1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Quarterly Period Ended September 30, 1997
------------------
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
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(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
----- -----
60,858,281 shares of Tidewater Inc. common stock $.10 par value per share were
outstanding on October 21, 1997. Registrant has no other class of common stock
outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
September 30, March 31,
ASSETS 1997 1997
- -------------------------------------------------------------------------------
Current assets:
Cash, including temporary cash investments $ 32,520 41,114
Trade and other receivables 254,964 187,612
Inventories 37,574 36,016
Other current assets 5,734 3,984
- -------------------------------------------------------------------------------
Total current assets 330,792 268,726
- -------------------------------------------------------------------------------
Investments in, at equity, and advances to
unconsolidated companies 17,965 20,556
Properties and equipment:
Marine equipment 1,551,207 1,265,633
Compression equipment 327,053 322,512
Other 46,073 39,826
- -------------------------------------------------------------------------------
1,924,333 1,627,971
Less accumulated depreciation 974,874 946,880
- -------------------------------------------------------------------------------
Net properties and equipment 949,459 681,091
Goodwill, net 381,660 21,357
Other assets 58,934 47,270
- -------------------------------------------------------------------------------
$1,738,810 1,039,000
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt 63,883 --
Accounts payable and accrued expenses 144,073 94,748
- -------------------------------------------------------------------------------
Total current liabilities 207,956 94,748
- -------------------------------------------------------------------------------
Long-term debt 387,083 --
Deferred income taxes 170,041 95,595
Accrued property and liability losses 41,669 32,146
Other liabilities and deferred credits 56,229 46,847
Stockholders' equity:
Common stock of $.10 par value; issued
60,750,014 shares at September and
60,334,889 shares at March 6,075 6,033
Additional paid-in capital 353,377 341,415
Retained earnings 530,321 433,347
- -------------------------------------------------------------------------------
889,773 780,795
Less:
Cumulative foreign currency translation adjustment 10,582 10,676
Deferred compensation - restricted stock 3,359 455
- -------------------------------------------------------------------------------
Total stockholders' equity 875,832 769,664
- -------------------------------------------------------------------------------
$1,738,810 1,039,000
===============================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
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TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share data)
- -------------------------------------------------------------------------------
Quarter Ended Six Months Ended
September 30, September 30,
------------------------------ ----------------------------
1997 1996 1997 1996
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Revenues:
Marine operations $ 270,413 167,691 500,853 314,330
Compression operations 27,562 26,181 53,719 55,436
- -----------------------------------------------------------------------------------------------------------
297,975 193,872 554,572 369,766
- -----------------------------------------------------------------------------------------------------------
Costs and expenses:
Marine operations 130,721 96,579 253,905 187,795
Compression operations 13,908 14,625 27,074 31,513
Depreciation and amortization 30,603 20,816 55,711 40,833
General and administrative 21,028 15,823 39,897 30,898
- -----------------------------------------------------------------------------------------------------------
196,260 147,843 376,587 291,039
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101,715 46,029 177,985 78,727
Other income (expenses):
Foreign exchange loss (32) (397) (97) (254)
Gains on sales of assets 3,369 561 6,854 1,995
Equity in net earnings of
unconsolidated companies 1,798 1,176 2,822 2,419
Minority interests 34 (162) (261) (340)
Other expense (8,000) -- (8,000) --
Interest and miscellaneous income 1,214 1,345 2,210 2,256
Interest and other debt costs (8,691) (121) (13,195) (534)
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(10,308) 2,402 (9,667) 5,542
- -----------------------------------------------------------------------------------------------------------
Earnings before income taxes 91,407 48,431 168,318 84,269
Income taxes 27,078 15,479 53,228 26,947
- -----------------------------------------------------------------------------------------------------------
Net earnings $ 64,329 32,952 115,090 57,322
===========================================================================================================
Primary and fully-diluted
earnings per common share: $ 1.05 .53 1.88 .92
===========================================================================================================
Weighted average common
shares and equivalents 61,088,777 62,594,928 61,011,397 62,628,126
