Tidewater Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended March 31, 2017; the filing also describes material events occurring after year-end. Tidewater operates offshore support vessels and provides marine services to the global energy industry. Its results depend heavily on offshore exploration and production activity, vessel utilization, and day rates.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Total revenue | $601.6 million | $979.1 million |
| Vessel revenue | $583.8 million | $955.4 million |
| Operating loss | $577.9 million | $69.5 million |
| Net loss attributable to Tidewater | $660.1 million | $160.2 million |
| Operating cash flow | $29.8 million | $253.4 million |
| Cash and cash equivalents at year-end | $706.4 million | $678.4 million |
| Debt, net of deferred issuance costs | $2.034 billion | $2.046 billion |
| Working capital | $(1.187) billion | $(1.129) billion |
- Vessel operating costs were $359.2 million, down 36%; they equaled 62% of vessel revenue, versus 59% in FY2016. Vessel operating margin was 38.5%, compared with 41.3%; FY2017 included a $39.1 million early-termination payment that boosted revenue.
- Interest and other debt costs rose 40% to $75.0 million. Capital expenditures/additions to property and equipment were $25.5 million, versus $194.5 million in FY2016.
- Cash was largely held outside the U.S.: $702.9 million was held by foreign subsidiaries. The company reported no available capacity under its fully drawn $600 million revolver.
- All approximately $2.04 billion of debt was classified as current following covenant and audit-opinion defaults. The company had failed its 3.0x minimum interest-coverage covenant.
Changes versus the prior year
- Revenue fell 39%, reflecting lower customer spending, vessel utilization, and day rates. Worldwide fleet utilization declined to 43.9% from 61.7%; average day rate was $13,802, down from $15,558.
- Segment vessel revenue declined across all regions: Americas 30%, Asia/Pacific 71%, Middle East 20%, and Africa/Europe 44%. Asia/Pacific and Africa/Europe recorded vessel operating losses of $20.6 million and $51.4 million, respectively.
- Asset impairments increased to $484.7 million from $117.3 million, including impairment of 132 vessels and eight ROVs. The company ended the year with 111 stacked vessels out of 260 owned or chartered vessels.
- Cost reductions included workforce cuts and lower vessel operating expenses. Headcount fell by approximately 1,040 to 5,510. The quarterly dividend was suspended in January 2016; no dividends were declared in FY2017.
Restructuring, outlook, and key risks
- Chapter 11: On May 17, 2017, Tidewater and certain domestic subsidiaries filed prepackaged Chapter 11 petitions. The proposed plan remained subject to Bankruptcy Court approval; management expected effectiveness in July 2017 but cautioned there was no assurance. The auditor’s report included an explanatory paragraph stating that the bankruptcy raised substantial doubt about the company’s ability to continue as a going concern.
- Proposed creditor and shareholder treatment: Creditors were to receive, pro rata, $225 million cash, new 8% secured notes totaling $350 million due 2022, and equity representing 95% of reorganized common equity, subject to plan provisions and dilution. Existing shares were to be cancelled; existing shareholders were proposed to receive 5% of pro forma equity plus warrants, subject to dilution and Jones Act ownership limits. The plan anticipated eliminating about $1.6 billion of principal debt and reducing annual interest and operating lease expense by about $73 million.
- Claims relating to rejected sale-leaseback agreements were disputed; approximately $324 million was reserved pending resolution. The amount ultimately allowed could change distributions under the plan.
- Management expected offshore spending to remain weak in calendar 2017, with any improvement in offshore activity likely delayed until 2018. This is an industry outlook, not quantified company guidance. New vessel supply, continued low commodity prices, and delayed customer spending could prolong low utilization and rates.
- Other material exposures include $263 million due from the Angolan Sonatide joint venture, including funds subject to kwanza conversion and repatriation constraints; shipyard disputes and arbitration over vessels under construction; and potential U.S. customs duties or penalties relating to repairs to U.S.-flagged vessels abroad.
- A $54.3 million Venezuelan arbitration award, including accrued interest, was enforceable but collection was uncertain; Tidewater treated it as a gain contingency and had not recognized the gain. Brazilian customs fines originally assessed at 155 million reais were largely resolved in the company’s favor; remaining proceedings and a court appeal continued.
Important facts for investors to verify
- Whether the Chapter 11 plan was confirmed and became effective, and the final debt, cash, lease, and equity treatment—including dilution and warrant terms.
- The final allowed amount of sale-leaseback claims and the resulting creditor distributions.
- Post-emergence liquidity, cash availability, debt-service capacity, covenant terms, and any financing needs.
- Whether offshore utilization and day rates stabilized or improved, and how many stacked vessels returned to service or were disposed of.
- Collection and currency-conversion progress for Sonatide receivables, and the status of the Venezuela award, shipyard arbitration, and customs matters.