Tidewater Inc. — Form 10-K Summary
Business context and reporting period. Tidewater provides offshore service vessels and marine support to the global energy industry. This is the annual report for the fiscal year ended March 31, 2011; the filing does not report a standalone “2010 Q4” period. Operations are reported in International and United States segments, with approximately 92% of vessel revenue generated internationally.
Financial and operating performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $1,055.4 million | $1,168.6 million |
| Operating income / margin | $139.3 million / 13.2% | $240.3 million / 20.6% |
| Net earnings / diluted EPS | $105.6 million / $2.05 | $259.5 million / $5.02 |
| Cash from operations | $264.2 million | $328.3 million |
| Cash and cash equivalents at year-end | $245.7 million | $223.1 million |
| Long-term debt at year-end | $700.0 million | $275.0 million |
| Working capital / current ratio | $395.6 million / 3.15 | $380.9 million / 2.86 |
- Investing activities used $569.9 million, including $615.3 million of additions to property and equipment, primarily vessel construction and purchases. Financing activities provided $328.4 million.
- Worldwide fleet utilization fell to 62.1% from 65.9%; average worldwide day rate was $12,352, compared with $12,399.
- Vessel operating costs rose 5.5% to $638.6 million, while depreciation and amortization increased to $140.6 million from $130.2 million. Dividends declared remained $1.00 per share.
Material changes versus prior year
- Revenue declined 9.7%, and net earnings fell 59.3%. Management attributed the earnings decline primarily to lower revenue and utilization, higher vessel operating costs, and income tax expense of $42.5 million versus $8.3 million.
- International vessel revenue declined 8% to $962.5 million, principally reflecting weaker demand and lower utilization for traditional towing-supply/supply vessels. Deepwater vessel revenue increased, partly offsetting the decline.
- U.S. vessel revenue edged down to $88.7 million from $89.6 million. U.S. operations were affected by the slow resumption of Gulf of Mexico drilling and the tapering of oil-spill response work.
- Other marine revenue dropped to $4.2 million from $30.5 million, largely because shipyard construction activity for outside customers decreased.
- Debt increased to $700 million following a $425 million senior-note issuance and other borrowings during the year. The company ended the year with no borrowings under its new credit facilities and $575 million available.
Outlook, risks, contingencies, and unusual items
- Outlook: Management described a gradual recovery in offshore vessel demand and expected international utilization and day rates to remain linked to oil prices. It cited anticipated industry capital-spending growth, but provided no company-specific numerical earnings or revenue guidance. U.S. Gulf deepwater permitting remained slow.
- Capital program: At year-end, Tidewater had commitments for 28 vessels under construction and eight vessel acquisitions, with total stated costs of approximately $857.2 million and $494.2 million remaining to fund. The company said it believed liquidity and financial capacity were adequate, subject to market and investment conditions.
- Brazil customs assessment: In April 2011, Brazilian authorities assessed approximately $98.7 million in fines concerning vessel import licensing. Tidewater disputed the assessment, had not paid or accrued it, and said it intended to contest it. Management believed the matter would not materially affect the consolidated financial statements.
- Venezuela: The government seized 15 vessels and related assets in 2009; Tidewater no longer operates there. The company is pursuing ICSID arbitration for compensation, with no assurance of success. It received $8.2 million from insurers, subject to repayment if it later recovers from Venezuela.
- Angola joint venture: The Sonatide agreement had been extended to July 31, 2011 while negotiations continued. Angola is Tidewater’s largest country of operation; failure to reach an ongoing arrangement could impair its ability to compete there.
- Other exposures: Tidewater accrued $9.6 million for its assessed share of the U.K. Merchant Navy Officers Pension Fund deficit; the trustee sought accelerated payment, which the company disputed. A Brazilian vessel-construction delay had led to arbitration. The company also disclosed customer concentration: Chevron and Petrobras represented 16.2% and 15.4% of FY2011 revenue, respectively; the top five customers represented 45.3%.
- Unusual charges and settlements: FY2011 included $4.4 million related to the DOJ resolution and $6.3 million paid to settle a Nigerian government investigation. Fiscal 2010 included a $43.7 million Venezuela provision and a $36.1 million tax-liability reversal, which affect year-over-year comparisons.
- Key operating risks include oil and gas price volatility, offshore vessel overcapacity, customer spending and concentration, foreign exchange, political and piracy risks, safety and environmental regulation, and increased costs or delays in vessel construction and maintenance. Management and the auditor reported effective internal control over financial reporting; the financial statement audit opinion was unqualified.
Important facts for investors to verify
- Whether utilization, day rates, and international demand improved after year-end, and whether new vessel supply pressures pricing.
- Funding and delivery schedules for the $494.2 million remaining vessel commitments, including resolution of the delayed Brazilian build.
- Developments in the $98.7 million Brazilian customs dispute, Venezuela arbitration, and Sonatide agreement.
- Debt maturities, covenant headroom, and liquidity after the $425 million note issuance and planned capital spending.
- Collectability of approximately $12 million in deferred customer billings and the evolving allowance for doubtful accounts.