SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Quarterly Period Ended December 31, 1998June 30, 1999
-------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Transition Period From
to
- ----------------------------------- -----------------------------------------____________________________to____________________________
Commission file number 1-6311
TIDEWATER INC.
------------------------------------------------------- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 72-0487776
------------- -------------------- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1440 Canal601 Poydras Street, Suite 2100,1900, New Orleans, Louisiana 70112
-------------------------------------------------------------------70130
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 568-1010
------------------
NOT APPLICABLE
----------------------------------------
_______________________________________________________________________________
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or of such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X]X NO
[ ]
55,557,189-----
55,604,693 shares of Tidewater Inc. common stock $.10 par value per share were
outstanding on January 19,July 20, 1999. Excluded from the calculation of shares
outstanding at July 20, 1999 are 4,958,601 shares held by the Registrant's
Grantor Stock Ownership Trust. Registrant has no other class of common stock
outstanding.
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- ----------------------------------------------------------------------------------------
December 31,----------------------------------------------------------------------------------------------------------
June 30, March 31,
ASSETS 1998 19981999 1999
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 23,611 24,97773,698 10,422
Trade and other receivables 213,836 258,517185,868 238,002
Marine operating supplies 29,450 31,49826,075 27,971
Other current assets 3,763 4,1224,300 4,483
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current assets 270,660 319,114289,941 280,878
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Investments in, at equity, and advances to
unconsolidated companies 16,633 21,82515,057 17,307
Properties and equipment:
Vessels and related equipment 1,533,569 1,534,9481,499,246 1,505,441
Other properties and equipment 40,645 33,88743,744 42,744
- ----------------------------------------------------------------------------------------
1,574,214 1,568,835----------------------------------------------------------------------------------------------------------
1,542,990 1,548,185
Less accumulated depreciation 906,810 863,209917,576 910,005
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net properties and equipment 667,404 705,626625,414 638,180
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Goodwill, net 349,468 356,394344,884 347,176
Other assets 115,099 89,880116,637 110,917
- ----------------------------------------------------------------------------------------
$1,419,264 1,492,839
========================================================================================----------------------------------------------------------------------------------------------------------
$1,391,933 1,394,458
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt 3,294 6,466
Accounts payable and accrued expenses 96,025 105,91462,497 71,256
Accrued property and liability losses 1,393 12,1564,608 6,605
Income taxes 6,569 79,6712,561 4,485
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 107,281 204,20769,666 82,346
- ----------------------------------------------------------------------------------------
Long-term debt --- 25,000----------------------------------------------------------------------------------------------------------
Deferred income taxes 163,222 158,540135,953 128,826
Accrued property and liability losses 71,396 57,28960,593 66,052
Other liabilities and deferred credits 53,358 49,02749,332 49,527
Stockholders' equity:
Common stock of $.10 par value, 125,000,000 shares
authorized, issued 55,559,52360,563,294 shares at DecemberJune
and 59,482,76960,566,857 shares at March 5,556 5,948
Additional paid-in capital 186,874 295,153
Retained earnings 845,634 712,4636,056 6,057
Other stockholders' equity 1,070,333 1,061,650
- ----------------------------------------------------------------------------------------
1,038,064 1,013,564
Less:
Deferred compensation - restricted stock 3,475 4,206
Accumulated other comprehensive income 10,582 10,582
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,024,007 998,7761,076,389 1,067,707
- ----------------------------------------------------------------------------------------
$1,419,264 1,492,839
========================================================================================----------------------------------------------------------------------------------------------------------
$1,391,933 1,394,458
==========================================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
2-2-
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share data)
- ------------------------------------------------------------------------------------------------------------------
Quarter Ended Nine----------------------------------------------------------------------------------------------------------
Three Months Ended
December 31, December 31,
--------------------- ---------------------June 30,
---------------------------
1999 1998
1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues:
Vessel revenues $ 217,393 264,134 727,938 735,575148,277 267,633
Other marine revenues 15,591 16,563 44,158 45,9756,253 17,244
- ------------------------------------------------------------------------------------------------------------------
232,984 280,697 772,096 781,550----------------------------------------------------------------------------------------------------------
154,530 284,877
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Vessel operating costs 123,598 122,858 383,559 353,31191,892 136,069
Costs of other marine revenues 12,023 13,104 34,350 36,5564,355 13,657
Depreciation and amortization 23,635 24,481 71,434 67,10922,942 23,822
General and administrative 20,019 19,075 57,211 54,02116,946 18,741
- ------------------------------------------------------------------------------------------------------------------
179,275 179,518 546,554 510,997----------------------------------------------------------------------------------------------------------
136,135 192,289
- ------------------------------------------------------------------------------------------------------------------
53,709 101,179 225,542 270,553----------------------------------------------------------------------------------------------------------
18,395 92,588
Other income (expenses):
Foreign exchange gain (loss) (141) (153) 228 (242)(72) 14
Gain on sales of assets 5,108 10,015 7,748 16,1732,359 1,653
Equity in net earnings of unconsolidated companies 1,748 1,226 5,277 4,0481,986 1,762
Minority interests (268) (425) (1,236) (686)(247) (615)
Interest and miscellaneous income 691 1,093 2,718 3,270
