decreased approximately $26.7 million, or 55%, during fiscal 2011 as compared to fiscal 2010, primarily due to higher vessel operating costs, depreciation expense and general and administrative costs (despite an increase in revenues). Vessel operating costs increased 35%, or $30.2 million, during the same comparative periods (primarily crew costs, repair and maintenance costs, and fuel, lube and supply costs). Depreciation expense increased 7%, or $1.6 million, during the same comparative periods, due to an increase in the number of vessels operating in the segment as a result of vessel transfers and the delivery of newly built vessels. General and administrative expenses increased approximately 13%, or $1.4 million, during the same comparative periods, due to pay raises for the administrative personnel and temporary personnel staffing, an increase in office and property costs, and general increases caused by the devaluation of the U.S. dollar relative to the Australian dollar.

Crew costs increased approximately 39%, or $19.9 million, during fiscal 2011 as compared to fiscal 2010, due to an increase in crew personnel related to the transfer of vessels into the segments and because of an allocated $1.0 million charge associated with the company’s participation in the Merchant Navy Officers Pension Fund (MNOPF) as disclosed in Note (11) of Notes to Consolidated Financial Statements. Repair and maintenance costs increased 45%, or $5.1 million, during the same comparative periods due to a greater number of drydockings being performed during fiscal 2011 including a previously scheduled drydocking on one of our largest anchor handling towing supply vessels for a cost of $3.4 million. Fuel, lube and supply costs were higher by approximately 2%, or $2.3 million, during fiscal 2011 as compared to fiscal 2010, because of newly-constructed and acquired vessels that were added to the Asia/Pacific fleet, intersegment vessel mobilizations, and vessels mobilizing into the segment from other regions.

 

40


Table of Contents
Index to Financial Statements

Middle East/North Africa Segment Operations.    Middle East/North Africa vessel revenues in fiscal 2011 were comparable to the revenues earned during fiscal 2010. However, revenues on our towing supply/supply vessels increased 5%, or $22.8 million, due to an increase in the number of towing supply/supply vessels operating in this segment, while a decrease in revenues generated by our offshore tugs almost offset the revenue gains achieved by the towing supply/supply class of vessels. In particular, revenues generated by the offshore tugs declined approximately 28%, or $2.6 million, due to a seven percentage point decrease in utilization and a 20% decrease in average day rates due to market weakness on this class of vessel.

Within the middle East/North Africa segment, the company also stacked and disposed of a number of vessels that could not find attractive charters. At the beginning of fiscal 2011, the company had three Middle East/North Africa -based stacked vessels. During fiscal 2011, the company stacked six additional vessels, sold two vessels from the previously stacked vessel fleet, and returned to service one vessel resulting in a total of six stacked Middle East/North Africa -based vessels as of March 31, 2011.

Middle East/North Africa-based vessel operating profit decreased $10.9 million, or 37%, during fiscal 2011 as compared to fiscal 2010 due primarily to a 15%, or $6.7 million, increase in vessel operating costs (primarily crew costs and fuel, lube and supply costs) and a 27%, or $3.0 million, increase in depreciation expense primarily because of the addition of approximately 10 newly delivered vessels and due to vessels mobilizing into the segment from other segments. Crew costs increased $2.9 million, or 13%, because of an increase in crew personnel resulting from an increase in the number of vessels operating in the segment. Fuel, lube and supply costs increased because newly delivered vessels were mobilized into the segment and due to vessels mobilizing into the segment from other segments.

Sub-Saharan Africa/Europe Segment Operations.    Sub-Saharan Africa/Europe-based vessel revenues decreased approximately 13%, or $61.8 million, during fiscal 2011 as compared to fiscal 2010, primarily due to a 10 percentage point decrease in utilization rates and a 14% decrease in average day rates on the towing supply/supply class of vessels resulting in a $74.5 million, or 25%, decline in revenue on this class of vessels, largely due to weak demand for this vessel class (particularly the older vessels). The decline in the towing supply/supply class of vessel revenues was partially offset by a 12%, or $13.2 million, increase in revenue earned by the deepwater vessels due to the addition of 16 deepwater vessels throughout fiscal 2010 and fiscal 2011 following the addition of newly-built and acquired deepwater vessels to the Sub-Saharan Africa/Europe-based fleet and the transfer of deepwater class vessels from other segments.

