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, 1998 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Transition Period From to - ----------------------------------- ----------------------------------------- Commission file number 1-6311 TIDEWATER INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 72-0487776 ------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1440 Canal Street, Suite 2100, New Orleans, Louisiana 70112 ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 568-1010 ------------------ NOT APPLICABLE -------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or of such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] 55,557,189 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on January 19, 1999. Registrant has no other class of common stock outstanding. PART I. FINANCIAL INFORMATION Item 1. Financial Statements TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) - ---------------------------------------------------------------------------------------- December 31, March 31, ASSETS 1998 1998 - ---------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 23,611 24,977 Trade and other receivables 213,836 258,517 Marine operating supplies 29,450 31,498 Other current assets 3,763 4,122 - ---------------------------------------------------------------------------------------- Total current assets 270,660 319,114 - ---------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 16,633 21,825 Properties and equipment: Vessels and related equipment 1,533,569 1,534,948 Other properties and equipment 40,645 33,887 - ---------------------------------------------------------------------------------------- 1,574,214 1,568,835 Less accumulated depreciation 906,810 863,209 - ---------------------------------------------------------------------------------------- Net properties and equipment 667,404 705,626 - ---------------------------------------------------------------------------------------- Goodwill, net 349,468 356,394 Other assets 115,099 89,880 - ---------------------------------------------------------------------------------------- $1,419,264 1,492,839 ======================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt 3,294 6,466 Accounts payable and accrued expenses 96,025 105,914 Accrued property and liability losses 1,393 12,156 Income taxes 6,569 79,671 - ---------------------------------------------------------------------------------------- Total current liabilities 107,281 204,207 - ---------------------------------------------------------------------------------------- Long-term debt --- 25,000 Deferred income taxes 163,222 158,540 Accrued property and liability losses 71,396 57,289 Other liabilities and deferred credits 53,358 49,027 Stockholders' equity: Common stock of $.10 par value, 125,000,000 shares authorized, issued 55,559,523 shares at December and 59,482,769 shares at March 5,556 5,948 Additional paid-in capital 186,874 295,153 Retained earnings 845,634 712,463 - ---------------------------------------------------------------------------------------- 1,038,064 1,013,564 Less: Deferred compensation - restricted stock 3,475 4,206 Accumulated other comprehensive income 10,582 10,582 - ---------------------------------------------------------------------------------------- Total stockholders' equity 1,024,007 998,776 - ---------------------------------------------------------------------------------------- $1,419,264 1,492,839 ======================================================================================== 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, --------------------- --------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Revenues: Vessel revenues $ 217,393 264,134 727,938 735,575 Other marine revenues 15,591 16,563 44,158 45,975 - ------------------------------------------------------------------------------------------------------------------ 232,984 280,697 772,096 781,550 - ------------------------------------------------------------------------------------------------------------------ Costs and expenses: Vessel operating costs 123,598 122,858 383,559 353,311 Costs of other marine revenues 12,023 13,104 34,350 36,556 Depreciation and amortization 23,635 24,481 71,434 67,109 General and administrative 20,019 19,075 57,211 54,021 - ------------------------------------------------------------------------------------------------------------------ 179,275 179,518 546,554 510,997 - ------------------------------------------------------------------------------------------------------------------ 53,709 101,179 225,542 270,553 Other income (expenses): Foreign exchange gain (loss) (141) (153) 228 (242) Gain on sales of assets 5,108 10,015 7,748 16,173 Equity in net earnings of unconsolidated companies 1,748 1,226 5,277 4,048 Minority interests (268) (425) (1,236) (686) Interest and miscellaneous income 691 1,093 2,718 3,270 Other income (expense) --- 1,153 --- (6,847) Interest and other debt costs (575) (7,900) (2,050) (21,095) - ------------------------------------------------------------------------------------------------------------------ 6,563 5,009 12,685 (5,379) - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations before income taxes 60,272 106,188 238,227 265,174 Income taxes 20,492 35,890 78,997 85,687 - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations 39,780 70,298 159,230 179,487 Earnings