1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Quarterly Period Ended September 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Transition Period From to - ---------------------------------- ---------------------------------------- Commission file number 1-6311 ------ TIDEWATER INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 72-0487776 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1440 Canal Street, Suite 2100, New Orleans, Louisiana 70112 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 568-1010 --------------------------- NOT APPLICABLE - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or of such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- 62,026,097 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on October 21, 1996. Registrant has no other class of common stock outstanding. 1
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- September 30, March 31, ASSETS 1996 1996 - --------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash, including temporary cash investments $ 28,114 28,768 Marketable securities 6,188 --- Trade and other receivables 170,907 144,472 Inventories 32,983 31,346 Other current assets 3,771 4,350 - --------------------------------------------------------------------------------------------- Total current assets 241,963 208,936 - --------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 19,748 35,861 Properties and equipment: Marine equipment 1,270,637 1,210,876 Compression equipment 316,376 324,069 Other 41,967 41,240 - --------------------------------------------------------------------------------------------- 1,628,980 1,576,185 Less accumulated depreciation 926,140 916,412 - --------------------------------------------------------------------------------------------- Net properties and equipment 702,840 659,773 Other assets 73,216 73,630 - --------------------------------------------------------------------------------------------- $ 1,037,767 978,200 ============================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt --- 2,934 Accounts payable and accrued expenses 76,242 70,546 Accrued property and liability losses 14,347 10,844 Income taxes 5,491 1,356 - --------------------------------------------------------------------------------------------- Total current liabilities 96,080 85,680 - --------------------------------------------------------------------------------------------- Deferred income taxes 81,728 76,579 Accrued property and liability losses 33,009 34,206 Other liabilities and deferred credits 45,316 42,985 Stockholders' equity: Common stock of $.10 par value; issued 62,022,356 shares at September and 61,882,695 shares at March 6,202 6,188 Additional paid-in capital 423,688 421,655 Retained earnings 363,012 322,736 Unrealized investment gain 128 --- - --------------------------------------------------------------------------------------------- 793,030 750,579 Less: Cumulative foreign currency translation adjustment 10,427 10,771 Deferred compensation - restricted stock 969 1,058 - --------------------------------------------------------------------------------------------- Total stockholders' equity 781,634 738,750 - --------------------------------------------------------------------------------------------- $ 1,037,767 978,200 ============================================================================================= </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. 2
3 TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share and per share data) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- Quarter Ended Six Months Ended September 30, September 30, -------------- ---------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Marine operations $ 167,691 132,726 314,330 260,780 Compression operations 26,181 28,034 55,436 55,073 - --------------------------------------------------------------------------------------------------------------- 193,872 160,760 369,766 315,853 - --------------------------------------------------------------------------------------------------------------- Costs and expenses: Marine operations 96,579 79,834 187,795 161,818 Compression operations 14,625 14,870 31,513 28,777 Depreciation 20,816 20,733 40,833 41,379 General and administrative 15,823 14,241 30,898 28,755 - --------------------------------------------------------------------------------------------------------------- 147,843 129,678 291,039 260,729 - --------------------------------------------------------------------------------------------------------------- 46,029 31,082 78,727 55,124 Other income (expenses): Foreign exchange loss (397) (29) (254) (210) Gains on sales of assets 561 1,163 1,995 4,552 Equity in net earnings of unconsolidated companies 1,176 1,940 2,419 3,036 Minority interests (162) (298) (340) (765) Interest and miscellaneous income 1,345 1,218 2,256 1,882 Interest and other debt costs (121) (1,779) (534) (4,244) - --------------------------------------------------------------------------------------------------------------- 2,402 2,215 5,542 4,251 - --------------------------------------------------------------------------------------------------------------- Earnings