<PAGE>
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 September 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Transition Period From
___________________________ 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 Canal Street, Suite 2100, New Orleans, Louisiana 70112
- --------------------------------------------------------------------------------
(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] NO [_]
56,731,256 shares of Tidewater Inc. common stock $.10 par value per share were
outstanding on October 22, 1998. Registrant has no other class of common stock
outstanding.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------------
<S> <C> <C>
September 30, March 31,
ASSETS 1998 1998
- ----------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 32,532 24,977
Trade and other receivables 229,748 258,517
Marine operating supplies 32,916 31,498
Other current assets 4,454 4,122
- ----------------------------------------------------------------------------------
Total current assets 299,650 319,114
- ----------------------------------------------------------------------------------
Investments in, at equity, and advances to
unconsolidated companies 15,040 21,825
Properties and equipment:
Vessels and related equipment 1,526,173 1,534,948
Other properties and equipment 40,985 33,887
- ----------------------------------------------------------------------------------
1,567,158 1,568,835
Less accumulated depreciation 891,929 863,209
- ----------------------------------------------------------------------------------
Net properties and equipment 675,229 705,626
- ----------------------------------------------------------------------------------
Goodwill, net 351,760 356,394
Other assets 112,074 89,880
- ----------------------------------------------------------------------------------
$1,453,753 1,492,839
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt 6,419 6,466
Accounts payable and accrued expenses 97,138 105,914
Accrued property and liability losses 4,907 12,156
Income taxes 10,023 79,671
- ----------------------------------------------------------------------------------
Total current liabilities 118,487 204,207
- ----------------------------------------------------------------------------------
Long-term debt 21,875 25,000
Deferred income taxes 161,361 158,540
Accrued property and liability losses 74,218 57,289
Other liabilities and deferred credits 49,021 49,027
Stockholders' equity:
Common stock of $.10 par value, 125,000,000 shares
authorized, issued 57,056,256 shares at
September and 59,482,769 shares at March 5,706 5,948
Additional paid-in capital 223,097 295,153
Retained earnings 814,290 712,463
- ----------------------------------------------------------------------------------
1,043,093 1,013,564
Less:
Deferred compensation - restricted stock 3,720 4,206
Accumulated other comprehensive income 10,582 10,582
- ----------------------------------------------------------------------------------
Total stockholders' equity 1,028,791 998,776
- ----------------------------------------------------------------------------------
$1,453,753 1,492,839
==================================================================================
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share data)
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Vessel revenues $ 242,912 255,445 510,545 471,441
Other marine revenues 11,323 14,968 28,567 29,412
- ----------------------------------------------------------------------------------------------------------------
254,235 270,413 539,112 500,853
- ----------------------------------------------------------------------------------------------------------------
Costs and expenses:
Vessel operating costs 123,892 119,605 259,961 230,453
Costs of other marine revenues 8,670 11,116 22,327 23,452
Depreciation and amortization 23,977 24,074 47,799 42,628
General and administrative 18,451 18,586 37,192 34,946
- ----------------------------------------------------------------------------------------------------------------
174,990 173,381 367,279 331,479
- ----------------------------------------------------------------------------------------------------------------
79,245 97,032 171,833 169,374
Other income (expenses):
Foreign exchange gain (loss) 355 (30) 369 (89)
Gain on sales of assets 987 2,850 2,640 6,158
Equity in net earnings of unconsolidated companies 1,767 1,798 3,529 2,822
Minority interests (353) 34 (968) (261)
Interest and miscellaneous income 1,134 1,233 2,027 2,177
Other expense --- (8,000) --- (8,000)
Interest and other debt costs (1,015) (8,691) (1,475) (13,195)
- ----------------------------------------------------------------------------------------------------------------
2,875 (10,806) 6,122 (10,388)
- ----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 82,120 86,226 177,955 158,986
Income taxes 25,442 25,173 58,505 49,797
- ----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 56,678 61,053 119,450 109,189
Earnings from discontinued operations --- 3,276 --- 5,901
- ----------------------------------------------------------------------------------------------------------------
Net earnings $ 56,678 64,329 119,450 115,090
================================================================================================================