The company continued to stack and dispose of Sub-Saharan Africa/Europe-based vessels that could not find attractive charters. At the beginning of fiscal 2011, the company had 20 Sub-Saharan Africa/Europe-based stacked vessels. During fiscal 2011, the company stacked 12 additional vessels and sold six vessels from the previously stacked vessel fleet, resulting in a total of 26 stacked Sub-Saharan Africa/Europe-based vessels as of March 31, 2011.

Sub-Saharan Africa/Europe-based vessel operating profit decreased approximately 43%, or $62.0 million, during fiscal 2011 as compared to fiscal 2010, because of lower revenues, which were partially offset by 3%, or $7.6 million, lower vessel operating costs (primarily lower repair and maintenance costs and other vessel costs which were partially offset by higher crew costs, insurance and loss reserves, and vessel operating lease costs) during the comparative periods. In addition, vessel operating profit decreased because of a 13%, or $6.0 million, increase in depreciation expense, during the same comparative periods, because of newly-constructed and acquired vessels that were added to the Sub-Saharan Africa/Europe-based fleet and because of the mobilization of vessels into this segment from other segments.

Repair and maintenance costs decreased 16%, or $6.6 million, during fiscal 2011 as compared to fiscal 2010, due to a fewer number of drydockings being performed during the current fiscal year. Other vessel costs decreased 19%, or $12.1 million, during the same comparative periods, due to a $7.6 million decrease in brokers’ commission (resulting from weaker demand for the company’s vessels in this segment) and because the prior fiscal year included a $5.0 million fine assessed by the Angolan government for failure to remit taxes in a timely manner.

Crew costs increased approximately 1%, or $1.7 million, during fiscal 2011 as compared to fiscal 2010, primarily due to an increase in the number of deepwater vessels operating in the segment. Insurance and loss

 

41


Table of Contents
Index to Financial Statements

reserves increased approximately $3.8 million due to an increase in the number of vessels operating in this segment and due to unfavorable development of losses on a consolidated level during the current fiscal year that affected the costs of insurance for all segments. Vessel operating lease costs increased approximately $3.0 million, or 28%, during the same comparative periods, because the company entered into six additional vessel operating leases during fiscal 2010, as disclosed in Note (10) of Notes to Consolidated Financial Statements and in the “Off-Balance Sheet Arrangements” section of this report.

Other Items.    Insurance and loss reserves expense increased $6.7 million, or 51%, during fiscal 2011 as compared to fiscal 2010, because of lower premiums and favorable adjustments to loss reserves during fiscal 2010 and due to unfavorable development of losses during fiscal 2011.

Gain on asset dispositions, net during fiscal 2011 decreased approximately $15.0 million, or 53%, as compared to fiscal 2010, due to fewer vessel sales, lower gains earned on the mix of vessels sold, and higher impairment charges taken in fiscal 2011 as discussed below. Dispositions of vessels can fluctuate significantly from period to period.

The company performed a review of all its assets for asset impairment during fiscal 2011. The below table summarizes the combined fair value of the assets that incurred impairments along with the amount of impairment during the years ended March 31. The impairment charges were recorded in gain on asset dispositions, net.

 

(In thousands)    2011      2010        

Amount of impairment incurred

   $         8,958         3,102      

Combined fair value of assets incurring impairment

     13,646         10,580        

Vessel Class Revenue and Statistics by Segment

Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created largely through the level of offshore exploration, field development and production spending by energy companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided may also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of days a vessel works during a reporting period by the number of days the vessel is available to work in the reporting period. As such, stacked vessels depressed utilization rates because stacked vessels are considered available to work, and as such, are included in the calculation of utilization rates. Average day rates are calculated by dividing the revenue a vessel earns during a reporting period by the number of days the vessel worked in the reporting period.

