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Tidewater 10-Q 2012
Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the quarterly period ended December 31, 2011

 

¨ 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

(State of incorporation)

  LOGO  

72-0487776

(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

Not Applicable

(Former name or former address, if changed since last report)

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 of 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 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

51,162,747 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on January 20, 2012. Registrant has no other class of common stock outstanding.


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TIDEWATER INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value data)

 

     December 31,     March 31,  
ASSETS    2011     2011  

Current assets:

    

Cash and cash equivalents

   $ 188,347        245,720   

Trade and other receivables, net

     287,081        272,467   

Marine operating supplies

     52,488        50,748   

Other current assets

     10,455        10,212   

Total current assets

     538,371        579,147   

Investments in, at equity, and advances to unconsolidated companies

     43,348        39,044   

Properties and equipment:

    

Vessels and related equipment

     3,977,687        3,910,430   

Other properties and equipment

     93,889        85,589   
     4,071,576        3,996,019   

Less accumulated depreciation and amortization

     1,190,883        1,294,239   

Net properties and equipment

     2,880,693        2,701,780   

Goodwill

     297,822        328,754   

Other assets

     117,633        99,391   

Total assets

   $ 3,877,867        3,748,116   
   
   

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current liabilities:

    

Accounts payable

     50,712        45,177   

Accrued expenses

     129,540        120,869   

Accrued property and liability losses

     3,787        3,846   

Other current liabilities

     22,740        13,697   

Total current liabilities

     206,779        183,589   

Long-term debt

     825,000        700,000   

Deferred income taxes

     213,520        216,735   

Accrued property and liability losses

     6,639        5,327   

Other liabilities and deferred credits

     124,705        128,521   

Commitments and Contingencies Note (6)

    

Stockholders’ equity:

    

Common stock of $0.10 par value, 125,000,000 shares authorized, issued 51,162,747 shares at December 31, 2011 and 51,876,038 shares at March 31, 2011

     5,116        5,188   

Additional paid-in capital

     98,097        90,204   

Retained earnings

     2,416,777        2,436,736   

Accumulated other comprehensive loss

     (18,766     (18,184

Total stockholders’ equity

     2,501,224        2,513,944   

Total liabilities and stockholders’ equity

   $ 3,877,867        3,748,116   
   
   

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

2


TIDEWATER INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except share and per share data)

 

     Quarter Ended     Nine Months Ended  
     December 31,     December 31,  
      2011     2010     2011     2010  

Revenues:

        

Vessel revenues

   $ 270,486        269,633        772,213        798,499   

Other marine revenues

     1,625        2,142        5,399        2,901   
       272,111        271,775        777,612        801,400   

Costs and expenses:

        

Vessel operating costs

     155,838        160,597        469,430        485,072   

Costs of other marine revenues

     1,938        2,705        5,200        3,403   

Depreciation and amortization

     35,215        35,058        102,771        105,853   

Goodwill impairment

                   30,932          

General and administrative

     40,425        33,238        115,779        103,932   

Gain on asset dispositions, net

     (2,496     (2,425     (13,671     (11,621
       230,920        229,173        710,441        686,639   

Operating income

     41,191        42,602        67,171        114,761   

Other income (expenses):

        

Foreign exchange (loss) gain

     (1,738     973        735        2,147   

Equity in net earnings of unconsolidated companies

     3,482        3,291        9,427        8,766   

Interest income and other, net

     347        1,074        2,303        3,481   

Interest and other debt costs

     (6,027     (3,646     (14,854     (6,405
       (3,936     1,692        (2,389     7,989   

Earnings before income taxes

     37,255        44,294        64,782        122,750   

Income tax expense

     3,168        9,931        11,013        29,153   

Net earnings

   $ 34,087        34,363        53,769        93,597   
   
   

Basic earnings per common share

   $ 0.67        0.67        1.05        1.83   
   
   

Diluted earnings per common share

   $ 0.67        0.67        1.04        1.82   
   
   

Weighted average common shares outstanding

     51,036,420        51,053,051        51,203,598        51,129,443   

Dilutive effect of stock options and restricted stock

     206,329        306,647        267,661        231,463   

Adjusted weighted average common shares

     51,242,749        51,359,698        51,471,259        51,360,906   
   
   

Cash dividends declared per common share

   $ 0.25        0.25        0.75        0.75   
   
   

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3


TIDEWATER INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Nine Months Ended  
     December 31,  
      2011     2010  

Operating activities:

    

Net earnings

   $ 53,769        93,597   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     102,771        105,853   

Provision (benefit) for deferred income taxes

     (24,035     (12,114

Gain on asset dispositions, net

     (13,671     (11,621

Goodwill impairment

     30,932          

Equity in earnings of unconsolidated companies, net of dividends

     (4,304     4,150   

Compensation expense—stock-based

     9,179        10,481   

Excess tax liability (benefit) on stock options exercised

     119        (275

Changes in assets and liabilities, net:

    

Trade and other receivables

     (14,614     21,155   

Marine operating supplies

     (1,740     (2,932

Other current assets

     (243     (6,805

Accounts payable

     4,266        265   

Accrued expenses

     5,735        (3,331

Accrued property and liability losses

     (59     (900

Other current liabilities

     8,980        16,957   

Other liabilities and deferred credits

     (1,969     4,126   

Other, net

     2,584        (556

Net cash provided by operating activities

     157,700        218,050   

Cash flows from investing activities:

    

Proceeds from sales of assets

     30,168        29,732   

Proceeds from insurance settlements on Venezuela seized vessels

            8,150   

Additions to properties and equipment

     (297,009     (508,640

Net cash used in investing activities

     (266,841     (470,758

Cash flows from financing activities:

    

Principal payments on debt

     (40,000     (190,000

Debt borrowings

     165,000        590,000   

Debt issuance costs

     (245     (7,446

Proceeds from exercise of stock options

     839        3,457   

Cash dividends

     (38,692     (38,619

Excess tax (liability) benefit on stock options exercised

     (119     275   

Stock repurchases

     (35,015     (19,988

Net cash provided by financing activities

     51,768        337,679   

Net change in cash and cash equivalents

     (57,373     84,971   

Cash and cash equivalents at beginning of period

     245,720        223,070   

Cash and cash equivalents at end of period

   $ 188,347        308,041   
   
   

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 30,858        8,898   

Income taxes

   $ 37,307        35,810   

Non-cash investing activities:

    

Additions to properties and equipment

   $ 1,269          
   
   

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

(1) INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements for the interim periods presented herein have been prepared in conformity with United States generally accepted accounting principles and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated balance sheets and the condensed consolidated statements of earnings and cash flows at the dates and for the periods indicated as required by Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (SEC). Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the company’s Annual Report on Form 10-K for the year ended March 31, 2011, filed with the SEC on May 19, 2011.

The unaudited condensed consolidated financial statements include the accounts of Tidewater Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation. The company uses the equity method to account for equity investments over which the company exercises significant influence but does not exercise control and is not the primary beneficiary. All per share information included in this document is on a diluted earnings per share basis.

Recasted Segment Information

In connection with a change in reportable segments, certain prior period amounts have been recasted to conform to the December 31, 2011 presentation of our segments with no effect on net earnings or retained earnings. Please refer to Note (10) – Segment and Geographical Distributions of Operations to these Unaudited Condensed Consolidated Financial Statements.

 

(2) STOCKHOLDERS’ EQUITY

Common Stock Repurchase Program

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 December 31, 2011, approximately $165.0 million authorization remains available to repurchase shares under the May 2011 share repurchase program.

The value of common stock repurchased, along with number of shares repurchased, and average price paid per share are as follows:

 

       Quarter Ended            Nine Months Ended    
     December 31,        December 31,  
(In thousands, except share and per share data)    2011      2010          2011      2010  

Value of common stock repurchased

   $ 35,015         —             35,015         19,988   

Shares of common stock repurchased

     739,231         —             739,231         486,800   

Average price paid per common share

   $ 47.37         —             47.37         41.06   

In July 2009, the Board of Directors had previously authorized the company to repurchase up to $200.0 million in shares of its common stock in open-market or privately-negotiated transactions. The authorization of the July 2009 repurchase program ended in May 2011.

 

5


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Additional Paid In Capital

Additional paid in capital increased approximately $7.9 million, or 9%, at December 31, 2011 as compared to March 31, 2011, primarily due to $4.1 million in the amortization of deferred stock compensation, $3.0 million for stock option expensing, and a net $0.7 million for the issuance of common stock resulting from the exercise of stock options.

Dividend Program

The Board of Directors declared the following dividends for the quarters and nine-month periods ended December 31, 2011 and 2010, respectively. The declaration of dividends is at the discretion of the company’s Board of Directors.

