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 - For the Fiscal Year Ended March 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Transition Period From ____________________ to ____________________. Commission file number 1-6311 TIDEWATER INC. -------------- (Exact name of registrant as specified in its Charter) Delaware 72-0487776 ------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification 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, New York Stock Exchange, Pacific Stock Exchange par value $0.10 Preferred Stock Purchase New York Stock Exchange, Pacific Stock Exchange Rights 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. [X]
As of April 28, 1998, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,243,000,000. 59,494,695 shares of Tidewater Inc. common stock $0.10 par value per share were outstanding on April 28, 1998. Registrant has no other class of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1998 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.................................. 6 4. Submission of Matters to a Vote of Security Holders 7 4A. Executive Officers of the Registrant............... 7 PART II 5. Market for the Registrant's Common Stock and Related Stockholder Matters.................................... 7 6. Selected Financial Data................................ 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 9 8. Financial Statements and Supplementary Data............ 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 16 PART III 10. Directors and Executive Officers of the Registrant.... 16 11. Executive Compensation................................ 16 12. Security Ownership of Certain Beneficial Owners and Management............................................ 17 13. Certain Relationships and Related Transactions......... 17 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................... 17 -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 provides services and equipment to the offshore energy industry through the operation of the world's largest fleet of offshore service vessels. The company's compression division, which was sold on February 20, 1998, owned and operated one of the largest rental fleets of natural gas compressors in the United States. Please refer to Note 2 of Notes to Consolidated Financial Statements for further discussion of the sale of Compression operations. On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.) in exchange for a cash payment of 328 million pounds sterling, or approximately $534 million. In addition, a 9 million pound sterling, or approximately $14.4 million, payment was made for the net working capital of O.I.L. Available cash of $48.4 million and borrowings of $500 million were used to fund the purchase. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint-venture companies in Australia for a cash payment of $13.2 million and issuance of debt totaling $14.0 million. Please refer to Note 3 of Notes to Consolidated Financial Statements for further discussion of the purchases of O.I.L. Ltd. and the Australian equity interest. FORWARD LOOKING INFORMATION In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain statements set forth in Items 1 and 7 and elsewhere in this report, which provide other than historical information and which are forward looking, involve risks and uncertainties that may impact the company's actual results of operations. The company faces many risks and uncertainties, many of which are beyond the control of the company, including fluctuations in oil and gas prices; changes in capital spending by customers in the energy industry for exploration, development and production; unsettled political conditions, civil unrest and governmental actions, especially in higher risk countries of operations; foreign currency controls and environmental and labor laws. Other risk factors are discussed elsewhere in this Form 10-K. Readers should consider all of these risk factors, as well as other information contained in this report. MARINE OPERATIONS The company is the world's largest provider of offshore supply vessels and marine support services serving the energy industry. With a fleet of approximately 700 vessels, the company operates, and has a leading market share, in most of the world's significant oil and gas exploration and production markets and 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. -3-
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. Information concerning revenues and operating profit derived from domestic and international marine operations and domestic and international marine identifiable assets for each of the fiscal years ended March 31 are summarized below: (in thousands) ---------------------------- 1998 1997 1996 ---------- ------- ------- Revenues: Vessel operations: United States $ 463,914 338,823 241,436 International 537,737 322,401 264,744 Other marine operations 58,510 29,202 26,022 ---------- ------- ------- $1,060,161 690,426 532,202 ========== ======= ======= Operating profit: Vessel operations: United States $ 225,599 120,275 46,839 International 141,133 82,591 60,291 Other marine operations 10,663 4,186 4,849 Gains on asset sales 16,592 5,352 6,930 ---------- ------- ------- $ 393,987 212,404 118,909 ========== ======= ======= Identifiable assets: United States $ 380,043 376,380 349,554 International 1,064,681 354,561 305,565 ---------- ------- ------- Total marine assets $1,444,724 730,941 655,119 ========== ======= ======= Please refer to Item 7 of this report and Note 11 of Notes to Consolidated Financial Statements for further discussion of revenues, operating profit and identifiable assets. Marine Vessel Operations. 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 size of the company's marine fleet by class and geographic distribution for the last three fiscal years are included 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 major classes of vessels include crew and utility vessels that are chartered to customers for use in transporting small quantities of supplies and personnel from shore bases to offshore drilling rigs, platforms and other installations; 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; and safety/standby vessels which provide fire fighting and rescue services. The company's vessels also include inshore tugs; inshore barges; offshore barges; and production, line-handling and various other 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 waters for drilling and production operations. Barges are either used in conjunction with company tugs or are chartered to others. -4-
Contributions of Main Classes of Vessels. Revenues from vessel operations were derived from the main classes of vessels in the following percentages: Year Ended March 31, -------------------- 1998 1997 1996 ---- ---- ---- Towing-supply/Supply.. 75.7% 70.2% 72.8% Offshore Tugs......... 11.9% 15.3% 16.6% Crew/Utility.......... 6.3% 6.5% 7.8% Safety/Standby........ 4.6% 5.3% -- Other................. 1.5% 2.7% 2.8% ---- ---- ---- Shipyards. Quality Shipyards, Inc., a wholly-owned subsidiary of the company, operates two shipyards in Houma, Louisiana, which construct, modify and repair vessels. Approximately 71% of the shipyards' business for the year ended March 31, 1998 related to repairs and modifications of the company's vessels. Risks of Operation and Insurance. The operation of any marine vessel 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 vessel 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 vessel operations as a whole. Industry Conditions, Competition and Customers. The company'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. Given the recent drop in the price of oil coupled with the announcement during fiscal 1998 of new vessel building programs by competitors, management is concerned that an overcapacity of vessels in the U.S. Gulf of Mexico market could occur and could result in weakened demand for the company's services during fiscal 1999. Should demand for the company's services in the U.S. Gulf of Mexico weaken during fiscal 1999, the results of the company's domestic operations would be adversely affected. The principal competitive factors for the offshore vessel service industry are suitability and availability of equipment, price and quality of 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. The company's diverse, mobile asset base and geographic distribution allow it to respond to changes in market conditions and provide a broad 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 vessel fleet, the company's financial condition and economies of scale. Although one customer accounted for 11% and the five largest customers accounted for approximately -5-
28% of its revenues during the year ended March 31, 1998, the company does not consider its 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 trade 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 2.5% of the company's outstanding common stock was owned by non-U.S. citizens as of March 31, 1998. At March 31, 1998, 330 vessels wholly owned by the company were registered under flags other than the United States. In addition, most of the company's 36 joint venture owned vessels were registered under non-U.S. flags at March 31, 1998. 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 similar regulations. SEASONALITY The company's vessel fleet generally has its highest utilization rates in the warmer temperature months when the weather is more favorable for offshore exploration, development and construction work. However, business volume for the company is more dependent on oil and natural 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, has not had, nor is expected to have, a material effect on the company. EMPLOYEES As of March 31, 1998, the company had approximately 8,500 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. Please refer to Item 7 and Note 10 of Notes to Consolidated Financial Statements for further discussion of these matters. -6-
