Tidewater Inc (TDW) 2005 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Tidewater's fiscal third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. Taylor, you may begin your conference.

Thank you. Good morning, everyone, and welcome to the Tidewater fiscal third-quarter '05 earnings conference call. I am Dean Taylor, Tidewater's President and Chief Executive Officer, and I'll be hosting the call this morning.

With me today are Keith Lousteau, our CFO; Joe Bennett, Vice President and Chief Accounting Officer; Cliffe Laborde, our General Counsel; Steve Dick, our Executive Vice President in charge of operations in West Africa, the North Sea, the Middle East, and the far East; and Jeff Platt, Senior Vice President in charge of operations in the Americas.

We will follow our usual format this morning. I will start with some comments on our just-released quarterly earnings. Following my remarks I will turn the call over to Keith for a detailed review of the numbers and a status report on our new build and vessel replacement program. I will then return with an overview of our markets and some comments on our strategy. We will then open the call for questions.

At this point, I will ask Keith to read our Safe Harbor statement and then we can get started.

During today's conference call, Dean and I and other Tidewater management may make certain comments which are not statements of historical fact and, thus, they constitute forward-looking statements. I know that you understand that there are risks, uncertainties, and other factors that may cause today's actual -- the Company's future performance to be materially different from that stated or implied by any of those comments that we may make today. Back to Dean for his comments.

Thanks, Keith. This morning I am pleased to be able to tell you that we reported fiscal third-quarter diluted earnings of 34 cents. These earnings reflect a solid quarterly performance for us. Vessel revenue was up $9 million over the last quarter, and we were once again able to post a profit, albeit a small one, in our domestic operation.

The results from our international business were very good. International operating profit was up more than 25 percent versus last quarter. Though domestic activity levels were stable in the quarter, however, operating profit was down, as we felt last quarter that it most likely would be.

We incurred a higher than usual operating expense due to the drydocking of two large vessels in the quarter with commensurate loss of some high-revenue utilization. Most of you know, I believe, that these drydockings have the double impact of raising our operating expense while lowering our revenue in the quarter as we do not capitalize any of our drydocking expense on vessels not fully depreciated, but expense the entire cost in the quarter in which the drydock occurs.

As mentioned earlier, our vessel activity level in the Gulf was consistent. Rates were slightly better than last quarter. We are evaluating whether to bring any stacked vessels into our active fleet.

Results from our international vessel operations improved nicely in the quarter. We're continuing to see high utilization and good dayrate growth from our international deepwater fleet, and both rates and utilization of our core Supply Vessels fleet moving up as well. No one geographic area was particularly responsible for the growth in our international profit, but we continue to see the results of the foundation we laid when we instituted our new build replacement vessel program.

The measure rate of growth in our international business appears to be sustainable. Conference calls from rig operators indicate that the upward utilization trend for international rigs will continue for the next several quarters, which should bode well for Tidewater's ability to take advantage of better activity in most overseas areas.

Our new build and replacement programs are delivering equipment right into this improving scenario. That equipment is performing quite well to date.

In terms of our new vessels we took delivery of 3 replacement anchor handlers during the just-completed quarter, 2 of which headed to nice long-term jobs right away. We will take delivery of 3 additional vessels during the present quarter including the second boat from the delayed project in China. We will also take delivery of 2 crewboats in this quarter.

Keith will now fill you in on the details of the quarter.

Good morning, everyone. A couple of things. We did put out our press release this morning; somewhat apologize for it only hitting the wire about 10 minutes to 8, I think. We put it out earlier than that, but I think our forwarder had a little bit of a technical glitch; and our Form 10-Q is being filed as we speak this morning. At the conclusion of the conference call, those of you with ready access to that source should be able to download the full 10-Q for the quarter.

In reviewing in the numbers for the quarter, I would have to say that when I look at the quarter I think this is a quarter that is quite reflective of Tidewater and the way we view our business. We have no significant variations in here that distort (ph) from the reported diluted number of 34 cents as Dean has previously reported to you. We did report a fully diluted number of 34 cents; that is compared to 29 cents last quarter.

Inherent in the story today, as I mentioned earlier, is a story of revenue. Tidewater, if you see a Tidewater presentation, we always say that we are a Company that is driven by the leverage of revenue. We are a dayrate and utilization Company. And no quarter better exemplifies that than this quarter.

In this quarter, marine revenues were up 5.5 percent. That resulted in operating profit being up 14 percent, which resulted in earnings per share being up 17 percent. So revenues means an awful lot to our Company.

We caution you a little bit when you go to the 10-Q or into the full item to please focus on vessel revenues. This was a quarter where total revenues were up by an exceptional amount of money; and that was due to the other marine revenues being exceptionally high, coming in at about $17.5 million. That is due to the fact that our Quality Shipyard delivered 2 vessels they were building for outside third parties.