before income taxes 48,431 33,297 84,269 59,375 Income taxes 15,479 10,866 26,947 19,517 - --------------------------------------------------------------------------------------------------------------- Net earnings $ 32,952 22,431 57,322 39,858 =============================================================================================================== Primary and fully-diluted earnings per common share: $ .53 .36 .92 .64 =============================================================================================================== Weighted average common shares and equivalents 62,594,928 62,097,561 62,628,126 62,054,663 =============================================================================================================== Cash dividends declared per common share $ .15 .125 .275 .225 =============================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. 3
4 TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------- Quarter Ended Six Months Ended September 30, September 30, -------------------- ----------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net cash provided by operating activities $ 43,109 41,051 88,776 83,635 - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 2,348 5,499 7,427 11,537 Additions to properties and equipment (19,625) (10,572) (32,451) (16,491) Purchase of marketable securities (6,060) --- (6,060) --- Acquisition of joint-venture interest, net of cash acquired --- --- (3,435) --- Dividends received from unconsolidated companies, net of additional investments 887 2,406 3,830 3,718 Dividends paid to minority interests (66) (73) (724) (899) Other --- (129) --- (385) - --------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (22,516) (2,869) (31,413) (2,520) - --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt (17,464) (24,173) (43,018) (65,055) Cash dividends paid (9,302) (6,663) (17,046) (11,987) Proceeds from issuance of common stock 317 658 2,047 1,018 Other --- 41 --- 41 - --------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (26,449) (30,137) (58,017) (75,983) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash, including temporary cash investments (5,856) 8,045 (654) 5,132 Net increase in cash for Hornbeck Offshore Services for the quarter ended 3/31/95 --- --- --- 4,980 - --------------------------------------------------------------------------------------------------------------------- Cash, including temporary cash investments at beginning of period 33,970 25,341 28,768 23,274 - --------------------------------------------------------------------------------------------------------------------- Cash, including temporary cash investments at end of period $ 28,114 33,386 28,114 33,386 ===================================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 434 1,369 786 4,304 Income taxes $ 15,179 9,063 16,590 10,877 ===================================================================================================================== Supplemental noncash investing activity: Joint-venture interest acquired: Fair value of assets acquired $ --- --- 51,305 --- Fair value of liabilities assumed --- --- (47,870) --- - --------------------------------------------------------------------------------------------------------------------- Net cash payment $ --- --- 3,435 --- ===================================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. 4
5 TIDEWATER INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Interim Financial Statements The consolidated financial information for the interim periods presented herein has not been audited by independent accountants, but in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated balance sheets and the condensed consolidated statements of earnings and cash flows at the dates and for the periods indicated have been made. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. (2) Earnings per Share Data Primary and fully diluted earnings per share data are computed on the weighted average number of shares and dilutive equivalent shares of common stock (stock options and restricted stock grants) outstanding during each period using the treasury stock method. (3) Income Taxes Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The effective tax rate was 32% for the quarter and six-month period ended September 30, 1996. For the quarter and six-month period ended September 30, 1995 the effective tax rate was 33%. The Internal Revenue Service has notified the company of proposed deficiencies resulting from the audit of the company's 1992 and 1993 tax returns. The company is in the process of preparing its defenses against these claims, and in management's opinion the ultimate outcome of these matters will not have a materially adverse effect on the company's financial position and results of operations. (4) Acquisition of Marine Joint-Venture During fiscal 1997's first quarter the company acquired the remaining 50.1% equity interest in 22 of 29 safety/standby vessels previously owned and operated by joint-venture companies in the North Sea. The acquisition was accounted for as a purchase and accordingly, the fair value of the assets acquired and liabilities assumed and results of operations have been included in the condensed consolidated financial statements effective June 1, 1996. 5