Vessel utilization and average day rates are calculated on all vessels in service (again which includes stacked vessels and vessels in drydock) but do not include vessels withdrawn from service (two vessels at March 31, 2012) or vessels owned by joint ventures (10 vessels at March 31, 2012). The following tables compare revenues, day-based utilization percentages and average day rates by vessel class and in total for each of the quarters in the years ended March 31:

 

42


Table of Contents
Index to Financial Statements

REVENUE BY VESSEL CLASS:

(In thousands)

                                             
Fiscal Year 2012    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

   $         36,405         36,639         38,861         35,045         146,950      

Towing-supply/supply

     35,686         36,648         35,866         35,596         143,796      

Crew/utility

     8,010         8,044         6,905         6,576         29,535      

Offshore tugs

     576         561         1,109         2,002         4,248      

Total

   $ 80,677         81,892         82,741         79,219         324,529      

Asia/Pacific fleet:

                 

Deepwater vessels

   $ 15,929         12,264         20,445         26,857         75,495      

Towing-supply/supply

     18,444         15,870         19,334         20,197         73,845      

Crew/utility

     243         144         246         243         876      

Offshore tugs

     883         849         894         910         3,536      

Total

   $ 35,499         29,127         40,919         48,207         153,752      

Middle East/North Africa fleet:

                 

Deepwater vessels

   $ 10,751         11,782         12,647         11,331         46,511      

Towing-supply/supply

     13,474         11,616         13,778         18,034         56,902      

Offshore tugs

     1,832         1,412         1,414         1,418         6,076      

Total

   $ 26,057         24,810         27,839         30,783         109,489      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

   $ 38,506         45,605         51,194         64,392         199,697      

Towing-supply/supply

     53,303         49,338         50,159         48,663         201,463      

Crew/utility

     14,013         12,734         12,589         11,674         51,010      

Offshore tugs

     5,260         4,906         5,045         5,317         20,528      

Total

   $ 111,082         112,583         118,987         130,046         472,698      

Worldwide fleet:

                 

Deepwater vessels

   $ 101,591         106,290         123,147         137,625         468,653      

Towing-supply/supply

     120,907         113,472         119,137         122,490         476,006      

Crew/utility

     22,266         20,922         19,740         18,493         81,421      

Offshore tugs

     8,551         7,728         8,462         9,647         34,388      

Total

   $ 253,315         248,412         270,486         288,255         1,060,468      

 

Fiscal Year 2011    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

   $ 51,302         49,635         47,046         33,261         181,244      

Towing-supply/supply

     35,058         37,631         36,349         40,113         149,151      

Crew/utility

     7,156         7,166         7,644         8,138         30,104      

Offshore tugs

     583         601         571         571         2,326      

Total

   $ 94,099         95,033         91,610         82,083         362,825      

Asia/Pacific fleet:

                 

Deepwater vessels

   $ 19,116         17,957         24,757         21,089         82,919      

Towing-supply/supply

     22,410         23,595         23,183         20,329         89,517      

Crew/utility

     243         246         245         241         975      

Offshore tugs

     858         867         867         874         3,466      

Total

   $ 42,627         42,665         49,052         42,533         176,877      

Middle East/North Africa fleet:

                 

Deepwater vessels

   $ 7,554         6,035         5,820         9,051         28,460      

Towing-supply/supply

     11,903         15,165         15,393         14,408         56,869      

Offshore tugs

     1,694         1,743         1,724         1,661         6,822      

Total

   $ 21,151         22,943         22,937         25,120         92,151      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

   $ 28,671         31,238         31,290         32,508         123,707      

Towing-supply/supply

     57,097         56,596         55,225         52,677         221,595      

Crew/utility

     12,143         12,829         12,977         12,600         50,549      

Offshore tugs

     6,208         5,566         6,542         5,193         23,509      

Total

   $ 104,119         106,229         106,034         102,978         419,360      

Worldwide fleet:

                 

Deepwater vessels

   $ 106,643         104,865         108,913         95,909         416,330      

Towing-supply/supply

     126,468         132,987         130,150         127,527         517,132      

Crew/utility

     19,542         20,241         20,866         20,979         81,628      

Offshore tugs

     9,343         8,777         9,704         8,299         36,123      

Total

   $ 261,996         266,870         269,633         252,714         1,051,213      

 