from discontinued operations --- 3,661 --- 9,562 - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 39,780 73,959 159,230 189,049 ================================================================================================================== Earnings per common share: - -------------------------- Earnings from continuing operations $ .71 1.15 2.76 2.96 Earnings from discontinued operations --- .06 --- .15 - ------------------------------------------------------------------------------------------------------------------ Earnings per common share $ .71 1.21 2.76 3.11 ================================================================================================================== Diluted earnings per common share: - ---------------------------------- Earnings from continuing operations $ .71 1.15 2.75 2.95 Earnings from discontinued operations --- .06 --- .15 - ------------------------------------------------------------------------------------------------------------------ Diluted earnings per common share $ .71 1.21 2.75 3.10 ================================================================================================================== Weighted average common shares outstanding 56,200,393 60,873,807 57,748,891 60,566,536 Incremental common shares from stock options 46,233 388,353 94,008 389,162 - ------------------------------------------------------------------------------------------------------------------ Adjusted weighted average common shares 56,246,626 61,262,160 57,842,899 60,955,698 ================================================================================================================== Cash dividends declared per common share $ .15 .15 .45 .45 ================================================================================================================== 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, -------------------- -------------------- 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations $ 71,234 84,557 250,629 237,969 Net cash (used in) provided by discontinued operations (236) 12,803 (68,347) 33,765 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 70,998 97,360 182,282 271,734 - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 11,268 18,243 17,603 36,589 Additions to properties and equipment (21,581) (17,875) (38,399) (70,544) Acquisitions, net of cash acquired --- --- --- (552,757) Investment in joint venture --- (1,409) --- (1,409) Change in other assets 135 339 195 (3,876) - -------------------------------------------------------------------------------------------------------- Net cash used in investing activities (10,178) (702) (20,601) (591,997) - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt (25,000) (95,243) (108,172) (178,092) Credit facility borrowings --- --- 80,000 505,000 Proceeds from issuance of common stock 59 2,511 496 7,310 Common stock purchased (36,364) --- (109,312) --- Dividends paid (8,436) (9,133) (26,059) (27,249) - -------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (69,741) (101,865) (163,047) 306,969 - -------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (8,921) (5,207) (1,366) (13,294) Cash and cash equivalents at beginning of period 32,532 33,079 24,977 41,166 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 23,611 27,872 23,611 27,872 ======================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 673 9,765 2,026 18,924 Income taxes $ 22,368 25,871 148,492 67,642 ======================================================================================================== Supplemental noncash investing activity: Acquisitions: Fair value of assets acquired $ --- --- --- 695,701 Fair value of liabilities assumed --- --- --- (142,944) - -------------------------------------------------------------------------------------------------------- Net cash payment $ --- --- --- 552,757 ======================================================================================================== 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) COMPREHENSIVE INCOME Effective April 1, 1998 the company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which established standards for reporting and display of comprehensive income and its components. Comprehensive income includes all changes in equity during a period except those resulting from investment by owners or distribution to owners. A reconciliation of net earnings to comprehensive income for the quarters ended December 31 and for the nine-month periods ended December 31, 1998 and 1997 are as follows: Quarter Ended Nine Months Ended December 31, December 31, ---------------- ------------------ (In thousands) 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------- Net earnings $39,780 73,959 159,230 189,049 Change in cumulative foreign currency translation adjustment --- --- --- (94) - ------------------------------------------------------------------------------------------- Comprehensive income $39,780 73,959 159,230 188,955 =========================================================================================== (3) INCOME TAXES Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The effective tax rate was 34% for the quarter and nine-month period ended December 31, 1998, excluding a $2 million (or $.03 per share) second quarter reduction in deferred taxes resulting from the lowering of United Kingdom corporate income tax