SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Quarterly Period Ended December 31, 1996
-----------------
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
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TIDEWATER INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 72-0487776
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1440 Canal Street, Suite 2100, New Orleans, Louisiana 70112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 568-1010
---------------------------
NOT APPLICABLE
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or of such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ______
______
60,578,695 shares of Tidewater Inc. common stock $.10 par value per share were
outstanding on January 21, 1997. Registrant has no other class of common stock
outstanding.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- ------------------------------------------------------------------------------------
December 31, March 31,
ASSETS 1996 1996
- ------------------------------------------------------------------------------------
Current assets:
Cash, including temporary cash investments $ 11,286 28,768
Marketable securities 41,687 ---
Trade and other receivables 182,958 144,472
Inventories 34,250 31,346
Other current assets 3,430 4,350
- ------------------------------------------------------------------------------------
Total current assets 273,611 208,936
- ------------------------------------------------------------------------------------
Investments in, at equity, and advances to
unconsolidated companies 20,668 35,861
Properties and equipment:
Marine equipment 1,269,836 1,210,876
Compression equipment 321,466 324,069
Other 40,455 41,240
- ------------------------------------------------------------------------------------
1,631,757 1,576,185
Less accumulated depreciation 939,972 916,412
- ------------------------------------------------------------------------------------
Net properties and equipment 691,785 659,773
Other assets 71,326 73,630
- ------------------------------------------------------------------------------------
$1,057,390 978,200
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt --- 2,934
Accounts payable and accrued expenses 82,229 70,546
Accrued property and liability losses 13,168 10,844
Income taxes 3,995 1,356
- ------------------------------------------------------------------------------------
Total current liabilities 99,392 85,680
- ------------------------------------------------------------------------------------
Deferred income taxes 91,100 76,579
Accrued property and liability losses 29,306 34,206
Other liabilities and deferred credits 50,727 42,985
Stockholders' equity:
Common stock of $.10 par value; issued
61,400,819 shares at December and
61,882,695 shares at March 6,140 6,188
Additional paid-in capital 395,119 421,655
Retained earnings 396,876 322,736
- ------------------------------------------------------------------------------------
798,135 750,579
Less:
Cumulative foreign currency translation adjustment 10,312 10,771
Deferred compensation - restricted stock 925 1,058
Unrealized investment loss 33 ---
- ------------------------------------------------------------------------------------
Total stockholders' equity 786,865 738,750
- ------------------------------------------------------------------------------------
$1,057,390 978,200
====================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share data)
- ------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
December 31, December 31,
------------------------ -------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
Revenues:
Marine operations $ 184,133 135,891 498,463 396,671
Compression operations 28,296 30,536 83,732 85,609
- ------------------------------------------------------------------------------------
212,429 166,427 582,195 482,280
- ------------------------------------------------------------------------------------
Costs and expenses:
Marine operations 98,290 81,662 286,085 243,480
Compression operations 16,039 16,826 47,552 45,603
Depreciation 20,583 20,247 61,416 61,626
General and administrative 16,313 14,997 47,211 43,752
- ------------------------------------------------------------------------------------
151,225 133,732 442,264 394,461
- ------------------------------------------------------------------------------------
61,204 32,695 139,931 87,819
Other income (expenses):
Foreign exchange gain (loss) 71 (374) (183) (584)
Gains on sales of assets 961 2,060 2,956 6,612
Equity in net earnings of
unconsolidated companies 1,288 1,563 3,707 4,599
Minority interests (200) (160) (540) (925)
Interest and miscellaneous income 1,410 1,237 3,666 3,119
Interest and other debt costs (126) (1,220) (660) (5,464)
- ------------------------------------------------------------------------------------
3,404 3,106 8,946 7,357
- ------------------------------------------------------------------------------------
Earnings before income taxes 64,608 35,801 148,877 95,176
Income taxes 21,438 11,614 48,385 31,131
- ------------------------------------------------------------------------------------
Net earnings $ 43,170 24,187 100,492 64,045
====================================================================================