===========================================================================================================
Cash dividends declared
per common share $ .15 .15 .30 .275
===========================================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
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TIDEWATER INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Quarter Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 76,257 43,930 174,026 91,882
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of assets 7,789 2,348 18,346 7,427
Additions to properties and equipment (32,552) (19,625) (52,669) (32,451)
Acquisitions, net of cash acquired 1,973 -- (553,419) (3,435)
Increase in other assets (120) -- (3,553) --
Additional investment in unconsolidated
companies (159) -- (159) --
Purchase of marketable securities -- (6,060) -- (6,060)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,069) (23,337) (591,454) (34,519)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (47,596) (17,464) (82,849) (43,018)
Credit facility borrowing 5,000 -- 505,000 --
Cash dividends paid (9,063) (9,302) (18,116) (17,046)
Proceeds from issuance of common stock 4,123 317 4,799 2,047
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (47,536) (26,449) 408,834 (58,017)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash,
including temporary cash investments 5,652 (5,856) (8,594) (654)
Cash, including temporary cash
investments at beginning of period 26,868 33,970 41,114 28,768
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Cash, including temporary cash
investments at end of period $ 32,520 28,114 32,520 28,114
==================================================================================================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 8,519 434 9,159 786
Income taxes $ 36,204 15,179 41,771 16,590
==================================================================================================
Supplemental noncash investing activity:
Acquisitions:
Fair value of assets acquired $ 1,973 -- 698,643 51,305
Net cash paid for stock -- -- (553,419) (3,435)
- --------------------------------------------------------------------------------------------------
Liabilities assumed $ 1,973 -- 145,224 47,870
==================================================================================================
See Notes to Unaudited Condensed Consolidated Financial Statements.
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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 rate was
34% for the quarter and six-month period ended September 30, 1997
excluding a $4 million (or $.07 per share) reduction in deferred taxes
resulting from the lowering of United Kingdom corporate income tax rates
which had the effect of reducing the effective tax rate for the quarter
and six-month period ended September 30, 1997 to 30% and 32%,
respectively. For the quarter and six-month period ended September 30,
1996 the effective tax rate was 32%.
(4) Marine Acquisitions
During the quarter ended June 30, 1997 the company acquired all of the
shares of O.I.L. Ltd. (O.I.L.) from Ocean Group plc in exchange for a cash
payment of 328 million pounds sterling or approximately $534 million. In
addition, a 3 million pound sterling, or approximately $5 million, advance
payment was made for the net working capital of O.I.L., with the final
purchase price to be adjusted for the final net working capital of O.I.L.
as of the closing date. Available cash of $39 million and borrowings of
$500 million were used to fund the purchase. 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 international offshore oil and gas
exploration areas outside of the United States. The total estimated 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, including accruals for the estimated balance of O.I.L. working
capital and professional fees, severance and other transaction
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costs and the related deferred tax effect of the acquisition. Goodwill
of approximately $354 million has been recorded in the Condensed
Consolidated Balance Sheet.
The results of O.I.L.'s operations have been consolidated with the
company's effective May 16, 1997. Pro forma combined results of
operations of the company and of O.I.L. including appropriate purchase
accounting adjustments for the quarter ended September 30, 1996 and for
the six-month periods ended September 30, 1997 and 1996 as though the
acquisition had taken place on April 1 of the respective years are as
follows:
Quarter Ended Six Months Ended
September 30, September 30,
------------- --------------------
1996 1997 1996
- -------------------------------------------------------------------------------
Revenues $227,370 575,017 435,785
Net earnings $ 29,898 114,433 49,996
Primary and fully diluted earnings
per common share $ .48 1.88 .80
The $500 million of debt incurred to finance the O.I.L. acquisition was
borrowed pursuant to a $600 million Revolving Credit and Term Loan
agreement with several banks and consists of a $400 million term loan
and $100 million borrowed under the $200 million revolving credit
facility of the agreement. The term loan is payable in quarterly
installments and bears interest at fluctuating rates subject to certain
options chosen in advance by the company.
