SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934--For the Fiscal Year Ended March 31, 2000
[_] 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.
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(Exact name of registrant as specified in its Charter)
Delaware 72-0487776
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 Poydras Street, New Orleans, Louisiana 70130
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(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number, including area code (504) 568-1010
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value
$0.10 New York Stock Exchange, Pacific Stock Exchange
Preferred Stock Purchase
Rights New York Stock Exchange, Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of April 24, 2000, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $1,577,628,644. Excluded
from the calculation of market value are 4,905,901 shares held by the
Registrant's grantor stock ownership trust.
55,655,991 shares of Tidewater Inc. common stock $0.10 par value per share
were outstanding on April 24, 2000. Excluded from the calculation of shares
outstanding at April 24, 2000 are 4,905,901 shares held by the Registrant's
grantor stock ownership trust. Registrant has no other class of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 2000 Annual Meeting of
Stockholders are incorporated into Part III of this report.
TABLE OF CONTENTS
Part I
Page
Item Number
---- ------
1 & 2. Business and Properties....................................... 3
3. Legal Proceedings............................................. 7
4. Submission of Matters to a Vote of Security Holders........... 7
4A. Executive Officers of the Registrant.......................... 7
Part II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................... 7
6. Selected Financial Data....................................... 8
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9
7A. Quantitative and Qualitative Disclosures About Market Risk.... 18
8. Financial Statements and Supplementary Data................... 18
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 18
Part III
10. Directors and Executive Officers of the Registrant............ 18
11. Executive Compensation........................................ 18
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 18
13. Certain Relationships and Related Transactions................ 18
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 19
2
PART I
ITEMS 1 and 2. Business and Properties
General
Tidewater Inc. (the "company") was incorporated in Delaware in 1956. The
company's principal executive offices are located at 601 Poydras Street, New
Orleans, Louisiana 70130, and its telephone number is (504) 568-1010. Unless
otherwise required by the context, the term "company" as used herein refers to
Tidewater Inc. and its consolidated subsidiaries.
The company provides services and equipment to the offshore energy industry
through the operation of the world's largest fleet of offshore service
vessels.
In order to better meet and service the needs of its customers, the company
announced on January 20, 2000 a new-build program estimated to cost in the range
of $200 - $300 million. The vessels, which will be designed to cover operational
capabilities the company currently does not possess, will include very large
anchor handling towing supply vessels and large platform supply vessels capable
of working in most of the deepwater markets of the world. The company expects to
finance the new-build program from its current cash balances that exceed $226.9
million at March 31, 2000, its projected cash flow and its existing $200 million
revolving credit facility. Deliveries on the new vessels are expected to
commence in about two years.
During the quarter ended September 30, 1999 the company acquired six new-
build vessels for an aggregate cash payment of approximately $22 million from
an industry competitor. The package of vessels included one supply vessel, two
offshore tugs and three crew boats. All six vessels were delivered to the
market during fiscal 2000. In July 1999 the company sold all of its
safety/standby vessels for approximately $40 million in an all cash
transaction. The specialized fleet was sold because it did not conform to the
company's long-range strategies.
On February 20, 1998 the company completed the all cash sale of its
compression division for approximately $348 million. Please refer to Note 2 of
Notes to Consolidated Financial Statements for further discussion of the sale
of Compression operations.
Forward Looking Information
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 Items 1 and 7 and elsewhere in this report, 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. Other risk
factors are discussed elsewhere in this Form 10-K. Readers should consider all
of these risk factors, as well as other information contained in this report.
3
Marine Operations
The company is the world's largest provider of offshore supply vessels and
marine support services serving the energy industry. With a fleet of over 600
vessels, the company operates, and has a leading market share, in most of the
world's significant oil and gas exploration and production markets and
provides services supporting all phases of offshore exploration, development
and production, including: towing of and anchor-handling of mobile drilling
rigs and equipment; transporting supplies and personnel necessary to sustain
drilling, workover and production activities; and supporting pipelaying and
other offshore construction activities.
The company's fleet is deployed in the major offshore oil and gas areas of
the world. The principal areas of the company's operations include the U.S.
Gulf of Mexico, areas offshore Australia, Brazil, Egypt, India, Indonesia,
Malaysia, Mexico, Trinidad, Venezuela and West Africa and in the North Sea and
the Persian Gulf. The company conducts its operations through wholly-owned
subsidiaries and joint ventures. Information concerning revenues and operating
profit derived from domestic and international marine operations and domestic
and international marine identifiable assets for each of the fiscal years
ended March 31 are summarized below:
(in thousands)
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2000 1999 1998
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Revenues:
Vessel operations:
United States $ 140,090 296,161 463,914
International 398,427 614,887 537,737
Other marine operations 36,298 57,944 58,510
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$ 574,815 968,992 1,060,161
=====================================================================================
Operating profit:
Vessel operations:
United States $ (4,694) 96,376 225,599
International 78,888 171,213 141,133
Other marine operations 6,254 12,526 10,663
Gain on sales of assets 19,441 2,949 16,592
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$ 99,889 283,064 393,987
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Identifiable assets:
United States $ 267,411 315,509 380,043
International 881,803 990,062 1,064,681
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Total marine assets $1,149,214 1,305,571 1,444,724
=====================================================================================
Please refer to Item 7 of this report and Note 10 of Notes to Consolidated
Financial Statements for further discussion of revenues, operating profit and
identifiable assets.
Marine Vessel Operations. The company's vessels regularly and routinely
move from one operating area to another, often to and from offshore operating
areas of different continents. Tables comparing the average size of the
company's marine fleet by class and geographic distribution for the last three
fiscal years are included in Item 7 of this report.
The company's largest class of vessels consists of towing-supply and supply
vessels that are chartered to customers for use in transporting supplies and
equipment from shore bases to offshore drilling rigs, platforms and other
installations. In addition, vessels of the towing-supply class are equipped
for and are capable of towing drilling rigs and other marine equipment and
setting anchors for positioning and mooring drilling rigs.
The company's other major classes of vessels include crew and utility
vessels that are chartered to customers for use in transporting small
quantities of supplies and personnel from shore bases to offshore drilling
rigs, platforms and other installations; offshore tugs that tow floating
drilling rigs, dock tankers, tow
4
barges, assist pipelaying and construction barges and are used in a variety of
other commercial towing operations, including towing barges carrying a variety
of bulk cargoes and containerized cargo.
The company's vessels also include inshore tugs; inshore barges; offshore
barges; and production, line-handling and various other special purpose
vessels. Inshore tugs, which are operated principally within inland waters,
tow drilling rigs to and from their locations, and tow barges carrying
equipment and materials for use principally in inland waters for drilling and
production operations. Barges are either used in conjunction with company tugs
or are chartered to others.
Contributions of Main Classes of Vessels. Revenues from vessel operations
were derived from the main classes of vessels in the following percentages:
Year Ended
March 31,
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2000 1999 1998
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Towing-supply/Supply.................. 72.8% 73.3% 75.7%
Offshore Tugs......................... 14.1% 12.7% 11.9%
Crew/Utility.......................... 9.2% 6.9% 6.3%
Safety/Standby........................ 2.0% 5.7% 4.6%
Other................................. 1.9% 1.4% 1.5%
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Shipyards. Quality Shipyards, Inc., a wholly-owned subsidiary of the
company, operates two shipyards in Houma, Louisiana, which construct, modify
and repair vessels. Approximately 44% of the shipyards' business for the year
ended March 31, 2000 related to repairs and modifications of the company's
vessels.
Risks of Operation and Insurance. The operation of any marine vessel
involves an inherent risk of catastrophic marine disaster, adverse weather
conditions, mechanical failure, collisions, property losses to the vessel and
business interruption due to political action in countries other than the
United States. Any such event may result in a reduction in revenues or
increased costs. The company's vessels are insured for their estimated market
value against damage or loss, including war and pollution risks. The company
also carries workers' compensation, maritime employer's liability, general
liability (including third party pollution) and other insurance customary in
the industry.
The company's international marine vessel operations are subject to the
usual risks inherent in doing business in countries other than the United
States. Such risks include political changes, possible vessel seizure, company
nationalization or other governmental actions, currency restrictions and
revaluations, and import/export restrictions, all of which are beyond the
control of the company. Although it is impossible to predict the likelihood of
such occurrences or their effect on the company, the company believes these
risks to be within acceptable limits and, in view of the mobile nature of the
company's principal revenue producing assets, does not consider them to
constitute a factor materially adverse to the conduct of its international
marine vessel operations as a whole.
Industry Conditions, Competition and Customers. The company's operations
are materially dependent upon the levels of activity in offshore oil and
natural gas exploration, development and production throughout the world. Such
activity levels are affected both by short-term and long-term trends in world
oil and natural gas prices. Fiscal year 2000 company activity has been
significantly affected by the downturn in activity and capital spending in the
oil industry resulting from the drop in the price of oil which began in the
Fall of 1997. A discussion of current market conditions appears under
"Business Overview" in Item 7 of this report.
The principal competitive factors for the offshore vessel service industry
are suitability and availability of equipment, price and quality of service.
The company has numerous competitors in virtually all areas in which it
operates. Certain customers of the company own and operate vessels to service
certain of their offshore activities.
5
The company's diverse, mobile asset base and geographic distribution allow
it to respond to changes in market conditions and provide a broad range of
vessel services to its customers throughout the world. Management believes that
the company has a significant competitive advantage because of the size,
diversity and geographic distribution of its vessel fleet, the company's
financial condition and economies of scale.
Although one customer accounted for 12% and the five largest customers
accounted for approximately 32% of its revenues during the year ended March
31, 2000, the company does not consider its operations dependent on any single
customer.
Government Regulations. The company's vessels are subject to various
statutes and regulations governing their operation and maintenance.
Under the Merchant Marine Act of 1936 and the Shipping Act, 1916, the
company would lose the privilege of engaging in U.S. coastwise trade if more
than 25% of the company's outstanding stock was owned by non-U.S. citizens.
The company has a dual stock certificate system to prevent non-U.S. citizens
from owning more than 25% of its common stock. In addition, the company's
charter permits the company certain remedies with respect to any transfer or
purported transfer of shares of the company's common stock that would result
in the ownership by non-U.S. citizens of more than 24% of its common stock.
Based on information supplied to the company by its transfer agent,
approximately 3.23% of the company's outstanding common stock was owned by
non-U.S. citizens as of March 31, 2000.
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 618 vessels owned or operated by the company at March
31, 2000, 325 were registered under flags other than the United States and 293
were registered under the U.S. flag.
All of the company's offshore vessels are subject to international safety
and classification standards. U.S. flag towing-supply and supply vessels are
required to undergo periodic inspections and to be recertified under drydock
examination at least twice every five years. Non-U.S. flag vessels are also
subject to similar regulations.
Seasonality
The company's vessel fleet generally has its highest utilization rates in
the warmer temperature months when the weather is more favorable for offshore
exploration, development and construction work. However, business volume for
the company is more dependent on oil and natural gas prices and the global
supply and demand conditions for the company's services than any seasonal
variation.
Environmental Compliance
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 adverse effect on the company.
Employees
As of March 31, 2000, the company had approximately 6,100 employees. The
company considers relations with employees to be satisfactory. The company is
not a party to any union contract in the United States but through several
subsidiaries is a party to union agreements covering local nationals in
several countries other than the United States.
6
ITEM 3. Legal Proceedings
The company is not a party to any litigation which, in the opinion of
management, is likely to have a material adverse effect on the company's
financial position or results of operations. Please refer to Item 7 and Note 9
of Notes to Consolidated Financial Statements for further discussion of these
matters.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2000.
ITEM 4A. Executive Officers of the Registrant
Name Age Position
---- --- --------
William C. O'Malley......... 63 Chairman, President and Chief Executive Officer
since October, 1994.
Richard M. Currence......... 61 Executive Vice President since 1992.
Ken C. Tamblyn.............. 56 Executive Vice President since 1992.
Cliffe F. Laborde........... 48 Senior Vice President and General Counsel since
1992.
There are no family relationships between the directors or executive
officers of the company except that Cliffe F. Laborde, senior vice president
and general counsel, is the son of John P. Laborde, a director of the company.
