# TIDEWATER INC (TDW) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TIDEWATER INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/98222/000143774923004829/tdw20221231b_10k.htm
Accession: 0001437749-23-004829
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TDW/
All MD&A years: /company/TDW/mda/
Previous year: /company/TDW/mda/fy2021/ (FY 2021)
Next year: /company/TDW/mda/fy2023/ (FY 2023)

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

The following Management's Discussion and Analysis of Financial Condition, and Results of Operations (MD&A) should be read in conjunction with the accompanying Consolidated Financial Statements included in Item 8 of this Form 10-K. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Our future results of operations could differ materially from our historical results or those anticipated in our forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A and elsewhere in this Form 10-K. With respect to this section, the cautionary language applicable to such forward-looking statements described under “Forward-Looking Statements” found before Item 1 of this Form 10-K is incorporated by reference into this Item 7.

Executive Summary

We are one of the most experienced international operators in the offshore energy industry with a history spanning over 65 years. Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production as well as windfarm development and maintenance. These services include 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 and subsea support; geotechnical survey support for windfarm construction, and a variety of other specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships.

On April 22, 2022, we completed the acquisition of Swire Pacific Offshore Holdings Ltd. (SPO) and its 50 offshore support vessels operating primarily in West Africa, Southeast Asia and the Middle East. As consideration for the acquisition, we paid $42.0 million in cash and issued 8,100,000 warrants, each of which is exercisable at $0.001 per share for one share of our common stock (SPO acquisition warrants). In addition, we paid $19.6 million at closing and received an $8.8 million post-closing working capital refund related to pre-closing working capital adjustments, for a total consideration of $215.5 million.

During the second half of 2022, we completed two common stock public offerings to facilitate the redemption of the SPO acquisition warrants, including an offering for 4,048,000 shares at $17.85 per share completed on August 12, 2022, and an offering for 3,987,914 shares at $30.25 per share completed on November 10, 2022 (the Offerings). The Offerings resulted in net proceeds (after expenses) of approximately $187.8 million that we used to redeem 8,035,914 SPO acquisition warrants, which we subsequently cancelled.

At December 31, 2022, we owned 191 vessels with an average age of 11.7 years (excluding 1 joint venture vessel, but including five stacked active vessels and eight vessels designated for sale) available to serve the global energy industry. The average age of our 183 active vessels at December 31, 2022 is 11.4 years.

MD&A Objective and Principal Factors That Drive Our Results, Cash Flows and Liquidity

Our MD&A is designed to provide information about our financial condition and results of operations from management’s perspective.

Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers’ business activity, in turn, is dependent on current and expected 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 crude oil and natural gas reserves. Our objective throughout the MD&A is to discuss how these factors affected our historical results and, where applicable, how we expect these factors to impact our future results and future liquidity.

Our revenues in all segments are driven primarily by our active fleet size, active vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.

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Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors impacting overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies.

Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel’s useful life or increase the vessel’s functionality are capitalized and depreciated.

Insurance costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.

Fuel and lube costs can 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. We also incur vessel operating costs aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers’ commissions are incurred primarily in our non-United States operations where brokers sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.

We discuss our liquidity in terms of cash flow that we generate from our operations. Our primary sources of capital have been our cash on hand, internally generated funds including operating cash flow, vessel sales and long-term debt financing. From time to time, we also issue stock or stock-based financial instruments either in the open market or as currency in acquisitions. This ability is impacted by existing market conditions.

Industry Conditions and Outlook

Our outlook for the oil and gas sector is generally positive after several years of low commodity prices and underinvestment in offshore activities by the major oil and gas producers. Recently, we have seen increased global demand for hydrocarbons combined with a diminishing global supply of vessels. The Russian invasion of Ukraine and the related economic sanctions have highlighted the criticality of energy reliability and security across Europe and the U.S. Due to these and other factors, oil prices have increased materially over the past two years and in June of 2022 reached a new ten-year high.

Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices and the condition of the energy markets and, in particular, the willingness of energy companies to spend on operational activities and capital projects. Crude oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. In particular, the oil price is significantly influenced by actions of the Organization of Petroleum Exporting Countries, or OPEC. Offshore oil and gas exploration and development activities generally require higher oil or natural gas prices to justify the much higher expenditure levels of offshore activities compared to onshore activities. Prices are subject to significant uncertainty and, as a result, are extremely volatile. Over the past several years, oil and natural gas commodity pricing has been affected by a global pandemic (COVID-19 is discussed below) which included lock downs by major oil consuming nations, a war in eastern Europe between Russia and Ukraine, OPEC production quotas, capital discipline within the major oil and gas companies, and increased activism related to the oil and gas sector responsibility for climate change. These factors have at various times caused or exacerbated significant swings in oil and gas pricing, which in turn has affected the capital budgets of oil and gas companies. Energy prices in 2023 are expected to continue the volatility experienced in the last few years due to ongoing geopolitical conflicts, the continued relaxation of worldwide restrictions put in place during the recent pandemic, generalized price level increases and related interest rate adjustments from the world's central banks to address these increases, and uncertainties about the rate of growth in key world economies.

There has been recent pressure from certain shareholders and other stakeholders, including governmental entities, on our customers related to environmental, social and governance (ESG) factors. Many of our large international customers have indicated changes in their future business plans to achieve a lower environmental impact. Our customers have also responded to pressure to return capital to shareholders and are increasingly shifting capital allocation from primarily new oil and gas production and reserve additions to a mix of returns to shareholders, new oil and gas project development and renewable energy source development. Even with these pressures to move towards more sustainable fuels for supplying worldwide energy, fossil fuels are expected to be the largest source for supplying worldwide energy needs for years to come.

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Table of Contents

We are one of the world’s largest operators of offshore support vessels and we have operations in most of the world’s offshore oil and gas basins. We continue to believe that there will be sufficient opportunities for us to operate our vessels in this sector for many years to come. We have also pursued opportunities in the sustainability arena, including the support of offshore wind energy generation and the improvement of our fleet performance regarding emissions and environmental impact. Although our business is impacted by a number of macro factors, including those factors discussed here, which influence our outlook and expectations given the current volatile conditions in our industry, our fleet is currently close to full utilization and our day rates have increased in recent quarters. We are of the opinion that the underlying fundamentals, particularly energy source supply and demand, will support a multi-year increase in offshore upstream development spending. Our outlook expectations are based on the market as we see it today and subject to changing conditions in and impacting our industry.

COVID-19

As COVID-19 spread throughout the world, its impact on many of our locations, including our vessels, has affected our operations. We implemented various protocols for both onshore and offshore personnel in efforts to limit this impact. The effect on our business included lockdowns of shipyards performing drydocks which delayed vessels returning to service and the cancellation and/or temporary delay of certain revenue vessel contracts allowed either under the contract provisions or by mutual agreement with our customers. These cancellations and/or temporary delays reduced our year 2020 revenues by 18% and year 2021 revenues by less than 3%. Our revenues for 2022 were not significantly impacted. In addition, in the years ended December 31, 2021 and the December 31, 2022, we incurred approximately $7.0 million and $2.7 million, respectively, in higher operating costs, primarily related to additional crew costs, mobilization and vessel stacking costs as a result of these unplanned contract cancellations. These 2022 costs were primarily incurred in the first half of the year. Although there may be additional cancellations or delays, we do not expect COVID-19 to have a significant effect on our business going forward.