6 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Tidewater Inc.: We have reviewed the condensed consolidated balance sheet of Tidewater Inc. and subsidiaries as of September 30, 1996 and the related condensed consolidated statements of earnings and cash flows for the three-month and six-month periods ended September 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Tidewater Inc. as of March 31, 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated April 29, 1996 we expressed an unqualified opinion on those consolidated financial statements. In our opinion the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 1996 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP New Orleans, Louisiana October 18, 1996 6
7 MANAGEMENT'S DISCUSSION AND ANALYSIS The company provides services and equipment to the international energy industry through its marine and compression divisions. Company revenues, net earnings and cash flows from operations are dependent upon activity levels of the marine vessel fleet and the natural gas compression rental fleet. Activity levels for the marine vessel fleet and the natural gas compression rental fleet are ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related disclosures. MARINE DIVISION The Marine division provides a diverse range of services and equipment to the offshore oil and gas industry. Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally with changes in revenues. Operating costs consist primarily of crew costs, repair and maintenance, insurance, fuel, lube and supplies. Fleet size and utilization are the major factors which affect crew costs. The timing and amount of repair and maintenance costs are influenced by vessel age and scheduled drydockings to satisfy safety and inspection requirements mandated by regulatory agencies. Whenever possible, vessel drydockings are done during seasonally slow periods to minimize any impact on vessel operations and are only done if economically justified, given the vessel's age and physical condition. The following tables compare revenues, operating expenses (excluding general and administrative expense and depreciation expense) and operating margins of the Marine division's owned and operated vessel fleet for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------- ----------------- -------- (in thousands) 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: United States $ 79,227 59,497 147,423 115,951 68,196 International 79,126 66,273 149,479 129,737 70,353 - ---------------------------------------------------------------------------------------------------------------- 158,353 125,770 296,902 245,688 138,549 - ---------------------------------------------------------------------------------------------------------------- Expenses: Crew costs 44,053 37,133 81,937 71,657 37,884 Repair and maintenance 22,803 19,056 49,461 41,255 26,658 Insurance 8,383 8,423 16,314 16,566 7,931 Fuel, lube and supplies 7,552 5,880 14,733 11,651 7,181 Other 5,975 4,465 10,762 9,187 4,787 - ---------------------------------------------------------------------------------------------------------------- 88,766 74,957 173,207 150,316 84,441 - ---------------------------------------------------------------------------------------------------------------- Operating margins $ 69,587 50,813 123,695 95,372 54,108 ================================================================================================================ Operating margin percentages 43.9% 40.4% 41.7% 38.8% 39.1% ================================================================================================================ </TABLE> Fiscal 1997 second quarter and six-month operating margins climbed above fiscal 1996's respective amounts due to the beneficial effects of higher utilization and average day rates for the worldwide fleet and a larger North Sea fleet outweighing the adverse effect of higher operating expenses. Current quarter operating margins also climbed above the prior quarter amount due to higher utilization and average day rates for the domestic-based fleet and a full quarter's results 7
8 for the North Sea fleet being partially offset by higher operating expenses. Greater demand and a much more favorable supply/demand relationship for offshore marine services in the U.S. Gulf of Mexico were primarily responsible for the increases in utilization and average day rates for the current quarter and six-month period compared with the respective fiscal 1996 periods, and for the current quarter compared with the prior quarter. A larger North Sea fleet is due to fiscal 1997's first quarter acquisition of several safety/standby vessels. Higher operating expenses for the current quarter and six-month period compared with fiscal 1996's respective periods and for the current quarter compared with the preceding quarter resulted primarily from increased activity for the domestic-based fleet, the expansion