Other income (expense) --- 1,153 --- (6,847)1,914 893
Interest and other debt costs (575) (7,900) (2,050) (21,095)(126) (460)
- ------------------------------------------------------------------------------------------------------------------
6,563 5,009 12,685 (5,379)----------------------------------------------------------------------------------------------------------
5,814 3,247
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 60,272 106,188 238,227 265,17424,209 95,835
Income taxes 20,492 35,890 78,997 85,6877,747 33,063
- ------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 39,780 70,298 159,230 179,487
Earnings from discontinued operations --- 3,661 --- 9,562
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 39,780 73,959 159,230 189,049
==================================================================================================================
Earnings per common share:
- --------------------------
Earnings from continuing operations $ .71 1.15 2.76 2.96
Earnings from discontinued operations --- .06 --- .15
- ------------------------------------------------------------------------------------------------------------------16,462 62,772
==========================================================================================================
Earnings per common share $ .71 1.21 2.76 3.11
==================================================================================================================
Diluted earnings per common share:
- ----------------------------------
Earnings from continuing operations $ .71 1.15 2.75 2.95
Earnings from discontinued operations --- .06 --- .15
- ------------------------------------------------------------------------------------------------------------------.30 1.06
==========================================================================================================
Diluted earnings per common share $ .71 1.21 2.75 3.10
==================================================================================================================.30 1.05
==========================================================================================================
Weighted average common shares outstanding 56,200,393 60,873,807 57,748,891 60,566,53655,498,319 59,359,546
Incremental common shares from stock options 46,233 388,353 94,008 389,162167,498 156,993
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average common shares 56,246,626 61,262,160 57,842,899 60,955,698
==================================================================================================================55,665,817 59,516,539
==========================================================================================================
Cash dividends declared per common share $ .15 .15
.45 .45
============================================================================================================================================================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
3-3-
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------------------------------
Quarter Ended Nine----------------------------------------------------------------------------------------------------------
Three Months Ended
December 31, December 31,
-------------------- --------------------June 30,
------------------------------
1999 1998
1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations $ 71,234 84,557 250,629 237,969
Net cash (used in) provided by discontinued
operations (236) 12,803 (68,347) 33,765
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 70,998 97,360 182,282 271,734$ 80,535 104,409
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of assets 11,268 18,243 17,603 36,5893,679 2,923
Additions to properties and equipment (21,581) (17,875) (38,399) (70,544)
Acquisitions, net(12,787) (9,991)
Tax payments related to sale of cash acquiredCompression operations --- --- --- (552,757)
Investment in joint venture --- (1,409) --- (1,409)
Change in other assets 135 339 195 (3,876)(67,810)
Other 37 (118)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,178) (702) (20,601) (591,997)(9,071) (74,996)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt --- (25,000) (95,243) (108,172) (178,092)
Credit facility borrowings --- --- 80,000 505,00040,000
Proceeds from issuance of common stock 59 2,511 496 7,310150 405
Common stock purchased (36,364) --- (109,312) ---(16,195)
Dividends paid (8,436) (9,133) (26,059) (27,249)(8,338) (8,911)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided byused in financing activities (69,741) (101,865) (163,047) 306,969(8,188) (9,701)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (8,921) (5,207) (1,366) (13,294)63,276 19,712
Cash and cash equivalents at beginning of period 32,532 33,07910,422 24,977
41,166
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 23,611 27,872 23,611 27,872
========================================================================================================73,698 44,689
==========================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 673 9,765 2,026 18,924197 181
Income taxes $ 22,368 25,871 148,492 67,642
========================================================================================================
Supplemental noncash investing activity:
Acquisitions:
Fair value of assets acquired $ --- --- --- 695,701
Fair value of liabilities assumed --- --- --- (142,944)
- --------------------------------------------------------------------------------------------------------
Net cash payment $ --- --- --- 552,757
========================================================================================================6,779 75,713
==========================================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
4-4-
TIDEWATER INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) INTERIM FINANCIAL STATEMENTSInterim Financial Statements
The consolidated financial information for the interim periods presented herein
has not been audited by independent accountants, but in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the condensed consolidated balance sheets
and the condensed consolidated statements of earnings and cash flows at the
dates and for the periods indicated have been made. Results of operations for
interim periods are not necessarily indicative of results of operations for the
respective full years.
(2) COMPREHENSIVE INCOME
Effective April 1, 1998Stockholders' Equity
At June 30, 1999 and March 31, 1999, 4,960,866 and 4,985,860 shares,
respectively, of common stock were held in a grantor stock ownership plan trust
for the benefit of stock-based employee benefits programs. These shares are not
included in common shares outstanding for earnings per share calculations and
transactions between the company adopted Statementand the trust, including dividends paid on the
company's common stock, are eliminated in consolidating the accounts of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensivethe
trust and the company.
(3) Income" which established
standards for reporting and display of comprehensive income and its components.
