SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] - For the Fiscal Year Ended MARCH 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] - 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 No.) 1440 CANAL STREET, NEW ORLEANS, LOUISIANA 70112 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (504) 568-1010 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, par value $0.10 New York Stock Exchange, Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange, Pacific Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of May 2, 1996, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,360,936,025. 61,919,754 shares of Tidewater Inc. common stock $0.10 par value per share were outstanding on May 2, 1996. Registrant has no other class of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1996 Annual Meeting of Stockholders are incorporated into Part III of this report. TABLE OF CONTENTS PART I PAGE ITEM NUMBER - ---- ------ 1 & 2. Business and Properties............................................. 3 3. Legal Proceedings................................................... 7 4. Submission of Matters to a Vote of Security Holders................. 7 4A. Executive Officers of the Registrant................................ 8 PART II 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................................ 9 6. Selected Financial Data.............................................10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................11 8. Financial Statements and Supplementary Data.........................20 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................20 PART III 10. Directors and Executive Officers of the Registrant..................20 11. Executive Compensation..............................................20 12. Security Ownership of Certain Beneficial Owners and Management......20 13. Certain Relationships and Related Transactions......................20 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....21 -2- PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES GENERAL Tidewater Inc. (the "company") was incorporated in Delaware in 1956. The company's principal executive offices are located at 1440 Canal Street, New Orleans, Louisiana 70112, and its telephone number is (504) 568-1010. Unless otherwise required by the context, the term "company" as used herein refers to Tidewater Inc. and its consolidated subsidiaries. The company's two principal divisions are Tidewater Marine and Tidewater Compression. Tidewater Marine provides support services to the international offshore petroleum industry. Tidewater Compression provides natural gas and air compression equipment and services, primarily to the energy industry. Information concerning revenues, operating profits and assets for each of the company's divisions and the geographic distribution of its operations is set forth in Item 7 of this report. TIDEWATER MARINE Tidewater Marine is the world's largest provider of offshore supply vessels and marine support services. With a fleet of approximately 650 vessels, Tidewater Marine operates, and has a leading market share, in most of the world's significant oil and gas exploration and production markets. Tidewater Marine provides services supporting all phases of offshore exploration, development and production, including: towing of and anchor-handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; and supporting pipelaying and other offshore construction activities. The company's fleet is deployed in the major offshore oil and gas areas of the world. The principal areas of the company's operations include the U.S. Gulf of Mexico, areas offshore Australia, Brazil, Egypt, India, Indonesia, Malaysia, Mexico, Trinidad, Venezuela and West Africa and in the North Sea and the Persian Gulf. The company conducts its operations through wholly-owned subsidiaries and joint ventures. For information concerning revenues derived from domestic and international marine operations, see "Marine Division" in Item 7 of this report. MARINE SERVICES EQUIPMENT. The company's vessels regularly and routinely move from one operating area to another, often to and from offshore operating areas of different continents. Tables comparing the average number of vessels in the company's marine fleet by class and geographic distribution appear under "Marine Division" in Item 7 of this report. The company's largest class of vessels consists of towing-supply and supply vessels that are chartered to customers for use in transporting supplies and equipment from shore bases to offshore drilling rigs, platforms and other installations. In addition, vessels of the towing-supply class are equipped for and are capable of towing drilling rigs and other marine equipment and setting anchors for positioning and mooring drilling rigs. The company's other classes of vessels include crew and utility vessels that are chartered to customers for use in transporting supplies and personnel from shore bases to offshore drilling rigs, platforms and other installations, and offshore tugs that tow floating drilling rigs, dock tankers, tow barges, assist pipelaying and construction barges and are used in a variety of other commercial towing operations, including towing barges carrying a variety of bulk cargoes and containerized cargo. -3- The company's vessels also include inshore tugs and both inshore and offshore barges, production, line-handling and various special purpose vessels. Inshore tugs, which are operated principally within inland waters, tow drilling rigs to and from their locations, and tow barges carrying equipment and materials for use principally in inland water drilling and production operations. Barges are either used in conjunction with company tugs or are bareboat chartered to others. Information concerning the average age of the company's Marine vessel fleet is set forth in Item 7 of this report. In March 1996 the company acquired a fleet of 61 vessels owned and operated by Hornbeck Offshore Services, Inc. ("Hornbeck") and it also acquired Hornbeck's 49.9% interest in 29 safety/standby vessels operating in the North Sea. In fiscal 1996 the company also acquired 28 used vessels, consisting of eight towing-supply and supply vessels, eight offshore tugs, 11 crewboats and one utility vessel. Information concerning the Hornbeck acquisition appears in Note 2 of Notes to Consolidated Financial Statements included in this report. CONTRIBUTIONS OF MAIN CLASSES OF VESSELS. Of the company's revenues from marine vessel equipment operations, the following percentages were contributed by the main classes of vessels: YEAR ENDED MARCH 31, -------------------------------- 1996 1995 1994 ---- ---- ---- Towing-supply/Supply ................. 72.8% 70.9% 70.2% Offshore Tugs ........................ 16.6% 17.0% 17.8% Crew/Utility ......................... 7.8% 8.6% 8.2% Other ................................ 2.8% 3.5% 3.8% SHIPYARDS. Quality Shipyards, Inc., a wholly-owned subsidiary of the company, operates two shipyards in Houma, Louisiana, which build, repair, modify and drydock vessels. Approximately 62% of the shipyards' business for the year ended March 31, 1996 related to repairs, modifications and drydockings of the company's vessels. RISKS OF OPERATION AND INSURANCE. The operation of any marine equipment involves an inherent risk of catastrophic marine disaster, adverse weather conditions, mechanical failure, collisions, property losses to the vessel and business interruption due to political action in countries other than the United States. Any such event may result in a reduction in revenues or increased costs. The company's vessels are insured for their estimated market value against damage or loss, including war and pollution risks. The company also carries workers compensation, maritime employer's liability, general liability (including third party pollution) and other insurance customary in the industry. The company's international marine equipment operations are subject to the usual risks inherent in doing business in countries other than the United States. Such risks include political changes, possible vessel seizure, company nationalization or other governmental actions, currency restrictions and revaluations, and import/export restrictions, all of which are beyond the control of the company. Although it is impossible to predict the likelihood of such occurrences or their effect on the company, the company believes these risks to be within acceptable limits and, in view of the mobile nature of the company's principal revenue producing assets, does not consider them to constitute a factor materially adverse to the conduct of its international marine equipment operations as a whole. INDUSTRY CONDITIONS AND COMPETITION. Tidewater Marine's operations are materially dependent upon the levels of activity in offshore oil and natural gas exploration, development and production throughout the world. Such activity levels are affected both by short-term and long-term trends in world oil and natural gas prices. In recent years, oil and natural gas prices and, therefore, the level of offshore drilling and -4- exploration activity, have been extremely volatile. A discussion of current market conditions appears under "Marine Division" in Item 7 of this report. COMPETITION AND CUSTOMERS. The principal competitive factors for the offshore vessel service industry are suitability and availability of equipment, price and service. The company has numerous competitors in virtually all areas in which it operates. Certain customers of the company own and operate vessels to service certain of their offshore activities. Tidewater Marine's diverse, mobile asset base and geographic distribution allow it to respond quickly to market conditions and provide a full range of vessel services to its customers throughout the world. Management believes that the company has a significant competitive advantage because of the size, diversity and geographic distribution of its fleet, the company's financial strength and economies of scale. Although one customer accounted for 12% and the five largest customers accounted for approximately 32% of its marine revenues during the year ended March 31, 1996, the company does not consider its marine operations dependent on any single customer. GOVERNMENT REGULATIONS. The company's vessels are subject to various statutes and regulations governing their operation and maintenance. Under the Merchant Marine Act of 1936 and the Shipping Act, 1916, the company would lose the privilege of engaging in U.S. coastwise trades if more than 25% of the company's outstanding stock was owned by non-U.S. citizens. The company has a dual stock certificate system to prevent non-U.S. citizens from owning more than 25% of its common stock. In addition, the company's charter permits the company certain remedies with respect to any transfer or purported transfer of shares of the company's common stock that would result in the ownership by non-U.S. citizens of more than 24% of its common stock. Based on information supplied to the company by its transfer agent, approximately 5.6% of the company's outstanding common stock was owned by non-citizens as of March 31, 1996. At March 31, 1996, 194 vessels wholly owned by the company were registered under flags other than the United States. In addition, all of the company's 76 joint venture owned vessels were registered under non-U.S. flags at March 31, 1996. 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. All of the company's offshore vessels are subject to international safety and classification standards. U.S. flag towing-supply and supply vessels are required to undergo periodic inspections and to be recertified under drydock examination at least twice every five years. Non-U.S. flag vessels are also subject to various similar regulations. TIDEWATER COMPRESSION Tidewater Compression provides natural gas and air compression equipment and services to the energy industry, primarily in the United States. GAS COMPRESSION RENTALS. The company rents natural gas compressors to oil and gas producers and processors. With a fleet of approximately 2,800 compressors, Tidewater Compression operates one of the largest rental fleets of gas compressors in the United States. The compressors are used primarily to boost the pressure of natural gas from the wellhead into gas gathering systems, into nearby gas processing plants, or into high pressure pipelines. Gas compression equipment and services offered by -5- the company also are used in the production of coalbed methane and in enhanced recovery projects such as fire-flooding, gas lift, or gas injection, with the objective of increasing the amount of oil or condensate that can be recovered from a reservoir. Customers often rent compressors rather than purchase them because the required compressor horsepower and stage configuration can change several times in the lifetime of a project. The primary market served is natural gas production activities in the United States, although the company has modest operations in Argentina, Venezuela and Canada. A table setting forth utilization, rental rates and fleet size of the Tidewater Compression gas rental fleet appears in "Compression Division" in Item 7 of this report. EQUIPMENT AND PARTS SALES. Tidewater Compression's Tide Air & Gas division sells air and natural gas compressor packages and other related equipment to domestic and international engineering contractors, oil and gas producers and to manufacturers and other concerns. The equipment consists of skid mounted compressors designed to meet complex specifications for specialized applications. The gas compression equipment is used to facilitate the production, transportation and storage of natural gas as well as boosting fuel gas pressure for electrical power generation. The air compression equipment is used to operate machinery, for instrumentation and in manufacturing processes. The company's compression operations include an engineering and fabrication facility at which the company designs and constructs air and gas compression packages. DISTRIBUTORSHIPS. The company holds distributorships for various manufacturers of air and gas compressors, related equipment and a wide range of accessories. These manufacturers are the source for equipment