ESG and Climate Change

Climate change is expected to increase the frequency and intensity of certain adverse weather patterns, which may impact our business. Due to concern over the risk of climate change, several countries have adopted, or are considering the adoption of, regulatory frameworks to reduce the emission of carbon dioxide, methane and other gases (greenhouse gas emissions). In addition, the increased regulation of environmental emissions is expected to create greater incentives for the use of alternative energy sources. Consideration of climate change-related issues and the responses to those issues through international agreements and national, regional, or state regulatory frameworks are integrated into our strategy, planning, forecasting and risk management processes, where applicable.

Our primary business is to support the fossil fuel industry, which is the primary source of energy in the world. In addition, we burn fossil fuels in operating our vessels. The fossil fuel industry is considered one of the primary contributors to the elements of global climate change. We believe that continued use of fossil fuels will be important as the world transitions to alternative energy sources. We are prepared to participate in the energy transition, including an increased focus on natural gas, and at the same time continue to support the oil industry. We have started taking measures to address our impact on climate change, including modifying many of our vessels to reduce our carbon footprint (approximately $13.5 million of emissions focused costs including fuel monitoring systems and batteries for supplemental power are included in our net properties and equipment amount as of December 31, 2022); and providing support to offshore alternative energy providers, such as windfarms. In addition, during 2022 we published our second annual sustainability report and our Board of Directors formed an Environmental, Social and Governance Committee to oversee and support our ESG strategy, initiatives and reporting. We are in the early stages of our ESG initiatives and we are committed to continuously consider, develop and implement our ESG strategy as applicable new regulations, business opportunities and sustainable technologies evolve.

In March 2022, the SEC proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks. We expect final rules to be published in 2023.

For detailed discussion of climate change and related governmental regulation, including associated risks and possible impact on our business, financial conditions and results of operations, please see “Risk Factors” in Item 1A of this Form 10-K.

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Segment Changes

In conjunction with the acquisition of SPO, the previous Middle East/Asia Pacific segment has been split into the Middle East segment and the Asia Pacific segment. Our previous operations in Southeast Asia and Australia, along with the legacy SPO operations in the Asia Pacific region, now form the new Asia Pacific segment. Our segment disclosures reflect the current segment alignment for all periods presented.

Each of our five operating segments is managed by a senior executive reporting directly to our Chief Executive Officer, the chief operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the results of each of the operating segments for resource allocation and performance evaluation.

Results of Operations

We manage and measure our business performance primarily based on five distinct geographic operating segments: Americas, Asia Pacific, Middle East, Europe/Mediterranean and West Africa. 

This section of this Form 10-K generally discusses 2022, 2021 and 2020 items and year-to-year comparisons between 2022 and 2021 and between 2021 and 2020. 

The following tables present vessel revenue and operating costs by segment, total vessel revenue and operating costs, and the related segment and total vessel revenue and operating costs as a percentage of segment and total vessel revenues for our owned and operated vessel fleet:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Vessel revenues:"],["Americas","","$","146,871","","","","23","%","","$","102,151","","","","28","%","","$","126,676","","","","33","%"],["Asia Pacific","","","64,231","","","","10","%","","","18,142","","","","5","%","","","14,348","","","","4","%"],["Middle East","","","110,375","","","","17","%","","","84,395","","","","24","%","","","82,785","","","","21","%"],["Europe/Mediterranean","","","129,578","","","","20","%","","","80,914","","","","22","%","","","83,602","","","","22","%"],["West Africa","","","190,349","","","","30","%","","","75,967","","","","21","%","","","78,763","","","","20","%"],["Total","","$","641,404","","","","100","%","","$","361,569","","","","100","%","","$","386,174","","","","100","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Vessel operating costs:"],["Americas:"],["Crew costs","","$","56,767","","","","39","%","","$","41,341","","","","40","%","","$","51,830","","","","41","%"],["Repair and maintenance","","","12,706","","","","9","%","","","10,344","","","","10","%","","","7,198","","","","6","%"],["Insurance","","","1,439","","","","1","%","","","550","","","","1","%","","","1,672","","","","1","%"],["Fuel, lube and supplies","","","9,655","","","","7","%","","","7,773","","","","8","%","","","7,564","","","","6","%"],["Other","","","13,442","","","","9","%","","","12,307","","","","12","%","","","9,421","","","","7","%"],["","","","94,009","","","65","%","","","72,315","","","","71","%","","","77,685","","","","61","%"],["Asia Pacific:"],["Crew costs","","$","29,433","","","","46","%","","$","3,409","","","","19","%","","$","3,285","","","","23","%"],["Repair and maintenance","","","3,077","","","","5","%","","","1,712","","","","9","%","","","1,024","","","","7","%"],["Insurance","","","516","","","","1","%","","","105","","","","1","%","","","312","","","","2","%"],["Fuel, lube and supplies","","","4,139","","","","6","%","","","992","","","","5","%","","","452","","","","3","%"],["Other","","","5,081","","","","8","%","","","1,729","","","","10","%","","","1,672","","","","12","%"],["","","","42,246","","","66","%","","","7,947","","","","44","%","","","6,745","","","","47","%"],["Middle East:"],["Crew costs","","$","44,944","","","","41","%","","$","35,800","","","","42","%","","$","35,976","","","","43","%"],["Repair and maintenance","","","12,210","","","","11","%","","","9,669","","","","11","%","","","9,042","","","","11","%"],["Insurance","","","1,412","","","","1","%","","","(29",")","","","(0",")%","","","2,032","","","","2","%"],["Fuel, lube and supplies","","","10,531","","","","10","%","","","5,132","","","","6","%","","","7,325","","","","9","%"],["Other","","","9,015","","","","8","%","","","10,423","","","","12","%","","","8,025","","","","10","%"],["","","","78,112","","","71","%","","","60,995","","","","72","%","","","62,400","","","","75","%"],["Europe/Mediterranean:"],["Crew costs","","$","49,709","","","","38","%","","$","41,317","","","","51","%","","$","37,534","","","","45","%"],["Repair and maintenance","","","9,239","","","","7","%","","","9,233","","","","11","%","","","6,421","","","","7","%"],["Insurance","","","1,442","","","","1","%","","","414","","","","1","%","","","1,596","","","","2","%"],["Fuel, lube and supplies","","","6,026","","","","5","%","","","3,405","","","","4","%","","","3,324","","","","4","%"],["Other","","","8,426","","","","7","%","","","7,355","","","","9","%","","","6,557","","","","8","%"],["","","","74,842","","","58","%","","","61,724","","","","76","%","","","55,432","","","","65","%"],["West Africa:"],["Crew costs","","$","61,511","","","","32","%","","$","26,304","","","","34","%","","$","27,999","","","","36","%"],["Repair and maintenance","","","14,024","","","","8","%","","","10,012","","","","13","%","","","7,528","","","","9","%"],["Insurance","","","1,956","","","","1","%","","","775","","","","1","%","","","1,583","","","","2","%"],["Fuel, lube and supplies","","","13,378","","","","7","%","","","8,255","","","","11","%","","","10,448","","","","13","%"],["Other","","","17,223","","","","9","%","","","13,487","","","","18","%","","","18,960","","","","24","%"],["","","","108,092","","","57","%","","","58,833","","","","77","%","","","66,518","","","","84","%"],["Total:"],["Crew costs","","$","242,364","","","","38","%","","$","148,171","","","","41","%","","$","156,624","","","","41","%"],["Repair and maintenance","","","51,256","","","","8","%","","","40,970","","","","11","%","","","31,213","","","","8","%"],["Insurance","","","6,765","","","","1","%","","","1,815","","","","1","%","","","7,195","","","","2","%"],["Fuel, lube and supplies","","","43,729","","","","7","%","","","25,557","","","","7","%","","","29,113","","","","7","%"],["Other","","","53,187","","","","8","%","","","45,301","","","","12","%","","","44,635","","","","12","%"],["Total vessel operating costs","","$","397,301","","","","62","%","","$","261,814","","","","72","%","","$","268,780","","","","70","%"]]
[[/GREPCENT_TABLE]]

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Table of Contents

The following tables present vessel operations general and administrative expenses by segment and in total; and the related segment vessel operations general and administrative expenses as a percentage of segment and total vessel revenues.

