Tidewater Inc. 10-Q Summary: Quarter Ended December 31, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 31, 2009, and the nine-month period ended on that date. Tidewater Inc. provides offshore service vessels and equipment to the global energy industry. The company operates in two primary segments: International and United States. The reporting period reflects the ongoing impact of the global recession on energy exploration and production spending, resulting in reduced vessel utilization and day rates, particularly in the U.S. Gulf of Mexico (GOM) market.
Key Financial Metrics
| Metric (Nine Months Ended Dec 31, 2009) | Value (in thousands) |
|---|---|
| Total Revenues | $908,638 |
| Net Earnings | $202,563 |
| Diluted Earnings Per Share | $3.93 |
| Operating Cash Flow | $299,350 |
| Cash and Cash Equivalents (Dec 31, 2009) | $336,573 |
| Total Debt (Long-term + Current Maturities) | $300,000 |
| Available Revolving Credit Facility | $450,000 |
Margins: Operating income for the nine months ended December 31, 2009, was $194.7 million, representing an operating margin of approximately 21.4% compared to 32.2% in the prior year period. The effective tax rate for the nine-month period was 2.75%, significantly lower than the prior year's 17.3% due to a favorable resolution of an IRS tax dispute.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 13% ($140.6 million) compared to the nine months ended December 31, 2008. This was driven by a 10% decline in international vessel revenues and a 43% decline in U.S. vessel revenues.
- Profitability Impact: Net earnings decreased 32% ($94.6 million) year-over-year. This decline was primarily due to lower revenues and a $49.1 million provision for Venezuelan operations (related to asset seizures and receivable reserves), partially offset by lower operating costs and a $34.3 million tax benefit from the IRS dispute resolution.
- Utilization and Rates: Worldwide vessel utilization dropped to 67.5% for the nine-month period (down from 74.4% in 2008). U.S. GOM utilization was particularly weak at 42.2%. Average day rates remained relatively stable globally but declined in specific U.S. vessel classes.
- Asset Dispositions: The company sold 48 vessels during the nine-month period and recorded a net gain on asset dispositions of $23.1 million. Additionally, 15 vessels were nationalized by the Venezuelan government.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Management Commentary: Management anticipates that U.S.-based results for the remainder of fiscal 2010 will compare unfavorably with fiscal 2008 and 2009 due to weak natural gas prices and low rig counts in the GOM. International markets are expected to remain weak if crude oil prices do not support increased capital spending by energy companies. The company continues to stack vessels that cannot find attractive charter contracts to preserve cash.
Unusual Items and Contingencies:
- Venezuelan Operations: The company recorded a $49.1 million provision in the first half of the fiscal year related to the seizure of 15 vessels and the write-off of receivables from PDVSA. No further operations exist in Venezuela.
- FCPA Investigation: The company is cooperating with the DOJ and SEC regarding an internal investigation into Foreign Corrupt Practices Act (FCPA) matters. While no liability has been accrued, management notes that a negotiated disposition could involve charges and sanctions with uncertain magnitude.
- Angola Joint Venture: Sonangol (Angola's national oil company) notified Tidewater that the existing joint venture agreement for Sonatide will not be renewed upon expiration in July 2010. This poses a risk to future operations in Angola, a key market for the company.
- Pension Plan Changes: The company announced the freezing of its defined benefit pension plan effective December 31, 2010, to reduce future obligations and provide more predictable costs.
Key Facts for Investor Verification
- Liquidity Position: Verify the company's ability to fund $527 million in remaining vessel construction commitments using its $336.6 million cash balance and $450 million undrawn credit facility.
- Venezuelan Recovery: Monitor any updates regarding compensation claims for seized assets and receivables, as the company has recorded full reserves but continues to seek recovery.
- Angola JV Status: Track negotiations with Sonangol regarding the Sonatide joint venture renewal, given the significant revenue exposure in Angola.
- FCPA Resolution: Watch for developments in the DOJ/SEC investigation, as potential sanctions could materially impact future earnings.
- U.S. Market Recovery: Assess the correlation between natural gas prices, U.S. GOM rig counts, and the company's ability to redeploy stacked vessels to profitable markets.