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 1998. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position ---- --- -------- William C. O'Malley 61 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 59 Executive Vice President since 1992. Ken C. Tamblyn 54 Executive Vice President since 1992. Cliffe F. Laborde 46 Senior Vice President and General Counsel since 1992. There are no family relationships between the directors or executive officers of the company except that Cliffe F. Laborde, senior vice president and general counsel, is the son of John P. Laborde, a director 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. 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, 1998, there were approximately 2,200 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 sale prices 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 Tidewater common stock for the periods indicated. Fiscal Year Quarter High Low Dividend - ------------- ------- -------- ------- -------- 1998 First $48.875 $35.875 $ .15 Second 60.250 44.000 .15 Third 70.500 47.250 .15 Fourth 55.188 40.000 .15 1997 First $44.625 $36.250 $0.125 Second 50.000 32.750 0.15 Third 47.250 36.500 0.15 Fourth 52.500 41.000 0.15 -7-
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 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> 1998(2) 1997(2) 1996(2) 1995 1994 -------------- ------------ ---------- ------- -------- <S> <C> <C> <C> <C> <C> Revenues: Vessel revenues $1,001,651 661,224 506,180 469,751 495,082 Other marine revenues 58,510 29,202 26,022 31,367 18,810 ---------- --------- ------- ------- ------- $1,060,161 690,426 532,202 501,118 513,892 ========== ========= ======= ======= ======= Earnings from continuing operations $ 243,038 138,235 69,503 44,868 40,779 Earnings from discontinued operations 10,723 7,776 6,674 6,319 3,881 Gain on sale of discontinued operations 61,738 --- --- --- --- Extraordinary loss on early debt retirement --- --- --- --- (12,250) ---------- --------- ------- ------- ------- Net earnings $ 315,499 146,011 76,177 51,187 32,410 ========== ========= ======= ======= ======= Per common share(1): Earnings from continuing operations $ 3.99 2.23 1.12 .73 .66 Earnings from discontinued operations .18 .12 .11 .10 .07 Gain on sale of discontinued operations 1.01 --- --- --- --- Extraordinary loss on early debt retirement --- --- --- --- (.20) ---------- --------- ------- ------- ------- Net earnings $ 5.18 2.35 1.23 .83 .53 ========== ========= ======= ======= ======= Total assets $1,492,839 1,061,280 974,410 926,276 925,264 ========== ========= ======= ======= ======= Long-term debt $ 25,000 --- --- 20,802 7,405 ========== ========= ======= ======= ======= Working capital $ 114,907 159,607 106,904 107,849 188,352 ========== ========= ======= ======= ======= Current ratio 1.56 2.77 2.31 2.20 2.41 ========== ========= ======= ======= ======= Cash dividends declared per common share $ .60 .575 .475 .40 .30 ========== ========= ======= ======= ======= </TABLE> (1) Per share amounts for fiscal 1997 through fiscal 1994 have been restated in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." All per share amounts were computed on a diluted basis. (2) See Notes 2 and 3 of Notes to Consolidated Financial Statements for information regarding business dispositions and business combinations during fiscal years 1998, 1997 and 1996. -8-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company provides services and equipment to the international offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and related disclosures. BUSINESS OVERVIEW During the quarter ended June 30, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.) in exchange for a cash payment of 328 million pounds sterling, or approximately $534 million. In addition a 9 million pound sterling, or approximately $14.4 million, payment was made for the net working capital of O.I.L. Available cash of $48.4 million and borrowings of $500 million were used to fund the purchase. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $355 million has been recorded in the Consolidated Balance Sheet. The $500 million of debt incurred to finance the O.I.L. acquisition was borrowed pursuant to a $600 million Revolving Credit and Term Loan agreement with several banks and consists of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. As of March 31, 1998 all debt borrowed for the O.I.L. acquisition had been repaid and the $400 million term loan facility was canceled. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint- venture companies in Australia for a cash payment of $13.2 million and issuance of debt totaling $14.0 million. The debt has been discounted to yield interest at 7% and is to be repaid in semi-annual installments. The total estimated cost of the acquisition of $30 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $12 million has been recorded in the Consolidated Balance Sheet. On February 20, 1998 the company completed the sale of its compression division. In consideration of the sale, the company received cash of approximately $348 million; $326 million of which was used to retire the then remaining balance of debt borrowed for the O.I.L. acquisition. During fiscal 1997 the company purchased for $12.4 million in cash the remaining equity interests in 22 of 29 safety/standby vessels previously owned and operated by joint-venture companies in the North Sea. The acquisition of these vessels was accounted for using the purchase method. -9-
In fiscal 1996 the company expanded its domestic operations by merging with Hornbeck Offshore Services, Inc. (Hornbeck). Hornbeck's fleet consisted of 61 towing-supply and supply vessels operating in the U.S. Gulf of Mexico and an equity 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 for fiscal 1996 and prior years were restated to include the operations of Hornbeck. Improved market conditions for company services during fiscal 1998 and an expanded international vessel fleet pushed operating performance above the prior year level as fiscal 1998 earnings from continuing operations climbed 71% above the preceding fiscal year's amount. The improvement in fiscal 1998 earnings from continuing operations was after eliminating the effects of unusual items in both fiscal 1998 and fiscal 1997. Fiscal 1998 earnings from continuing operations included a $5.3 million, or $.09 per common share, after-tax provision for possible litigation expenses, a $.8 million, or $.01 per common share, after-tax gain from the settlement of obligations resulting from the fiscal 1996 curtailment of the company's pension plan and a $7.3 million, or $.12 per common share, reduction in income tax expense. The reduction in income tax expense consisted of a $4 million reduction of deferred income taxes resulting from the lowering of United Kingdom corporate income tax rates and a $3.3 million reduction in a previously established liability for outstanding U.S. income tax issues. Fiscal 1997 earnings from continuing operations included an after-tax charge of $1.9 million, or $.03 per common share, to establish a provision for possible losses resulting from one of the company's insurers filing for liquidation. Future operating performance should remain positive given the near-term outlook for services provided by the company both domestically and internationally. However, long-term domestic operations performance could be adversely affected if significant building of new supply vessels continues and the resulting supply/demand relationship for company services weakens. MARINE OPERATIONS Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally when revenue changes. Operating costs primarily consist of crew costs, repair and maintenance, insurance, fuel, lube oil 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 table compares revenues and operating expenses (excluding general and administrative expenses and depreciation expense) for the company's vessel fleet for the years ended March 31: (in thousands) 1998 1997 1996 - -------------- ---------- ------- ------- Revenues (A): Owned and operated vessel fleet: United States $ 463,914 338,823 241,436 International 537,737 322,401 264,744 ---------- ------- ------- 1,001,651 661,224 506,180 Brokered vessels, shipyard and other 58,510 29,202 26,022 ---------- ------- ------- Total revenues 1,060,161 690,426 532,202 ========== ======= ======= Operating costs: Owned and operated vessel fleet: Crew costs $ 245,515 176,406 145,018 Repair and maintenance 140,515 96,815 84,567 Insurance 31,076 32,817 33,999 Fuel, lube and supplies 36,133 31,875 24,422 Other 32,804 23,582 19,909 ---------- ------- ------- 486,043 361,495 307,915 Brokered vessels, shipyard and other 47,065 24,161 20,391 ---------- ------- ------- Total operating costs $ 533,108 385,656 328,306 ========== ======= ======= (A) For fiscal 1998, fiscal 1997 and fiscal 1996 one Marine customer accounted for 11%, 11% and 12%, respectively, of revenues. -10-