Primary and fully-diluted
earnings per common share:$ .68 .39 1.60 1.03
====================================================================================
Weighted average common
shares and equivalents 62,666,040 62,206,632 62,640,730 62,067,291
====================================================================================
Cash dividends declared
per common share $ .15 .125 .425 .35
====================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
December 31, December 31,
------------------ --------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
Net cash provided by operating activities $ 65,498 51,226 154,274 134,861
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of assets 3,890 4,154 11,317 15,691
Additions to properties and equipment (13,085) (13,022) (45,536) (29,513)
Purchases of marketable securities (35,660) --- (41,720) ---
Acquisition of joint-venture interest,
net of cash acquired --- --- (3,435) ---
Dividends received from unconsolidated
companies, net of additional
investments 485 4,428 4,315 8,146
Dividends paid to minority interests (19) (99) (743) (998)
Other --- 8 --- (377)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (44,389) (4,531) (75,802) (7,051)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt --- (49,597) (43,018) (114,652)
Purchases of common stock (28,667) --- (28,667) ---
Cash dividends paid (9,306) (6,667) (26,352) (18,654)
Proceeds from issuance of common stock 36 362 2,083 1,380
Other --- --- --- 41
- ------------------------------------------------------------------------------------
Net cash used in financing activities (37,937) (55,902) (95,954) (131,885)
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash,
including temporary cash investments (16,828) (9,207) (17,482) (4,075)
Net increase in cash for Hornbeck Offshore
Services for the quarter ended 3/31/95 --- --- --- 4,980
- ------------------------------------------------------------------------------------
Cash, including temporary cash
investments at beginning of period 28,114 33,386 28,768 23,274
- ------------------------------------------------------------------------------------
Cash, including temporary cash
investments at end of period $ 11,286 24,179 11,286 24,179
====================================================================================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 180 1,184 520 5,488
Income taxes $ 13,470 8,918 30,060 19,795
====================================================================================
Supplemental noncash investing activity:
Joint-venture interest acquired:
Fair value of assets acquired $ --- --- 51,305 ---
Fair value of liabilities assumed --- --- (47,870) ---
- ------------------------------------------------------------------------------------
Net cash payment $ --- --- 3,435 ---
====================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
TIDEWATER INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) Interim Financial Statements
The consolidated financial information for the interim periods presented
herein has not been audited by independent accountants, but in the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the condensed
consolidated balance sheets and the condensed consolidated statements of
earnings and cash flows at the dates and for the periods indicated have
been made. Results of operations for interim periods are not necessarily
indicative of results of operations for the respective full years.
(2) Earnings per Share Data
Primary and fully diluted earnings per share data are computed on the
weighted average number of shares and dilutive equivalent shares of common
stock (stock options and restricted stock grants) outstanding during each
period using the treasury stock method.
(3) Income Taxes
Income tax expense for interim periods is based on estimates of the
effective tax rate for the entire fiscal year. The effective tax rates were
33% and 32% for the quarter and nine-month period ended December 31, 1996,
respectively. For the quarter and nine-month period ended December 31, 1995
the effective tax rates were 32% and 33%, respectively.
(4) Acquisition of Marine Joint-Venture
During fiscal 1997's first quarter the company acquired the remaining 50.1%
equity interest in 22 of 29 safety/standby vessels previously owned and
operated by joint-venture companies in the North Sea. The acquisition was
accounted for as a purchase and accordingly, the fair value of the assets
acquired and liabilities assumed and results of operations have been
included in the condensed consolidated financial statements effective June
1, 1996.
(5) Share Repurchase Program
During the current quarter the Board of Directors authorized a share
repurchase program whereby the company could purchase in the open market or
through privately negotiated transactions up to $200 million of company
common stock. The program expires when all authorized funds have been
expended or on March 31, 1998, whichever occurs earlier. As of December 31,
1996 the company had expended $28.7 million of available cash on the
purchase of 641,500 common shares at an average cost, including broker
commissions and fees, of $44.74 per share. All common shares purchased as
of December 31, 1996 have been canceled.
