Tidewater Inc. — Form 10-Q Summary
Business context and reporting period. Tidewater operates offshore service vessels supporting exploration, field development and production for the global energy industry. This filing covers the quarter and six months ended September 30, 2011, the second quarter and first half of fiscal 2012. The company reorganized its reporting segments into Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe; prior-period segment data was recast.
Key financial results
Amounts below are in millions of dollars, except per-share data, percentages and vessel statistics.
| Metric | Quarter ended Sep. 30, 2011 | Quarter ended Sep. 30, 2010 | Six months ended Sep. 30, 2011 | Six months ended Sep. 30, 2010 |
|---|---|---|---|---|
| Revenue | $250.9 | $267.1 | $505.5 | $529.6 |
| Operating income (loss) | $(5.5) | $26.9 | $26.0 | $72.2 |
| Net earnings (loss) | $(4.9) | $19.4 | $19.7 | $59.2 |
| Diluted EPS | $(0.09) | $0.38 | $0.38 | $1.15 |
| Operating margin | (2.2%) | 10.1% | 5.1% | 13.6% |
- Revenue and operating performance: Quarterly revenue declined 6.1%; first-half revenue declined about 4.6%. First-half vessel operating costs fell 3.4% to $313.6 million, but the vessel-revenue decline and higher costs in some regions weighed on earnings. Vessel margin (vessel revenue less vessel operating costs) was $188.1 million for the half, versus $204.4 million.
- Unusual charge: A $30.9 million non-cash goodwill impairment was recorded in the quarter for Middle East/North Africa. Management estimated its after-tax effect at $22.1 million, or $0.43 per share. The second step of the impairment assessment remained incomplete; a further adjustment could follow.
- Cash flow: First-half operating cash flow was $87.2 million, down from $153.4 million. Investing used $130.4 million, principally for vessel and equipment additions; financing provided $99.7 million. Cash rose $56.5 million to $302.2 million, largely supported by $165.0 million of new notes.
- Liquidity and debt: Current assets were $658.0 million and current liabilities $211.9 million at September 30 (current ratio approximately 3.1). Long-term debt was $825.0 million, up from $700.0 million at March 31. No credit-facility borrowings were outstanding; the full $575.0 million facility was available. The facility matures in January 2016 and includes leverage and interest-coverage covenants. A $60.0 million note maturity falls in July 2012; the company said it could use the facility if needed.
- Capital returns: The quarterly dividend remained $0.25 per share. No shares were repurchased in the first half; the new $200 million authorization, effective through June 30, 2012, remained entirely available.
Material changes and operating trends
- First-half vessel revenue declined in Americas by about 14% and Asia/Pacific by about 24%, mainly due to weaker utilization and/or day rates. Middle East/North Africa revenue rose about 15%, but higher operating costs caused vessel operating losses. Sub-Saharan Africa/Europe revenue increased about 6%, supported by added deepwater vessels and higher deepwater day rates.
- Worldwide fleet utilization was 60.2% in the quarter versus 61.8% a year earlier. Newer vessels generated 91% of first-half vessel margin, compared with 87% in the prior-year period.
- The company had approximately $502.7 million of remaining commitments for 28 vessels under construction and 12 vessel purchases. It expects to fund fleet renewal through operating cash flow, available borrowing capacity and potentially new borrowings or leases.
- Management described crude-oil prices as volatile and natural-gas prices as weak, and identified U.S. Gulf of Mexico permitting and regulatory delays as a constraint. It noted the risk that planned industry vessel additions could pressure utilization and charter rates, partly offset by potential retirement of older vessels and demand from new rigs and production units. No specific earnings or revenue guidance was provided.
Risks, contingencies and other notable matters
- Brazil customs assessment: Brazilian authorities assessed approximately $98.7 million in fines relating to import licenses for 17 vessels. Tidewater is contesting the assessment, has not paid or accrued it, and reported counsel’s view that it had a high probability of overturning the fines. A separate potential Brazilian state import-tax claim remained unquantified and unaccrued; the company said competitors had received notices, but Tidewater had not.
- Angola joint venture: The Sonatide agreement with Sonangol was extended to December 31, 2011, with some customer charters continuing on a charter-by-charter basis beyond that date. Tidewater said Angola is its largest country of operation by vessel deployment and revenue; failure to extend or replace the agreement could impair its ability to compete there.
- Vessel construction: A Brazilian shipyard had substantially delayed a fast supply boat originally due in September 2009. Tidewater initiated arbitration in April 2011. Late delivery of vessels committed to customer contracts could also result in penalties or reduced rates.
- Other exposures: The UK Merchant Navy Officers Pension Fund deficit assessment was $7.5 million and accrued; its trustee sought accelerated payment or security, which Tidewater disputed. Tidewater continued ICSID arbitration seeking compensation for Venezuelan asset expropriation, with no assurance of recovery. A shareholder derivative suit related to prior DOJ/SEC matters remained at an early stage. The company reported that the DOJ, SEC and Nigerian investigations had been settled under agreements described in prior filings.
- Forward-looking risks include energy demand and commodity-price volatility, industry overcapacity, customer spending, foreign exchange, political and expropriation risks, piracy, weather, labor availability and costs, and regulatory or environmental changes.
Important facts for investors to verify
- Whether the final goodwill impairment assessment results in an additional charge.
- Progress and resolution of the $98.7 million Brazilian customs dispute, and any Brazilian state tax assessment.
- Whether Tidewater and Sonangol reach a durable Sonatide agreement before the extension expires, and the implications for Angolan operations.
- Timing, cost and customer-contract impact of vessel deliveries, particularly the delayed Brazilian vessel; execution of the roughly $502.7 million remaining commitments.
- Cash generation relative to capital spending, debt maturities and the stated availability of the credit facility.
- Changes in utilization, day rates and segment profitability, especially in Asia/Pacific and Middle East/North Africa.
The interim financial statements were reviewed by the independent registered public accounting firm; the review was not an audit.