Marine operating profit for the years ended March 31 consists of the following: (In thousands) 1998 1997 1996 - -------------- --------- ------- --------- Owned and operated vessel fleet: United States $225,599 120,275 46,839 International 141,133 82,591 60,291 -------- ------- ------- 366,732 202,866 107,130 Gains from asset sales 16,592 5,352 6,930 Brokered vessels, shipyard and other 10,663 4,186 4,849 -------- ------- ------- Operating profit $393,987 212,404 118,909 ======== ======= ======= The significant growth in fiscal 1998 operating profit compared with the preceding fiscal year resulted from higher average day rates for the worldwide vessel fleet, a larger international-based vessel fleet and higher gains from assets sales, partially offset by higher operating costs. Higher average day rates for the worldwide vessel fleet resulted from a more favorable supply/demand relationship for company services both in the U.S. Gulf of Mexico and internationally. Higher fiscal 1998 operating costs resulted from the expansion of the international-based vessel fleet through the purchase of the O.I.L. and Australian vessels, increased costs associated with attracting, training and retaining qualified vessel personnel and a greater number of vessel drydockings. Higher gains on asset sales in fiscal 1998 resulted from the disposal of several vessels, most of which had previously been withdrawn from active service due to obsolescence and prohibitive repair costs. The substantial growth in fiscal 1997 operating profit above the prior year level was the result of higher utilization of the worldwide fleet, a larger international-based fleet and significantly higher day rates for the domestic- based fleet partially offset by higher operating expenses. Higher utilization of the worldwide fleet in fiscal 1997 is attributable to greater demand for offshore marine services. A larger international-based fleet is the result of the fiscal 1997 first quarter purchase of the remaining 50.1% equity interest in several safety/standby vessels previously operated by joint-venture companies in the North Sea. Significantly higher day rates for the domestic-based fleet is the result of a much more favorable supply/demand relationship for offshore marine services in the U.S. Gulf of Mexico. Fiscal 1997 operating expenses rose above fiscal 1996's amount due to the expansion of the North Sea fleet, increased costs associated with attracting, training and retaining vessel personnel, higher activity for the domestic-based offshore towing fleet, and a greater number of vessel drydockings. 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. 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 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: -11-
UTILIZATION: - ------------ 1998 First Second Third Fourth Year - ---- ----- ------ ----- ------ ---- Domestic-based fleet: - --------------------- Towing-supply/Supply 91.0% 91.1 91.8 91.9 91.5 Crew/Utility 90.9 88.9 92.1 90.7 90.7 Offshore Tugs 63.1 64.3 61.8 53.1 60.6 Other 59.5 60.5 53.3 40.6 54.1 Total 84.8% 84.8 85.0 83.0 84.4 International-based fleet: - -------------------------- Towing-supply/Supply 89.4% 88.0 88.9 88.3 88.6 Crew/Utility 82.4 80.9 80.7 90.2 83.4 Offshore Tugs 83.1 80.3 79.7 76.6 80.0 Safety/Standby 78.1 71.3 65.6 70.1 71.0 Other 83.0 78.1 67.2 68.2 74.4 Total 86.0% 83.9 82.9 83.8 84.1 Worldwide fleet: - ---------------- Towing-supply/Supply 90.1% 89.2 90.1 89.7 89.8 Crew/Utility 86.1 84.2 85.4 90.4 86.5 Offshore Tugs 74.7 73.6 71.9 66.3 71.7 Safety/Standby 78.1 71.3 65.6 70.1 71.0 Other 77.7 73.9 63.9 62.4 69.8 Total 85.5% 84.2 83.7 83.5 84.2 ==== ==== ==== ==== ==== 1997 First Second Third Fourth Year - ---- ----- ------ ----- ------ ---- Domestic-based fleet: - --------------------- Towing-supply/Supply 91.3% 90.2 90.0 93.3 91.2 Crew/Utility 90.9 94.1 88.6 86.7 90.1 Offshore Tugs 62.4 67.0 62.9 63.9 64.1 Other 48.8 61.9 50.2 45.1 51.3 Total 83.6% 85.1 82.4 84.0 83.7 International-based fleet: - -------------------------- Towing-supply/Supply 87.5% 88.1 90.9 92.1 89.7 Crew/Utility 90.5 85.4 80.9 83.6 84.9 Offshore Tugs 75.4 70.3 79.3 85.9 77.6 Safety/Standby 84.4 78.2 83.9 80.1 80.8 Other 76.2 74.4 84.4 82.0 79.0 Total 84.0% 82.1 86.4 87.8 85.1 Worldwide fleet: - ---------------- Towing-supply/Supply 89.2% 89.1 90.5 92.7 90.4 Crew/Utility 90.7 90.1 85.0 85.2 87.7 Offshore Tugs 69.7 68.8 71.8 75.9 71.5 Safety/Standby 84.4 78.2 83.9 80.1 80.8 Other 69.7 71.7 75.9 72.1 72.3 Total 83.8% 83.3 84.7 86.2 84.5 ==== ==== ==== ==== ==== 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 ==== ==== ==== ==== ==== -12-
AVERAGE DAY RATES: - ------------------ 1998 First Second Third Fourth Year - ---- ----- ------ ----- ------ ---- Domestic-based fleet: - --------------------- Towing-supply/Supply $6,986 7,532 7,853 7,877 7,566 Crew/Utility 1,976 2,142 2,216 2,219 2,138 Offshore Tugs 6,443 6,558 6,617 8,465 6,960 Other 2,626 2,757 3,167 3,611 2,959 Total $5,876 6,308 6,569 6,837 6,395 International-based fleet: - -------------------------- Towing-supply/Supply $4,806 5,440 5,655 6,069 5,515 Crew/Utility 1,982 2,190 2,213 2,375 2,194 Offshore Tugs 3,413 3,494 3,752 4,160 3,691 Safety/Standby 6,002 6,138 6,087 6,229 6,116 Other 873 935 953 938 921 Total $3,909 4,438 4,653 4,976 4,501 Worldwide fleet: - ---------------- Towing-supply/Supply $5,750 6,267 6,539 6,798 6,351 Crew/Utility 1,979 2,169 2,215 2,306 2,169 Offshore Tugs 4,492 4,621 4,832 5,667 4,878 Safety/Standby 6,002 6,138 6,087 6,229 6,116 Other 1,173 1,291 1,387 1,299 1,280 Total $4,677 5,127 5,380 5,670 5,216 ====== ===== ===== ===== ===== 1997 First Second Third Fourth Year - ---- ------ ----- ----- ----- ----- Domestic-based fleet: - --------------------- Towing-supply/Supply $4,278 5,049 5,842 6,382 5,401 Crew/Utility 1,424 1,512 1,664 1,800 1,594 Offshore Tugs 4,994 5,355 5,651 6,355 5,592 Other 3,158 3,050 3,505 3,224 3,231 Total $3,773 4,317 4,948 5,470 4,630 International-based fleet: - -------------------------- Towing-supply/Supply $3,695 3,838 3,965 4,116 3,903 Crew/Utility 1,728 1,735 1,916 1,958 1,834 Offshore Tugs 2,708 2,916 3,290 3,299 3,063 Safety/Standby 5,194 4,907 5,290 5,906 5,331 Other 719 662 705 812 722 Total $2,939 3,144 3,296 3,475 3,218 Worldwide fleet: - ---------------- Towing-supply/Supply $3,965 4,387 4,833 5,177 4,596 Crew/Utility 1,562 1,610 1,776 1,875 1,703 Offshore Tugs 3,602 3,971 4,237 4,468 4,079 Safety/Standby 5,194 4,907 5,290 5,906 5,331 Other 1,123 1,109 1,168 1,213 1,152 Total $3,298 3,639 3,988 4,310 3,814 ====== ===== ===== ===== ===== 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 ====== ===== ===== ===== ===== -13-
The average age of the owned and operated vessel fleet is approximately 19 years. The following table compares the average number of vessels by class and geographic distribution during the years ended March 31: 1998 1997 1996 ---- ---- ---- Domestic-based fleet: Towing-supply/supply 146 140 147 Crew/utility 39 42 51 Offshore tugs 40 43 41 Other 10 15 13 ---- ---- ---- Total 235 240 252 ---- ---- ---- International-based fleet: Towing-supply/supply 218 166 171 Crew/utility 53 37 35 Offshore tugs 53 52 54 Safety/standby 29 22 --- Other 35 46 50 ---- ---- ---- Total 388 323 310 ---- ---- ---- Owned or chartered vessels included in marine revenues 623 563 562 Vessels withdrawn from active service 17 21 18 Joint-venture and other 56 52 74 ---- ---- ---- Total 696 636 654 ==== ==== ==== The drop in the average size of the worldwide fleet from fiscal 1996 to fiscal 1997 is the result of the return of previously leased vessels to their owners and the disposition of obsolete vessels. From fiscal 1997 to fiscal 1998 the net increase in the average number of vessels is the result of the addition of O.I.L. vessels and the disposition of obsolete vessels. CORPORATE Earnings from continuing operations before income taxes for the company consists of the following items for the years ended March 31: (In thousands) 1998 1997 1996 - -------------- ---------- -------- -------- Marine operating profit $393,987 212,404 118,909 Other income 7,079 6,705 5,436 Other expense (6,847) (2,800) (12,600) Corporate expenses (13,074) (11,235) (9,541) Interest and other debt costs (24,677) (1,000) (2,176) -------- ------- ------- Earnings from continuing operations before income taxes $356,468 204,074 100,028 ======== ======= ======= Fiscal 1998 other expense of $6.8 million consists of an $8 million provision for possible litigation costs which could result from certain alleged labor-law pay violations in various areas of the world where marine vessel operations are conducted, and a $1.2 million gain from the settlement of obligations resulting from the fiscal 1996 curtailment of the company's pension plan. Other expense for fiscal 1997 is a charge for possible losses resulting from one of the company's insurers filing for liquidation. Fiscal 1996 other expense consisted of $9.6 million of costs resulting from the merger with Hornbeck Offshore Services, Inc. and a $3.0 million charge as a result of the removal of fleet personnel from the company's defined benefit pension plan. On April 1, 1996 these employees, along with all new employees of the company who are eligible for pension plan membership, were enrolled in a new defined contribution retirement plan. -14-
Consolidated general and administrative expenses for the years ended March 31 consists of the following components: (In thousands) 1998 1997 1996 - ---------------------- ------- ------ ------ Personnel $43,797 32,515 28,743 Office and property 13,726 10,260 8,744 Sales and marketing 5,213 3,496 2,734 Professional service 5,065 4,548 3,909 Other 5,125 3,031 4,710 ------- ------ ------ $72,926 53,850 48,840 ======= ====== ====== Higher fiscal 1998 general and administrative expenses are the result of the O.I.L. and Australian acquisitions and higher costs associated with incentive bonus and restricted stock plans. LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS The company's current ratio, level of working capital and amount of cash flows from continuing operations for any year are directly related to fleet activity and vessel day rates. Fleet activity and vessel day rates are ultimately determined by the supply/demand relationship for oil and natural gas. Variations from year-to-year in these items are primarily the result of market conditions. Cash from ongoing operations in combination with available lines of credit provide the company, in management's opinion, with adequate resources to satisfy financing requirements. At March 31, 1998, $175 million of the company's $200 million revolving line of credit was available to satisfy financing needs. Continued payment of dividends, currently $.15 per quarter per common share, is subject to declaration by the Board of Directors. Excluding the sale of compression operations and the O.I.L. and Australian acquisition, fiscal 1998 investing activities consumed more cash than in prior years as a result of the increased level of additional investments in the fleet. Additional investments in the fleet included $20.2 million for the purchase of six safety/standby vessels, two towing-supply/supply vessels, a utility vessel and a crewboat. The remaining amount invested in the fleet during fiscal 1998 was for additions and/or modifications to existing vessels to meet customer requirements. Fiscal 1998 financing activities consumed less cash than in prior years. Fiscal 1998 principal payments on long-term debt included $34.1 million of scheduled payments, $477.4 million of prepayments on the credit facility and the repayment of $14.8 million of debt assumed from the O.I.L. and Australian acquisitions. The company purchased 1,481,000 shares of common stock during the quarter ended March 31, 1998 at an average cost per share of $44.01 including broker commissions and fees. YEAR 2000 In fiscal 1997 the company began modifying its existing software applications to be year 2000 compliant. As of the end of fiscal 1998, the company is still reviewing and modifying all affected software applications, including the computerized operating systems of company vessels. The company expects this process to be complete well in advance of year 2000 with the costs of such modifications being immaterial with respect to the company's results of operations and financial position. NEW ACCOUNTING PRONOUNCEMENTS During fiscal 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" and SFAS No. 132, "Employer's Disclosures about Pension and Other Postretirement Benefits." The additional disclosure requirements of each of these SFAS's are effective during the company's fiscal year ending March 31, 1999. Management believes the adoption of these pronouncements will result in additional financial statement disclosures only and will not have a material impact on its fiscal 1999 consolidated financial statements. -15-