The significance of that revenue uptick does not flow that significantly to the bottom line, in that when one compares the other vessel cost numbers inherent in this quarter, you will see that the spread between those 2 numbers is about $2.5 million, where the spread between other vessel revenues and other vessel costs in any normalized quarter runs between 1 million to $2 million anyway. So once again, revenues were up probably more than any significance; the vessel revenue line is the real key here.

We did report a gain on sale of assets of $2.8 million after-tax. That is about 3 cents. Last quarter we reported about a cent and a half. That little small difference is pretty much offset by the fact that we had about a penny loss this quarter from some long-term liability foreign exchange adjustments from one of our foreign areas. So we reported a net foreign exchange loss of about a penny, in my mind kind of offsetting the extra penny from gain on sales.

Income tax rates did not change for the quarter, still at 32 cents.

I will make the point that the diluted number of 34 cents barely missed being 35 cents by a rounding number here. We point out that the effect of the dilution is very, very small. The outstanding additional shares that had to come into the mix in order to calculate earnings per share is barely one-half of 1 percent. So we are not a company that has an awful lot of stock options outstanding or convertibles. So we run pretty close always to our normal earnings per share number.

One final point out is that G&A cost was up a little bit in the quarter to a number of about 18.7. That is up about $1 million from the previous quarter. I ask everyone not to read too much into that. We should return in the future to a number that is more normalized in the $18 million area. We like everyone else have got some extra G&A going at the moment due to the Sarbanes-Oxley testing; and as I will talk a little further, also, in our tax restructuring that some expenses in order to posture ourselves to take full advantage of that situation.

Looking at the numbers a little more fully, as Dean said, international revenues increased from 131 million last quarter up to 140.7 million this quarter. That is a nice 7.1 percent increase. Domestic revenues fell by 1.6 percent, directly tied to time off charter due to those drydocks that Dean said. When we read utilization and dayrates you will see that the domestic market was actually a better market; we just had fewer vessels working.

Operating costs came in almost perfectly on line. I think on the last conference call we estimated numbers should be in the 101 or 102 range. We are coming in at 101.8. Nothing of any significance or unusual in that number.

The March quarter that we are now into, I remind everyone, is a shorter quarter in terms of days. We do have a few extra vessels that have entered the fleet, as Dean mentioned. But I think operating cost should still be in line with the previous quarter. We should to come in right in at the 102 numbers, 101 to 103 is where I would estimate that to be.

Drydocks scheduled for the quarter are pretty much in line with the previous quarter. So I see no reason for those numbers to change.

For the first quarter in many a moon we were able to get our cash operating margins up above 40 percent. Last quarter, we had come up to 39. This quarter we're glad to report cash operating margins of 40.1 percent. Historically, when dayrates and utilization get to higher points, we have been able to increase that number in the past up to the 44 to 45 percent level. So we look forward to that number improving.

Depreciation expense for the quarter, March '05, even though this quarter we were at about 25.2 I would estimate that that the number is probably going to be about 25.5 for the upcoming quarter. Once again, based on the fact that our first real big boat, the John P. Laborde that we took from China, is now in the full depreciation cycle. The 2 that were taken in last quarter will have a small effect on depreciation cost.

Looking at some of the individual statistics at this point in time, looking at some of the individual classes, looking at our domestic fleet first, looking at the deepwater segment in the quarter that we just completed, once again we're reporting 5 vessels in that segment. We had 5 vessels in the previous quarter.

Today, for the quarter ending in December, we're reporting an average dayrate of $13,289. That is up slightly or nicely from the previous September quarter where we reported $12,577. So you can see there is a nice increase there. Today, the average day rate in that class is right at $13,500. So deepwater segments in the Gulf of Mexico have shown some noticeable rate improvements from the September quarter.

Utilization in the September quarter in that class we reported 94.1. In this quarter we reported 91.7. Today we're running at about 92.5. No significance in any of those numbers. When you're running at 94 percent utilization and you only have 5 boats, 2 or 3 days off charter in between jobs can have what appears to be a noticeable number there. But running at almost full utilization in that fleet.

In the domestic supply and towing supply division, we also saw some noticeable rate increases during the quarter. We're reporting 48 boats during the quarter were active. Dayrates came in at $6,194. That is up from the September quarter where we reported $5,794 as the average day rate; and today as we sit here we're running at about $6,250.

Utilization in the quarter once again we came in at about 57.6 on the average. That is up a little bit from the previous quarter's 54.63. Once again dayrates and utilization was actually better in the quarter. Today we're continuing to run at about 58 percent utilization in that group of assets.

