TDW

Tidewater Inc. 10-Q Summary: Quarter Ended September 30, 2001

Business Context and Reporting Period

This is an unaudited quarterly report (Form 10-Q) for Tidewater Inc., a provider of offshore marine services to the global energy industry. The report covers the three and six-month periods ended September 30, 2001. The company operates a diversified fleet of vessels, with revenues driven by fleet utilization and day rates, which are dependent on oil and natural gas prices and exploration spending.

Key Financial Metrics

Note: Working Capital calculated as Total Current Assets ($253.2M) minus Total Current Liabilities ($94.7M).

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 28% year-over-year for the quarter and 34% for the six-month period. Vessel revenues rose significantly due to higher average day rates and increased active vessel counts, particularly in international markets.
• Profitability: Net earnings increased 34% for the quarter and 116% for the six-month period compared to the prior year. Operating profit for the quarter was $55.1 million versus $36.6 million in the prior year.
• Debt and Liquidity: The company borrowed $60 million under its revolving credit facility during the quarter to finance a new-build vessel program. Consequently, cash and cash equivalents decreased from $95.2 million at the start of the fiscal year to $36.3 million at period end.
• Asset Sales: The quarter included a $1.6 million gain from the sale of a joint venture interest and a $1.1 million gain from vessel sales, partially offset by a $2.5 million writedown on vessels held for sale.

Outlook, Risks, and Management Commentary

• Market Conditions: Domestic (U.S. Gulf of Mexico) operations faced headwinds due to softening natural gas prices and reduced drilling activity, leading to a 14% revenue decrease in the quarter compared to the previous quarter. International operations remained strong, driven by crude oil demand and an aggressive deepwater vessel acquisition program.
• Capital Expenditures: The company is heavily investing in fleet expansion. As of September 30, 2001, $116.8 million had been expended on a program to build 12 deepwater vessels (total commitment $318 million). Additional commitments of $65 million and $18.6 million for crewboats and platform supply vessels were also noted.
• Risks: Management highlighted risks related to fluctuations in oil and gas prices, the impact of the September 11 terrorist attacks on the U.S. economy and energy demand, and foreign currency exposure (specifically regarding $40 million in Singapore dollar commitments for vessel construction).
• Accounting Changes: The company adopted SFAS No. 142, eliminating goodwill amortization. Had the old standard been used, earnings per share would have been lower by $0.03 for the quarter and $0.05 for the six-month period.
• Revenue Recognition: Approximately $8.1 million of billings were deferred as of September 30, 2001, due to uncertainty regarding customer payments.

Investor Verification Checklist

• Cash Burn Rate: Verify the sustainability of the $210 million cash outflow from investing activities against the $107 million operating cash flow, given the $60 million new debt drawdown.
• Deferred Revenue: Monitor the collection status of the $8.1 million in deferred billings to assess potential bad debt risks.
• Domestic Utilization: Track the recovery of U.S. Gulf of Mexico natural gas prices and their impact on the 50% utilization rate of domestic towing-supply vessels.
• Debt Covenants: Review the terms of the $200 million revolving credit facility to ensure compliance with leverage ratios given the increased debt load.
• Asset Writedowns: Assess the potential for further writedowns on the 20 vessels withdrawn from active service and held for sale.