The company's officers are elected annually by the Board of Directors and
serve for one-year terms or until their successors are elected.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The company's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol TDW. At March 31, 2000, there were
approximately 2,137 record holders of the company's common stock, based upon
the record holder list maintained by the company's stock transfer agent. The
following table sets forth the high and low closing sale prices of the
company's common stock as reported on the New York Stock Exchange Composite
Tape and the amount of cash dividends per share declared on Tidewater common
stock for the periods indicated.
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Fiscal Year Quarter High Low Dividend
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2000 First $31.625 $22.688 $.15
Second 36.313 25.500 .15
Third 36.500 23.563 .15
Fourth 36.188 25.188 .15
1999 First $44.375 $31.875 $.15
Second 33.813 20.750 .15
Third 30.188 17.563 .15
Fourth 26.563 18.688 .15
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7
ITEM 6. Selected Financial Data
The following table sets forth a summary of selected financial data for
each of the last five fiscal years. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
company included in this report.
Years Ended March 31
(in thousands, except ratio and per share amounts)
2000 1999 1998(2) 1997 1996
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Revenues:
Vessel revenues $ 538,517 911,048 1,001,651 661,224 506,180
Other marine revenues 36,298 57,944 58,510 29,202 26,022
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$ 574,815 968,992 1,060,161 690,426 532,202
===========================================================================================================
Earnings from continuing operations $ 76,590 210,719 243,038 138,235 69,503
Earnings from discontinued operations -- -- 10,723 7,776 6,674
Gain on sale of discontinued operations -- -- 61,738 -- --
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Net earnings $ 76,590 210,719 315,499 146,011 76,177
===========================================================================================================
Per common share(1):
Earnings from continuing operations $ 1.37 3.68 3.99 2.23 1.12
Earnings from discontinued operations -- -- .18 .12 .11
Gain on sale of discontinued operations -- -- 1.01 -- --
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Net earnings $ 1.37 3.68 5.18 2.35 1.23
===========================================================================================================
Total assets $1,432,336 1,394,458 1,492,839 1,061,280 974,410
===========================================================================================================
Long-term debt $ -- -- 25,000 -- --
===========================================================================================================
Working capital $ 328,856 198,532 114,907 159,607 106,904
===========================================================================================================
Current ratio 5.39 3.41 1.56 2.77 2.31
===========================================================================================================
Cash dividends declared per common share $ .60 .60 .60 .575 .475
===========================================================================================================
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(1) All per share amounts were computed on a diluted basis.
(2) See Note 2 of Notes to Consolidated Financial Statements for information
regarding a business disposition during fiscal year 1998.
8
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 Selected Financial Data and the Consolidated Financial
Statements and related disclosures.
Acquisitions and Dispositions
In order to better meet and service the needs of its customers, the company
announced on January 20, 2000 a new-build program estimated to cost in the
range of $200-$300 million. The vessels, which will be designed to cover
operational capabilities the company currently does not possess, will include
very large anchor handling towing supply vessels and large platform supply
vessels capable of working in most of the deepwater markets of the world. The
company expects to finance the new-build program from its current cash
balances that exceed $226.9 million at March 31, 2000, its projected cash flow
and its existing $200 million revolving credit facility. Deliveries on the new
vessels are expected to commence in about two years.
During the quarter ended September 30, 1999 the company acquired six new-
build vessels for an aggregate cash payment of approximately $22 million from
an industry competitor. The package of vessels included one supply vessel, two
offshore tugs and three crew boats. All six vessels were delivered to the
market during fiscal 2000. In July 1999 the company sold all of its
safety/standby vessels for approximately $40 million in an all cash
transaction. The specialized fleet was sold because it did not conform to the
company's long-range strategies.
On February 20, 1998 the company completed the sale of its compression
division. In consideration of the sale, the company received cash of
approximately $348 million.
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 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. Prior to the purchase O.I.L. was principally engaged in the
business of operating approximately 100 marine vessels, primarily platform
supply and anchor handling towing-supply vessels, in several offshore oil and
gas exploration areas outside of the United States. Goodwill of approximately
$355 million was recorded and is being amortized over 40 years.
To finance the O.I.L. acquisition $500 million of debt was incurred
pursuant to a $600 million revolving credit and term loan agreement with
several banks and consisted of a $400 million term loan and $100 million
borrowed under the $200 million revolving credit facility of the agreement. At
March 31, 1998 all debt borrowed to finance the O.I.L. acquisition had been
repaid and the $400 million term loan facility canceled.
On June 30, 1997 the company acquired the remaining 50% equity interest in
nine towing-supply and supply vessels previously owned and operated by joint-
venture companies in Australia for a cash payment of $13.2 million and
issuance of debt totaling $14.0 million. The total cost of the acquisition of
$30 million 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. Goodwill of approximately $12 million
was recorded and is being amortized over 40 years.
9
General Market Conditions
Fiscal 2000 results of operations continued to experience the effects of
the curtailment in capital spending in the oil industry as a result of the
drop in oil prices that commenced in the fall of 1997. Although oil prices
increased substantially throughout 1999 and into 2000, capital spending levels
of oil and gas exploration and production companies continue to be below 1997
levels. U.S.-based vessel activity weakened throughout fiscal 1999 and
stabilized during the first quarter of fiscal 2000; domestic vessel demand has
recovered gradually throughout the remainder of fiscal 2000. The oil industry
downturn immediately affected the U.S. Gulf of Mexico vessel market as the
duration of vessel contracts in this region normally range from one to three
months. U.S.-based vessel revenues for the current fiscal year have declined
approximately 53% and 70% compared to fiscal 1999 and 1998, respectively, due
to lower utilization and average day rates. As of March 31, 2000, the towing-
supply/supply vessels operating in the U.S. Gulf of Mexico are experiencing
approximately 56% utilization and average day rates of approximately $4,000
per day compared to 50% utilization and average day rates of approximately
$3,100 per day at March 31, 1999. Toward the latter part of fiscal 1998 U.S.-
based towing-supply/supply vessels were experiencing 90% utilization and
average day rates close to $8,000 per day.
Oil prices have appreciated significantly during calendar year 1999 and
2000. During the same period natural gas prices have trended upwards also. The
increases in the pricing of oil and gas combined with a tightening of
inventory levels have increased the demand for working drilling rigs and
services. Despite the improvements in the prices of oil and gas and increases
in the active rig count, the industry has not yet rebounded in full from the
sharp decline experienced during fiscal 1999. In addition, the delivery of a
number of newly-constructed supply vessels to various industry competitors
during fiscal 2000 has negatively affected the supply and demand balance for
supply vessels in the Gulf of Mexico and some international markets, thereby
putting continued downward pressure on vessel utilization and day rates.
Fiscal 2000 international vessel revenues decreased 35% and 26% compared to
fiscal 1999 and 1998, respectively, due to lower utilization and average day
rates as a result of the slow down in the oil industry. Fiscal 1999
international activity was not as dramatically affected by the downturn in the
oil industry as was domestic vessel activity due primarily to the longer-term
nature of international vessel contracts. Fiscal 1999 revenues increased 14%
over fiscal 1998. At March 31, 2000, the towing-supply/supply vessels
operating in the international areas are experiencing approximately 76%
utilization and average day rates of approximately $5,400 compared to 78%
utilization and average day rates of approximately $6,200 per day at March 31,
1999. Utilization and average day rates for the international-based towing-
supply/supply vessels were 89% and $6,230, respectively, at March 31, 1998.
International-based vessel demand weakened sharply during the fourth quarter
of fiscal 1999, but has shown signs of stabilization during the third quarter
of fiscal 2000.
In response to the oil industry downturn the following actions have been
taken. During the fourth quarter of fiscal 1999, the company began stacking
those vessels that could not find gainful employment. Drydockings associated
with the stacked vessels have been deferred thus substantially reducing repair
and maintenance costs for fiscal 2000. Reductions in crew personnel were made,
consequently lowering crew costs for fiscal 2000. The company sold its
safety/standby vessel fleet in July 1999 as it did not conform to the
company's long-range strategies. During the third and fourth quarters of
fiscal 2000, 39 older, little-used vessels were withdrawn from active service
at which time they were removed from the utilization statistics. Fourteen of
the vessels were withdrawn from the domestic market and 25 were withdrawn from
the international market. Vessel utilization rates are a function of vessel
days worked and vessel days available for active vessels only. The removal of
vessels from active service decreased the number of vessel days available
which consequently increased vessel utilization rates during the third and
fourth quarters of fiscal 2000. Vessels withdrawn from active service are
intended to be sold. The company continues to dispose of its older vessels
out of the active fleet and the withdrawn fleet that are not marketable due to
obsolescence or are economically prohibitive to operate due to high repair
costs.
10
Due to the oil industry downturn and having stacked and removed several
vessels from the active fleet during the fourth quarter of fiscal 1999, the
company conducted a review of the recoverability of the values of certain
vessels. In March 1999, the company recorded a write-down of $7.8 million to
reduce the carrying value of certain vessels.
Earnings Overview
Earnings from continuing operations decreased 62% and 71% below fiscal 1999
and 1998 amounts, respectively, after eliminating the effects of unusual
items. Fiscal 2000 earnings from continued operations included the following
unusual item: a $5 million, or $.09 per common share, reduction in income tax
expense from the reversal of previously provided taxes resulting from the
settlement of open income tax audits. Fiscal 1999 earnings from continuing
operations included the following unusual items: a $5.1 million, or $.09 per
common share, after-tax write-down on certain vessels as previously discussed;
and a $30 million, or $.52 per common share, reduction in income tax expense.
The reduction in income tax expense consisted of a $2 million reduction of
deferred income taxes resulting from the lowering of United Kingdom corporate
income tax rates and a $28 million realization of foreign tax credits not
previously recognized resulting from a tax planning strategy of selling
certain vessels from one taxing jurisdiction to another through intercompany
sales. The result of such sales was to pay foreign taxes which are fully
creditable on a current basis against U.S. income taxes and the release of
previously accrued deferred foreign tax credits. Fiscal 1998 earnings from
continuing operations included the following unusual items: a $5.3 million, or
$.09 per common share, after-tax provision for possible litigation expenses; a
$.8 million, or $.01 per common share, after-tax gain from the settlement of
obligations resulting from the fiscal 1996 curtailment of the company's
pension plan; and a $7.3 million, or $.12 per common share, reduction in
income tax expense. The reduction in income tax expense consisted of a $4
million reduction of deferred income taxes resulting from the lowering of
United Kingdom corporate income tax rates and a $3.3 million reduction in a
previously established liability for contested U.S. income tax issues.
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 primarily consist of crew costs, repair and maintenance, insurance,
fuel, lube oil and supplies. Fleet size and utilization are the major factors
which affect 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 following table compares revenues
and operating expenses (excluding general and administrative expenses and
depreciation expense) for the company's vessel fleet for the years ended March
31. Vessel revenues and operating costs relate to vessels
11
owned and operated by the company, while other marine services relate to third-
party activities of the company's shipyards, brokered vessels and other
miscellaneous marine-related activities.
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------------
Revenues(A):
Vessel revenues:
United States $140,090 296,161 463,914
International 398,427 614,887 537,737
- --------------------------------------------------------------------------------------
538,517 911,048 1,001,651
Other marine revenues 36,298 57,944 58,510
- --------------------------------------------------------------------------------------
Total revenues $574,815 968,992 1,060,161
======================================================================================
Operating costs:
Vessel operating costs:
Crew costs $189,202 262,014 245,515
Repair and maintenance 66,709 132,109 140,515
Insurance 18,626 24,216 31,076
Fuel, lube and supplies 24,462 35,228 36,133
Other 31,536 38,833 32,804
- --------------------------------------------------------------------------------------
330,535 492,400 486,043
Costs of other marine revenues 29,446 44,672 47,065
- --------------------------------------------------------------------------------------
Total operating costs $359,981 537,072 533,108
======================================================================================
- --------
(A) For fiscal 2000, one marine customer accounted for 12% of revenues. In
fiscal 1999 and 1998 a different marine customer accounted for 8% and 11%,
respectively, of revenues.