Comprehensive income includes all changes in equity during a period except those
resulting from investment by owners or distribution to owners. A reconciliation
of net earnings to comprehensive income for the quarters ended December 31 and
for the nine-month periods ended December 31, 1998 and 1997 are as follows:
Quarter Ended Nine Months Ended
December 31, December 31,
---------------- ------------------
(In thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
Net earnings $39,780 73,959 159,230 189,049
Change in cumulative foreign currency translation
adjustment --- --- --- (94)
- -------------------------------------------------------------------------------------------
Comprehensive income $39,780 73,959 159,230 188,955
===========================================================================================
(3) INCOME TAXES Taxes
Income tax expense for interim periods is based on estimates of the effective
tax rate for the entire fiscal year. The effective tax rate applicable to pre-
tax earnings was 34%32% and 34.5% for the quarterquarters ended June 30, 1999 and nine-month period ended December 31, 1998,
excluding a $2 million
(or $.03 per share) second quarter reduction in deferred taxes resulting from
the lowering of United Kingdom corporate income tax rates which had the effect
of reducing the effective tax rate for the nine-month period ended December 31,
1998 to 33.2%. The effective tax rate was 33.8% for the quarter and nine-month
period ended December 31, 1997, excluding a $4 million (or $.07 per share)
second quarter reduction in deferred taxes resulting from the lowering of United
Kingdom corporate income tax rates which had the effect of reducing the
effective tax rate for the nine-month period ended December 31, 1997 to 32.3%.respectively.
(4) MARINE ACQUISITIONS
On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.).
The total cost of the acquisition of $626 million, which includes $65.6 million
of deferred income tax liability, was allocated under the purchase method of
accounting based on the fair value of the assets acquired and liabilities
assumed, plus amounts for professional fees, severance and other transaction
costs and the related deferred tax effect of the acquisition.
The results of O.I.L.'s operations have been consolidated with the company's
effective May 16, 1997. Pro forma combined results of continuing operations of
the company and of O.I.L. including
5
appropriate purchase accounting adjustments for the nine-month period ended
December 31, 1997 as though the acquisition had taken place on April 1, 1997
were not significantly different than actual results.
(5) BUSINESS DISPOSITION
On February 20, 1998 the company completed the all cash sale of its compression
division for approximately $348 million. The discontinued compression
division's operating results for the three-month and nine-month periods ended
December 31, 1997 were as follows:
Three Months Ended Nine Months Ended
(In thousands) December 31, 1997 December 31, 1997
- ---------------------------------------- ------------------ -----------------
Revenues $26,664 80,383
Operating costs 12,338 39,412
Depreciation and amortization 6,574 19,657
General and administrative 2,330 7,281
- ---------------------------------------------------------------------------------
5,422 14,033
Other income 449 1,170
- ---------------------------------------------------------------------------------
Earnings before income taxes 5,871 15,203
Income taxes 2,210 5,641
- ---------------------------------------------------------------------------------
Earnings from discontinued operations $ 3,661 9,562
=================================================================================
(6) YEARYear 2000
Disclosure concerning year 2000 (Y2K) issues facing the company is included as
part of management's discussion and analysis at page 1413 of this report.
6-5-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors and Shareholders
Tidewater Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Tidewater Inc. and subsidiaries as of December 31, 1998,June 30, 1999 and the related condensed
consolidated statements of earnings and cash flows for the three-month and nine-month periods
ended December 31, 1998June 30, 1999 and 1997.1998. These financial statements are the responsibility
of the Company'scompany's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Tidewater Inc. and subsidiaries as
of March 31, 1998,1999, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended, not presented
herein, and in our report dated April 27, 1998,1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1998,1999, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
New Orleans, Louisiana
January 18,July 19, 1999
7-6-
MANAGEMENT'S DISCUSSION AND ANALYSISItem 2. Management's Discussion and Analysis
------------------------------------
The company provides services and equipment to the international offshore energy industry
through the operation of a diversified fleet of marine service vessels.
Revenues, net earnings and cash flows from operations are dependent upon the
activity level of the vessel fleet which is ultimately dependent upon oil and
natural gas prices which, in turn, are determined by the supply/demand
relationship for oil and natural gas. The following discussion should be read in
conjunction with the unaudited condensed consolidated financial statements and
related disclosures.
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the company notes that certain statements set
forth in this Quarterly Report on Form 10-Q which provide other than historical
information and which are forward looking, involve risks and uncertainties that
may impact the company's actual results of operations. The company faces many
risks and uncertainties, many of which are beyond the control of the company,
includingincluding: fluctuations in oil and gas prices; changes in capital spending by
customers in the energy industry for exploration, development and production;
unsettled political conditions, civil unrest and governmental actions,
especially in higher risk countries of operations; foreign currency controlscontrols;
and environmental and labor laws. Readers should consider all of these risk
factors as well as other information contained in this report.
MARINE OPERATIONS
- -----------------
Offshore service vessels provide a diverse range of services and equipment to the energy
industry. Fleet size, utilization and vessel day rates primarily determine the
amount of revenues and operating profit because operating costs and depreciation
do not change proportionally when revenue changes. Operating costs principallyprimarily
consist of crew costs, repair and maintenance, insurance, fuel, lube oil and
supplies. Fleet size isand utilization are the major factorfactors which affectsaffect crew
costs. The timing and amount of repair and maintenance costs are influenced by
vessel age and scheduled drydockings to satisfy safety and inspection
requirements mandated by regulatory agencies. Whenever possible, vessel
drydockings are done during seasonally slow periods to minimize anythe impact on
vessel operations and are only done if economically justified, given the
vessel's age and physical condition.