CURRENCY FLUCTUATIONS AND INFLATION Because of its significant international operations, the company is exposed to currency fluctuations and exchange risk. 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 energy industry and the energy services industry will increase. Future improvements in vessel day rates may shield the company from the inflationary effects on operating costs. ENVIRONMENTAL MATTERS During the ordinary course of business the company's operations are subject to a wide variety of environmental laws and regulations. The company attempts to comply with these laws and regulations in order to avoid costly accidents and 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, has not had, 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 On Form 8-K dated May 16, 1997, the company reported a change in its certifying accountants from KPMG Peat Marwick LLP to Ernst & Young LLP. There were no disagreements with the company's certifying accountants. 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, 1998. 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. -16-
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. 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 filed a current report on Form 8-K dated February 20, 1998 to disclose that the company had completed the sale of Tidewater Compression Service, 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 September 19, 1996 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 1 to Form 8-A on September 30, 1996). 10(a)- $600,000,000 Revolving Credit and Term Loan Agreement dated March 19, 1997 (filed with the Commission as Exhibit 10(a) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 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). -17-
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 (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, 1996). 10(k) - Change in Control Agreement dated September 30, 1996 between Tidewater Inc. and William C. O'Malley (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, 1997). 10(l) - Form of Change in Control Agreement entered into as of September 30, 1996 with four executive officers (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, 1997). 10(m) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as Exhibit 10(m) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(n) - Employment Agreement dated September 25, 1997 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 10-Q for the quarter ended September 30, 1997). *10(o)- Tidewater Inc. 1997 Stock Incentive Plan. *21 - Subsidiaries of the company. *23 - Consents of Independent Auditors. *27 - Financial Data Schedules. 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. -18-
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 1, 1998. 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, Chief Financial Officer and Principal Accounting 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 1, 1998. /s/ Robert H. Boh /s/ Larry D. Hornbeck - ------------------- ---------------------- Robert H. Boh Larry D. Hornbeck /s/ Donald T. Bollinger /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. -19-
TIDEWATER INC. ANNUAL REPORT ON FORM 10-K ITEMS 8, 14(A), AND 14(D) INDEX TO FINANCIAL STATEMENTS AND SCHEDULE <TABLE> <CAPTION> FINANCIAL STATEMENTS Page ---- <S> <C> Reports of Independent Auditors F-2 Consolidated Balance Sheets, March 31, 1998 and 1997 F-4 Consolidated Statements of Earnings, three years ended March 31, 1998 F-5 Consolidated Statements of Stockholders' Equity, three years ended March 31, 1998 F-6 Consolidated Statements of Cash Flows, three years ended March 31, 1998 F-7 Notes to Consolidated Financial Statements F-8 FINANCIAL STATEMENT SCHEDULE II. Tidewater Inc. and Subsidiaries Valuation and Qualifying Accounts F-22 </TABLE> 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
REPORTS OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Tidewater Inc. We have audited the accompanying consolidated balance sheet of Tidewater Inc. as of March 31, 1998 and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the accompanying Index to Financial Statements and Schedule for the year ended March 31, 1998. These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The consolidated financial statements and schedule of Tidewater Inc. as of March 31, 1997, and for each of the two years in the period ended March 31, 1997, were audited by other auditors whose report dated April 30, 1997, expressed an unqualified opinion on those statements and schedule. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1998 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tidewater Inc. at March 31, 1998 and the consolidated results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New Orleans, Louisiana April 27, 1998 F-2
The Board of Directors and Shareholders Tidewater Inc.: We have audited the consolidated balance sheet of Tidewater Inc. and subsidiaries as of March 31, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the years ended March 31, 1997 and 1996. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule for the years ended March 31, 1997 and 1996, 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, 1997, and the results of their operations and their cash flows for the years ended March 31, 1997 and 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 30, 1997 F-3
CONSOLIDATED BALANCE SHEETS - --------------------------- March 31, 1998 and 1997 (in thousands) <TABLE> <CAPTION> ASSETS 1998 1997 - ----------------------------------------------------------------- ---------- --------- <S> <C> <C> Current assets: Cash and cash equivalents $ 24,977 41,166 Trade and other receivables, less allowance for doubtful accounts of $14,078 in 1998 and $10,330 in 1997 258,517 176,513 Marine operating supplies 31,498 28,171 Other current assets 4,122 3,803 --------- --------- Total current assets 319,114 249,653 ---------- --------- Investments in, at equity, and advances to unconsolidated companies 21,825 20,556 Net assets of discontinued Compression operations --- 253,305 Properties and equipment: Vessels and related equipment 1,534,948 1,265,633 Other properties and equipment 33,887 25,220 ---------- --------- 1,568,835 1,290,853 Less accumulated depreciation 863,209 827,710 ---------- --------- Net properties and equipment 705,626 463,143 ---------- --------- Goodwill, net of accumulated amortization of $8,002 in 1998 356,394 --- Other assets 89,880 74,623 ---------- --------- $1,492,839 1,061,280 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current maturities of long-term debt 6,466 --- Accounts payable and accrued expenses 105,914 72,725 Accrued property and liability losses 12,156 13,248 Income taxes 79,671 4,073 ---------- --------- Total current liabilities 204,207 90,046 ---------- --------- Deferred income taxes 158,540 122,577 Long-term debt 25,000 --- Accrued property and liability losses 57,289 32,146 Other liabilities and deferred credits 49,027 46,847 Stockholders' equity 998,776 769,664 Commitments and contingencies ---------- --------- $1,492,839 1,061,280 ========== ========= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-4