Marine operating profit and other components of earnings from continuing
operations before income taxes for the years ended March 31 consists of the
following:
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
Vessel activity:
United States $ (4,694) 96,376 225,599
International 78,888 171,213 141,133
- ------------------------------------------------------------------------------------------------------------
74,194 267,589 366,732
Gain on sales of assets 19,441 2,949 16,592
Other marine services 6,254 12,526 10,663
- ------------------------------------------------------------------------------------------------------------
Operating profit 99,889 283,064 393,987
- ------------------------------------------------------------------------------------------------------------
Other income 17,117 8,439 7,079
Other expense -- -- (6,847)
Corporate expenses (11,012) (12,317) (13,074)
Interest and other debt costs (714) (2,445) (24,677)
- ------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes $105,280 276,741 356,468
============================================================================================================
Operating profit for fiscal 2000 decreased 65% and 75% as compared to
fiscal 1999 and 1998, respectively, due to declines in utilization and average
day rates for both U.S.-based vessels and international-based vessels and a
decrease in the total number of vessels operating worldwide. Utilization and
average day rates for both U.S.-based vessels and international-based vessels
declined in the current fiscal year as a result of reductions in customer
drilling programs due to the downturn in the oil industry. Decreases in
operating profit were partially offset by higher gains on asset sales.
Included in fiscal 1999 gain on sales of assets is a fourth quarter write-down
of $7.8 million to reduce the carrying value of certain vessels. The write-down
resulted from a review of the recoverability 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.
Operating profit for fiscal year 1999 decreased as compared to fiscal 1998
due to declines in utilization and average day rates for U.S.-based vessels, a
decrease in the number of U.S.-based vessels and lower gains on asset sales.
These decreases were somewhat offset by an increase in average day rates for
international-based vessels. 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. Utilization and average
day rates for U.S.-based vessels declined in fiscal 1999 as a result of
reductions in customer drilling programs consequently decreasing U.S.-based
vessel operating profit by approximately 57%. Better market conditions in
certain international locations throughout most of fiscal 1999 resulted in
higher average day rates for international-based vessels as compared to fiscal
1998.
12
Fiscal 1998's operating profit was the highest in the company's history as
a result of higher average day rates for the worldwide vessel fleet, a larger
international-based vessel fleet and high gains from asset sales, partially
offset by higher operating costs. Higher average day rates for the worldwide
vessel fleet resulted from a favorable supply/demand relationship for company
services both in the U.S. Gulf of Mexico and internationally. Higher fiscal
1998 operating costs resulted from the expansion of the international-based
vessel fleet through the purchase of the O.I.L. and Australian vessels,
increased costs associated with attracting, training and retaining qualified
vessel personnel, and a greater number of vessel drydockings. Gains on asset
sales were high in fiscal 1998 as a result of the disposal of several vessels,
most of which had previously been withdrawn from active service due to
obsolescence and prohibitive repair costs.
As a result of the uncertainty of a certain customer to make payment of
vessel charter hire, the company has deferred the recognition of approximately
$10.7 million of billings as of March 31, 2000 and $9.7 million of billings as
of March 31, 1999 which would otherwise have been recognized as revenue. The
company will recognize the amounts as revenue as cash is collected or at such
time as the uncertainty has been reduced.
Fiscal 1998 other expense of $6.8 million consists of an $8 million
provision for litigation costs resulting from certain alleged labor-law pay
violations in various areas of the world where marine vessel operations are
conducted, and a $1.2 million gain from the settlement of obligations
resulting from the fiscal 1996 curtailment of the company's pension plan. At
March 31, 2000, $7.8 million has been paid in settlements relating to these
alleged labor-law pay violations.
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 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 tables compare day-based
utilization percentages and average day rates by vessel class and in total for
each of the quarters in the years ended March 31:
13
UTILIZATION:
Fiscal Year 2000 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply 47.2% 52.3 58.7 56.4 53.6
Crew/Utility 77.3 74.1 77.1 80.0 77.1
Offshore Tugs 38.9 46.8 42.8 35.6 41.2
Other 46.6 76.8 44.7 35.5 50.8
Total 49.4% 55.2 57.8 55.1 54.3
International-based fleet:
Towing-supply/Supply 71.9% 67.0 74.0 76.0 72.0
Crew/Utility 89.2 90.4 83.3 93.7 89.1
Offshore Tugs 65.4 51.2 66.3 76.6 64.8
Safety/Standby 77.5 -- -- -- 77.5
Other 52.1 48.3 48.5 43.7 48.2
Total 72.0% 66.3 71.9 75.6 71.3
Worldwide fleet:
Towing-supply/Supply 62.6% 61.6 68.1 68.4 65.0
Crew/Utility 85.2 84.9 81.2 89.0 85.0
Offshore Tugs 54.1 49.4 56.3 59.1 54.9
Safety/Standby 77.5 -- -- -- 77.5
Other 50.9 54.4 47.7 41.9 48.8
Total 64.1% 62.3 66.6 67.9 65.1
=======================================================================================
Fiscal Year 1999 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply 85.4% 73.2 74.1 60.1 73.4
Crew/Utility 88.8 86.5 79.8 84.1 85.0
Offshore Tugs 61.1 55.8 50.7 38.1 51.7
Other 45.7 48.2 49.7 35.2 44.8
Total 79.9% 71.0 69.6 58.3 70.0
International-based fleet:
Towing-supply/Supply 86.3% 84.0 81.0 79.2 82.6
Crew/Utility 80.2 88.0 89.3 89.6 86.8
Offshore Tugs 76.1 71.7 74.9 70.1 73.2
Safety/Standby 80.7 84.6 78.6 75.2 79.9
Other 67.9 69.8 69.2 72.1 69.7
Total 82.2% 81.8 80.2 78.5 80.7
Worldwide fleet:
Towing-supply/Supply 85.9% 80.0 78.4 72.2 79.2
Crew/Utility 83.6 87.5 85.9 87.7 86.1
Offshore Tugs 69.6 65.2 64.8 56.8 64.2
Safety/Standby 80.7 84.6 78.6 75.2 79.9
Other 62.7 64.4 64.6 63.5 63.8
Total 81.4% 78.0 76.5 71.5 76.9
=======================================================================================
Fiscal Year 1998 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply 91.0% 91.1 91.8 91.9 91.5
Crew/Utility 90.9 88.9 92.1 90.7 90.7
Offshore Tugs 63.1 64.3 61.8 53.1 60.6
Other 59.5 60.5 53.3 40.6 54.1
Total 84.8% 84.8 85.0 83.0 84.4
International-based fleet:
Towing-supply/Supply 89.4% 88.0 88.9 88.3 88.6
Crew/Utility 82.4 80.9 80.7 90.2 83.4
Offshore Tugs 83.1 80.3 79.7 76.6 80.0
Safety/Standby 78.1 71.3 65.6 70.1 71.0
Other 83.0 78.1 67.2 68.2 74.4
Total 86.0% 83.9 82.9 83.8 84.1
Worldwide fleet:
Towing-supply/Supply 90.1% 89.2 90.1 89.7 89.8
Crew/Utility 86.1 84.2 85.4 90.4 86.5
Offshore Tugs 74.7 73.6 71.9 66.3 71.7
Safety/Standby 78.1 71.3 65.6 70.1 71.0
Other 77.7 73.9 63.9 62.4 69.8
Total 85.5% 84.2 83.7 83.5 84.2
=======================================================================================
14
AVERAGE DAY RATES:
Fiscal Year 2000 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply $3,734 3,484 3,646 4,019 3,721
Crew/Utility 1,806 1,790 1,871 2,014 1,872
Offshore Tugs 6,028 5,922 5,751 5,733 5,868
Other 1,345 1,250 1,188 1,331 1,273
Total $3,572 3,427 3,512 3,732 3,558
International-based fleet:
Towing-supply/Supply $5,698 5,522 5,189 5,273 5,423
Crew/Utility 2,250 2,172 2,188 2,290 2,226
Offshore Tugs 4,048 3,818 3,827 4,009 3,969
Safety/Standby 6,087 -- -- -- 6,087
Other 1,265 1,383 1,358 1,604 1,393
Total $4,676 4,401 4,247 4,334 4,423
Worldwide fleet:
Towing-supply/Supply $5,143 4,878 4,677 4,873 4,889
Crew/Utility 2,114 2,059 2,084 2,204 2,116
Offshore Tugs 4,652 4,638 4,456 4,452 4,566
Safety/Standby 6,087 -- -- -- 6,087
Other 1,282 1,343 1,322 1,553 1,366
Total $4,377 4,088 4,009 4,151 4,160
=================================================================================================
Fiscal Year 1999 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply $7,709 6,331 4,545 4,043 5,844
Crew/Utility 2,280 2,121 2,021 2,014 2,121
Offshore Tugs 7,649 7,543 7,643 7,311 7,561
Other 3,449 3,053 2,073 2,006 2,674
Total $6,658 5,631 4,450 3,968 5,315
International-based fleet:
Towing-supply/Supply $6,523 6,643 6,562 6,229 6,495
Crew/Utility 2,447 2,406 2,428 2,399 2,419
Offshore Tugs 4,273 4,141 4,303 4,411 4,280
Safety/Standby 6,541 6,351 6,201 6,014 6,291
Other 876 918 891 1,250 973
Total $5,330 5,320 5,225 5,024 5,223
Worldwide fleet:
Towing-supply/Supply $6,975 6,536 5,860 5,555 6,269
Crew/Utility 2,376 2,303 2,293 2,270 2,311
Offshore Tugs 5,558 5,341 5,396 5,218 5,388
Safety/Standby 6,541 6,351 6,201 6,014 6,291
Other 1,313 1,317 1,104 1,347 1,253
Total $5,806 5,420 4,980 4,725 5,253
=================================================================================================
Fiscal Year 1998 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/Supply $6,986 7,532 7,853 7,877 7,566
Crew/Utility 1,976 2,142 2,216 2,219 2,138
Offshore Tugs 6,443 6,558 6,617 8,465 6,960
Other 2,626 2,757 3,167 3,611 2,959
Total $5,876 6,308 6,569 6,837 6,395
International-based fleet:
Towing-supply/Supply $4,806 5,440 5,655 6,069 5,515
Crew/Utility 1,982 2,190 2,213 2,375 2,194
Offshore Tugs 3,413 3,494 3,752 4,160 3,691
Safety/Standby 6,002 6,138 6,087 6,229 6,116
Other 873 935 953 938 921
Total $3,909 4,438 4,653 4,976 4,501
Worldwide fleet:
Towing-supply/Supply $5,750 6,267 6,539 6,798 6,351
Crew/Utility 1,979 2,169 2,215 2,306 2,169
Offshore Tugs 4,492 4,621 4,832 5,667 4,878
Safety/Standby 6,002 6,138 6,087 6,229 6,116
Other 1,173 1,291 1,387 1,299 1,280
Total $4,677 5,127 5,380 5,670 5,216
=================================================================================================
15
The average age of the company's owned or chartered vessel fleet is
approximately 19 years. The following table compares the average number of
vessels by class and geographic distribution during the years ended March 31
and the actual March 31, 2000 vessel count:
Average Number
Actual of Vessels
Vessel During Year
Count at Ended March 31,
March 31, ---------------------------
2000 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/supply 125 128 137 146
Crew/utility 26 26 32 39
Offshore tugs 32 35 39 40
Other 9 9 10 10
- ---------------------------------------------------------------------------------------------------
Total 192 198 218 235
- ---------------------------------------------------------------------------------------------------
International-based fleet:
Towing-supply/supply 197 209 231 218
Crew/utility 49 50 55 53
Offshore tugs 40 48 53 53
Safety/standby -- 6 28 29
Other 31 32 33 35
- ---------------------------------------------------------------------------------------------------
Total 317 345 400 388
- ---------------------------------------------------------------------------------------------------
Owned or chartered vessels included in marine revenues 509 543 618 623
Vessels withdrawn from active service 61 54 29 17
Joint-venture and other 48 45 48 56
- ---------------------------------------------------------------------------------------------------
Total 618 642 695 696
===================================================================================================
Consolidated general and administrative expenses for the years ended March
31 consists of the following components:
(in thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------
Personnel $40,206 44,666 43,797
Office and property 11,056 13,193 13,726
Sales and marketing 4,306 5,405 5,213
Professional service 5,729 5,587 5,065
Other 4,396 4,617 5,125
- -------------------------------------------------------------------------------------
$65,693 73,468 72,926
=====================================================================================
General and administrative expenses for fiscal year 2000 decreased from
fiscal year 1999 levels due primarily to personnel reductions resulting from
the sale of the safety/standby vessel fleet and the declining business
environment.