 

43


Table of Contents
Index to Financial Statements

REVENUE BY VESSEL CLASS - continued:

 

(In thousands)                                              
Fiscal Year 2010    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

   $         42,076         44,522         44,715         47,310         178,623      

Towing-supply/supply

     54,769         46,979         37,543         33,668         172,959      

Crew/utility

     11,207         8,557         7,237         6,999         34,000      

Offshore tugs

     3,440         1,898         798         985         7,121      

Other

     567                                 567      

Total

   $ 112,059         101,956         90,293         88,962         393,270      

Asia/Pacific fleet:

                 

Deepwater vessels

   $ 6,051         8,776         13,451         16,504         44,782      

Towing-supply/supply

     34,728         32,011         32,995         24,116         123,850      

Crew/utility

     290         220         221         197         928      

Offshore tugs

                             798         798      

Total

   $ 41,069         41,007         46,667         41,615         170,358      

Middle East/North Africa fleet:

                 

Deepwater vessels

   $ 8,041         7,351         6,783         6,391         28,566      

Towing-supply/supply

     16,041         16,181         12,195         9,698         54,115      

Crew/utility

     613         631                         1,244      

Offshore tugs

     2,225         2,800         2,701         1,728         9,454      

Total

   $ 26,920         26,963         21,679         17,817         93,379      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

   $ 26,242         27,760         29,275         27,240         110,517      

Towing-supply/supply

     84,158         78,643         68,698         64,595         296,094      

Crew/utility

     15,096         13,594         12,790         12,757         54,237      

Offshore tugs

     4,892         4,640         5,105         5,670         20,307      

Total

   $ 130,388         124,637         115,868         110,262         481,155      

Worldwide fleet:

                 

Deepwater vessels

   $ 82,410         88,409         94,224         97,445         362,488      

Towing-supply/supply

     189,696         173,814         151,431         132,077         647,018      

Crew/utility

     27,206         23,002         20,248         19,953         90,409      

Offshore tugs

     10,557         9,338         8,604         9,181         37,680      

Other

     567                                 567      

Total

   $ 310,436         294,563         274,507         258,656         1,138,162      

 

UTILIZATION:

Fiscal Year 2012

  

First

    

Second

    

Third

    

Fourth

    

Year

       

Americas fleet:

                 

Deepwater vessels

     70.8      73.5         79.7         75.9         74.9      

Towing-supply/supply

     43.3         46.9         54.2         53.1         49.0      

Crew/utility

     85.3         80.2         72.6         82.3         80.0      

Offshore tugs

     20.0         19.3         23.6         38.7         25.8      

Total

     54.3      56.8         61.0         61.4         58.2      

Asia/Pacific fleet:

                 

Deepwater vessels

     71.1      59.6         83.5         95.3         76.8      

Towing-supply/supply

     42.5         36.3         43.8         43.1         41.3      

Crew/utility

     100.0         58.7         100.0         100.0         89.6      

Offshore tugs

     100.0         100.0         100.0         100.0         100.0      

Total

     51.1      42.8         54.4         55.9         50.9      

Middle East/North Africa fleet:

                 

Deepwater vessels

     76.3      91.6         98.8         100.0         91.2      

Towing-supply/supply

     57.6         49.7         59.2         73.3         59.9      

Offshore tugs

     63.2         50.0         50.0         50.0         53.3      

Total

     61.6      57.4         65.2         74.4         64.5      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

     81.6      88.1         83.8         84.0         84.4      

Towing-supply/supply

     57.9         55.8         58.1         55.6         56.9      

Crew/utility

     91.1         85.6         82.0         76.2         83.7      

Offshore tugs

     62.0         60.8         69.0         72.6         65.9      

Total

     70.1      69.2         70.0         68.4         69.4      

Worldwide fleet:

                 

Deepwater vessels

     75.7      79.3         84.2         84.9         81.1      

Towing-supply/supply

     50.7         48.6         54.4         55.2         52.1      

Crew/utility

     89.5         83.4         79.5         78.3         82.7      

Offshore tugs

     55.4         51.4         54.8         60.2         55.5      

Total

     61.5      60.2         64.6         65.4         62.9      

 