of the North Sea fleet and increased costs associated with retaining qualified vessel personnel and attracting and training new vessel personnel. Higher operating expenses for the quarter and six-month period ended September 30, 1996 compared with the quarter and six-month period ended September 30, 1995 were also due to higher repair and maintenance costs resulting from a greater number of vessel drydockings. Revenues, operating expenses (excluding general and administrative expense and depreciation expense) and operating margins of brokered vessels, shipyard and other activities for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996 were: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------- ----------------- -------- (In thousands) 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues $ 9,338 6,956 17,428 15,092 8,090 Expenses 7,813 4,877 14,588 11,502 6,775 - ---------------------------------------------------------------------------------------------------------------- Margins $ 1,525 2,079 2,840 3,590 1,315 ================================================================================================================ </TABLE> Marine division operating profit for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996 consist of the following: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------- ----------------- -------- (In thousands) 1996 1995 1996 1995 1996 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Owned and operated vessels: United States $ 26,204 12,781 42,066 21,294 15,862 International 18,695 15,767 35,044 28,590 16,349 - ------------------------------------------------------------------------------------------------------------------------- 44,899 28,548 77,110 49,884 32,211 Gains from asset sales 161 1,111 877 4,226 716 Brokered vessels, shipyard and other 1,278 1,824 2,396 3,180 1,118 - ------------------------------------------------------------------------------------------------------------------------- Operating profit $ 46,338 31,483 80,383 57,290 34,045 ========================================================================================================================= </TABLE> Marine fleet utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Utilization of the domestic-based fleet, which operates in U.S. waters, is primarily influenced by offshore activity related to the exploration, development and production of natural gas in the U.S. Gulf of Mexico; whereas, utilization of the international-based fleet, which operates in waters other than the United States, is primarily influenced by offshore activity related to the exploration, development and production of oil. Marine vessel day rates are determined by the demand created through the level of offshore exploration, development and production spending by energy exploration and production companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The following two tables compare day- 8
9 based Marine fleet utilization percentages and average day rates by vessel class and in total for the quarters and six- month periods ended September 30 and for the quarter ended June 30, 1996: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------- ---------------- --------- 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> UTILIZATION: - ----------- Domestic-based fleet -------------------- Towing-supply/supply 90.2% 85.6 90.8 86.2 91.3 Crew/utility 94.1 79.5 92.5 80.6 90.9 Offshore tugs 67.0 64.8 64.8 56.2 62.4 Other 61.9 64.8 55.1 54.6 48.8 Total 85.1% 79.9 84.3 78.5 83.6 International-based fleet ------------------------- Towing-supply/supply 88.1% 87.9 87.8 87.3 87.5 Crew/utility 85.4 85.0 87.9 85.8 90.5 Offshore tugs 70.3 71.2 72.8 71.7 75.4 Safety/standby 78.2 --- 79.6 --- 84.4 Other 74.4 48.3 75.3 42.9 76.2 Total 82.1% 78.2 83.0 77.2 84.0 Worldwide fleet --------------- Towing-supply/supply 89.1% 86.9 89.1 86.8 89.2 Crew/utility 90.1 81.7 90.4 82.7 90.7 Offshore tugs 68.8 68.4 69.3 64.6 69.7 Safety/standby 78.2 --- 79.6 --- 84.4 Other 71.7 51.6 70.7 45.3 69.7 Total 83.3% 79.0 83.6 77.8 83.8 ================================================================================================================ AVERAGE VESSEL DAY RATES: - ------------------------ Domestic-based fleet --------------------- Towing-supply/supply $ 5,049 3,495 4,660 3,422 4,278 Crew/utility 1,512 1,354 1,468 1,348 1,424 Offshore tugs 5,355 4,584 5,185 4,860 4,994 Other 3,050 2,868 3,100 2,972 3,158 Total $ 4,317 3,178 4,047 3,147 3,773 International-based fleet -------------------------- Towing-supply/supply $ 3,838 3,670 3,768 3,657 3,695 Crew/utility 1,735 1,767 1,731 1,825 1,728 Offshore tugs 2,916 2,705 2,809 2,671 2,708 Safety/standby 4,907 --- 4,975 --- 5,194 Other 662 727 690 727 719 Total $ 3,144 2,987 3,044 3,006 2,939 Worldwide fleet --------------- Towing-supply/supply $ 4,387 3,590 4,178 3,548 3,965 Crew/utility 1,610 1,526 1,586 1,547 1,562 Offshore tugs 3,971 3,498 3,788 3,549 3,602 Safety/standby 4,907 --- 4,975 --- 5,194 Other 1,109 1,265 1,116 1,279 1,123 Total $ 3,639 3,075 3,471 3,071 3,298 ================================================================================================================ </TABLE> Additional investment in the vessel fleet for the current six-month period totaled $25.3 million, including the purchases of two towing-supply/supply vessels, two offshore tugs and a crewboat for $14.8 million. The remainder of additions for the current six-month period of $10.5 million 9
