TDW

Tidewater Inc. 10-Q Summary: Quarter Ended June 30, 2009

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2009 (Fiscal Q1 2010). 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 quarter was significantly impacted by the global economic recession, which reduced demand for offshore services, and specific geopolitical events in Venezuela.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 4% ($13.4 million) year-over-year. International vessel revenues were relatively stable (-1%), while U.S. vessel revenues dropped significantly by 39% ($15.7 million) due to weak Gulf of Mexico (GOM) market conditions.
• Profitability Impact: Net earnings fell 48% primarily due to a $48.6 million non-cash provision for Venezuelan operations. This provision included a $3.75 million write-off of seized assets and a $44.8 million reserve for doubtful accounts receivable from PDVSA and Petrosucre.
• Excluding Venezuela: On an adjusted basis (excluding the Venezuelan provision), net earnings increased approximately 9% ($7.4 million) compared to the prior year, driven by lower vessel operating costs.
• Asset Dispositions: The company recorded a net gain on asset dispositions of $12.5 million, up from $10.4 million in the prior year, reflecting the sale of 26 vessels (including 5 sold in a sale-leaseback transaction).
• Cost Reductions: Vessel operating costs decreased 13% year-over-year. U.S. operating costs fell 37% due to vessel stacking and crew reductions.

Outlook, Risks, and Contingencies

• Venezuelan Operations: The Venezuelan government seized 11 vessels and a shore facility in May 2009. In July 2009, four additional vessels were taken by Petrosucre. The company disputes the seizure and is seeking compensation based on book value, though no offer has been received. The company expects to write off the remaining four vessels in the next quarter.
• Market Conditions: The global recession has led to reduced drilling activity, particularly in the U.S. GOM. Management anticipates continued weakness in U.S. utilization and day rates. International markets are also facing pressure, though deepwater segments remain more resilient.
• Fleet Strategy: The company is actively stacking vessels that cannot find charter contracts (66 stacked vessels as of June 30, 2009) and selling older assets to preserve cash. Crew wages in the U.S. were reduced by approximately 15% effective June 1, 2009.
• Capital Commitments: The company has $571.9 million in remaining capital commitments for 45 vessels under construction. Delivery delays are possible due to industry-wide equipment shortages.
• Legal & Compliance: An internal investigation into FCPA matters in Nigeria is ongoing with the DOJ and SEC. No liability has been accrued as it is not yet probable and reasonably estimable, though resolution could have a material adverse effect.
• Subsequent Events: In July 2009, the company amended its credit facility, increasing capacity to $450 million and extending maturity to 2012. The Board also authorized a new $200 million share repurchase program.

Investor Verification Checklist

• Verify the status of negotiations with PDVSA/Petrosucre regarding compensation for seized Venezuelan assets and the likelihood of recovering the $44.8 million receivable reserve.
• Monitor the impact of the global recession on U.S. Gulf of Mexico rig counts and the company's ability to redeploy vessels to international markets.
• Review the progress of the internal FCPA investigation and any potential regulatory settlements with the DOJ or SEC.
• Assess the company's ability to fund remaining vessel construction commitments ($571.9 million) given current cash flows and credit market conditions.
• Track the execution of the new $200 million share repurchase program authorized in July 2009.