CONSOLIDATED STATEMENTS OF EARNINGS - ----------------------------------- Years Ended March 31, 1998, 1997 and 1996 (in thousands, except share and per share data) <TABLE> <CAPTION> 1998 1997 1996 ------------ ----------- ----------- <S> <C> <C> <C> Revenues: Vessel revenues $ 1,001,651 661,224 506,180 Other marine revenues 58,510 29,202 26,022 ----------- ---------- ---------- 1,060,161 690,426 532,202 ----------- ---------- ---------- Costs and expenses: Vessel operating costs 486,043 361,495 307,915 Costs of other marine revenues 47,065 24,161 20,391 Depreciation and amortization 91,410 55,937 55,361 General and administrative 72,926 53,850 48,840 ----------- ---------- ---------- 697,444 495,443 432,507 ----------- ---------- ---------- 362,717 194,983 99,695 Other income (expenses): Foreign exchange loss (635) (382) (455) Gain on sales of assets 16,531 5,320 6,906 Equity in net earnings of unconsolidated companies 6,381 4,901 5,901 Minority interests (1,258) (1,311) (1,385) Interest and miscellaneous income 4,256 4,363 4,142 Other expense (6,847) (2,800) (12,600) Interest and other debt costs (24,677) (1,000) (2,176) ----------- ---------- ---------- (6,249) 9,091 333 ----------- ---------- ---------- Earnings from continuing operations before income taxes 356,468 204,074 100,028 Income taxes 113,430 65,839 30,525 ----------- ---------- ---------- Earnings from continuing operations 243,038 138,235 69,503 Earnings from discontinued operations 10,723 7,776 6,674 Gain on sale of discontinued Compression operations 61,738 --- --- ----------- ---------- ---------- Net earnings $ 315,499 146,011 76,177 =========== ========== ========== Earnings per common share: - -------------------------- Earnings from continuing operations $ 4.01 2.24 1.13 Earnings from discontinued operations .18 .13 .11 Gain on sale of discontinued Compression operations 1.02 --- --- ----------- ---------- ---------- Earnings per common share $ 5.21 2.37 1.24 =========== ========== ========== Diluted earnings per common share: - ---------------------------------- Earnings from continuing operations $ 3.99 2.23 1.12 Earnings from discontinued operations .18 .12 .11 Gain on sale of discontinued Compression operations 1.01 --- --- ----------- ---------- ---------- Diluted earnings per common share $ 5.18 2.35 1.23 =========== ========== ========== Weighted average common shares outstanding 60,552,315 61,606,144 61,675,360 Incremental common shares from stock options 341,329 438,188 485,618 ----------- ---------- ---------- Adjusted weighted average common shares 60,893,644 62,044,332 62,160,978 =========== ========== ========== Cash dividends declared per common share $ .60 .575 .475 =========== ========== ========== </TABLE> See accompanying Notes to Consolidated Financial Statements. F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ----------------------------------------------- Years Ended March 31, 1998, 1997 and 1996 (in thousands) <TABLE> <CAPTION> Cumulative foreign Deferred Additional currency compensation- Common paid-in Retained translation restricted stock capital earnings adjustment stock Total --------- ---------- -------- ----------- ---------- ------- <S> <C> <C> <C> <C> <C> <C> Balance 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 ------ ------- ------- ----------- ---------- ------- Balance at March 31, 1996 6,188 421,655 322,736 (10,771) (1,058) 738,750 Net earnings --- --- 146,011 --- --- 146,011 Exercise of stock options 23 4,368 --- --- --- 4,391 Cash dividends declared --- --- (35,400) --- --- (35,400) Common stock purchased (178) (84,608) --- --- --- (84,786) Other --- --- --- 95 603 698 ------ ------- ------- ----------- ---------- ------- Balance at March 31, 1997 6,033 341,415 433,347 (10,676) (455) 769,664 Net earnings --- --- 315,499 --- --- 315,499 Issuance of restricted stock 9 4,492 --- --- (4,501) --- Exercise of stock options 54 14,280 --- --- --- 14,334 Cash dividends declared --- --- (36,383) --- --- (36,383) Common stock purchased (148) (65,034) --- --- --- (65,182) Other --- --- --- 94 750 844 ------ ------- ------- ----------- ---------- ------- Balance at March 31, 1998 $5,948 295,153 712,463 (10,582) (4,206) 998,776 ====== ======= ======= =========== ========== ======= </TABLE> See accompanying Notes to Consolidated Financial Statements. F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- Years Ended March 31, 1998, 1997 and 1996 (in thousands) <TABLE> <CAPTION> 1998 1997 1996 --------- -------- -------- <S> <C> <C> <C> Operating activities: Earnings from continuing operations $ 243,038 138,235 69,503 Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization 91,410 55,937 55,361 Provision for deferred income taxes (1,604) 12,117 4,023 Gain on sales of assets (16,531) (5,320) (6,906) Equity in earnings of unconsolidated companies, less dividends (2,330) 250 3,201 Minority interests, less dividends (1,050) 556 321 Compensation expense - restricted stock 750 603 595 Changes in assets and liabilities, net: Trade and other receivables (34,879) (36,129) 6,046 Marine operating supplies (1,720) (4,471) 1,943 Other current assets 1,897 (236) 1,178 Accounts payable and accrued expenses 28,095 2,579 (8,290) Accrued property and liability losses (1,092) 2,404 (689) Other, net 5,994 1,396 6,128 --------- -------- -------- Net cash provided by continuing operating activities 311,978 167,921 132,414 Net cash provided by discontinued operating activities 34,108 42,025 48,239 --------- -------- -------- Net cash provided by operating activities 346,086 209,946 180,653 --------- -------- -------- Investing activities: Proceeds from sales of assets 41,944 22,737 18,044 Proceeds from sale of Compression operations 340,001 --- --- Additions to properties and equipment (82,501) (58,002) (46,116) Acquisitions net of cash acquired (581,099) (3,435) --- Other (4,853) --- (592) --------- -------- -------- Net cash used in investing activities (286,508) (38,700) (28,664) --------- -------- -------- Financing activities: Common stock purchased (65,182) (84,786) --- Principal payments on long-term debt (526,281) (58,019) (145,395) Debt borrowings 544,035 15,000 13,400 Proceeds from issuance of common stock 8,044 4,391 4,212 Cash dividends (36,383) (35,400) (25,327) Other --- --- 40 --------- -------- -------- Net cash used in financing activities (75,767) (158,814) (153,070) --------- -------- -------- Net (decrease) increase in cash and cash equivalents (16,189) 12,432 (1,081) Net increase in cash for Hornbeck Offshore Services, Inc. for the quarter ended March 31, 1995 --- --- 4,980 Cash and cash equivalents at beginning of year 41,166 28,734 24,835 --------- -------- -------- Cash and cash equivalents at end of year $ 24,977 41,166 28,734 ========= ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 23,937 702 5,944 Income taxes $ 111,427 56,249 27,721 ========= ======== ======== Supplemental noncash investing activity: Acquisitions: Fair value of assets acquired $ 693,672 51,305 --- Fair value of liabilities assumed (112,573) (47,870) --- --------- -------- -------- Net cash payment $ 581,099 3,435 --- ========= ======== ======== </TABLE> See accompanying Notes to Consolidated Financial Statements. F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ March 31, 1998, 1997 and 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The company provides services and equipment to the offshore energy industry through the operation of the world's largest fleet of offshore service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level for the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. 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. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Tidewater Inc. and its subsidiaries. Significant intercompany balances and transactions are eliminated in consolidation. 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, using estimated useful lives of: Years ------- Marine equipment (from date of construction) 15 - 25 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. GOODWILL Goodwill primarily relates to the O.I.L. acquisition made during fiscal 1998 and is being amortized over 40 years. Management periodically reviews goodwill to access recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. 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. F-8
PENSION AND OTHER POSTRETIREMENT BENEFITS Pension costs are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 87 and are funded to meet the minimum funding requirements 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 SFAS No. 106. The estimated cost of postretirement benefits other than pensions are accrued during the employees' active service period. INCOME TAXES Income taxes are accounted for in accordance with the provisions of SFAS No. 109. 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 Earnings per share are computed in accordance with SFAS No. 128. SFAS No. 128 requires the replacement of previously reported primary and fully diluted earnings per share required by Accounting Principles Board Opinion No. 15 with earnings per share and diluted earnings per share. The calculation of earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the dilutive effect of stock options. Per share amounts for all periods presented have been restated to conform to the requirements of SFAS No. 128. Per share amounts disclosed in these Notes to Consolidated Financial Statements are on a diluted basis. FOREIGN CURRENCY TRANSLATION Assets and liabilities of international operations, other than international operations in highly inflationary economies, are translated into U.S. dollars 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. Adjustments resulting from the balance sheet account translations, net of deferred income taxes, are included in stockholders' equity as foreign currency translation adjustments. CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows the company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. REVENUE RECOGNITION Marine services are generally contracted for on a rate per day of service basis; therefore, marine vessel revenues are recognized on a daily basis throughout the contract period. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the company to concentrations of credit risk consist principally of trade and other receivables. These receivables are with a variety of domestic, international and national energy companies and also include reinsurance companies for recoverable insurance losses. The company manages its exposure to risk through ongoing credit evaluations of its customers and generally does not require collateral. The company maintains an allowance for doubtful accounts for potential losses and does not believe it is exposed to concentrations of credit risk that are likely to have a material impact on the company's financial position or results of operations. STOCK-BASED COMPENSATION The company uses the intrinsic value method of accounting for stock-based compensation prescribed by Accounting Principles Board Opinion No. 25 and, accordingly, adopted the disclosure provisions of SFAS No. 123. NEW ACCOUNTING PRONOUNCEMENTS During fiscal 1998 the Financial Accounting Standards Board issued SFAS No. 130, "Reporting F-9