rates which had the effect of reducing the effective tax rate for the nine-month period ended December 31, 1998 to 33.2%. The effective tax rate was 33.8% for the quarter and nine-month period ended December 31, 1997, excluding a $4 million (or $.07 per share) second quarter reduction in deferred taxes resulting from the lowering of United Kingdom corporate income tax rates which had the effect of reducing the effective tax rate for the nine-month period ended December 31, 1997 to 32.3%. (4) MARINE ACQUISITIONS On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.). The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. The results of O.I.L.'s operations have been consolidated with the company's effective May 16, 1997. Pro forma combined results of continuing operations of the company and of O.I.L. including 5 appropriate purchase accounting adjustments for the nine-month period ended December 31, 1997 as though the acquisition had taken place on April 1, 1997 were not significantly different than actual results. (5) BUSINESS DISPOSITION On February 20, 1998 the company completed the all cash sale of its compression division for approximately $348 million. The discontinued compression division's operating results for the three-month and nine-month periods ended December 31, 1997 were as follows: Three Months Ended Nine Months Ended (In thousands) December 31, 1997 December 31, 1997 - ---------------------------------------- ------------------ ----------------- Revenues $26,664 80,383 Operating costs 12,338 39,412 Depreciation and amortization 6,574 19,657 General and administrative 2,330 7,281 - --------------------------------------------------------------------------------- 5,422 14,033 Other income 449 1,170 - --------------------------------------------------------------------------------- Earnings before income taxes 5,871 15,203 Income taxes 2,210 5,641 - --------------------------------------------------------------------------------- Earnings from discontinued operations $ 3,661 9,562 ================================================================================= (6) YEAR 2000 Disclosure concerning year 2000 (Y2K) issues facing the company is included as part of management's discussion and analysis at page 14 of this report. 6 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders Tidewater Inc. We have reviewed the accompanying condensed consolidated balance sheet of Tidewater Inc. as of December 31, 1998, and the related condensed consolidated statements of earnings and cash flows for the three-month and nine-month periods ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Tidewater Inc. as of March 31, 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended not presented herein and, in our report dated April 27, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 1998, is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP New Orleans, Louisiana January 18, 1999 7 MANAGEMENT'S DISCUSSION AND ANALYSIS The company provides services and equipment to the international offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related disclosures. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain statements set forth in this Quarterly Report on Form 10-Q which provide other than historical information and which are forward looking, involve risks and uncertainties that may impact the company's actual results of operations. The company faces many risks and uncertainties, many of which are beyond the control of the company, including fluctuations in oil and gas prices; changes in capital spending by customers in the energy industry for exploration, development and production; unsettled political conditions, civil unrest and governmental actions, especially in higher risk countries of operations; foreign currency controls and environmental and labor laws. Readers should consider all of these risk factors as well as other information contained in this report. MARINE OPERATIONS Offshore service vessels provide a diverse range of services and equipment to the energy industry. Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally when revenue changes. Operating costs principally consist of crew costs, repair and maintenance, insurance, fuel, lube and supplies. Fleet size is the major factor which affects crew costs. The timing and amount of repair and maintenance costs are influenced by vessel age and scheduled drydockings to satisfy safety and inspection requirements mandated by regulatory agencies. Whenever possible, vessel drydockings are done during seasonally slow periods to minimize any impact on vessel operations and are only done if economically justified, given the vessel's age and physical condition. The company's vessels are subject to various statutes and regulations governing their operation. The laws of the United States provide that once a vessel is registered under a flag other than the United States, it cannot thereafter engage in U.S. coastwise trade. Therefore, the company's non-U.S. flag vessels must continue to be operated abroad, and if the company were not able to secure charters abroad for them, and work would otherwise have been available for them in the United States, its operations would be adversely affected. Of the total 696 vessels owned or operated by the company during the quarter ended December 31, 1998, approximately 376 were registered under flags other than the United States and 320 were registered under the U.S. flag. 8 The following table compares revenues and operating expenses (excluding general and administrative expense and depreciation expense) for the quarters and nine- month periods ended December 31 and for the quarter ended September 30, 1998. Vessel revenues and operating costs relate to vessels owned and operated by the company while other marine services relate to the activities of the company's shipyards, brokered vessels and other miscellaneous marine-related businesses. Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, ------------------ ----------------- -------- (In thousands) 1998 1997 1998 1997 1998 - -------------------------------------------------------------------------------------- Revenues: Vessel revenues: United States $ 61,440 122,453 252,530 344,257 81,081 International 155,953 141,681 475,408 391,318 161,831 - -------------------------------------------------------------------------------------- 217,393 264,134 727,938 735,575 242,912 Other marine revenues 15,591 16,563 44,158 45,975 11,323 - -------------------------------------------------------------------------------------- $232,984 280,697 772,096 781,550 254,235 ====================================================================================== Operating costs: Vessel operating costs: Crew costs $ 67,594 63,807 201,932 178,365 66,409 Repair and maintenance 30,339 33,056 106,338 102,249 32,873 Insurance 6,478 8,321 18,538 23,313 6,227 Fuel, lube and supplies 8,974 8,765 27,868 25,336 8,897 Other 10,213 8,909 28,883 24,048 9,486 - -------------------------------------------------------------------------------------- 123,598 122,858 383,559 353,311 123,892 Costs of other marine revenues 12,023 13,104 34,350 36,556 8,670 - -------------------------------------------------------------------------------------- $135,621 135,962 417,909 389,867 132,562 ====================================================================================== Marine support services are conducted worldwide with assets that are highly mobile. Revenues are principally derived from offshore service vessels, which regularly and routinely move from one operating area to another, often to and from offshore operating areas in different continents. Because of this asset mobility, revenues and long-lived assets attributable to the company's international marine operations in any one country are not "material" as that term is defined by SFAS No. 131. As a result of the uncertainty of certain customers to make payment of vessel charter hire, the company has deferred the recognition of approximately $12.1 million of revenue as of December 31, 1998 of which approximately $6.7 million was deferred in the quarter ended December 31, 1998. The company will recognize the amounts as revenue upon collection. 9 Marine operating profit and other components of earnings from continuing operations before income taxes for the quarters and nine-month periods ended December 31 and for the quarter ended September 30, 1998 consist of the following: Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, ------------------- ------------------- --------- (In thousands) 1998 1997 1998 1997 1998 - ----------------------------------------------------------------------------------------------- Vessel activity: - ---------------- United States $13,043 62,249 95,411 166,222 28,881 International 41,270 40,110 132,188 107,537 51,866 - ---------------------------------------------------------------------------------------------- 54,313 102,359 227,599 273,759 80,747 Gain on sales of assets 5,108 10,015 7,748 16,173 987 Other marine services 3,346 3,264 9,205 8,862 2,467 - ---------------------------------------------------------------------------------------------- Operating profit 62,767 115,638 244,552 298,794 84,201 - ---------------------------------------------------------------------------------------------- Equity in net earnings of unconsolidated companies 1,748 1,226 5,277 4,048 1,767 Interest and other debt costs (575) (7,900) (2,050) (21,095) (1,015) Corporate general and administrative (3,685) (4,053) (10,192) (10,534) (3,129) Other income (expenses) 17 1,277 640 (6,039) 296 - ---------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $60,272 106,188 238,227 265,174 82,120 ============================================================================================== Current quarter operating profit decreased significantly from the comparative amount in fiscal 1998 due to a decline in utilization and average day rates for U.S.-based vessels coupled with a decrease in the number of U.S.-based vessels. 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. The prolonged drop in oil price over the past 15 months has resulted in cutbacks in drilling programs, the effects from which have been felt thus far primarily in the U.S. Gulf of Mexico market. As the duration of vessel contracts in the Gulf of Mexico normally range from one to three months, the effects of any change in drilling programs are seen quickly. U.S.