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Vessel operations general and administrative expenses:"],["Americas","","$","10,926","","","","7","%","","$","10,251","","","","10","%","","$","11,968","","","","9","%"],["Asia Pacific","","12,299","","","19","%","","816","","","4","%","","1,451","","","10","%"],["Middle East","","9,120","","","8","%","","7,960","","","9","%","","8,228","","","10","%"],["Europe/Mediterranean","","8,158","","","6","%","","7,994","","","10","%","","7,577","","","9","%"],["West Africa","","10,611","","","6","%","","7,924","","","10","%","","11,966","","","15","%"],["Total","","$51,114","","","","8","%","","$34,945","","","","10","%","","$41,190","","","","11","%"]]
[[/GREPCENT_TABLE]]

The following tables present depreciation and amortization expense by segment and in total; and the related segment and total depreciation and amortization expense as a percentage of segment and total vessel revenues.

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Depreciation and amortization expense:"],["Americas","","$","29,920","","","","20","%","","$","30,856","","","","30","%","","$","32,079","","","","25","%"],["Asia Pacific","","","5,960","","","","9","%","","","4,484","","","","25","%","","","4,076","","","","28","%"],["Middle East","","","24,236","","","","22","%","","","21,508","","","","25","%","","","20,168","","","","24","%"],["Europe/Mediterranean","","","27,734","","","","21","%","","","28,163","","","","35","%","","","29,222","","","","35","%"],["West Africa","","","28,534","","","","15","%","","","26,196","","","","34","%","","","27,787","","","","35","%"],["Total","","$","116,384","","","","18","%","","$","111,207","","","","31","%","","$","113,332","","","","29","%"]]
[[/GREPCENT_TABLE]]

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The following tables compare operating income and other components of earnings before income taxes, and its related percentage of total revenues.

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Vessel operating profit (loss):"],["Americas","","$","12,016","","","","2","%","","$","(11,270",")","","","(3",")%","","$","4,944","","","","1","%"],["Asia Pacific","","","3,726","","","","0","%","","","4,896","","","","2","%","","","2,076","","","","1","%"],["Middle East","","","(1,093",")","","","0","%","","","(6,070",")","","","(2",")%","","","(8,011",")","","","(2",")%"],["Europe/Mediterranean","","","18,844","","","","3","%","","","(16,968",")","","","(5",")%","","","(8,629",")","","","(2",")%"],["West Africa","","","43,112","","","","7","%","","","(16,985",")","","","(5",")%","","","(27,508",")","","","(7",")%"],["","","","76,605","","","12","%","","","(46,397",")","","","(13",")%","","","(37,128",")","","","(9",")%"],["Other operating profit","","","4,150","","","","1","%","","","7,233","","","","2","%","","","7,458","","","","2","%"],["","","","80,755","","","13","%","","","(39,164",")","","","(11",")%","","","(29,670",")","","","(7",")%"],["Corporate expenses (A)","","","(50,807",")","","","(9",")%","","","(33,571",")","","","(9",")%","","","(32,256",")","","","(8",")%"],["Corporate depreciation","","","(2,776",")","","","0","%","","","(3,337",")","","","(1",")%","","","(3,377",")","","","(1",")%"],["Gain (loss) on asset dispositions, net","","","250","","","","0","%","","","(2,901",")","","","(1",")%","","","7,591","","","","2","%"],["Long-lived asset impairments and other","","","(714",")","","","0","%","","","(15,643",")","","","(4",")%","","","(74,109",")","","","(19",")%"],["Affiliate credit loss impairment expense","","","\u2014","","","","0","%","","","(400",")","","","0","%","","","(52,981",")","","","(13",")%"],["Affiliate guarantee obligation","","","\u2014","","","","0","%","","","\u2014","","","","0","%","","","(2,000",")","","","(1",")%"],["Operating income (loss)","","","26,708","","","","4","%","","","(95,016",")","","","(26",")%","","","(186,802",")","","","(47",")%"],["Foreign exchange loss","","","(2,827",")","","","0","%","","","(369",")","","","0","%","","","(5,245",")","","","(1",")%"],["Equity in net earnings (losses) of unconsolidated companies","","","(221",")","","","0","%","","","(3,322",")","","","(1",")%","","","164","","","","0","%"],["Dividend income from unconsolidated company","","","\u2014","","","","0","%","","","\u2014","","","","0","%","","","17,150","","","","4","%"],["Interest income and other, net","","","5,397","","","","1","%","","","1,605","","","","0","%","","","1,228","","","","0","%"],["Loss on warrants","","","(14,175",")","","","(2",")%","","","\u2014","","","","0","%","","","\u2014","","","","0","%"],["Loss on early extinguishment of debt","","","\u2014","","","","0","%","","","(11,100",")","","","(2",")%","","","\u2014","","","","0","%"],["Interest and other debt costs","","","(17,189",")","","","(3",")%","","","(15,583",")","","","(4",")%","","","(24,156",")","","","(6",")%"],["Loss before income taxes","","$","(2,307",")","","","0","%","","$","(123,785",")","","","(33",")%","","$","(197,661",")","","","(50",")%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(A)","Included in corporate expenses for the years ended December 31, 2022, 2021 and 2020, are $16.5 million, $0.1 million, and $1.5 million respectively, of acquisition, restructuring and integration related costs."]]
[[/GREPCENT_TABLE]]

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Table of Contents

Years Ended December 31, 2022 and 2021

Our total revenues for the years ended December 31, 2022 and December 31, 2021 were $647.7 million and $371.0 million, respectively. The $276.7 million increase in revenue is primarily due to 47 more active vessels in the year ended December 31, 2022 than in the year ended December 31, 2021. We added 50 vessels to our fleet with the April 22, 2022 acquisition of SPO. Supplementing the increase in capacity was the increase in active utilization from 80.1% in 2021 to 82.8% in 2022. In addition, the increase in revenue was impacted by average day rates which were 23% higher in 2022 than in 2021. The average day rates are driven by market conditions affected by the increase in demand for vessels as the oil and gas industry recovers from the pandemic. The SPO vessels added approximately $150.0 million to our 2022 revenues. The remaining increase in revenue was attributable to the legacy company fleet increasing average active vessels, day rates and utilization throughout the year.

Vessel operating costs for the years ended December 31, 2022 and December 31, 2021 were $397.3 million and $261.8 million, respectively. The $135.5 million increase is primarily due to an increase in vessel activity in 2022 as a result of the acquisition of 50 additional vessels from SPO and also as a result of our continued recovery from the low vessel utilization levels caused by the pandemic and increased activity as higher crude oil prices has resulted in more activity from our customers.

Depreciation and amortization expense for the years ended December 31, 2022 and December 31, 2021 was $119.2 million and $114.5 million, respectively. Depreciation and amortization expenses were higher in 2022 largely due to the acquisition of 50 additional vessels from SPO, partially offset by lower amortization of deferred drydocking costs as the timing of drydocks and the short period of amortization continues to create variances in the expense. In addition, we have sold vessels from the active fleet and classified vessels from the active fleet to assets held for sale, which has reduced drydock amortization costs.