Earnings per common share:
- -------------------------
Earnings from continuing operations $ .98 1.01 2.04 1.81
Earnings from discontinued operations --- .05 --- .09
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share $ .98 1.06 2.04 1.90
================================================================================================================
Diluted earnings per common share:
- ---------------------------------
Earnings from continuing operations $ .98 1.01 2.03 1.81
Earnings from discontinued operations --- .05 --- .09
- ----------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ .98 1.06 2.03 1.90
================================================================================================================
Weighted average common shares outstanding 57,791,444 60,472,906 58,528,321 60,412,061
Incremental common shares from stock options 78,799 400,315 117,896 389,567
- ----------------------------------------------------------------------------------------------------------------
Adjusted weighted average common shares 57,870,243 60,873,221 58,646,217 60,801,628
================================================================================================================
Cash dividends declared per common share $ .15 .15 .30 .30
================================================================================================================
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
-3-
<PAGE>
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash provided by continuing operations $ 74,986 67,300 179,395 157,416
Net cash (used in) provided by discontinued
operations (301) 9,102 (68,111) 16,958
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 74,685 76,402 111,284 174,374
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of assets 3,412 7,789 6,335 18,346
Additions to properties and equipment (6,827) (32,552) (16,818) (52,669)
Acquisitions, net of cash acquired --- 1,973 --- (553,419)
Change in other assets 178 (120) 60 (3,553)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,237) (22,910) (10,423) (591,295)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (58,172) (47,596) (83,172) (82,849)
Credit facility borrowings 40,000 5,000 80,000 505,000
Proceeds from issuance of common stock 32 4,123 437 4,799
Common stock purchased (56,753) --- (72,948) ---
Dividends paid (8,712) (9,063) (17,623) (18,116)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (83,605) (47,536) (93,306) 408,834
- ----------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (12,157) 5,956 7,555 (8,087)
Cash and cash equivalents at beginning of period 44,689 27,123 24,977 41,166
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 32,532 33,079 32,532 33,079
================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,172 8,519 1,353 9,159
Income taxes $ 50,411 36,204 126,124 41,771
================================================================================================================
Supplemental noncash investing activity:
Acquisitions:
Fair value of assets acquired $ --- (4,169) --- 698,643
Fair value of liabilities assumed --- 2,196 --- (145,224)
- ----------------------------------------------------------------------------------------------------------------
Net cash payment $ --- (1,973) --- 553,419
================================================================================================================
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
-4-
<PAGE>
TIDEWATER INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
(1) INTERIM 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, 1998 the company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive 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 September 30 and
for the six-month periods ended September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
September 30, September 30,
---------------- ------------------
<S> <C> <C> <C> <C>
(In thousands) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
Net earnings $56,678 64,329 119,450 115,090
Change in cumulative foreign currency translation
adjustment --- --- --- (94)
- ---------------------------------------------------------------------------------------------
Comprehensive income $56,678 64,329 119,450 114,996
=============================================================================================
</TABLE>
(3) INCOME 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 was 33.4% and 34%
for the quarter and six-month period ended September 30, 1998, respectively,
excluding a $2 million (or $.03 per share) 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 quarter and six-month period
ended September 30, 1998 to 30.9% and 32.8%, respectively. For the quarter and
six-month period ended September 30, 1997 the effective tax rate was 33.8%,
excluding a $4 million (or $.07 per share) 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 quarter and six-month period
ended September 30, 1997 to 29.2% and 31.3%, 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 appropriate purchase accounting adjustments
for the six-month period ended September 30, 1997 as though the acquisition had
taken place on April 1, 1997 were not significantly different than actual
results.