(6) Contingencies
The Internal Revenue Service has notified the company of proposed
deficiencies aggregating approximately $20 million of additional income
taxes resulting from audits of the company's 1992 and 1993 tax returns.
5
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. While the amount,
if any, of such claims for which the company ultimately may be held liable
is not presently determinable, if the claimants and all similarly situated
employees and former employees who might file claims were successful, the
aggregate amount of the company's liability could approximate $25 million.
The company is in the process of defending against these claims and
assessments and, in management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the company's financial
position or the results of its ongoing operations.
6
INDEPENDENT AUDITORS' REVIEW REPORT
- -----------------------------------
The Board of Directors and Shareholders of Tidewater Inc.:
We have reviewed the condensed consolidated balance sheet of Tidewater Inc. and
subsidiaries as of December 31, 1996 and the related condensed consolidated
statements of earnings and cash flows for the three-month and nine-month periods
ended December 31, 1996 and 1995. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Tidewater Inc. and subsidiaries as
of March 31, 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated April 29, 1996 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1996 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived .
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 20, 1997
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The company provides services and equipment to the international energy industry
through its marine and compression divisions. Company revenues, net earnings and
cash flows from operations are dependent upon activity levels of the marine
vessel fleet and the natural gas compression rental fleet. Activity levels for
the marine vessel fleet and the natural gas compression rental fleet are
ultimately dependent upon oil and natural gas prices which, in turn, are
determined by the supply/demand relationship for oil and natural gas. The
following discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and related disclosures.
MARINE DIVISION
- ---------------
The Marine division provides a diverse range of services and equipment to the
offshore oil and gas 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 with changes in
revenues. Operating costs consist primarily of crew costs, repair and
maintenance, insurance, fuel, lube 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 tables
compare revenues, operating expenses (excluding general and administrative
expense and depreciation expense) and operating margins of the Marine division's
owned and operated vessel fleet for the quarters and nine-month periods ended
December 31 and for the quarter ended September 30, 1996:
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
----------------- ------------------ --------
(in thousands) 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
Revenues:
United States $91,602 62,622 239,025 178,573 79,227
International 84,720 66,600 234,199 196,337 79,126
- ------------------------------------------------------------------------------------
176,322 129,222 473,224 374,910 158,353
- ------------------------------------------------------------------------------------
Expenses:
Crew costs 46,755 36,512 128,692 108,169 44,053
Repair and maintenance 22,455 19,534 71,916 60,789 22,803
Insurance 8,138 8,552 24,452 25,118 8,383
Fuel, lube and supplies 8,256 6,509 22,989 18,160 7,552
Other 6,144 5,064 16,906 14,251 5,975
- ------------------------------------------------------------------------------------
91,748 76,171 264,955 226,487 88,766
- ------------------------------------------------------------------------------------
Operating margins $84,574 53,051 208,269 148,423 69,587
====================================================================================
Operating margin percentages 48.0% 41.1% 44.0% 39.6% 43.9%
====================================================================================
Current quarter and nine-month operating margins grew 59% and 40% above the
respective fiscal 1996 amounts. Current quarter operating margins also rose 22%
above the preceding quarter's amount. The substantial growth in operating
margins in the current quarter and nine-month period compared with the
respective fiscal 1996 periods was the result of higher utilization of a larger
international-based fleet and significantly higher day rates for the worldwide
fleet partially offset
8
by higher operating costs. The growth in operating margins from the preceding
quarter to the current quarter resulted from higher utilization of the
international-based fleet and higher day rates for the worldwide fleet partially
offset by higher crew costs. A larger international-based fleet is due to fiscal
1997's first quarter acquisition of the remaining 50.1% equity interest in
several safety/standby vessels previously operated by joint-venture companies in
the North Sea. Higher utilization of the international-based fleet in the
current quarter and nine-month period compared with the corresponding fiscal
1996 periods and for the current quarter compared with the preceding quarter is
due to greater demand for offshore marine services in certain international
locations. Higher day rates for the worldwide vessel fleet in the current
quarter and nine-month period compared with the corresponding periods of fiscal
1996 and for the current quarter compared with the preceding quarter is the
result of a much more favorable supply/demand relationship for offshore marine
services. Current quarter and nine-month operating costs were 20% and 17% higher
than the respective fiscal 1996 periods and resulted from the expansion of the
North Sea fleet, increased costs associated with retaining qualified vessel
personnel and attracting and training new vessel personnel and a greater number
of vessel drydockings. Crew costs for the current quarter rose above the prior
quarter amount due to higher international fleet utilization and higher costs
associated with retaining qualified vessel personnel.