General and administrative expenses for the years ended December 31, 2022 and December 31, 2021 were $101.9 million and $68.5 million, respectively. The increase is primarily due to increased general and administrative costs associated with the Singapore and Dubai offices acquired in the SPO acquisition and professional fees and transaction costs (including severance costs) primarily related to the SPO acquisition, which totaled $18.8 million for the year ended December 31, 2022.

The net gain (loss) on asset dispositions for the year ended December 31, 2022 totaled $0.3 million of net gains, primarily from the sale of 14 vessels and other assets. During the year ended December 31, 2021, we recognized net losses of $2.9 million related to the sale of 19 vessels and other assets. One of the vessel sales in 2021 was to a third-party operator, Jackson Offshore, whose Chief Operating Officer, Matthew Rigdon, is the son of Larry Rigdon, the chairman of our Board of Directors. This vessel was sold for proceeds of $11.4 million, all of which was collected in the second quarter of 2021, and we recognized a gain of $4.3 million on the sale.

During 2022, we recorded a $0.5 million reversal of previously recorded impairment charges for assets held for sale that were reclassified back to the active fleet and we recorded $1.2 million in impairment for certain obsolete marine service parts and supplies inventory. During 2021, we recorded $15.6 million of impairment expense primarily related to assets held for sale.

Interest expense and other debt costs increased by $1.6 million in the year ended December 31, 2022 compared to the year ended December 31, 2021 because of higher interest rates on our outstanding debt and slightly higher levels of outstanding debt in 2022. In addition, our interest income and other increased by $3.8 million primarily because of higher interest earned on cash equivalents and a $1.3 million bargain purchase gain in connection with the acquisition of Sonatide.

During 2021, we recorded an $11.1 million loss on early extinguishment of debt consisting of make whole premiums and other related costs resulting from the extinguishment of our Senior Secured Notes and Troms offshore debt.

In connection with the reclassification of the SPO Acquisition Warrants from liabilities to additional paid in capital, we recognized a $14.2 million loss associated with the mark-to-market adjustment of the SPO Acquisition Warrants, based on the difference in the Tidewater common stock price on that date and the closing common stock price on the SPO acquisition date.

During the year ended December 31, 2022, we recognized foreign exchange losses of $2.8 million and for the year ended December 31, 2021, we recognized losses of $0.4 million. These foreign exchange losses were primarily the result of the revaluation of various foreign currency balances due to a strengthening of the U.S. Dollar against the Norwegian Kroner, Brazilian Real, Angola Kwanza, British Pound and Euro.

In addition, our income tax expense was $19.9 million in the year ended December 31, 2022 compared with an income tax expense of $5.9 million in the year ended December 31, 2021 primarily because the year ended December 31, 2021 benefitted from a NOL carryback for a tax refund under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

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Americas Segment Operations. Vessel revenues in the Americas segment increased 43.8%, or $44.7 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase is primarily due to an increase of four active vessels primarily due to the 2022 recovery in the industry. Active utilization decreased marginally from 81.3% during 2021 to 80.8% during 2022, however average day rates during these same periods increased 27.1%, which was generally due to a greater portion of the segment’s vessels being hired at current prevailing day rates which were higher than those in 2021.

Operating profit for the Americas segment for the year ended December 31, 2022, was $12.0 million compared to an operating loss for the year ended December 31, 2021 totaling $11.3 million. The increase was primarily due to the increase in revenues. The revenue increase was partially offset by a $21.7 million increase in operating costs largely due to higher vessel personnel costs resulting from the higher active vessel count. In addition, depreciation and amortization, and general and administrative costs, were $0.9 million lower and $0.7 million higher, respectively, than prior year.

Asia Pacific Segment Operations. Vessel revenues in the Asia Pacific segment increased by 254.0%, or $46.1 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. Active vessels increased by eight vessels consisting of 15 vessels added with the SPO acquisition offset by a decrease in legacy Tidewater active vessels due to contract expirations. Average day rates were 52.9% higher for 2022 than for 2021. Active utilization decreased from 94.5% to 81.6%, largely due to the contract expirations.

Operating profit for the Asia Pacific segment was $3.7 million in 2022 compared to an operating profit of $4.9 million in 2021. The revenue increase was offset by $34.3 million in higher operating costs, $11.5 million in higher general and administrative costs, and $1.5 million in higher depreciation and amortization which all resulted from the SPO acquisition.

Middle East Segment Operations. Vessel revenues in the Middle East segment increased by 30.8%, or $26.0 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. Active vessels increased by seven, of which six are vessels acquired from SPO. The Middle East average day rates were 12.7% higher for 2022 than for 2021. Active utilization decreased from 87.0% to 82.7%, largely due to downtime from repairs and maintenance in 2022.

Operating loss for the Middle East segment was $1.1 million in 2022 compared to an operating loss of $6.1 million in 2021. The revenue increase was partially offset by $17.1 million in higher operating costs, $1.2 million in higher general and administrative costs, and $2.7 million in higher depreciation and amortization resulting from the acquisition of SPO.

Europe/Mediterranean Segment Operations. Vessel revenues in the Europe/Mediterranean segment increased by 60.1%, or $48.7 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021 primarily due to six additional active vessels in 2022 and 25.1% higher average day rates. Europe/Mediterranean segment active utilization also increased slightly from 88.1% to 90.6%. The increases are due to increased demand in the region as the industry recovers from the pandemic.

Operating profit for the Europe/Mediterranean segment was $18.8 million for the year ended December 31, 2022 compared to an operating loss of $17.0 million for the year ended December 31, 2021. This increase resulted from the higher revenue offset by $13.1 million in increased vessel operating costs largely attributable to higher personnel and consumables costs primarily due to the increased vessel activity.

West Africa Segment Operations. Vessel revenues in the West Africa segment increased by 150.6%, or $114.4 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, predominately due to the effect of the 24 vessel increase in active vessels acquired from SPO. In addition, average day rates increased by 26.6%, and active utilization increased from 66.3% to 80.9%. 

The operating profit for the West Africa segment was $43.1 million for the year ended December 31, 2022, as compared to an operating loss of $17.0 million for the year ended December 31, 2021. This increase in profit resulted from the higher revenue offset by $49.3 million in increased vessel operating cost, $2.7 million in higher general and administrative costs, and $2.3 million in higher depreciation and amortization resulting from the acquisition of SPO.

44

Years Ended December 31, 2021 and 2020

Our total revenues for the years ended December 31, 2021 and December 31, 2020 were $371.0 million and $397.0 million, respectively. The decrease in revenue is primarily due to 11 less active vessels in the year ended December 31, 2021 than in the year ended December 31, 2020, primarily from our Americas segment. This segment was significantly affected by the decrease in demand caused by the pandemic. Offsetting the decrease in capacity was the increase in active utilization from 77.0% in 2020 to 80.1% in 2021. In addition, the decrease in revenue was impacted by average day rates which were 2.2% lower in 2021 than in 2020. The average day rates were driven by market conditions affected by the pandemic. The revenue effect from the pandemic began in the second quarter of 2020 and continued into the third and fourth quarters as our customers canceled contracts. The impact continued through most of the year 2021, only beginning to improve later in the year. Overall, Americas had the most negative impact, with Europe/Mediterranean and West Africa withstanding a harsh early impact but also experiencing the quickest recovery. Middle East and Asia Pacific both had the least impact from the pandemic with revenue increasing in both segments in 2021 compared to 2020. The individual segment discussions below reflect these impacts.