and accessories sold by the company. INDUSTRY CONDITIONS. In addition to well age and natural gas consumption, a structural shift in U.S. oil and gas industry operations is affecting demand for natural gas compression package rentals. Many of the major oil companies have directed their focus toward international operations and away from domestic natural gas reserves. Accordingly, these companies recently have been selling their domestic natural gas reserves and minimizing staff in domestic operations. As a result, demand for rental packages of natural gas compressors is expected to increase as buyers of natural gas reserves or producers with reduced staffs are less likely to own and operate natural gas compressor packages and more likely to rent natural gas compressor packages to meet their natural gas compression needs. COMPETITION AND CUSTOMERS. The compression equipment market is highly competitive, with the principal competitive factors being price, service and availability. The company competes with a large number of companies in each area in which it operates. Although one customer accounted for 5% and the five largest customers accounted for approximately 20% of its compression revenues during the year ended March 31, 1996, the company does not consider itself dependent on any one customer. INTERNATIONAL OPERATIONS. While most of Tidewater Compression's operations are domestic, the company sells and rents natural gas compressor packages and parts in Canada and rents natural gas compressors in Argentina and Venezuela. The Tide Air & Gas division's air and gas compression packages are sold to customers throughout the world. SEASONALITY Tidewater Marine generally has its highest utilization rates in the warmer temperature months when the weather is more favorable for offshore exploration, development and construction work. Tidewater Compression generally has its best results in the winter months when natural gas is in greater demand. However, business volume for both Tidewater Marine and Tidewater Compression is more dependent on -6- oil and gas prices and the global supply and demand conditions for the company's services than any seasonal variation. ENVIRONMENTAL COMPLIANCE Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, does not have, nor is expected to have, a material effect on the company. EMPLOYEES As of March 31, 1996, the company had approximately 7,300 employees. The company considers relations with employees to be satisfactory. The company is not a party to any union contract in the United States but through several subsidiaries is a party to union agreements covering local nationals in several countries other than the United States. ITEM 3. LEGAL PROCEEDINGS The company is not a party to any litigation which, in the opinion of management, is likely to have a material adverse effect on the company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1996. -7- ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the company are as follows: NAME AGE POSITION ---- --- -------- William C. O'Malley .. 59 Chairman, President and Chief Executive Officer since October, 1994. Chairman of the Board from 1987 to 1994 and Chief Executive Officer from 1990 to 1994 of Sonat Offshore Drilling, Inc. Employed 1994. Richard M. Currence .. 57 Executive Vice President since 1992. Senior Vice President from 1986 to 1992. Employed 1966 with a break in service from 1973 to 1985. Ken C. Tamblyn ....... 52 Executive Vice President since 1992. Senior Vice President from 1986 to 1992. Employed 1986. Cliffe F. Laborde .... 44 Senior Vice President and General Counsel since 1992. Employed 1992. Shareholder in Gelpi, Sullivan, Carroll & Laborde, a professional law corporation, from 1979 to 1992. Stephen A. Snider .... 48 Senior Vice President since 1991. Employed 1975 with a break in service from 1983 to 1991 during which Mr. Snider owned and operated Learning Associates, Inc. There are no family relationships between the officers of the company. The company's officers are elected annually by the Board of Directors and serve for one-year terms or until their successors are elected. -8- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The company's common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange under the symbol TDW. At March 31, 1996, there were approximately 2,324 record holders of the company's common stock, based upon the record holder list maintained by the company's stock transfer agent. The following table sets forth the high and low closing sales price of the company's common stock as reported on the New York Stock Exchange Composite Tape and the amount of cash dividends per share declared on the Tidewater common stock, excluding common shares issued as a result of the Hornbeck merger for the periods indicated. FISCAL YEAR QUARTER HIGH LOW DIVIDEND - ----------- ------- ------- ------ -------- 1996 First $26-1/4 $19-3/4 $0.10 Second 29-1/2 23-1/4 0.125 Third 31-5/8 24-5/8 0.125 Fourth 39-3/8 29-3/8 0.125 1995 First 23-1/4 19-1/4 0.10 Second 24-7/8 21-1/4 0.10 Third 23-3/8 18-1/4 0.10 Fourth 20-3/8 16-3/4 0.10 -9- ITEM 6. SELECTED FINANCIAL DATA The following table sets forth a summary of selected financial data for each of the last five fiscal years. This information has been restated as a result of the merger with Hornbeck Offshore Services, Inc., which has been accounted for as a pooling-of-interests, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the company included in this report. Years Ended March 31 (in thousands, except ratio and per share amounts) <TABLE> <CAPTION> 1996(6) 1995(5) 1994 1993 1992 - -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Marine operations $532,202 501,118 513,892 431,874 451,100 Compression operations 111,245 83,490 55,471 62,099 54,561 - -------------------------------------------------------------------------------------- $643,447 584,608 569,363 493,973 505,661 ====================================================================================== Earnings from continuing operations $ 76,177 51,187 44,660 27,890 27,821 Discontinued operations (1) -- -- -- 3,099 357 Extraordinary loss on early debt retirement (2) -- -- (12,250) -- -- Accounting change (3) -- -- -- (6,640) -- - -------------------------------------------------------------------------------------- Net earnings $ 76,177 51,187 32,410 24,349 28,178 ====================================================================================== Per common share: Earnings from continuing operations $1.23 .83 .73 .48 .47 Discontinued operations (1) -- -- -- .05 .01 Extraordinary loss on early debt retirement (2) -- -- (.20) -- -- Accounting change (3) -- -- -- (.11) -- - -------------------------------------------------------------------------------------- Net earnings $ 1.23 .83 .53 .42 .48 ====================================================================================== Total assets $978,200 1,045,658 929,324 910,341 928,765 ====================================================================================== Long-term debt $ -- 121,023 7,833 110,381 137,559 ====================================================================================== Working capital $123,256 114,440 197,113 208,006 181,366 ====================================================================================== Current ratio 2.44 2.05 2.44 3.08 2.46 ====================================================================================== Cash dividends declared per common share (4) $ .475 .40 .30 .325 -- ====================================================================================== </TABLE> (1) In fiscal 1993 the company disposed of its interest in a container shipping business acquired in fiscal 1992 through the merger with Zapata Gulf Marine Corporation. (2) Fiscal 1994 charge results from the early retirement of notes and debentures totaling $103,800,000. (3) Fiscal 1993 charge results from the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." (4) Cash dividends declared per common share reflect Tidewater cash dividends, excluding the common shares issued as a result of the Hornbeck merger. As a result of the timing of the fiscal 1994 Board of Directors meetings, only three quarterly dividends of $.10 per common share each were declared during fiscal 1994. (5) See Note 11 of Notes to Consolidated Financial Statements for further information concerning a $5.9 million pre-tax charge to earnings for the cost of a restructuring program during fiscal 1995. (6) See Notes 2 and 8 of Notes to Consolidated Financial Statements for further information concerning pre-tax merger expenses of $9.6 million and a $3.0 million pre-tax charge for curtailment of the company's pension plan. -10- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW On March 13, 1996 Tidewater Inc. broadened its base of operations and its ability to serve its customers by merging with Hornbeck Offshore Services, Inc. (Hornbeck). Prior to the merger Hornbeck's fleet consisted of 61 supply and towing-supply vessels operating in the U.S. Gulf of Mexico and a 49.9% interest in 29 safety/standby vessels operating in the North Sea. The merger was accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements and the related disclosures and the selected financial data have been restated for all periods to include the accounts and results of operations of Hornbeck. After-tax merger costs of $7.8 million, or $.12 per common share, reduced fiscal 1996 net earnings and consisted of legal, accounting and investment banking fees, payments under severance and employment agreements, and a provision for certain other costs related to the business combination. Fiscal 1996 operating performance was significantly better than in prior years due to more favorable market conditions for offshore marine services and a full years' impact of an expanded natural gas compressor rental fleet. Net earnings grew 49% above the prior year level after allowing for unusual items in both fiscal 1996 and fiscal 1995. Fiscal 1996 unusual items consisted of after-tax merger costs of $7.8 million discussed above, and an after-tax charge of $2.0 million, or $.03 per common share, for the curtailment of the company's pension plan. Fiscal 1995 unusual items consisted of an after-tax restructuring charge of $3.7 million, or $.06 per common share, and an after-tax charge of $1.6 million, or $.02 per common share, for reserves to cover possible losses due to the potential insolvency of certain of the company's insurers. Demand for the services provided by the company's marine division remains strong and recent improvements in the pricing of natural gas should have a positive impact on the company's natural gas compression operations. LIQUIDITY AND CAPITAL RESOURCES Cash from operations continued to grow as the $174.2 million generated in fiscal 1996 surpassed the amounts for the two prior fiscal years. The amount of cash generated from operations is dependent upon utilization and day rate levels of the company's marine vessel fleet and natural gas compressor rental fleet. The amount of cash consumed in investing activities for any given period is principally determined by additions to properties and equipment and proceeds from the sales of assets. The following tables provide a breakdown by division of these two items for the years ended March 31: (in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------- ADDITIONS TO PROPERTIES AND EQUIPMENT: Marine $40,994 99,893 35,778 Compression 5,108 254,505 20,545 General corporate 14 327 380 - ---------------------------------------------------------------------------- $46,116 354,725 56,703 ============================================================================ PROCEEDS FROM SALES OF ASSETS: Marine $12,435 22,152 9,407 Compression 5,609 4,358 3,376 - ---------------------------------------------------------------------------- $18,044 26,510 12,783 ============================================================================ In fiscal 1996 the marine division acquired 28 used vessels for $28.7 million consisting of eight towing-supply and supply vessels, eight offshore tugs, 11 crewboats and a utility vessel. Fiscal 1995 marine additions include the purchase of 23 offshore supply vessels, two offshore tugs and a crewboat -11- for $64.3 million. Nineteen and ten of the vessels purchased in fiscal 1996 and fiscal 1995, respectively, were previously operated by the company under various long-term lease agreements. The remainder of marine additions for these two fiscal years were for modifications to the existing vessel fleet. Fiscal 1995 compression additions include the acquisition of the natural gas compression assets of Halliburton Company for $205 million and the assets of Brazos Gas Compressing Company for $35 million. The remainder of compression additions in fiscal 1995 and for fiscal 1996 were for modifications to the existing natural gas compressor rental fleet. Cash consumed in fiscal 1996 financing activities was primarily for the repayment of the March 31, 1995 debt balance of $112 million remaining, from the $150 million borrowed during fiscal 1995, to finance the Halliburton Compression acquisition. Temporary borrowings of $13.4 million to finance the purchase of several vessels previously leased to the company was also repaid in fiscal 1996. Fiscal 1995 principal payments on long-term debt include $38 million of payments on the Halliburton Compression acquisition debt and $46.0 million to retire early the 7% convertible subordinated debentures. During the fourth quarter of fiscal 1996 the company recorded as "other expense" a $3.0 million pre-tax charge as a result of the removal of Marine fleet and Compression field service personnel from the company's U.S. defined benefit pension plan. Beginning April 1, 1996 these Marine and Compression employees, along with all new employees of the company who are eligible for pension plan membership, will be enrolled in a new defined contribution retirement plan. The Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement is effective for fiscal years beginning after December 15, 1995. Management does not believe that this pronouncement will have a material impact on its fiscal 1997 consolidated financial statements. The FASB also issued SFAS No. 123 "Accounting for Stock-Based Compensation" effective also