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 totalling $14.0 million. The debt has
been discounted to yield interest at 7% and is to be repaid in
semi-annual installments. The total estimated 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,
including accruals for professional fees, severance and other
transaction costs and the related deferred tax effect of the
acquisition. Goodwill of approximately $10.7 million has been recorded
in the Condensed Consolidated Balance Sheet.
(5) The Internal Revenue Service has notified the company of proposed
deficiencies aggregating approximately $17.5 million of additional
income taxes resulting from audits of the company's income tax returns
for the years ended March 31, 1993, 1994 and 1995. Additionally, 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, based
on available information, could approximate $15 million.
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In the quarter ended September 30, 1997 the company provided an
additional reserve of $8 million for the possible adverse outcome of
the above matters. In management's opinion, the amount of the
company's liability in excess of established reserves, if any, will not
have a material adverse effect on the company's financial position or
the results of its ongoing operations.
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INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
of Tidewater Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Tidewater Inc. and subsidiaries as of September 30, 1997, and the related
condensed consolidated statements of earnings and cash flows for the
three-month and six-month periods ended September 30, 1997. These financial
statements are the responsibility of the company's management. The condensed
consolidated balance sheet and the related condensed consolidated statements of
earnings and cash flows of Tidewater Inc. and subsidiaries as of September 30,
1996, and for the three-month and six-month periods then ended were reviewed by
other accountants whose report dated October 18, 1996 stated that they were not
aware of any material modifications that should be made to those statements for
them to be in conformity with generally accepted accounting principles.
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, 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 review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements at
September 30, 1997, and for the three-month and six-month periods then ended
for them to be in conformity with generally accepted accounting principles.
The consolidated financial statements for the year ended March 31, 1997, from
which the accompanying condensed balance sheet was derived, were audited by
other accountants and they expressed an unqualified opinion on those financial
statements in their report dated April 30, 1997.
Ernst & Young LLP
New Orleans, Louisiana
October 20, 1997
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The company provides services and equipment to the international energy
industry through its marine and compression divisions. 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.
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.
During the current quarter the Board of Directors authorized management to
pursue various alternatives for possibly monetizing the company's investment in
the natural gas compression division. Should a transaction occur, it would
allow management to fully concentrate its efforts on the marine division.
MARINE DIVISION
The Marine division provides a diverse range of services and equipment to the
offshore 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 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 six-month
periods ended September 30 and for the quarter ended June 30, 1997:
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Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------- ------------------ --------
(in thousands) 1997 1996 1997 1996 1997
- -------------------------------------------------------------------------------------------------
Revenues:
United States $115,848 79,227 221,804 147,423 105,956
International 139,597 79,126 249,637 149,479 110,040
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255,445 158,353 471,441 296,902 215,996
- -------------------------------------------------------------------------------------------------
Expenses:
Crew costs 61,810 44,053 114,558 81,937 52,748
Repair and maintenance 35,190 22,803 69,193 49,461 34,003
Insurance 6,542 8,383 14,992 16,314 8,450
Fuel, lube and supplies 8,434 7,552 16,571 14,733 8,137
Other 7,629 5,975 15,139 10,762 7,510
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119,605 88,766 230,453 173,207 110,848
- -------------------------------------------------------------------------------------------------
Operating margins $135,840 69,587 240,988 123,695 105,148
=================================================================================================
Operating margin percentages 53.2% 43.9% 51.1% 41.7% 48.7%
=================================================================================================
Current quarter and six-month operating margins rose considerably above the
respective amounts from fiscal 1997 due to a 41% increase in average day rates
for the worldwide vessel fleet partially offset by higher operating costs. The
rise in average day rates for the worldwide fleet is the result of greater
demand in the U.S. Gulf of Mexico and internationally for the services provided
by the company. Higher current quarter and six-month operating costs when
compared with fiscal 1997's respective amounts are attributable to a larger
international-based vessel fleet due to the O.I.L. and Australian acquisitions,
increased costs associated with attracting, training and retaining qualified
vessel personnel and a greater number of vessel drydockings.