Comprehensive Income," SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" and SFAS No. 132, "Employer's Disclosures about Pension and Other Postretirement Benefits." The additional disclosure requirements of each of these SFAS's are effective during the company's fiscal year ending March 31, 1999. Management believes the adoption of these pronouncements will result in additional financial statement disclosure only and will not have a material impact on its fiscal 1999 consolidated financial statements. RECLASSIFICATIONS Certain amounts from prior years have been reclassified to conform with current year classifications. (2) BUSINESS DISPOSITION On February 20, 1998 the company completed the sale of its compression division. The compression division provided natural gas and air compression equipment and services, principally to the energy industry. In consideration of the sale the company received cash of approximately $348 million. Accordingly, the company's consolidated financial statements for all periods have been reclassified to report separately financial position, results of operations, and operating cash flows from continuing operations and the discontinued compression operation. Compression net assets at March 31, 1997 and Compression operating results for the 11 months ended February 20, 1998 and for the 12-month periods ended March 31, 1997 and 1996 are as follows: <TABLE> <CAPTION> Compression Net Assets: - ----------------------- (in thousands) At March 31, 1997 ----------------- <S> <C> Current assets................................................. $ 19,073 Net properties and equipment................................... 217,983 Goodwill....................................................... 20,951 Accounts payable and accrued expenses.......................... (4,702) -------- $253,305 ======== </TABLE> Compression Operating Results: - ------------------------------ <TABLE> <CAPTION> (in thousands) Eleven Months Ended Twelve Months Ended March 31, February 20,1998 1997 1996 ------------------- ----------- ----------- <S> <C> <C> <C> Revenues............................... $ 94,438 112,584 111,245 Operating costs........................ 46,679 64,153 59,536 Depreciation and amortization.......... 23,462 26,335 27,069 General and administration............. 8,615 11,005 10,508 -------- --------- --------- 15,682 11,091 14,132 Other income (expense)................ 1,275 1,369 (3,273) -------- -------- --------- Earnings before income taxes........... 16,957 12,460 10,859 Income taxes........................... 6,234 4,684 4,185 -------- -------- --------- Earnings from discontinued operations.. $ 10,723 7,776 6,674 ======== ======== ========= </TABLE> The gain from the sale of Compression operations of $98.0 million, less applicable income taxes of $36.3 million, is net of legal, accounting and investment banking fees, severance and other costs associated with the sale. (3) BUSINESS COMBINATIONS On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.) in exchange for a cash payment of 328 million pounds sterling, or approximately $534 million. In addition a 9 million pound sterling, or approximately $14.4 million, payment was made for the net working capital of O.I.L. Available cash of $48.4 million and borrowings of $500 million were used to fund the purchase. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the F-10
acquisition. The results of O.I.L.'s operations have been consolidated with the company's effective May 16, 1997. Pro forma combined results of continuing operations of the company and of O.I.L. including appropriate purchase accounting adjustments for the years ended March 31, 1998 and 1997 as though the acquisition had taken place on April 1 of the respective fiscal years are as follows: <TABLE> <CAPTION> (in thousands, except per share amounts) Year Ended March 31, -------------------- 1998 1997 ---------- ------- <S> <C> <C> Revenues.................... $1,080,606 828,804 Net earnings................ $ 314,842 137,063 Earnings per share.......... $ 5.20 2.22 Diluted earnings per share.. $ 5.17 2.21 </TABLE> The $500 million of debt incurred to finance the O.I.L.. acquisition was borrowed pursuant to a $600 million Revolving Credit and Term Loan agreement with several banks and consisted of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. At March 31, 1998 all debt borrowed to finance the O.I.L. acquisition had been repaid and the $400 million term loan facility canceled. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint- venture companies in Australia for a cash payment of $13.2 million and issuance of debt totaling $14.0 million. The debt has been discounted to yield interest at 7% and is to be repaid in semi-annual installments. The total estimated cost of the acquisition of $30 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. On May 31, 1996 the company acquired for $12.4 million cash 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. At the same time the company granted to the seller a call option on its 49.9% equity interest in the remaining seven safety/standby vessels for 1 pound sterling, which option was exercised during fiscal 1998. The acquisition was accounted for by the purchase method and accordingly, the fair value of the assets acquired and liabilities assumed and results of operations have been included in the consolidated financial statements effective June 1, 1996. 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. Fiscal 1996 merger expenses of $9.6 million, which are classified as other expense in the Consolidated Statements of Earnings, include legal, investment banking and accounting fees, severance and other costs related to the business combination with Hornbeck. F-11
(4) UNCONSOLIDATED COMPANIES Investments in, at equity, and advances to unconsolidated marine joint- venture companies at March 31 were as follows: <TABLE> <CAPTION> Percentage (in thousands) ownership 1998 1997 ---------- ------- ------ <S> <C> <C> <C> National Marine Service (Abu Dhabi-UAE) 40% $12,317 12,107 Tidewater Port Jackson (Australia) 50% --- 3,789 Provident Marine, Ltd. (Mexico) 50% 1,574 1,841 Lamnalco (UAE) 50% 2,979 1,434 Sonatide (Angola) 49% 2,602 --- Four Star Marine, Inc. (United States) 49% 925 --- Others 20%-50% 1,428 1,385 ------ ------- ------ $21,825 20,556 ======= ====== </TABLE> The aggregate amount of undistributed earnings of all unconsolidated joint- venture companies included in consolidated stockholders' equity at March 31, 1998 is approximately $15.2 million. (5) 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: <TABLE> <CAPTION> (in thousands) <S> <C> <C> <C> 1998 1997 1996 -------- ------- ------- United States $192,788 114,942 32,995 International 163,680 89,132 67,033 -------- ------- ------- $356,468 204,074 100,028 ======== ======= ======= </TABLE> Income tax expense attributable to earnings from continuing operations for the years ended March 31 consists of the following: (in thousands) U.S. --------------- Federal State International Total ------- ------ ------------- -------- 1998 - ---- Current $96,336 1,083 17,615 115,034 Deferred (1,604) --- --- (1,604) ------- ----- ------ ------- $94,732 1,083 17,615 113,430 ======= ===== ====== ======= 1997 - ---- Current $41,628 562 11,532 53,722 Deferred 12,117 --- --- 12,117 ------- ----- ------ ------- $53,745 562 11,532 65,839 ======= ===== ====== ======= 1996 - ---- Current $16,663 (237) 10,076 26,502 Deferred 4,023 --- --- 4,023 ------- ----- ------ ------- $20,686 (237) 10,076 30,525 ======= ===== ====== ======= F-12
The actual income tax expense attributable to earnings from continuing operations for the years ended March 31, 1998, 1997 and 1996 differs from the amounts computed by applying the U.S. federal tax rate of 35% to pre-tax earnings as a result of the following: <TABLE> <CAPTION> (in thousands) <S> <C> <C> <C> 1998 1997 1996 -------- ------ ------ Computed "expected" tax expense $124,764 71,426 35,010 Increase (reduction) resulting from: Effect of 1997 United Kingdom tax rate change (4,000) --- --- Overaccrual of income tax expense in prior years (3,300) --- --- Foreign tax credits not previously recognized --- (1,303) (7,440) Utilization of net operating loss carryforwards (620) (386) (2,181) Expenses which are not deductible for tax purposes 611 45 1,418 Other, net (4,025) (3,943) 3,718 -------- ------ ------ $113,430 65,839 30,525 ======== ====== ====== </TABLE> The reversal of taxes overaccrued in prior years is the result of the company's settlement in the fourth quarter of fiscal 1998 of open income tax audits with the Internal Revenue Service for fiscal years 1993, 1994 and 1995. The significant components of deferred income tax expense for the years ended March 31 are as follows: <TABLE> <CAPTION> (in thousands) 1998 1997 1996 ------- ------ ------ <S> <C> <C> <C> Deferred income tax expense (benefit) (exclusive of the effects of other components listed below) $(1,604) 3,628 (4,732) Investment, foreign and minimum tax credits --- 8,489 8,755 ------- ------ ------ $(1,604) 12,117 4,023 ======= ====== ====== </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, 1998 and 1997 are as follows: <TABLE> <CAPTION> (in thousands) 1998 1997 --------- -------- <S> <C> <C> Deferred tax assets: Financial provisions not deducted for tax purposes $ 16,520 19,605 Foreign net operating loss carryforwards 13,887 5,182 Tax credit carryforwards 3,851 3,851 Other 234 259 --------- -------- Gross deferred tax assets 34,492 28,897 Less valuation allowance 16,756 1,915 --------- -------- Net deferred tax assets 17,736 26,982 --------- -------- Deferred tax liabilities: Depreciation and amortization (155,339) (122,577) Other (3,201) --- --------- -------- Gross deferred tax liabilities (158,540) (122,577) --------- -------- Net deferred tax liabilities $(140,804) (95,595) ========= ======== </TABLE> The net changes in the valuation allowance for the years ended March 31, 1998 and 1997 were an increase of $14.8 million and a decrease of $3.2 million, respectively. The additional fiscal 1998 valuation allowance is a result of increased doubt over the ultimate realization of benefits from certain foreign net operating losses. The remaining balance of the deferred tax assets is expected to be realized through future operating results and the reversal of taxable temporary differences. The company has not recognized a deferred tax liability of approximately $31.5 million 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 F-13