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. Variations from year-to-year in these items are
primarily the result of market conditions. Cash from ongoing operations in
combination with an available line of credit provide the company, in
management's opinion, with adequate resources to satisfy financing requirements.
At March 31, 2000, all of the company's $200 million revolving line of credit
was available for future financing needs. Continued payment of dividends, most
recently $.15 per quarter per common share, is subject to declaration by the
Board of Directors.
In order to better meet and service the needs of its customers, the company
announced on January 20, 2000 a new-build program estimated to cost in the
range of $200-$300 million. The vessels, which will be designed to cover
operational capabilities the company currently does not possess, will include
very large anchor handling towing supply vessels and large platform supply
vessels capable of working in most of the deepwater markets of the world. The
company expects to finance the new-build program from its current cash
balances that exceed $226.9 million at March 31, 2000, its projected cash flow
and its existing $200 million revolving credit facility. Deliveries on the new
vessels are expected to commence in about two years. At March 31, 2000, no
commitments to shipyards or other suppliers had been made for construction of
these vessels.
16
Investing activities for fiscal 2000 provided cash of approximately $14.4
million. Proceeds from the sale of assets totaling $71.6 million were higher
in fiscal 2000 than fiscal 1999 and 1998 due to a greater number of vessels
being sold, primarily the safety/standby vessels which were sold in July 1999
for approximately $40 million in an all cash transaction. Excluding the O.I.L.
and Australian acquisitions, additions to properties and equipment were higher
in fiscal 2000 than fiscal 1999 and 1998 due to a greater amount of vessel
acquisitions. Additions to properties and equipment in fiscal 2000 totaled
$57.4 million of which $7.6 million related to capitalized repairs and
maintenance and $47.3 million in new vessels construction. The new
construction includes approximately $22 million for the purchase of six new-
build vessels from an industry competitor.
Fiscal 2000 financing activities used $33.4 million of cash for payment of
quarterly common stock dividends. Fiscal 1999 financing activities used $175
million of cash which included $105 million prepayment on the credit facility
and repayment of $6.5 million of debt incurred from the Australian
acquisitions. In addition $80 million was borrowed primarily for income tax
payments of which approximately $68 million related to the sale of the
compression division. The company purchased 3,950,000 shares of common stock
during fiscal year 1999 at an aggregate cost of $109.3 million including
broker commissions and fees.
Fiscal 1998 financing activities included scheduled principal payments on
long-term debt of $34.1 million, $477.4 million of prepayments on the credit
facility, and the repayment of $14.8 million of debt assumed from the O.I.L.
and Australian acquisitions. The company purchased 1,481,000 shares of common
stock during the year ended March 31, 1998 at an aggregate cost of $65.2
million.
Goodwill
At March 31, 2000 the company had goodwill, net of accumulated
amortization, which represented 24% of total assets and 30% of stockholders'
equity. The goodwill amount primarily relates to the O.I.L. acquisition made
during fiscal 1998 and is being amortized over 40 years. In assigning such
amortization period the company considered many factors, including the
projected future cash flows of the acquired business and the effects of
obsolescence, demand, competition and other economic factors that may reduce a
useful life. Management periodically reviews goodwill to assess recoverability
and impairments would be recognized in operating results if a permanent
diminution in value were to occur. At March 31, 2000 management determined
that there is no persuasive evidence that any material portion of goodwill
will dissipate over a shorter period than the amortization period used.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
requires that all derivatives be recognized as either assets or liabilities and
measured at fair value, and is effective for all fiscal years beginning after
June 15, 2000. The company does not anticipate that the adoption of SFAS
No. 133, as amended, will have a material impact on its financial statements.
Currency Fluctuations and Inflation
Because of its significant international operations, the company is exposed
to currency fluctuations and exchange risk. 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 energy industry and the energy services industry will increase.
Future increases in vessel day rates may shield the company from the
inflationary effects on operating costs.
17
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 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2000 the company had no debt or derivative financial
instruments outstanding. The company is exposed to foreign currency
fluctuations and exchange risks but attempts to minimize the financial impact
of these items by contracting the majority of its services in United States
dollars. In addition, the company attempts to manage its foreign currency
assets and liabilities in order to minimize its exposure to foreign currency
fluctuations.
ITEM 8. Financial Statements and Supplementary Data
The information required by this Item is included in Part IV of this
report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information concerning directors of the company is incorporated by
reference from the company's definitive proxy statement to be filed on or
before July 29, 2000. For information regarding executive officers of the
company, see Item 4A of this report.
ITEM 11. Executive Compensation
Information concerning executive compensation is incorporated by reference
from the proxy statement described in Item 10 of this report.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference from the proxy statement described in
Item 10 of this report.
ITEM 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated by reference from the proxy statement described in Item 10 of
this report.
18
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. Financial Statements and Schedules
The Consolidated Financial Statements and Schedule of the company listed on
the accompanying Index to Financial Statements and Schedule (see page F-1) are
filed as part of this report.
B. Reports on Form 8-K
The company filed a current report on Form 8-K dated January 21, 2000 to
disclose that it had announced plans to begin a new-build program estimated to
cost in the range of $300 million.
C. Exhibits
The index below describes each exhibit filed as a part of this report.
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
3(a) --Restated Certificate of Incorporation of Tidewater Inc. (filed with
the Commission as Exhibit 3(a) to the company's quarterly report on
Form 10-Q for the quarter ended September 30, 1993).
3(b) --Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to
the company's quarterly report on Form 10-Q for the quarter ended June
30, 1999).
4(a) --Restated Rights Agreement dated as of September 19, 1996 between
Tidewater Inc. and The First National Bank of Boston (filed with the
Commission as Exhibit 1 to Form 8-A on September 30, 1996).
10(a) --$600,000,000 Revolving Credit and Term Loan Agreement dated March 19,
1997 (filed with the Commission as Exhibit 10(a) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1997).
10(b) --Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in
1990 (filed with the Commission as Exhibit 10(c) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1991).
10(c) --Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with
the Commission as Exhibit 10(f) to the company's annual report on Form
10-K for the fiscal year ended March 31, 1993).
10(d) --Tidewater Inc. Second Amended and Restated Supplemental Executive
Retirement Plan dated October 1, 1999 (filed with the Commission as
Exhibit 10(f) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(e) --Second Amended and Restated Employees' Supplemental Savings Plan of
Tidewater Inc. dated October 1, 1999 (filed with the Commission as
Exhibit 10(d) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(f) --Supplemental Health Plan for Executive Officers of Tidewater Inc.
(filed with the Commission as Exhibit 10(i) to a Registration
Statement on September 12, 1989, Registration No. 33-31016).
10(g) --Amended and Restated Deferred Compensation Plan for Outside Directors
of Tidewater Inc., effective October 1, 1999 (filed with the
Commission as Exhibit 10(I) to the company's quarterly report on Form
10-Q for the quarter ended December 31, 1999).
19
10(h) --Restated Non-Qualified Pension Plan for Outside Directors of Tidewater
Inc., effective October 1, 1999 (filed with the Commission as Exhibit
10(h) to the company's quarterly report on Form 10-Q for the quarter
ended December 31, 1999).
10(i) --Amended and Restated Change of Control Agreement dated October 1, 1999
between Tidewater and William C. O'Malley (filed with the Commission
as Exhibit 10(b) to the company's quarterly report on Form 10-Q for
the quarter ended December 31, 1999).
10(j) --Form of Amended and Restated Change of Control Agreement dated October
1, 1999 with three executive officers of Tidewater Inc. (filed with
the Commission as Exhibit 10(c) to the company's quarterly report on
Form 10-Q for the quarter ended December 31, 1999).
10(k) --Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission
as Exhibit 10(m) to the company's annual report on Form 10-K for the
fiscal year ended March 31, 1997).
10(l) --Employment Agreement dated September 25, 1997 between Tidewater Inc.
and William C. O'Malley (filed with the Commission as Exhibit 10 to
the company's report on Form 10-Q for the quarter ended September 30,
1997).
10(m) --Amendment No. 1 to Employment Agreement dated October 1, 1999 between
Tidewater Inc. and William C. O'Malley (filed with the Commission as
Exhibit 10(a) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(n) --Restated Tidewater Inc. 1997 Stock Incentive Plan, effective October
1, 1999 (filed with the Commission as Exhibit 10(g) to the company's
quarterly report on Form 10-Q for the quarter ended December 31,
1999).
10(o) --Restated Non-Qualified Deferred Compensation Plan and Trust Agreement
as Restated October 1, 1999 between Tidewater Inc. and Merrill Lynch
Trust Company of America (filed with the Commission as Exhibit 10(e)
to the company's quarterly report on Form 10-Q for the quarter ended
December 31, 1999).
10(p) --Seconded Restated Executives Supplemental Retirement Trust as Restated
October 1, 1999 between Tidewater Inc. and Hibernia National Bank
(filed with the Commission as Exhibit 10(j) to the company's quarterly
report on Form 10-Q for the quarter ended December 31, 1999).
*21 --Subsidiaries of the company.
*23 --Consent of Independent Auditors.
*27 --Financial Data Schedule.
Certain instruments respecting long-term debt of Tidewater have been
omitted pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to
furnish a copy of any such instrument to the Commission upon request.
20
SIGNATURES OF REGISTRANT
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on May 4, 2000.
TIDEWATER INC.
(Registrant)
By: /s/ William C. O'Malley
----------------------------------
William C. O'Malley
Chairman of the Board of
Directors,
President, and Chief Executive
Officer
By: /s/ Ken C. Tamblyn
----------------------------------
Ken C. Tamblyn
Executive Vice President, Chief
Financial
Officer and Principal Accounting
Officer
SIGNATURES OF DIRECTORS
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on May 4, 2000.
/s/ Robert H. Boh /s/ Larry D. Hornbeck
- ------------------------------------- -------------------------------------
Robert H. Boh Larry D. Hornbeck
/s/ Donald T. Bollinger /s/ Paul W. Murrill
- ------------------------------------- -------------------------------------
Donald T. Bollinger Paul W. Murrill
/s/ Arthur R. Carlson /s/ William C. O'Malley
- ------------------------------------- -------------------------------------
Arthur R. Carlson William C. O'Malley
/s/ John P. Laborde /s/ Lester Pollack
- ------------------------------------- -------------------------------------
John P. Laborde Lester Pollack
/s/ Jon C. Madonna /s/ J. Hugh Roff, Jr.
- ------------------------------------- -------------------------------------
Jon C. Madonna J. Hugh Roff, Jr.
/s/ Donald G. Russell
-------------------------------------
Donald G. Russell
21
TIDEWATER INC.
Annual Report on Form 10-K
Items 8, 14(a), and 14(d)
Index to Financial Statements and Schedule
Page
----
Financial Statements
Report of Independent Auditors F-2
Consolidated Balance Sheets, March 31, 2000 and 1999 F-3
Consolidated Statements of Earnings, three years ended March 31, 2000 F-4
Consolidated Statements of Stockholders' Equity, three years ended
March 31, 2000 F-5
Consolidated Statements of Cash Flows, three years ended March 31, 2000 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
II. Tidewater Inc. and Subsidiaries Valuation and Qualifying Accounts F-21
All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or the related notes.
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Tidewater Inc.