Current quarter operating margins rose above the preceding quarter due to the
combination of higher average day rates for the worldwide vessel fleet being
partially offset by higher operating costs. Continued strong demand in the
U.S. Gulf of Mexico and better market conditions in certain international
locations were the reasons for the increase in average vessel dayrates. Higher
operating costs are principally due to the expansion of the international-based
vessel fleet as a result of the O.I.L. and Australian acquisitions. Amounts
for the quarter ended June 30, 1997 included activity for the O.I.L. fleet for
only half of the quarter as the acquisition was effective May 16, 1997 and did
not include any activity for the vessels acquired from Australian joint-venture
companies as the remaining 50% equity interest was purchased on June 30, 1997.
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 six-month periods ended September 30 and
for the quarter ended June 30, 1997 were:
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
---------------- ---------------- --------
(In thousands) 1997 1996 1997 1996 1997
- --------------------------------------------------------------------------------
Revenues $14,968 9,338 29,412 17,428 14,444
Expenses 11,116 7,813 23,452 14,588 12,336
- --------------------------------------------------------------------------------
Margins $ 3,852 1,525 5,960 2,840 2,108
================================================================================
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Marine division operating profit for the quarters and six-month periods ended
September 30 and for the quarter ended June 30, 1997 consist of the following:
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------ ----------------- --------
(In thousands) 1997 1996 1997 1996 1997
- -----------------------------------------------------------------------------------------------------
Owned and operated vessels:
United States $ 56,722 26,204 103,973 42,066 47,251
International 41,059 18,695 67,351 35,044 26,292
- -----------------------------------------------------------------------------------------------------
97,781 44,899 171,324 77,110 73,543
Gains from asset sales 2,851 161 6,159 877 3,308
Brokered vessels, shipyard and other 3,674 1,278 5,597 2,396 1,923
- -----------------------------------------------------------------------------------------------------
Operating profit $104,306 46,338 183,080 80,383 78,774
=====================================================================================================
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. 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 six-month periods ended
September 30 and for the quarter ended June 30, 1997:
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Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------ --------------- --------
1997 1996 1997 1996 1997
- ------------------------------------------------------------------------------------------
UTILIZATION:
- -----------
Domestic-based fleet
--------------------
Towing-supply/supply 91.1% 90.2 91.1 90.8 91.0
Crew/utility 88.9 94.1 89.9 92.5 90.9
Offshore tugs 64.3 67.0 63.7 64.8 63.1
Other 60.5 61.9 60.0 55.1 59.5
Total 84.8% 85.1 84.8 84.3 84.8
International-based fleet
-------------------------
Towing-supply/supply 88.0% 88.1 88.7 87.8 89.4
Crew/utility 80.9 85.4 81.6 87.9 82.4
Offshore tugs 80.3 70.3 81.7 72.8 83.1
Safety/standby 71.3 78.2 74.4 79.6 78.1
Other 78.1 74.4 80.7 75.3 83.0
Total 83.9% 82.1 84.9 83.0 86.0
Worldwide fleet
---------------
Towing-supply/supply 89.2% 89.1 89.6 89.1 90.1
Crew/utility 84.2 90.1 85.1 90.4 86.1
Offshore tugs 73.6 68.8 74.1 69.3 74.7
Safety/standby 71.3 78.2 74.4 79.6 78.1
Other 73.9 71.7 75.9 70.7 77.7
Total 84.2% 83.3 84.8 83.6 85.5