Vessel operating costs for the years ended December 31, 2021 and December 31, 2020 were $261.8 million and $268.8 million, respectively. The decrease is primarily due to a decrease in vessel activity, as we had 11 less active vessels in our fleet in the year ended December 31, 2021. Overall, our vessel personnel costs and insurance costs were lower in 2021 than 2020 due to cost management efforts associated with the COVID-19 downturn and several credits issued by our insurance carriers in 2021 related to vessel valuations and prior year estimates, but were partially offset by increased repair and maintenance costs due to the reactivation of stacked vessels in the latter part of 2021.

Depreciation and amortization expense for the years ended December 31, 2021 and December 31, 2020 was $114.5 million and $116.7 million, respectively. Depreciation and amortization expenses were lower in 2021 largely because of lower amortization of deferred drydocking costs resulting from the discontinuation of amortization on vessels classified as held for sale and vessels sold from the active fleet.

General and administrative expenses for the years ended December 31, 2021 and December 31, 2020 were $68.5 million and $73.4 million, respectively. General and administrative expenses decreased overall in 2021 because of continued cost cutting measures being implemented during the pandemic and a reduction in one-time severance charges incurred in 2020 compared to 2021.

The net gain (loss) on asset dispositions for the year ended December 31, 2021 totaled $2.9 million of net losses, primarily from the sale of 19 vessels and other assets. One of the vessel sales was to a third-party operator, Jackson Offshore, whose Chief Operating Officer, Matthew Rigdon, is the son of Larry Rigdon, the chairman of our Board of Directors. This vessel was sold for proceeds of $11.4 million, all of which was collected in the second quarter of 2021, and we recognized a gain of $4.3 million on the sale. During the year ended December 31, 2020, we recognized net gains of $7.6 million related to the sale of 56 vessels and other assets.

During 2021, we recorded $15.6 million of impairment primarily related to assets held for sale. During 2020, as discussed previously, we recorded $74.1 million of impairment primarily related to classifying our vessels to assets held for sale and $53.0 million of credit related losses associated with our two joint ventures in Nigeria and Angola.

Interest expense and other debt costs decreased by $8.6 million in the year ended December 31, 2021 compared to the year ended December 31, 2020. This is the result of paying down $98.1 million of our long-term debt primarily in the third and fourth quarters of 2020 and $39.3 million during the first nine months of 2021. In addition, our interest income and other increased by $0.4 million primarily because of a legal settlement with a customer.

During 2021, we recorded an $11.1 million loss on early extinguishment of debt consisting of make whole premiums and other related costs resulting from the extinguishment of our Senior Secured Notes and Troms offshore debt.

During the year ended December 31, 2021, we recognized foreign exchange losses of $0.4 million and for the year ended December 31, 2020, we recognized losses of $5.2 million. These foreign exchange losses were primarily the result of the revaluation of various foreign currency balances due to a strengthening of the US Dollar against the Norwegian Kroner, Brazilian Real, Angola Kwanza, British Pound and Euro.

In addition, our income tax expense was $5.9 million in the year ended December 31, 2021 compared with an income tax benefit of $1.0 million in the year ended December 31, 2020 primarily because the year ended December 31, 2020 benefitted from a NOL carryback for a tax refund under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

45

Americas Segment Operations. Vessel revenues in the Americas segment decreased 19.4%, or $24.5 million, during the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease is primarily due to a decrease of six active vessels primarily due to the pandemic. Overall, America's segment active utilization decreased from 85.7% during 2020 to 81.3% during 2021, however average day rates during these same periods increased 4.6%, which was generally due to a greater portion of the segment’s vessels being hired at current prevailing day rates which were higher than those in 2020.

Operating loss for the Americas segment for the year ended December 31, 2021, was $11.3 million compared to an operating profit for the year ended December 31, 2020 totaling $4.9 million. The decrease was primarily due to the decrease in revenues. The revenue decrease was partially offset by a $5.4 million decrease in operating costs largely due to lower vessel personnel costs resulting from the lower active vessel count. Depreciation and amortization, and general and administrative costs, were $1.2 million and $1.7 million lower, than prior year respectively, because of vessel sales and cost cutting measures.

Asia Pacific Segment Operations. Vessel revenues in the Asia Pacific segment increased $3.8 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020. The Asia Pacific average day rates were 18.8% higher for 2021 than for 2020. Asia Pacific segment active utilization increased from 75.0% to 94.5%.

Operating profit for the Asia Pacific segment was $4.9 million in 2021 compared to an operating profit of $2.1 million in 2020. The revenue increase was partially offset by $1.2 million in higher operating costs resulting from higher maintenance and supplies and $0.4 million increase in depreciation and amortization resulting from increased amortization of deferred drydock costs. General and administrative expenses were lower by $0.6 million due to ongoing cost reduction initiatives.

Middle East Segment Operations. Vessel revenues in the Middle East segment increased $1.6 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020. The Middle East average day rates were 1.7% higher for 2021 than for 2020. Middle East segment active utilization increased from 76.7% to 87.0%. Our Middle East segment was also only marginally affected by COVID-19.

Operating loss for the Middle East segment was $6.1 million in 2021 compared to an operating loss of $8.0 million in 2020. The revenue increase, supplemented with $1.4 million in lower operating costs, was partially offset by $1.3 million in higher depreciation and amortization resulting from increased amortization of deferred drydock costs. General and administrative expenses were lower by $0.3 million due to ongoing cost reduction.

Europe/Mediterranean Segment Operations. Vessel revenues in the Europe/Mediterranean segment decreased $2.7 million, during the year ended December 31, 2021, as compared to the year ended December 31, 2020 primarily due to lower average day rates which decreased from $12,700 to $12,201 per day. Europe/Mediterranean segment active utilization decreased slightly from 89.8% to 88.1%. These decreases in average day rates are due to the mix of vessels under longer term higher day rate contracts declining while shorter term and spot contracts were taken in their place. This segment experienced a significant downturn due to the pandemic in 2020 which continued in 2021.

Operating loss for the Europe/Mediterranean segment increased from $8.6 million for the year ended December 31, 2020 to $17.0 million for the year ended December 31, 2021. This loss increase resulted from the lower revenue, coupled with $6.3 million in increased vessel operating costs largely attributable to higher personnel costs and repair and maintenance charges partially offset by $1.1 million in lower depreciation and amortization expense.

West Africa Segment Operations. Vessel revenues in the West Africa segment decreased $2.8 million, during the year ended December 31, 2021, as compared to the year ended December 31, 2020. Average day rates decreased by 9.5%, while active utilization increased from 62.8% to 66.3%. This segment had the most negative impact from the pandemic because of significant contract cancellations.

The operating loss for the West Africa segment was $17.0 million for the year ended December 31, 2021, as compared to $27.5 million operating loss for the year ended December 31, 2020 primarily resulting from decreased revenue offset by $7.7 million in lower operating costs due mainly to the decreased activity in Nigeria, and $4.0 million in lower general and administrative costs attributable to our ongoing cost reduction efforts and decreased activity in Nigeria.