for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages, but does not require, companies to measure stock-based compensation cost using a fair value method, rather than the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25. Companies choosing to continue to measure stock-based compensation using the intrinsic value method must disclose on a pro forma basis net earnings and net earnings per share as if the fair value method were used. Management is currently evaluating the requirements of SFAS No. 123. -12- RESULTS OF OPERATIONS Revenues, operating profits and certain other information by division for the years ended March 31 are: (in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------ Revenue (A): Marine (B) $532,202 501,118 513,892 Compression 111,245 83,490 55,471 - ------------------------------------------------------------------------------ $643,447 584,608 569,363 ============================================================================== Operating profit: Marine (B) $118,909 83,683 78,048 Compression 14,565 14,436 6,895 Other income 5,436 5,589 4,538 Other expense (12,600) (8,350) --- General corporate expenses (9.541) (10,285) (10,806) Interest expense (5,882) (5,608) (9,262) - ------------------------------------------------------------------------------- Earnings before income taxes $110,887 79,465 69,413 ============================================================================== Identifiable assets: Marine: United States $349,554 356,593 375,255 International (B) 269,704 314,532 327,975 - ------------------------------------------------------------------------------ 619,258 671,125 703,230 Compression 275,454 308,339 68,285 - ------------------------------------------------------------------------------ Total operating divisions 894,712 979,464 771,515 Investments in and advances to unconsolidated Marine companies 35,861 38,378 37,066 Corporate 47,627 27,816 120,743 Total $978,200 1,045,658 929,324 ============================================================================== Depreciation (C): Marine $54,961 77,003 79,627 Compression 27,069 15,472 9,144 - ------------------------------------------------------------------------------ Total operating divisions 82,030 92,475 88,771 Corporate 400 390 165 - ------------------------------------------------------------------------------ Total $82,430 92,865 88,936 ============================================================================== (A) For fiscal 1996 and fiscal 1995 one Marine customer accounted for approximately 10% of consolidated revenues. (B) Marine equipment operations are conducted worldwide with assets that are highly mobile. Revenues and identifiable assets attributable to these operations in any one country are not "significant" as that term is defined by SFAS No. 14. Further, most identifiable assets in each country are comprised of offshore service vessels, which regularly and routinely move from one operating area to another, often to and from offshore operating areas of different continents. Equity in net assets of non-U.S. subsidiaries is $148,045,000, $164,175,000 and $192,038,000 at March 31, 1996, 1995 and 1994, respectively. Other international identifiable assets include accounts receivable and other balances denominated in currencies other than the U.S. dollar which aggregate approximately $8,520,000, 7,062,000 and $7,295,000 at March 31, 1996, 1995 and 1994, respectively. These amounts are subject to the usual risks of fluctuating exchange rates and government-imposed exchange controls. (C) See Note 1 of Notes to Consolidated Financial Statements for a discussion of depreciation policy changes affecting fiscal 1995 and 1996. Fiscal 1996 pre-tax earnings rose 40% above prior year levels due to higher Marine operating profits partially offset by higher other expense. Fiscal 1996 other expense of $12.6 million consisted of $9.6 million of costs resulting from the merger with Hornbeck Offshore Services, Inc. and a $3.0 million charge for the curtailment of the company's defined benefit pension plan. Fiscal 1995 other expense of $8.4 million consisted of a $5.9 million restructuring charge and a $2.5 million charge for possible insurance losses. Please see Notes 2, 8 and 11 of Notes to Consolidated Financial Statements for further discussion of these items. Increased Marine operating profits are the result of higher utilization and day rates for the vessel fleet compared to fiscal 1995, the net positive effect of lower depreciation expense due to the increase in vessel useful lives effective April 1, 1995 and lower general and administrative expense resulting from the fiscal 1995 fourth quarter restructuring of worldwide Marine operations. Please see Note 1 of Notes to Consolidated Financial Statements for further discussion of the change in vessel useful lives. -13- Higher Compression revenues and operating profits resulting from the substantial expansion of the natural gas compressor rental fleet during the second half of fiscal 1995 and higher Marine operating profits were the principal factors which were responsible for the growth in fiscal 1995 consolidated revenues and pre-tax earnings above fiscal 1994 levels. Higher Marine operating profits in fiscal 1995 were the result of higher gains on sales of assets and shipyard profits partially offset by lower operating profits for a smaller international-based vessel fleet. Shipyard profits rose substantially above fiscal 1994 levels due to the construction of vessels for third-parties. Fiscal 1995 pre-tax earnings were reduced by $8.4 million of other expense which consisted of a $5.9 million charge resulting from the restructuring of worldwide marine operations and the company's headquarters office and a $2.5 million provision for possible losses due to the potential insolvency of certain of the company's insurers. During fiscal 1995, the estimated salvage value used to determine depreciation expense for natural gas compressors was increased. Please see Note 1 of Notes to Consolidated Financial Statements for further discussion of this matter. Fiscal 1994 consolidated revenues and pre-tax earnings rose above prior year levels because of higher utilization and substantially higher average vessel day rates for the domestic-based vessel fleet. Fiscal 1994 Marine and Compression operating profits were negatively affected by $.3 million and $1.0 million, respectively, of severance costs associated with the early retirement of several employees. Consolidated general and administrative expenses for the years ended March 31 consist of the following components: (in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------- Personnel $ 34,463 38,298 39,251 Office and property 9,929 10,149 10,833 Sales and marketing 3,407 4,201 4,396 Professional services 4,545 3,683 4,786 Other 7,004 7,588 6,768 - ---------------------------------------------------------------------------- $ 59,348 63,919 66,034 ============================================================================ MARINE DIVISION The marine division provides a diverse range of services and equipment to the offshore oil and gas industry. Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally with changes in revenues. Operating costs 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 dictated by regulatory agencies. Whenever possible, vessel drydockings are done during seasonally slow periods to minimize any impact on vessel operations and are only done when 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 and provide a breakdown of operating profit for the years ended March 31: -14- (in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------- Revenues: Owned and operated vessels: United States $ 241,436 222,784 225,913 International 264,744 246,967 269,169 - ---------------------------------------------------------------------------- 506,180 469,751 495,082 Brokered vessels, shipyard sales and other 26,022 31,367 18,810 - ---------------------------------------------------------------------------- 532,202 501,118 513,892 - ---------------------------------------------------------------------------- Operating expenses: Owned and operated vessels: Crew costs 145,018 139,058 145,988 Repair and maintenance 84,567 69,669 78,355 Insurance 33,999 36,040 28,690 Fuel, lube and supplies 24,422 21,645 23,314 Other 19,909 18,640 21,486 - ---------------------------------------------------------------------------- 307,915 285,052 297,833 Brokered vessels, shipyard sales and other 20,391 26,897 17,516 - ---------------------------------------------------------------------------- 328,306 311,949 315,349 - ---------------------------------------------------------------------------- Operating margin $203,896 189,169 198,543 ============================================================================ FOR OWNED AND OPERATED VESSELS: Operating margins as a percent of revenues 39.2% 39.3% 39.8% Percentage rise (drop) in operating costs compared to prior fiscal year 8.0% (4.3%) 11.3% ============================================================================ Marine operating profit: Owned and operated vessels: United States $46,839 41,427 43,145 International 60,291 24,947 30,765 - ---------------------------------------------------------------------------- 107,130 66,374 73,910 Gains on sales of assets 6,930 13,098 3,268 Brokered vessels, shipyard sales and other 4,849 4,211 870 - ---------------------------------------------------------------------------- $118,909 83,683 78,048 ============================================================================ Fiscal 1996 operating margins rose above the prior year level due to higher utilization and average day rates for the worldwide vessel fleet. The rise in fiscal 1996 operating margins was adversely affected by a significant increase in the amount of repair and maintenance expense which primarily affected the domestic-based vessel fleet. Approximately 68% of the increase in repair and maintenance expense in fiscal 1996 is attributable to the changes in estimated useful lives of the marine vessels whereby costs which would have been capitalized under the previous life estimates were expensed. Fiscal 1995 operating margins fell below the prior year level as increases in average day rates for the worldwide vessel fleet did not offset the adverse effect of lower utilization of the worldwide vessel fleet and a sizeable reduction in the size of the international-based vessel fleet. Marine fleet utilization is determined primarily by market conditions and to a lesser extent by drydockings to satisfy safety and inspection requirements. Utilization of the domestic-based vessel fleet over the past three years has been primarily influenced by offshore activity related to the exploration and production of natural gas in the U.S. Gulf of Mexico, whereas, utilization of the international-based vessel fleet is primarily influenced by offshore activity related to the exploration 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 vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The following two sets of tables compare day-based Marine fleet utilization percentages and average day rates by vessel class and in total for each of the quarters in the years ended March 31: -15- UTILIZATION: 1996 FIRST SECOND THIRD FOURTH YEAR - ------------------------------------------------------------------------------ DOMESTIC-BASED FLEET: Towing-supply/Supply 86.8% 85.6 89.9 91.1 88.3 Crew/Utility 81.7 79.5 83.7 80.1 81.2 Offshore Tugs 47.9 64.8 67.5 58.4 59.5 Other 44.9 64.8 51.3 43.3 50.9 Total 77.0% 79.9 83.1 81.0 80.2 INTERNATIONAL-BASED FLEET: Towing-supply/Supply 86.7% 87.9 85.6 85.3 86.4 Crew/Utility 86.6 85.0 81.5 86.6 84.9 Offshore Tugs 72.2 71.2 77.4 76.1 74.4 Other 37.3 48.3 56.8 77.5 54.7 Total 76.1% 78.2 79.1 82.6 79.0 WORLDWIDE FLEET: Towing-supply/Supply 86.8% 86.9 87.6 87.9 87.3 Crew/Utility 83.6 81.7 82.8 82.8 82.7 Offshore Tugs 60.6 68.4 73.4 69.0 67.9 Other 38.9 51.6 55.7 69.9 53.9 Total 76.5% 79.0 80.9 81.9 79.6 ============================================================================== 1995 FIRST SECOND THIRD FOURTH YEAR - ------------------------------------------------------------------------------ DOMESTIC-BASED FLEET: Towing-supply/Supply 81.0% 80.1 85.1 87.2 83.4 Crew/Utility 90.3 92.9 89.0 85.0 89.3 Offshore Tugs 66.0 63.9 58.5 40.5 57.5 Other 51.6 50.9 58.9 26.2 47.2 Total 78.6% 77.8 79.3 75.2 77.7 INTERNATIONAL-BASED FLEET: Towing-supply/Supply 82.2% 81.7 78.2 81.4 80.8 Crew/Utility 73.5 74.5 81.9 85.1 78.5 Offshore Tugs 80.4 71.3 72.7 80.8 76.4 Other 55.7 42.0 43.0 44.0 46.4 Total 75.9% 72.2 71.5 75.5 73.8 WORLDWIDE FLEET: Towing-supply/Supply 81.6% 81.0 81.2 84.1 82.0 Crew/Utility 82.6 84.9 86.0 85.1 84.6 Offshore Tugs 73.5 67.5 65.4 61.2 66.9 Other 55.0 43.8 46.3 40.2 46.5 Total 77.0% 74.7 75.0 75.4 75.5 ============================================================================== 1994 FIRST SECOND THIRD FOURTH YEAR - ------------------------------------------------------------------------------ DOMESTIC-BASED FLEET: Towing-supply/Supply 86.8% 89.5 91.5 85.2 88.2 Crew/Utility 90.3 95.2 92.6 89.9 92.0 Offshore Tugs 64.8 66.7 68.8 57.2 64.4 Other 76.8 69.0 72.5 44.5 67.4 Total 82.5% 84.3 85.7 78.3 82.7 INTERNATIONAL-BASED FLEET: Towing-supply/Supply 80.7% 77.4 76.2 76.1 77.7 Crew/Utility 77.6 67.9 73.7 71.4 72.6 Offshore Tugs 81.6 79.0 76.4 77.4 78.7 Other 70.9 75.1 72.9 69.9 72.2 Total 78.7% 76.0 75.3 74.6 76.2 WORLDWIDE FLEET: Towing-supply/Supply 83.1% 82.3 82.6 80.2 82.0 Crew/Utility 84.0 81.8 83.7 81.2 82.7 Offshore Tugs 73.8 72.9 72.6 67.2 71.6 Other 72.5 73.4 72.8 64.3 71.0 Total 80.2% 79.5 79.8 76.2 78.9 ============================================================================== -16- AVERAGE DAY RATES: 1996 FIRST SECOND THIRD FOURTH YEAR - ----------------------------------------------------------------------------- DOMESTIC-BASED FLEET: Towing-supply/Supply $3,351 3,495 3,610 3,880 3,585 Crew/Utility 1,343 1,354 1,344 1,357 1,349 Offshore Tugs 5,220 4,584 4,909 5,162 4,943 Other 3,118 2,868 3,155 2,762 2,970 Total $3,115 3,178 3,309 3,492 3,273 INTERNATIONAL-BASED FLEET: Towing-supply/Supply $3,644 3,670 3,651 3,713 3,670 Crew/Utility 1,884 1,767 1,646 1,712 1,752 Offshore Tugs 2,635 2,705 2,710 2,906 2,746 Other 726 727 674 631 680 Total $3,025 2,987 2,909 2,895 2,952 