==========================================================================================
AVERAGE VESSEL DAY RATES:
- ------------------------
Domestic-based fleet
--------------------
Towing-supply/supply $ 7,532 5,049 7,261 4,660 6,986
Crew/utility 2,142 1,512 2,058 1,468 1,976
Offshore tugs 6,558 5,355 6,501 5,185 6,443
Other 2,757 3,050 2,692 3,100 2,626
Total $ 6,308 4,317 6,094 4,047 5,876
International-based fleet
-------------------------
Towing-supply/supply $ 5,440 3,838 5,151 3,768 4,806
Crew/utility 2,190 1,735 2,093 1,731 1,982
Offshore tugs 3,494 2,916 3,453 2,809 3,413
Safety/standby 6,138 4,907 6,073 4,975 6,002
Other 935 662 901 690 873
Total $ 4,438 3,144 4,188 3,044 3,909
Worldwide fleet
---------------
Towing-supply/supply $ 6,267 4,387 6,023 4,178 5,750
Crew/utility 2,169 1,610 2,077 1,586 1,979
Offshore tugs 4,621 3,971 4,557 3,788 4,492
Safety/standby 6,138 4,907 6,073 4,975 6,002
Other 1,291 1,109 1,229 1,116 1,173
Total $ 5,127 3,639 4,911 3,471 4,677
==========================================================================================
Additional investment in the vessel fleet for the current quarter totaled $29.0
million and included the purchase of six safety/standby vessels and a
towing-supply vessel. The remainder of additions in the current quarter were
for modifications to the existing vessel fleet.
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The following table compares the average number of vessels by class and
geographic distribution for the quarters and six-month periods ended September
30 and for the quarter ended June 30, 1997:
Quarter Six Months Quarter
Ended Ended Ended
September 30, September 30, June 30,
- --------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
Domestic-based fleet:
- --------------------
Towing-supply/supply 145 137 145 138 144
Crew/utility 39 42 39 42 39
Offshore tugs 40 43 40 42 39
Other 11 13 11 14 11
- --------------------------------------------------------------------------------------------------------------
Total 235 235 235 236 233
- --------------------------------------------------------------------------------------------------------------
International-based fleet:
- -------------------------
Towing-supply/supply 230 169 211 168 192
Crew/utility 57 36 53 36 49
Offshore tugs 55 53 54 53 54
Safety/standby 31 26 29 19 26
Other 35 49 36 47 38
- --------------------------------------------------------------------------------------------------------------
Total 408 333 383 323 359
- ---------------------------------------------------------------------------------------------------------------
Owned or chartered vessels
included in marine revenues 643 568 618 559 592
Vessels withdrawn from active service 12 22 13 23 14
Joint-venture and other 60 47 59 57 67
- ---------------------------------------------------------------------------------------------------------------
Total 715 637 690 639 673
===============================================================================================================
Worldwide fleet:
- ---------------
Towing-supply/supply 391 345 372 349 365
Crew/utility 106 89 102 89 98
Offshore tugs 104 102 103 101 102
Safety/standby 32 26 30 26 26
Other 82 75 83 74 82
- ---------------------------------------------------------------------------------------------------------------
Total 715 637 690 639 673
===============================================================================================================
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 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
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margins and related statistics for gas compression operations for the quarters
and six-month periods ended September 30 and for the quarter ended June 30,
1997.
