TDW

Tidewater Inc. 10-Q Summary: Quarter Ended December 31, 2000

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2000, and the nine-month period ended on the same date. Tidewater Inc. provides offshore marine services to the international energy industry, operating a diversified fleet of vessels. The company's performance is heavily dependent on oil and natural gas prices, which drive customer capital spending and vessel demand.

Key Financial Metrics

Profitability: Operating profit for the quarter was $31,586 thousand. The effective tax rate for the quarter was 32%.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 12.2% for the quarter and 1.6% for the nine-month period compared to the prior year. U.S. vessel revenues surged 49% for the quarter due to higher day rates in the Gulf of Mexico.
• Profitability: Net earnings remained relatively flat for the quarter ($22,339k vs $22,233k) but were driven by a significant one-time gain. Operating profit increased 42% for the quarter.
• Asset Sales: The nine-month period included a $16.8 million gain from the sale of a 40% interest in National Marine Service (NMS) and a $5.9 million gain from vessel sales. Excluding these, organic earnings growth was modest.
• Cash Position: Cash and cash equivalents decreased significantly from $226,910 thousand at March 31, 2000, to $85,880 thousand at December 31, 2000, primarily due to heavy capital expenditures.
• Capital Expenditures: Investing activities used $210.7 million in cash for the nine-month period, driven by the acquisition of eight vessels from The Sanko Steamship Co. for $160 million and ongoing new-build programs.

Outlook, Risks, and Management Commentary

• Market Conditions: Management notes strong oil and gas prices have increased demand for drilling rigs and services, particularly in the U.S. Gulf of Mexico where utilization is at 69% with average day rates of $6,700. International demand is expected to accelerate as drilling activity recovers.
• Strategic Investments: The company initiated an intense drydocking program in the first half of the fiscal year to prepare for higher demand, which temporarily increased repair costs. A new-build program for 12 deepwater vessels (estimated cost $305 million) has been announced, with deliveries scheduled from late 2001 to early 2003.
• Liquidity: The company maintains a $200 million revolving line of credit, which was fully available as of December 31, 2000. Management believes cash flow and credit facilities are adequate for current needs.
• Risks: Key risks include fluctuations in oil and gas prices, changes in customer capital spending, political instability in operating regions, and foreign currency controls. The company contracts most services in U.S. dollars to mitigate currency risk.
• Unusual Items: Approximately $8.8 million of billings were deferred as of December 31, 2000, due to uncertainty regarding customer payment ability.

Investor Verification Checklist

• Deferred Revenue: Verify the status of the $8.8 million in deferred billings and the likelihood of collection.
• Capital Expenditure Execution: Monitor the progress and cost overruns of the $305 million new-build program and the $160 million Sanko acquisition.
• One-Time Gains: Assess future earnings sustainability by excluding the $16.8 million gain from the NMS joint venture sale.
• Utilization Rates: Track U.S. Gulf of Mexico utilization rates (currently 69%) and day rates to confirm the recovery trend cited by management.
• Debt Usage: Watch for utilization of the $200 million credit facility as the new-build program progresses and cash reserves are depleted.