10 were for additions to and/or modifications of the existing vessel fleet. In the prior quarter the remaining 50.1% equity interest in 22 of 29 safety/standby vessels, previously operated by joint-venture companies in the North Sea, was acquired and increased the size of the international-based fleet. In prior periods these vessels were classified as joint-venture owned. The average size of the domestic-based fleet fell from September 1995 to September 1996 due to vessel sales, the return of previously leased vessels to their owners and the withdrawal of several vessels from active service in fiscal 1997's first quarter because of age and anticipated higher repair and maintenance costs. The following table compares the average number of vessels by class and geographic distribution for the quarters and six- month periods ended September 30 and for the quarter ended June 30, 1996: <TABLE> <CAPTION> Quarter Six Months Quarter Ended Ended Ended September 30, September 30, June 30, - --------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 1996 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Domestic-based fleet: - -------------------- Towing-supply/supply 137 148 138 149 139 Crew/utility 42 52 42 52 43 Offshore tugs 43 42 42 43 41 Other 13 13 14 13 15 - --------------------------------------------------------------------------------------------------------------- Total 235 255 236 257 238 - --------------------------------------------------------------------------------------------------------------- International-based fleet: - ------------------------- Towing-supply/supply 169 170 168 170 169 Crew/utility 36 35 36 35 35 Offshore tugs 53 52 53 50 53 Safety/standby* 26 --- 19 --- 9 Other 49 51 47 51 47 - --------------------------------------------------------------------------------------------------------------- Total 333 308 323 306 313 - --------------------------------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 568 563 559 563 551 Vessels withdrawn from active service 22 15 23 15 24 Joint-venture owned vessels 47 76 57 76 66 - --------------------------------------------------------------------------------------------------------------- Total 637 654 639 654 641 =============================================================================================================== Worldwide fleet: - --------------- Towing-supply/supply 345 355 349 356 351 Crew/utility 89 96 89 96 91 Offshore tugs 102 97 101 96 100 Safety/standby* 26 29 26 29 24 Other 75 77 74 77 75 - --------------------------------------------------------------------------------------------------------------- Total 637 654 639 654 641 =============================================================================================================== </TABLE> * Change in number of vessels is the result of the company's acquisition of the remaining 50.1% interest in a North Sea joint venture effective June 1, 1996. COMPRESSION DIVISION The Compression division provides natural gas compression services and equipment for a variety of applications primarily in the energy industry. Rental revenues are determined, for the most part, by utilization and fleet size. Utilization is affected by natural gas storage levels and by the number and age of producing oil and natural gas wells which, in turn, are dependent upon the price levels of oil and natural gas. Quality of service, availability and rental rates for equipment are also major factors which affect utilization. Operating expenses are generally consistent from period-to- period and usually vary in the short-term due to fluctuations in the amount of repair and maintenance expense. Long- term growth in operating expenses will occur primarily as a result of increased 10
11 fleet size and general inflationary factors. Compression division operating profit is primarily determined by operating margins from rental gas compression operations. The following tables compare revenues, operating expenses (excluding general and administrative expense and depreciation expense), operating margins and related statistics for gas compression operations for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996. <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, --------------- ---------------- -------- (In thousands, except statistics) 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Rentals $17,995 18,193 35,797 36,685 17,802 Repair, service and other 677 1,633 1,975 3,205 1,298 - ---------------------------------------------------------------------------------------------------------------- 18,672 19,826 37,772 39,890 19,100 - ---------------------------------------------------------------------------------------------------------------- Expenses: Wages and benefits 3,054 3,042 5,973 6,095 2,919 Repairs and maintenance 