-5-
<PAGE>
(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 six-month periods ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In thousands) September 30, 1997 September 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 27,562 53,719
Operating costs 13,908 27,074
Depreciation and amortization 6,529 13,083
General and administrative 2,442 4,951
- ----------------------------------------------------------------------------------------
4,683 8,611
Other income 498 721
- ----------------------------------------------------------------------------------------
Earnings before income taxes 5,181 9,332
Income taxes 1,905 3,431
- ----------------------------------------------------------------------------------------
Earnings from discontinued operations $ 3,276 5,901
========================================================================================
</TABLE>
-6-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Tidewater Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Tidewater Inc. as of September 30, 1998, and the related condensed consolidated
statements of earnings and cash flows for the three-month and six-month periods
ended September 30, 1998 and 1997. These financial statements are the
responsibility of the Company'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. as of March 31,
1998, 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, 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, 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
October 16, 1998
-7-
<PAGE>
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,
including 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 controls 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 principally consist of crew costs, repair and maintenance, insurance,
fuel, lube and supplies. Fleet size is the major factor which affects 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 any 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
698 vessels owned or operated by the company during the quarter ended September
30, 1998, approximately 377 were registered under flags other than the United
States and 321 were registered under the U.S. flag.
-8-
<PAGE>
The following table compares revenues and operating expenses (excluding general
and administrative expense and depreciation expense) for the quarters and six-
month periods ended September 30 and for the quarter ended June 30, 1998.
Vessel revenues and operating costs relate to vessels owned and operated by the
company while other marine services relate to the activities of the company's
shipyards, brokered vessels and other miscellaneous marine-related businesses.
<TABLE>
<CAPTION>
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------ ----------------- -------
(In thousands) 1998 1997 1998 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Vessel revenues:
United States $ 81,081 115,848 191,090 221,804 110,009
International 161,831 139,597 319,455 249,637 157,624
- --------------------------------------------------------------------------------------
242,912 255,445 510,545 471,441 267,633
Other marine revenues 11,323 14,968 28,567 29,412 17,244
- --------------------------------------------------------------------------------------
$254,235 270,413 539,112 500,853 284,877
======================================================================================
Operating costs:
Vessel operating costs:
Crew costs $ 66,409 61,810 134,338 114,558 67,929
Repair and maintenance 32,873 35,190 75,999 69,193 43,126
Insurance 6,227 6,542 12,060 14,992 5,833
Fuel, lube and supplies 8,897 8,434 18,894 16,571 9,997
Other 9,486 7,629 18,670 15,139 9,184
- --------------------------------------------------------------------------------------
123,892 119,605 259,961 230,453 136,069
Costs of other marine revenues 8,670 11,116 22,327 23,452 13,657
- --------------------------------------------------------------------------------------
$132,562 130,721 282,288 253,905 149,726
======================================================================================
</TABLE>
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.
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<PAGE>
Marine operating profit and other components of earnings from continuing
operations before income taxes for the quarters and six-month periods ended
September 30 and for the quarter ended June 30, 1998 consist of the following:
<TABLE>
<CAPTION>
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------ ----------------- -------
(In thousands) 1998 1997 1998 1997 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vessel activity:
United States $28,881 56,722 82,368 103,973 53,487
International 51,866 41,059 90,918 67,351 39,052
- ----------------------------------------------------------------------------------------------
80,747 97,781 173,286 171,324 92,539
Gains from asset sales 987 2,850 2,640 6,158 1,653
Other marine services 2,467 3,674 5,859 5,597 3,392
- ----------------------------------------------------------------------------------------------
Operating profit 84,201 104,305 181,785 183,079 97,584
- ----------------------------------------------------------------------------------------------
Equity in net earnings of
unconsolidated companies 1,767 1,798 3,529 2,822 1,762
Interest and other debt costs (1,015) (8,691) (1,475) (13,195) (460)
Corporate general and administrative (3,129) (3,526) (6,507) (6,481) (3,378)
Other income (expenses) 296 (7,660) 623 (7,239) 327
- ----------------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes $82,120 86,226 177,955 158,986 95,835
==============================================================================================
</TABLE>
Current quarter operating profit decreased from the comparative amount 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 the average day rate
for international-based vessels. The prolonged drop in oil price over the past
12 months has resulted in cutbacks in drilling programs the effects from which
have been felt thus far primarily in the U.S. Gulf of Mexico market. As the
duration of vessel contracts in the Gulf of Mexico normally range from one to
three months, the effects of any change in drilling programs are seen quickly.