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------- -------------------- --------
(In thousands, except statistics) 1997 1996 1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------
Revenues:
Rentals $ 20,039 17,995 39,393 35,797 19,354
Repair, service and other 890 677 1,459 1,975 569
- ---------------------------------------------------------------------------------------------------------------
20,929 18,672 40,852 37,772 19,923
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Wages and benefits 3,087 3,054 6,111 5,973 3,024
Repairs and maintenance 3,937 3,243 7,710 6,483 3,773
Other 2,118 1,953 3,989 3,956 1,871
- ---------------------------------------------------------------------------------------------------------------
9,142 8,250 17,810 16,412 8,668
- ---------------------------------------------------------------------------------------------------------------
Operating margins $ 11,787 10,422 23,042 21,360 11,255
===============================================================================================================
Operating margin percentages 56.3% 55.8% 56.4% 56.5% 56.5%
===============================================================================================================
Horsepower based statistics:
Utilization 81.3% 76.3% 81.1% 75.8% 80.8%
Average monthly rental rate $17.07 16.75 16.88 16.67 16.69
Average fleet size 481,970 468,449 477,918 470,278 476,309
===============================================================================================================
Fiscal 1998 second quarter and six-month operating margins rose above the
respective prior year's amounts due to higher utilization and rental rates for
a larger compressor fleet being partially offset by higher repair and
maintenance costs. The increase in utilization and rental rates resulted from
greater demand for natural gas compression services and the increase in repair
and maintenance costs was due to a greater number of compressor overhauls.
Current quarter operating margins were consistent with preceding quarter
amounts.
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 six-month periods ended September 30 and for the
quarter ended June 30, 1997:
Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------- -------------------- --------
(In thousands) 1997 1996 1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 6,633 7,509 12,867 17,664 6,234
Costs of sales 4,766 6,375 9,264 15,101 4,498
- ---------------------------------------------------------------------------------------------------------------
Gross profit margins $ 1,867 1,134 3,603 2,563 1,736
===============================================================================================================
Gross profit margin percentages 28.1% 15.1% 28.0% 14.5% 27.8%
===============================================================================================================
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.
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Additional investment in the natural gas compression rental fleet for the
current year-to-date period totaled $8.2 million for additional natural gas
compressors and modifications of existing equipment to meet customer
requirements.
CORPORATE
During the quarter ended June 30, 1997 the company acquired all of the shares
of O.I.L. Ltd. (O.I.L.) from Ocean Group plc in exchange for a cash payment of
328 million pounds sterling or approximately $534 million. In addition, a 3
million pound sterling, or approximately $5 million, advance payment was made
for the net working capital of O.I.L., with the final purchase price to be
adjusted for the final net working capital of O.I.L. as of the closing date.
Available cash of $39 million and borrowings of $500 million were used to fund
the purchase. 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 international
offshore oil and gas exploration areas outside of the United States. The total
estimated 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, including accruals for the estimated balance of O.I.L. working capital
and professional fees, severance and other transaction costs and the related
deferred tax effect of the acquisition. Goodwill of approximately $354 million
has been recorded in the Condensed Consolidated Balance Sheet.
The $500 million of debt incurred to finance the O.I.L. acquisition was
borrowed pursuant to a $600 million Revolving Credit and Term Loan agreement
with several banks and consists of a $400 million term loan and $100 million
borrowed under the $200 million revolving credit facility of the agreement.
The term loan is payable in quarterly installments and bears interest at
fluctuating rates subject to certain options chosen in advance by the company.
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
totalling $14.0 million. The debt has been discounted to yield interest at 7%
and is to be repaid in semi-annual installments. The total estimated 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, including accruals for professional fees, severance and other
transaction costs and the related deferred tax effect of the acquisition.
Goodwill of approximately $10.7 million has been recorded in the Condensed
Consolidated Balance Sheet.
Financing activities for the six months ended September 30, 1997 provided
$408.8 million of cash and included borrowings of $500 million for the
acquisition of O.I.L. Ltd discussed above. In addition to $18.0 million of
scheduled payments, principal payments on long-term debt include $50 million of
repayments on the revolving line of credit and repayment of $14.8 million of
debt assumed from the O.I.L. and Australian joint-venture acquisitions. Higher
dividend payments are the result of the fiscal 1997 second quarter increase in
the per share dividend from $.125 per share to $.15 per share.