Internationally in the deepwater class of assets where we have a meaningful number of vessels, we have 32 vessels to report for the previous, for the just-concluded quarter. We're reporting an average day rate of $12,553. That is up noticeably from the September quarter where we reported $11,847. Today on average taken today would be about $12,680.

Utilization for the quarter increased nicely up to about 91.8 percent. The previous quarter we have reported 87.9 percent. Today we're running pretty much full out. We're running at about 94.2 percent as we sit here today, although I would have to comment that we are in the final throes of a real nice pipelaying job, a pipeline job in the Far East. We will have 3 or 4 of these larger international vessels redeploying to nice economic opportunities.

But utilization for the quarter will not end at that high. It will not to come in at 94 percent that we have today. We will have some downtime, some off revenue days, in order to move to some real good opportunities. But that number will not be that high.

The core of our international fleet, are towing supply fleet, once again we're reporting an average of 198 vessels due for the quarter. The dayrate for the quarter was $6,280. That is up from $6,202; and today we are up nicely again from that class, up to $6,377. A not so noticeable day to day increase in dayrate, but statistically one that does make an awful lot of money for us on the bottom line.

Utilization during the quarter was back up to more historical levels of 72.2 percent. Last quarter we had come back up from a real downturn early in this calendar year. If you remember, in the September quarter we reported 68.5 percent; and today we're holding steady just about 73 percent utilization in that class of assets. So a sneaking dayrate and a returning to kind of historical levels within that real core of our international fleet from the utilization side.

Our balance sheet continues quite strong. We are showing December 31, $375 million of debt outstanding. That when added to stockholders equity right at $1.4 billion gives us a relatively low 21.1 percent of debt to total cap ratio.

Reviewing our outstanding commitments here for a moment, at December 31, Tidewater had 19 vessels under construction. The total construction contract value of those 19 vessels was $291 million. As Dean reported a little earlier, in the March quarter we expect to take delivery of 5 of those vessels. That is 2 crewboats and 3 anchor handlers. The capital commitment to take delivery of those 5 vessels is only $35 million.

During fiscal '06, we will take delivery of the balance of our current new build program, which are 9 more anchor handlers and 5 crewboats; and we have a minimum capital commitment during that period of time of another $61 million. So you can so we have got 19 vessels under construction within an almost $300 million value but less than $100 million of funding yet to go in taking delivery of those.

It is nice to be on top of that curve, to have $200 million worth of assets already paid for, but yet not in the revenue earnings stream. Those being delivered, once again as Dean has mentioned, are hitting the revenue markets at a pretty good time.

A couple of final comments, I wish that I could give more guidance on the anticipated effect of the Tax Act as it comes into play on April 1 for us. But my comments are pretty much the same as of last quarter. The Act was passed. We're pretty certain on what we're attempting to do. We have got a good technical group together. We certainly think that when April 1 rolls around that our effective tax rate will fall from, as we have been running about 32 percent, into the low to mid-20s.

Whenever we get an absolute handle on that after we do our budget for next year, we will do something to inform the investing community. If it is a significant adjustment and we feel comfortable we may actually put out a press release prior to year end.

One final comment, as I mentioned in our administrative costs, Tidewater is -- we are 3 months behind most public companies, so we're on a calendar year-end in having to come out with our Sarbanes-Oxley Section 404 audits. I just want to inform everybody that all of our fieldwork, all of our international testing has been done by Tidewater. The auditors have followed us. Similarly, the domestic testing has been done. The auditors have gone through that.

While we cannot guarantee anybody here today that we are going to have an absolutely clean opinion in regard to those internal control matters, we certainly feel quite good about it. To date, nothing has reared its ugly head that would indicate that we will not be filing our financial statements on a timely basis at year-end with a clean report in regard to those items. So we feel quite comfortable and quite good. Our audit has been very much involved in that process, and we are starting to feel pretty good compared to what we have seen some other companies going through this kind of late in the game.

Those are my comments on the quarter financially. I will be available to help answer any questions later on, but now back to Dean.

Nice job. The results that Keith has just detailed for you underscore what we at Tidewater have been about for the last few quarters. We have been rationalizing our worldwide fleet, redeploying equipment, both new and older, to areas where they can be most profitably employed, and to meet the needs of our customers most efficiently.

We can now offer operators in virtually all of the geographic areas in which we work a full complement of equipment for their projects' needs. This is an ongoing process, as we will be emphasizing this quarter as we mobilize 4 of our larger internationally-based boats to different locations to commence work on new and more profitable contracts.

I also caution as Keith did that this present quarter is a quarter with 2 less revenue days.

We will continue to focus on our core areas of operation both in the U.S. and overseas to have the proper equipment available to serve our customers' needs while maintaining our capital discipline. That focus, coupled with the solid performance we have seen from our new assets, should allow us to continue to grow steadily as drilling markets continue to expand.