U.S.-based vessel operating profit for the current quarter decreased
approximately 49% from the comparative quarter in fiscal 1998 as these cutbacks
have reduced vessel demand resulting in lower vessel utilization and lower
average day rates. This softening in domestic activity is likely to continue
for some time with the decline in the number of working drilling rigs. In
addition the expected delivery of a number of newly-constructed supply vessels
to various industry competitors throughout the remainder of this year may create
even further imbalance in the Gulf of Mexico supply vessel market thereby
putting additional downward pressure on vessel utilization and day rates.
Higher operating costs as compared with the year earlier quarter are primarily
associated with attracting, training and retaining qualified personnel
worldwide. 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.
In the quarter ended September 30, 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. Interest and other debt costs were higher for the quarter and six-
months ended September 30, 1997 as compared to these same periods ended
September 30, 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 six-months ended remained consistent with the
respective period in fiscal 1998 as the result of a combination of higher
average day rates for the international-based vessels offset by a decrease in
utilization for U.S.-based vessels and an increase in operating costs. The
international-based vessel operating profit increased by approximately 35% as
the result of stronger vessel demand in certain international locations where
average day rates improved. Utilization for U.S.-based vessels declined for the
current six-month period as the result of cutbacks in drilling programs
discussed
-10-
<PAGE>
previously. Higher operating costs resulted principally from the expansion of
the fleet through the O.I.L. acquisition effective May 16, 1997 and high costs
associated with recruiting, training and retaining vessel personnel.
Current quarter operating profit decreased from the preceding quarter due to the
decline in U.S.-based vessel utilization and average day rates offset by reduced
operating costs. Operating profit for U.S.-based vessels for the quarter ended
September 30, 1998 was approximately 46% less than the preceding quarter as the
softening in Gulf of Mexico vessel demand resulted in lower vessel utilization
and lower average day rates.
Current quarter international-based vessel operating profit increased
approximately 33% from the preceding quarter as a result of the continued
strength of international markets, a slight increase in the number of vessels
operating internationally and reduced drydocking costs. During the current
quarter the company began operating five vessels owned by a third party. The
decreased level of drydocking costs accounted for most of the reduced marine
operating costs in the current quarter versus the preceding quarter. Current
quarter average day rates for the international-based vessel fleet were
essentially unchanged as compared to the preceding quarter. The duration of
vessel contracts in most international markets is considerably longer than 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, if oil prices continue at the low level currently being
experienced, future international activity could be adversely affected.
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 and six-month periods ended September 30 and for
the quarter ended June 30, 1998:
-11-
<PAGE>
<TABLE>
<CAPTION>
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
-------------- ----------------- --------
1998 1997 1998 1997 1998
- ------------------------------------------------------------------------------
UTILIZATION:
- -----------
Domestic-based fleet
--------------------
<S> <C> <C> <C> <C> <C>
Towing-supply/supply 73.2% 91.1 79.3 91.1 85.4
Crew/utility 86.5 88.9 87.7 89.9 88.8
Offshore tugs 55.8 64.3 58.6 63.7 61.1
Other 48.2 60.5 47.0 60.0 45.7
Total 71.0% 84.8 75.5 84.8 79.9
International-based fleet
-------------------------
Towing-supply/supply 84.0% 88.0 85.1 88.7 86.3
Crew/utility 88.0 80.9 84.2 81.6 80.2
Offshore tugs 71.7 80.3 73.8 81.7 76.1
Safety/standby 84.6 71.3 82.6 74.4 80.7
Other 69.8 78.1 68.8 80.7 67.9
Total 81.8% 83.9 82.0 84.9 82.2
Worldwide fleet
- ------------------------------
Towing-supply/supply 80.0% 89.2 82.9 89.6 85.9
Crew/utility 87.5 84.2 85.6 85.1 83.6
Offshore tugs 65.2 73.6 67.4 74.1 69.6
Safety/standby 84.6 71.3 82.6 74.4 80.7