 

         Quarter Ended              Nine Months Ended      
     December 31,      December 31,  
(In thousands, except dividend per share)    2011      2010          2011      2010      

Dividends declared

   $     12,844         12,857             38,787         38,648       

Dividend per share

     0.25         0.25             0.75         0.75       

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period. The components of comprehensive income (loss), net of related tax, are as follows:

 

0000000000 0000000000 0000000000 0000000000
     Quarter Ended              Nine Months Ended      
     December 31,      December 31,  
(In thousands)      2011         2010             2011         2010       

Net earnings

     $    34,087         34,363             53,769         93,597       

Other comprehensive income (loss):

           

Unrealized (loss) gains on available-for-sale securities

     70         876             (931      658       

Qualifying derivatives

             —                     (3,974)     

Amortization of loss on derivative contract

     116         70             349         70       
   

Comprehensive income (loss)

     $    34,273         35,309             53,187         90,351       
   

(3) INCOME TAXES

Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The effective tax rate applicable to pre-tax earnings, for the quarters and the nine-month periods ended December 31, 2011 and 2010, are as follows:

 

         Quarter Ended              Nine Months Ended      
     December 31,      December 31,  
       2011         2010            2011         2010   

Effective tax rate applicable to pre-tax earnings

     8.5%         22.4%         17.0%         23.8%   

The effective tax rate was lower during the quarter and nine-month period ended December 31, 2011, as compared to the same periods during fiscal 2011, primarily due to the expiration of the statutes of limitation with respect to tax liabilities established for uncertain tax positions totaling $8.4 million.

The company’s balance sheet at December 31, 2011 reflects the following in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes:

 

         December 31,  
(In thousands)    2011        

Tax liabilities for uncertain tax positions

   $         13,397         

Income tax payable

     16,813         

The tax liabilities for uncertain tax positions are attributable to a permanent establishment issue related to a foreign joint venture. Penalties and interest related to income tax liabilities are included in income tax expense. Income tax payable is included in other current liabilities.

 

6


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Unrecognized tax benefits, which would lower the effective tax rate if realized, at December 31, 2011, are as follows:

 

(In thousands)    December 31,
2011
 

Unrecognized tax benefit related to state tax issues

   $ 8,591   

Interest receivable on unrecognized tax benefit related to state tax issues

     37   

With limited exceptions, the company is no longer subject to tax audits by United States (U.S.) federal, state, local or foreign taxing authorities for years prior to 2004. The company has ongoing examinations by various U.S. federal, state and foreign tax authorities and does not believe that the results of these examinations will have a material adverse effect on the company’s financial position or results of operations.

 

(4) EMPLOYEE BENEFIT PLANS

U.S. Defined Benefit Pension Plan

The company has a defined benefit pension plan that covers certain U.S. citizen employees and employees who are permanent residents of the United States. Benefits are based on years of service and employee compensation. In December 2009, the Board of Directors amended the pension plan to discontinue the accrual of benefits once the plan was frozen on December 31, 2010. On that date, previously accrued pension benefits under the pension plan were frozen for the approximately 60 active employees who participated in the plan. This change did not affect benefits earned by participants prior to January 1, 2011. The active employees who participated in the pension plan have become participants in the company’s defined contribution retirement plan effective January 1, 2011. These changes are providing the company more predictable retirement plan costs and cash flows. By changing to a defined contribution plan and freezing the benefits accrued under the predecessor defined benefit plan, the company’s future benefit obligations and requirements for cash contributions for the frozen pension plan are reduced. Losses associated with the curtailment of the pension plan were immaterial. The company did not contribute to the defined benefit pension plan during the quarters and nine-month periods ended December 31, 2011 and 2010, and does not expect to contribute to the plan during the fourth quarter of fiscal 2012.

Supplemental Executive Retirement Plan

The company offers a supplemental retirement plan (supplemental plan) that provides pension benefits to certain employees in excess of those allowed under the company’s tax-qualified pension plan. Assets of this non-contributory supplemental defined benefit plan are held in a Rabbi Trust and invested in a variety of marketable securities, none of which is Tidewater stock. The Rabbi Trust assets, which are included in “other assets” in the company’s consolidated balance sheet, are recorded at fair value. Effective March 4, 2010, the supplemental plan was closed to new participation. The company did not contribute to the supplemental plan during the quarters and nine-month periods ended December 31, 2011 and 2010, and does not expect to contribute to the plan during the fourth quarter of fiscal 2012. The supplemental plan is a non-qualified plan and, as such, the company is not required to make contributions to the supplemental plan.

The following table summarizes the carrying value of the trust assets, including unrealized gains or losses at December 31, 2011 and March 31, 2011:

 

(In thousands)    December 31,
2011
    March 31,
2011
 

Investments held in Rabbi Trust

   $ 16,587        18,043   

Unrealized (losses) gains in carrying value of trust assets

     (408     523   

Unrealized (losses) gains in carrying value of trust assets are net of income tax expense of

     (220     281   

Obligations under the supplemental plan

     28,212        26,197   

 

7


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The unrealized gains or losses in the carrying value of the trust assets, net of income tax expense, are included in accumulated other comprehensive income (other stockholders’ equity). To the extent that trust assets are liquidated to fund benefit payments, gains or losses, if any, will be recognized at that time. The company’s obligations under the supplemental plan are included in “accrued expenses” and “other liabilities and deferred credits” on the consolidated balance sheet.

Postretirement Benefit Plan

Certain qualified employees who have already retired are currently covered by a program which provides limited health care and life insurance benefits. Costs of the program are based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. This plan is funded through company payments as benefits are paid out.

Net Periodic Benefit Costs

The net periodic benefit cost for the company’s U.S. defined benefit pension plan and the supplemental plan (referred to collectively as “Pension Benefits”) and the postretirement health care and life insurance plan (referred to collectively as “Other Benefits”) is comprised of the following components:

 

     Quarter Ended
December 31,
     Nine Months Ended
December 31,
 
(In thousands)    2011      2010      2011      2010  

Pension Benefits:

           

Service cost

   $ 219         230         657         690   

Interest cost

         1,103         1,115         3,309         3,345   

Expected return on plan assets

     (644      (620      (1,932      (1,860

Amortization of prior service cost

     12         4         36         12   

Recognized actuarial loss

     440         425         1,320         1,275   

Net periodic benefit cost

   $ 1,130         1,154         3,390         3,462   
   
   

Other Benefits:

           

Service cost

   $ 139         145         417         435   

Interest cost

     345         365         1,035         1,095   

Amortization of prior service cost

     (608      (508      (1,824      (1,524

Recognized actuarial (gain) loss

     (1      (5      (3      (15

Net periodic benefit cost

   $ (125      (3      (375      (9
   
   

 

(5) INDEBTEDNESS

Revolving Credit and Term Loan Agreement

Borrowings under the company’s $575.0 million amended and restated revolving credit facility (“credit facility”), which includes a $125.0 million term loan (“term loan”) and a $450.0 million revolving line of credit (“revolver”) 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 ranging from 1.50 to 2.25%, based on the company’s consolidated funded debt to total capitalization ratio. Commitment fees on the unused portion of the facilities range from 0.15 to 0.35% based on the company’s funded debt to total capitalization ratio. The facilities provide for a maximum ratio of consolidated debt to consolidated total capitalization of 55% and a minimum consolidated interest coverage ratio (essentially consolidated earnings before interest, taxes, depreciation and amortization, or EBITDA, for the four prior fiscal quarters to consolidated interest charges for such period) of 3.0. All other terms, including the financial and negative covenants, are customary for facilities of its type and consistent with the prior agreement in all material respects. The company’s amended and restated revolving credit facility matures in January 2016.

In July 2011, the credit facility was amended to allow 365 days (originally 180 days) from the closing date (“delayed draw period”) to make multiple draws under the term loan. 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.

 

8


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

There were no borrowings outstanding under available credit facilities at December 31, 2011, and the full $575.0 million of such credit facilities was available at December 31, 2011 for future financing needs.

Senior Debt Notes

August 2011 Senior Notes

On August 15, 2011, the company issued $165.0 million of senior unsecured notes to a group of institutional investors. A summary of these notes outstanding at December 31, 2011, is as follows:

 

(In thousands, except weighted average data)    December 31,
2011
 

Aggregate debt outstanding

   $ 165,000   

Weighted average remaining life in years

     8.8   

Weighted average coupon rate on notes outstanding

     4.42

Fair value of debt outstanding

     170,083   

The multiple series of notes were originally issued with maturities ranging from approximately eight to 10 years. 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%.

September 2010 Senior Notes

On October 15, 2010, the company completed the sale of $310.0 million of senior unsecured notes, and the sale of an additional $115.0 million of the notes was completed on December 30, 2010. A summary of the aggregate amount of these notes outstanding at December 31, 2011 and March 31, 2011, is as follows:

 

(In thousands, except weighted average data)    December 31,
2011
    March 31,
2011
 

Aggregate debt outstanding

   $ 425,000        425,000   

Weighted average remaining life in years

     7.9        8.6   

Weighted average coupon rate on notes outstanding

     4.25     4.25

Fair value of debt outstanding

     437,309        404,352   

The multiple series of these notes were originally issued with maturities ranging from five to 12 years. 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%.

Included in accumulated other comprehensive income at December 31, 2011 and March 31, 2011, is an after-tax loss of $3.4 million ($5.3 million pre-tax), and $3.8 million ($5.8 million pre-tax), respectively, relating to the purchase of interest rate hedges, which are cash flow hedges, in July 2010 in connection with the September 2010 senior notes offering. The interest rate hedges settled in August 2010 concurrent with the pricing of the senior unsecured notes. The hedges met the effectiveness criteria and their acquisition costs are being amortized over the term of the individual notes matching the term of the hedges to interest expense.