We have rightsized our domestic market. It appears that activity levels in the Gulf after a little softness at the very beginning of this quarter have stabilized. Though there may be some hiccups along the way, we are optimistic that we will continue to do what is necessary to maximize the profit from our U.S. fleet without jeopardizing safe operations.

Additionally, as discussed last quarter, we are continuing to analyze our operations to decide on the best possible restructuring program that will allow us to take full advantage of the new tax law which will take effect for Tidewater on April 1 of this year.

We're beginning to see signs that our investments are accomplishing the objectives intended. More needs to and will be done. We will do so in a matter that fulfills the expectations of our stockholders and stakeholders. I will now open the line for questions.

(OPERATOR INSTRUCTIONS) Jim Crandell with Lehman Brothers.

Dean, my first question is, could you comment on the change in contract length of your newer deepwater vessels coming out of the yard? What you were pursuing and what was available 1 and 2 years ago as you initiated this deepwater program? And what you're seeing now?

And presuming that the contract lengths are increasing (technical difficulty) looking at a lot of these newer vessels rolling over on contract let's just say over the next 6 months that you had initially built and had delivered a couple years ago?

Certainly I think it is fair to say, Jim, that the operators are trying as they can to lock in some rates for longer periods of time. They have seen what has happened on the drilling rig side, and you have heard some of the operators really complain about drilling rig cost increases. So I think some of that is affecting the way they are handling the contracting of vessels these days.

We are seeing a number of operators trying to lock up equipment for long periods of time. Sometimes they will have a 1-year contract with 5 1-year options; and of course we do our best to try to maintain flexibility in pricing on any option periods to which we would agree.

Your comment that, yes, they are increasing the terms of the -- well, first to answer your first question, what it was like a year ago or 2 years ago? Heck, we were lucky if we got a week job or a month job. Now almost everything is being put into term charter of greater lengths.

I don't told want to be too specific, because as you know there are a number of competitors who are listening in on this call. But I will say that the contract lengths are much better. We are having an opportunity to roll over our rates every time a boat comes up for a contract renewal. And we are doing our very best to take advantage of each and every one so that we are not leaving much on the table.

So if we think of your business opportunity in calendar 2005, we should probably think about most of the vessels, the deepwater vessels that you built here in this program being available for roll over and renewal at presumably higher rates?

At least half, Jim, and probably a percentage somewhat greater than that. But, yes, that would be correct.

A follow-up question, Dean. Can you comment to recent trends in vessel quarters? And can you comment on to what extent you are seeing older vessels retired from the active fleet of your competitors?

We are not seeing too much happening from the side of our competitors retiring older vessels. There are a couple of companies that are somewhat constrained in their ability to replace some of their older equipment, I would say.

In terms of the new builds, October there was a fair amount of new builds announced, but it has been a little bit quiet the last month or so. I think that the new build situation is one that we will continue to need to monitor. But I think on the whole the aging of a lot of the worldwide fleet gives cause for some optimism that there is not going to be too much of a capacity problem.

Okay. Dean, last question. To what extent have you been able to sell some of the older Gulf of Mexico vessels that you have? I take it by your comments that some of the ones that you have previously termed inactive, that you are considering bringing at least certain ones of those back into the fleet.

We have some that are stacked that were not impaired when we did our impairment last year. Those would be the ones that we would bring back. We have sold some of the vessels that were impaired. We have actually brought a couple of the impaired vessels that we thought were impaired back into service; I won't say where, but we did. It was somewhat of a surprise that we were able to get work for them, but we were able to.

So all that is a work in process, Jim. We don't want to -- as you know we're very disciplined in how we sell these vessels. We do not sell them to competitors. We do not like to bring them back into the industry when we make a sale. So we actually pass on some potential profits by taking that posture. Some short-term profits at the expense of long-term problems, I would say.

So we diligently look for opportunities to dispose of the equipment that is on our for-sale list and our impaired list, but we are not going to do it in such a sense that it comes right back to haunt us.

Okay, good quarter, Dean. Thank you.

Thank you, Jim. Good luck to you.

Ken Sill, CSFB.

Good morning, Dean, and I will congratulate you also. Nice quarter. First question for Keith on the G&A for the current quarter. Since you are still working on the Sarbanes-Oxley stuff and the tax stuff, do you still really expect that to be coming down in the March quarter?

Yes, I really do. We had a few other special projects that I would rather not mention embedded in that number; some tax planning which I am glad to incur; and the SOX number. Our real attempt at that was to kind of be completed by December 31 and just have 3 months in case we needed to do some remedial parts. The auditors won't let you finish 3 months ahead of time, but the bulk of the work is behind us. So I really think that number is going to be really back down in the $18 million range.