46

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Vessel Utilization and Average Rates by Segment

[[GREPCENT_TABLE]]
[["","","Year Ended","","","Year Ended","","","Year Ended"],["SEGMENT STATISTICS:","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Americas fleet:"],["Utilization","","","70.5","%","","","56.6","%","","","56.3","%"],["Active utilization","","","80.8","%","","","81.3","%","","","85.7","%"],["Average vessel day rates","","$","16,880","","","$","13,282","","","$","12,702"],["Average total vessels","","","34","","","","37","","","","49"],["Average stacked vessels","","","(4",")","","","(11",")","","","(17",")"],["Average active vessels","","","30","","","","26","","","","32"],["Asia Pacific fleet:"],["Utilization","","","76.0","%","","","94.5","%","","","42.7","%"],["Active utilization","","","81.6","%","","","94.5","%","","","75.0","%"],["Average vessel day rates","","$","16,084","","","$","10,519","","","$","8,851"],["Average total vessels","","","14","","","","5","","","","11"],["Average stacked vessels","","","(1",")","","","\u2014","","","","(5",")"],["Average active vessels","","","13","","","","5","","","","6"],["Middle East fleet:"],["Utilization","","","82.6","%","","","82.9","%","","","72.5","%"],["Active utilization","","","82.7","%","","","87.0","%","","","76.7","%"],["Average vessel day rates","","$","9,293","","","$","8,248","","","$","8,110"],["Average total vessels","","","39","","","","34","","","","38"],["Average stacked vessels","","","\u2014","","","","(2",")","","","(2",")"],["Average active vessels","","","39","","","","32","","","","36"],["Europe/Mediterranean fleet:"],["Utilization","","","85.8","%","","","62.3","%","","","51.3","%"],["Active utilization","","","90.6","%","","","88.1","%","","","89.8","%"],["Average vessel day rates","","$","15,267","","","$","12,201","","","$","12,700"],["Average total vessels","","","27","","","","29","","","","35"],["Average stacked vessels","","","(1",")","","","(9",")","","","(15",")"],["Average active vessels","","","26","","","","20","","","","20"],["West Africa fleet:"],["Utilization","","","69.5","%","","","42.9","%","","","37.0","%"],["Active utilization","","","80.9","%","","","66.3","%","","","62.8","%"],["Average vessel day rates","","$","11,048","","","$","8,727","","","$","9,638"],["Average total vessels","","","68","","","","56","","","","60"],["Average stacked vessels","","","(10",")","","","(20",")","","","(24",")"],["Average active vessels","","","58","","","","36","","","","36"],["Worldwide fleet:"],["Utilization","","","75.4","%","","","59.6","%","","","51.8","%"],["Active utilization","","","82.8","%","","","80.1","%","","","77.0","%"],["Average vessel day rates","","$","12,754","","","$","10,335","","","$","10,563"],["Average total vessels","","","182","","","","161","","","","193"],["Average stacked vessels","","","(16",")","","","(42",")","","","(63",")"],["Average active vessels","","","166","","","","119","","","","130"]]
[[/GREPCENT_TABLE]]

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Table of Contents

We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is performed on the vessel. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are considered to be in service and are included in the calculation of our utilization statistics.

We had 13, 27 and 35 stacked vessels including 8, 18 and 23 vessels, respectively, classified as assets held for sale in our fleet as of December 31, 2022, December 31, 2021 and December 31, 2020, respectively. During 2022, we sold 12 vessels that had been designated as held for sale and two vessels from our active fleet. We also designated three vessels to assets held for sale and reactivated one vessel from assets held for sale into the active fleet in 2022. During 2021, we designated an additional seven vessels for disposition and sold nine vessels that had been designated as held for sale and re-activated three vessels from the assets held for sale back into the active fleet. In addition, we sold ten vessels from our active fleet in 2021.

Vessel Dispositions

We seek opportunities to sell and/or recycle our older vessels when market conditions warrant and opportunities arise. Most of our vessels are sold to buyers who do not compete with us in the offshore energy industry. The number of vessels disposed by segment are as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Number of vessels disposed by segment:"],["Americas","","","4","","","","7","","","","13"],["Asia Pacific","","","2","","","","2","","","","10"],["Middle East","","","1","","","","2","","","","3"],["Europe/Mediterranean","","","2","","","","2","","","","13"],["West Africa","","","5","","","","6","","","","17"],["Total","","","14","","","","19","","","","56"]]
[[/GREPCENT_TABLE]]

Vessel Commitments

In the fourth quarter of 2022, we contracted to build two Alucat crew boats for the African market. These vessels are expected to be complete in the fourth quarter of 2023 and cost approximately $3.5 million each. We made a $1.2 million down payment to start construction on these two vessels. In the fourth quarter of 2021, we contracted to build two new ocean-going tugs for the Africa market. These vessels are expected to be complete in 2023 and cost approximately $6.3 million each. We made a $2.3 million down payment to start construction on these two tugs. We did not build any vessels in the year ended December 31, 2020.

General and Administrative Expenses

Consolidated general and administrative expenses and the related percentage of each component to total revenues are as follows:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Personnel","","$","48,907","","","","8","%","","$","35,985","","","","10","%","","$","36,851","","","","9","%"],["Office and property","","","22,689","","","","4","%","","","12,371","","","","3","%","","","13,483","","","","3","%"],["Professional services","","","21,964","","","","3","%","","","14,308","","","","4","%","","","15,262","","","","4","%"],["Other","","","6,336","","","","1","%","","","5,507","","","","1","%","","","6,344","","","","2","%"],["Restructuring charges (A)","","","2,025","","","","0","%","","","345","","","","0","%","","","1,507","","","","0","%"],["","","$","101,921","","","","16","%","","$","68,516","","","","18","%","","$","73,447","","","","18","%"]]
[[/GREPCENT_TABLE]]

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Segment and corporate general and administrative expenses and the related percentage of total general and administrative expenses were as follows:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021","","","December 31, 2020"],["Vessel operations:"],["Continuing operations","","$","49,274","","","","48","%","","$","34,675","","","","51","%","","$","41,190","","","","56","%"],["Restructuring charges (A)","","","1,840","","","","2","%","","","270","","","","0","%","","","\u2014","","","","0","%"],["Total vessel operations","","","51,114","","","","50","%","","","34,945","","","","51","%","","","41,190","","","","56","%"],["Corporate:"],["Continuing operations","","","50,622","","","","50","%","","","33,496","","","","49","%","","","30,750","","","","42","%"],["Restructuring charges (A)","","","185","","","","0","%","","","75","","","","0","%","","","1,507","","","","2","%"],["Total corporate","","","50,807","","","","50","%","","","33,571","","","","49","%","","","32,257","","","","44","%"],["Total","","$","101,921","","","","100","%","","$","68,516","","","","100","%","","$","73,447","","","","100","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(A)","Restructuring charges for the years ended December 31, 2022 and 2021 include $2.0 million and $0.3 million, respectively, of severance and termination benefits."]]
[[/GREPCENT_TABLE]]

General and administrative expenses for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 primarily due to higher general and administrative costs associated with the Singapore and Dubai offices and professional fees and transaction costs (including severance costs) related to the SPO acquisition, which totaled $18.8 million for the year ended December 31, 2022. General and administrative expenses for the year ended December 31, 2021 decreased compared to the prior year primarily as a result of our continuing efforts to reduce overhead costs.

Liquidity, Capital Resources and Other Matters

As of December 31, 2022, we had $168.0 million in cash and cash equivalents (including restricted cash), including amounts held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held in U.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints, partner and tax related matters. We currently intend that earnings by our foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and intercompany) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the U.S. because cash generated from our domestic businesses and the repayment of intercompany liabilities from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our U.S. operations.

During 2022, we generated $40.2 million of cash from operating activities and received $13.6 million in proceeds from the sale of assets which was partially used to acquire SPO and the 51% equity interest in Sonatide owned by our former joint venture partner as well as funding $16.6 million in capital expenditures for the year. As a result, we ended the year 2022 with $13.7 million more in cash compared with the beginning of the year. We anticipate generating positive operating cash flows in 2023 net of drydock costs required to maintain our fleet. In addition, we anticipate generating proceeds from the sale of eight vessels held for sale valued at approximately $4.2 million and we expect to continue to invest in capital improvements, primarily to maintain our fleet and our information systems. Based on the current levels of activity in our industry and the anticipated levels of activity from our customers in response to increasing demand levels and pricing for oil and gas, we anticipate improved cash flow over the next several years sufficient to meet our obligations, including debt service, drydock costs and capital expenditures. We have no major obligations for capital expenditures, except for the previously mentioned Alucat crew boats and ocean-going tugs, or scheduled repayments of debt until the Nordic bonds mature in November 2026.