July 2003 Senior Notes

In July 2003, the company completed the sale of $300.0 million of senior unsecured notes. A summary of the aggregate amount of remaining senior unsecured notes outstanding at December 31, 2011 and March 31, 2011 that were issued in July 2003, is as follows:

 

(In thousands, except weighted average data)    December 31,
2011
    March 31,
2011
 

Aggregate debt outstanding

   $ 235,000        275,000   

Weighted average remaining life in years

     1.6        2.1   

Weighted average coupon rate on notes outstanding

     4.43     4.39

Fair value of debt outstanding

     241,842        285,478   

 

9


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The multiple series of notes were originally issued with maturities ranging from seven to 12 years. These notes can be retired in whole or in part prior to maturity for a redemption price equal to the principal amount of the notes redeemed plus a customary make-whole premium. The terms of the notes provide for a maximum ratio of consolidated debt to total capitalization of 55%.

Notes totaling $40.0 million matured in July 2011 but were not classified as current maturities of long-term debt because the company had the ability to fund this maturity with its credit facility. Notes totaling $60.0 million will mature in July 2012 but are not classified as current maturities of long-term debt because the company has the ability, if necessary, to fund this maturity with its credit facility.

Debt Costs

The company capitalizes a portion of its interest costs incurred on borrowed funds used to construct vessels. Interest and debt costs incurred, net of interest capitalized, for the quarters and the nine-month periods ended December 31, 2011 and 2010 are as follows:

 

     Quarter Ended
December 31,
     Nine Months Ended
December 31,
 
(In thousands)    2011      2010      2011      2010  

Interest and debt costs incurred, net of interest capitalized

   $     6,027         3,646         14,854         6,405   

Interest costs capitalized

     3,841         3,766         12,439         10,724   

Total interest and debt costs

   $ 9,868         7,412         27,293         17,129   
   
   

(6) COMMITMENTS AND CONTINGENCIES

Vessel Commitments

The table below summarizes the company’s various vessel commitments to acquire and construct new vessels, by vessel type, as of December 31, 2011:

 

(In thousands, except vessel count)    Number
of
Vessels
    

Total

Cost

     Invested
Through
12/31/11
     Remaining
Balance
12/31/11
 

Vessels under construction:

           

Anchor handling towing supply

     2       $ 47,848         38,255         9,593   

Platform supply vessels

     16         512,332         197,651         314,681   

Crewboats

     5         22,773         10,904         11,869   
   

Total vessels under construction

     23         582,953         246,810         336,143   

Vessels to be purchased:

           

Anchor handling towing supply

     4         49,215         10,829         38,386   

Platform supply vessels

     3         57,903         12,417         45,486   

Total vessels to be purchased

     7         107,118         23,246         83,872   

Total vessel commitments

     30       $ 690,071         270,056         420,015   
   
   

The total cost of the various vessel new-build commitments includes contract costs and other incidental costs. The company has vessels under construction 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.). The anchor handling towing supply vessels under construction have 8,200 brake horsepower (BHP), while the platform supply vessels under construction range between 1,900 and 6,360 deadweight tons of cargo capacity. Scheduled delivery for the new-build vessels began in January 2012, with delivery of the final new-build vessel expected in December 2013.

Regarding the vessels to be purchased, the company took possession of three of the four anchor handling towing supply vessels in January 2012 for a total aggregate cost of $36.8 million. The three acquired vessels are 5,150 BHP anchor handling towing supply vessels. In February 2012, the company will acquire the remaining 5,150 BHP anchor handling towing supply vessel for a total cost of $12.4 million. The company plans to take possession of the three platform supply vessels, which range between 3,000 and 3,500 deadweight tons of cargo capacity, in April, May and July of 2012 for a total aggregate purchase price of $57.9 million.

 

10


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The company’s vessel construction program has been designed to replace over time the company’s older fleet of vessels with fewer, larger and more efficient vessels, while also opportunistically revamping the size and capabilities of the company’s fleet. The company anticipates using future operating cash flows, existing borrowing capacity and new borrowings or lease arrangements to fund current and future commitments in connection with the fleet renewal and modernization program. The company continues to evaluate its fleet renewal program, whether through new construction or acquisitions, relative to other investment opportunities and uses of cash, including the current share repurchase authorization, and in the context of current conditions in the credit and capital markets.

The company generally requires shipyards to provide third party credit support in the event that vessels are not completed and delivered in accordance with the terms of the shipbuilding contracts. That third party credit support typically guarantees the return of amounts paid by the company, and generally takes the form of refundment guarantees or standby letters of credit issued by major financial institutions located in the country of the shipyard. While the company seeks to minimize its shipyard credit risk by requiring these instruments, the ultimate return of amounts paid by the company in the event of shipyard default is still subject to the creditworthiness of the shipyard and the provider of the credit support, as well as the company’s ability to successfully pursue legal action to compel payment of these instruments. When third party credit support is not available or cost effective, the company endeavors to limit its credit risk by requiring cash deposits and through other contract terms with the shipyard and other counterparties.

Currently the company is experiencing substantial delay with one fast, crew/supply boat under construction in Brazil that was originally scheduled to be delivered in September 2009. On April 5, 2011, pursuant to the vessel construction contract, the company sent the subject shipyard a letter initiating arbitration in order to resolve disputes of such matters as the shipyard’s failure to achieve payment milestones, its failure to follow the construction schedule, and its failure to timely deliver the vessel. The company believes that the shipyard has suspended construction of the vessel. The company continues to pursue that arbitration. The company has third party credit support in the form of insurance coverage for 90% of the progress payments made on this vessel, or all but approximately $2.4 million of the carrying value of the accumulated costs through December 31, 2011.

The company is also experiencing delays with four of its platform supply vessels under construction in Indonesia that were originally scheduled to deliver between May and November 2012 (and currently have projected delivery dates ranging from July to December 2013). The shipyard’s parent is experiencing financial and financing difficulties causing the progress at the yard to be slower than necessary to retain the original schedule. The shipyard continues to acknowledge the delays, but remains optimistic they will restructure their debt and be able to ultimately deliver the vessels. The company continues to evaluate its options and has a contractual right to terminate all four construction projects due to the late delivery. The company has refundment guarantees on the progress payments made to date on these vessels. During November and December of 2011, the company canceled its purchase agreements with the same shipyard for two anchor handling towing supply vessels under construction in Indonesia. The cancellations, which were due to unjustified delays beyond the agreed delivery dates, were authorized under the purchase agreements. No deposits or progress payments were involved in these two cancellations.

Merchant Navy Officers Pension Fund

A current subsidiary of the company is a participating employer in an industry-wide multi-employer retirement fund in the United Kingdom, known as the Merchant Navy Officers Pension Fund (MNOPF). The company has been informed by the Trustee of the MNOPF that the Fund has a deficit that will require contributions from the participating employers. The amount and timing of the company’s share of the fund’s deficit depends on a number of factors, including updated calculations of the total fund deficit, theories of contribution imposed as determined by and within the scope of the Trustee’s authority, the number of then participating solvent employers, and the final formula adopted to allocate the required contribution among such participating employers. The amount payable to MNOPF based on assessments was $7.1 million at December 31, 2011 and $9.6 million at March 31, 2011, all of which has been accrued. Payments totaling $2.0 million were made into the fund during the quarter ended September 30, 2011. In the future, the fund’s trustee may claim that the company owes additional amounts for various reasons, including negative fund investment returns or the inability of other assessed participating employers to contribute their share of respective allocations, failing

 

11


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

which, the company and other solvent participating employers will be asked for additional contributions. In October 2010, the Trustee advised the company of its intention to accelerate previously agreed installment payments for the company and other participating employers in the scheme. This means that the company is either required to pay the outstanding deficit contribution of approximately $7.1 million at December 31, 2011 immediately or to provide security in a form to be agreed by the Trustee. In discussions with the Trustee, the company was advised that pursuant to the Trustee’s broad discretion, it was reviewing the installment option for all participating employers and that any agreement for payments to be made by installments must be supported by security. The company has objected to that decision. In the interim, and pending the final determination by the Trustee, the company continues its historical practice to pay the installments as and when they fall due.

Sonatide

Tidewater has a 49% ownership interest in Sonatide, a joint venture that owns vessels that serve the Angolan offshore energy industry. Tidewater has previously disclosed that it has been in discussions with its joint venture partner, Sonangol, with respect to certain terms and conditions of the joint venture agreement under which Sonatide is managed and operated. This joint venture agreement was originally scheduled to expire by its terms on July 31, 2010; however, representatives of Sonangol and Tidewater have, since that date, agreed several times to extend the expiration date of the joint venture agreement. The joint venture has never had an interruption to its operations or service. The most recent extension extends the expiration date to March 31, 2012. Tidewater views its continuing ability to obtain joint venture contract extensions, the most recent of which is for three months, as a promising indicator that the parties are making progress in the negotiation of a more permanent joint venture agreement.

Successfully concluding a new joint venture agreement in a timely manner is a priority for the company. No assurances can be given, however, that these discussions will be successfully concluded or whether such terms will be advantageous to the company. Failing to further extend the existing Sonatide joint venture or reach a new joint venture agreement with Sonangol could impair the company’s ability to continue to effectively compete for business in Angola in the future. More Tidewater vessels are deployed in Angola and more revenue is derived from our operations in Angola than in or from any of Tidewater’s other countries of operation.