We have audited the accompanying consolidated balance sheets of Tidewater
Inc. as of March 31, 2000 and 1999 and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 2000. Our audits also included the financial
statement schedule listed in the accompanying Index to Financial Statements
and Schedule. These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Tidewater Inc. at March 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New Orleans, Louisiana
April 25, 2000
F-2
TIDEWATER INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
March 31, 2000 and 1999
(in thousands)
ASSETS 2000 1999
- -----------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 226,910 10,422
Trade and other receivables, less allowance for doubtful
accounts of $12,331 in 2000 and $11,125 in 1999 149,006 238,002
Marine operating supplies 25,405 27,971
Other current assets 2,372 4,483
- -----------------------------------------------------------------------------------------------
Total current assets 403,693 280,878
- -----------------------------------------------------------------------------------------------
Investments in, at equity, and advances to unconsolidated companies 23,275 17,307
Properties and equipment:
Vessels and related equipment 1,356,177 1,505,441
Other properties and equipment 42,474 42,744
- -----------------------------------------------------------------------------------------------
1,398,651 1,548,185
Less accumulated depreciation 842,620 910,005
- -----------------------------------------------------------------------------------------------
Net properties and equipment 556,031 638,180
- -----------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $26,342 in
2000, and $17,172 in 1999 338,006 347,176
Other assets 111,331 110,917
- -----------------------------------------------------------------------------------------------
Total assets $1,432,336 1,394,458
===============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses 66,943 71,256
Accrued property and liability losses 4,322 6,605
Income taxes 3,572 4,485
- -----------------------------------------------------------------------------------------------
Total current liabilities 74,837 82,346
- -----------------------------------------------------------------------------------------------
Deferred income taxes 145,076 128,826
Accrued property and liability losses 49,549 66,052
Other liabilities and deferred credits 48,673 49,527
Stockholders' equity 1,114,201 1,067,707
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,432,336 1,394,458
===============================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-3
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF EARNINGS
- -------------------------------------------------------------------------------
Years Ended March 31, 2000, 1999, and 1998
(in thousands, except share and per share data)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Revenues:
Vessel revenues $ 538,517 911,048 1,001,651
Other marine revenues 36,298 57,944 58,510
- -----------------------------------------------------------------------------------------------------------
574,815 968,992 1,060,161
- -----------------------------------------------------------------------------------------------------------
Costs and expenses:
Vessel operating costs 330,535 492,400 486,043
Costs of other marine revenues 29,446 44,672 47,065
Depreciation and amortization 82,502 94,783 91,410
General and administrative 65,693 73,468 72,926
- -----------------------------------------------------------------------------------------------------------
508,176 705,323 697,444
- -----------------------------------------------------------------------------------------------------------
66,639 263,669 362,717
Other income (expenses):
Foreign exchange gain (loss) 43 (12) (635)
Gain on sales of assets 19,443 2,949 16,531
Equity in net earnings of unconsolidated companies 8,994 7,505 6,381
Minority interests (486) (1,601) (1,258)
Interest and miscellaneous income 11,361 6,676 4,256
Other expense -- -- (6,847)
Interest and other debt costs (714) (2,445) (24,677)
- -----------------------------------------------------------------------------------------------------------
38,641 13,072 (6,249)
- -----------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 105,280 276,741 356,468
Income taxes 28,690 66,022 113,430
- -----------------------------------------------------------------------------------------------------------
Earnings from continuing operations 76,590 210,719 243,038
Earnings from discontinued Compression operations -- -- 10,723
Gain on sale of discontinued Compression operations -- -- 61,738
- -----------------------------------------------------------------------------------------------------------
Net earnings $ 76,590 210,719 315,499
===========================================================================================================
Earnings per common share:
Earnings from continuing operations $ 1.38 3.68 4.01
Earnings from discontinued Compression operations -- -- .18
Gain on sale of discontinued Compression operations -- -- 1.02
- -----------------------------------------------------------------------------------------------------------
Earnings per common share $ 1.38 3.68 5.21
===========================================================================================================
Diluted earnings per common share:
Earnings from continuing operations $ 1.37 3.68 3.99
Earnings from discontinued Compression operations -- -- .18
Gain on sale of discontinued Compression operations -- -- 1.01
- -----------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 1.37 3.68 5.18
===========================================================================================================
Weighted average common shares outstanding 55,546,832 57,189,946 60,552,315
Incremental common shares from stock options 249,976 78,579 341,329
- -----------------------------------------------------------------------------------------------------------
Adjusted weighted average common shares 55,796,808 57,268,525 60,893,644
===========================================================================================================
Cash dividends declared per common share $ .60 .60 .60
===========================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-4
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Years Ended March 31, 2000, 1999, and 1998
(in thousands)
Grantor
Trust
Deferred Accumulated Stock
Additional compensation-- Other Ownership
Common paid-in Retained restricted Comprehensive Program
stock capital earnings stock Income (GSOP) Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $6,033 341,415 433,347 (455) (10,676) -- 769,664
Net earnings -- -- 315,499 -- -- -- 315,499
Currency translation adjustments -- -- -- -- 94 -- 94
---------
Comprehensive Income 315,593
---------
Issuance of restricted stock 9 4,492 -- (4,501) -- -- --
Exercise of stock options 54 14,280 -- -- -- -- 14,334
Cash dividends declared -- -- (36,383) -- -- -- (36,383)
Common stock purchased (148) (65,034) -- -- -- -- (65,182)
Other -- -- -- 750 -- -- 750
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 5,948 295,153 712,463 (4,206) (10,582) -- 998,776
Net earnings -- -- 210,719 -- -- -- 210,719
Issuance of restricted stock -- -- -- (48) -- -- (48)
Exercise of stock options 4 788 -- -- -- -- 792
Cash dividends declared -- -- (34,394) -- -- -- (34,394)
Common stock purchased (395) (108,917) -- -- -- -- (109,312)
Establishment of GSOP 500 106,688 -- -- -- (107,188) --
Issuance of common shares -- (27) -- -- -- 304 277
Other -- (127) -- 1,024 -- -- 897
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 6,057 293,558 888,788 (3,230) (10,582) (106,884) 1,067,707
Net earnings -- -- 76,590 -- -- -- 76,590
Currency translation adjustments -- -- -- -- 2 -- 2
Unrealized gains on available-
for-sale securities -- -- -- -- 676 -- 676
---------
Comprehensive income 77,268
---------
Issuance of restricted stock -- 43 -- (43) -- -- --
Exercise of stock options (1) (265) -- -- -- 733 467
Cash dividends declared -- -- (33,370) -- -- -- (33,370)
Issuance of common shares -- 340 -- -- -- 862 1,202
Other -- (59) -- 986 -- -- 927
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $6,056 293,617 932,008 (2,287) (9,904) (105,289) 1,114,201
====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-5
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Years Ended March 31, 2000, 1999, and 1998
(in thousands)
2000 1999 1998
- -------------------------------------------------------------------------------------------
Operating activities:
Earnings from continuing operations $ 76,590 210,719 243,038
Adjustments to reconcile earnings from
continuing operations to net cash provided by
continuing operating activities:
Depreciation and amortization 82,502 94,783 91,410
Provision for deferred income taxes 6,968 (29,910) (1,604)
Gain on sales of assets (19,443) (2,949) (16,531)
Equity in earnings of unconsolidated companies,
less dividends (2,232) (2,512) (2,330)
Minority interests, less dividends (879) 918 (1,050)
Compensation expense--restricted stock 944 976 750
Changes in assets and liabilities, net
Trade and other receivables 84,330 19,558 (34,879)
Marine operating supplies 2,542 3,527 (1,720)
Other current assets 2,098 (204) 1,897
Accounts payable and accrued expenses (3,048) (39,822) 28,095
Accrued property and liability losses (1,693) (5,792) (1,092)
Other, net 6,383 5,072 5,994
- -------------------------------------------------------------------------------------------
Net cash provided by continuing operating
activities 235,062 254,364 311,978
Net cash provided by discontinued operating
activities -- -- 34,108
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 235,062 254,364 346,086
- -------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sales of assets 71,676 21,396 41,944
Proceeds from sale of Compression operations -- (68,442) 340,001
Additions to properties and equipment (57,362) (48,283) (82,501)
Acquisitions, net of cash acquired -- -- (581,099)
Other 114 950 (4,853)
- -------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 14,428 (94,379) (286,508)
- -------------------------------------------------------------------------------------------
Financing activities:
Common stock purchased -- (109,312) (65,182)
Principal payments on long-term debt -- (111,466) (526,281)
Borrowings -- 80,000 544,035
Proceeds from issuance of common stock 426 632 8,044
Cash dividends (33,370) (34,394) (36,383)
Other (58) -- --
- -------------------------------------------------------------------------------------------
Net cash used in financing activities (33,002) (174,540) (75,767)
- -------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 216,488 (14,555) (16,189)
Cash and cash equivalents at beginning of year 10,422 24,977 41,166
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $226,910 10,422 24,977
===========================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 685 2,360 23,937
Income taxes $ 38,373 203,354 111,427
===========================================================================================
Supplemental noncash investing activity:
Acquisitions:
Fair value of assets acquired $ -- -- 693,672
Fair value of liabilities assumed -- -- (112,573)
- -------------------------------------------------------------------------------------------
Net cash payment $ -- -- 581,099
===========================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-6
TIDEWATER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 2000, 1999, and 1998
(1) Summary of Significant Accounting Policies
Nature of Operations
The company provides services and equipment to the offshore energy industry
through the operation of the world's largest fleet of offshore service
vessels. Revenues, net earnings and cash flows from operations are dependent
upon the activity level for 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.
Use of Estimates
In preparing the company's financial statements, management makes informed
estimates and judgements that affect the amounts reported in the financial
statements and related disclosures. Actual results may differ from these
estimates.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Tidewater
Inc. and its subsidiaries. Significant intercompany balances and transactions
are eliminated in consolidation.
Properties and Equipment
Properties and equipment are stated at cost. Depreciation for financial
reporting purposes is computed primarily on the straight-line basis beginning
with the date of construction, with salvage values of 5%-10% for marine
equipment, using estimated useful lives of:
Years
- --------------------------------------------------------------------------------
Marine equipment (from date of construction) 15-25
Other properties and equipment 3-30
Used equipment is depreciated in accordance with the above schedule;
however, no life less than six years is used for marine equipment regardless
of the date constructed.
Maintenance and repairs are charged to operations as incurred during the
asset's original estimated useful life. Major repair costs incurred after the
original estimated useful life that also have the effect of extending the
useful life of the asset are capitalized and amortized over three years. Major
modifications to equipment are capitalized and amortized over the remaining
life of the equipment.
Goodwill
Goodwill primarily relates to the O.I.L. acquisition made during fiscal
1998 and is being amortized over 40 years. Management periodically reviews
goodwill to access recoverability, and impairments would be recognized in
operating results if a permanent diminution in value were to occur.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations or
to be disposed of when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by these assets or through
their sale are less than the assets' carrying amount. In March 1999 the company
recorded a charge to earnings of $7.8 million (included in gain on sales of
assets) to reduce the carrying amount of certain vessels. The write-down of
these vessels was determined based on internally developed valuations.
F-7
Accrued Property and Liability Losses
The company's insurance subsidiary establishes case based reserves for
estimates of reported losses on direct business written, estimates received
from ceding reinsurers, and reserves based on past experience of unreported
losses. Such losses principally relate to the company's marine operations and
are included as a component of costs of marine operations in the Consolidated
Statements of Earnings. The liability for such losses and the related
reimbursement receivable from reinsurance companies are classified in the
Consolidated Balance Sheet into current and noncurrent amounts based upon
estimates of when the liabilities will be settled and when the receivables
will be collected.
Pension and Other Postretirement Benefits
Pension costs are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 87 and are funded to at
least meet the minimum funding requirements as required by law. Prior service
costs are amortized on the straight-line basis over the average remaining
service period of employees expected to receive pension benefits.
Postretirement benefits other than pensions are accounted for in accordance
with SFAS No. 106. The estimated cost of postretirement benefits other than
pensions are accrued during the employees' active service period.
During fiscal 1999 the company adopted SFAS No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits," which
standardizes the disclosures for pensions and other postretirement benefit
plans and requires additional information to be disclosed related to changes
in benefit obligations and the fair value of plan assets. Information for
prior years has been included.