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Our objective in financing our business is to maintain and preserve adequate financial resources and sufficient levels of liquidity. We have a $25.0 million revolving credit facility (RCF) which matures in 2026. No amounts have been drawn on this facility. As of December 31, 2022, we had $175.0 million of long-term debt on our consolidated balance sheet of which none is due until late 2026. The Senior Secured Bonds due November 2026 (the 2026 Notes) contain two financial covenants: (i) a minimum free liquidity test of the obligors (as defined) equal to the greater of $20.0 million or 10% of net interest bearing debt, and (ii) a minimum equity ratio of 30%, in each case for us and our consolidated subsidiaries. We are currently in compliance and anticipate being able to maintain ongoing compliance with these two financial covenants. We believe cash and cash equivalents, availability under our RCF and future net cash provided by operating activities, provide us with sufficient liquidity to meet our liquidity requirements. We also have an “at-the-market” offering registered with the SEC under which we may offer and sell shares of our common stock, having an aggregate offering price of up to $30.0 million from time to time through the Agents acting as a sales agent or directly to the Agents acting as a principal. We expect to use the net proceeds from the sale of the securities covered by these offerings for general corporate purposes, which may include repayment or refinancing of indebtedness, working capital, capital expenditures, investments, acquisitions and other business opportunities.

Please refer to Note (4) - “Debt” to the accompanying Consolidated Financial Statements for further details on our indebtedness.

Share Repurchases

No shares were repurchased during the years ended December 31, 2022, 2021 and 2020. Please refer to Note (11) - “Stockholders’ Equity” to the accompanying Consolidated Financial Statements.

Dividends

There were no dividends declared during the years ended December 31, 2022, 2021 and 2020. Please refer to Note (11) - “Stockholders’ Equity” to the accompanying Consolidated Financial Statements.

Operating Activities

Net cash provided by or used in operating activities for any period will fluctuate according to the level of business activity for the applicable period.

Net cash provided by operating activities is as follows:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021"],["Net loss","","$","(22,193",")","","$","(129,660",")"],["Depreciation and amortization","","","83,522","","","","73,223"],["Amortization of deferred drydocking and survey costs","","","35,638","","","","41,321"],["Amortization of debt premiums and discounts","","","1,679","","","","3,171"],["Provision (benefit) for deferred income taxes","","","36","","","","(1,287",")"],["Gain (loss) on asset dispositions, net","","","(250",")","","","2,901"],["Gain on bargain purchase","","","(1,300",")","","","\u2014"],["Affiliate credit loss impairment expense","","","\u2014","","","","400"],["Long-lived asset impairments and other","","","714","","","","15,643"],["Loss on warrants","","","14,175","","","","\u2014"],["Loss on debt extinguishment","","","\u2014","","","","11,100"],["Stock based compensation expense","","","7,372","","","","5,638"],["Deferred drydocking and survey costs","","","(56,000",")","","","(27,282",")"],["Changes in operating assets and liabilities, net of effects of business acquisition","","","(23,167",")","","","19,838"],["Net cash provided by operating activities","","$","40,226","","","$","15,006"]]
[[/GREPCENT_TABLE]]

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Net cash provided by operating activities for the year ended December 31, 2022, of $40.2 million reflects a net loss of $22.2 million, non-cash impairments of $0.7 million, non-cash depreciation and amortization of $119.2 million, stock-based compensation expense of $7.4 million, and loss on warrants of $14.2 million. Changes in operating assets and liabilities used $23.2 million in cash, reflecting additional investments in working capital as a result of the increase in business activity. We paid $56.0 million for regulatory drydocks in 2022.

Net cash used by operating activities for the year ended December 31, 2021, of $15.0 million reflects a net loss of $129.7 million, non-cash impairments of $16.0 million, non-cash depreciation and amortization of $114.5 million, a net loss on asset dispositions of $2.9 million, stock-based compensation expense of $5.6 million, and loss on debt extinguishment of $11.1 million. Changes in operating assets and liabilities provided $20.0 million in cash while amounts due to/from affiliates used $0.1 million in cash. We paid $27.3 million for regulatory drydocks in 2021.

Investing Activities

Net cash provided by investing activities is as follows:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021"],["Proceeds from sales of assets","","$","13,568","","","$","34,010"],["Acquisitions, net of cash acquired","","","(20,740",")","","","\u2014"],["Additions to properties and equipment","","","(16,637",")","","","(8,951",")"],["Net cash provided by investing activities","","$","(23,809",")","","$","25,059"]]
[[/GREPCENT_TABLE]]

Net cash used in investing activities for the year ended December 31, 2022, was $23.8 million, reflecting proceeds of $13.6 million related to the disposal of 14 vessels. Acquisitions included $19.7 million for the purchase of SPO and $1.0 million to acquire the 51% equity interest in Sonatide owned by our former joint venture partner. Additions to property and equipment were comprised of $16.6 million, primarily for the down payment on two Alucat crew boats, upgrades to our existing fleet and continued enhancements to our current enterprise software system.

Net cash provided by investing activities for the year ended December 31, 2021, was $25.1 million, reflecting proceeds from the sale of assets of $34.0 million related to the disposal of 19 vessels. Additions to property and equipment were comprised of $9.0 million, primarily for the down payment on two tugboats, upgrades to our existing fleet and continued enhancements to our current enterprise software system.

Financing Activities

Net cash used in financing activities is as follows:

[[GREPCENT_TABLE]]
[["(In Thousands)","","Year Ended","","","Year Ended"],["","","December 31, 2022","","","December 31, 2021"],["Proceeds from stock offering","","$","187,832","","","$","\u2014"],["Repurchase of SPO acquisition warrants","","","(187,832",")","","","\u2014"],["Issuance of long-term debt","","","\u2014","","","","172,375"],["Principal payments on long-term debt","","","\u2014","","","","(198,918",")"],["Debt extinguishment premium","","","\u2014","","","","(7,781",")"],["Debt issuance and modification costs","","","(393",")","","","(5,737",")"],["Tax on share-based awards","","","(2,323",")","","","(953",")"],["Net cash used in financing activities","","$","(2,716",")","","$","(41,014",")"]]
[[/GREPCENT_TABLE]]

Financing activities for the year ended December 31, 2022, used $2.7 million of cash, including $0.3 million of debt issuance and modification costs related to our 2026 notes and $2.3 million in taxes paid on share-based awards. We also received $187.8 million in proceeds from two offerings of our common stock. These proceeds were used to repurchase the outstanding SPO acquisition warrants issued in connection with the acquisition of SPO.

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Financing activities for the year ended December 31, 2021, used $41.0 million of cash, as a result of the repayment of $198.9 million and make-whole premiums of $7.8 million reflecting the retirement of our senior secured notes and the Troms offshore debt. Financing activities also included $5.7 million of debt issuance and modification costs related to our new 2026 notes and costs to modify our Troms offshore debt.

Legal Proceedings

We are named defendants or parties in certain lawsuits, claims or proceedings incidental to or arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows. Please refer to Note (12) - “Commitments and Contingencies” to the accompanying Consolidated Financial Statements.