 

44


Table of Contents
Index to Financial Statements

UTILIZATION - continued:

 

Fiscal Year 2011    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

     80.3      79.2         78.5         70.1         77.3      

Towing-supply/supply

     39.3         42.7         41.0         48.3         42.6      

Crew/utility

     48.3         53.5         57.8         70.6         56.8      

Offshore tugs

     16.8         17.0         16.4         20.0         17.5      

Total

     47.8      50.8         50.2         55.2         50.8      

Asia/Pacific fleet:

                 

Deepwater vessels

     90.1      61.2         84.7         78.9         78.3      

Towing-supply/supply

     49.7         46.5         46.8         43.5         46.6      

Crew/utility

     100.0         100.0         100.0         100.0         100.0      

Offshore tugs

     100.0         100.0         100.0         100.0         100.0      

Total

     59.4      51.6         57.5         53.6         55.5      

Middle East/North Africa fleet:

                 

Deepwater vessels

     88.4      87.9         80.1         87.5         86.3      

Towing-supply/supply

     64.8         71.7         72.5         66.6         69.0      

Offshore tugs

     59.6         60.0         59.7         58.8         59.5      

Total

     67.4      71.8         71.5         68.8         69.9      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

     86.0      87.4         79.2         76.0         81.7      

Towing-supply/supply

     63.2         62.6         62.5         60.0         62.1      

Crew/utility

     81.3         85.9         89.9         91.6         87.0      

Offshore tugs

     74.6         66.1         73.3         60.3         68.6      

Total

     71.7      71.9         72.3         69.8         71.4      

Worldwide fleet:

                 

Deepwater vessels

     84.6      78.9         80.2         75.8         79.8      

Towing-supply/supply

     52.9         54.6         54.2         54.5         54.0      

Crew/utility

     68.5         73.9         77.9         84.3         75.9      

Offshore tugs

     59.4         55.1         58.7         53.7         56.8      

Total

     61.1      61.8         62.7         62.8         62.1      

 

Fiscal Year 2010    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

     80.9      74.8         75.6         79.6         77.7      

Towing-supply/supply

     57.0         52.1         43.3         40.8         48.6      

Crew/utility

     70.1         56.4         47.0         43.5         54.7      

Offshore tugs

     44.9         45.7         19.8         25.1         34.8      

Other

     79.2         —           —           —           79.2      

Total

     62.4      56.2         47.9         47.2         53.7      

Asia/Pacific fleet:

                 

Deepwater vessels

     59.0      73.2         80.1         87.8         76.5      

Towing-supply/supply

     79.3         75.0         69.8         53.0         69.1      

Crew/utility

     59.9         49.6         63.0         100.0         63.4      

Offshore tugs

     —           —           —           93.3         56.8      

Total

     76.0      73.7         70.4         60.3         69.9      

Middle East/North Africa fleet:

                 

Deepwater vessels

     93.3      85.3         68.5         64.5         76.7      

Towing-supply/supply

     76.4         79.8         66.6         66.5         72.6      

Crew/utility

     58.6         82.0         —           —           69.3      

Offshore tugs

     62.4         75.3         71.8         55.6         66.4      

Total

     75.8      79.9         67.7         64.3         72.2      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

     86.1      82.5         86.9         82.3         84.4      

Towing-supply/supply

     77.0         72.7         70.9         66.9         72.0      

Crew/utility

     75.4         73.5         76.9         81.6         76.7      

Offshore tugs

     56.6         60.5         70.6         68.6         64.1      

Total

     75.6      73.1         74.4         72.8         74.0      

Worldwide fleet:

                 

Deepwater vessels

     80.8      78.2         79.4         80.2         79.6      

Towing-supply/supply

     70.1         66.8         60.7         55.1         63.3      

Crew/utility

     72.6         66.4         65.0         66.4         67.7      

Offshore tugs

     54.2         60.4         56.0         56.8         56.8      

Other

     79.2                                 79.2      

Total

     70.7      67.8         63.8         61.0         65.9      

 