Other 64.4 73.9 63.5 75.9 62.7
Total 78.0% 84.2 79.7 84.8 81.4
===============================================================================
AVERAGE VESSEL DAY RATES:
- ------------------------------
Domestic-based fleet
- ------------------------------
Towing-supply/supply $6,331 7,532 7,075 7,261 7,709
Crew/utility 2,121 2,142 2,205 2,058 2,280
Offshore tugs 7,543 6,558 7,600 6,501 7,649
Other 3,053 2,757 3,241 2,692 3,449
Total $5,631 6,308 6,180 6,094 6,658
International-based fleet
- ------------------------------
Towing-supply/supply $6,643 5,440 6,583 5,151 6,523
Crew/utility 2,406 2,190 2,425 2,093 2,447
Offshore tugs 4,141 3,494 4,208 3,453 4,273
Safety/standby 6,351 6,138 6,444 6,073 6,541
Other 918 935 897 901 876
Total $5,320 4,438 5,325 4,188 5,330
Worldwide fleet
- ------------------------------
Towing-supply/supply $6,536 6,267 6,761 6,023 6,975
Crew/utility 2,303 2,169 2,338 2,077 2,376
Offshore tugs 5,341 4,621 5,453 4,557 5,558
Safety/standby 6,351 6,138 6,444 6,073 6,541
Other 1,317 1,291 1,315 1,229 1,313
Total $5,420 5,127 5,616 4,911 5,806
============================== ====== ===== ===== ===== =====
</TABLE>
- 12 -
<PAGE>
The following table compares the average number of vessels by class and
geographic distribution for the quarters and six-month periods ended September
30 and for the quarter ended June 30, 1998:
<TABLE>
<CAPTION>
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
-------------- ---------------- --------
1998 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------
Domestic-based fleet:
- --------------------
<S> <C> <C> <C> <C> <C>
Towing-supply/supply 139 145 141 145 142
Crew/utility 33 39 34 39 35
Offshore tugs 38 40 39 40 40
Other 10 11 10 11 10
- ---------------------------------------------------------------------------------------
Total 220 235 224 235 227
- ---------------------------------------------------------------------------------------
International-based fleet:
- -------------------------
Towing-supply/supply 234 230 231 211 228
Crew/utility 56 57 55 53 54
Offshore tugs 54 55 54 54 53
Safety/standby 29 31 29 29 29
Other 31 35 31 36 32
- ---------------------------------------------------------------------------------------
Total 404 408 400 383 396
- ---------------------------------------------------------------------------------------
Owned or chartered vessels included in
marine revenues 624 643 624 618 623
Vessels withdrawn from active service 25 12 26 13 26
Joint-venture and other 49 60 49 59 48
- ---------------------------------------------------------------------------------------
Total 698 715 699 690 697
=======================================================================================
</TABLE>
General and administrative expenses for the quarters and six-month periods ended
September 30 and for the quarter ended June 30, 1998:
<TABLE>
<CAPTION>
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
-------------- ---------------- --------
(In thousands) 1998 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personnel $11,110 11,094 22,235 21,076 11,125
Office and property 3,327 3,310 6,636 6,380 3,309
Sales and marketing 1,209 1,401 2,680 2,542 1,471
Professional services 1,083 1,347 2,708 2,564 1,625
Other 1,722 1,434 2,933 2,384 1,211
- --------------------------------------------------------------------------------------------
$18,451 18,586 37,192 34,946 18,741
============================================================================================
</TABLE>
Increase in general and administrative expenses for the current six-month period
above the same period in fiscal 1998 is primarily the result of the O.I.L.
acquisition effective May 16, 1997.
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 ongoing operations in combination with available lines of credit
provide the company, in management's opinion, with adequate resources to satisfy
financing requirements. At September 30, 1998, $175 million of the company's
$200 million revolving line of credit was available to satisfy financing needs.
Continued payment of dividends, currently $.15 per quarter per common share, is
subject to declaration by the Board of Directors.
- 13 -
<PAGE>
Excluding the O.I.L. acquisition included in the six-months ended September 30,
1997, investing activities for the quarter and six-month period ended September
30, 1998 consumed less cash as compared to these same periods ended September
30, 1997 as a result of smaller cash outlays for vessel modifications and
capitalized repairs.