As was the case in prior contract extensions, Sonangol and Tidewater have agreed to continue the Sonatide joint venture past its extended expiration date, on a charter by charter basis, to the extent required to fulfill new or renewed vessel charter party agreements with customers in Angola that extend well beyond March 31, 2012. These vessel charter party agreements cover a substantial number of our vessels in Angola. Over the course of the last few months, a number of new or renewed vessel charters have been entered into by Sonatide with its customers on this basis.

Brazilian Customs

In April 2011, two Brazilian subsidiaries of Tidewater were notified by the Customs Office in Macae, Brazil that they were jointly and severally being assessed fines of 155.0 million Brazilian reais (approximately $83.2 million as of December 31, 2011). The assessment of these fines is for the alleged failure of these subsidiaries to obtain import licenses with respect to 17 Tidewater vessels that provided Brazilian offshore vessel services to Petrobras, the Brazilian national oil company, over a three-year period ending December 2009. After consultation with its Brazilian tax advisors, Tidewater and its Brazilian subsidiaries believe that vessels that provide services under contract to the Brazilian offshore oil and gas industry are deemed, under applicable law and regulations, to be temporarily imported into Brazil, and thus exempt from the import license requirement. The Macae Customs Office has now, without a change in the underlying applicable law or regulations, taken the position that the temporary importation exemption is only available to new, and not used, goods imported into Brazil and therefore it was improper for the company to deem its vessels as being temporarily imported. The fines have been assessed based on this new interpretation of Brazilian customs law taken by the Macae Customs Office. After consultation with its Brazilian tax advisors, the company believes that the assessment is without legal justification and that the Macae Customs Office has misinterpreted applicable Brazilian law on duties and customs. The company is vigorously contesting these fines (which it has neither paid nor accrued for) and, based on the advice of its Brazilian counsel,

 

12


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

believes that it has a high probability of success with respect to the overturn of the entire amount of the fines, either at the administrative appeal level or, if necessary, in Brazilian courts. In December 2011, an administrative appeals board issued a decision that disallowed 149.0 million Brazilian reais (approximately $80.0 million as of December 31, 2011) of the total fines sought by the Macae Customs Office. The full decision is subject to further administrative appellate review, and the company understands that this further full review by a secondary appellate board is ongoing. The company is contesting the decision with respect to the remaining 6.0 million Brazilian reais (approximately $3.2 million as of December 31, 2011) in fines. The company believes that the ultimate resolution of this matter will not have a material effect on the consolidated financial statements.

Potential for Brazilian State Tax Assessment

The company is aware that a Brazilian state in which the company has operations has notified two of the company’s competitors that they are liable for unpaid taxes (and penalties and interest thereon) for failure to pay state import taxes with respect to vessels that such competitors operate within the coastal waters of such state pursuant to charter agreements. The import tax being asserted is equal to a percentage (which could be as high as 16% for vessels entering that state’s waters prior to December 31, 2010 and 3% thereafter) of the affected vessels’ declared values. The company understands that the two companies involved are contesting the assessment through administrative proceedings before the taxing authority.

To date, the company’s two Brazilian subsidiaries, as well as vessels for all other competitors (more than a hundred competitors), have not been similarly notified by the Brazilian state that it has an import tax liability related to its vessel activities imported through that state. Although the company has been advised by its Brazilian tax counsel that substantial defenses would be available if a similar tax claim were asserted against the company, if an import tax claim were to be asserted, it could be for a substantial amount given that the company has had substantial and continuing operations within the territory of the state (although the amount could fluctuate significantly depending on the administrative determination of the taxing authority as to the rate to apply, the vessels subject to the levy and the time periods covered). In addition, under certain circumstances, the company might be required to post a bond or other adequate security in the amount of the assessment (plus any interest and penalties) if it became necessary to challenge the assessment in a Brazilian court. The statute of limitations for the Brazilian state to levy an assessment of the import tax is five years from the date of a vessel’s entry into Brazil. The company has not yet determined the potential tax assessment, and according to the Brazilian tax counsel, chances of defeating a possible claim/notification from the State authorities in court are probable. To obtain legal certainty and predictability for future charter agreements and because the company was importing a vessel to start a new charter in Brazil, the company filed a suit on August 22, 2011 against the Brazilian state and judicially deposited the respective state tax for this newly imported vessel. As of December 31, 2011, no accrual has been recorded for any liability associated with any potential future assessment for previous periods based on management’s assessment, after consultation with Brazilian counsel, that a liability for such taxes was not probable.

Completion of Internal Investigation and Settlements with United States and Nigerian Agencies

The company has previously reported that special counsel engaged by the company’s Audit Committee had completed its internal investigation into certain Foreign Corrupt Practices Act (FCPA) matters and reported its findings to the Audit Committee. The substantive areas of the internal investigation have been reported publicly by the company in prior filings.

Special counsel reported to the Department of Justice (DOJ) and to the SEC the results of the investigation, and the company entered into separate agreements with the two agencies to resolve the matters reported by special counsel. Both of these agreements were approved by a federal district court judge in fiscal 2011 and the principal terms and conditions of the agreements with these two agencies are described in the company’s 10-K for the fiscal year ended March 31, 2011.

The company also announced on March 3, 2011 that it had reached an agreement with the Federal Government of Nigeria (FGN) to settle and resolve the previously disclosed investigation by the FGN relating to allegations that a third party customs broker had made improper payments to government officials in Nigeria on behalf of the company’s foreign subsidiaries. The FGN’s investigation in this regard focused on

 

13


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

facts and circumstances associated with the company’s Nigerian operations in 2007 and prior years that were among the matters covered by the company’s previous settlements with the DOJ and SEC. Pursuant to the settlement agreement, the FGN terminated its investigation and agreed not to bring any criminal charges or civil claims against the company or any associated persons arising from these allegations. The other terms and conditions of the agreement between the company and the FGN are described in the company’s Form 10-K for the fiscal year ended March 31, 2011.

Venezuelan Operations

The company has previously reported that in May 2009 the Venezuelan National Assembly enacted a law (the Reserve Law) whereby the Bolivarian Republic of Venezuela (Venezuela) reserved to itself assets and services related to maritime activities on Lake Maracaibo. The company also previously reported that in May 2009, Petróleos de Venezuela, S.A. (PDVSA), the Venezuelan national oil company, invoking the Reserve Law, took possession of (a) 11 of the company’s vessels that were then supporting PDVSA operations in the Lake Maracaibo region, (b) the company’s shore-based facility adjacent to Lake Maracaibo and (c) certain other related assets. The company has also previously reported that in July 2009, Petrosucre, S.A. (Petrosucre), a subsidiary of PDVSA, took control of four additional company vessels. As a consequence of these measures, the company (i) no longer has possession or control of those assets, (ii) no longer operates them or provides support for their operations, and (iii) no longer has any other vessels or operations in Venezuela.

The company has previously reported the balance sheet and income statement effect of the Venezuela asset seizure in fiscal 2010. As previously reported by the company, the company has filed with the International Centre for Settlement of Investment Disputes (ICSID) a Request for Arbitration against the Republic of Venezuela seeking compensation for the expropriation of the company’s Venezuelan investments. On January 24, 2011, the arbitration tribunal, appointed under the ICSID Convention to resolve the investment dispute, held its first session on procedural issues in Washington, D.C. The arbitration tribunal established an initial briefing and hearing schedule related to jurisdictional issues that extends through the spring of 2012. The company continues diligently to prosecute its claim in the arbitration (including the filing of pleadings in accordance with the briefing schedule). While the company believes, after consultation with its advisors, that it is entitled to full reparation for the losses suffered as a result of the actions taken by the Republic, there can be no assurances that the company will prevail in the arbitration.

Legal Proceedings

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.

 

(7) FAIR VALUE MEASUREMENTS AND DISCLOSURES

The company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, for financial assets and liabilities that are measured and reported at fair value on a recurring basis. ASC 820 establishes a hierarchy for inputs used in measuring fair value. Fair value is calculated based on assumptions that market participants would use in pricing assets and liabilities and not on assumptions specific to the entity. The statement requires that each asset and liability carried at fair value be classified into one of the following categories:

Level 1:  Quoted market prices in active markets for identical assets or liabilities;

Level 2:  Observable market based inputs or unobservable inputs that are corroborated by market data;

Level 3:  Unobservable inputs that are not corroborated by market data.

