Tidewater Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended March 31, 2012 (not calendar-year or standalone Q4 results). Tidewater provides offshore support vessels and marine services to the global energy industry. It reorganized reporting into Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe; prior segment data was recast.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $1,067.0 million | $1,055.4 million |
| Operating income | $113.6 million | $139.3 million |
| Net earnings | $87.4 million | $105.6 million |
| Diluted EPS | $1.70 | $2.05 |
| Cash from operations | $222.4 million | $264.2 million |
| Cash used in investing | $315.1 million | $569.9 million |
| Cash and equivalents at year-end | $320.7 million | $245.7 million |
| Total debt at year-end | $950.0 million | $700.0 million |
Revenue rose about 1%, but net earnings fell 17%. Operating margin was approximately 10.6% versus 13.2%; net margin was approximately 8.2% versus 10.0%. The filing attributes the earnings decline chiefly to a $30.9 million non-cash goodwill impairment ($22.1 million after tax), higher interest and debt costs, and higher G&A, partly offset by lower income taxes and higher asset-disposition gains. Interest and debt costs, net of capitalized interest, increased to $22.3 million from $10.8 million.
FY2012 vessel operating costs were $638.1 million, or 60% of vessel revenue, compared with $638.6 million, or 61%, in FY2011. Worldwide utilization was 62.9% versus 62.1%; average day rate was $13,197 versus $12,352. Capital additions to property and equipment were $357.1 million, including $336.1 million for vessel construction and purchases. Operating cash flow less these additions was approximately negative $134.7 million.
Year-end working capital was $455.2 million and the current ratio was 2.91. The $575 million credit facility included a $125 million term loan drawn in January 2012 and a $450 million revolver that was fully available at year-end. Debt covenants include a maximum debt-to-capitalization ratio of 55% and a minimum interest-coverage ratio of 3.0. Dividends were $1.00 per share for the year.
Material changes and segment trends
- Americas vessel revenue declined 11% to $324.5 million, mainly from lower deepwater day rates and fewer vessels in the segment; vessel operating profit improved to $56.0 million as costs fell.
- Asia/Pacific revenue declined 13% to $153.8 million and operating profit fell 28% to $16.1 million, reflecting weaker demand and utilization, particularly for older vessels.
- Middle East/North Africa revenue increased 19% to $109.5 million, but operating profit fell from $19.0 million to $0.8 million as costs rose during expansion and fleet deployment.
- Sub-Saharan Africa/Europe revenue increased 13% to $472.7 million and operating profit rose 17% to $97.1 million, supported by more deepwater vessels, higher utilization and stronger deepwater day rates.
- Deepwater vessels contributed 44.2% of vessel revenue, up from 39.6%; towing-supply/supply vessels contributed 44.9%, down from 49.2%.
- The fleet comprised 342 vessels, including 67 stacked vessels and two withdrawn from service. The 330 owned or chartered vessels averaged 14 years of age; 115 older vessels averaged 29.6 years.
Outlook, risks and unusual items
- Outlook: No company-specific numerical earnings or revenue guidance is provided. Management expected global E&P spending to increase, with offshore spending and deepwater activity supportive of demand, but noted substantial uncertainty. It described weak natural-gas prices and slow U.S. Gulf of Mexico permitting as headwinds, especially in shallow-water Americas operations. Management cited late-April 2012 WTI near $105/barrel and Brent near $120/barrel; these are market observations, not guidance.
- Fleet investment: At year-end, commitments covered 22 vessels under construction and three vessel purchases, costing approximately $616.7 million in total, with $359.3 million remaining to fund. Delivery delays, shipyard performance and project cost overruns could affect returns and liquidity.
- Sonatide/Angola: Restructuring talks with Sonangol remained unresolved, and Sonangol had halted new contracting by the joint venture. Angola generated about $254 million, or 24% of consolidated vessel revenue, in FY2012. A wind-up or redeployment could cause downtime, mobilization costs and material effects on results and cash flows; Tidewater’s investment carrying value was about $46 million.
- Legal and regulatory matters: Brazilian customs fines initially totaled about $90.3 million; an administrative decision disallowed most of the assessment, while review continued on the remaining approximately $3.5 million. Tidewater had not accrued the fines. The company also disclosed potential Brazilian state import-tax exposure, for which no amount was determined and no accrual was recorded. Management cited defenses to both matters.
- Other contingencies: The company had $72.5 million of outstanding letters of credit, surety and performance bonds. Its U.K. multi-employer pension assessment was accrued at $6.7 million, with possible additional contributions. A CEO retirement-related supplemental-plan lump sum of $12.6 million was expected in December 2012, with an estimated $4.4 million settlement loss.
- Compliance and geopolitical exposure: Tidewater and a subsidiary remained subject to a DOJ deferred prosecution agreement related to FCPA matters, including compliance undertakings and annual reporting. Other risks include oil and gas price volatility, industry vessel overcapacity, customer concentration (the five largest customers represented about 43% of FY2012 revenue), political instability, piracy, currency movements, environmental regulation and insurance limits.
- Management change: Dean Taylor announced retirement as president and CEO effective May 31, 2012; Jeffrey Platt was to succeed him June 1, with Taylor remaining non-executive chairman.
Most important facts for investors to verify
- Whether vessel utilization and day rates improve, and whether new industry capacity pressures charter pricing.
- Progress, costs and delivery timing for the $359.3 million of remaining vessel commitments, including resolution of shipyard disputes and the delayed Brazilian crew/supply boat.
- Outcome of Sonatide negotiations and the operational and financial consequences for Angola-related revenue.
- Developments in Brazilian customs and potential state-tax proceedings, and any change to recorded contingencies.
- Debt covenant headroom, refinancing needs and the effect of capital spending, dividends and share repurchases on liquidity.
- Future segment profitability, particularly the Middle East/North Africa cost build-up and the ongoing goodwill and vessel-impairment assumptions.