Financing activities for the six months ended September 30, 1998 used $93.3
million of cash which included a $80 million prepayment on the credit facility
and 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 2,000,000 shares
of common stock during the current quarter at an average cost per share of
$28.38. For the six months ended September 30, 1998 2,450,000 shares of common
stock have been purchased at an aggregate cost of $72.9 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 gas industry and the energy services industry will increase.
Future improvements in vessel day rates may shield 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.
YEAR 2000
- ---------
In fiscal 1997 the company began modifying its existing software applications to
be year 2000 compliant. As of September 30, 1998, the company is still
reviewing and modifying all affected software applications and the computerized
operating systems of company vessels. The company expects this process to be
complete in advance of year 2000 with the costs of such modifications being
immaterial with respect to the company's results of operations and financial
position.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
A. The Annual Meeting of Stockholders of the company was held in New Orleans,
Louisiana on July 23, 1998.
B. Listed below are the nominees who were elected directors at the Annual
Meeting and the name of each other director whose term of office continued
after the Meeting.
Nominee or Director
Name Continuing in Office
---- --------------------
Robert H. Boh Director Continuing in Office
Donald T. Bollinger Director Continuing in Office
Arthur R. Carlson Director Continuing in Office
Larry T. Hornbeck Director Continuing in Office
Hugh J. Kelly Director Continuing in Office
John P. Laborde Director Continuing in Office
Paul W. Murrill Nominee
William C. O'Malley Director Continuing in Office
Lester Pollack Nominee
J. Hugh Roff, Jr. Nominee
Donald G. Russell Nominee
C. The company's Stockholders voted as follows with respect to the proposals
presented at the meeting:
1. Paul W. Murrill was elected director with 51,764,307 votes cast for
and 478,216 votes withheld.
2. Lester Pollack was elected director with 51,806,911 votes cast for and
435,612 votes withheld.
3. J. Hugh Roff, Jr. was elected director with 51,785,859 votes cast for
and 456,664 votes withheld.
4. Donald G. Russell was elected director with 51,739,839 votes cast for
and 502,584 votes withheld.
5. The selection of Ernst & Young LLP as the company's independent
auditors for the fiscal year ending March 31, 1999 was ratified with
52,087,042 votes cast for, 68,617 votes against and 86,864
abstentions.
- 15 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. At page 18 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 -
<PAGE>
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: October 22, 1998 /s/ William C. O'Malley
-------------------------------------------------
William C. O'Malley
Chairman of the Board, President and
Chief Executive Officer
Date: October 22, 1998 /s/ Ken C. Tamblyn
-------------------------------------------------
Ken C. Tamblyn
Executive Vice President and
Chief Financial Officer (Principal Accounting
Officer)
- 17 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule
- 18 -
<PAGE>
EXHIBIT 15
The Board of Directors and Shareholders
Tidewater Inc.
We are aware of the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-63094, No. 33-38240, No. 333-32729 and No. 333-47687) of
Tidewater Inc. of our report dated October 16, 1998 relating to the unaudited
condensed consolidated interim financial statements of Tidewater Inc. that are
included in its Form 10-Q for the quarter ended September 30, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
New Orleans, Louisiana
October 16, 1998
- 19 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and the condensed consolidated statements
of earnings at the date and for the period indicated and is qualified in its
entirety by reference to such financial statements. All amounts shown are in
thousands of dollars, except per share data.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 32,532
<SECURITIES> 0
<RECEIVABLES> 243,813
<ALLOWANCES> 14,065
<INVENTORY> 32,916
<CURRENT-ASSETS> 299,650
<PP&E> 1,567,158
<DEPRECIATION> 891,929
<TOTAL-ASSETS> 1,453,753
<CURRENT-LIABILITIES> 118,487
<BONDS> 0
0
0
<COMMON> 5,706
<OTHER-SE> 1,023,085
<TOTAL-LIABILITY-AND-EQUITY> 1,453,753
<SALES> 539,112
<TOTAL-REVENUES> 539,112
<CGS> 367,279
<TOTAL-COSTS> 367,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,475
<INCOME-PRETAX> 177,955
<INCOME-TAX> 58,505
<INCOME-CONTINUING> 119,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,450
<EPS-PRIMARY> $2.04
<EPS-DILUTED> $2.03
</TABLE>