 

14


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The company measures on a recurring basis and records at fair value investments held by participants in a supplemental executive retirement plan. The following table provides the fair value hierarchy for the plan assets measured at fair value as of December 31, 2011:

 

(In thousands)    Total     Quoted prices in
active markets
(Level 1)
    Significant
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 

Equity securities:

         

Common stock

   $         7,580        7,580                —     

Preferred stock

     12        12                —     

Foreign stock

     459        459                —     

American depository receipts

     2,015        1,971        44         —     

Real estate investment trusts

     122        122                —     

Debt securities:

         

Government debt securities

     3,158        1,476        1,682         —     

Open ended mutual funds

     2,636        2,636                —     

Cash and cash equivalents

     753        59        694         —     

Total

   $ 16,735        14,315        2,420         —     

Other pending transactions

     (148     (148             —     

Total fair value of plan assets

   $ 16,587        14,167        2,420         —     
   
                                   

The following table provides the fair value hierarchy for the plan assets measured at fair value as of March 31, 2011:

 

(In thousands)    Total     Quoted prices in
active markets
(Level 1)
    Significant
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 

Equity securities:

         

Common stock

   $         8,785        8,785                —     

Preferred stock

     12        12                —     

Foreign stock

     355        355                —     

American depository receipts

     2,401        2,384        17         —     

Real estate investment trusts

     111        111                —     

Debt securities:

         

Government debt securities

     2,571        1,270        1,301         —     

Open ended mutual funds

     2,651        2,651                —     

Cash and cash equivalents

     1,448        362        1,086         —     

Total

   $ 18,334        15,930        2,404         —     

Other pending transactions

     (291     (291             —     

Total fair value of plan assets

   $ 18,043        15,639        2,404         —     
   
   

Other Financial Instruments

The company’s primary financial instruments consist of cash and cash equivalents, trade receivables and trade payables with book values that are considered to be representative of their respective fair values. The company periodically utilizes derivative financial instruments to hedge against foreign currency denominated assets and liabilities, currency commitments, or to lock in desired interest rates. These transactions are generally spot or forward currency contracts or interest rate swaps that are entered into with major financial institutions. Derivative financial instruments are intended to reduce the company’s exposure to foreign currency exchange risk and interest rate risk. The company enters into derivative instruments only to the extent considered necessary to address its risk management objectives and does not use derivative contracts for speculative purposes. The derivative instruments are recorded at fair value using quoted prices and quotes obtainable from the counterparties to the derivative instruments.

Cash Equivalents. The company’s cash equivalents, which are securities with maturities less than 90 days, are held in money market funds or time deposit accounts with highly rated financial institutions. The carrying value for cash equivalents is considered to be representative of its fair value due to the short duration and conservative nature of the cash equivalent investment portfolio.

 

15


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Spot Derivatives. Spot derivative financial instruments are short-term in nature and generally settle within two business days. The fair value of spot derivatives approximates the carrying value due to the short-term nature of this instrument, and as a result, no gains or losses are recognized.

The company had no spot contracts outstanding at December 31, 2011. The company had nine foreign exchange spot contracts outstanding at March 31, 2011, which totaled an aggregate notional value of $3.6 million. All nine spot contracts settled by April 4, 2011.

Forward Derivatives. Forward derivative financial instruments are generally longer-term in nature but generally do not exceed one year. The accounting for gains or losses on forward contracts is dependent on the nature of the risk being hedged and the effectiveness of the hedge.

At December 31, 2011, the company had two British pound forward contracts outstanding, which are generally intended to hedge the company’s foreign exchange exposure relating to its MNOPF liability as disclosed in Note (6) and elsewhere in this document. The forward contracts have expiration dates between March 2012 and June 2012. The combined change in fair value of the forward contracts was approximately $0.2 million, which was recorded as a foreign exchange loss during the nine months ended December 31, 2011, because the forward contracts did not qualify as hedge instruments. All changes in fair value of the forward contracts were recorded in earnings.

At March 31, 2011, the company had three British pound forward contracts outstanding, related to the company’s foreign exchange exposure on its MNOPF liability. The combined change in fair value of these forward contracts at March 31, 2011 was approximately $0.3 million, all of which was recorded as a foreign exchange gain during the fiscal year ended March 31, 2011, because the forward contracts did not qualify as hedge instruments.

The following table provides the fair value hierarchy for the company’s other financial instruments measured as of December 31, 2011:

 

(In thousands)    Total      Quoted prices in
active markets
(Level 1)
     Significant
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 

Money market cash equivalents

   $         125,630         125,630                   

Long-term British pound forward derivative contracts

     7,674                 7,674           

Total fair value of assets

   $ 133,304         125,630         7,674           
   
   

The following table provides the fair value hierarchy for the company’s other financial instruments measured as of March 31, 2011:

 

(In thousands)    Total      Quoted prices in
active markets
(Level 1)
     Significant
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 

Money market cash equivalents

   $         222,673         222,673                   

Long-term British pound forward derivative contracts

     8,179                 8,179           

Total fair value of assets

   $ 230,852         222,673         8,179           
   
   

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Asset Impairments

The company accounts for long-lived assets in accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets, and reviews long-lived assets for impairment whenever events occur or changes in circumstances indicate that the carrying amount of assets may not be recoverable. In such evaluation the estimated future undiscounted cash flows generated by an asset group are compared with the carrying amount of the asset group to determine if a write-down may be required. The company estimates future cash flows based upon historical data adjusted for the company’s best estimate of future market performance that is based on industry trends. The company uses the discounted cash flow method to determine the estimated fair value of each asset group and compares such estimated fair value, considered Level 3, to the carrying

 

16


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

value of each asset group in order to determine if impairment exists. If impairment exists, the carrying value of the asset group is reduced to its estimated fair value. Vessels with similar operating and marketing characteristics are grouped for asset impairment testing.

The below table summarizes the combined fair value of the assets that incurred impairments during the quarters and the nine-month periods ended December 31, 2011 and 2010, along with the amount of impairment. The impairment charges were recorded in gain on asset dispositions, net.

 

     Quarter Ended
December 31,
       Nine Months Ended
December 31,
 
(In thousands, except number of assets)    2011        2010        2011        2010  

Amount of impairment incurred

   $ 1,037           1,995           3,607           5,088   

Combined fair value of assets incurring impairment

     4,262           4,733           8,175           11,028   

 

(8) OTHER ASSETS, ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES AND DEFERRED CREDITS

A summary of other assets at December 31, 2011 and March 31, 2011, is as follows:

 

(In thousands)    December 31,
2011
     March 31,
2011
 

Recoverable insurance losses

   $ 6,639         5,327   

Deferred income tax assets

     63,264         42,444   

Deferred finance charges

     7,214         8,232   

Savings plans and supplemental plan

     28,971         31,263   

Noncurrent tax receivable

     7,743         7,737   

Other

     3,802         4,388   
   $ 117,633         99,391   
   
   

A summary of accrued expenses at December 31, 2011 and March 31, 2011, is as follows:

 

(In thousands)    December 31,
2011
     March 31,
2011
 

Payroll and related payables

   $ 31,762         37,239   

Commissions payable

     15,964         15,639   

Accrued vessel expenses

     71,518         55,920   

Accrued interest payable

     4,342         9,393   

Other accrued expenses

     5,954         2,678   
   $ 129,540         120,869   
   
   
A summary of other current liabilities at December 31, 2011 and March 31, 2011, is as follows:   
(In thousands)    December 31,
2011
     March 31,
2011
 

Income tax payables

   $ 18,927         11,187   

Deferred credits - current

     3,671         2,463   

Dividend payable

     142         47   
   $ 22,740         13,697   
   
   

A summary of other liabilities and deferred credits at December 31, 2011 and March 31, 2011, is as follows:

 

(In thousands)    December 31,
2011
     March 31,
2011
 

Postretirement benefits liability

   $ 26,689         27,032   

Pension liability

     41,897         39,085   

Deferred gain on vessel sales

     39,568         39,568   

Income taxes

             5,295   

Other

     16,551         17,541   
   $ 124,705         128,521   
   
   

 

17


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

(9) ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the company’s consolidated financial statements upon adoption.

In September 2011, the FASB issued guidance on ASC 350, Intangibles-Goodwill and Other, for testing goodwill for impairment. The new guidance provides a company the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company’s assessment determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment to be recognized for that reporting unit, if any. If the company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required. The adoption of this guidance is effective for us beginning April 1, 2012.

In June 2011, the FASB issued guidance on ASC 220, Comprehensive Income, regarding the presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. Instead, a company is required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance also requires companies to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. In December 2011, the FASB issued guidance which indefinitely defers the guidance related to the presentation of reclassification adjustments. The new guidance will be effective for us beginning April 1, 2012 and will have financial statement presentation changes only.

In January 2010, the FASB issued ASU No. 2010-06, which amends ASC Topic 820, Fair Value Measurements and Disclosures, to add new disclosure requirements about recurring and nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance was effective for reporting periods beginning after December 15, 2009, except for the Level 3 reconciliation disclosures which were effective for reporting periods beginning after December 15, 2010. The guidance became effective for us on April 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations, or cash flows.

In December 2010, the FASB issued an update to ASC 805, Business Combinations, which requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. The guidance is effective for annual reporting periods beginning on or after December 15, 2010. The guidance became effective for us on April 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations, or cash flows.

 

(10) SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS

The company follows the disclosure requirements of ASC 280, Segment Reporting. Operating business segments are defined as a component of an enterprise for which separate financial information is available and is evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

 

18


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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: 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 (CODM) reviews operating results for the purposes of allocating resources and assessing performance. The company’s CODM is its Chief Executive Officer. Moreover, management decided to reorganize its reporting segments because the company’s Sub-Saharan Africa/Europe and Latin American business regions gained greater significance as a percentage of consolidated revenues and operating profit, while our former United States segment decreased in its significance to consolidated revenues and operating profit. Prior period disclosures have been recasted to reflect the change in reportable segments.

