Tidewater Inc. 10-Q Summary: Quarter Ended December 31, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 31, 1998, and the nine-month period ended on the same date. Tidewater Inc. provides services and equipment to the international offshore energy industry through a diversified fleet of marine service vessels. The company's performance is heavily dependent on oil and natural gas prices, which drive customer capital spending and vessel utilization. As of December 31, 1998, the company operated or owned 696 vessels, with approximately 376 registered under non-U.S. flags and 320 under the U.S. flag.
Key Financial Metrics
| Metric (in thousands) | Quarter Ended Dec 31, 1998 | Quarter Ended Dec 31, 1997 | Nine Months Ended Dec 31, 1998 | Nine Months Ended Dec 31, 1997 |
|---|---|---|---|---|
| Total Revenues | $232,984 | $280,697 | $772,096 | $781,550 |
| Net Earnings | $39,780 | $73,959 | $159,230 | $189,049 |
| Earnings Per Share (Diluted) | $0.71 | $1.21 | $2.75 | $3.10 |
| Operating Profit | $62,767 | $115,638 | $244,552 | $298,794 |
| Cash from Operating Activities | $70,998 | $97,360 | $182,282 | $271,734 |
| Cash and Equivalents (End of Period) | $23,611 | $27,872 | $23,611 | $27,872 |
| Long-Term Debt | $0 | $25,000 | $0 | $25,000 |
| Current Ratio | 2.52 | 1.56 | 2.52 | 1.56 |
Note: Current ratio calculated as Total Current Assets ($270,660) divided by Total Current Liabilities ($107,281) for Dec 31, 1998.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 17% for the quarter and 1.2% for the nine-month period compared to the prior year. This was primarily driven by a 17.7% drop in U.S. vessel revenues due to reduced drilling activity in the Gulf of Mexico.
- Profitability Drop: Net earnings fell 46% for the quarter and 16% for the nine-month period. Operating profit for U.S.-based vessels decreased approximately 79% for the quarter and 43% for the nine-month period due to lower utilization and day rates.
- International Performance: International vessel revenues increased 10% for the quarter and 21.5% for the nine-month period, offsetting some domestic declines. International operating profit increased 23% for the nine-month period.
- Debt Reduction: The company repaid all debt related to the 1997 O.I.L. acquisition. Long-term debt was reduced to zero by March 31, 1998, and remained at zero as of December 31, 1998.
- Stock Repurchases: The company purchased 1.5 million shares of common stock during the quarter at an average cost of $24.24 per share. For the nine-month period, 3.95 million shares were repurchased for $109.3 million.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the decline in U.S. performance to a prolonged drop in oil prices over the past 15 months, leading to cutbacks in drilling programs. The softening in domestic activity is expected to continue as the number of working drilling rigs declines. Conversely, international markets showed better conditions with higher average day rates, though signs of weakening are emerging as low oil prices persist.
Liquidity: The company maintains a $200 million revolving line of credit, all of which was available as of December 31, 1998. Management believes cash from operations and credit facilities are adequate to meet financing needs. Dividends of $0.15 per share per quarter are expected to continue, subject to Board declaration.
Risks and Contingencies:
- Market Risk: Operations are highly sensitive to oil and gas prices and customer capital spending.
- Revenue Deferral: Approximately $12.1 million of revenue was deferred as of December 31, 1998, due to uncertainty regarding customer payments for vessel charter hire.
- Year 2000 (Y2K): The company is on schedule to address Y2K issues in IT and non-IT systems. Compliance costs are expected to be insignificant (less than $100,000 remaining), though disruptions from third-party vendors remain a risk.
- Legal: The company settled a majority of alleged labor-law pay violations in the fourth quarter of fiscal 1998, having previously reserved $8 million for potential adverse outcomes.
Investor Verification Checklist
- Verify the trend in U.S. Gulf of Mexico drilling rig counts and its correlation with Tidewater's U.S. vessel utilization rates.
- Confirm the status of the $12.1 million deferred revenue and the creditworthiness of the customers involved.
- Monitor international oil prices and their potential lagged impact on international vessel day rates and utilization.
- Review the company's progress on Y2K compliance for non-IT systems (vessel equipment) and vendor readiness.
- Assess the impact of new supply vessel deliveries by competitors on the Gulf of Mexico market balance.