Tidewater Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended March 31, 2016. The filing includes fourth-quarter data but is an annual report, not a standalone Q4 filing. Tidewater provides offshore support vessels and marine services to the global oil and gas industry; results are driven mainly by customers’ offshore spending, vessel utilization and day rates.
Financial performance and position
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | $979.1 million | $1,495.5 million |
| Vessel revenue | $955.4 million | $1,468.4 million |
| Operating income (loss) | $(69.5) million | $(37.2) million |
| Net income (loss) attributable to Tidewater | $(160.2) million | $(65.2) million |
| Diluted loss per share | $(3.41) | $(1.34) |
| Cash from operating activities | $253.4 million | $358.7 million |
| Cash used in investing activities | $(135.0) million | $(231.4) million |
| Cash and cash equivalents at year-end | $678.4 million | $78.6 million |
| Total debt at year-end | $2,052.3 million | $1,534.5 million |
| Working capital / current ratio | $(1,135.8) million / 0.54 | $386.6 million / 1.80 |
- Vessel operating costs fell 33% to $561.1 million, but less than the 35% decline in vessel revenue; vessel operating costs were 59% of vessel revenue versus 57% in FY2015.
- Year-end cash included $669.8 million held by foreign subsidiaries; the company stated it was available without adverse tax consequences. Net debt to net capitalization was 37.4%, versus 37.0% a year earlier.
- Operating cash flow included substantial non-cash depreciation and impairment charges and an $84.1 million net reduction in amounts due from/to affiliates. Capital additions were $194.5 million; the company received $46.1 million of refunds from cancelled vessel contracts.
- Fourth-quarter revenue was $184.2 million and net loss attributable to Tidewater was $81.8 million; operating loss was $56.6 million.
Material changes versus FY2015
- Revenue declined 35%, primarily as lower oil and gas prices led customers to reduce offshore exploration and production spending, reducing utilization and day rates. Worldwide fleet utilization fell to 61.7% from 77.3%; average day rate declined to $15,558 from $18,792.
- Operating losses worsened despite lower costs. Asset impairment charges rose to $117.3 million from $14.5 million, mainly from stacked vessels and lower vessel values. FY2015 also included a $283.7 million non-cash goodwill impairment; all remaining goodwill had been written off by March 2015.
- Segment vessel operating profit fell to $74.1 million from $294.0 million. Americas, Asia/Pacific and Sub-Saharan Africa/Europe reported segment operating losses in FY2016; Middle East/North Africa remained profitable.
- Cash increased largely because financing activities provided $481.5 million, including $600 million of revolving-credit borrowings, partly offset by debt principal payments. The revolver was fully drawn at year-end, leaving no available capacity.
- The company stacked 77 vessels at year-end versus 16 in the prior year and suspended its quarterly dividend and share-repurchase program in January 2016.
Outlook, risks and unusual items
- Management cited a challenging near-term market. Industry surveys referenced by the company forecast 2016 E&P spending reductions of 11%–17% overall and 20%–25% offshore versus 2015. The company warned that lower utilization and day rates could persist, with potential industry overcapacity from new vessel deliveries.
- Going-concern and debt covenant risk: Tidewater was compliant with financial covenants at March 31, 2016, but forecast it might fail the 3.0x minimum interest-coverage covenant during FY2017, potentially as early as the quarter ending June 30, 2016. A going-concern explanatory paragraph was included in the auditor’s report. An audit-opinion-related default led to all $2.052 billion of debt being classified as current; limited lender waivers of the audit-opinion requirement ran only through August 14, 2016. Management was negotiating covenant relief. Acceleration of debt could exceed available liquidity; the filing says failure to reach agreement could lead to Chapter 11 restructuring.
- Angola presents substantial cash-conversion and currency risks. The company reported $339 million due from its 49%-owned Sonatide joint venture, including $97 million of invoiced but unpaid vessel revenue, and Sonatide held about $119 million equivalent in primarily kwanza-denominated deposits. Tidewater recognized its 49% share—about $24.1 million—of Sonatide’s $49.2 million FY2016 foreign-exchange loss. Currency controls, delayed conversion and expatriation, possible ownership restructuring and a potential 10% foreign-exchange levy remain risks.
- Six deepwater PSVs remained under construction, with $67.5 million of stated remaining commitments, or about $36.5 million net of expected shipyard refunds. Certain additional vessels were subject to options rather than firm commitments; construction delays and counterparty recovery remain relevant risks.
- Unusual and contingent matters include a $65.7 million Venezuelan expropriation award at March 31, 2016, of which $37.3 million was available for enforcement and $28.4 million remained stayed; no gain was recognized and collection was uncertain. The company also continued to contest approximately $43.1 million of Brazilian customs fines, which it had not accrued; pursued an approximately $16 million Nigerian customer receivable, for which it had not reserved; and reviewed possible U.S. vessel-repair duties and penalties of unknown amount.
- No specific company financial guidance was provided. Management emphasized cost reductions, liquidity preservation, safe operations and completing the remaining vessel program. It also noted that further stacking or redeployment could entail downtime, mobilization expense and lost revenue.
Most important facts for investors to verify
- Whether lenders and noteholders granted durable covenant and audit-opinion relief, and the resulting debt classification, collateral requirements, interest costs and revolver availability.
- Actual covenant headroom and liquidity under current operating assumptions, including whether cash held by foreign subsidiaries is readily usable for corporate obligations.
- Recoverability and timing of the $339 million Sonatide receivable, access to U.S. dollars, further kwanza exposure and any restructuring or levy developments in Angola.
- Subsequent utilization, day rates, vessel stacking and industry supply/demand trends, including delivery or cancellation of newbuild vessels.
- Shipyard refunds, delivery choices and final costs for the six committed vessels and other optioned construction contracts.
- Developments in the Venezuelan award, Brazilian customs assessments, Nigerian receivable and possible U.S. vessel-repair liabilities.