investments. As of March 31, 1998, the undistributed earnings of these subsidiaries were approximately $90 million. (6) LONG-TERM DEBT At March 31, 1998, the company has a $200 million revolving credit facility with a group of banks and at that date there were $25 million of borrowings under the facility. Borrowings bear interest, at the company's option, at prime or Federal Funds rates plus .5% or Eurodollar rates plus margins from .5% to 1% based on the company's debt to capitalization ratio. The revolving credit commitment expires on April 30, 1999, at which time the then outstanding balance will convert to a term loan repayable in 16 quarterly installments beginning July 31, 1999. All of the borrowings under the agreement are unsecured and the company pays an annual fee of .25% on the unused portion of the facility. Under the terms of the agreement, the company has agreed to limitations on future levels of investments and aggregate indebtedness, a minimum level of tangible net worth and maintenance of certain debt to capitalization ratios. The agreement also prohibits the company from encumbering its assets, other than assets already encumbered at March 19, 1997 for the benefit of others. Current maturities of long-term debt at March 31, 1998 of $6.5 million consist of the remaining debt associated with the Australian joint-ventures' acquisition made during fiscal 1998. (7) BENEFIT PLANS Upon meeting various citizenship, age and service requirements, employees are eligible to participate in a defined contribution savings plan and can contribute from 2% to 15% of their base salary to an employee benefit trust. The company matches with company common stock 50% of the employee's contribution to the plan up to a maximum of 6% of the employee's base salary. The plan held 487,571 shares and 510,772 shares of the company's common stock at March 31, 1998 and 1997, respectively. Amounts charged to expense for the plan for 1998, 1997 and 1996 were $1.8 million, $1.7 million and $1.0 million, 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's policy is to fund the plan based upon minimum funding requirements of the Employee Retirement Income Security Act of 1974. 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 pension plan. Certain benefits programs are maintained in several other countries which provide retirement income for covered employees. Net periodic pension cost for the U.S. defined benefit pension plan and the Supplemental Plan for 1998, 1997 and 1996 include the following components: <TABLE> <CAPTION> (in thousands) 1998 1997 1996 ------- ------ ------ <S> <C> <C> <C> Service cost-benefit earned during the period..... $ 986 844 1,843 Interest cost on projected benefit obligation..... 2,230 2,258 2,208 Actual return on assets........................... (7,870) (3,170) (4,700) Net amortization and deferral 5,805 1,591 3,530 ------- ------ ------ Net periodic pension cost $ 1,151 1,523 2,881 ======= ====== ====== Assumptions used in the accounting are: Discount rates 7.5% 7.5% 7.5% Rates of annual increase in compensation levels 5.0% 5.2% 5.2% Expected long-term rate of return on assets 9.5% 9.5% 9.5% ======= ====== ====== </TABLE> F-14
The following table sets forth the assets and liabilities of the U.S. defined benefit pension plan and the Supplemental Retirement 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 ------------------- --------------- 1998 1997 1998 1997 ------- ------ ------ ------ <S> <C> <C> <C> <C> Actuarial present value of vested benefit obligation $20,883 28,431 4,894 2,759 ======= ====== ===== ===== Accumulated benefit obligation $21,086 28,715 4,902 2,932 ======= ====== ===== ===== Projected benefit obligation $23,042 31,463 6,594 3,982 Plan assets at fair value, primarily bonds and common stock 28,772 29,847 --- --- ------- ------ ------ ------ Projected benefit obligation in excess of (less than) plan assets (5,730) 1,616 6,594 3,982 Unrecognized net transitional obligation amortized over 15 years (39) (87) --- --- Unrecognized actuarial gain (loss) 5,376 680 (2,838) (1,672) Unrecognized prior service cost (414) (364) (753) (296) Adjustment required to recognize minimum liability --- --- 1,899 918 ------- ------ ------ ------ Net accrued pension liability (asset) $ (807) 1,845 4,902 2,932 ======= ====== ====== ====== </TABLE> During the fourth quarter of fiscal 1996 the company recorded as other expense an estimated curtailment charge of $3 million as a result of the removal of fleet personnel from the company's U.S. defined benefit pension plan. During the third quarter of fiscal 1998, the obligations related to the curtailment of the plan were settled and a gain on settlement of $1.2 million was recorded as other income. Beginning April 1, 1996 these employees removed from this defined benefit pension plan, along with all new employees of the company who are eligible for pension plan membership, were enrolled in a new defined contribution retirement plan. This plan is noncontributory by the employee, but the company contributes in cash 3% of an eligible employee's compensation to an employee benefit trust. The cost of the plan for fiscal 1998 and 1997 was $2.7 million and $2.3 million, respectively. During the fourth quarter of fiscal 1998, as a result of the sale of the company's compression division, the company recorded as part of the gain on sale of discontinued compression operations a pre-tax curtailment gain of $2.4 million resulting from the removal of all compression personnel from the U.S. defined benefit pension plan, the Supplemental Retirement Plan and the post- retirement health care and life insurance plan. 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. This plan is not funded. Net periodic postretirement health care and life insurance costs for 1998, 1997 and 1996 include the following components: <TABLE> <CAPTION> (in thousands) 1998 1997 1996 ------ ----- ----- <S> <C> <C> <C> Service cost - benefit earned during the period $1,255 928 743 Interest cost on accumulated postretirement benefit obligation 1,132 874 798 Other amortization and deferral (28) (207) (296) ------ ----- ----- Net periodic postretirement benefit cost $2,359 1,595 1,245 ====== ===== ===== </TABLE> F-15
The unfunded actuarially-determined liabilities for postretirement benefits at March 31 are as follows: <TABLE> <CAPTION> (in thousands) 1998 1997 ------- ------ <S> <C> <C> Actuarial present value of accumulated postretirement benefit obligation: Current retirees $ 5,483 5,110 Current employees eligible for benefits 1,124 1,274 Current employees not yet eligible for benefits 6,474 8,175 ------- ------ Total accumulated postretirement benefit obligation 13,081 14,559 Unrecognized prior service cost (914) (197) Unrecognized net gain 4,454 1,798 ------- ------ Accrued postretirement benefit cost $16,621 16,160 ======= ====== </TABLE> The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation will be 7% in 1999, gradually declining to 4% in the year 2005 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 $1.7 million at March 31, 1998 and change the cost for the year ended March 31, 1998 by $.4 million. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5% in 1998 and 1997. (8) OTHER ASSETS, OTHER LIABILITIES AND DEFERRED CREDITS A summary of other assets at March 31 follows: <TABLE> <CAPTION> (in thousands) 1998 1997 ------- ------ <S> <C> <C> Recoverable insurance losses $57,289 32,146 Assets held for sale 4,086 5,817 Deferred income tax assets 17,736 26,982 Other 10,769 9,678 ------- ------ $89,880 74,623 ======= ====== </TABLE> A summary of other liabilities and deferred credits at March 31 follows: <TABLE> <CAPTION> (in thousands) 1998 1997 ------- ------ <S> <C> <C> Postretirement benefit liability $16,621 16,160 Pension liability 4,095 4,777 Minority interests in net assets of subsidiaries 7,481 7,864 Noncurrent international and domestic taxes --- 8,313 Deferred vessel income 6,071 4,518 Provision for litigation and claims costs 7,889 --- Other 6,870 5,215 ------- ------ $49,027 46,847 ======= ====== </TABLE> (9) CAPITAL STOCK At March 31, 1998 and 1997, 125 million shares of $.10 par value common stock were authorized and 59,482,769 shares and 60,334,889 shares were issued and outstanding, respectively. At March 31, 1998 and 1997, three million shares of no par value preferred stock were authorized and unissued. 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, 1998, 4,423,105 shares of common stock are reserved for issuance under the plans of which 2,451,500 shares are available for future grants. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options have ten-year terms and most of the outstanding options vest and become exercisable in equal installments over a three-year period from the grant date. The per share weighted-average fair values of stock options granted during fiscal years 1998, 1997 and F-16