The company's vessels are subject to various statutes and regulations governing
their operation. The laws of the United States provide that once a vessel is
registered under a flag other than the United States, it cannot thereafter
engage in U.S. coastwise trade. Therefore, the company's non-U.S. flag vessels
must continue to be operated abroad, and if the company were not able to secure
charters abroad for them, and work would otherwise have been available for them
in the United States, its operations would be adversely affected. Of the total
696 vessels owned or operated by the company during the quarter ended December
31, 1998, approximately 376 were registered under flags other than the United
States and 320 were registered under the U.S. flag.
8-7-
The following table compares revenues and operating expenses (excluding general
and administrative expense and depreciation expense) for the quarters and nine-
month periods ended December 31 andcompany's vessel
fleet for the quarterquarters ended SeptemberJune 30 1998.and March 31. Vessel revenues and operating
costs relate to vessels owned and operated by the company while other marine
services relate to thethird-party activities of the company's shipyards, brokered
vessels and other miscellaneous marine-related businesses.activities.
Quarter
Quarter Ended Nine Months Ended
Ended
DecemberJune 30, March 31,
December 31, Sept 30,
------------------ ----------------- --------
(In---------------------
(in thousands) 1999 1998 1997 1998 1997 19981999
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues:
Vessel revenues:
United States $ 61,440 122,453 252,530 344,257 81,08132,758 110,009 43,631
International 155,953 141,681 475,408 391,318 161,831115,519 157,624 139,479
- --------------------------------------------------------------------------------------
217,393 264,134 727,938 735,575 242,912-------------------------------------------------------------------------------------
148,277 267,633 183,110
Other marine revenues 15,591 16,563 44,158 45,975 11,3236,253 17,244 13,786
- --------------------------------------------------------------------------------------
$232,984 280,697 772,096 781,550 254,235
======================================================================================-------------------------------------------------------------------------------------
$154,530 284,877 196,896
=====================================================================================
Operating costs:
Vessel operating costs:
Crew costs $ 67,594 63,807 201,932 178,365 66,40953,409 67,929 60,082
Repair and maintenance 30,339 33,056 106,338 102,249 32,87317,062 43,126 25,771
Insurance 6,478 8,321 18,538 23,313 6,2275,297 5,833 5,678
Fuel, lube and supplies 8,974 8,765 27,868 25,336 8,8976,984 9,997 7,360
Other 10,213 8,909 28,883 24,048 9,4869,140 9,184 9,950
- --------------------------------------------------------------------------------------
123,598 122,858 383,559 353,311 123,892
Costs-------------------------------------------------------------------------------------
91,892 136,069 108,841
Cost of other marine revenues 12,023 13,104 34,350 36,556 8,6704,355 13,657 10,322
- --------------------------------------------------------------------------------------
$135,621 135,962 417,909 389,867 132,562
======================================================================================-------------------------------------------------------------------------------------
$ 96,247 149,726 119,163
=====================================================================================
Marine support services are conducted worldwide with assets that are highly
mobile. Revenues are principally derived from offshore service vessels, which
regularly and routinely move from one operating area to another, often to and
from offshore operating areas in different continents. Because of this asset
mobility, revenues and long-lived assets attributable to the company's
international marine operations in any one country are not "material" as that
term is defined by SFAS No. 131.
As a result of the uncertainty of certain customers to make payment of vessel
charter hire, the company has deferred the recognition of approximately $12.1$8.1
million of revenuebillings as of DecemberJune 30, 1999 ($9.7 million of billings as of March
31, 1998 of1999), which approximately $6.7 million
was deferred in the quarter ended December 31, 1998.would otherwise have been recognized as revenue. The company
will recognize the amounts as revenue upon collection.
9when the uncertainty has been reduced.
-8-
Marine operating profit and other components of earnings from continuing
operations before income taxes for
the quarters ended June 30 and nine-month periods ended
DecemberMarch 31 and for the quarter ended September 30, 1998 consistconsists of the following:
Quarter
Quarter Ended Nine Months Ended
Ended
DecemberJune 30, March 31,
December 31, Sept 30,
------------------- ------------------- ---------
(In-----------------
(in thousands) 1999 1998 1997 1998 1997 19981999
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Vessel activity:
- ----------------
United States $13,043 62,249 95,411 166,222 28,881$ (397) 53,487 965
International 41,270 40,110 132,188 107,537 51,86621,047 39,052 39,025
- ----------------------------------------------------------------------------------------------
54,313 102,359 227,599 273,759 80,747-----------------------------------------------------------------------------------
20,650 92,539 39,990
Gain (loss) on sales of assets 5,108 10,015 7,748 16,173 9872,357 1,653 (4,799)
Other marine services 3,346 3,264 9,205 8,862 2,4671,664 3,392 3,321
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating profit 62,767 115,638 244,552 298,794 84,201$24,671 97,584 38,512
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Equity in net earnings of unconsolidated companies 1,748 1,226 5,277 4,048 1,7671,986 1,762 2,228
Interest and other debt costs (575) (7,900) (2,050) (21,095) (1,015)(126) (460) (395)
Corporate general and administrative (3,685) (4,053) (10,192) (10,534) (3,129)(2,945) (3,378) (2,916)
Other income (expenses) 17 1,277 640 (6,039) 296623 327 1,085
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes $60,272 106,188 238,227 265,174 82,120
==============================================================================================$24,209 95,835 38,514
===================================================================================
Current quarter operating profit decreased significantly from the comparative
amount in fiscal 1998year 1999 due to a declinedeclines in utilization, average day rates and
active vessels for the worldwide fleet. Declines in revenues were somewhat
offset by reductions in vessel operating costs for the worldwide fleet.