Income Taxes
Income taxes are accounted for in accordance with the provisions of SFAS
No. 109. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share." SFAS No. 128 requires the reporting of both earnings per share and
diluted earnings per share. The calculation of earnings per share is based on
the weighted average number of shares outstanding and therefore excludes any
dilutive effect of stock options, while diluted earnings per share includes
the dilutive effect of stock options. Per share amounts disclosed in these
Notes to Consolidated Financial Statements are on a diluted basis.
Foreign Currency Translation
The U.S. dollar is the functional currency for all of the company's
existing international operations, as all transactions in these operations are
predominately denominated in U.S. dollars. Foreign currency exchange gains and
losses are included in the Consolidated Statements of Earnings.
Cash Equivalents
The company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Revenue Recognition
Marine services are generally contracted for on a rate per day of service
basis; therefore, marine vessel revenues are recognized on a daily basis
throughout the contract period.
F-8
Concentrations of Credit Risk
Financial instruments which potentially subject the company to
concentrations of credit risk consist principally of trade and other
receivables. These receivables are with a variety of domestic, international
and national energy companies and also include reinsurance companies for
recoverable insurance losses. The company manages its exposure to risk through
ongoing credit evaluations of its customers and generally does not require
collateral. The company maintains an allowance for doubtful accounts for
potential losses and does not believe it is generally exposed to
concentrations of credit risk that are likely to have a material adverse
impact on the company's financial position or results of operations.
Stock-Based Compensation
The company uses the intrinsic value method of accounting for stock-based
compensation prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, adopted the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Comprehensive Income
The Company uses SFAS No. 130, "Reporting Comprehensive Income," which
requires the reporting and display of total comprehensive income and its
components in the financial statements. Total comprehensive income represents
the net change in stockholders' equity during a period from sources other than
transactions with stockholders and as such, includes net earnings. For the
company, accumulated other comprehensive income is comprised of accumulated
foreign currency translation adjustments and unrealized gains and losses on
available-for-sale securities.
New Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, requires that all derivatives be
recognized as either assets or liabilities and measured at fair value, and is
effective for all fiscal years beginning after June 15, 2000. The company does
not anticipate that the adoption of SFAS No. 133, as amended, will have a
material impact on its financial statements.
(2) Business Disposition
On February 20, 1998 the company completed the sale of its compression
division. The compression division provided natural gas and air compression
equipment and services, principally to the energy industry. In consideration
of the sale, the company received cash of approximately $348 million.
Accordingly, the company's consolidated financial statements for all periods
have been restated to report separately results of operations and operating
cash flows from continuing operations and the discontinued compression
operation.
The results of operations for the compression division for the eleven
months ended February 20, 1998 include $94 million of revenue, $46 million of
operating expenses and $37 million of net other expenses (primarily
depreciation, general and administrative expenses, and income taxes) which
resulted in approximately $11 million of earnings from these discontinued
operations.
The gain from the sale of Compression operations of $98.0 million, less
applicable income taxes of $36.3 million, is net of legal, accounting and
investment banking fees, severance and other costs associated with the sale.
F-9
(3) Unconsolidated Companies
Investments in, at equity, and advances to unconsolidated marine joint-
venture companies at March 31 were as follows:
Percentage (in thousands)
ownership 2000 1999
-----------------------------------------------------------------------------
National Marine Service (Abu Dhabi-UAE) 40% $13,480 12,847
Others 20%-50% 9,795 4,460
-----------------------------------------------------------------------------
$23,275 17,307
=============================================================================
The aggregate amount of undistributed earnings of all unconsolidated joint-
venture companies included in consolidated stockholders' equity at March 31,
2000 is approximately $22.1 million.
(4) Income Taxes
Earnings from continuing operations before income taxes derived from United
States and international operations for the years ended March 31 are as
follows:
(in thousands)
2000 1999 1998
-----------------------------------------------------------------------------
United States $ 11,032 96,421 192,788
International 94,248 180,320 163,680
-----------------------------------------------------------------------------
$105,280 276,741 356,468
=============================================================================
Income tax expense attributable to earnings from continuing operations for
the years ended March 31 consists of the following:
(in thousands)
U.S.
--------------------
Federal State International Total
- -------------------------------------------------------------------------------
2000
----------------------------------------------------------------------------
Current $(7,660) 2,567 26,815 21,722
Deferred 10,518 -- (3,550) 6,968
- -------------------------------------------------------------------------------
$ 2,858 2,567 23,265 28,690
===============================================================================
1999
----------------------------------------------------------------------------
Current $ (386) 8,333 87,985 95,932
Deferred 5,710 -- (35,620) (29,910)
- -------------------------------------------------------------------------------
$ 5,324 8,333 52,365 66,022
===============================================================================
1998
----------------------------------------------------------------------------
Current $96,336 1,083 17,615 115,034
Deferred (1,604) -- -- (1,604)
- -------------------------------------------------------------------------------
$94,732 1,083 17,615 113,430
===============================================================================
The actual income tax expense attributable to earnings from continuing
operations for the years ended March 31, 2000, 1999, and 1998 differs from the
amounts computed by applying the U.S. federal tax rate of 35% to pre-tax
earnings as a result of the following:
(in thousands)
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Computed "expected" tax expense $36,848 96,859 124,764
Increase (reduction) resulting from:
Effect of United Kingdom tax rate change -- (2,000) (4,000)
Overaccrual of income tax expense in prior years (5,000) -- (3,300)
Foreign tax credits not previously recognized (3,550) (35,620) --
Utilization of net operating loss carryforwards (52) (792) (620)
Expenses which are not deductible for tax purposes 771 833 611
State taxes 1,669 5,416 704
Other, net (1,996) 1,326 (4,729)
- ----------------------------------------------------------------------------------------------------
$28,690 66,022 113,430
====================================================================================================
F-10
The reversals in fiscal years 2000 and 1998 of taxes overaccrued in prior
years are the result of settlements of open income tax audits with the
Internal Revenue Service for fiscal years 1993 through 1997.
During the fourth quarter of the year ended March 31, 1999 approximately
$28 million of foreign tax credits not previously recognized were realized as
the result of a tax planning strategy of selling certain vessels from one
taxing jurisdiction to another through intercompany sales. The result of such
sales was to pay foreign taxes which are fully creditable on a current basis
against U.S. income taxes and to accelerate the release of previously accrued
deferred foreign tax credits.
The significant components of deferred income tax expense for the years
ended March 31 are as follows:
(in thousands)
2000 1999 1998
- -------------------------------------------------------------------------------------------
Deferred income tax expense (benefit) (exclusive
of the effects of other components listed below) $15,434 12,719 2,396
Investment, foreign and minimum tax credits (4,916) (5,009) --
Foreign tax credits not previously recognized (3,550) (35,620) --
Effect of United Kingdom tax rate charges -- (2,000) (4,000)
- --------------------------------------------------------------------------------------------
$ 6,968 (29,910) (1,604)
============================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2000 and 1999 are as follows:
(in thousands)
2000 1999
- ---------------------------------------------------------------------------------------
Deferred tax assets:
Financial provisions not deducted for tax purposes $ 16,346 11,243
Foreign net operating loss carryforwards 7,924 9,043
Tax credit carryforwards 13,776 8,860
Other 3,451 3,088
- ---------------------------------------------------------------------------------------
Gross deferred tax assets 41,497 32,234
Less valuation allowance (14,283) (14,302)
- ---------------------------------------------------------------------------------------
Net deferred tax assets 27,214 17,932
- ---------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (130,814) (119,668)
Other (14,262) (9,158)
- ---------------------------------------------------------------------------------------
Gross deferred tax liabilities (145,076) (128,826)
- ---------------------------------------------------------------------------------------
Net deferred tax liabilities $(117,862) (110,894)
=======================================================================================
The net changes in the valuation allowance for the years ended March 31,
2000 and 1999 were a decrease of $19,000 and $2.5 million, respectively. The
valuation allowance is primarily the result of a doubt over the ultimate
realization of benefits from certain foreign net operating losses. The
remaining balance of the deferred tax assets is expected to be realized
through future operating results and the reversal of taxable temporary
differences.
The company has not recognized a deferred tax liability of approximately
$31.5 million for the undistributed earnings of certain non-U.S. subsidiaries
that arose in prior years because the company currently does not expect those
unremitted earnings to reverse and become taxable to the company in the
foreseeable future. A deferred tax liability will be recognized when the
company expects that it will realize those undistributed earnings in a taxable
manner, such as through receipt of dividends or sale of investments. As of
March 31, 2000, the undistributed earnings of these subsidiaries were
approximately $90 million.
F-11
(5) Long-Term Debt
At March 31, 2000, the company has a $200 million revolving credit facility
with a group of banks and at that date there were no borrowings outstanding
under the facility. Borrowings bear interest, at the company's option, at
prime or Federal Funds rates plus .5% or Eurodollar rates plus margins from
.5% to .75% based on the company's funded debt to total capitalization ratio.
The revolving credit commitment expires on April 30, 2001, at which time the
then outstanding balance will convert to a term loan payable in 16 quarterly
installments beginning July 31, 2001. All of the borrowings under the
agreement are unsecured and the company pays an annual fee of .25% on the
unused portion of the facility.
Under the terms of the agreement, the company has agreed to limitations on
future levels of investments and aggregate indebtedness, and maintenance of
certain debt to capitalization ratios and also debt to earnings ratios. The
agreement also prohibits the company from encumbering its assets for the
benefit of others.
(6) Benefit Plans
Upon meeting various citizenship, age and service requirements, employees
are eligible to participate in a defined contribution savings plan and can
contribute from 2% to 15% of their base salary to an employee benefit trust.
The company matches with company common stock 50% of the employee's
contribution to the plan up to a maximum of 6% of the employee's base salary.
The plan held 424,503 shares and 429,835 shares of the company's common stock
at March 31, 2000 and 1999, respectively. Amounts charged to expense for the
plan for 2000, 1999 and 1998 were $1.7 million, $1.8 million and $1.8 million,
respectively.
A defined benefits pension plan covers certain U.S. citizen employees and
employees who are permanent residents of the United States. Benefits are based
on years of service and employee compensation. The company's policy is to fund
the plan based upon minimum funding requirements of the Employee Retirement
Income Security Act of 1974. The company also has a supplemental retirement
plan (supplemental plan) that provides pension benefits to certain employees
in excess of those allowed under the company's tax-qualified pension plan.
Certain benefits programs are maintained in several other countries which
provide retirement income for covered employees.
Qualified retired employees currently are covered by a program which
provides limited health care and life insurance benefits. Costs of the program
are based on actuarially determined amounts and are accrued over the period
from the date of hire to the full eligibility date of employees who are
expected to qualify for these benefits. This plan is not funded.
Changes in plan assets and obligations during the years ended March 31,
2000 and 1999 and the funded status of the U.S. defined benefits pension plan
and the supplemental plan (referred to collectively as "Pension Benefits") and
the postretirement health care and life insurance plan (referred to as "Other
Benefits") at March 31, 2000 and 1999 were as follows:
F-12
(in thousands)
Pension
Benefits Other Benefits
- ------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $34,798 29,636 15,526 13,082
Service cost 1,014 848 900 1,068
Interest cost 2,432 2,189 942 961
Participant contributions -- -- 265 223
Plan amendments -- -- (976) --
Benefits paid (1,073) (1,034) (829) (628)
Actuarial (gain) loss (2,487) 3,159 (2,492) 820
- ------------------------------------------------------------------------------------------------
Benefit obligation at end of year $34,684 34,798 13,336 15,526
- ------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $29,102 28,772 -- --
Actual return 2,961 1,290 -- --
Employer contributions 83 74 564 405
Participant contributions -- -- 265 223
Benefits paid (1,073) (1,034) (829) (628)
- ------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $31,073 29,102 -- --
- ------------------------------------------------------------------------------------------------
Funded (unfunded) status (3,611) (5,696) (13,336) (15,526)
Unrecognized actuarial (gain) loss (1,169) 2,083 (5,570) (3,395)
Unrecognized prior service cost 687 908 (129) 880
- ------------------------------------------------------------------------------------------------
Net accrued benefit cost $(4,093) (2,705) (19,035) (18,041)
================================================================================================
Net accrued benefit cost consists of:
Prepaid benefit cost $ 1,869 1,536 -- --
Accrued benefit liability (5,962) (6,762) (19,035) (18,041)
Intangible asset -- 2,521 -- --
- ------------------------------------------------------------------------------------------------
Net accrued benefit cost $(4,093) (2,705) (19,035) (18,041)
================================================================================================
For pension plans with benefit obligations in excess of plan assets, the
projected benefit obligation at March 31, 2000 and 1999 was $6.6 million and
$9.6 million, respectively. The accumulated benefit obligation for pension
plans with benefit obligations in excess of plan assets was $5.4 million and
$6.8 million at March 31, 2000 and 1999, respectively.
