Tidewater Inc. — Form 10-Q Summary
Business context and reporting period
For the fiscal third quarter and nine months ended December 31, 2012. Tidewater operates offshore service vessels and marine support services for the global offshore energy industry across four regions. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless stated otherwise.
Financial performance and position
- Quarter: Revenue was $309.5 million, up 13.7% year over year. Operating income was $41.0 million, nearly flat versus $41.2 million; net earnings fell 12.1% to $29.9 million, and diluted EPS was $0.61 versus $0.67.
- Nine months: Revenue increased 17.8% to $915.8 million; operating income more than doubled to $147.7 million from $67.2 million; net earnings rose 93.7% to $104.2 million from $53.8 million. Diluted EPS was $2.09 versus $1.04.
- Margins: Vessel operating margin was 40.7% for the quarter and 42.1% for nine months, compared with 42.4% and 39.2%, respectively, a year earlier. Operating margin was 13.2% for the quarter and 16.1% for nine months, versus 15.1% and 8.6%.
- Cash flow and investment: Nine-month operating cash flow was $182.7 million, up from $157.7 million. Investing used $308.8 million, including $326.6 million of property and equipment additions. Financing used $140.4 million, including $85.0 million of share repurchases, $60.0 million of debt repayments, and $37.4 million of dividends.
- Liquidity and debt: December 31 cash was $54.2 million, down from $320.7 million at March 31. Current assets were $490.0 million and current liabilities $263.9 million (current ratio 1.86). Total debt was $930.0 million, compared with $950.0 million at March 31; $410.0 million remained available under the revolver. The company reported $143.2 million of principal repayments due in the following 12 months, classified as long-term debt based on its stated ability and intent to refinance.
- Capital returns and commitments: The quarterly dividend remained $0.25 per share. The company repurchased 1.86 million shares for $85.0 million during the nine months, with $180.0 million remaining under its current authorization. Unfunded vessel construction and purchase commitments totaled $535.7 million.
Material changes versus the prior comparable period
- Management attributed nine-month revenue growth primarily to a 17% increase in average day rates and an approximately seven-percentage-point increase in utilization, reflecting higher customer activity and fleet mix. Regional growth was strongest in Sub-Saharan Africa/Europe, Asia/Pacific, and Middle East/North Africa; Americas revenue was roughly unchanged.
- Quarterly earnings were pressured by higher vessel operating costs, general and administrative expense, interest costs, and taxes. The quarter included a $5.2 million settlement loss related to the former CEO’s supplemental retirement benefit; he received a $13.0 million lump-sum distribution.
- Nine-month results benefited from the absence of the prior-year $30.9 million non-cash goodwill impairment. The current-year annual assessment found no impairment, though Asia/Pacific fair value exceeded carrying value by less than 10%.
- Cash declined mainly as fleet investment, repurchases, dividends, and debt repayments exceeded operating cash flow. Debt was reduced by $20.0 million from March 31, despite $40.0 million of revolver borrowings.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance is provided. Management said results depend on customer exploration and production spending, oil and gas prices, vessel utilization and day rates. It described crude-oil prices as supportive of offshore activity but noted weak, oversupplied North American natural gas markets and uncertainty in the global economy.
- Management highlighted substantial industry vessel construction: 422 offshore support vessels were reported under construction worldwide. Added supply could weaken utilization and charter rates if demand does not keep pace; older-vessel retirements and new rig and production-unit deliveries could partly offset that pressure. Skilled crew competition, repair costs, drydockings, and regulatory requirements may also raise costs.
- The Sonatide joint venture agreement with Sonangol was extended to March 31, 2013 while restructuring discussions continued. A failure to reach agreement could lead to a wind-up, with potentially material redeployment costs, downtime, and lost revenue. Angolan operations generated $197.7 million, or 22% of consolidated vessel revenue, in the nine months.
- Equatorial Guinea assessed a $450 million customs fine in December 2012 relating to five vessels. Tidewater disputes the claim and amount, is discussing resolution, cannot yet estimate the exposure, and has recorded no reserve.
- Brazilian customs fines of approximately $75.6 million were being contested and were not accrued; an administrative decision disallowed most of the assessment, with further review ongoing. The company also disclosed possible future Brazilian state import-tax exposure but had received no such assessment and recorded no accrual.
- Other notable items include a $4.2 million accrued Merchant Navy Officers Pension Fund assessment, with possible additional contributions that are not estimable; ongoing FCPA-related deferred-prosecution obligations; and the December 2012 sinking of the Nana Tide. The DRC requested $0.25 million for alleged environmental damage; investigation and recovery efforts were ongoing.
- Vessel delivery delays and contract-price increases affected two domestic shipyard vessels; arbitration continued over a substantially delayed Brazilian fast supply boat. Two purchased PSVs were delivered in January 2013, funded in part by $50 million of revolver borrowing. The interim financial statements were reviewed, not audited; the independent accountant reported no material modifications needed for GAAP conformity.
Key facts for investors to verify
- Progress on Sonatide restructuring and any impact on Angolan vessel contracts, redeployment, and revenue.
- Status and potential financial consequences of the $450 million Equatorial Guinea assessment, Brazilian customs matters, and possible Brazilian state tax claims.
- Cash generation, borrowing capacity, refinancing of near-term maturities, and funding of the $535.7 million vessel commitment balance alongside dividends and repurchases.
- Whether day-rate and utilization improvements persist, particularly as new industry vessel capacity enters service; monitor repair, drydock, and crew-cost trends.
- Delivery timing and cost of newbuild vessels, and any further developments involving the Nana Tide incident and associated claims.