General and administrative expenses for the quarters and six-month periods
ended September 30 and for the quarter ended June 30, 1997 consist of the
following:
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Quarter
Quarter Ended Six Months Ended Ended
September 30, September 30, June 30,
------------------- -------------------- -------
(In thousands) 1997 1996 1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------
Personnel $ 12,527 9,384 23,954 18,185 11,427
Office and property 3,575 2,867 6,937 5,508 3,362
Sales and marketing 1,568 1,066 2,888 1,999 1,320
Professional services 1,564 1,357 3,019 2,625 1,455
Other 1,794 1,149 3,099 2,581 1,305
- ---------------------------------------------------------------------------------------------------------------
$ 21,028 15,823 39,897 30,898 18,869
===============================================================================================================
The Internal Revenue Service has notified the company of proposed deficiencies
aggregating approximately $17.5 million of additional income taxes resulting
from audits of the company's income tax returns for the years ended March 31,
1993, 1994 and 1995. Additionally 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, based on
available information, could approximate $15 million.
In the quarter ended September 30, 1997 the company provided an additional
reserve of $8 million for the possible adverse outcome of the above matters.
In management's opinion, the amount of the company's liability in excess of
established reserves, if any, will not have a material adverse effect on the
company's financial position or the results of its ongoing operations.
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 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. The Annual Meeting of Stockholders of the company was held in New Orleans,
Louisiana on July 24, 1997.
B. Listed below are the nominees who were elected directors at the Annual
Meeting and the name of each other director whose term of office continued
after the Meeting.
Nominee or Director
Name Continuing in Office
---- ------------------------
Robert H. Boh Director Continuing in Office
Donald T. Bollinger Director Continuing in Office
Arthur R. Carlson Nominee
Larry T. Hornbeck Director Continuing in Office
Hugh J. Kelly Director Continuing in Office
John P. Laborde Nominee
Paul W. Murrill Director Continuing in Office
William C. O'Malley Nominee
Lester Pollack Director Continuing in Office
J. Hugh Roff, Jr. Director Continuing in Office
C. The company's Stockholders voted as follows with respect to the proposals
presented at the meeting:
1. Arthur R. Carlson was elected director with 46,208,964 votes cast for
and 3,809,764 votes withheld;
2. John P. Laborde was elected director with 45,421,238 votes cast for and
4,597,490 votes withheld;
3. William C. O'Malley was elected director with 46,187,640 votes cast
for and 3,831,088 votes withheld;
4. The 1997 Stock Incentive Plan was approved with 47,394,039 votes cast
for, 2,437,963 votes against and 186,726 abstentions;
5. The Executive Officer Annual Incentive Plan was approved with
47,342,701 votes cast for, 915,087 votes against and 329,397
abstentions; and
6. The selection of Ernst & Young LLP as the company's independent
auditors for the fiscal year ending March 31, 1998 was ratified with
49,707,165 votes cast for, 165,468 votes against and 146,095
abstentions.
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Item 6. Exhibits and Reports on Form 8-K
A. At page 20 of this report is the index for those exhibits required to be
filed as a part of this report.
B. During the quarter ended September 30, 1997 the company filed a Form
8-K/A-1 dated May 16, 1997 amending and restating the disclosures contained
in a Form 8-K dated May 16, 1997. The Form 8-K/A-1 included financial
statements and pro forma financial information for the company's
acquisition of O.I.L. Limited.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEWATER INC.
------------------------------------
(Registrant)
Date: October 21, 1997 /s/ William C. O'Malley
------------------------------------
William C. O'Malley
Chairman of the Board, President and
Chief Executive Officer
Date: October 21, 1997 /s/ Ken C. Tamblyn
------------------------------------
Ken C. Tamblyn
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number
- ------
10 Employment Agreement dated September 25, 1997 between the company and
William C. O'Malley.
11 Statement - Computation of Per Share Earnings
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule
20