Net periodic pension cost for the U.S. defined benefit pension plan and the
supplemental plan for 2000, 1999 and 1998 include the following components:
(in thousands)
2000 1999 1998
- -------------------------------------------------------------------------------
Service cost $ 1,014 848 987
Interest cost 2,432 2,189 2,230
Expected return on plan assets (2,718) (2,693) (2,465)
Amortization of prior service cost 204 269 279
Recognized actuarial (gain) loss 538 (29) 120
- -------------------------------------------------------------------------------
Net periodic pension cost $ 1,470 584 1,151
===============================================================================
Net periodic postretirement health care and life insurance costs for 2000,
1999 and 1998 include the following components:
(in thousands)
2000 1999 1998
- -------------------------------------------------------------------------------
Service cost $ 900 1,068 1,255
Interest cost 942 961 1,132
Other amortization and deferral (284) (205) (28)
- -------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,558 1,824 2,359
===============================================================================
F-13
Assumptions used in actuarial calculations were as follows:
2000 1999 1998
- -------------------------------------------------------------------------------
Discount rate 7.5% 7.0% 7.5%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
Rates of annual increase in compensation levels 4.0% 4.0% 5.0%
===============================================================================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation will be 6.5% in 2001, gradually declining to
4.5% in the year 2005 and thereafter. A 1% increase in the assumed health care
cost trend rates for each year would increase the accumulated postretirement
benefit obligation by approximately $1.7 million at March 31, 2000 and
increase the cost for the year ended March 31, 2000 by $.3 million. A 1%
decrease in the assumed health care cost trend rates for each year would
decrease the accumulated postretirement benefit obligation by approximately
$1.4 million at March 31, 2000 and decrease the cost for the year ended March
31, 2000 by $.2 million.
A defined contribution retirement plan covers all eligible U.S. fleet
personnel, along with all new eligible employees of the company hired after
December 31, 1995. This plan is noncontributory by the employee, but the
company has contributed in cash 3% of an eligible employee's compensation to
an employee benefit trust. The cost of the plan for fiscal 2000, 1999 and 1998
was $2.2 million, $1.7 million and $2.7 million, respectively. Fiscal 1999
cost of the plan has been reduced by $.9 million of forfeitures due to
employee severances.
During the fourth quarter of fiscal 1998, as a result of the sale of the
company's compression division, the company recorded as part of the gain on
sale of discontinued compression operations a pre-tax curtailment gain of $2.4
million resulting from the removal of all compression personnel from the U.S.
defined benefit pension plan, the supplemental plan and the post-retirement
health care and life insurance plan.
(7) Other Assets, Other Liabilities and Deferred Credits
A summary of other assets at March 31 follows:
(in thousands)
2000 1999
- --------------------------------------------------------------------------------
Recoverable insurance losses $ 49,549 66,052
Assets held for sale 23,545 14,589
Deferred income tax assets 27,214 17,932
Other 11,023 12,344
- --------------------------------------------------------------------------------
$111,331 110,917
================================================================================
A summary of other liabilities and deferred credits at March 31 follows:
(in thousands)
2000 1999
- --------------------------------------------------------------------------------
Postretirement benefits liability $19,035 18,041
Pension liability 4,093 5,226
Minority interests in net assets of subsidiaries 3,782 4,665
Deferred vessel revenues 11,692 10,264
Other 10,071 11,331
- --------------------------------------------------------------------------------
$48,673 49,527
================================================================================
F-14
(8) Capital Stock
The company has 125 million shares of $.10 par value common stock
authorized. At March 31, 2000 and 1999, 60,561,892 shares and 60,566,857
shares, respectively, were issued. At March 31, 2000 and 1999, 4,911,445 and
4,985,860 shares, respectively, were held by the Grantor Trust Stock Ownership
Program, which are not included in common shares outstanding for earnings per
share calculations. At March 31, 2000 and 1999, three million shares of no par
value preferred stock were authorized and unissued.
Under the company's stock option and restricted stock plans, the
Compensation Committee of the Board of Directors has authority to grant stock
options and restricted shares of the company's stock to officers and other key
employees. At March 31, 2000, 4,308,571 shares of common stock are reserved
for issuance under the plans of which 738,100 shares are available for future
grants. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. All outstanding stock options have
ten-year terms and most of the outstanding options vest and become exercisable
in equal installments over a three-year period from the grant date.
The per share weighted-average fair values of stock options granted during
fiscal years 2000, 1999, and 1998 were $13.28, $8.37, and $17.69,
respectively, on the dates of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions:
2000 1999 1998
- -------------------------------------------------------------------------------
Risk-free interest rate 6.50% 5.15% 5.75%
Expected dividend yield 2.00% 2.50% 1.25%
Expected stock price volatility 45.71% 42.79% 34.93%
Expected stock option life 5 years 5 years 5 years
===============================================================================
The company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No. 123, the company's net earnings would have been reduced to the pro
forma amounts as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Net earnings (in thousands):
As reported $76,590 210,719 315,499
Pro forma $69,434 204,778 312,215
Earnings per common share:
As reported $ 1.38 3.68 5.21
Pro forma $ 1.25 3.58 5.16
Diluted earnings per common share:
As reported $ 1.37 3.68 5.18
Pro forma $ 1.24 3.58 5.13
================================================================================
Pro forma net earnings and diluted earnings per common share reflect only
options granted during fiscal years 2000, 1999, and 1998. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123
is not reflected in the pro forma amounts presented above because compensation
cost is reflected over the options' vesting period of three years and
compensation cost for options granted prior to April 1, 1995 is not
considered.
F-15
Stock option activity during 2000, 1999, and 1998 was as follows:
Weighted-average Number of
Exercise Price Shares
- -------------------------------------------------------------------------------
Balance at March 31, 1997 $29.11 1,913,103
Granted 49.19 762,000
Exercised 20.97 (620,054)
Expired or cancelled 41.60 (94,984)
- -------------------------------------------------------------------------------
Balance at March 31, 1998 38.89 1,960,065
Granted 23.18 1,121,000
Exercised 19.78 (33,061)
Expired or cancelled 42.04 (38,998)
- -------------------------------------------------------------------------------
Balance at March 31, 1999 33.21 3,009,006
Granted 32.02 609,000
Exercised 15.64 (33,699)
Expired or cancelled 33.77 (24,000)
- -------------------------------------------------------------------------------
Balance at March 31, 2000 $33.17 3,560,307
===============================================================================
The 3,560,307 options outstanding at March 31, 2000 fall into three general
exercise-price ranges as follows:
Exercise Price Range
- ------------------------------------------------------------------------------------------
$12.13-$22.75 $23.38-$35.75 $39.00-$59.00
- ------------------------------------------------------------------------------------------
Options outstanding at March 31, 2000 1,286,279 921,000 1,353,028
Weighted average exercise price $22.02 $29.70 $46.12
Weighted average remaining contractual life 7.9 years 8.4 years 7.3 years
Options exercisable at March 31, 2000 590,268 352,000 1,107,350
Weighted average exercise price of
options exercisable at March 31, 2000 $21.17 $25.54 $45.42
==========================================================================================
At March 31, 2000, 1999, and 1998, the number of options exercisable under
the stock option plans was 2,049,618, 1,302,653, and 865,383, respectively;
and the weighted average exercise price of those options was $35.02, $34.47
and $28.47, respectively.
During fiscal years 2000, 1999 and 1998, a total of 38,900 shares of
restricted common stock of the company were granted to certain key employees.
These restricted shares vest and become freely transferable over a four-year
period provided the employee remains employed by the company during the
vesting period. During the restricted period, the restricted shares may not be
transferred or encumbered, but the recipient has the right to vote and receive
dividends on the restricted shares. The fair market value of the stock at the
time of the grants totaled approximately $1.7 million and was classified in
stockholders' equity as deferred compensation--restricted stock. The deferred
amount is being amortized by equal monthly charges to earnings over the four-
year vesting period.
In accordance with a June 13, 1994 employment agreement with the company's
chairman of the board, 70,000 shares of restricted common stock of the company
were granted to him on October 20, 1994. The restricted stock agreement
contained provisions for vesting of the shares at varying intervals when the
average market price of the common stock reaches certain predetermined levels.
By March 31, 1998, the total 70,000 shares had vested due to the attainment of
the price levels applicable to those shares and the total deferred amount of
$1.6 million had been charged to earnings.
In accordance with a new employment agreement with the company's chairman
of the board entered into on September 25, 1997, 50,000 shares of restricted
common stock were granted on that date. These restricted shares also vest at
varying intervals when the average market price of the common stock reaches
certain predetermined levels. The fair market value of the stock at the time
of grant totaling approximately $3 million was deferred and is being amortized
by equal monthly charges to earnings over five years.
F-16
From time to time the company's Board of Directors has authorized share
repurchase programs whereby the company could purchase shares of company
common stock in the open market or through privately negotiated transactions.
There were no stock repurchases during fiscal 2000 and all previously
authorized programs had expired by March 31, 2000. Stock repurchase activity
during fiscal years 1999 and 1998 was as follows:
1999 1998
- -------------------------------------------------------------------------------------------------
Number of shares repurchased 3,950,000 1,481,000
Total cost, including broker commissions and fees (in thousands) $ 109,312 65,182
Average cost per share $ 27.67 44.02
On January 29, 1999 the company established a Grantor Trust Stock Ownership
Program in connection with which the company entered into a trust agreement
with a bank providing for the establishment of the related trust (the
"trust"). The trust is designed to acquire, hold and distribute shares of the
common stock of the company to provide for the payment of benefits and
compensation under the company's employee benefit plans, including its stock
option plans and 401(k) plan. The trust will not increase or alter the amount
of benefits or compensation that will be paid under these plans.
On January 29, 1999 the company sold at market value 5,000,000 shares (the
"acquired shares") of common stock to the trust for $107,187,500, or $21.4375
per share. In payment for the acquired shares, the trust paid $500,000 in cash
and issued a promissory note payable to the company for the remaining balance.
Acquired shares will be released to satisfy the company's obligations to pay
benefits under company benefit plans as the promissory note is paid down or
forgiven.
For financial reporting purposes the trust is consolidated with the
company. Any dividend transactions between the company and the trust are
eliminated. Acquired shares held by the trust remain valued at the market
price at the date of purchase and are shown as a reduction to stockholders'
equity in the company's consolidated balance sheet. The difference between the
trust share value and the fair market value on the date shares are released
from the trust is included in additional paid-in capital. Common stock held in
the trust is not considered outstanding in the computation of earnings per
share. The trust held 4,911,445 and 4,985,860 shares of common stock at March
31, 2000 and 1999, respectively. The trustee will vote or tender shares held
by the trust in accordance with the confidential instructions of participants
in the company's stock option plans and 401(k) plan.
Under a Shareholder Rights Plan, one preferred stock purchase right has
been distributed as a dividend for each outstanding common share. Each right
entitles the holder to purchase, under certain conditions, one one-hundredth
of a share of Series A Participating Preferred Stock at an exercise price of
$160, subject to adjustment. The rights will not be exercisable unless a
person (as defined in the plan) acquires beneficial ownership of 15% or more
of the outstanding common shares, or a person commences a tender offer or
exchange offer, which upon its consummation such person would beneficially own
15% or more of the outstanding common shares. The Board of Directors is
authorized in certain circumstances to lower the beneficial ownership
percentage to not less than 10%.