Okay. That's good. We are seeing pretty steady improvement I guess Gulf of Mexico, international, a lot of people talking about a ramp up in activity in the North Sea, a market that you guys don't really participate in. At the risk of you saying, I don't what to talk about it, are there any plans for Tidewater to look at that market? Or are you going to kind of stick to your knitting for now?

We look at everything, Ken. If we think we can employ some equipment profitably in it, we will. I think it is safe to say we're looking at that market right now. I will not say much more than that; but we're looking at what equipment we might deploy and when to that market.

You said you were looking at unstacking some boats or vessels in the Gulf of Mexico. Would you be willing to do that at current dayrates? Or do you think they need to move up before you are willing to do that?

I will let Jeff -- Jeff Platt is here with us. I'm going to put Jeff on the hot seat for that one.

Number 1, we do have some vessels in the current fleet, and I'm talking the 180s, that segment, that actually will be up for drydocking. So the first thing we want to do is look at the best specced vessel that meets the clients' needs. So we may be pulling some vessels out of the stacked fleet, but would just be a replacement for current fleet.

If the Gulf of Mexico activity does increase, we will on a case-by-case basis look at bringing it out. Utilization for that segment is I think pretty strong right now. The last thing we want to do is upset the balance that is there.

So case-by-case. If the business allows, the answer is, yes, we will bring vessels out. But as a wholesale, on a spec, I don't think that is going to happen. That would not be my recommendation.

Are you seeing any lengthening of term in the Gulf of Mexico for the boats?

Yes, we're seeing -- as Dean's I think apply to the Gulf, we have operators that would like to lock up the higher spec new equipment on longer term. Again they want to do that at what they perceive to be good rates today. They have seen what happened on the drilling side.

We have those opportunities. Where they make sense we enter into it. But we want to maintain the ability to move the pricing as the market allows.

A final question just on a markets. A lot of investor concern in the last quarter or so over what is going on in Venezuela and Mexico. What are you guys seeing in those two markets in terms of forward demand for your vessels and services?

I won't be too specific, but I will say this. I think the fears of problems in Mexico are overblown. I have had through my career a lot of association with that market, and I don't think that the announced diminishment of the Pemex budget for next year -- I'm a little skeptical about that.

In Venezuela, I actually think that although it is difficult to operate in both places, and it is difficult to operate in Venezuela. But I am actually relatively optimistic about Venezuela. Because I think that they had milked those fields for so long, ever since President Chavez has been in power, and have done so little work to them, that they are going to be in the position where they need to feed the cow.

So I'm optimistic that they are not going to be able to hold off must longer on some reinvestment. Now whether that is done through the international operators or through PDVSA is still a process that is playing itself out. As you know, President Chavez is taking a hard line with ConocoPhillips and with Chevron right now in some present concessions that they hold.

But I think longer -- if you take a step back, Venezuela needs the revenue just as Mexico does. In each case I don't see how they can avoid investing in the sector that drives the economy of the country. So I'm optimistic. I am not nearly -- I have heard some pessimism about both countries, but I don't share it.

Okay, thank you.

Bill Herbert with Simmons.

Keith, if you did I didn't hear it; but if you didn't, could you please give us a sense as to what is a good working assumption for operating costs going into this next quarter?

Bill, I think we came in right at 102 million for this quarter. Unfortunately as we said we're going to be mobilizing some boats here and lose some revenue, but you don't lose cost. We have added a couple of nice vessels, and we will have a couple more coming in during the quarter.

But with the 2 days less I think you should stay at the 102; 102 to 103 is my best guess. It is a moderate quarter similar to last quarter with drydocks. We have got some more domestic drydocks that we need to do, but I don't think it is going to be out of control. So 102 to 103, somewhere in that range is my best estimate for the quarter.

Recognizing that the situation with the tax rate is still fluid, when it would be sort of a reasonable expectation for the reduction in the tax rate to the low 20s? For the following fiscal year?

April 1. The quarter that will be our June quarter. I mean we had a Board of Directors meeting yesterday and they wanted to know how it would work and when it would be blended in. It will be effective for the first day. It will be fully effective for that June quarter.

I have got a goal in mind of attempting to get at least 80 percent of our foreign earnings for next year to be outside of the grasp of the U.S. tax system. I feel pretty confident that I'm going to get there. But as we tried to explain, we get out of the throes of the U.S. system as being the one that is controlling; and we then for the first time enter the absolute international market.

So our budgeting process for next year takes place here mid-February. We will go through every boat, every area, every country as to our view of next year. And post that time, kind of for the first time in our history, I will have a much better feeling for what I think taxes in Nigeria is going to be; what are taxes in Venezuela.