WORLDWIDE FLEET: Towing-supply/Supply $3,507 3,590 3,632 3,791 3,630 Crew/Utility 1,567 1,526 1,470 1,514 1,519 Offshore Tugs 3,609 3,498 3,538 3,674 3,578 Other 1,298 1,265 1,138 923 1,130 Total $3,067 3,075 3,090 3,153 3,097 ============================================================================= 1995 FIRST SECOND THIRD FOURTH YEAR - ----------------------------------------------------------------------------- DOMESTIC-BASED FLEET: Towing-supply/Supply $3,710 3,364 3,270 3,466 3,451 Crew/Utility 1,270 1,251 1,294 1,288 1,276 Offshore Tugs 4,126 4,487 5,013 4,935 4,601 Other 2,917 2,970 2,884 3,839 3,045 Total $3,190 3,019 3,042 3,116 3,091 INTERNATIONAL-BASED FLEET: Towing-supply/Supply $3,606 3,616 3,556 3,494 3,569 Crew/Utility 1,752 1,752 1,716 1,675 1,723 Offshore Tugs 2,765 2,416 2,432 2,702 2,591 Other 701 789 896 1,479 932 Total $2,843 2,917 2,852 2,916 2,882 WORLDWIDE FLEET: Towing-supply/Supply $3,652 3,506 3,424 3,480 3,516 Crew/Utility 1,467 1,441 1,462 1,451 1,455 Offshore Tugs 3,352 3,421 3,617 3,422 3,451 Other 1,071 1,313 1,420 1,808 1,363 Total $2,996 2,964 2,942 3,006 2,977 ============================================================================= 1994 FIRST SECOND THIRD FOURTH YEAR - ----------------------------------------------------------------------------- DOMESTIC-BASED FLEET: Towing-supply/Supply $3,075 3,288 3,565 3,752 3,430 Crew/Utility 1,189 1,233 1,257 1,269 1,237 Offshore Tugs 4,379 4,146 4,222 4,308 4,259 Other 1,721 1,698 1,867 2,266 1,826 Total $2,742 2,852 3,051 3,232 2,969 INTERNATIONAL-BASED FLEET: Towing-supply/Supply $3,622 3,714 3,696 3,604 3,660 Crew/Utility 1,794 1,677 1,677 1,753 1,727 Offshore Tugs 2,992 3,123 2,827 2,728 2,923 Other 551 551 540 633 567 Total $2,817 2,839 2,768 2,743 2,793 WORLDWIDE FLEET: Towing-supply/Supply $3,400 3,527 3,635 3,674 3,558 Crew/Utility 1,462 1,413 1,432 1,470 1,444 Offshore Tugs 3,561 3,585 3,494 3,412 3,516 Other 876 843 903 882 876 Total $2,786 2,845 2,898 2,964 2,871 ============================================================================= -17- The following table compares the average number of vessels by class and geographic distribution during the years ended March 31: - ----------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------- DOMESTIC-BASED FLEET: Towing-supply/Supply 147 142 135 Crew/Utility 51 51 49 Offshore Tugs 41 47 47 Other 13 14 21 - ----------------------------------------------------------------------------- TOTAL 252 254 252 - ----------------------------------------------------------------------------- INTERNATIONAL-BASED FLEET: Towing-supply/Supply 171 175 191 Crew/Utility 35 39 45 Offshore Tugs 54 47 49 Other 50 57 61 - ----------------------------------------------------------------------------- TOTAL 310 318 346 - ----------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 562 572 598 Vessels withdrawn from active service 18 18 15 Joint venture owned vessels 74 72 72 - ----------------------------------------------------------------------------- Total 654 662 685 ============================================================================= WORLDWIDE FLEET: Towing-supply/Supply 384 384 389 Crew/Utility 95 96 101 Offshore Tugs 98 98 98 Other 77 84 97 - ----------------------------------------------------------------------------- Total 654 662 685 ============================================================================= The drop in average size of the international-based vessel fleet from 346 for fiscal 1994 to 318 for fiscal 1995 to 310 for fiscal 1996 is due to several vessels being withdrawn from active service due to age and anticipated high repair and maintenance costs, the transfer of vessels to the domestic-based vessel fleet and the return of leased vessels to their owners. The average age of the Marine vessel fleet is approximately 18 years, and in the future as vessels become uneconomical to operate they may be withdrawn from active service. 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 mostly influenced 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 year-to-year 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 vary due to increased fleet size and general inflationary factors. Compression operating profit is primarily determined by operating margins from rental gas compression operations. -18- The following tables compare revenues, operating expenses (excluding general and administrative expense and depreciation expense), operating margins and related statistics for gas compression operations for the years ended March 31: (in thousands) 1996 1995 1994 - --------------------------------------------------------------------------- Revenues: Rentals $72,765 49,235 30,868 Repair service and other 6,161 6,335 6,218 - ---------------------------------------------------------------------------- 78,926 55,570 37,086 - ---------------------------------------------------------------------------- Operating expenses: Wages and benefits 11,654 8,702 6,209 Repair and maintenance 13,348 8,124 6,043 Other 8,189 5,165 3,109 - ---------------------------------------------------------------------------- 33,191 21,991 15,361 - ---------------------------------------------------------------------------- Operating margin $45,735 33,579 21,725 ============================================================================ Operating margins as a percent of revenues 57.9% 60.4% 58.6% ============================================================================ Horsepower based statistics: Utilization 74% 82% 86% Average monthly rental rate $17.45 17.41 16.74 Average fleet size 470,444 286,352 179,725 Actual fleet size at March 31 in horsepower 473,282 479,740 185,036 ============================================================================ Higher fiscal 1996 revenues and operating margins are primarily the result of a full year's impact of the expansion of the natural gas compressor rental fleet which occurred in the third quarter of fiscal 1995. Fiscal 1996 utilization fell below the prior year level due to lower demand for natural gas compression services. 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 operating margins for equipment and parts sales for the years ended March 31: (in thousands) 1996 1995 1994 - --------------------------------------------------------------------------- Revenues $32,319 27,920 18,385 COSTS OF SALES 26,345 23,895 14,977 - ---------------------------------------------------------------------------- $5,974 4,025 3,408 ============================================================================ Operating margins as a percent of revenues 18.5% 14.4% 18.5% ============================================================================ Fluctuations in the level of equipment and parts sales are due to the timing of sales of engineered products. Fluctuations in operating 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. Gains on sales of equipment have contributed $.4 million, $1.1 million and $1.3 million for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. CURRENCY FLUCTUATIONS AND INFLATION Because of its significant international operations, the company is exposed to currency fluctuations and exchange risks. To minimize the financial impact of these items the company attempts to contract a majority of its services in United States dollars. Day-to-day operating costs generally are 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 -19- exploration and development 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 related environmental damage. Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, does not have, nor is expected to have, a material effect on the company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is included in Part IV of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors of the company is incorporated by reference from the company's definitive proxy statement to be filed on or before July 29, 1996. For information regarding executive officers of the company, see Item 4A of this report. ITEM 11. EXECUTIVE COMPENSATION Information concerning executive compensation is incorporated by reference from the proxy statement described in Item 10 of this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the proxy statement described in Item 10 of this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is incorporated by reference from the proxy statement described in Item 10 of this report. -20- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. Financial Statements and Schedules The Consolidated Financial Statements and Schedule of the company listed on the accompanying Index to Financial Statements and Schedule (see page F-1) are filed as part of this report. B. Reports on Form 8-K The company's report on Form 8-K for March 13, 1996 reported that the company acquired all of the outstanding common stock of Hornbeck Offshore Services, Inc. C. Exhibits The index below describes each exhibit filed as a part of this report. Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. 3(a) -Restated Certificate of Incorporation of Tidewater Inc. (filed with the Commission as Exhibit 3(a) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 3(b) -Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 4(a) -Restated Rights Agreement dated as of December 17, 1993 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 4 to the company's quarterly report on Form 10-Q for the quarter ended December 31, 1993). 10(a) -$130,000,000 Revolving Credit and Term Loan Agreement dated December 29, 1995 (filed with the Commission as Exhibit 10.1 to a Registration Statement on February 6, 1996, Registration No. 333-00221). 10(b) -Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in 1990 (filed with the Commission as Exhibit 10(c) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1991). 10(c) -Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with the Commission as Exhibit 10(f) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(d) -Tidewater Inc. Amended and Restated Supplemental Executive Retirement Plan (filed with the Commission as Exhibit 10(g) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(e) -Tidewater Inc. Amended and Restated Employees' Supplemental Savings Plan (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). -21- 10(f) -Supplemental Health Plan for Executive Officers of Tidewater Inc. (filed with the Commission as Exhibit 10(i) to a Registration Statement on September 12, 1989, Registration No. 33-31016). 10(g) -Tidewater Inc. Deferred Compensation Plan for Directors (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(h) -Tidewater Inc. Retirement Plan for Directors as adopted on March 22, 1990 (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1990). 10(i) -Employment and Consulting Agreement dated as of March 31, 1993 between Tidewater Inc. and John P. Laborde as amended (filed with the Commission as Exhibit 10(l) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). *10(j) -Consulting Agreement dated as of March 13, 1996 between Tidewater Inc. and Larry D. Hornbeck. 10(k) -Form of Severance Agreement entered into as of August 1, 1985 with eleven executive officers and key employees, as amended (filed with the Commission as Exhibit 10(j) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1992). 10(l) -Form of Severance Agreement entered into as of February 18, 1992 with three executive officers, as amended (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1992). 10(m) -Standstill Agreement dated as of November 11, 1992 between Tidewater Inc. and Zapata Corporation (filed with the Commission as Exhibit 10(o) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(n) -First Amendment to Standstill Agreement dated January 24, 1994 between Tidewater Inc. and Zapata Corporation (filed with the Commission as Exhibit 10(n) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(o) -Agreement, dated August 11, 1989, by and among the company and Irwin L. Jacobs, Daniel T. Lindsay, Gerald A. Schwalbach, TR Holdings, Inc. and Minstar, Inc. (filed with the Commission as Exhibit 1 to the company's report on Form 8-K for August 11, 1989). 10(p) -Tidewater Inc. 1995 Annual Incentive Plan (filed with the Commission as Exhibit 10(q) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1995). 10(q) -Employment Agreement dated June 13, 1995 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 8-K for June 13, 1995). *11 -Earnings per share Computation Information. *21 -Subsidiaries of the company. *24 -Consent of Independent Accountants. *27 - Financial Data Schedule. -22- Certain instruments respecting long-term debt of Tidewater have been omitted pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to furnish a copy of any such instrument to the Commission upon request. -23- SIGNATURES OF REGISTRANT Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 9, 1996. TIDEWATER INC. (Registrant) By: /s/ WILLIAM C. O'MALLEY William C. O'Malley Chairman of the Board of Directors, President, and Chief Executive Officer By: /s/ KEN C. TAMBLYN Ken C. Tamblyn Executive Vice President and Chief Financial Officer SIGNATURES OF DIRECTORS Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 2, 1996. /s/ ROBERT H. BOH /s/ LARRY D. HORNBECK Robert H. Boh Larry D. Hornbeck /s/ ____________________ /s/ PAUL W. MURRILL Donald T. Bollinger Paul W. Murrill /s/ ARTHUR R. CARLSON /s/ WILLIAM C. O'MALLEY Arthur R. Carlson William C. O'Malley /s/ HUGH J. KELLY /s/ LESTER POLLACK Hugh J. Kelly Lester Pollack /s/ JOHN P. LABORDE /s/ J. HUGH ROFF, JR. John P. Laborde J. Hugh Roff, Jr. -24- TIDEWATER INC. ANNUAL REPORT ON FORM 10-K ITEMS 8, 14(A), AND 14(D) INDEX TO FINANCIAL STATEMENTS AND SCHEDULE FINANCIAL STATEMENTS PAGE 1. Independent Auditors' Report........................................... F-2 2. Consolidated Balance Sheets, March 31, 1996 and 1995................... F-3 3. Consolidated Statements of Earnings, three years ended March 31, 1996................................................... F-4 4. Consolidated Statements of Stockholders' Equity, three years ended March 31, 1996............................................. F-5 5. Consolidated Statements of Cash Flows, three years ended March 31, 1996......................................................... F-6 6. Notes to Consolidated Financial Statements............................. F-7 FINANCIAL STATEMENT SCHEDULE II. Tidewater Inc. and Subsidiaries Valuation and Qualifying Accounts All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or the related notes. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Tidewater Inc.: We have audited the accompanying consolidated financial statements of Tidewater Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tidewater Inc. and subsidiaries as of March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP New Orleans, Louisiana April 29, 1996 F-2 CONSOLIDATED BALANCE SHEETS March 31, 1996 and 1995 (in thousands) <TABLE> <CAPTION> ASSETS 1996 1995 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash, including temporary cash investments $ 28,768 23,274 Trade and other receivables, less allowance for doubtful accounts of $8,376 in 1996 and $9,636 in 1995 144,472 157,552 Inventories 31,346 36,311 Other current assets 4,350 6,356 - ----------------------------------------------------------------------------------------------------------------- Total current assets 208,936 223,493 - ----------------------------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 35,861 38,378 Properties and equipment: Marine equipment 1,210,876 1,212,577 Compression equipment 324,069 326,300 Other 41,240 46,646 - ----------------------------------------------------------------------------------------------------------------- 1,576,185 1,585,523 Less accumulated depreciation 916,412 878,061 - ----------------------------------------------------------------------------------------------------------------- Net properties and equipment 659,773 707,462 Other assets 73,630 76,325 - ----------------------------------------------------------------------------------------------------------------- $ 978,200 1,045,658 ================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt 2,934 15,467 Accounts payable and accrued expenses 70,546 72,124 Accrued property and liability losses 10,844 11,533 Income taxes 1,356 9,929 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 85,680 109,053 - ----------------------------------------------------------------------------------------------------------------- Deferred income taxes 76,579 60,346 Long-term debt --- 121,023 Accrued property and liability losses 34,206 28,921 Other liabilities and deferred credits 42,985 42,056 Stockholders' equity: Common stock, par value $.10, issued 61,882,695 shares in 1996 and 61,552,997 shares in 1995 6,188 6,155 Additional paid-in capital 421,655 418,941 Retained earnings 322,736 271,452 - ----------------------------------------------------------------------------------------------------------------- 750,579 696,548 Less: Cumulative foreign currency translation adjustment 10,771 10,745 Deferred compensation - restricted stock 1,058 1,544 - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 738,750 684,259 Commitments and other matters - ----------------------------------------------------------------------------------------------------------------- $ 978,200 1,045,658 ================================================================================================================= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-3 CONSOLIDATED STATEMENTS OF EARNINGS Years Ended March 31, 1996, 1995 and 1994 (in thousands, except share and per share data) <TABLE> <CAPTION> 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues: Marine operations $ 532,202 501,118 513,892 Compression operations 111,245 83,490 55,471 - ----------------------------------------------------------------------------------------------------------------- 643,447 584,608 569,363 - ----------------------------------------------------------------------------------------------------------------- Costs and expenses: Marine operations 328,306 311,949 315,349 Compression operations 59,536 45,886 30,338 Depreciation 82,430 92,865 88,936 General and administrative 59,348 63,919 66,034 - ----------------------------------------------------------------------------------------------------------------- 529,620 514,619 500,657 - ----------------------------------------------------------------------------------------------------------------- 113,827 69,989 68,706 Other income (expenses): Foreign exchange loss (479) (611) (557) Gain on sales of assets 7,264 14,207 4,588 Equity in net earnings of unconsolidated companies 5,901 4,555 3,504 Minority interests (1,385) (1,488) (2,022) Interest and miscellaneous income 4,241 6,920 6,908 Other expense (12,600) (8,499) (2,452) Interest expense (5,882) (5,608) (9,262) - ------------------------------------------------------------------------------------------------------------------ (2,940) 9,476 707 - ----------------------------------------------------------------------------------------------------------------- Earnings before income taxes 110,887 79,465 69,413 Income taxes 34,710 28,278 24,753 - ----------------------------------------------------------------------------------------------------------------- Earnings before extraordinary item 76,177 51,187 44,660 Extraordinary loss on early debt retirement --- --- (12,250) - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 76,177 51,187 32,410 ================================================================================================================= Primary and fully-diluted earnings per common share: Earnings before extraordinary item $ 1.23 .83 .73 Extraordinary loss on early debt retirement --- --- (.20) - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 1.23 .83 .53 ================================================================================================================= Weighted average common shares and equivalents 62,160,978 61,858,894 60,791,329 ================================================================================================================= Cash dividends declared per common share $ .475 .40 .30 ================================================================================================================= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 1996, 1995 and 1994 (in thousands) <TABLE> <CAPTION> Cumulative foreign Deferred Additional currency compensation- Common paid-in Retained translation restricted Treasury stock capital earnings adjustment stock stock Total - ----------------------------------------------------------------------------------------------------------------- 1996 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Amount at March 31, 1995 $ 6,155 418,941 271,452 (10,745) (1,544) --- 684,259 Net earnings --- --- 76,177 --- --- --- 76,177 Exercise of stock options 33 2,950 --- --- --- --- 2,983 Cash dividends declared --- --- (25,327) --- --- --- (25,327) Other --- (236) 434 (26) 486 --- 658 - ----------------------------------------------------------------------------------------------------------------- Amount at March 31, 1996 $ 6,188 421,655 322,736 (10,771) (1,058) --- 738,750 ================================================================================================================= 1995 - ----------------------------------------------------------------------------------------------------------------- Amount at March 31, 1994 $ 6,102 416,559 241,520 (11,032) --- --- 653,149 Net earnings --- --- 51,187 --- --- --- 51,187 Issuance of restricted stock 7 1,629 --- --- (1,636) --- --- Exercise of stock options 12 876 --- --- --- --- 888 Cash dividends declared --- --- (21,255) --- --- --- (21,255) Other 34 (123) --- 287 92 --- 290 - ----------------------------------------------------------------------------------------------------------------- Amount at March 31, 1995 $ 6,155 418,941 271,452 (10,745) (1,544) --- 684,259 ================================================================================================================= 1994 - ----------------------------------------------------------------------------------------------------------------- Amount at March 31, 1993 $ 5,978 383,730 224,999 (11,112) --- (10,844) 592,751 Net earnings --- --- 32,410 --- --- --- 32,410 Treasury stock changes (63) (10,781) --- --- --- 10,844 --- Exercise of stock options 23 1,408 --- --- --- --- 1,431 Issuance of common stock 266 42,245 --- --- --- --- 42,511 Cash dividends declared --- --- (15,889) --- --- --- (15,889) Other (102) (43) --- 80 --- --- (65) - ----------------------------------------------------------------------------------------------------------------- Amount at March 31, 1994 $ 6,102 416,559 241,520 (11,032) --- --- 653,149 ================================================================================================================= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, 1996, 1995 and 1994 (in thousands) <TABLE> <CAPTION> 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Cash flows from operating activities: Net earnings $ 76,177 51,187 32,410 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary loss on early debt retirement --- --- 12,250 Depreciation 82,430 92,865 88,936 Provision for deferred income taxes 16,233 6,523 2,310 Gain on sales of assets (7,264) (14,207) (4,588) Equity in net earnings of unconsolidated companies (5,901) (4,555) (3,504) Minority interests 1,385 1,488 2,022 Compensation expense - restricted stock 595 92 --- Decrease (increase) in trade and other receivables 11,780 (183) 5,233 Decrease (increase) in inventories 4,572 4,977 (238) Decrease (increase) in other current assets 20 (944) (2,251) Increase (decrease) in accounts payable and accrued expenses (3,913) 10,203 (102) Increase (decrease) in accrued property and liability losses (689) 3,776 (880) Increase (decrease) in income taxes (7,763) (741) 7,322 Other, net 6,548 5,001 7,154 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 174,210 155,482 146,074 - ----------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 18,044 26,510 12,783 Additions to properties and equipment (46,116) (354,725) (56,703) Sale (purchase) of marketable securities --- 27,310 (23,507) Investments in unconsolidated companies, net of dividends received 9,102 (3,059) (14,771) Investment from minority interests, net of dividends paid (1,064) 3,550 (877) OTHER (592) (863) (767) - ----------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (20,626) (301,277) (83,842) - ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt (145,395) (96,272) (71,245) Prepayment penalties on early debt retirement --- --- (6,473) Proceeds from the issuance of long-term debt 13,400 173,000 --- Proceeds from issuance of common stock 4,212 742 40,894 Cash dividends (25,327) (21,255) (21,178) OTHER 40 (947) --- - ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (153,070) 55,268 (58,002) - ----------------------------------------------------------------------------------------------------------------- Net increase in cash for Hornbeck Offshore Services, Inc. for the quarter ended March 31, 1995 (Note 2) 4,980 --- --- Net increase (decrease) in cash, Including temporary cash investments 514 (90,527) 4,230 - ----------------------------------------------------------------------------------------------------------------- Cash, including temporary cash investments at beginning of year 23,274 113,801 109,571 - ----------------------------------------------------------------------------------------------------------------- Cash, including temporary cash investments at end of year $ 28,768 23,274 113,801 ================================================================================================================= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 5,944 5,377 9,560 Income taxes $ 27,721 23,078 17,626 ================================================================================================================= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996, 1995 and 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The company provides services and equipment to the international energy industry through its marine and compression divisions. The marine division owns and operates the world's largest fleet of offshore service vessels and the compression division owns and operates one of the largest rental fleets of natural gas compressors in the United States. Activity levels for the marine vessel fleet and 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. USE OF ESTIMATES In preparing the company's financial statements management makes informed estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. BASIS OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Tidewater Inc. and its subsidiaries. Significant intercompany balances and transactions are eliminated in consolidation. INVENTORIES Inventories are stated at average cost for operating supplies and at the lower of cost (FIFO) or market (net realizable value) for merchandise held for resale. PROPERTIES AND EQUIPMENT Properties and equipment are carried at cost. Depreciation for financial reporting purposes is computed primarily on the straight-line basis beginning with the first charter/rental, with salvage values of 5%-10% for marine equipment and 30% for compression equipment, using estimated useful lives of: YEARS Marine equipment (from date of construction) 15 - 25 Compression equipment 8 - 12 Other properties and equipment 3 - 30 Used equipment is depreciated in accordance with the above schedule; however, no life less than six years is used for marine equipment regardless of the date constructed. Maintenance and repairs are charged to operations as incurred during the asset's original estimated useful life. Major repair costs incurred after the original estimated useful life that also have the effect of extending the useful life of the asset are capitalized and amortized over three years. Major modifications to equipment are capitalized and amortized over the remaining life of the equipment. Effective April 1, 1995 the estimated useful lives of the company's marine vessels were increased from 10-20 years to 15-25 years. The increase in useful lives was made in order to provide a better matching of revenues and depreciation expense over a vessel's economic useful life. This change in accounting estimate lowered fiscal 1996 depreciation expense by approximately $25.2 million. Concurrent with this change approximately $10.2 million of repair and maintenance costs that would have been capitalized in fiscal 1996 had the previous