The following table provides a comparison of revenues, vessel operating profit, depreciation and amortization, and additions to properties and equipment for the quarters and the nine-month periods ended December 31, 2011 and 2010. Vessel revenues and operating profit relate to vessels owned and operated by the company while other operating revenues relate to the activities of the company’s shipyards, brokered vessels and other miscellaneous marine-related businesses.

 

     Quarter Ended
December 31,
     Nine Months Ended
December 31,
 
(In thousands)    2011      2010      2011      2010  

Revenues:

           

Vessel revenues:

           

Americas

   $         82,741         91,610         245,310         280,742   

Asia/Pacific

     40,919         49,052         105,545         134,344   

Middle East/North Africa

     27,839         22,937         78,706         67,031   

Sub-Saharan Africa/Europe

     118,987         106,034         342,652         316,382   
     270,486         269,633         772,213         798,499   

Other operating revenues

     1,625         2,142         5,399         2,901   
   $ 272,111         271,775         777,612         801,400   
   
   

Vessel operating profit:

           

Americas

   $ 18,462         14,210         39,846         38,880   

Asia/Pacific

     6,629         9,488         7,123         16,342   

Middle East/North Africa

     362         4,541         (606      14,347   

Sub-Saharan Africa/Europe

     25,418         21,908         69,273         65,443   
     50,871         50,147         115,636         135,012   

Corporate expenses

     (10,972      (9,188      (29,854      (30,815

Goodwill impairment

                     (30,932        

Gain on asset dispositions, net

     2,496         2,425         13,671         11,621   

Other operating expense

     (1,204      (782      (1,350      (1,057

Operating income

   $ 41,191         42,602         67,171         114,761   

Foreign exchange (loss) gain

     (1,738      973         735         2,147   

Equity in net earnings of unconsolidated companies

     3,482         3,291         9,427         8,766   

Interest income and other, net

     347         1,074         2,303         3,481   

Interest and other debt costs

     (6,027      (3,646      (14,854      (6,405

Earnings before income taxes

   $ 37,255         44,294         64,782         122,750   
   
   

Depreciation and amortization:

           

Americas

   $ 9,703         11,155         28,997         35,188   

Asia/Pacific

     5,320         6,581         15,473         19,541   

Middle East/North Africa

     4,532         3,349         13,272         10,031   

Sub-Saharan Africa/Europe

     14,687         13,353         42,282         39,260   

Corporate

     973         620         2,747         1,833   
   $ 35,215         35,058         102,771         105,853   
   
   

Additions to properties and equipment:

           

Americas

   $ 1,974         4,089         6,292         10,904   

Asia/Pacific

     14,533         3,543         54,764         5,374   

Middle East/North Africa

     14,807         645         15,960         925   

Sub-Saharan Africa/Europe

     36,404         397         49,163         2,329   

Corporate (A)

     63,669         108,503         172,099         489,108   
   $ 131,387         117,177         298,278         508,640   
   
   

Note A: Included in Corporate are additions to properties and equipment relating to vessels currently under construction which have not yet been assigned to a non-corporate reporting segment as of the dates presented.

 

19


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following table provides a comparison of total assets at December 31, 2011 and March 31, 2011:

 

(In thousands)    December 31,
2011
     March 31,
2011
 

Total assets:

     

Americas

   $ 896,685         975,269   

Asia/Pacific

     625,851         583,569   

Middle East/North Africa

     422,059         369,122   

Sub-Saharan Africa/Europe

     1,443,411         1,286,554   
     3,388,006         3,214,514   

Investments in, at equity, and advances to unconsolidated companies

     43,348         39,044   
     3,431,354         3,253,558   

Corporate (A)

     446,513         494,558   
   $         3,877,867         3,748,116   
   
   

Note A: Included in Corporate are vessels currently under construction which have not yet been assigned to a non-corporate reporting segment. The vessel construction costs will be reported in Corporate until the earlier of the vessels being assigned to a non-corporate reporting segment or the vessels’ delivery. At December 31, 2011 and March 31, 2011, $262.1 million and $355.3 million, respectively, of vessel construction costs are included in Corporate.

The following table discloses the amount of revenue by segment, and in total for the worldwide fleet, along with the respective percentage of total vessel revenue for the quarters and the nine-month periods ended December 31, 2011 and 2010:

 

Revenue by vessel class    Quarter Ended
December 31,
     Nine Months Ended
December 31,
 
(In thousands)    2011      %      2010      %      2011      %      2010      %  

Americas fleet:

                       

Deepwater vessels

   $ 38,861         14%         47,046         17%         111,905         14%         147,983         19%   

Towing-supply/supply

     35,866         13%         36,349         13%         108,200         14%         109,038         14%   

Crew/utility

     6,905         3%         7,644         3%         22,959         3%         21,966         3%   

Offshore tugs

     1,109         <1%         571         <1%         2,246         <1%         1,755         <1%   

Total

   $ 82,741         31%         91,610         34%         245,310         32%         280,742         35%   

Asia/Pacific fleet:

                       

Deepwater vessels

   $ 20,445         8%         24,757         9%         48,638         6%         61,830         8%   

Towing-supply/supply

     19,334         7%         23,183         9%         53,648         7%         69,188         9%   

Crew/utility

     246         <1%         245         <1%         633         <1%         734         <1%   

Offshore tugs

     894         <1%         867         <1%         2,626         <1%         2,592         <1%   

Total

   $ 40,919         15%         49,052         18%         105,545         14%         134,344         17%   

Middle East/North Africa fleet:

                       

Deepwater vessels

   $ 12,647         5%         5,820         2%         35,180         5%         19,409         2%   

Towing-supply/supply

     13,778         5%         15,393         6%         38,868         5%         42,461         5%   

Offshore tugs

     1,414         1%         1,724         1%         4,658         1%         5,161         1%   

Total

   $ 27,839         10%         22,937         9%         78,706         10%         67,031         8%   

Sub-Saharan Africa/Europe fleet:

                       

Deepwater vessels

   $ 51,194         19%         31,290         12%         135,305         18%         91,199         11%   

Towing-supply/supply

     50,159         19%         55,225         20%         152,800         20%         168,918         21%   

Crew/utility

     12,589         5%         12,977         5%         39,336         5%         37,949         5%   

Offshore tugs

     5,045         2%         6,542         2%         15,211         2%         18,316         2%   

Total

   $ 118,987         44%         106,034         39%         342,652         44%         316,382         40%   

Worldwide fleet:

                       

Deepwater vessels

   $ 123,147         46%         108,913         40%         331,028         43%         320,421         40%   

Towing-supply/supply

     119,137         44%         130,150         48%         353,516         46%         389,605         49%   

Crew/utility

     19,740         7%         20,866         8%         62,928         8%         60,649         8%   

Offshore tugs

     8,462         3%         9,704         4%         24,741         3%         27,824         3%   

Total

   $ 270,486         100%         269,633         100%         772,213         100%         798,499         100%   
                                       
                                       

 

(11) GOODWILL

The company tests goodwill for impairment annually at the reporting unit level using carrying amounts as of December 31 or more frequently if events and circumstances indicate that goodwill might be impaired. The company uses the two-step method for evaluating goodwill for impairment as prescribed in ASC 350,

 

20


TIDEWATER INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Intangibles-Goodwill and Other (ASC 350). Step one involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. The company performed its annual impairment test as of December 31, 2010 on its then existing International and United States reporting units, and the test determined there was no goodwill impairment.

As discussed in Note (10), the company changed its reportable segments during the quarter ended September 30, 2011 from International and United States to Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe. The company performed an interim goodwill impairment assessment prior to changing its reportable segments and determined there was no goodwill impairment.

Goodwill of approximately $49.4 million historically assigned to the United States segment was assigned to the Americas segment. Goodwill of approximately $279.4 million historically assigned to the International segment was allocated among the new reportable segments based on their relative fair values.

The company also performed an interim goodwill impairment assessment on the new reporting units using September 30, 2011 carrying values and determined on the basis of the step one impairment test that the carrying value of its Middle East/North Africa unit exceeded its fair value thus triggering the second step of the analysis as prescribed by ASC 350. An estimated goodwill impairment charge of $30.9 million was recorded during the quarter ended September 30, 2011. Step two of the assessment was completed during the quarter ended December 31, 2011 and there was no further adjustment to goodwill.

Goodwill by reportable segment at December 31, 2011, is as follows:

 

(In thousands)    December 31,
2011
 

Americas

   $ 114,237   

Asia/Pacific

     56,283   

Middle East/North Africa

       

Sub-Saharan Africa/Europe

     127,302   
   $         297,822   
   
   

The company performed its annual impairment test as of December 31, 2011, and the test determined there was no further goodwill impairment.

The amount of goodwill impairment recorded for the quarters and the nine-month periods ended December 31, 2011 and 2010, is as follows:

 

     Quarter Ended
December 31,
     Nine Months Ended
December 31,
 
(In thousands)    2011      2010      2011      2010  

Goodwill impairment

   $         —                 30,932           

 

(12) SUBSEQUENT EVENTS

During January 2012, the company elected to draw on the entire $125.0 million term loan facility because the delayed draw period was set to expire on January 27, 2012. The proceeds will be utilized to supplement existing cash for general corporate purpose.

