17 February 2008

TDW: Financial Analysis through December 2007 (Update)

We previously posted an analysis of Tidewater's (TDW) preliminary financial results for the quarter that ended on 31 December 2007, which was the third in the company's fiscal year.

Tidewater subsequently submitted a more complete quarterly report in a 10-Q filed with the SEC. The additional data in the 10-Q changed neither analysis results nor gauge scores. The Overall gauge remains at a modest 41 out of 100 possible points. For details, please see the earlier post.

A few tidbits from the Notes to the Financial Statements in the 10-Q.

1. During the last nine months, the number of common shares held in trust for an employee benefit plan dropped to zero from 1.2 million.

2. Of the $200 million authorized in July 2007 for share repurchases, $177.5 million has been put to use. Almost 66 percent of these purchases took place in the December 2007 quarter.

3. With an increasing proportion of earnings derived from non-U.S. operations, Tidewater's effective income tax rate has been reduced correspondingly. During the first three quarters of the current fiscal year, the rate averaged 18 percent.

4. The effective tax rate may change as uncertain tax positions are resolved. The company’s Balance Sheet for March 2007 included $13.1 million of tax liabilities for uncertain tax positions for the last seven years. This corresponds to only $0.04 per common share, which gives the impression that the company is relatively conservative in its tax accounting.

5. Tidewater has a tax-qualified and supplemental pension and retirement plans for certain employees. Together, they cost the company about $2.7 million per quarter. The assets behind these plans and the expected rate of return isn't clear from the 10-Q.

6. Tidewater contributes to a pension plan for UK merchant navy officers. The plan has a deficit, and participating companies have been subject to supplemental assessments, which can be paid in installments. The exact amount and Tidewater's share for each year is somewhat uncertain, but it seems to be in area of $3.5 to $4.0 million per year. Tidewater expenses the full amount for each year as soon as it is determined.

7. It's public knowledge that Tidewater and other oil service companies are having their operations in Nigeria scrutinized to assess compliance with the Foreign Corrupt Practices Act (FCPA). Tidewater's view is that "changes in local law and regulations are desirable, and may be necessary, in order to provide greater transparency and efficiency, as well as to give greater assurance as to compliance with applicable laws." The company notes that it might have to curtain or cease operations in Nigeria if a permanent solution isn't found and current interim procedures for obtaining import permits prove ineffective. However, it is planning to supplement its current 24-vessel fleet with three additional vessels.

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