Revenues, operating expenses (excluding general and administrative expense and
depreciation expense) and operating margins of brokered vessels, shipyard and
other activities for the quarters and nine-month periods ended December 31 and
for the quarter ended September 30, 1996 were:
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
----------------- ------------------- --------
(In thousands) 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
Revenues $ 7,811 6,669 25,239 21,761 9,338
Expenses 6,542 5,491 21,130 16,993 7,813
- ------------------------------------------------------------------------------------
Margins $ 1,269 1,178 4,109 4,768 1,525
====================================================================================
Marine division operating profit for the quarters and nine-month periods ended
December 31 and for the quarter ended September 30, 1996 consist of the
following:
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
---------------- ------------------ --------
(In thousands) 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
Owned and operated vessels:
United States $34,943 13,166 77,009 34,460 26,204
International 25,589 17,204 60,633 45,794 18,695
- ------------------------------------------------------------------------------------
60,532 30,370 137,642 80,254 44,899
Gains from asset sales 682 2,079 1,559 6,305 161
Brokered vessels, shipyard and
other 1,098 1,040 3,494 4,220 1,278
- ------------------------------------------------------------------------------------
Operating profit $62,312 33,489 142,695 90,779 46,338
====================================================================================
Marine fleet utilization is determined primarily by market conditions and to a
lesser extent by drydocking requirements. Utilization of the domestic-based
fleet, which operates in U.S. waters, is primarily influenced by offshore
activity related to the exploration, development and production of natural gas
in the U.S. Gulf of Mexico; whereas, utilization of the international-based
fleet, which operates in waters other than the United States, is primarily
influenced by offshore activity related to the exploration, development and
production of oil.
9
Marine vessel day rates are determined by the demand created through the level
of offshore exploration, development and production spending by energy
exploration and production companies relative to the supply of offshore service
vessels. Suitability of equipment and the degree of service provided also
influence vessel day rates. The following two tables compare day-based Marine
fleet utilization percentages and average day rates by vessel class and in total
for the quarters and nine-month periods ended December 31 and for the quarter
ended September 30, 1996:
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
----------------- -------------------- --------
1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
UTILIZATION:
- ------------
Domestic-based fleet
--------------------
Towing-supply/supply 90.0% 89.9 90.5 87.4 90.2
Crew/utility 88.6 83.7 91.2 81.6 94.1
Offshore tugs 62.9 67.5 64.1 59.8 67.0
Other 50.2 51.3 53.4 53.6 61.9
Total 82.4% 83.1 83.7 80.0 85.1
International-based fleet
-------------------------
Towing-supply/supply 90.9% 85.6 88.8 86.7 88.1
Crew/utility 80.9 81.5 85.4 84.3 85.4
Offshore tugs 79.3 77.4 75.0 73.8 70.3
Safety/standby 83.9 --- 81.3 --- 78.2
Other 84.4 56.8 78.2 47.5 74.4
Total 86.4% 79.1 84.1 77.8 82.1
Worldwide fleet
---------------
Towing-supply/supply 90.5% 87.6 89.6 87.1 89.1
Crew/utility 85.0 82.8 88.5 82.7 90.1
Offshore tugs 71.8 73.4 70.1 67.6 68.8
Safety/standby 83.9 --- 81.3 --- 78.2
Other 75.9 55.7 72.4 48.7 71.7
Total 84.7% 80.9 83.9 78.8 83.3
====================================================================================
AVERAGE VESSEL DAY RATES:
- -------------------------
Domestic-based fleet
--------------------
Towing-supply/supply $ 5,842 3,610 5,062 3,486 5,049