So sometime post February, mid March is when we're probably going to have our best handle on exactly what we think next year's tax rate looks like. Then it will be fully effective all fiscal year.

Okay, great. Final question, Dean. Again recognizing that on a case-by-case basis; but I think as it relates to the reactivation possibilities for your standard towing supply vessels in the Gulf of Mexico, I think you have about 20 stacked vessels in the active fleet. On average the reactivations that you're contemplating, how much would they cost? What would you require to reactivate a vessel with respect to covering the cost of that reactivation on the initial contract?

Is that one question?

It is one subject, how about that.

Boy. Well, let me start with the cost. The average cost is about $0.5 million. Prospects -- I guess the other question related to how many of them are there; there are 15 supply vessels; there are 5 tugs. The tug cost would actually be higher than $0.5 million apiece.

What is going to cause us -- we don't want to give away too much on this call, Bill. We want to be responsive to our investors but not necessarily to our competitors. But it is something -- we have got a terrific team in our domestic division right now. These guys are -- they took a real problem and have turned it into a moneymaker, and I am confident that they're going to do even better yet.

How soon that is going to mean we pull some boats out of stack, and we take a little hiccup because we're spending some money to do so -- I am not sure. But we have got some great guys in that division. I'm really optimistic that they are going to continue to do good things.

It wasn't but last I think September of 2003 where we were having to cut peoples' pay and do all kinds of things, and cut back staff, and morale was pretty poor. The leadership there and the vessel captains and mates, chief engineers, they all hitched up their pants and put their shoulder to the wheel and they really turned it around. I'm just proud as I can be of them.

So I'm just not going to say. I am reminded that I should also mention the ladies in our division who have done a great job.

Yes, yes. I hear you, Dean.

But they have all done great and they're going to continue to do great. We are going to be saying better things yet on some of these conference calls. But I don't want to get much more specific than that if I can.

Okay, Dean. Thanks a lot.

Joe Agular with Johnson Rice & Company.

Dean, I was wondering if you could maybe go around the world region by region, or maybe list in order the regions of the world where you perceive the upcoming markets to be sort of the strongest, in terms of demand, or in terms of maybe supply demand imbalances.

Imbalances?

In other words, we have listened to, as I am sure you have, a number of the contract drillers over the last week or so discuss demand for rigs in Southeast Asia, India, the Middle East, wherever. Even the North Sea let's say. There's some rigs that have not yet gone to work in parts of the world.

Once those rigs are out in the market working, I assume that the boat dynamics will change as well. I just was wondering in terms of your perception of the markets which areas may have the most tightness in terms of the supply vessel market?

We don't want to point people to -- the competitors if they want, they can go listen to the rig calls, but we don't to point people to areas where we think that we are going to see some nice activity. Will you be upset with me if I pass on that one?

No, I wouldn't. I understand. Maybe let me ask it a little bit different way. In terms of the way your fleet is positioned right now, I assume that you -- are there areas of the world, without naming them, where you may anticipate redirecting some equipment? Are there areas that may be short equipment? I guess that is sort of the essence of what I am trying to ask.

I will take a backwards tack on you. There is hardly an area in the world for which I don't have some optimism. I can hardly look around and see a place where I don't think we can do better. And practically every place around the world we are doing better.

We are not in Sackland (ph) Island. We wish we were there, but we felt like the ante to get in just didn't meet our hurdle objectives. But short of that, we are just about everywhere also. And there is hardly a place where I look where I don't feel optimistic when I think of the coming year, and years. Can I answer it in that fashion?

That's fine. Let me ask you maybe a question on the North Sea, where you all don't have a presence. But I am sure that there have been cases where you have been competing in your traditional markets against boats that formerly were working in the North Sea. Have you noticed any vessel migration back to the North Sea?

We have snuck a toe into the North Sea. We dipped our toe into the market there and might put a second toe there pretty quickly. I tell you what is happening, though, is that the rates there have gone up substantially. That helps rates for big boats worldwide, because it decreases the pressure.

1, it decreases the pressure of those vessels possibly migrating out. Second, since the operators typically know what is going on in the North Sea you are able to start to benchmark some of your rates for your deeper water equipment off of those rates instead of necessarily local rates.

Okay, thank you very much, Dean.

Pierre Conner, Hibernia Southcoast Capital.

Bonjour, Pierre.

That was close on the Hibernia. Thanks very much. A lot of my questions actually have been answered. Just a little bit of follow-up and maybe it's for Jeff. We do hear all the drilling contractors talk about their activity. But on the construction side I wanted to ask in particular first about the Gulf.

