Tidewater Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended March 31, 2013; comparative figures are for fiscal 2012. The filing also reports fourth-quarter results. Tidewater operates offshore service vessels supporting exploration, development and production for the global energy industry. Its four operating segments are Americas, Asia/Pacific, Middle East/North Africa and Sub-Saharan Africa/Europe.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $1,244.2 million | $1,067.0 million |
| Operating income | $206.2 million | $113.6 million |
| Net earnings | $150.8 million | $87.4 million |
| Diluted earnings per share | $3.03 | $1.70 |
| Net cash from operating activities | $213.9 million | $222.4 million |
| Net cash used in investing activities | $413.5 million | $315.1 million |
Vessel operating costs were $709.4 million, or 57.7% of vessel revenue, versus $638.1 million, or 60.2%, in FY2012. Operating margin was 16.6% of total revenue, compared with 10.6%; net margin was 12.1%, compared with 8.2%. FY2013 operating cash flow declined about 4%, with higher receivables and other working-capital needs offsetting increased earnings.
At March 31, 2013, cash and equivalents were $40.6 million, working capital $241.5 million and the current ratio 1.91. Total debt was $1.0 billion, up from $950 million; net debt was approximately $959.4 million. The company had $340 million available under its revolving facility and reported compliance with debt covenants. Long-term debt includes $144.7 million of principal repayments due within the following 12 months, which Tidewater said it could fund through its facility.
Changes versus the prior year
- Revenue rose 17% as utilization, day rates and the contribution from newer vessels improved. Deepwater vessels supplied 49.2% of vessel revenue, up from 44.2%.
- Net earnings increased 73%; the comparison benefited from the absence of FY2012’s $30.9 million non-cash goodwill impairment charge ($22.1 million after tax).
- Vessel operating costs rose 11%; repair and maintenance increased 28% to $132.6 million, principally due to more drydockings. General and administrative expense rose 12% to $175.6 million, including a $5.2 million retirement-plan settlement charge.
- Operating cash flow was lower despite higher earnings. Capital spending increased: additions to property and equipment were $440.6 million, including $400.5 million for vessel construction and purchases.
- Cash declined from $320.7 million to $40.6 million. Tidewater repurchased $85.0 million of stock in FY2013 and paid $49.6 million in dividends.
Fourth-quarter FY2013 revenue was $328.3 million, operating income $58.6 million and net earnings $46.6 million, or $0.95 diluted EPS. Fourth-quarter FY2012 revenue was $289.4 million, operating income $46.4 million and net earnings $33.6 million, or $0.66 diluted EPS.
Outlook, risks and notable items
- Management described longer-term vessel utilization and day rates as linked to oil and gas demand and prices. It cited industry forecasts for higher 2013 international exploration and production spending, but did not provide company-specific earnings or revenue guidance. North American spending forecasts were comparatively weak, and onshore spending was expected to account for much of it.
- Management highlighted substantial industry newbuild capacity as a risk to utilization and charter rates, while noting that retirements of older vessels and new drilling rigs and floating production units could partly offset supply growth. Low natural-gas prices and U.S. Gulf of Mexico permitting and regulatory constraints remained concerns.
- Tidewater had 32 vessel construction or purchase commitments totaling approximately $836.6 million; $599.3 million remained unfunded at year-end. Delivery delays, cost overruns and shipyard performance are risks. A Brazilian fast-supply-boat project, originally due in 2009, remained suspended amid arbitration.
- The Sonatide joint-venture agreement with Sonangol formally expired March 31, 2013, while operations continued and negotiations remained unresolved. Angola generated approximately $271 million, or 22%, of consolidated vessel revenue. A wind-up could cause lost revenue, redeployment costs and downtime.
- Contingencies include an Equatorial Guinea customs fine reduced from $450 million to $15 million; no reserve was recorded and the company said the impact could not yet be reasonably estimated. Brazilian customs fines were being contested; an appeals decision disallowed $55.3 million, with approximately $21.2 million still subject to hearing. A separate potential Brazilian state tax exposure was unquantified and unaccrued.
- Tidewater pursued approximately $19 million in Nigerian customer payments that were caught up in litigation involving its former marketing agent. The DRC requested $0.25 million relating to the December 2012 sinking of the Nana Tide; the cause was not known, and the company was evaluating recovery and environmental matters.
- Subsequent to year-end, Tidewater agreed to acquire Troms Offshore Supply AS for $150 million cash and assumption of approximately $245 million of obligations, subject to approvals; contingent additional consideration may also be payable.
- Other material risk factors include commodity-price and customer capital-spending volatility, customer concentration, political and regulatory risk, piracy and security threats, foreign exchange exposure, environmental and labor regulation, and FCPA compliance. Chevron accounted for 17.8% of FY2013 revenue; the five largest customers together accounted for approximately 42%.
The company reported effective disclosure controls and internal control over financial reporting; Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether reported revenue growth, utilization and day-rate improvement persist, particularly in deepwater markets and the largest regional segment, Sub-Saharan Africa/Europe.
- Liquidity after the sharp cash reduction: vessel spending schedule, facility availability, debt repayments and the balance between fleet investment, dividends and repurchases.
- Delivery, cost and contract performance for the $599.3 million of unfunded vessel commitments, including delayed shipyard projects.
- Resolution of Sonatide negotiations and the potential financial effect on Angola operations and vessel redeployment.
- Developments in the Equatorial Guinea fine, Brazilian customs and potential tax matters, and the disputed Nigerian receivable.
- Completion and financing of the Troms Offshore acquisition and any contingent consideration.