Application of Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures and disclosures of any contingent assets and liabilities at the date of the financial statements. We evaluate the reasonableness of these estimates and assumptions continually based on a combination of historical experience and other assumptions and information that comes to our attention that may vary the outlook for the future. Estimates and assumptions about future events and their effects are subject to uncertainty, and accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes. As a result, actual results may differ from estimates under different assumptions.

The “Nature of Operations and Summary of Significant Accounting Policies”, as described in Note (1) to the Consolidated Financial Statements, should be read in conjunction with this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We have defined a critical accounting estimate as one that is important to the portrayal of our financial condition or results of operations and requires us to make difficult, subjective or complex judgments or estimates about matters that are uncertain. We believe the following critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements are described below. There are other items within our consolidated financial statements that require estimation and judgment, but they are not deemed critical as defined above.

Business Combination

On April 22, 2022 (the “Acquisition Date”) we completed our business combination with SPO. Assets acquired and liabilities assumed in the business combination have been recorded at their estimated fair values as of the Acquisition Date under the acquisition method of accounting. The estimated fair values of certain assets and liabilities require judgments and assumptions. Adjustments might be made to these estimates during the measurement period subsequent to the Acquisition Date. These adjustments could be material. Please refer to Note (2) - “Acquisitions” to the Consolidated Financial Statements for further details on the impact of this business combination on our consolidated financial statements.

Receivables and Allowance for Credit Losses

In the normal course of business, we extend credit to our customers on a short-term basis. Our principal customers are major oil and natural gas exploration, field development and production companies. We routinely review and evaluate our accounts receivable balances for collectability. The determination of the collectability of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’ payment history and current credit worthiness to determine that collectability is reasonably assured, as well as consideration of the overall business climate in which our customers operate. Expected credit losses are recorded on the initial recognition of our primary financial assets, which are trade accounts receivable and contract assets. We also have net receivable balances related to joint ventures in which we own less than 50%. We review and evaluate these receivables for collectability in a similar manner as we evaluate trade receivables. We believe that our allowance for credit losses is adequate to cover potential bad debt losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional provisions for credit losses that may be required.

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Impairment of Long-Lived Assets

We review the vessels in our active fleet for impairment whenever events occur or changes in circumstances indicate that the carrying amount of an asset group 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. With respect to vessels that are expected to remain in active service, we group together for impairment testing purposes vessels with similar operating and marketing characteristics. Stacked vessels expected to return to active service are evaluated for impairment as part of their assigned active asset group and not individually.

We estimate future cash flows based upon historical data adjusted for our best estimate of expected future market performance, which, in turn, is based on industry trends. The primary estimates and assumptions used in reviewing active vessel groups for impairment and estimating undiscounted cash flows include utilization rates, average day rates and average daily operating expenses. These estimates are made based on recent actual trends in utilization, day rates and operating costs and reflect management’s best estimate of expected market conditions during the period of future cash flows. These assumptions and estimates have changed considerably as market conditions have changed, and they are reasonably likely to continue to change as market conditions change in the future. Although we believe our assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce materially different results. Management estimates may vary considerably from actual outcomes due to future adverse market conditions or poor operating results that could result in the inability to recover the current carrying value of an asset group, thereby possibly requiring an impairment charge in the future. As our fleet continues to age, management closely monitors the estimates and assumptions used in the impairment analysis in order to properly identify evolving trends and changes in market conditions that could impact the results of the impairment evaluation.

If an asset group fails the undiscounted cash flow test, we estimate the fair value of each asset group and compare such estimated fair value to the carrying value of each asset group in order to determine if impairment exists.

Management estimates the fair value of each vessel in an asset group considered Level 3, as defined by ASC 820, Fair Value Measurements and Disclosures, by considering items such as the vessel’s age, length of time stacked, likelihood of a return to active service and actual recent sales of similar vessels, among others. Third party appraisals, broker values or internal valuations based on recent sale activity are utilized for vessels expected to be sold as an operating vessel. We leverage information for vessels in a similar class, similar age, or similar specification to be used as a basis of fair value for vessels expected to be sold. Internal valuations are also prepared for vessels expected to be sold for recycling utilizing an estimated recycle value per lightweight ton based on the vessel location, the weight of the vessel and recent recycling activity. We record an impairment charge when the carrying value of an asset group exceeds its estimated fair value. In previous years, we sought opportunities to dispose of our older vessels when market conditions warranted and opportunities would arise. As a result, vessel dispositions would vary from year to year, and gains (losses) on sales of assets would also fluctuate significantly from period to period. Most of our vessels were sold to buyers with whom we do not compete in the offshore energy industry. We continue to employ that strategy, but to a lesser extent. When circumstances warrant we review our fleet and make decisions to remove assets that are not considered to be part of our long-term plans. In these circumstances, we will reclassify the identified vessels as held for sale and, if necessary, we will revalue these vessels to net realizable value. We consider the valuation approach for our assets held for sale to be a Level 3 fair value measurement due to the level of estimation involved in valuing assets to be recycled or sold. We estimate the net realizable value using various methodologies including third party appraisals, sales comparisons, sales agreements and scrap yard tonnage prices. Estimates generally fall in ranges rather than exact numbers due to the nature of sales of offshore vessels and industry conditions. Our value ranges depend on our expectation of the ultimate disposition of the vessel. We will in all circumstances attempt to achieve maximum value for our vessels, but also recognize that certain vessels are more likely to be recycled, especially given the time and effort required to achieve a sale and the costs incurred to maintain a vessel while searching for a buyer. We establish ranges that in many cases have scrap value as the low end of the range and an expected open market sale value at the top of the range. When there is no expectation within the range that is considered more likely than any other, we apply equal probability weighting to the low and high ends of the valuation range.

Income Taxes

The asset-liability method is used for determining our income tax provisions, under which current and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. In addition, we determine our effective tax rate by estimating our permanent differences resulting from differing treatment of items for tax and accounting purposes.

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As a global company, we are subject to the jurisdiction of taxing authorities in the United States and by the respective tax agencies in the countries in which we operate internationally, as well as to tax agreements and treaties among these governments. Our operations in these different jurisdictions are taxed on various bases: actual income before taxes, deemed profits (which are generally determined using a percentage of revenue rather than profits) and withholding taxes based on revenue. Determination of taxable income in any tax jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year. We are periodically audited by various taxing authorities in the United States and by the respective tax agencies in the countries in which we operate internationally. The tax audits generally include questions regarding the calculation of taxable income. Audit adjustments affecting permanent differences could have an impact on our effective tax rate.

The carrying value of our net deferred tax assets is based on our present belief that we will be unable to generate sufficient future taxable income in certain tax jurisdictions to utilize such deferred tax assets, based on estimates and assumptions. If these estimates and related assumptions change in the future, we may be required to adjust valuation allowances against our deferred tax assets resulting in additional income tax expense or benefit in our consolidated statement of operations. Management evaluates the realizability of the deferred tax assets and assesses the need for changes to valuation allowances on a quarterly basis. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the present need for a valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Deferred taxes are not provided on undistributed earnings of certain non-U.S. subsidiaries and business ventures because we consider those earnings to be permanently invested abroad.

We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions would be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that was more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The recognition and measurement of tax liabilities for uncertain tax positions in any tax jurisdiction requires the interpretation of the related tax laws and regulations as well as the use of estimates and assumptions regarding significant future events. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income taxes during any given year.

New Accounting Pronouncements

For information regarding the effect of new accounting pronouncements, please refer to Note (1) - “Nature of Operations and Summary of Significant Accounting Policies” to the accompanying Consolidated Financial Statements.

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