 

45


Table of Contents
Index to Financial Statements
AVERAGE DAY RATES:                                        
Fiscal Year 2012    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

   $         26,360         24,863         25,247         25,911         25,573      

Towing-supply/supply

     14,031         14,786         13,812         13,704         14,076      

Crew/utility

     6,024         6,414         6,186         6,234         6,212      

Offshore tugs

     6,332         6,318         8,525         9,613         8,199      

Total

   $ 15,094         15,466         15,373         15,197         15,283      

Asia/Pacific fleet:

                 

Deepwater vessels

   $ 21,436         20,619         25,357         30,982         25,073      

Towing-supply/supply

     12,519         11,974         12,836         13,751         12,790      

Crew/utility

     2,670         2,671         2,670         2,670         2,670      

Offshore tugs

     9,709         9,236         9,709         10,000         9,662      

Total

   $ 14,801         14,098         16,389         19,148         16,221      

Middle East/North Africa fleet:

                 

Deepwater vessels

   $ 18,147         17,466         17,484         17,788         17,703      

Towing-supply/supply

     7,738         8,513         8,604         8,992         8,477      

Offshore tugs

     5,302         5,117         5,127         5,194         5,192      

Total

   $ 9,726         10,716         10,705         10,558         10,417      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

   $ 20,399         20,375         21,719         23,254         21,584      

Towing-supply/supply

     12,812         12,665         13,004         13,479         12,978      

Crew/utility

     4,577         4,369         4,509         4,548         4,500      

Offshore tugs

     7,110         6,751         6,620         6,705         6,794      

Total

   $ 11,278         11,518         12,181         13,353         12,080      

Worldwide fleet:

                 

Deepwater vessels

   $ 22,065         21,338         22,696         24,465         22,709      

Towing-supply/supply

     12,190         12,519         12,460         12,651         12,452      

Crew/utility

     4,968         4,955         4,935         4,981         4,960      

Offshore tugs

     6,748         6,531         6,715         7,066         6,775      

Total

   $ 12,496         12,771         13,359         14,140         13,197      

 

Fiscal Year 2011    First      Second      Third      Fourth      Year        

Americas fleet:

                 

Deepwater vessels

   $ 28,065         27,238         27,533         25,041         27,103      

Towing-supply/supply

     13,005         13,603         13,741         14,411         13,695      

Crew/utility

     6,284         6,183         6,294         6,411         6,296      

Offshore tugs

     6,345         6,383         6,342         6,341         6,353      

Total

   $ 16,352         16,268         16,190         15,003         15,965      

Asia/Pacific fleet:

                 

Deepwater vessels

   $ 22,446         24,933         22,697         23,681         23,336      

Towing-supply/supply

     12,117         12,917         12,305         12,688         12,498      

Crew/utility

     2,670         2,670         2,670         2,670         2,670      

Offshore tugs

     9,426         9,426         9,426         9,709         9,495      

Total

   $ 14,785         15,623         15,529         15,913         15,454      

Middle East/North Africa fleet:

                 

Deepwater vessels

   $ 16,980         16,232         17,862         16,907         16,962      

Towing-supply/supply

     7,401         7,522         7,595         7,693         7,558      

Offshore tugs

     5,205         5,262         5,226         5,235         5,232      

Total

   $ 8,892         8,438         8,551         9,216         8,772      

Sub-Saharan Africa/Europe fleet:

                 

Deepwater vessels

   $ 19,290         19,044         19,302         19,325         19,239      

Towing-supply/supply

     12,306         11,784         11,563         11,848         11,873      

Crew/utility

     4,263         4,283         4,304         4,247         4,275      

Offshore tugs

     6,528         6,541         6,930         6,836         6,706      

Total

   $ 10,491         10,324         10,238         10,450         10,374      

Worldwide fleet:

                 

Deepwater vessels

   $ 23,129         23,024         22,946         21,619         22,691      

Towing-supply/supply

     11,718         11,653         11,485         11,913         11,689      

Crew/utility

     4,792         4,767         4,828         4,850         4,810      

Offshore tugs

     6,402         6,415