-based vessel operating profit for the current quarter decreased approximately 79% from the comparative quarter in fiscal 1998 as these cutbacks have reduced vessel demand resulting in lower vessel utilization and lower average day rates. This softening in domestic activity is likely to continue for some time with the decline in the number of working drilling rigs. In addition the expected delivery of a number of newly-constructed supply vessels to various industry competitors may create even further imbalance in the Gulf of Mexico supply vessel market thereby putting additional downward pressure on vessel utilization and day rates. Better market conditions in certain international locations resulted in higher average day rates for international-based vessels for the current quarter as compared to the year earlier quarter. Interest and other debt costs were higher for the quarter and nine-months ended December 31, 1997 as compared to these same periods ended December 31, 1998 due to debt incurred related to the O.I.L. acquisition on May 16, 1997. By March 31, 1998 all debt borrowed for the O.I.L. acquisition had been repaid. Operating profit for the current nine-months ended decreased from the respective period in fiscal 1998 due to a decline in utilization and average day rates for U.S.-based vessels and higher operating costs offset by an increase in average day rates for international-based vessels. Utilization and average day rates for U.S.-based vessels declined for the current nine-month period as the result of cutbacks in drilling programs discussed previously consequently decreasing U.S.- based vessel operating profit by approximately 43%. Higher operating costs resulted principally from the expansion of the fleet through the O.I.L. acquisition effective May 16, 1997 and costs associated with recruiting, training and retaining vessel personnel. The international-based vessel operating 10 profit increased by approximately 23% for the current nine months verses this same period in fiscal 1998 as the result of stronger vessel demand in certain international locations where average day rates improved. Vessels were relocated from the U.S. to these international locations during the current nine-months ended in order to meet the demand. During the nine-months ended December 31,1997 the company provided $8 million for the possible adverse outcome relating to several alleged labor-law pay violations claimed by certain current and former employees in various areas of the world where its marine vessel operations are conducted. During the fourth quarter of fiscal 1998 the company entered into an agreement to settle a majority of these claims. Current quarter operating profit decreased from the preceding quarter due primarily to the continued decline in U.S.-based average day rates. Operating profit for U.S.-based vessels for the quarter ended December 31, 1998 was approximately 55% less than the preceding quarter as the softening in Gulf of Mexico vessel demand resulted in lower average day rates and slightly lower vessel utilization. However, a lesser number of drydockings reduced U.S. operating costs. Current quarter international-based vessel operating profit decreased approximately 20% from the preceding quarter as a result of a slight decrease in utilization and average day rates along with increased operating costs. The duration of vessel contracts in most international markets is considerably longer than in the U.S. market. As such, the decline in oil price has not had the immediate impact on the company's international activity that it has had on the domestic activity. However, as oil prices have remained at a low level for the past 15 months, international activity is starting to show signs of weakening and could be further adversely affected if oil prices continue to be depressed. An increased level of drydocking costs and higher costs associated with attracting, training and retaining qualified personnel accounted for most of the increased operating costs for international-based vessels. Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created through the level of offshore exploration, development and production spending by energy exploration and production companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The following two tables compare day-based utilization percentages and average day rates by vessel class and in total for the quarters and nine-month periods ended December 31 and for the quarter ended September 30, 1998: 11 Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, --------------- ----------------------- -------- 1998 1997 1998 1997 1998 ------- ----- ------------ -------- -------- UTILIZATION: - ------------ Domestic-based fleet -------------------- Towing-supply/supply 74.1% 91.8 77.6 91.3 73.2 Crew/utility 79.8 92.1 85.2 90.7 86.5 Offshore tugs 50.7 61.8 56.0 63.1 55.8 Other 49.7 53.3 47.9 57.8 48.2 Total 69.6% 85.0 73.6 84.8 71.0 International-based fleet ------------------------- Towing-supply/supply 81.0% 88.9 83.7 88.7 84.0 Crew/utility 89.3 80.7 85.9 81.3 88.0 Offshore tugs 74.9 79.7 74.2 81.0 71.7 Safety/standby 78.6 65.6 81.3 71.3 84.6 Other 69.2 67.2 68.9 76.4 69.8 Total 80.2% 82.9 81.4 84.2 81.8 Worldwide fleet --------------- Towing-supply/supply 78.4% 90.1 81.4 89.8 80.0 Crew/utility 85.9 85.4 85.7 85.2 87.5 Offshore tugs 64.8 71.9 66.5 73.4 65.2 Safety/standby 78.6 65.6 81.3 71.3 84.6 Other 64.6 63.9 63.9 72.0 64.4 Total 76.5% 83.7 78.6 84.4 78.0 ==================================================================================== AVERAGE VESSEL DAY RATES: - ------------------------- Domestic-based fleet -------------------- Towing-supply/supply $4,545 7,853 6,284 