Tidewater Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2013, Tidewater’s first quarter of fiscal 2014. The filing is unaudited; the interim financial statements were reviewed by the independent accountant. Tidewater operates offshore service vessels supporting the global energy industry.
Financial results and liquidity
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $334.1 million | $294.4 million |
| Operating income | $43.4 million | $49.5 million |
| Net earnings | $30.1 million | $32.9 million |
| Diluted EPS | $0.61 | $0.65 |
| Operating cash flow | $3.6 million | $69.1 million |
| Capital expenditures for property and equipment | $156.4 million | $77.4 million |
- Revenue rose 13.5%, while net earnings fell 8.4%. Operating margin declined to approximately 13.0% from 16.8%; net margin declined to approximately 9.0% from 11.2%.
- Vessel revenue increased 14.3% to $331.6 million. Average worldwide vessel day rates rose to $16,976 from $14,275, while overall fleet utilization was 68.8% versus 68.4%.
- Vessel operating costs rose 21.6% to $196.2 million, including repair and maintenance costs of $48.1 million versus $27.2 million. General and administrative expenses increased 24.2% to $50.5 million.
- Operating cash flow fell sharply, mainly because receivables increased; management attributed much of the increase to local payment requirements in Sub-Saharan Africa/Europe and expected working capital to normalize as procedures and contracts were adjusted.
- Cash was $64.8 million at quarter-end, including $43.7 million held by foreign subsidiaries. Current assets were $619.2 million and current liabilities $291.3 million, implying a current ratio of about 2.1. Total assets were $4.697 billion and stockholders’ equity was $2.585 billion.
- Reported long-term debt was $1.475 billion, up from $1.000 billion at March 31. The amended, unsecured credit facility totals $900 million and matures in June 2018; $300 million of term loans and $280 million of revolver borrowings were outstanding, leaving $320 million available. The facility includes a maximum debt-to-capitalization ratio of 55% and minimum interest coverage of 3.0.
- Cash dividends declared were $0.25 per share. The board authorized up to $200 million in repurchases for July 2013–June 2014; none were made in the reported quarter.
Material changes and business developments
- On June 4, Tidewater acquired Troms Offshore Supply AS. Consideration included $150 million cash and assumption of approximately $262.8 million of obligations. Troms owned four deepwater PSVs and had two more under construction; preliminary purchase accounting included $43.6 million goodwill. The filing says the acquisition’s pro forma effect on quarterly results was immaterial.
- Deepwater vessels represented 55% of vessel revenue, up from 47% a year earlier. Sub-Saharan Africa/Europe revenue increased 23% to $157.2 million, while Asia/Pacific revenue decreased 17% to $43.0 million. Sub-Saharan Africa/Europe vessel operating profit declined to $17.5 million from $27.1 million, reflecting higher operating costs, especially repairs and maintenance.
- The company sold its remaining shipyard on June 30 for $9.5 million and recorded a $4.0 million gain. It no longer operates shipyards.
- Investing cash outflow was $282.7 million, including $127.7 million net cash paid for the Troms acquisition. Financing cash inflow was $303.3 million, largely from borrowings.
- Unfunded vessel construction and purchase commitments totaled $652.3 million for 32 vessels. Management said it expects to fund fleet modernization through operating cash flow, existing borrowing capacity, and potentially additional borrowing or leases.
Outlook, risks and contingencies
- No specific company revenue or earnings guidance is provided. Management tied demand to customer spending on offshore exploration, development and production. It described global offshore vessel supply and demand as reasonably balanced but warned that 444 industry new-build support vessels were under construction and could pressure utilization and rates; retirements of older vessels and new offshore rigs could offset some of that capacity.
- Management cited lower natural-gas prices and oversupply as potential headwinds, particularly for U.S. offshore activity, while discussing expected growth in international exploration spending and deepwater activity. It also warned of rising crew, drydocking and repair costs.
- The Sonatide joint venture agreement with Sonangol had expired and a replacement was not yet signed, although management said substantive issues appeared resolved and operations continued normally. A failed negotiation could lead to a wind-up, vessel redeployment costs and lost revenue. Angola’s new foreign-exchange law could delay conversion and transfer of local-currency receipts and create tax, currency and fee exposure. Angola generated $97.9 million, or 29%, of consolidated vessel revenue in the quarter.
- Brazilian customs fines initially assessed at 155 million reais (about $69.3 million) were being contested; appeal decisions had disallowed substantial portions, with remaining appeals and possible further challenges outstanding. No accrual was recorded. Management also disclosed potential Brazilian state import-tax exposure, with no amount determined and no accrual recorded.
- Equatorial Guinea reduced a previously assessed $450 million customs fine to $15 million; Tidewater agreed in July 2013 to settle for $0.9 million and accrued that amount in the quarter.
- A Nigerian agent dispute concerns approximately $19 million owed for vessel services; related court proceedings are ongoing. The company is pursuing collection and defending claims.
- In Venezuela, an arbitration tribunal upheld jurisdiction over treaty-based claims relating to expropriation of the principal operating subsidiary, but not the claims concerning 15 seized vessels. The merits hearing was scheduled for mid-2014; compensation was uncertain.
- A subsidiary was placed into UK administration on July 15 in connection with its declining vessel business and Merchant Navy Officers Pension Fund participation. Tidewater agreed to acquire seven vessels and waive certain intercompany claims; management did not expect a material consolidated financial effect.
- A fast supply boat construction project in Brazil remained suspended amid arbitration over substantial delivery delays. Insurance covered 90% of progress payments, leaving approximately $2.4 million of carrying value uncovered.
- The filing also identifies exposure to oil and gas price and spending changes, industry capacity, political and regulatory actions, currency fluctuations, environmental incidents, and compliance requirements. The DOJ deferred prosecution agreement related to FCPA matters remained in effect; its $7.35 million fine had been paid and compliance reporting obligations continued.
Important facts for investors to verify
- Whether the receivables and working-capital increase reversed as management expected, and whether operating cash flow recovered.
- Whether vessel operating costs—particularly Sub-Saharan Africa/Europe repair and maintenance—and corporate expenses moderated after the quarter.
- Progress on the Sonatide agreement and the practical cash-collection effects of Angola’s foreign-exchange law.
- Debt levels, covenant headroom, the upcoming $145.5 million of principal repayments classified as long-term debt, and funding capacity for the $652.3 million vessel commitments.
- Outcomes of Brazilian customs and potential state-tax matters, Nigerian litigation and receivables, Venezuela arbitration, and UK administration.
- Delivery timing and economics for new vessels, the delayed Brazilian vessel, and the effect of industry vessel additions on utilization and day rates.