estimated useful lives been used, was expensed. The change increased fiscal 1996 net earnings by $10.0 million, or $.16 per common share. In fiscal 1995 the company increased from 12-1/2% to 30% the estimated salvage value used to calculate depreciation expense for its fleet of natural gas compressors. The increase in salvage value was made in order to better reflect the estimated value of this equipment at the end of its service life and resulted from an internal review following the acquisition of a substantial number of natural gas F-7 compressors during the third quarter of fiscal 1995. This change in accounting estimate reduced depreciation expense by approximately $3 million and increased net earnings by $1.9 million or $.03 per common share, for fiscal 1995. ACCRUED PROPERTY AND LIABILITY LOSSES The company's insurance subsidiary establishes case based reserves for estimates of reported losses on direct business written, estimates received from ceding reinsurers, and reserves based on past experience of unreported losses. Such losses principally relate to the company's marine operations and are included as a component of costs of marine operations in the Consolidated Statements of Earnings. The liability for such losses and the related reimbursement receivable from reinsurance companies are classified in the Consolidated Balance Sheet into current and noncurrent amounts based upon estimates of when the liabilities will be settled and when the receivables will be collected. PENSION AND OTHER POSTRETIREMENT BENEFITS Pension costs are accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 87 and are funded as required by law. Prior service costs are amortized on the straight-line basis over the average remaining service period of employees expected to receive pension benefits. Postretirement benefits other than pensions are accounted for in accordance with Statement of Financial Accounting Standards No. 106. The estimated cost of postretirement benefits other than pensions are accrued during the employees' active service period. Postemployment and postretirement benefits other than pensions are funded as claims are submitted. INCOME TAXES Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS PER SHARE Primary earnings per share are computed based on the weighted average number of shares and dilutive equivalent shares of common stock (stock options and restricted stock grants) outstanding during each year using the treasury stock method. FOREIGN CURRENCY TRANSLATION The functional currency for certain non-U.S. subsidiaries and unconsolidated companies is the applicable local currency. The translation of the applicable local currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using weighted average exchange rates during the period. The gains and losses resulting from the balance sheet account translations, net of deferred income taxes, are included in stockholders' equity. Some transactions of the company and its subsidiaries are made in currencies different from their own. Gains and losses from these transactions are included in the Consolidated Statements of Earnings as they occur and relate primarily to the revenue generating and purchasing activities in Brazil, Venezuela, Mexico, United Kingdom, Singapore, Trinidad and Nigeria. CASH FLOWS For purposes of the Consolidated Statements of Cash Flows, all highly liquid investments purchased with original maturities of approximately three months or less are considered to be cash equivalents. Some items of compression equipment are acquired and placed in inventories for subsequent sale or rent to others. Acquisitions of these assets are considered operating activities in the Consolidated Statements of Cash Flows, although they later may be transferred to the compression equipment rental fleet. F-8 NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement is effective for fiscal years beginning after December 15, 1995. Management does not believe that this pronouncement will have a material impact on its fiscal 1997 consolidated financial statements. The FASB also issued SFAS No. 123, "Accounting for Stock Based Compensation," effective also for fiscal years beginning after December 15, 1995. The new statement encourages, but does not require, companies to measure stock-based compensation cost using a fair value method, rather than the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25. Companies choosing to continue to measure stock-based compensation using the intrinsic value method must disclose on a pro forma basis net earnings and net earnings per share as if the fair value method were used. Management is currently evaluating the requirements of SFAS No. 123. (2) BUSINESS COMBINATION On March 13, 1996 Tidewater Inc. issued 8,475,214 shares of its common stock in exchange for all of the outstanding common stock of Hornbeck Offshore Services, Inc. (Hornbeck). Hornbeck owned and operated a fleet of 61 marine service vessels operating in the U.S. Gulf of Mexico and had a 49.9% interest in 29 safety/standby vessels operating in the North Sea. This business combination has been accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Hornbeck. Operating results prior to the combination of the separate companies and the combined amounts presented in the consolidated financial statements are summarized below: (in thousands of dollars) Nine Months Year Ended Ended March 31, December 31, --------------------- 1995 1995 1994 - -------------------------------------------------------------------------------- (unaudited) Revenues: Tidewater $435,939 538,774 522,072 Hornbeck 46,341 45,834 47,291 - -------------------------------------------------------------------------------- Combined $482,280 584,608 569,363 ================================================================================ Net earnings: Tidewater $59,262 42,628 24,160 Hornbeck 4,783 8,559 8,250 - -------------------------------------------------------------------------------- Combined $64,045 51,187 32,410 ================================================================================ Adjustments to conform Hornbeck's accounting policies to those of Tidewater and to apply pooling-of-interests accounting reduced (increased) net earnings of the combined entity for the above periods by $2,359,000, ($536,000) and $2,415,000, respectively. The adjustments to conform accounting policies relate to Hornbeck's capitalizing and amortizing the cost of vessel drydockings and major overhauls rather than expensing such costs as incurred. Prior to the combination Hornbeck's fiscal year end was December 31. Tidewater's fiscal year end is March 31. In applying pooling-of-interests accounting, the March 31, 1995 and 1994 Tidewater statements of earnings were combined with the Hornbeck statements of earnings for the years ended December 31, 1994 and 1993, respectively. Unaudited amounts for the nine-month period ended December 31, 1995 include results of each entity for the nine-month period ended December 31, 1995. Retained earnings of the combined entities were adjusted by $434,000 as of the beginning of Tidewater's fiscal 1996 year to include the unaudited net earnings of Hornbeck, including adjustments to conform accounting policies to those of Tidewater, for the period January 1, 1995 to March 31, 1995. During this period Hornbeck's revenues were $12,671,000. Additionally, the consolidated statement of cash flows for the year ended F-9 March 31, 1996 was adjusted by $4,980,000 to reflect the net increase in cash of Hornbeck for the three months ended March 31, 1995. Merger expenses of $9.6 million include legal, investment banking and accounting fees related to the business combination. Also included in merger expenses are payments under severance and employment agreements and a provision for certain other related costs. Merger expenses are classified as "other expense" in the Consolidated Statements of Earnings. (3) ACQUISITION OF COMPRESSION ASSETS On September 30, 1994, the company purchased for $35 million in cash the assets of Brazos Gas Compressing Company, a subsidiary of Mitchell Energy & Development Corporation. On November 30, 1994, the company purchased the natural gas compression assets of Halliburton Company using $55 million of available cash and borrowings of $150 million. The costs of these acquisitions were allocated under the purchase method of accounting based on the fair value of the assets acquired. In connection with the purchase of the natural gas compression assets of Halliburton Company, goodwill of approximately $25 million was recorded as other assets in the Consolidated Balance Sheet and is being amortized in equal charges to earnings over a 15-year period. The results of Brazos' and Halliburton's operations have been consolidated with the company's effective October 1, 1994, and December 1, 1994, respectively. Unaudited pro forma combined results of operations of the company and of Brazos and Halliburton, including appropriate purchase accounting adjustments for the year ended March 31, 1995 as though the acquisition had taken place on April 1, 1994, are as follows: (in thousands, except per share data) 1995 - -------------------------------------------------------------------------------- Revenues $579,943 ================================================================================ Earnings before extraordinary item 35,947 ================================================================================ Net earnings 35,947 ================================================================================ Primary and fully diluted earnings per common share .67 ================================================================================ (4) INVENTORIES A summary of inventories at March 31 follows: (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Marine operating supplies $23,428 25,764 Compression supplies and merchandise held for sale 7,918 10,547 - -------------------------------------------------------------------------------- $31,346 36,311 ================================================================================ F-10 (5) UNCONSOLIDATED COMPANIES Investments in, at equity, and advances to unconsolidated marine joint-venture companies at March 31 were as follows: Percentage (in thousands) ownership 1996 1995 - -------------------------------------------------------------------------------- Ravensworth Investments Ltd. (United Kingdom) 50% $14,505 16,697 National Marine Service (Abu Dhabi-UAE) 40% 11,557 10,886 Tidewater Port Jackson (Australia) 50% 4,682 6,972 Provident Marine, Ltd. (Mexico) 50% 2,126 2,322 Lamnalco (UAE) 50% 1,613 --- Others 20%-50% 1,378 1,501 - -------------------------------------------------------------------------------- $35,861 38,378 ================================================================================ The aggregate amount of undistributed earnings of all unconsolidated joint-venture companies included in consolidated stockholders' equity at March 31, 1996 is approximately $13,854,000. (6) INCOME TAXES Earnings from continuing operations before income taxes derived from United States and international operations for the years ended March 31 are as follows: (in thousands) 1996 1995 1994 - --------------------------------------------------------------------- United States $ 43,854 54,738 37,843 International 67,033 24,727 31,570 - --------------------------------------------------------------------- $110,887 79,465 69,413 ===================================================================== Total income tax expense for the years ended March 31 was allocated as follows: (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Income from continuing operations $ 34,710 28,278 24,753 Extraordinary loss on early debt retirement --- --- (6,615) - -------------------------------------------------------------------------------- $ 34,710 28,278 18,138 ================================================================================ Income tax expense attributable to income from continuing operations for the years ended March 31 consists of the following: (in thousands) U.S. ------------------------ Federal State International Total - -------------------------------------------------------------------------------- 1996 - -------------------------------------------------------------------------------- Current $ 8,877 (629) 10,229 18,477 Deferred 16,233 --- --- 16,233 - -------------------------------------------------------------------------------- $25,110 (629) 10,229 34,710 ================================================================================ 1995 - -------------------------------------------------------------------------------- Current $13,977 797 6,981 21,755 Deferred 6,523 --- --- 6,523 - -------------------------------------------------------------------------------- $20,500 797 6,981 28,278 ================================================================================ 1994 - -------------------------------------------------------------------------------- Current $13,907 1,352 7,184 22,443 Deferred 2,310 --- --- 2,310 - -------------------------------------------------------------------------------- $16,217 1,352 7,184 24,753 ================================================================================ F-11 The actual income tax expense attributable to earnings from continuing operations for the years ended March 31, 1996, 1995 and 1994 differs from the amounts computed by applying the U.S. federal tax rate of 35% to pre-tax earnings from continuing operations as a result of the following: <TABLE> <CAPTION> (in thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Computed "expected" tax expense $ 38,810 27,813 24,295 Increase (reduction) resulting from: Effect of 1993 tax law change --- --- 1,921 Foreign (earnings) losses not includable in U.S. tax return 482 (2,803) (310) Foreign taxes not creditable against U.S. taxes --- 1,039 --- Foreign tax credits not previously recognized (7,440) --- --- Utilization of net operating loss carryforwards (2,181) --- (183) Expenses which are not deductible for tax purposes 1,496 177 248 Other, net 3,543 2,052 (1,218) - --------------------------------------------------------------------------------------------------------------- $ 34,710 28,278 24,753 =============================================================================================================== </TABLE> The significant components of deferred income tax expense for the years ended March 31 are as follows: <TABLE> <CAPTION> (in thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Deferred income tax expense (benefit) (exclusive of the effects of other components listed below) $ 7,478 218 (3,208) Application of net operating loss carryforwards --- --- 2,723 Investment, foreign and minimum tax credits 8,755 6,305 874 Effect of 1993 tax law change --- --- 1,921 - --------------------------------------------------------------------------------------------------------------- Subtotal 16,233 6,523 2,310 - --------------------------------------------------------------------------------------------------------------- Extraordinary loss on early debt retirement --- --- (3,747) - --------------------------------------------------------------------------------------------------------------- $ 16,233 6,523 (1,437) =============================================================================================================== </TABLE> The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 1996 and 1995 are as follows: (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Financial provisions not deducted for tax purposes $ 15,755 13,375 Unrepatriated international earnings 9,233 5,220 International net operating loss carryforwards 5,079 7,187 International tax credit carryforwards 3,851 2,996 Investment tax credit carryforwards --- 6,848 Alternative minimum tax credit carryforwards 1,968 4,730 Other 1,068 1,616 - -------------------------------------------------------------------------------- Gross deferred tax assets 36,954 41,972 Less valuation allowance 5,079 7,187 - -------------------------------------------------------------------------------- 31,875 34,785 - -------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation differences on properties and equipment (108,454) (94,570) Undistributed income of unconsolidated joint-venture companies --- (561) - -------------------------------------------------------------------------------- Gross deferred tax liabilities (108,454) (95,131) - -------------------------------------------------------------------------------- Net deferred tax liability $(76,579) (60,346) ================================================================================ The net changes in the valuation allowance for the years ended March 31, 1996 and 1995 were a decrease of $2,108,000 and an increase of $3,016,000, respectively. These changes were made to provide for uncertainties surrounding the realization of certain international net operating loss carryforwards. The remaining balance of the deferred tax assets are expected to be realized through future operating results and the reversal of taxable temporary differences. F-12 At March 31, 1996, the company had alternative minimum tax credit carryforwards of approximately $1,968,000, which are available to reduce future federal regular income taxes over an indefinite period. The company has not recognized a deferred tax liability of approximately $31,500,000 for the undistributed earnings of certain non-U.S. subsidiaries that arose in prior years because the company currently does not expect those unremitted earnings to reverse and become taxable to the company in the foreseeable future. A deferred tax liability will be recognized when the company expects that it will realize those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of investments. As of March 31, 1996 the undistributed earnings of these subsidiaries were approximately $90,000,000. (7) LONG-TERM DEBT A summary of long-term debt at March 31 follows: <TABLE> <CAPTION> (in thousands) 1996 1995 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> Variable rate revolving credit and term loan agreement with banks $ --- 112,000 Note payable --- 20,000 Other 2,934 4,490 - --------------------------------------------------------------------------------------------------------------- Total long-term debt 2,934 136,490 Less current maturities of long-term debt 2,934 15,467 - --------------------------------------------------------------------------------------------------------------- Net long-term debt $ --- 121,023 =============================================================================================================== </TABLE> The company's revolving credit and term loan agreement (the "agreement") consists of a $130 million revolving credit facility. At March 31, 1996 there were no borrowings outstanding under the revolving credit facility. The agreement bears interest, at the company's option, at prime rates or LIBO rates plus .625% (6.125% at March 31, 1996) as long as the company maintains an investment grade senior debt rating from Moody's Investor Services, Inc. and Standard & Poor's. The revolving credit commitment of $130 million expires on September 30, 1998, at which time the then outstanding balance may be converted to a term loan repayable in 16 quarterly installments beginning December 31, 1998. All of the borrowings under the agreement are unsecured and the company pays an annual fee of from .250% to .375% on the unused portion of the revolving credit facility. Under the terms of the agreement, the company has agreed to certain requirements and limitations, including: limitations on investments and aggregate indebtedness; a minimum level of tangible net worth of $400 million plus 50% of cumulative net earnings, as defined, after September 30, 1995 (total $505,116,000 at March 31, 1996). The agreement also prohibits the company from encumbering its assets, other than assets already encumbered at December 29, 1995, for the benefit of others. Based on current interest rates offered to the company for borrowings with maturities similar to the remainder of its long-term debt, total long-term debt at March 31, 1996 approximates the fair value of the debt. (8) BENEFIT PLANS Upon meeting various citizenship, age and service requirements, employees are eligible to participate in a defined contribution savings plan. The plan held 522,216 shares and 536,804 shares of the company's common stock at March 31, 1996 and 1995, respectively. Amounts charged to expense for the plan for 1996, 1995 and 1994 were $1,035,000, $951,000, and $1,282,000, respectively. A defined benefit pension plan covers certain U.S. citizen employees and employees who are permanent residents of the United States. Benefits are based on years of service and employee compensation. The company also has a supplemental retirement plan (Supplemental Plan) that provides pension benefits to certain employees in excess of those allowed under the company's tax qualified F-13 pension plan. Certain benefits programs are maintained in several other countries which provide retirement income for covered employees. During the fourth quarter of fiscal 1996 the company recorded as "other expense" a $3.0 million charge as a result of the removal of Marine fleet and Compression field service personnel from the company's U.S. defined benefit pension plan. Beginning April 1, 1996 these Marine and Compression employees, along with all new employees of the company who are eligible for pension plan membership, will be enrolled in a new defined contribution retirement plan. Net periodic pension cost for the U.S. defined benefit pension plan and the Supplemental Retirement Plan for 1996, 1995 and 1994 include the following components: (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost-benefit earned during the period $ 1,843 1,962 2,118 Interest cost on projected benefit obligation 2,208 1,954 1,715 Actual return on assets (4,700) 503 (1,398) Net amortization and deferral 3,530 (1,463) 590 - -------------------------------------------------------------------------------- Net periodic pension cost $ 2,881 2,956 3,025 ================================================================================ Assumptions used in the accounting are: Discount rates 7.5% 8.5% 7.25% Rates of annual increase in compensation levels 5.2% 5.0% 5.0% Expected long-term rate of return on assets 9.5% 9.5% 9.5% ================================================================================ The following table sets forth the assets and liabilities of the U.S. defined benefit pension plan and the Supplemental Plan and the amount of the net pension liability in the Consolidated Balance Sheets at March 31: <TABLE> <CAPTION> (in thousands) U.S. Defined Benefit Supplemental Pension Plan Retirement Plan -------------------- ------------------ 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Actuarial present value of vested benefit obligation $27,606 14,971 2,423 1,724 ================================================================================================================ Accumulated benefit obligation $27,831 16,615 2,467 1,815 ================================================================================================================ Projected benefit obligation $30,698 23,635 3,192 2,817 Plan assets at fair value, primarily bonds and common stock 23,935 18,691 --- --- - ---------------------------------------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 6,763 4,944 3,192 2,817 Unrecognized net transitional obligation amortized over 15 years (112) (615) --- --- Unrecognized actuarial gain (loss) (1,856) (2,089) (1,272) (1,228) Unrecognized prior service cost (425) (2,165) (394) (1,104) Adjustment required to recognize minimum liability --- --- 941 1,330 - ---------------------------------------------------------------------------------------------------------------- Net accrued pension liability $ 4,370 75 2,467 1,815 ================================================================================================================ </TABLE> Qualified retired employees currently are covered by a program which provides limited health care and life insurance benefits. Costs of the program are based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. Net periodic postretirement health care and life insurance costs for 1996, 1995 and 1994 include the following components: <TABLE> <CAPTION> (in thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Service cost - benefit earned during the period $ 743 924 801 Interest cost on accumulated postretirement benefit obligation 798 732 964 Other amortization and deferral (296) (129) (28) - --------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $1,245 1,527 1,737 =============================================================================================================== </TABLE> F-14 The unfunded actuarially-determined liabilities for postretirement benefits at March 31 are as follows: <TABLE> <CAPTION> (in thousands) 1996 1995 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> Actuarial present value of accumulated postretirement benefit obligation: Current retirees $ 4,390 2,573 Current employees eligible for benefits 1,039 930 Current employees not yet eligible for benefits 6,431 6,016 - --------------------------------------------------------------------------------------------------------------- Total accumulated postretirement benefit obligation 11,860 9,519 Unrecognized prior service cost 1,382 1,523 Unrecognized net gain 2,069 3,288 - --------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost $15,311 14,330 =============================================================================================================== </TABLE> The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation will be 9.5% in 1997, gradually declining to 7% in the year 2002 and thereafter. A 1% change in the assumed health care cost trend rates for each year would change the accumulated postretirement benefit obligation by approximately $1,760,000 at March 31, 1996 and change the cost for the year ended March 31, 1996 by $290,000. The assumed discount rates used in determining the accumulated postretirement benefit obligation were 7.5% in 1996 and 8.5% in 1995. (9) OTHER ASSETS, OTHER LIABILITIES AND DEFERRED CREDITS A summary of other assets at March 31 follows: (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Recoverable insurance losses $ 34,206 28,921 Goodwill 23,068 24,958 Assets held for sale 7,155 9,582 Other 9,201 12,864 - -------------------------------------------------------------------------------- $ 73,630 76,325 ================================================================================ A summary of other liabilities and deferred credits at March 31 follows: (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Postretirement benefit liability $ 15,311 14,330 Minority interests in net assets of subsidiaries 6,991 8,628 Noncurrent international and domestic taxes 6,957 6,957 Other 13,726 12,141 - -------------------------------------------------------------------------------- $ 42,985 42,056 ================================================================================ (10) CAPITAL STOCK Under the company's stock option and restricted stock plans, the Compensation Committee of the Board of Directors has authority to grant stock options and restricted shares of the company's stock to officers and other key employees. At March 31, 1996, 2,547,819 shares of common stock are reserved for issuance under the plans. The stock option price and exercise period are set by the grant, with the price equal to the market price of the stock on the date of grant. F-15 Transactions in the stock option plans during 1996, 1995 and 1994 were as follows: Price range per share Shares - -------------------------------------------------------------------------------- Outstanding March 31, 1993 $ 4.38 - 21.50 892,989 Options granted 19.63 - 20.13 198,900 Options exercised 4.38 - 15.00 (160,323) Options expired or cancelled 4.38 - 19.63 (35,830) - -------------------------------------------------------------------------------- Outstanding March 31, 1994 4.38 - 21.50 895,736 Options granted 19.00 - 23.38 901,875 Options exercised 4.38 - 20.13 (131,783) Options expired or cancelled 4.38 - 22.25 (72,530) - -------------------------------------------------------------------------------- Outstanding March 31, 1995 4.38 - 23.38 1,593,298 Options granted 25.13 - 39.00 284,000 Options exercised 4.38 - 23.38 (182,967) Options expired or cancelled 4.38 - 22.25 (27,826) - -------------------------------------------------------------------------------- Outstanding March 31, 1996 $ 4.38 - 39.00 1,666,505 ================================================================================ At March 31, 1996 and 1995, 771,125 shares and 531,403 shares, respectively, were exercisable under the stock option plans. The restricted stock plan permits the grant of company shares restricted as to transferability and subject to a substantial risk of forfeiture. The vesting restrictions and period during which the transferability restrictions are applicable are determined on a case-by-case basis. During the restricted period, the restricted shares may not be transferred or encumbered but the recipient has the right to vote and receive dividends on the restricted shares. At March 31, 1996, contingent awards totalling 33,250 restricted company shares were outstanding, to be issued in conjunction with and as a result of the exercise of certain stock options. All restrictions are removed from the restricted shares six months after issuance. In accordance with an employment agreement with the company's chairman of the board, 70,000 shares of restricted common stock of the company were granted to him on October 20, 1994. These restricted shares vest at varying intervals when the average sales price of the common stock reaches certain predetermined levels. During the year ended March 31, 1996, 25,000 shares vested due to the attainment of the first average sales price level applicable to those shares. The fair market value of the stock at the time of the grant was classified in stockholders' equity as deferred compensation-restricted stock and is being amortized by equal monthly charges to earnings over approximately seven years, adjusted for vestings during the seven year period. During fiscal 1994, all then-existing treasury shares were cancelled and, accordingly, the amount of treasury shares were reclassified to common stock and additional paid-in capital. At March 31, 1996 and 1995, 3,000,000 shares of no par value preferred stock were authorized and unissued. Under a Shareholder Rights Plan, one preferred stock purchase right has been distributed as a dividend for each outstanding common share. Each right entitles the holder to purchase, under certain conditions, one two-hundredth of a share of Series A Participating Preferred Stock at an exercise price of $50, subject to adjustment. The rights will not be exercisable unless a person (as defined in the plan) acquires beneficial ownership of 16% or more of the outstanding common shares, or a person commences a tender offer or exchange offer, which upon its consummation such person would beneficially own 16% or more of the outstanding common shares. If after the rights become exercisable a person becomes the beneficial owner of 16% or more of the outstanding common shares (except pursuant to an offer for all shares approved by the Board of F-16 Directors), each holder (other than the acquirer) will be entitled to receive, upon exercise, common shares having a market value of twice the exercise price. In addition, if the company is involved in a merger (other than a merger which follows an offer for all shares approved by the Board of Directors), major sale of assets or other business combination, each holder of a right (other than the acquirer) will be entitled to receive, upon exercise, common stock of the acquiring company having a market value of twice the exercise price. The rights may be redeemed for $.01 per right at any time prior to ten days following the acquisition by a person of 16% or more of the outstanding common shares. The rights expire on May 1, 2000. (11) COMMITMENTS AND OTHER MATTERS An employment agreement exists with the company's chairman of the board, president and chief executive officer whereby he will serve in such capacity through December 31, 1997. The terms of the employment agreement provide for an annual base salary and certain other benefits. Compensation continuation agreements exist with all other officers and certain other key employees of Tidewater Inc. whereby each receives compensation and benefits in the event that his or her employment is terminated following certain events relating to a change in control of the company. The maximum amount of compensation that could be paid under the agreements, based on present salary levels, is approximately $4,200,000. The amount that could be paid for certain benefits is not presently determinable. During the fourth quarter of fiscal 1995, the company recorded as "other expense" $5.9 million ($3.7 million after tax, or $.06 per common share) for the cost of a restructuring program of its corporate headquarters and worldwide marine operations which was designed to reduce costs and improve operating efficiencies. Substantially all of the costs associated with the restructuring program were paid before March 31, 1995. The restructuring resulted in the elimination of approximately 150 positions, realignment of duties and responsibilities and streamlining of administrative functions. The charge reflects the costs associated with staff reductions, relocations and related transition expenses. During the third quarter of fiscal 1995, the company recorded as "other expense" a charge of $2.5 million ($1.6 million after tax, or $.02 per common share) for reserves to cover possible losses due to the potential insolvency of certain of the company's insurers. Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the company's financial position. (12) DIVISIONS AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS The company operates principally in two divisions. Tidewater Marine provides support services to the offshore oil and gas industry, and Tidewater Compression provides the energy industry with engineered products and services used primarily in oil and gas production, enhanced recovery, natural gas transmission and natural gas processing. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for disclosures of additions to properties and equipment, identifiable assets, revenues, operating profit and depreciation for each division. F-17 (13) SUPPLEMENTARY INFORMATION--QUARTERLY FINANCIAL DATA (UNAUDITED) Years Ended March 31, 1996 and 1995 (in thousands, except per share data) <TABLE> <CAPTION> 1996 First Second Third Fourth - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Marine operations $ 128,054 132,726 135,891 135,531 Compression operations 27,039 28,034 30,536 25,636 - ---------------------------------------------------------------------------------------------------------------- $ 155,093 160,760 166,427 161,167 ================================================================================================================ Operating profit: Marine operations $ 25,807 31,483 33,489 28,130 Compression operations 4,077 3,990 4,359 2,139 - ---------------------------------------------------------------------------------------------------------------- $ 29,884 35,473 37,848 30,269 ================================================================================================================ Net earnings $ 17,427 22,431 24,187 12,132 ================================================================================================================ Primary and fully diluted earnings per common share $ .28 .36 .39 .20 ================================================================================================================ 1995 - ---------------------------------------------------------------------------------------------------------------- Revenues: Marine operations $ 129,924 125,455 124,800 120,939 Compression operations 14,913 15,599 21,559 31,419 - ---------------------------------------------------------------------------------------------------------------- $ 144,837 141,054 146,359 152,358 ================================================================================================================ Operating profit: Marine operations $ 24,566 19,123 22,537 17,457 Compression operations 1,782 2,657 4,207 5,790 - ---------------------------------------------------------------------------------------------------------------- $ 26,348 21,780 26,744 23,247 ================================================================================================================ Net earnings $ 15,772 13,459 13,676 8,280 ================================================================================================================ Primary and fully diluted earnings per common share $ .25 .22 .23 .13 ================================================================================================================ </TABLE> Operating profit consists of revenues less operating costs and expenses, depreciation, general and administrative expenses and other income and expenses of the Marine and Compression divisions. See notes 1, 3, 8 and 11 for detailed information regarding transactions which affect fiscal 1996 and 1995 quarterly amounts. F-18 TIDEWATER INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1996, 1995, AND 1994 (IN THOUSANDS) <TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- ---------- ---------- ---------- Balance Balance at at Beginning Additions End of Description of period at cost Deductions Period ----------- ---------- ---------- ---------- ---------- 1996 <S> <C> <C> <C> <C> Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $ 9,636 121 1,381 (A) 8,376 ========== ========== ========== ========== Deducted in balance sheet from other assets: Amortization of goodwill and debt issuance costs $ 2,136 2,374 --- 4,510 =========== ========== ========== ========== 1995 Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $ 6,842 3,877 1,083 (A) 9,636 ============ ========== ========== ========== Deducted in balance sheet from other assets: Amortization of goodwill and debt issuance costs $ 940 1,196 --- 2,136 =========== ========== ========== ========== 1994 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 6,345 1,712 1,215 (A) 6,842 ============ ========== ========== ========== Deducted in balance sheet from other assets: Amortization of goodwill and debt issuance costs $ 1,479 321 860 (B) 940 =========== ========== ========== ========== </TABLE> (A) Accounts receivable amounts considered uncollectible and removed from accounts receivable by reducing allowance for doubtful accounts. (B) Write-off of patent, deferred debt costs and underwriting commissions. F-19 The index below describes each exhibit filed as a part of this report. Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. 3(a) -Restated Certificate of Incorporation of Tidewater Inc. (filed with the Commission as Exhibit 3(a) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 3(b) -Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 4(a) -Restated Rights Agreement dated as of December 17, 1993 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 4 to the company's quarterly report on Form 10-Q for the quarter ended December 31, 1993). 10(a) -$130,000,000 Revolving Credit and Term Loan Agreement dated December 29, 1995 (filed with the Commission as Exhibit 10.1 to a Registration Statement on February 6, 1996, Registration No. 333-00221). 10(b) -Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in 1990 (filed with the Commission as Exhibit 10(c) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1991). 10(c) -Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with the Commission as Exhibit 10(f) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(d) -Tidewater Inc. Amended and Restated Supplemental Executive Retirement Plan (filed with the Commission as Exhibit 10(g) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(e) -Tidewater Inc. Amended and Restated Employees' Supplemental Savings Plan (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(f) -Supplemental Health Plan for Executive Officers of Tidewater Inc. (filed with the Commission as Exhibit 10(i) to a Registration Statement on September 12, 1989, Registration No. 33-31016). 10(g) -Tidewater Inc. Deferred Compensation Plan for Directors (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(h) -Tidewater Inc. Retirement Plan for Directors as adopted on March 22, 1990 (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1990). 10(i) -Employment and Consulting Agreement dated as of March 31, 1993 between Tidewater Inc. and John P. Laborde as amended (filed with the Commission as Exhibit 10(l) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). *10(j) -Consulting Agreement dated as of March 13, 1996 between Tidewater Inc. and Larry D. Hornbeck. 10(k) -Form of Severance Agreement entered into as of August 1, 1985 with eleven executive officers and key employees, as amended (filed with the Commission as Exhibit 10(j) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1992). 10(l) -Form of Severance Agreement entered into as of February 18, 1992 with three executive officers, as amended (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1992). 10(m) -Standstill Agreement dated as of November 11, 1992 between Tidewater Inc. and Zapata Corporation (filed with the Commission as Exhibit 10(o) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(n) -First Amendment to Standstill Agreement dated January 24, 1994 between Tidewater Inc. and Zapata Corporation (filed with the Commission as Exhibit 10(n) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(o) -Agreement, dated August 11, 1989, by and among the company and Irwin L. Jacobs, Daniel T. Lindsay, Gerald A. Schwalbach, TR Holdings, Inc. and Minstar, Inc. (filed with the Commission as Exhibit 1 to the company's report on Form 8-K for August 11, 1989). 10(p) -Tidewater Inc. 1995 Annual Incentive Plan (filed with the Commission as Exhibit 10(q) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1995). 10(q) -Employment Agreement dated June 13, 1995 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 8-K for June 13, 1995). *11 -Earnings per share Computation Information. *21 -Subsidiaries of the company. *24 -Consent of Independent Accountants. *27 - Financial Data Schedule. Certain instruments respecting long-term debt of Tidewater have been omitted pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to furnish a copy of any such instrument to the Commission upon request.