We I think see that there would have been some wind down on pipeline repair work after the storm. However, Jeff, do you see some sort of, coming into the spring, any outlook towards demand on the construction side? I guess actually it applies Gulf or elsewhere.

Over the Christmas holidays, the end of the year, we saw a little bit of construction activity come to an end. I believe on a forward going basis you will see that in the spring a lot of those initial projects will be finished. But again our activity is still -- even independent of the construction side -- is holding up nicely.

I guess the question is, do you see any incrementally? You see some of that coming back in a typical summer construction window? Or it's too far to say?

My picture of that is not very clear right now, to be honest with you.

Fair enough. I understand. Keith, thank you for all the details on the current. I wondered if I could just ask you for --.

One more thing. You want revenue then you're finished, yes?

Yes, right. Crew and current if I could on your crewboats, international, domestic? Current rate utilization? Just to see if there's any movement there.

Crewboat utilities, no, domestically the 10-Q will reflect 19 vessels. Dayrates snuck up a little bit. September quarter we were at 3,357. The reported December quarter we had 3,477. Today rates have gone up a little further; we are at about 3,650 today.

We reported utilization in the December quarter of about 77 percent. Today we are still running about 75 percent. That is down a little bit from the September quarter where we were back at 80.3 percent.

Let me go through the international, and then I want to make a comment. Internationally in that class of crew and utility, we had 64 vessels. Rates were again up a little bit during the quarter. September we were at 2,742. December we were at 2,950, and today we are a little bit above 3,000. We are probably at about 3,050.

Utilization for the December quarter went up to 77 percent. In the September quarter, you remember, we were back at 74 percent. Today we continue to run about 75 percent. This is a segment with a lot of boats, and Tidewater made a lot of new investment in this area in the last 4 years.

Dayrates have moved up unfortunately; our operating income has not gone up. We had some cost problems during the last quarter in regard to that area. We had a few incidences that that class bore an unusually high insurance charge. And we had some unbudgeted repair and maintenance.

So it is an area where there is some tightness. Rates have moved up, utilization is running along at a pretty good clip, but yet it is one of our concern areas. It is one of the areas where Jeff gets beat up pretty good about trying to turn revenue into profit.

Okay.

And Steve.

Seen nice moves a rates on the bigger equipment. So my question relates to if you could characterize the difference in the rate movement as because of customer demand, or somewhat due to your ability to roll over contracts?

This might go a little bit back even to Jim's question of is it because you're getting new equipment coming in and/or new contracts rolling that you're able to make the moves quicker? Or do you see it's customer demand that is allowing you to move the rates more?

You know, I'll let -- Steve will take a shot at this, and then I will finish up, but I think it is a combination of both, Pierre.

Pierre, that was going to be my comment. It is both. If you've got a contract that is rolling over, and your customers requirements are upgraded, or he is changing his program a little bit, slotting in some new equipment into that job with the corresponding increase in the rate is something to do.

Or even if you have the same equipment in it, and you know he has a requirement, and he knows that the supply is dwindling, then you've got a chance to work with him to do that too.

Okay.

Does that answer your question, Pierre?

Thanks very much, guys.

Tom Epcot (ph) with Pritchard (ph) Capital.

I'm not sure you can respond to this, but I was curious. You've taken delivery of 1 vessel out of China, one of the big anchor handlers. I guess you've got another one coming this quarter. Those are very unique pieces of equipment. They don't reflect the average dayrate, I'm sure. Whereabouts are those going to be working and what kind of pricing are you getting for those really unique vessels?

Well, I don't want to be too specific on the pricing. Again, that would be relatively proprietary, but the second one is already contracted and it has a nice long-term job. The first one we'll put into the spot market, and we think it will be going into the spot market at a nice time. And the rate should be pretty good in that spot market.

So I think if you listen to some of the operators who operate in the North Sea, probably you will get a good deal for what some of those spot rates are, and we hope to participate in some of that, should we go there. If we get on a term contract somewhere else, I just think that the spot rates going higher in the North Sea just make it easier to justify better rates for that vessel that we're going to put on spot, the first one.

Tom, the delivery on the second boat that Dean mentioned does have a nice fixed-term contract. Delivery from the yard is in March. We have to install an A-frame, so you're going to see any revenue effect, even though it has a fixed contract in the March quarter. You probably would see very little, if any, in the June quarter. That's a process that is going to take a while to get that A-frame started. So we will tell you when you can expect revenue from that vessel.

Now the first one entering the spot market, that's it. It is in the spot market; it is going to do what it can do.

Okay. Secondly, 3 times on this call you have reminded all of us that the March quarter has 2 fewer revenue days than the December period, and you do about $1.8 million a day. So I guess that's sort of 3.5 million of foregone revenue comparatively, although the costs are the same.