Crew/utility 1,664 1,344 1,532 1,347 1,512
Offshore tugs 5,651 4,909 5,343 4,878 5,355
Other 3,505 3,155 3,233 3,030 3,050
Total $ 4,948 3,309 4,351 3,202 4,317
International-based fleet
-------------------------
Towing-supply/supply $ 3,965 3,651 3,836 3,655 3,838
Crew/utility 1,916 1,646 1,792 1,766 1,735
Offshore tugs 3,290 2,710 2,977 2,686 2,916
Safety/standby 5,290 --- 5,135 --- 4,907
Other 705 674 695 706 662
Total $ 3,296 2,909 3,130 2,972 3,144
Worldwide fleet
---------------
Towing-supply/supply $ 4,833 3,632 4,400 3,576 4,387
Crew/utility 1,776 1,470 1,648 1,521 1,610
Offshore tugs 4,237 3,538 3,943 3,545 3,971
Safety/standby 5,290 --- 5,135 --- 4,907
Other 1,168 1,138 1,133 1,226 1,109
Total $ 3,988 3,090 3,647 3,078 3,639
====================================================================================
10
Additional investment in the vessel fleet for the current nine-month period
totaled $32.2 million. Two supply vessels, two offshore tugs, two crewboats and
a specialty vessel were added for $16.4 million. The remainder of additions for
the current nine-month period of $15.8 million were for additions to and/or
modifications of the existing vessel fleet. In fiscal 1997's first quarter the
remaining 50.1% equity interest in 22 of 29 safety/standby vessels, previously
operated by joint-venture companies in the North Sea, was acquired and increased
the size of the international-based fleet. In prior periods these vessels were
classified as joint-venture owned. The average size of the domestic-based fleet
fell from December 1995 to December 1996 due to vessel sales, the return of
previously leased vessels to their owners and the withdrawal of several vessels
from active service in fiscal 1997's first quarter because of age and
anticipated higher repair and maintenance costs. The following table compares
the average number of vessels by class and geographic distribution for the
quarters and nine-month periods ended December 31 and for the quarter ended
September 30, 1996:
Quarter Nine Months Quarter
Ended Ended Ended
December 31, December 31, Sept 30,
- ------------------------------------------------------------------------------------
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
Domestic-based fleet:
- --------------------
Towing-supply/supply 143 146 140 148 137
Crew/utility 42 49 42 51 42
Offshore tugs 44 40 43 42 43
Other 15 13 14 13 13
- ------------------------------------------------------------------------------------
Total 244 248 239 254 235
- ------------------------------------------------------------------------------------
International-based fleet:
- --------------------------
Towing-supply/supply 164 172 167 171 169
Crew/utility 38 36 36 35 36
Offshore tugs 52 57 53 53 53
Safety/standby* 24 --- 20 --- 26
Other 45 49 47 50 49
- ------------------------------------------------------------------------------------
Total 323 314 323 309 333
- ------------------------------------------------------------------------------------
Owned or chartered vessels
included in marine revenues 567 562 562 563 568
Vessels withdrawn from active 21 16 22 16 22
service
Joint-venture owned vessels 47 76 53 76 47
- ------------------------------------------------------------------------------------
Total 635 654 637 655 637
====================================================================================
Worldwide fleet:
- ----------------
Towing-supply/supply 350 356 351 357 345
Crew/utility 88 94 88 95 89
Offshore tugs 100 100 102 98 102
Safety/standby* 25 29 25 29 26
Other 72 75 71 76 75
- ------------------------------------------------------------------------------------
Total 635 654 637 655 637
====================================================================================
* Change in number of vessels is the result of the company's acquisition of the
remaining 50.1% interest in a North Sea joint venture effective June 1, 1996.