3,243 3,106 6,483 6,391 3,240 Other 1,953 2,082 3,956 4,130 2,003 - ---------------------------------------------------------------------------------------------------------------- 8,250 8,230 16,412 16,616 8,162 - ---------------------------------------------------------------------------------------------------------------- Operating margins $10,422 11,596 21,360 23,274 10,938 ================================================================================================================ Operating margin percentages 55.8% 58.5% 56.5% 58.3% 57.3% ================================================================================================================ Horsepower based statistics: Utilization 76.3% 71.9% 75.8% 72.1% 75.5% Average monthly rental rate $16.75 17.79 16.67 17.86 16.58 Average fleet size 468,449 473,887 470,278 474,853 472,108 ================================================================================================================ </TABLE> Compared to the corresponding quarter of fiscal 1996, fiscal 1997 second quarter and six-month operating margins fell as a result of increased competition which weakened rental rates and entirely offset the positive effect of higher utilization. The Compression division also designs, fabricates and installs engineered compressor systems and sells related parts and equipment. The following table compares revenues, costs of sales and sales margins for equipment and parts sales for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------- --------------- -------- (In thousands) 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues $7,509 8,208 17,664 15,183 10,155 Costs of sales 6,375 6,640 15,101 12,161 8,726 - ---------------------------------------------------------------------------------------------------------------- Gross profit margins $1,134 1,568 2,563 3,022 1,429 ================================================================================================================ Gross profit margin percentages 15.1% 19.1% 14.5% 19.9% 14.1% ================================================================================================================ </TABLE> Fluctuations in the level of equipment and parts sales for the periods presented are due to the timing of sales of engineered products. Fluctuations in gross profit margin percentages are the result of competitive market forces. Costs of sales consist primarily of wages and benefits and material costs associated with the design, fabrication and installation of packaged compressor systems. Additional investment in the natural gas compression rental fleet for the current year-to-date period was $7.2 million and was primarily for modifications of existing equipment to meet 11
12 customer requirements. During the first quarter of fiscal 1997 the Compression division disposed of all of its air rental equipment which generated proceeds of $3.5 million and a gain of $.5 million. Revenues from the rental of air equipment for the six-month period ended September 30, 1996 were $.7 million. Gains from sales of assets, excluding air rental equipment, for the current quarter and six-month period were $.4 million and $.6 million, respectively. Gains from sales of assets for the corresponding quarter and six-month period of fiscal 1996 contributed nominally to division operating profits. CORPORATE Fiscal 1997 second quarter and six-month financing activities consumed less cash compared with the respective fiscal 1996 periods due to lower principal payments on long-term debt. Principal payments on long-term debt during the current quarter and six-month periods were primarily for the repayment, prior to maturity, of outstanding debt assumed in connection with the purchase of the remaining equity in the joint-venture companies in the North Sea. Interest expense in the quarter and six-month periods ended September 30, 1996 was lower than the corresponding fiscal 1996 periods as a result of the fiscal 1996 fourth quarter prepayments of debt assumed in connection with the fiscal 1996 fourth quarter merger with Hornbeck Offshore Services, Inc. General and administrative expenses for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1996 consist of the following: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, --------------- --------------- -------- (In thousands) 1996 1995 1996 1995 1996 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 9,384 8,221 18,185 16,701 8,801 Office and property 2,867 2,475 5,508 4,840 2,641 Sales and marketing 1,066 700 1,999 1,552 933 Professional services 1,357 991 2,625 2,062 1,268 Other 1,149 1,854 2,581 3,600 1,432 - ---------------------------------------------------------------------------------------------------------------- $15,823 14,241 30,898 28,755 15,075 ================================================================================================================ </TABLE> CURRENCY FLUCTUATIONS AND INFLATION Because of its significant international operations, the company is exposed to currency fluctuations and exchange risks. To minimize the financial impact of these items the company attempts to contract a