 

21


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Tidewater Inc.

New Orleans, Louisiana

We have reviewed the accompanying condensed consolidated balance sheet of Tidewater Inc. and subsidiaries (the “Company”) as of December 31, 2011, and the related condensed consolidated statements of earnings for the three-month and nine-month periods ended December 31, 2011 and 2010, and of cash flows for the nine-month periods ended December 31, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Tidewater Inc. and subsidiaries as of March 31, 2011, and the related consolidated statements of earnings, stockholders’ equity and other comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated May 19, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2011 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 3, 2012

 

22


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS

FORWARD-LOOKING STATEMENT

In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that this Quarterly Report on Form 10-Q 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. Some of these risks are discussed in this report 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 risk countries where we operate; foreign currency fluctuations; labor influences 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 Items 1, 1A, 2 and 7 included in the company’s Annual Report on Form 10-K for the year ended March 31, 2011, filed with the Securities and Exchange Commission (SEC) on May 19, 2011, and elsewhere in the Form 10-Q. 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 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.

The following information contained in this Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and related disclosures and the company’s Annual Report on Form 10-K for the year ended March 31, 2011, filed with the SEC on May 19, 2011.

Our Business

The company 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. Tidewater manages and measures its business performance in four distinct operating segments: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe, and has one of the broadest global operating footprints in the offshore energy industry. Operations are conducted in most of the world’s significant offshore crude oil and natural gas exploration and production regions. The company is also one of the most experienced international operators in the offshore energy industry having operated in many countries throughout the world over the last six decades. At December 31, 2011, the company had 355 vessels (including joint-venture vessels and vessels withdrawn from service) servicing the global energy industry. 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

 

23


have been stacked or withdrawn from service. The company provides 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 construction and seismic support; and a variety of specialized services such as pipe and cable laying.

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 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. 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.

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 fleet personnel than the company’s older, smaller and less sophisticated vessels. The company believes that competition for skilled crew personnel may again intensify, particularly in non-United States markets, 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 only incur drydocking costs 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 revenue. In addition, some of the more recently constructed vessels are now experiencing their first or second required regulatory drydockings.

 

24


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 on-going 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 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.

Challenges We Confront as a Global Offshore Vessel Company

The company operates 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 mitigate entirely the foregoing risks, although the wide geographic dispersal of the company’s vessels helps reduce the likely overall 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

Tidewater has a 49% ownership interest in Sonatide, a joint venture that owns vessels that serve the Angolan offshore energy industry. Tidewater has previously disclosed that it has been in discussions with its joint venture partner, Sonangol, with respect to certain terms and conditions of the joint venture agreement under which Sonatide is managed and operated. This joint venture agreement was originally scheduled to expire by its terms on July 31, 2010; however, representatives of Sonangol and Tidewater have, since that date, agreed several times to extend the expiration date of the joint venture agreement. The joint venture has never had an interruption to its operations or service. The most recent extension extends the expiration date to March 31, 2012. Tidewater views its continuing ability to obtain joint venture contract extensions, the most recent of which is for three months, as a promising indicator that the parties are making progress in the negotiation of a more permanent joint venture agreement.

Successfully concluding a new joint venture agreement in a timely manner is a priority for the company. No assurances can be given, however, that these discussions will be successfully concluded or whether such terms will be advantageous to the company. Failing to further extend the existing Sonatide joint venture or reach a new joint venture agreement with Sonangol could impair the company’s ability to continue to effectively compete for business in Angola in the future. More Tidewater vessels are deployed in Angola and more revenue is derived from our operations in Angola than in or from any of Tidewater’s other countries of operation.

 

25


As was the case in prior contract extensions, Sonangol and Tidewater have agreed to continue the Sonatide joint venture past its extended expiration date, on a charter by charter basis, to the extent required to fulfill new or renewed vessel charter party agreements with customers in Angola that extend well beyond March 31, 2012. These vessel charter party agreements cover a substantial number of our vessels in Angola. Over the course of the last few months, a number of new or renewed vessel charters have been entered into by Sonatide with its customers on this basis.

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 20 countries, namely, Antigua and Barbuda, Australia, the Bahamas, Benin, Bosnia and Herzegovina, Bulgaria, Canada, Croatia, Denmark, Kiribati, Liberia, Luxembourg, Marshall Islands, Netherlands, Norway, Panama, St. Vincent and the Grenadines, Singapore, Spain and Switzerland. Instruments of ratification and registrations are pending for two additional countries: Gabon and Latvia. The foregoing 22 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.

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 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 the quarter ended December 31, 2011, 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 the same quarter due to potential supply interruptions 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 in the latter part of December 2011, 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 distribution channel 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 oil demand is forecast to improve in calendar year 2012, there is still some downside risk to the global economic recovery due to fiscal and financial uncertainty in certain European 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. 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 mid-January 2012, was trading around $99 per barrel for West Texas Intermediate (WTI) crude and around $111 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).

 

26


Prices for natural gas continue to be 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 the quarter ended December 31, 2011 and as of mid-January 2012, natural gas was trading in the U.S. in the $2.65 to $2.90 per Mcf range down from the $3.67 to $3.74 range at the start of the quarter. 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. In addition, an unseasonably warm start to winter in the Northern Hemisphere has 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 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 approximately 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 $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 has been a growing part 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 during the most recently completed quarter suggest that over the next six years, the worldwide movable drilling rig count (currently estimated at approximately 862 movable offshore rigs worldwide, approximately 44% of which are designed to operate in deeper waters) will increase as approximately 150 new-build offshore rigs that are currently on order and under construction are delivered. Of the estimated 862 movable offshore rigs worldwide, approximately 619 are currently working. It is further estimated that approximately 48% 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 by approximately one-third. Investment is also being made in the floating production unit market, with approximately 61 new floating production units currently under construction and expected to be delivered over the next six years to supplement the current approximately 354 floating production units worldwide.

According to ODS-Petrodata, the global offshore supply vessel market at December 31, 2011 had approximately 453 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 six years. The current worldwide fleet of these classes of vessels is estimated at approximately 2,717 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 (many of which are already stacked), including nearly 750 vessels, or approximately 27% 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 could potentially be removed from

 

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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 would likely dampen or 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.

Fiscal 2012 Business Highlights

At December 31, 2011, the company had 343 owned or chartered vessels (excluding joint-venture vessels and vessels withdrawn from service) in its fleet with an average age of 14.1 years. The average age of 211 newer vessels that have been acquired or constructed since calendar year 2000 as part of the company’s new build and acquisition program is 4.9 years. The remaining 132 vessels have an average age of 28.7 years. During the nine-month periods ended December 31, 2011 and 2010, the company’s newer vessels generated $657.5 million and $633.4 million, respectively, of revenue and accounted for 91%, or $276.6 million, and 88%, or $277.1 million, respectively, of total vessel margin (vessel revenues less vessel operating costs). Vessel operating costs exclude depreciation on the company’s new vessels of $81.8 million and $72.2 million, respectively, during the same comparative periods.

During the nine-month period ended December 31, 2011, the company continued to focus on maintaining its competitive advantages and its market share in international markets where it operates, and continued to modernize its vessel fleet to increase future earnings capacity while removing from active service certain older, more 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 consolidated net earnings decreased 43%, or $39.8 million, during the nine months ended December 31, 2011 as compared to the same period in fiscal 2011, due to an approximate 3% decrease in total revenues and because a $30.9 million non-cash goodwill impairment ($22.1 million after-tax, or $0.43 per share) was recorded (during the quarter ended September 30, 2011) on the company’s Middle East/North Africa segment as disclosed in Note (11) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. The company recorded $777.6 million in revenues, during the nine-month period ended December 31, 2011, which is a decrease of approximately $23.8 million over the revenues earned during the same period of fiscal 2011. The company’s consolidated revenues during the nine-month period ended December 31, 2011 include day rate increases with an effective date of January 1, 2011 on certain vessel charter agreements. As the negotiations related to such rate increases were completed in the quarter ended June 30, 2011, approximately $2.0 million of vessel revenue recognized during the nine-month period ended December 31, 2011 relates to services provided in the quarter ended March 31, 2011. Partially offsetting revenue declines and the goodwill impairment charge was an approximate $15.6 million, or 3%, reduction in consolidated vessel operating costs and an approximate 62%, or $18.1 million, reduction in income taxes due to the expiration of statutes of limitation with respect to tax liabilities established for uncertain tax positions as disclosed in Note (3) of Notes to Unaudited Condensed Consolidated Financial Statements and due to lower earnings before income taxes.

Vessel revenues generated by the company’s Americas segment decreased approximately 13%, or $35.4 million, during the nine-month period ended December 31, 2011 as compared to the revenues earned during the same period in fiscal 2011, primarily due to a five percentage point decrease in utilization and an approximate 8% decrease in average day rates on the deepwater vessels operating in this segment. Vessel operating costs for the Americas segment decreased approximately 18%, or $31.7 million, during the same comparative periods.