Declines in utilization and average day rates for
U.S.-based vessels coupled with a decreaseare directly related to the
current oil industry downturn. This downturn in activity and spending in the
numberoil industry commenced with the drop in the price of U.S.-based vessels.
These decreases were somewhat offset by an increaseoil in average day rates for
international-based vessels.the fall of 1997 due
primarily to worldwide oil surpluses. Cutbacks in customer drilling programs
resulted, negatively affecting the U.S. Gulf of Mexico vessel market first as
the duration of vessel contracts in this region normally range from one to three
months. The number of U.S.-based vessels decreased
primarily because of vessels being withdrawn from active service along with some
movement of vessels to international locations. The prolonged drop in oil price
over the past 15 months has resulted in cutbacks inworking drilling programs, the
effects from which have been felt thus far primarilyrigs in the U.S. Gulf of Mexico market. Asdeclined
steadily throughout fiscal year 1999 and, while oil prices have been trending
upwards since the durationbeginning of vessel contracts inthis quarter, the Gulfnumber of Mexico normally
range from one to three months,active drilling rigs
has remained at a low level during the effects of any change in drilling programs
are seen quickly.current quarter.
U.S.-based vessel operating profitrevenues for the current quarter have decreased by
approximately 79% from70% as compared to the comparative quartersame period in fiscal 1998 as these
cutbacks have reduced vessel demandyear 1999 resulting
in lower vessela small operating loss for the current quarter. Average utilization and
lower average day rates. This softening inrates for the U.S.-based towing-supply/supply vessels for the
current quarter have decreased by approximately 45% and 52%, respectively, as
compared to the quarter ended June 30, 1998. Weak domestic activity is likelyexpected
to continue for some time with the decline in the number of working drilling
rigs. In addition the expected delivery of a number ofeven more newly-constructed supply
vessels to various industry competitors may create an even further imbalance
and/or delay a recovery in the Gulf of Mexico supply vessel market thereby
putting additionalcontinued downward pressure on vessel utilization and day rates.
Better market conditions in
certain international locations resulted in higher average day rates for
international-based vessels for the current quarter as compared to the year
earlier quarter.
Interest and other debt costs were higher for the quarter and nine-months ended
December 31, 1997 as compared to these same periods ended December 31, 1998 due
to debt incurred related to the O.I.L. acquisition on May 16, 1997. By March
31, 1998 all debt borrowed for the O.I.L. acquisition had been repaid.
Operating profit for the current nine-months ended decreased from the respective
period in fiscal 1998 due to a decline in utilization and average day rates for
U.S.-based vessels and higher operating costs offset by an increase in average
day rates for international-based vessels. Utilization and average day rates for
U.S.-based vessels declined for the current nine-month period as the result of
cutbacks in drilling programs discussed previously consequently decreasing U.S.-
based vessel operating profit by approximately 43%. Higher operating costs
resulted principally from the expansion of the fleet through the O.I.L.
acquisition effective May 16, 1997 and costs associated with recruiting,
training and retaining vessel personnel. The international-based vessel
operating
10
profit increased by approximately 23% for the current nine months verses this
same period in fiscal 1998 as the result of stronger vessel demand in certain
international locations where average day rates improved. Vessels were relocated
from the U.S. to these international locations during the current nine-months
ended in order to meet the demand.
During the nine-months ended December 31,1997 the company provided $8 million
for the possible adverse outcome relating to several alleged labor-law pay
violations claimed by certain current and former employees in various areas of
the world where its marine vessel operations are conducted. During the fourth
quarter of fiscal 1998 the company entered into an agreement to settle a
majority of these claims.
Current quarter operating profit decreased from the preceding quarter due
primarily to the continued decline in U.S.-based average day rates. Operating
profit for U.S.-based vessels for the quarter ended December 31, 1998 was
approximately 55% less than the preceding quarter as the softening in Gulf of
Mexico vessel demand resulted in lower average day rates and slightly lower
vessel utilization. However, a lesser number of drydockings reduced U.S.
operating costs.
Current quarter international-based vessel operating profit decreased
approximately 20%46% as compared to the same quarter in fiscal year 1999 as
international-based vessel utilization and day rates showed their most
significant quarterly decrease thus far in the current oil industry downturn.
International activity has not yet been as dramatically affected by the downturn
as the U.S. Gulf of Mexico due primarily to the longer-term nature of
international vessel contracts. However, the prolonged drop in oil prices has
resulted in curtailments of customer projects, thus lowering vessel demand
which will likely continue for the remainder of fiscal year 2000.
In response to the oil industry downturn the following actions were taken during
the previous quarter. The company began stacking and removing from its actively
marketed fleet those vessels that cannot find gainful employment. Drydockings
associated with the stacked vessels have been
-9-
deferred thus reducing repair and maintenance costs in the current quarter
versus the same quarter in fiscal year 1999 and the preceding quarter.