COMPRESSION DIVISION
- --------------------
The Compression division provides natural gas compression services and equipment
for a variety of applications primarily in the energy industry. Rental revenues
are determined, for the most part, by utilization and fleet size. Utilization is
affected by natural gas storage levels and by the number and age of producing
oil and natural gas wells which, in turn, are dependent upon the price levels of
oil and natural gas. Quality of service, availability and rental rates for
equipment are also major
11
factors which affect utilization. Operating expenses are generally consistent
from period-to-period and usually vary in the short-term due to fluctuations in
the amount of repair and maintenance expense. Long-term growth in operating
expenses will occur primarily as a result of increased fleet size and general
inflationary factors. Compression division operating profit is primarily
determined by operating margins from rental gas compression operations. The
following tables compare revenues, operating expenses (excluding general and
administrative expense and depreciation expense), operating margins and related
statistics for gas compression operations for the quarters and nine-month
periods ended December 31 and for the quarter ended September 30, 1996.
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
------------------ -------------------- --------
1996 1995 1996 1995 1996
(In thousands, except statistics)
- ------------------------------------------------------------------------------------
Revenues:
Rentals $ 18,181 17,756 53,978 54,441 17,995
Repair, service and other 626 1,985 2,601 5,190 677
- ------------------------------------------------------------------------------------
18,807 19,741 56,579 59,631 18,672
- ------------------------------------------------------------------------------------
Expenses:
Wages and benefits 2,989 2,567 8,962 8,662 3,054
Repairs and maintenance 3,616 3,196 10,099 9,587 3,243
Other 1,804 1,971 5,760 6,101 1,953
- ------------------------------------------------------------------------------------
8,409 7,734 24,821 24,350 8,250
- ------------------------------------------------------------------------------------
Operating margins $ 10,398 12,007 31,758 35,281 10,422
====================================================================================
Operating margin percentages 55.3% 60.8% 56.1% 59.2% 55.8%
====================================================================================
Horsepower based statistics:
Utilization 77.6% 74.3% 76.5% 73.5% 76.3%
Average monthly rental rate $ 16.73 17.30 16.69 17.67 16.75
Average fleet size 466,084 467,152 468,880 470,581 468,449
====================================================================================
Compared to the corresponding quarter and nine-month period of fiscal 1996,
fiscal 1997 third quarter and nine-month operating margins fell because the
positive effect of higher utilization was entirely offset by lower rental rates
and higher repair and maintenance costs. Lower rental rates in the current
quarter and nine-month period dropped below the respective prior year levels due
to increased competition. Higher repair and maintenance costs in the current
quarter and nine-month period compared with the respective fiscal 1996 periods
resulted from a greater number of compressor overhauls.
The Compression division also designs, fabricates and installs engineered
compressor systems and sells related parts and equipment. The following table
compares revenues, costs of sales and sales margins for equipment and parts
sales for the quarters and nine-month periods ended December 31 and for the
quarter ended September 30, 1996:
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
--------------- -------------------- --------
(In thousands) 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
Revenues $ 9,489 10,795 27,153 25,978 7,509
Costs of sales 7,630 9,092 22,731 21,253 6,375
- ------------------------------------------------------------------------------------
Gross profit margins $ 1,859 1,703 4,422 4,725 1,134
====================================================================================
Gross profit margin percentages 19.6% 15.8% 16.3% 18.2% 15.1%
====================================================================================
12
Fluctuations in the level of equipment and parts sales for the periods presented
are due to the timing of sales of engineered products. Fluctuations in gross
profit margin percentages are the result of competitive market forces. Costs of
sales consist primarily of wages and benefits and material costs associated with
the design, fabrication and installation of packaged compressor systems.
Additional investment in the natural gas compression rental fleet for the
current year-to-date period was $13.3 million and was primarily for
modifications of existing equipment to meet customer requirements. During the
first quarter of fiscal 1997 the Compression division disposed of all of its air
rental equipment which generated proceeds of $3.5 million and a gain of $.5
million. Revenues from the rental of air equipment for the nine-month period
ended December 31, 1996 were $.7 million. Gains from sales of assets for the
current quarter were $.3 million. Excluding the sale of air rental equipment
gains from sales of assets for the nine-month period ended December 31, 1996
were $.9 million. Gains from sales of assets for the corresponding quarter and
nine-month period of fiscal 1996 contributed nominally to division operating
profits.
