By Greg Markus (TMF Boring)
1140 Canal St.
New Orleans, LA 70112
ANN ARBOR, Mich. (Oct. 21, 1997) /FOOLWIRE/ -- Tidewater Inc. owns and operates in excess of 700 vessels, the world's largest fleet serving the international offshore energy industry. Tidewater also owns and operates one of the world's largest rental fleets of natural gas compressors, which aids in the transportation of natural gas.
FISCAL Q2 RESULTS. The company today reported net earnings of $64.3 million, or $1.05 per share, on revenues of $298 million for its second fiscal quarter ending Sept. 30, 1997. For the same period last year net earnings were $32.9 million, or $0.53 per share, on revenues of $193.9 million. Net earnings in the immediately preceding quarter were $50.8 million, or $0.83 per share, on revenues of $256.6 million.
EXTRAORDINARY ITEMS. Net earnings include a charge of $8 million, or $0.09 per share after-tax, for possible litigation costs, about which management did not comment further, except to say that they are confident that reserves are adequate to provide for any expenses that may be incurred. That charge was partially offset by a $4 million, or $0.07 per share, income tax credit, resulting from a reduction in the United Kingdom corporate tax rate.
SIX MONTH RESULTS. For the first two fiscal quarters, net earnings were $115.1 million or $1.88 per share, on revenues of $554.6 million. For the same period a year ago, net earnings were $57.3 million, or $0.92 per share, on revenues of $369.8 million.
BALANCE SHEET. The balance sheet shows no material changes from the previous quarter. Total debt declined to approximately $450 million as of Sept. 30. The company has the option to prepay its debt without penalty, and last week it made an additional $30 million prepayment. The company will be filing its 10-Q with the SEC later today, and details are available in that statement.
INCOME STATEMENT DETAILS. Depreciation was $30.6 million for the quarter as compared with $25.1 million in Q1. General and administrative expense was $21.0 million versus $18.8 million in Q1. Most of those increases are attributable to the O.I.L. felt of vessels and the balance of the Australian joint venture fleet being fully incorporated into Tidewater for the full quarter this year, as compared to the O.I.L. boats being in for only half the quarter last time, and the Australian joint-venture increment not at all. This quarter also includes $3.4 million in gains on asset sales, versus $3.5 million last quarter. Interest and other debt expense was $8.7 million compared with $4.5 million last quarter, due to the debt incurred in making the acquisitions. Income tax expense was $27 million, at an effective rate of 34%, which management projects will be the effective rate for the year, and the company also had a tax credit, as explained above.
MARINE SEGMENT OVERVIEW. Revenue associated with the fleet was $255 million, 55% of which came from international business and 45% from domestic operations. Operating costs for the marine fleet were in line with guidance offered during the quarter, at $119.6 million. Operating margin rose to 53.2% from 48.7% in the June quarter. Miscellaneous marine revenues (brokered vessel, shipyard, and ancillary businesses) added approximately another $15 million in the quarter, with operating margin of $3.8 million. No material change in operating costs in the marine segment is anticipated for the December quarter, with total costs in the range of $120 to $124 million, and repair and maintenance costs running in the neighborhood of $35 million.
DOMESTIC MARINE. The company is currently is currently operating 145 supply and towing/supply vessels in the domestic market. For the quarter, those vessels averaged a day rate of $7532, up from roughly $7000 in the June quarter. Currently, the average rate for those vessels is just below $7800. Utilization averaged 91.1% in the quarter, essentially equal to what it was in the June quarter.
INTERNATIONAL MARINE. On the international side, the company operated 230 supply and towing supply vessels, with an average day rate of $5440, up from $4806 in the June quarter. Currently, that fleet is averaging $5540 per day. Utilization was down slightly due to some dry-docking commitments, to 88.0% from 89.4% in the preceding quarter; currently, the utilization rate is 89.7%. The companys largest concentration of vessels internationally is in West Africa, where it has 138 boats operating currently. Another 52 vessels are in the Far East, approximately 50 in the Middle East, about 100 in Latin America, and 44 in the North Sea. Utilization rates range from a low of 76% in the North Sea to a high of 89% in the Far East.
COMPRESSION SEGMENT. Rental revenues showed an improvement to $20.9 million as compared with $19.9 million in the preceding quarter. Cash operating margin was $11.8 million, versus $11.2 million. Utilization rates for the current and preceding quarters were 81.3% and 80.8%, respectively, and average monthly rental rates per horsepower were $17.07 and $16.69, respectively. Compressor sales totaled $6.6 million as compared with $6.2 million in the June quarter, and gross profit was $1.9 million versus $1.7 million. As announced earlier, Tidewater is pursuing various alternatives for disposing of its gas compression business. The company expects to receive final bids early next month from interested parties.
OMALLEY EXTENDED CONTRACT. During the quarter, chairman, president, and CEO William OMalley extended his contract with Tidewater for an additional three years. As part of that arrangement, he negotiated a pay increase an additional restricted shares and options. During the quarter, he exercised some options and sold 200,000 shares, or about one-quarter of his total position. With the new restricted stock and options he received in signing the contract, however, he now has even more shares than he had prior to the sale.
FLEET DEVELOPMENTS. A research and development vessel should be delivered to Tidewater late next month. It will be on contract with Shell for approximately a year, in trial mode. The vessel Moon Tide sank during the quarter; it was declared a total loss and sold to the underwriters. Tidewater has no plans for new building, and certainly no program of new vessel construction. If there are no significant increases in the working rig count, then there is no justification for building new boats. Other than some new building for deepwater operations by privately-held Chouest, the large public companies have devoted their free capital to acquiring existing vessels rather than to building new ones. The company continues to have a keen interest in adding to its international fleet, but is unlikely to do so until the existing debt is paid down further. Should the compression business be sold, that could provide some opportunities.
BUSINESS CONDITIONS AND DEVELOPMENTS. The market continues to be very strong in the Gulf of Mexico, with literally every vessel available for work on hire at strong rates. Management is pleased with improvements in the business in Latin America, particularly in Venezuela and Mexico, and new opportunities are seen in Brazil. As for other international markets, the integration of the O.I.L. acquisition and purchase of the balance of the former joint venture with Brambles is proceeding very well. Inessential offices have been closed in the U.K. and costs are coming down to levels in line with traditional Tidewater operations. Most local offices in West Africa are being kept open in order to serve customers there. Business in the Far East is very strong -- in Malaysia, Singapore, and Indonesia, for example. In general, Tidewater is succeeding in moving international day rates up nicely, with the long-term goal of bringing them more closely in line with those in the Gulf of Mexico. A target average day rate for supply vessels in the international market is $8500 to $9000. The company regularly redeploys vessels in order to achieve maximum leverage on rates. In sum, the company continues to move along very nicely and there is no reason to believe that earnings are anywhere near their peak.
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