Vessel revenues generated by the company’s Asia/Pacific segment decreased approximately 21%, or $28.8 million, during the nine-month period ended December 31, 2011 as compared to the revenues earned during the same period in fiscal 2011, primarily due to a seven percentage point decrease in utilization rates on the towing supply/supply class of vessels, and a seven percentage point decrease in utilization and an approximate 2% decrease in average day rates on the deepwater vessels operating in this segment. Vessel

 

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operating costs for the Asia/Pacific segment decreased approximately 20%, or $17.8 million, during the nine-month period ended December 31, 2011 as compared to the same period in fiscal 2011.

Vessel revenues generated by the company’s Middle East/North Africa segment increased approximately 17%, or $11.7 million, during the nine-month period ended December 31, 2011 as compared to the revenues earned during the same period in fiscal 2011, primarily due to a three percentage point increase in utilization rates and a 4% increase in the average day rates on the deepwater vessels operating in this segment. Vessel operating costs for the Middle East/North Africa segment increased approximately 57%, or $20.9 million, during the nine-month period ended December 31, 2011 as compared to the same period in fiscal 2011.

Vessel revenues generated by the company’s Sub-Saharan Africa/Europe segment increased approximately 8%, or $26.3 million, during the nine-month period ended December 31, 2011 as compared to the revenues earned during the same period in fiscal 2011, primarily due to an increase in the number of deepwater vessels operating in the segment resulting from the addition of new vessels, vessels mobilizing to this segment, and because of an approximate 9% increase in average day rates on the deepwater vessels. Vessel operating costs for the Sub-Saharan Africa/Europe segment decreased approximately 7%, or $13.0 million, during the same comparative periods.

Other operating revenues increased approximately $2.5 million, during the same comparative periods, while costs of other operating revenues increased approximately $1.8 million during the same comparative periods.

A complete discussion of each of the above segment highlights is included in the “Results Of Operations” section below.

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: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe. The following table compares revenues and operating costs (excluding general and administrative expense, depreciation expense, and gain on asset dispositions, net) for the company’s vessel fleet and the related percentage of total revenue for the quarters and the nine-month periods ended December 31, 2011 and 2010 and for the quarter ended September 30, 2011. Vessel revenues and operating costs relate to vessels owned and operated by the company, while other operating revenues relate to third-party activities of the company’s shipyards, brokered vessels and other miscellaneous marine-related activities.

 

     Quarter Ended
December 31,
    Nine Months Ended
December 31,
   

Quarter

Ended

September 30,

 
(In thousands)    2011      %     2010      %     2011      %     2010      %     2011      %  

Revenues:

                         

Vessel revenues:

                         

Americas

   $ 82,741         30     91,610         34     245,310         32     280,742         35     81,892         33

Asia/Pacific

     40,919         15     49,052         18     105,545         14     134,344         17     29,127         12

Middle East/North Africa

     27,839         10     22,937         8     78,706         10     67,031         8     24,810         10

Sub-Saharan Africa/Europe

     118,987         44     106,034         39     342,652         44     316,382         39     112,583         45
     270,486         99     269,633         99     772,213         99     798,499         100     248,412         99

Other operating revenues

     1,625         1     2,142         1     5,399         1     2,901         <1     2,482         1
   $     272,111         100     271,775         100     777,612         100     801,400         100     250,894         100
                                                      
                                                      

Operating costs:

                         

Vessel operating costs:

                         

Crew costs

   $ 80,988         30     84,412         31     240,476         31     255,045         32     78,364         31

Repair and maintenance

     26,680         10     26,107         10     75,889         10     84,991         11     27,149         11

Insurance and loss reserves

     3,926         1     6,071         2     14,597         2     14,994         2     5,374         2

Fuel, lube and supplies

     17,126         6     16,399         6     54,887         7     47,757         6     21,394         9

Vessel operating leases

     4,492         2     4,492         2     13,475         2     13,472         2     4,491         2

Other

     22,626         8     23,116         9     70,106         9     68,813         9     24,518         10
     155,838         57     160,597         59     469,430         60     485,072         61     161,290         64

Costs of other operating revenues

     1,938         1     2,705         1     5,200         1     3,403         <1     2,031         1
   $ 157,776         58     163,302         60     474,630         61     488,475         61     163,321         65
                                                      
                                                      

 

29


The following table subdivides vessel operating costs presented above by the company’s segments and its related percentage of total revenue for the quarters and the nine-month periods ended December 31, 2011 and 2010 and for the quarter ended September 30, 2011.

 

     Quarter Ended
December 31,
     Nine Months Ended
December 31,
    

Quarter

Ended
September 30,

(In thousands)    2011      %      2010      %      2011      %      2010      %      2011    %

Vessel operating costs:

                             

Americas:

                             

Crew costs

   $       26,531         10%         31,516         12%         85,147         11%         97,895         12%       28,766    11%

Repair and maintenance

     7,646         3%         11,908         4%         24,983         3%         39,297         5%       9,069    4%

Insurance and loss reserves

     923         <1%         1,734         1%         4,243         1%         5,309         1%       2,042    1%

Fuel, lube and supplies

     3,914         1%         4,427         2%         13,088         2%         12,040         2%       5,388    2%

Vessel operating leases

     911         <1%         1,100         <1%         2,732         <1%         3,196         <1%       910    <1%

Other

     4,923         2%         5,919         2%         15,497         2%         19,625         2%       5,925    2%
     44,848         16%         56,604         21%         145,690         19%         177,362         22%       52,100    21%

Asia/Pacific:

                             

Crew costs

   $ 15,428         6%         19,291         7%         41,748         5%         52,960         7%       12,502    5%

Repair and maintenance

     3,709         1%         1,870         1%         9,788         1%         13,281         2%       4,150    2%

Insurance and loss reserves

     542         <1%         1,603         1%         1,771         <1%         2,965         <1%       609    <1%

Fuel, lube and supplies

     2,764         1%         3,789         1%         10,352         1%         12,155         2%       4,844    2%

Other

     2,129         <1%         2,862         1%         6,797         1%         6,909         1%       2,432    1%
     24,572         9%         29,415         11%         70,456         9%         88,270         11%       24,537    10%

Middle East/North Africa:

                             

Crew costs

   $ 9,231         3%         6,112         2%         25,410         3%         18,274         2%       8,024    3%

Repair and maintenance

     4,098         2%         2,605         1%         11,294         1%         6,654         1%       4,657    2%

Insurance and loss reserves

     486         <1%         248         <1%         2,520         <1%         909         <1%       725    <1%

Fuel, lube and supplies

     3,344         1%         2,586         1%         10,552         1%         6,270         1%       2,925    1%

Vessel operating leases

     506         <1%                         1,378         <1%                       506    <1%

Other

     2,171         1%         1,522         1%         6,567         1%         4,752         1%       2,182    1%
     19,836         7%         13,073         5%         57,721         7%         36,859         5%       19,019    8%

Sub-Saharan Africa/Europe:

                             

Crew costs

   $ 29,798         11%         27,493         10%         88,171         11%         85,916         11%       29,072    12%

Repair and maintenance

     11,227         4%         9,724         4%         29,824         4%         25,759         3%       9,273    4%

Insurance and loss reserves

     1,975         1%         2,486         1%         6,063         1%         5,811         1%       1,998    1%

Fuel, lube and supplies

     7,104         3%         5,597         2%         20,895         3%         17,292         2%       8,237    3%

Vessel operating leases

     3,075         1%         3,392         1%         9,365         1%         10,276         1%       3,075    1%

Other

     13,403         5%         12,813         5%         41,245         5%         37,527         5%       13,979    6%
       66,582         24%         61,505         23%         195,563         25%         182,581         23%       65,634    26%

Total operating costs

   $ 155,838         57%         160,597         59%         469,430         60%         485,072         61%       161,290    64%
                                                 
                                                 

The following table compares operating income and other components of earnings before income taxes and its related percentage of total revenue for the quarters and the nine-month periods ended December 31, 2011 and 2010 and for the quarter ended September 30, 2011.

 

     Quarter Ended
December 31,
    Nine Months Ended
December 31,
    Quarter
Ended
September 30,
(In thousands)    2011     %     2010     %     2011     %     2010     %     2011     %

Vessel operating profit:

                    

Americas

   $       18,462        7%        14,210        5%        39,846        5%        38,880        5%        9,530      4%

Asia/Pacific

     6,629        2%        9,488        3%        7,123        1%        16,342        2%        (4,776   (2%)

Middle East/North Africa

     362        <1%        4,541        2%        (606     (<1%     14,347        2%        (996   (<1%)

Sub-Saharan Africa/Europe

     25,418        9%        21,908        8%        69,273        9%        65,443        8%        21,631      9%
     50,871        19%        50,147        18%        115,636        15%        135,012        17%        25,389      10%

Corporate expenses

     (10,972     (4%     (9,188     (3%     (29,854     (4%     (30,815     (4%     (9,361   (4%)

Goodwill impairment

                                 (30,932     (4%                   (30,932   (12%)

Gain on asset dispositions, net

     2,496        1%        2,425        1%        13,671        2%        11,621        1%        9,458      4%

Other marine services

     (1,204     (<1%     (782     (<1%     (1,350     (<1%     (1,057     (<1%     (35   (<1%)

Operating income

     41,191