7,463 6,331 Crew/utility 2,021 2,216 2,150 2,112 2,121 Offshore tugs 7,643 6,617 7,614 6,540 7,543 Other 2,073 3,167 2,835 2,833 3,053 Total $4,450 6,569 5,646 6,255 5,631 International-based fleet ------------------------- Towing-supply/supply $6,562 5,655 6,576 5,328 6,643 Crew/utility 2,428 2,213 2,426 2,134 2,406 Offshore tugs 4,303 3,752 4,240 3,549 4,141 Safety/standby 6,201 6,087 6,366 6,077 6,351 Other 891 953 877 916 918 Total $5,225 4,653 5,285 4,345 5,320 Worldwide fleet --------------- Towing-supply/supply $5,860 6,539 6,472 6,202 6,536 Crew/utility 2,293 2,215 2,323 2,124 2,303 Offshore tugs 5,396 4,832 5,434 4,647 5,341 Safety/standby 6,201 6,087 6,366 6,077 6,351 Other 1,104 1,387 1,222 1,274 1,317 Total $4,980 5,380 5,405 5,070 5,420 ==================================================================================== 12 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, 1998: Quarter Ended Nine Months Ended Quarter December 31, December 31, Ended ------------- ----------------- Sept 30, 1998 1997 1998 1997 1998 ----- ----- ------- ------- -------- Domestic-based fleet: - --------------------- Towing-supply/supply 136 148 139 146 139 Crew/utility 31 39 33 39 33 Offshore tugs 38 41 39 40 38 Other 10 11 10 11 10 - ---------------------------------------------------------------------------------------- Total 215 239 221 236 220 - ---------------------------------------------------------------------------------------- International-based fleet: - -------------------------- Towing-supply/supply 233 227 232 216 234 Crew/utility 56 55 55 54 56 Offshore tugs 54 53 54 54 54 Safety/standby 29 31 29 29 29 Other 33 33 33 36 31 - ---------------------------------------------------------------------------------------- Total 405 399 403 389 404 - ---------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 620 638 624 625 624 Vessels withdrawn from active service 27 17 26 14 25 Joint-venture and other 49 55 49 58 49 - ---------------------------------------------------------------------------------------- Total 696 710 699 697 698 ======================================================================================== General and administrative expenses for the quarters and nine-month periods ended December 31 and for the quarter ended September 30, 1998: Quarter Ended Nine Months Ended Quarter December 31, December 31, Ended ---------------- ----------------- Sept 30, (In thousands) 1998 1997 1998 1997 1998 - -------------------------------------------------------------------------- Personnel $11,916 11,697 34,151 32,773 11,110 Office and property 3,196 3,520 9,832 9,897 3,327 Sales and marketing 1,430 1,277 4,110 3,819 1,209 Professional services 1,346 1,231 4,054 3,796 1,083 Other 2,131 1,350 5,064 3,736 1,722 - -------------------------------------------------------------------------- $20,019 19,075 57,211 54,021 18,451 ========================================================================== Increase in general and administrative expenses for the current nine-month period above the same period in fiscal 1998 is primarily the result of the O.I.L. acquisition effective May 16, 1997. LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS The company's current ratio, level of working capital and amount of cash flows from continuing operations for any year are directly related to fleet activity and vessel day rates. Fleet activity and vessel day rates are ultimately determined by the supply/demand relationship for oil and natural gas. Variations from year-to-year in these items are primarily the result of market conditions. Cash from ongoing operations in combination with available lines of credit provide the company, in management's opinion, with adequate resources to satisfy financing requirements. At December 31, 1998, all of the company's $200 million revolving line of credit was available to satisfy financing needs. Continued payment of dividends, currently $.15 per quarter per common share, is subject to declaration by the Board of Directors. 13 Excluding the O.I.L. acquisition included in the nine-months ended December 31, 1997, investing activities for the nine-month period ended December 31, 1998 consumed less cash as compared to the same period ended December 31, 1997 as a result of smaller cash outlays for vessel modifications and capitalized repairs. Financing activities for the nine months ended December 31, 1998 used $163 million of cash which included a $105 million prepayment on the credit facility which reduced the outstanding debt balance to zero and quarterly cash dividends of $.15 per share. In addition $80 million was borrowed primarily for income tax payments of approximately $68 million relating to the sale of the compression division. The company purchased 1,500,000 shares of common stock during the current quarter at an average cost per share of $24.24. For the nine months ended December 31, 1998, 3,950,000 shares of common stock have been purchased at an aggregate cost of $109.3 million. INFLATION AND CURRENCY FLUCTUATIONS Because of its significant international operations, the company is exposed to currency fluctuations and exchange risks. To minimize the financial impact of these items the company attempts to contract a majority of its services in United States dollars. Day-to-day operating costs are generally affected by inflation. However, because the energy services