Reductions in crew personnel were also made and may continue throughout fiscal
year 2000 as necessary. These personnel reductions lowered crew costs in the
current quarter versus the same quarter in fiscal year 1999 and the preceding
quarter.
Current quarter operating profit decreased significantly as a result of a slight decreasecompared to the
preceding quarter's amount due to continued declines in utilization and average
day rates along with increasedfor the worldwide fleet. Declines in revenues were offset somewhat by
a decrease in operating costs. The
durationexpenses for the worldwide fleet. Declines in worldwide
utilization and average day rates were expected as the oil industry continues to
curtail spending during this current downturn. International-based vessel
operating profit for the current quarter declined approximately 46% versus the
preceding quarter's amount. U.S.-based vessels incurred a small operating loss
for the current quarter as compared to an operating profit of vessel contracts in most international markets is considerably
longer thanjust under a
million dollars in the U.S. market. As such, the decline in oil price has not had
the immediate impact on the company's international activity that it has had on
the domestic activity. However, as oil prices have remained at a low level for
the past 15 months, international activity is starting to show signs of
weakening and could be further adversely affected if oil prices continue to be
depressed. An increased level of drydockingpreceding quarter. Crew costs and higherrepair and maintenance
costs associated
with attracting, training and retaining qualified personnel accounted for mostdecreased as the result of cost-saving measures as described earlier.
Included in gain (loss) on sales of assets in the previous quarter is a
writedown of $7.8 million to reduce the carrying value of certain vessels. The
writedown resulted from a review of the increased operating costs for international-basedrecoverability of the values of certain
vessels. The review was performed due to industry conditions and having stacked
and withdrawn from the active fleet several vessels at March 31, 1999.
Vessel utilization is determined primarily by market conditions and to a lesser
extent by drydocking requirements. Vessel day rates are determined by the
demand created through the level of offshore exploration, development and
production spending by energy exploration and production companies relative to the supply of offshore
service vessels. Suitability of equipment and the degree of service provided
also influence vessel day rates. The following two tables compare day-based
utilization percentages and average day rates by vessel class and in total for
the quarters ended June 30 and nine-month periods ended December 31 and for
the quarter ended September 30, 1998:
11March 31:
-10-
Quarter
Quarter Ended Nine Months Ended
Ended
DecemberJune 30, March 31,
December 31, Sept 30,
---------------
----------------------- --------1999 1998 1997 1998 1997 1998
------- ----- ------------ -------- --------1999
- -------------------------------------------------------------------
UTILIZATION:
- ------------
Domestic-based fleetfleet:
--------------------
Towing-supply/supply 74.1% 91.8 77.6 91.3 73.247.2% 85.4 60.1
Crew/utility 79.8 92.1 85.2 90.7 86.577.3 88.8 84.1
Offshore tugs 50.7 61.8 56.0 63.1 55.838.9 61.1 38.1
Other 49.7 53.3 47.9 57.8 48.246.6 45.7 35.2
Total 69.6% 85.0 73.6 84.8 71.049.4% 79.9 58.3
International-based fleet :
-------------------------
Towing-supply/supply 81.0% 88.9 83.7 88.7 84.071.9% 86.3 79.2
Crew/utility 89.3 80.7 85.9 81.3 88.089.2 80.2 89.6
Offshore tugs 74.9 79.7 74.2 81.0 71.765.4 76.1 70.1
Safety/standby 78.6 65.6 81.3 71.3 84.677.5 80.7 75.2
Other 69.2 67.2 68.9 76.4 69.852.1 67.9 72.1
Total 80.2% 82.9 81.4 84.2 81.872.0% 82.2 78.5
Worldwide fleet
---------------fleet:
----------------
Towing-supply/supply 78.4% 90.1 81.4 89.8 80.062.6% 85.9 72.2
Crew/utility 85.9 85.4 85.7 85.2 87.583.6 87.7
Offshore tugs 64.8 71.9 66.5 73.4 65.254.1 69.6 56.8
Safety/standby 78.6 65.6 81.3 71.3 84.677.5 80.7 75.2
Other 64.6 63.9 63.9 72.0 64.450.9 62.7 63.5
Total 76.5% 83.7 78.6 84.4 78.0
====================================================================================64.1% 81.4 71.5
===================================================================
AVERAGE VESSEL DAY RATES:
- -------------------------
Domestic-based fleet
--------------------fleet:
---------------------
Towing-supply/supply $4,545 7,853 6,284 7,463 6,331$3,734 7,709 4,043
Crew/utility 2,021 2,216 2,150 2,112 2,1211,806 2,280 2,014
Offshore tugs 7,643 6,617 7,614 6,540 7,5436,028 7,649 7,311
Other 2,073 3,167 2,835 2,833 3,0531,345 3,449 2,006
Total $4,450 6,569 5,646 6,255 5,6313,572 6,658 3,968
International-based fleet
-------------------------fleet:
--------------------------
Towing-supply/supply $6,562 5,655 6,576 5,328 6,643$5,698 6,523 6,229
Crew/utility 2,428 2,213 2,426 2,134 2,4062,250 2,447 2,399
Offshore tugs 4,303 3,752 4,240 3,549 4,1414,048 4,273 4,411
Safety/standby 6,201 6,087 6,366 6,077 6,3516,094 6,541 6,014
Other 891 953 877 916 9181,265 876 1,250
Total $5,225 4,653 5,285 4,345 5,320$4,676 5,330 5,024
Worldwide fleet
---------------fleet:
----------------
Towing-supply/supply $5,860 6,539 6,472 6,202 6,536$5,143 6,975 5,555
Crew/utility 2,293 2,215 2,323 2,124 2,3032,114 2,376 2,270
Offshore tugs 5,396 4,832 5,434 4,647 5,3414,652 5,558 5,218
Safety/standby 6,201 6,087 6,366 6,077 6,3516,094 6,541 6,014
