Tidewater Inc. — Form 10-Q Summary
Business context and period: Tidewater provides offshore service vessels and marine support to the global energy industry, operating International and United States segments. This unaudited report covers the three months ended June 30, 2011, the first quarter of fiscal 2012, compared with the same quarter of fiscal 2011. Dollar figures below are in millions unless noted. The interim statements were reviewed, not audited.
Financial performance and liquidity
| Metric | Quarter ended June 30, 2011 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $254.6 | $262.5 | Down 3.0% |
| Operating income | $31.5 | $45.3 | Down 30.5% |
| Net earnings | $24.6 | $39.8 | Down 38.3% |
| Diluted EPS | $0.48 | $0.77 | Down $0.29 |
| Cash from operations | $26.5 | $52.8 | Down 49.7% |
| Capital additions | $69.7 | $141.1 | Down 50.6% |
- Operating margin was approximately 12.4%, versus 17.2%; net margin was approximately 9.6%, versus 15.2%. Vessel operating profit was $39.4 million, or about 15.5% of vessel revenue, compared with $48.6 million, or 18.5%.
- Cash and cash equivalents were $196.4 million at June 30, down $49.3 million from March 31. Current assets were $563.6 million and current liabilities $193.2 million, a current ratio of about 2.9.
- Long-term debt was $700 million, comprising $425 million of 2010 senior notes and $275 million of 2003 senior notes. No borrowings were outstanding under the credit facilities; $575 million was available. The company reported $40 million of notes maturing in July 2011, with refinancing capacity available through the facility.
- Interest and other debt costs rose to $4.1 million from $1.1 million, principally reflecting the senior notes issued in fiscal 2011. The effective tax rate increased to 23.0% from 18.5%.
- Cash dividends remained $0.25 per share. A new $200 million share-repurchase authorization runs through June 30, 2012; none had been used by quarter-end.
Material changes and operating trends
- International vessel revenue decreased 1% to $235.1 million; U.S. vessel revenue fell 27% to $18.2 million. International operations represented 93% of vessel revenue.
- U.S. revenue was pressured by continuing weakness and permitting effects in the Gulf of Mexico after the Deepwater Horizon incident; three deepwater vessels had moved to international markets. International towing-supply/supply utilization also weakened. Crew/utility revenue improved, partly offsetting declines in other classes.
- Worldwide fleet utilization was 61.5%, compared with 61.1% a year earlier but below 62.8% in the March 2011 quarter. Traditional vessels remained particularly underutilized; 98 vessels were stacked at June 30.
- G&A increased 15% to $37.6 million, primarily due to personnel costs, stock-based compensation, incentive accruals, foreign-assigned employee costs and office expenses. Lower repair and maintenance expense partly offset higher crew, fuel and insurance costs.
- Net cash used in investing was $63.0 million, including $69.7 million of property and equipment additions, partly offset by $6.7 million of asset-sale proceeds. The lower spend than the prior-year quarter reflected reduced vessel additions.
Outlook, commitments and risks
- No quantified financial guidance was provided. Management said higher crude oil prices could support international and deepwater demand, while weak natural-gas prices and U.S. Gulf permitting constraints weighed on prospects. It also highlighted potential industry capacity growth from new vessel deliveries, partly offset by expected retirement of aging vessels.
- The fleet renewal program is a major cash commitment: 40 vessels were under construction or committed for purchase, with $569.1 million remaining at June 30. Management expected to fund the program with operating cash flow, cash and borrowing capacity, while weighing it against other uses of capital.
- One Brazilian crew/supply boat was substantially delayed; Tidewater initiated arbitration against the shipyard and expected delivery in June 2012. Delays to contracted vessels could result in customer penalties, although management did not expect any such liability to be material.
- Two Brazilian subsidiaries are contesting approximately $98.7 million in customs fines relating to 17 vessels. The company had neither paid nor accrued the fines and said it believed the assessment lacked legal basis. A separate possible Brazilian state import-tax exposure had not been quantified and was not accrued.
- The U.K. Merchant Navy Officers Pension Fund assessment was $9.6 million and accrued. Its trustee sought immediate payment or security for an outstanding $8.0 million installment amount; discussions were ongoing and Tidewater objected to the acceleration.
- The 49%-owned Sonatide joint venture agreement was extended to December 31, 2011, with certain Angolan charters continuing beyond that date on a charter-by-charter basis. Angola is Tidewater’s largest country exposure by vessel deployment and revenue; a permanent agreement was not assured.
- Tidewater continued its ICSID arbitration seeking compensation for Venezuela’s 2009 seizure of vessels and other assets; the outcome was uncertain. Prior DOJ and SEC FCPA settlements and a Nigerian government settlement were reported as resolved, while a related shareholder derivative suit remained at an early stage.
- Other disclosed risks include offshore energy spending and commodity-price volatility, vessel overcapacity, crew and shipyard cost inflation, political and currency risks, regulatory changes, and environmental and legal contingencies.
Important facts for investors to verify
- Whether utilization, day rates and U.S. Gulf activity improve, and how much international weakness is concentrated in older vessel classes.
- Cash generation and financing needs against the $569.1 million remaining vessel commitments, scheduled deliveries and the July 2011 $40 million debt maturity.
- Developments in the $98.7 million Brazilian customs dispute, any Brazilian state tax assessment, and the MNOPF trustee’s demand for accelerated payment or security.
- Progress toward a durable Sonatide agreement and the outcome and timing of the Venezuela arbitration.
- Whether higher G&A, interest expense, impairment charges and other costs continue to pressure margins and earnings.