Tidewater Inc. — Form 10-Q Summary
Business context and reporting period
Tidewater provides offshore service vessels and marine support to the global energy industry, reporting International and United States segments. This fiscal 2011 third-quarter filing covers the quarter and nine months ended December 31, 2010; the comparable periods ended December 31, 2009. The interim statements are unaudited. Tidewater reported 384 vessels at quarter-end, including joint-venture vessels and vessels withdrawn from service.
Financial performance and position
| Metric | Quarter ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Total revenue, 2010 (2009) | $271.8 million ($286.5 million) | $801.4 million ($908.6 million) |
| Operating income, 2010 (2009) | $42.6 million ($66.5 million) | $114.8 million ($194.7 million) |
| Net earnings, 2010 (2009) | $34.4 million ($59.9 million) | $93.6 million ($202.6 million) |
| Diluted EPS, 2010 (2009) | $0.67 ($1.16) | $1.82 ($3.93) |
| Operating margin, 2010 (2009) | 15.7% (23.2%) | 14.3% (21.4%) |
Nine-month operating cash flow was $218.1 million, down from $299.4 million. Investing activities used $470.8 million, including $508.6 million of property and equipment additions; financing activities provided $337.7 million. Cash increased to $308.0 million from $223.1 million at March 31, 2010.
At December 31, current assets were $653.0 million and current liabilities $198.6 million (working capital $454.4 million; current ratio approximately 3.3). Debt was $700 million long-term, with no current maturities, versus $300 million total debt at March 31, 2010. Cash less reported debt was approximately $367 million net cash. Stockholders’ equity was $2.51 billion.
Capital spending reflects a substantial fleet-renewal program. Remaining expenditures for 26 vessels under construction and 11 vessel purchase commitments were approximately $486 million. Declared dividends were $0.25 per share for the quarter and $0.75 per share for nine months.
Material changes versus prior comparable periods
- Nine-month revenue fell 11.8% and net earnings fell 53.8%. Management attributed the earnings decline chiefly to lower revenue and higher income tax expense; the prior-year period also included a $49.1 million Venezuelan provision and a $34.3 million reversal of uncertain tax liabilities.
- International vessel revenue declined 10.4% for nine months, while U.S. vessel revenue rose 5.3%. International towing-supply/supply revenue weakened; deepwater vessel revenue grew with new vessels and transfers from the U.S. market.
- Vessel operating costs rose to 61% of revenue for nine months from 51% a year earlier. International costs increased, including crew, maintenance, fuel and a $6.0 million Merchant Navy Officers Pension Fund charge.
- Other marine revenue declined sharply as shipyard construction for unaffiliated customers decreased. Asset-sale gains were also lower year over year.
- Capital additions increased to $508.6 million from $304.0 million. Tidewater issued $425 million of senior unsecured notes and repaid or drew on its revolving facility during the period.
Outlook, risks, contingencies and unusual items
- No formal company earnings or revenue guidance is provided. Management expected international utilization and day rates to remain linked to oil prices and offshore activity, and anticipated a slow restart of Gulf of Mexico drilling. At filing, no deepwater drilling permits had been issued since the Deepwater Horizon incident; shallow-water permitting had also slowed.
- The Deepwater Horizon aftermath and added U.S. safety and permitting requirements may suppress Gulf of Mexico demand and potentially increase competition in international markets if vessels are redeployed. Other cited risks include energy-price and demand volatility, industry vessel overcapacity, crew and shipyard cost inflation, political instability, expropriation, foreign exchange, and regulatory and environmental exposure.
- Sonatide, Tidewater’s 49%-owned Angolan joint venture, had not agreed new terms with Sonangol after the agreement expired. Charter-by-charter arrangements covered about two-thirds of relevant joint-venture and Tidewater vessels; failure to reach acceptable terms could impair competition in Angola, Tidewater’s largest country of operation by vessel count and revenue.
- For FCPA matters, the SEC settlement required $8.4 million, paid in the quarter, while its contingent $3.0 million penalty was eliminated following the DOJ resolution. Tidewater’s subsidiary paid a $7.35 million DOJ fine; a separate $4.35 million DOJ-related charge had been recorded. The DOJ agreement includes a three-year, seven-day compliance and reporting period; breach could expose the subsidiary to prosecution. Nigerian authorities have requested discussions concerning possible restitution; no liability was accrued because it was not considered both probable and reasonably estimable.
- Tidewater is pursuing ICSID arbitration for compensation over Venezuela’s seizure of 15 vessels and other assets; recovery and timing are uncertain. The $8.2 million insurance settlement is subject to repayment if Venezuela compensation is received.
- The company accrued $9.3 million for the Merchant Navy Officers Pension Fund deficit and disputed the trustee’s demand to accelerate payment. A fast crew/supply vessel under construction in Brazil was substantially delayed, with further delay or cancellation possible. Quarter-end impairment charges included $2.0 million on four stacked vessels.
- In January 2011, after quarter-end, Tidewater amended and extended its credit facilities to $575 million through January 2016, comprising a $450 million revolver and $125 million term loan. It also took delivery of an anchor-handling vessel for approximately $11.7 million.
Most important facts for investors to verify
- Whether international vessel utilization and margins stabilize, particularly for towing-supply/supply vessels, and how much new fleet capacity is delivered into the market.
- Progress on Gulf of Mexico permits and the effect of post-Deepwater Horizon rules on U.S. demand and vessel redeployment.
- Angolan joint-venture negotiations and the continuity of charters after existing arrangements expire.
- Funding and execution of the $486 million remaining vessel commitments, including delivery risk, against operating cash flow and available credit.
- Developments in Nigerian restitution discussions, DOJ compliance obligations, Venezuela arbitration, and the pension-fund assessment.
- Whether earnings comparisons reflect recurring operations: prior-year Venezuela and tax items, current-period legal charges, asset gains, impairments, and tax-rate changes.