Is the conclusion from that that it is very, very likely that the March quarter earnings would be down sequentially from December, or can that be made up by higher dayrates?

No, and we have conference calls in the Company and when somebody asks me a tough question that I don't want to answer I say, you're breaking up.

Okay, thank you.

Play like you're on the radio and you're just breaking up. I didn't catch that one.

Can't hear you, Mom.

Not necessarily, Tom. Just be cautious.

Thank you.

Jud Bailey with Jefferies & Co.

Good morning. Pretty much all my questions have been answered. I just have a couple of housecleaning items really. Would you mind repeating what you thought D&A and SG&A would be for the fourth quarter? I didn't catch those.

Depreciation we think will be up to about 25.5; and SG&A we think is going to be right around the $18 million number.

Great. Thank you. Congratulations on a good quarter.

Jon Chappell, J.P. Morgan.

When you look to the fiscal year '06 budget, in addition to that 61 million that is already pegged towards the 14 vessels to be delivered next year, what could we forecast for CapEx next year?

You can CapEx another 5 million, which we would call kind of maintenance level; 20 to 25. As the boats get older we do end up capitalizing some stuff. But any further commitments for new construction or purchases beyond that point have not been made. We have had not made any beyond that extra 20 million or so.

That is not to say we're going to stick our head in the sand. If the right opportunity arises, then we certainly have our eyes on the lookout.

So does those 19 vessels that will be delivered over the next 15 months pretty much constitute the end of the new build program?

I'm not sure we can say that. We have an aging fleet. On the one hand, we get pretty good returns from an aging fleet; on the other hand, we're seeing pressures around the world. And our competitors with an aged fleet are seeing similar pressures in terms of operators don't want equipment older than 20 years; operators don't equipment older than 15 years; operators in Mexico, for the last 3 to 4 years Pemex has been saying nothing older than 5 years.

So there is a lot of pressure to renew the fleet. What I will say is we are going to take a very disciplined approach to capital replacement. We're going to look very closely at our cash flows. We're going to look very closely at whether we wish to exceed those cash flows or not on any given year.

But for the most part, I think we're going to look at -- I think it is fair to say that many of our shareholders feel that we need to slow down on our capital replacement program. It is a feeling that we respect.

Whether we are going to at some points of time do more than our cash flows or not, we're not going to make that commitment on this call. But we certainly understand our shareholders' concern that pouring too much capital in the business too fast. So we are mindful of that. We're going to pay plenty of attention to continue the disciplined approach that we have exhibited the last few years.

That is a pretty big good segue into my next question. Just putting in an 85 million CapEx number for fiscal year '06 and looking at my model, that should give you about 100 million in free cash flow after your committed dividends and CapEx.

You said you're listening to your shareholders now. Have your shareholders been clamoring for either an increase in the dividend, maybe a share buyback? What would your priorities of cash be for next year, if you were to have, say 50 to 100 (multiple speakers)?

I don't know. That is something we will certainly discuss with our Board. I spent a lot of time on the road the past few months, and I have heard lots of folks. Some people say we should pay no dividend. Some funds say, why don't you increase your dividend? Some people say we are very happy with the dividend that you have. Everybody says, why don't you buyback some stock?

We are mindful of all of that. We will, as best we can, do the best we can within the constraints of their desires of how they would like to see us manage our Company, and what we feel are our needs to continue to replenish the ability to generate income for this Company.

We can't clip coupons and just let our fleet become so old that it won't be utilized, and then one day run out of coupons, and we have no income generating capability. So it is a tough balancing act. I think we have the last few years, we have been doing it pretty well. Hopefully we intend to do it better.

So take all that for what it is worth, but I hear you and we hear our stockholders. We're going to do our best to manage what we think is a delicate issue.

That is a good problem to have. One last question. You were talking about the domestic business. You have been in the black now 2 quarters in a row. As you look to further get into the black, is the cost-cutting pretty much done? Is this a function of we're just waiting for the activity and the revenue to pick up? Or is there still some on the cost side that you could squeeze out?

The cost-cutting is never done. I think the challenge for us when the market improves is not to get fat and lazy and happy. We are not going to do that. The big cuts, the big restructuring I think that is -- that has been done. So certainly the cost-cutting in the future is not going to be of that magnitude. But we will not let up on always making sure that we are looking at each one of our costs and justifying it.

Okay. Thanks a lot, guys.

At this time, there are no further questions. Mr. Taylor, are there any closing remarks?

No. I would like to thank everyone for their interest in our Company. For the shareholders on the line, we thank you very much for your support. We wish everyone well, and I know lots of you have other calls to listen to, so we will break off at this time. Thank you very much.

This concludes today's Tidewater's fiscal third-quarter conference call. You may now disconnect.