industry requires specialized goods and services, general economic inflationary trends may not affect the company's operating costs. The major impact on operating costs is the level of offshore exploration, development and production spending by energy exploration and production companies. As this spending increases, prices of goods and services used by the oil and gas industry and the energy services industry will increase. Future improvements in vessel day rates may shield the company from the inflationary effects on operating costs. ENVIRONMENTAL MATTERS During the ordinary course of business the company's operations are subject to a wide variety of environmental laws and regulations. The company attempts to comply with these laws and regulations in order to avoid costly accidents and any related environmental damage. YEAR 2000 UPDATE The Year 2000 (Y2K) issue is the result of computer programs written using two digits rather than four to define the applicable year. In response to the Y2K issue, the company began a program in fiscal 1997 designed to identify, assess and address significant Y2K issues in its information technology (IT) systems and non-IT systems. As of December 31, 1998 the company believes that it is on schedule to successfully implement any required systems and equipment modifications that might be necessary to make the company's critical systems Y2K compliant before December 31, 1999. The company's critical IT systems are comprised primarily of the company's mainframe computer and the software programs used on the mainframe, including general ledger accounting and financial reporting software programs and related application modules, personnel and payroll systems, and an insurance claims and accounting system. The assessment of the company's IT systems found that some of the IT systems were not Y2K compliant. Approximately 85% of the changes necessary to make these systems Y2K compliant have been completed, with the remaining changes expected to be completed by mid-1999. Because many of the company's computer systems have been 14 upgraded or replaced in recent years as part of the company's ongoing upgrade program, Y2K compliance costs have been insignificant to date (believed to be less than $100,000). Remaining compliance costs related to the IT systems are also expected to be insignificant (probably less than $100,000) because the company will continue to utilize existing personnel resources to assist in the implementation of its Y2K compliance initiative. Non-IT systems are comprised primarily of computer-controlled equipment and electronic devices, including equipment with embedded microprocessors that are used to operate equipment on the company's vessels. Telephone systems and other office-based electronic equipment systems are also being considered in the assessment of non-IT systems. The company has substantially completed the process of identifying the components that are likely to have a Y2K problem and is in the process of communicating with the appropriate vendors to assess what, if any, changes are necessary to make the component Y2K compliant. The company believes that this assessment will be completed well in advance of December 31, 1999 and does not expect the costs of any required modifications or upgrades to be material with respect to the company's results of operations and financial position. The company has contacted its key vendors and financial services providers to assess their progress with their own Y2K issues and to anticipate potential risks associated with those third parties. Although there is currently no indication that these parties will not achieve their Y2K compliance plans, there can be no guarantee that the systems of other companies with whom the company transacts business will be timely converted. Additionally, there can be no guarantee that the company will not experience Y2K problems. Despite efforts to address all significant Y2K issues in advance, the company could potentially experience disruptions to some aspects of its activities or operations, including, but not limited to, delays in payments to the company from customers or payments by the company to suppliers and disruptions in shipments of equipment and supplies required to operate the company's vessels. Based upon the company's current assessment of its IT systems and non-IT systems and based upon communications to date with vendors, the company has not determined a need to develop a contingency plan for Y2K issues. The company will continue to monitor its decision on contingency planning and such a plan will be developed if and when it is considered necessary to do so. 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K A. At page 18 of this report is the index for those exhibits required to be filed as a part of this report. B. The company did not file any reports during the quarter for which this report is filed. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TIDEWATER INC. -------------- (Registrant) Date: January 19, 1999 /s/ William C. O'Malley ----------------------- William C. O'Malley Chairman of the Board, President and Chief Executive Officer Date: January 19, 1999 /s/ Ken C. Tamblyn ------------------ Ken C. Tamblyn Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 17 EXHIBIT INDEX Exhibit Number - ------ 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule 18