Other 1,104 1,387 1,222 1,274 1,3171,282 1,313 1,347
Total $4,980 5,380 5,405 5,070 5,420
====================================================================================$4,377 5,806 4,725
===================================================================
12-11-
The following table compares the average number of vessels by class and
geographic distribution for the quarters ended June 30 and nine-month periods ended December
31 and for the quarter ended September 30, 1998:March 31:
Quarter
Quarter Ended Nine Months Ended
Quarter
DecemberJune 30, March 31,
December 31, Ended
------------- ----------------- Sept 30,----------------
1999 1998 1997 1998 1997 1998
----- ----- ------- ------- --------1999
- ---------------------------------------------------------------------------------------------
Domestic-based fleet:
- ---------------------
Towing-supply/supply 136 148 139 146 139131 142 134
Crew/utility 31 39 33 39 3326 35 28
Offshore tugs 38 41 3937 40 3837
Other 10 11 10 11 10
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 215 239 221 236 220204 227 209
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
International-based fleet:
- --------------------------
Towing-supply/supply 233 227 232 216 234219 228 228
Crew/utility 56 55 5550 54 5653
Offshore tugs 5450 53 54 54 5453
Safety/standby 25 29 31 29 29 2926
Other 33 32 33
33 36 31
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 405 399 403 389 404377 396 393
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Owned or chartered vessels included in marine revenues 620 638 624 625 624581 623 602
Vessels withdrawn from active service 27 17held for sale 50 26 14 2540
Joint-venture and other 49 55 49 58 4946 48 47
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 696 710 699677 697 698
========================================================================================689
=============================================================================================
GeneralIn July 1999 the company acquired six new-build vessels from an industry
competitor for an aggregate price of approximately $22 million. Also in July
1999 the company sold all of its safety/standby vessels for approximately $40
million.
Consolidated general and administrative expenses for the quarters ended June 30
and nine-month periods
ended DecemberMarch 31 and forconsist of the quarter ended September 30, 1998:following components:
Quarter
Quarter Ended Nine Months Ended
Quarter
DecemberJune 30, March 31,
December 31, Ended
---------------- -----------------
Sept 30,
(In(in thousands) 1999 1998 1997 1998 1997 19981999
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Personnel $11,916 11,697 34,151 32,773 11,110$10,133 11,125 10,515
Office and property 3,196 3,520 9,832 9,897 3,3272,899 3,309 3,361
Sales and marketing 1,430 1,277 4,110 3,819 1,2091,110 1,471 1,295
Professional services 1,346 1,231 4,054 3,796 1,0831,232 1,625 1,533
Other 2,131 1,350 5,064 3,736 1,7221,572 1,211 (447)
- --------------------------------------------------------------------------
$20,019 19,075 57,211 54,021 18,451
==========================================================================---------------------------------------------------------------------------------------------
$16,946 18,741 16,257
=============================================================================================
Increase in general and administrative expensesDuring the quarter ended March 31, 1999 the company reversed approximately
$966,000 of previously recorded bad debt expense when payment was received for
the current nine-month
period above the same period in fiscal 1998 is primarily the result of the
O.I.L. acquisition effective May 16, 1997.an overdue receivable from one customer.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
- ----------------------------------------------
The company's current ratio, level of working capital and amount of cash flows
from continuing operations for any year are directly related to fleet activity
and vessel day rates. Fleet activity and vessel day rates are ultimately
determined by the supply/demand relationship for oil and natural gas.
Variations from year-to-year in these items are primarily the result of market
conditions. Cash from
-12-
ongoing operations in combination with available lines of credit provide the
company, in management's opinion, with adequate resources to satisfy present
financing requirements. At December 31, 1998,June 30, 1999, all of the company's $200 million
revolving line of credit was available to satisfyfor future financing needs. Continued
payment of dividends, currently $.15 per quarter per common share, is subject to
declaration by the Board of Directors.
13
Excluding the O.I.L. acquisitiontax payments related to the sale of Compression operations
included in the nine-monthsthree-months ended December 31,
1997,June 30, 1998, investing activities for the
nine-month periodquarters ended December 31,June 30, 1999 and 1998 consumed less cash as compared to the same period ended December 31, 1997 as a
result of smaller cash outlays for vessel modifications and capitalized repairs.were comparable with no significant
activity. Financing activities for the nine monthsquarter ended December 31, 1998 used $163June 30, 1999 included $8.3
million of cash which included a $105 million prepayment on the credit facility
which reduced the outstanding debt balance to zero andfor quarterly cash dividends of $.15 per share.
