TDW

Tidewater Inc. 10-K Summary: Fiscal Year Ended March 31, 2009

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended March 31, 2009. Tidewater Inc. operates the world's largest fleet of offshore marine service vessels, providing support to the global offshore energy industry. The company operates in two reportable segments: United States and International. As of March 31, 2009, the fleet consisted of 430 vessels, with 87% of total revenues derived from international operations. The company's performance is highly correlated with global crude oil and natural gas prices and the level of offshore exploration and production activity.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 9.5% to $1.39 billion, driven primarily by a 15% increase in international vessel revenues ($1.21 billion) due to higher average day rates and increased vessel count. Conversely, U.S. revenues declined 8% to $146.9 million due to reduced vessel count and lower utilization in the Gulf of Mexico.
• Profitability: Net earnings rose 17% to $406.9 million. International operating profit increased 11% to $437.7 million, while U.S. operating profit increased 16% to $34.8 million, aided by lower operating costs and depreciation despite lower revenues.
• Asset Sales: Gains on sales of assets increased significantly to $27.3 million (from $11.4 million in 2008) due to the sale of 47 vessels during the fiscal year.
• Cost Structure: Total vessel operating costs rose to $660.9 million (up 13%), reflecting higher crew costs and repair/maintenance expenses associated with the expanded international fleet and increased drydocking activity.

Outlook, Risks, and Contingencies

• Market Outlook: Management notes that the global recession has caused a precipitous drop in oil and gas demand and prices. While international markets remained strong for most of fiscal 2009, weakness emerged in the fourth quarter. The company expects utilization and day rates to weaken if commodity prices remain low.
• Venezuela Expropriation: In May 2009, the Venezuelan government enacted a law allowing the expropriation of oil service assets. PDVSA took possession of 11 of Tidewater's vessels and a shore-based facility in the Lake Maracaibo region. The net book value of seized assets is approximately $2.8 million, though fair market value is estimated to be substantially higher. The company also holds a $40 million receivable from PDVSA, with collection uncertain.
• FCPA Investigation: An internal investigation into Foreign Corrupt Practices Act (FCPA) matters is ongoing. The company has entered into tolling agreements with the DOJ and SEC. No liability has been accrued as it is not yet probable and reasonably estimable, but resolution could have a material adverse effect.
• Capital Commitments: The company has $991.9 million in vessel construction commitments, with 46 vessels under construction. Management is evaluating these commitments against the backdrop of tight credit markets and the global recession.

Key Facts for Investor Verification

• Venezuela Asset Recovery: Verify the status of negotiations with PDVSA regarding compensation for the 11 seized vessels and the $40 million receivable.
• FCPA Resolution: Monitor updates on the DOJ and SEC investigations to assess potential fines or sanctions.
• Commodity Price Sensitivity: Assess the impact of current crude oil and natural gas prices on future day rates and utilization, particularly in the U.S. Gulf of Mexico.
• Construction Program Viability: Review the company's ability to fund or refinance the $991.9 million in vessel construction commitments given current credit market conditions.
• Customer Concentration: Note that Chevron Corporation accounted for 19.1% and Petroleo Brasileiro SA for 10.1% of 2009 revenues.