CORPORATE
- ---------
Financing activities for the current quarter and nine-month period consumed less
cash than the corresponding fiscal 1996 periods due to lower principal payments
on long-term debt. Principal payments on long-term debt for the nine months
ended December 31, 1996 were primarily for the prepayment of the debt assumed in
connection with purchase of the remaining equity in certain North Sea joint-
venture companies. Lower interest expense in the current quarter and nine-month
period compared with the respective fiscal 1996 periods resulted from the fiscal
1996 fourth quarter prepayments of debt assumed in connection with the fiscal
1996 fourth quarter merger with Hornbeck Offshore Services, Inc. During the
current quarter the Board of Directors authorized a share repurchase program
whereby the company could purchase in the open market or through privately
negotiated transactions up to $200 million of company common stock. The program
expires when all authorized funds have been expended or on March 31, 1998,
whichever occurs earlier. As of December 31, 1996, the company had expended
$28.7 million of available cash on the purchase of 641,500 common shares at an
average cost, including broker commissions and fees, of $44.74 per share. All
common shares purchased as of December 31, 1996 has been canceled.
Quarter
Quarter Ended Nine Months Ended Ended
December 31, December 31, Sept 30,
----------------- -------------------- --------
(In thousands) 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------
Personnel $ 9,534 8,464 27,719 25,165 9,384
Office and property 2,830 2,450 8,338 7,290 2,867
Sales and marketing 1,164 918 3,163 2,470 1,066
Professional services 1,305 1,120 3,930 3,182 1,357
Other 1,480 2,045 4,061 5,645 1,149
- ------------------------------------------------------------------------------------
$16,313 14,997 47,211 43,752 15,823
====================================================================================
13
The Internal Revenue Service has notified the company of proposed deficiencies
aggregating approximately $20 million of additional income taxes resulting from
audits of the company's tax returns.
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. While the amount, if any, of such
claims for which the company ultimately may be held liable is not presently
determinable, if the claimants and all similarly situated employees and former
employees who might file claims were successful, the aggregate amount of the
company's liability could approximate $25 million.
The company is in the process of defending against these claims and assessments
and, in management's opinion, the ultimate outcome of these matters will not
have a material adverse effect on the company's financial position or the
results of its ongoing operations.
General and administrative expenses for the quarters and nine-month periods
ended December 31 and for the quarter ended September 30, 1996 consist of the
following:
CURRENCY FLUCTUATIONS AND INFLATION
- -----------------------------------
Because of its significant international operations, the company is exposed to
currency fluctuations and exchange risks. To minimize the financial impact of
these items the company attempts to contract a majority of its services in
United States dollars.
Day-to-day operating costs are generally affected by inflation. However, because
the energy services industry requires specialized goods and services, general
economic inflationary trends may not affect the company's operating costs. The
major impact on operating costs is the level of offshore exploration,
development and production spending by energy exploration and production
companies. As this spending increases, prices of goods and services used by the
oil and gas industry and the energy services industry will increase. Future
improvements in vessel day rates and compressor rental rates may buffer the
company from the inflationary effects on operating costs.
ENVIRONMENTAL MATTERS
- ---------------------
During the ordinary course of business the company's operations are subject to a
wide variety of environmental laws and regulations. The company attempts to
comply with these laws and regulations in order to avoid costly accidents and
any related environmental damage.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. At page 16 of this report is the index for those exhibits required to be
filed as a part of this report.
B. The Company did not file any reports on Form 8-K during the quarter for
which this report is filed.
15
EXHIBIT INDEX
Exhibit
Number
- -------
10 Second Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement
11 Statement - Computation of Per Share Earnings
27 Financial Data Schedule
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEWATER INC.
----------------------------------------------
(Registrant)
Date: January 21, 1997 /s/ William C. O'Malley
----------------------------------------------
William C. O'Malley
Chairman of the Board, President and
Chief Executive Officer
Date: January 21, 1997 /s/ Ken C. Tamblyn
----------------------------------------------
Ken C. Tamblyn
Executive Vice President and
Chief Financial Officer
17