If after the rights become exercisable a person becomes the beneficial
owner of 15% or more of the outstanding common shares (except pursuant to an
offer for all shares approved by the Board of Directors), each holder (other
than the acquirer) will be entitled to receive, upon exercise, common shares
having a market value of twice the exercise price. In addition, if the company
is involved in a merger (other than a merger which follows an offer for all
shares approved by the Board of Directors), major sale of assets or other
business combination after a person becomes the beneficial owner of 15% or
more of the outstanding common shares, each holder of a right (other than the
acquirer) will be entitled to receive, upon exercise, common stock of the
acquiring company having a market value of twice the exercise price.
The rights may be redeemed for $.01 per right at any time prior to ten days
following the acquisition by a person of 15% or more of the outstanding common
shares. The rights expire on November 1, 2006.
F-17
(9) Commitments and Contingencies
An employment agreement exists with the company's chairman of the board
whereby he will serve in such capacity as well as president and chief
executive officer through September 19, 2000. The terms of the employment
agreement provide for an annual base salary and certain other benefits.
Compensation continuation agreements exist with all other officers of
Tidewater Inc. whereby each receives compensation and benefits in the event
that their employment is terminated following certain events relating to a
change in control of the company. The maximum amount of cash compensation that
could be paid under the agreements, based on present salary levels, is
approximately $18.7 million.
The company is the defendant 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 second quarter of
fiscal 1998, the company provided $8 million for the possible adverse outcome
of these labor-law matters. Pursuant to a court-approved settlement, as of
March 31, 2000 the company has paid $7.8 million in settlements relating to
certain of these alleged labor-law pay violations. In management's opinion,
the amount of the company's liability in excess of amounts provided in the
financial statements for these labor-law matters, if any, will not have a
material adverse effect on the company's financial position or the results of
its ongoing operations.
Various legal proceedings and claims are outstanding which arose in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the company's financial position or results of
its ongoing operations.
(10) Segment and Geographic Distribution of Operations
The company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." With the sale of the company's
Compression business as explained in Note 2, the company operates in only one
business segment. The following table provides a comparison of revenues,
operating profit, identifiable assets, and depreciation and amortization and
additions to properties and equipment for the years ended March 31. Vessel
revenues and operating costs relate to vessels owned and operated by the
F-18
company while other marine services relate to the activities of the company's
shipyards, brokered vessels and other miscellaneous marine-related businesses.
(in thousands)
2000 1999 1998
- ------------------------------------------------------------------------------------------------
Marine revenues (A):
Vessel revenues:
United States $ 140,090 296,161 463,914
International (B) 398,427 614,887 537,737
- ------------------------------------------------------------------------------------------------
538,517 911,048 1,001,651
Other marine services 36,298 57,944 58,510
- ------------------------------------------------------------------------------------------------
$ 574,815 968,992 1,060,161
================================================================================================
Marine operating profit:
Vessel activity:
United States $ (4,694) 96,376 225,599
International 78,888 171,213 141,133
- ------------------------------------------------------------------------------------------------
74,194 267,589 366,732
Gains on sales of assets 19,441 2,949 16,592
Other marine services 6,254 12,526 10,663
- ------------------------------------------------------------------------------------------------
99,889 283,064 393,987
Other income 17,117 8,439 7,079
Other expense -- -- (6,847)
Corporate expenses (11,012) (12,317) (13,074)
Interest and other debt costs (714) (2,445) (24,677)
- ------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes $ 105,280 276,741 356,468
================================================================================================
Identifiable assets:
Marine:
United States $ 268,234 317,411 379,118
International (B) 857,705 970,853 1,043,781
- ------------------------------------------------------------------------------------------------
1,125,939 1,288,264 1,422,899
Investments in and advances to
unconsolidated Marine companies 23,275 17,307 21,825
- ------------------------------------------------------------------------------------------------
1,149,214 1,305,571 1,444,724
General corporate 283,122 88,887 48,115
- ------------------------------------------------------------------------------------------------
$1,432,336 1,394,458 1,492,839
================================================================================================
Depreciation and amortization:
Marine equipment depreciation $ 72,662 84,823 83,002
General corporate depreciation 670 790 406
Goodwill amortization 9,170 9,170 8,002
- ------------------------------------------------------------------------------------------------
$ 82,502 94,783 91,410
================================================================================================
Additions to properties and equipment:
Marine equipment operations $ 56,476 40,959 62,555
Discontinued Compression operations -- -- 17,597
General corporate 886 7,324 2,349
- ------------------------------------------------------------------------------------------------
$ 57,362 48,283 82,501
================================================================================================
(A) One marine customer accounted for 12% of revenues for the fiscal year
ended March 31, 2000. In fiscal 1999 and 1998 a different marine customer
accounted for 8% and 11%, respectively, of revenues.
(B) 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. Equity
in net assets of non-U.S. subsidiaries is $581.9 million, $674.5 million,
and $795.1 million at March 31, 2000, 1999, and 1998, respectively. Other
international identifiable assets include accounts receivable and other
balances denominated in currencies other than the U.S. dollar which
aggregate approximately $5.0 million, $12.9 million, and $19.1 million at
March 31, 2000, 1999, and 1998, respectively. These amounts are subject to
the usual risks of fluctuating exchange rates and government-imposed
exchange controls.
F-19
(11) Supplementary Information--Quarterly Financial Data (Unaudited)
Years Ended March 31, 2000 and 1999
(in thousands, except per share data)
2000 First Second Third Fourth
- --------------------------------------------------------------------------------
Marine revenues $154,530 138,946 141,770 139,569
================================================================================
Marine operating profit $ 24,671 27,291 22,232 25,695
================================================================================
Net earnings $ 16,462 18,885 22,233 19,010
================================================================================
Earnings per share $ .30 .34 .40 .34
================================================================================
Diluted earnings per share $ .30 .34 .40 .34
================================================================================
1999 First Second Third Fourth
- --------------------------------------------------------------------------------
Marine revenues $284,877 254,235 232,984 196,896
================================================================================
Marine operating profit $ 97,584 84,201 62,767 38,512
================================================================================
Net earnings $ 62,772 56,678 39,780 51,489
================================================================================
Earnings per share $ 1.06 .98 .71 .93
================================================================================
Diluted earnings per share $ 1.05 .98 .71 .93
================================================================================
Operating profit consists of revenues less operating costs and expenses,
depreciation, general and administrative expenses and other income and
expenses of the Marine division.
See Notes 1 and 4 for detailed information regarding transactions which
affect fiscal 2000 and 1999 quarterly amounts. Company activity in fiscal
years 2000 and 1999 has been significantly affected by the downturn in
activity and spending in the oil industry resulting from the drop in the price
of oil which began in the Fall of 1997. A discussion of current market
conditions appears in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
F-20
SCHEDULE II
TIDEWATER INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended March 31, 2000, 1999 and 1998
(in thousands)
Column A Column B Column C Column D Column E
- -------- --------- --------- ---------- --------
Balance Balance
at at End
Beginning Additions of
Description of Period at Cost Deductions Period
- ----------- --------- --------- ---------- --------
2000
----
Deducted in balance sheet from trade
accounts receivables:
Allowance for doubtful accounts $ 11,125 1,800 594(A) 12,331
======== ====== ===== ======
Deducted in balance sheet from other
assets:
Amortization of goodwill, prepaid
rent and debt issuance costs $ 22,311 9,413 -- 31,724
======== ====== ===== ======
1999
----
Deducted in balance sheet from trade
accounts receivables:
Allowance for doubtful accounts $ 14,078 685 3,638(A) 11,125
======== ====== ===== ======
Deducted in balance sheet from other
assets:
Amortization of goodwill, prepaid
rent and debt issuance costs $ 12,219 10,092 -- 22,311
======== ====== ===== ======
1998
----
Deducted in balance sheet from trade
accounts receivable:
Allowance for doubtful accounts $ 10,330 3,992 244(A) 14,078
======== ====== ===== ======
Deducted in balance sheet from other
assets:
Amortization of goodwill, prepaid
rent and debt issuance costs $ 3,028 9,191 -- 12,219
======== ====== ===== ======
- --------
(A) Accounts receivable amounts considered uncollectible and removed from
accounts receivable by reducing allowance for doubtful accounts.
F-21
TIDEWATER INC.
EXHIBITS FOR THE
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED MARCH 31, 2000
EXHIBIT INDEX
The index below describes each exhibit filed as a part of this report.
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference to
a prior filing as indicated.
3(a) - Restated Certificate of Incorporation of Tidewater Inc. (filed with the
Commission as Exhibit 3(a) to the company's quarterly report on Form
10-Q for the quarter ended September 30, 1993).
3(b) - Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the
company's quarterly report on Form 10-Q for the quarter ended June 30,
1999).
4(a) - Restated Rights Agreement dated as of September 19, 1996 between
Tidewater Inc. and The First National Bank of Boston (filed with the
Commission as Exhibit 1 to Form 8-A on September 30, 1996).
10(a) - $600,000,000 Revolving Credit and Term Loan Agreement dated March 19,
1997 (filed with the Commission as Exhibit 10(a) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1997).
10(b) - Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in
1990 (filed with the Commission as Exhibit 10(c) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1991).
10(c) - Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with
the Commission as Exhibit 10(f) to the company's annual report on Form
10-K for the fiscal year ended March 31, 1993).
10(d) - Tidewater Inc. Second Amended and Restated Supplemental Executive
Retirement Plan dated October 1, 1999 (filed with the Commission as
Exhibit 10(f) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(e) - Second Amended and Restated Employees' Supplemental Savings Plan of
Tidewater Inc. dated October 1, 1999 (filed with the Commission as
Exhibit 10(d) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(f) - Supplemental Health Plan for Executive Officers of Tidewater Inc.
(filed with the Commission as Exhibit 10(i) to a Registration Statement
on September 12, 1989, Registration No. 33-31016).
10(g) - Amended and Restated Deferred Compensation Plan for Outside Directors
of Tidewater Inc., effective October 1, 1999 (filed with the Commission
as Exhibit 10(I) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(h) - Restated Non-Qualified Pension Plan for Outside Directors of Tidewater
Inc., effective October 1, 1999 (filed with the Commission as Exhibit
10(h) to the company's quarterly report on Form 10-Q for the quarter
ended December 31, 1999).
10(i) - Amended and Restated Change of Control Agreement dated October 1, 1999
between Tidewater and William C. O'Malley (filed with the Commission as
Exhibit 10(b) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(j) - Form of Amended and Restated Change of Control Agreement dated October
1, 1999 with three executive officers of Tidewater Inc. (filed with the
Commission as Exhibit 10(c) to the company's quarterly report on Form
10-Q for the quarter ended December 31, 1999).
10(k) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as
Exhibit 10(m) to the company's annual report on Form 10-K for the
fiscal year ended March 31, 1997).
10(l) - Employment Agreement dated September 25, 1997 between Tidewater Inc.
and William C. O'Malley (filed with the Commission as Exhibit 10 to the
company's report on Form 10-Q for the quarter ended September 30,
1997).
10(m) - Amendment No. 1 to Employment Agreement dated October 1, 1999 between
Tidewater Inc. and William C. O'Malley (filed with the Commission as
Exhibit 10(a) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(n) - Restated Tidewater Inc. 1997 Stock Incentive Plan, effective October 1,
1999 (filed with the Commission as Exhibit 10(g) to the company's
quarterly report on Form 10-Q for the quarter ended December 31, 1999).
10(o) - Restated Non-Qualified Deferred Compensation Plan and Trust Agreement
as Restated October 1, 1999 between Tidewater Inc. and Merrill Lynch
Trust Company of America (filed with the Commission as Exhibit 10(e) to
the company's quarterly report on Form 10-Q for the quarter ended
December 31, 1999).
10(p) - Seconded Restated Executives Supplemental Retirement Trust as Restated
October 1, 1999 between Tidewater Inc. and Hibernia National Bank
(filed with the Commission as Exhibit 10(j) to the company's quarterly
report on Form 10-Q for the quarter ended December 31, 1999).
*21 - Subsidiaries of the company.
*23 - Consent of Independent Auditors.
*27 - Financial Data Schedule.
Certain instruments respecting long-term debt of Tidewater have been omitted
pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to furnish a copy
of any such instrument to the Commission upon request.