majority of its services in United States dollars. Day-to-day operating costs are generally affected by inflation. However, because the energy services industry requires specialized goods and services, general economic inflationary trends may not affect the company's operating costs. The major impact on operating costs is the level of offshore exploration, development and production spending by energy exploration and production companies. As this spending increases, prices of goods and services used by the oil and gas industry and the energy services industry will increase. Future improvements in vessel day rates and compressor rental rates may buffer the company from the inflationary effects on operating costs. ENVIRONMENTAL MATTERS During the ordinary course of business the company's operations are subject to a wide variety of environmental laws and regulations. The company attempts to comply with these laws and regulations in order to avoid costly accidents and any related environmental damage. 12
13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders A. The Annual Meeting of Stockholders of the Company was held in New Orleans, Louisiana on July 25, 1996. B. Listed below are the nominees who were elected directors at the Annual Meeting and the name of each other director whose term of office continued after the Meeting. <TABLE> <CAPTION> Nominee or Director Continuing in Office -------------------- <S> <C> Robert H. Boh Nominee Donald T. Bollinger Nominee Larry T. Hornbeck Nominee Hugh J. Kelly Nominee Arthur R. Carlson Director Continuing in Office John P. Laborde Director Continuing in Office William C. O'Malley Director Continuing in Office Paul W. Murrill Director Continuing in Office Lester Pollack Director Continuing in Office J. Hugh Roff, Jr. Director Continuing in Office </TABLE> C. The Company's Stockholders voted as follows with respect to the proposals presented at the meeting: 1. Robert H. Boh was elected director with 52,234,321 votes cast for and 400,629 votes withheld; 2. Donald T. Bollinger was elected director with 51,947,559 votes cast for and 687,391 votes withheld; 3. Larry T. Hornbeck was elected director with 51,090,870 votes cast for and 1,554,079 votes withheld; 4. Hugh J. Kelly was elected director with 52,217,972 votes cast for and 416,978 votes withheld; and 5. The selection of KPMG Peat Marwick LLP as the Company's independent auditors for the fiscal year ending March 31, 1997 was ratified with 52,581,949 votes cast for, 10,550 votes against and 42,451 abstentions. 13
14 Item 6. Exhibits and Reports on Form 8-K A. At page 15 of this report is the index for those exhibits required to be filed as a part of this report. B. The Company filed a Current Report on Form 8-K dated September 19, 1996 which disclosed its Board of Directors adopted an updated Rights Plan designed to supersede a Rights Plan originally adopted April 1990. As with its previously adopted Rights Plan, the new Rights Plan is intended to protect stockholder interests in the event the company becomes the subject of a takeover initiative that would deny the company's stockholders the full value of their investment. The new Rights, which will be issued to each common stockholder of record on October 1, 1996, will be exercisable only if a person acquires, or announces a tender offer which would result in ownership of, 15 percent or more of the company's common stock. The board of directors will be authorized in certain circumstances to lower this 15 percent threshold to not less than 10 percent. The initial exercise price will be $160.00 per Right. The Rights will expire on November 1, 2006, unless redeemed or exchanged at an earlier date. 14
15 EXHIBIT INDEX <TABLE> <CAPTION> Exhibit Number Description - ------ ----------- <S> <C> 10.1 Change of Control Agreement dated September 30, 1996 between the Company and William C. O'Malley. 10.2 Form of Change of Control Agreement dated September 30, 1996 between the Company and four executive officers. 10.3 Form of Change of Control Agreement dated September 30, 1996 between the Company and seven officers. 11 Statement - Computation of Per Share Earnings 27 Financial Data Schedule </TABLE> 15
16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TIDEWATER INC. ----------------------------------------- (Registrant) Date: October 21, 1996 /s/ William C. O'Malley ----------------------------------------- William C. O'Malley Chairman of the Board, President and Chief Executive Officer Date: October 21, 1996 /s/ Ken C. Tamblyn ----------------------------------------- Ken C. Tamblyn Executive Vice President and Chief Financial Officer 16
17 EXHIBIT INDEX <TABLE> <CAPTION> Exhibit Number Description - ------ ----------- <S> <C> 10.1 Change of Control Agreement dated September 30, 1996 between the Company and William C. O'Malley. 10.2 Form of Change of Control Agreement dated September 30, 1996 between the Company and four executive officers. 10.3 Form of Change of Control Agreement dated September 30, 1996 between the Company and seven officers. 11 Statement - Computation of Per Share Earnings 27 Financial Data Schedule </TABLE>