In addition $80 million was borrowed primarily for income
tax payments of approximately $68 million relating to the sale of the
compression division. The company purchased 1,500,000 shares of common stock
during the current quarter at an average cost per share of $24.24. For the nine
months ended December 31, 1998, 3,950,000 shares of common stock have been
purchased at an aggregate cost of $109.3 million.
INFLATION AND CURRENCY FLUCTUATIONS
- -----------------------------------
Because of its significant international operations, the company is exposed to
currency fluctuations and exchange risks. To minimize the financial impact of
these items the company attempts to contract a majority of its services in
United States dollars.
Day-to-day operating costs are generally affected by inflation. However,
because the energy services industry requires specialized goods and services,
general economic inflationary trends may not affect the company's operating
costs. The major impact on operating costs is the level of offshore
exploration, development and production spending by energy exploration and
production companies. As this spending increases, prices of goods and services
used by the oil and gasenergy industry and the energy services industry will increase.
Future improvementsincreases in vessel day rates may shieldmitigate the effects on the company
from the inflationary effects on operating costs.
ENVIRONMENTAL MATTERS
- ---------------------
During the ordinary course of business the company's operations are subject to a
wide variety of environmental laws and regulations. The company attempts to
comply with these laws and regulations in order to avoid costly accidents and
any related environmental damage. Compliance with existing governmental regulations
which have been enacted or adopted regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment, has
not had, nor is expected to have, a material effect on the company.
YEAR 2000
UPDATE- ---------
The Year 2000 (Y2K) issue is the result of computer programs written using two
digits rather than four to define the applicable year. In response to the Y2K
issue, the company began a program in fiscal 1997 designed to identify, assess
and address significant Y2K issues in its information technology (IT) systems
and non-IT systems. As of December 31, 1998June 30, 1999, the company believes that it is on
schedule to successfully implement any required systems and equipment
modifications that might be necessary to make the company's critical systems Y2K
compliant before December 31, 1999.
The company's critical IT systems are comprised primarily of the company's
mainframe computer and the software programs used on the mainframe, including
general ledger accounting and financial reporting software programs and related
application modules, personnel and payroll systems, and an insurance claims and
accounting system. The assessment of the company's IT systems found that some of
the IT systems were not Y2K compliant. Approximately 85%90% of the changes
necessary to make these systems Y2K compliant have been completed, with the
remaining changes expected to be completed by mid-1999.well in advance of year end. Because
many of the company's computer systems have been
14
upgraded or replaced in recent
years as part of the company's ongoing upgrade program, specific Y2K compliance
costs have been insignificant to date (believed to be less than $100,000).
Remaining compliance costs related to the IT systems are also expected to be
insignificant (probably
-13-
less than $100,000) because the company will continue to utilize existing
personnel resources to assist in the implementation of its Y2K compliance
initiative.
Non-IT systems are comprised primarily of computer-controlled equipment and
electronic devices, including equipment with embedded microprocessors that are
used to operate equipment on the company's vessels. Telephone systems and other
office-based electronic equipment systems are also being considered in the
assessment of non-IT systems. The company has substantially completed the
process of identifying the components that are likely to have a Y2K problem and
is in the process of communicating with the appropriate vendors to assess what,
if any, changes are necessary to make the component Y2K compliant. The company
believes that this assessment will be completed well in advance of December 31,
1999 and does not expect the costs of any required modifications or upgrades to
be material with respect to the company's results of operations and financial
position.
The company has contacted its key vendors and financial services providers to
assess their progress with their own Y2K issues and to anticipate potential
risks associated with those third parties. Although there is currently no
indication that these parties will not achieve their Y2K compliance plans, there
can be no guarantee that the systems of other companies with whom the company
transacts business will be timely converted. Additionally, there can be no
guarantee that the company will not experience Y2K problems. Despite efforts to
address all significant Y2K issues in advance, the company could potentially
experience disruptions to some aspects of its activities or operations,
including, but not limited to, delays in payments to the company from customers
or payments by the company to suppliers and disruptions in shipments of
equipment and supplies required to operate the company's vessels.
Based upon the company's current assessment of its IT systems and non-IT systems
and based upon communications to date with vendors, the company has not
determined a need to develop a contingency plan for Y2K issues. The company will
continue to monitor its decision on contingency planning and such a plan will be
developed if and when it is considered necessary to do so.
15Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
No change from 1999 annual report disclosure.
-14-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. At page 1817 of this report is the index for those exhibits required to be
filed as a part of this report.
B. The company did not file any reports during the quarter for which this
report is filed.
16-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEWATER INC.
--------------------------------------------------------------------
(Registrant)
Date: January 19,July 20, 1999 /s/ William C. O'Malley
-----------------------------------------------------------------------------
William C. O'Malley
Chairman of the Board, President and
Chief Executive Officer
Date: January 19,July 20, 1999 /s/ Ken C. Tamblyn
------------------------------------------------------------------------
Ken C. Tamblyn
Executive Vice President and
Chief Financial Officer (Principal Accounting Officer)
17-16-
EXHIBIT INDEX
Exhibit
Number
- ------
3 Amended and Restated Bylaws Dated May 20, 1999
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule
18-17-