1996 were $17.69, $15.46 and $13.38, respectively, on the dates of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: <TABLE> <CAPTION> 1998 1997 1996 -------- -------- -------- <S> <C> <C> <C> Risk-free interest rate 5.75% 6.4% 6.2% Expected dividend yield 1.25% 1.25% 1.25% Expected stock price volatility 34.93% 32.57% 31.75% Expected stock option life 5 years 5 years 5 years ======= ======= ======= </TABLE> The company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the company's net earnings would have been reduced to the pro forma amounts as follows: <TABLE> <CAPTION> 1998 1997 1996 -------- ------- ------ <S> <C> <C> <C> Net earnings (in thousands): As reported $315,499 146,011 76,177 Pro forma $312,215 145,032 76,115 Earnings per common share: As reported $ 5.21 2.37 1.24 Pro forma $ 5.16 2.35 1.23 Diluted earnings per common share: As reported $ 5.18 2.35 1.23 Pro forma $ 5.13 2.34 1.22 ======== ======= ====== </TABLE> Pro forma net earnings and diluted earnings per common share reflect only options granted during fiscal years 1998, 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma amounts presented above because compensation cost is reflected over the options' vesting period of three years and compensation cost for options granted prior to April 1, 1995 is not considered. Stock option activity during 1998, 1997 and 1996 was as follows: <TABLE> <CAPTION> Weighted-average Number Exercise Price of Shares ---------------- ---------- <S> <C> <C> Balance at March 31, 1995 $18.29 1,593,298 Granted 38.61 284,000 Exercised 12.67 (182,967) Expired or cancelled 18.12 (27,826) ------ --------- Balance at March 31, 1996 22.38 1,666,505 Granted 43.49 520,000 Exercised 15.36 (269,177) Expired or cancelled 19.14 (4,225) ------ --------- Balance at March 31, 1997 29.11 1,913,103 Granted 49.19 762,000 Exercised 20.97 (620,054) Expired or cancelled 41.60 (94,984) ------ --------- Balance at March 31, 1998 $38.89 1,960,065 ====== ========= </TABLE> The 1,960,065 options outstanding at March 31, 1998 fall into three general exercise-price ranges as follows: <TABLE> <CAPTION> Exercise Price Range ----------------------------------------------- $10.00 - $19.63 $20.13 - $25.13 $35.75-$59.00 --------------- --------------- ------------- <S> <C> <C> <C> Options outstanding at March 31, 1998 231,950 316,089 1,412,026 Weighted average exercise price $ 17.52 $ 23.08 $ 45.94 Weighted average remaining contractual life 5.5 years 6.5 years 9.3 years Options exercisable at March 31, 1998 231,950 316,089 317,344 Weighted average exercise price of options exercisable at March 31, 1998 $ 17.52 $ 23.08 $ 41.84 =============== =============== ============= </TABLE> At March 31, 1998, 1997 and 1996, the number of options exercisable under the stock option plans was F-17
865,383, 940,579 and 771,125, respectively; and the weighted average exercise price of those options was $28.47, $21.51 and $17.43, respectively. In March 1998, 36,500 shares of restricted common stock of the company were granted to certain key employees. These restricted shares vest and become freely transferable over a four-year period provided the employee remains employed by the company during the vesting period. 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. The fair market value of the stock at the time of grant totaled approximately $1.6 million and was classified in stockholders' equity as deferred compensation restricted stock. The deferred amount is being amortized by equal monthly charges to earnings over the four-year vesting period. In accordance with a June 13, 1994 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. The restricted stock agreement contained provisions for vesting of the shares at varying intervals when the average market price of the common stock reaches certain predetermined levels. During the years ended March 31, 1998, 1997 and 1996, 20,000, 25,000 and 25,000 shares, respectively, vested due to the attainment of the three price levels applicable to those shares. The fair market value of the stock at the time of grant totaling approximately $1.6 million was classified in stockholders' equity as deferred compensation restricted stock. As a result of the vesting of the 70,000 shares over the last three fiscal years, by March 31, 1998 the total deferred amount had been charged to earnings. In accordance with a new employment agreement with the company's chairman of the board entered into on September 25, 1997, 50,000 shares of restricted common stock were granted on that date. These restricted shares also vest at varying intervals when the average market price of the common stock reaches certain predetermined levels. The fair market value of the stock at the time of grant totaling approximately $3 million was deferred and is being amortized by equal monthly charges to earnings over five years. During the third quarter of fiscal 1997 the Board of Directors authorized a share repurchase program whereby the company could purchase in the open market or through privately negotiated transactions up to $200 million of company common stock through March 31, 1998. The company expended during fiscal 1998 and 1997 a total of $150 million for the purchase of 3,269,100 common shares at an average cost of $45.88 per share, including broker commissions and fees. Fiscal 1998 purchases totaled $65.2 million for 1,481,000 shares and fiscal 1997 purchases totaled $84.8 million for 1,788,100 shares. During the fourth quarter of fiscal 1998 the Board of Directors authorized a new share repurchase program whereby the company may purchase up to an additional $200 million of company common stock through March 31, 1999. No shares had been purchased under this program as of March 31, 1998. 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 one-hundredth of a share of Series A Participating Preferred Stock at an exercise price of $160, subject to adjustment. The rights will not be exercisable unless a person (as defined in the plan) acquires beneficial ownership of 15% 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 15% or more of the outstanding common shares. The Board of Directors is authorized in certain circumstances to lower the beneficial ownership percentage to not less than 10%. If after the rights become exercisable a person becomes the beneficial owner of 15% or more of the outstanding common shares (except pursuant to an offer for all shares approved by the Board of 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 after a person becomes the beneficial owner of 15% or more of the outstanding common shares, 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. F-18
The rights may be redeemed for $.01 per right at any time prior to ten days following the acquisition by a person of 15% or more of the outstanding common shares. The rights expire on November 1, 2006. (10) COMMITMENTS AND CONTINGENCIES An employment agreement exists with the company's chairman of the board whereby he will serve in such capacity as well as president and chief executive officer through September 19, 2000. The terms of the employment agreement provide for an annual base salary and certain other benefits. Compensation continuation agreements exist with all other officers of Tidewater Inc. whereby each receives compensation and benefits in the event that their 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 $10.2 million. The amount that could be paid for certain benefits is not presently determinable. During fiscal 1997 the Internal Revenue Service (IRS) notified the company of proposed deficiencies aggregating approximately $17.5 million of additional income taxes resulting from audits of the company's income tax returns for the years ended March 31, 1993, 1994 and 1995. During the fourth quarter of fiscal 1998 the company and the IRS settled all outstanding issues regarding these audits with no additional taxes due. As a result of the settlement, the company reduced previously provided for income taxes in the amount of $3.3 million. The company is the defendant to several alleged labor-law pay violations claimed by certain current and former employees in various areas of the world where its marine vessel operations are conducted. During the fourth quarter of fiscal 1998 the company entered into an agreement to settle a majority of these claims, although such settlement is subject to court approval and other conditions. During the third quarter of fiscal 1998, the company provided $8 million for the possible adverse outcome of these labor-law matters. In management's opinion, the amount of the company's liability in excess of amounts provided in the financial statements for these labor-law matters, if any, will not have a material adverse effect on the company's financial position or the results of its ongoing operations. During the fourth quarter of fiscal 1997 the company recorded as other expense a charge of $2.8 million ($1.9 million after tax, or $.03 per common share) to establish a provision for loss resulting from one of the company's insurers filing for liquidation. 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 or results of its ongoing operations. F-19
(11) SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS With the sale of the company's Compression business as explained in Note 2, the company operates in only one business segment. The following table provides a comparison of revenues, operating profit, identifiable assets, and depreciation and amortization and additions to properties and equipment for the years ended March 31. <TABLE> <CAPTION> 1998 1997 1996 ------------ ---------- -------- <S> <C> <C> <C> Marine revenues (A): Owned and operated vessel fleet: United States $ 463,914 338,823 241,436 International (B) 537,737 322,401 264,744 ---------- --------- ------- 1,001,651 661,224 506,180 Brokered vessels, shipyard and other 58,510 29,202 26,022 ---------- --------- ------- $1,060,161 690,426 532,202 ========== ========= ======= Marine operating profit (loss): Owned and operated vessel fleet: United States $ 225,599 120,275 46,839 International 141,133 82,591 60,291 ---------- --------- ------- 366,732 202,866 107,130 Gains from asset sales 16,592 5,352 6,930 Brokered vessels, shipyard and other 10,663 4,186 4,849 ---------- --------- ------- 393,987 212,404 118,909 Other income 7,079 6,705 5,436 Other expense (6,847) (2,800) (12,600) Corporate expenses (13,074) (11,235) (9,541) Interest and other debt costs (24,677) (1,000) (2,176) ---------- --------- ------- Earnings from continuing operations before income taxes $ 356,468 204,074 100,028 ========== ========= ======= Identifiable assets: Marine: United States $ 379,118 376,380 349,554 International (B) 1,043,781 334,005 269,704 ---------- --------- ------- 1,422,899 710,385 619,258 Investments in and advances to unconsolidated Marine companies 21,825 20,556 35,861 ---------- --------- ------- 1,444,724 730,941 655,119 Net assets of discontinued Compression operations --- 253,305 271,664 General corporate 48,115 77,034 47,627 ---------- --------- ------- $1,492,839 1,061,280 974,410 ========== ========= ======= Depreciation and amortization: Marine equipment depreciation $ 83,002 55,569 54,961 General corporate depreciation 406 368 400 Goodwill amortization 8,002 --- --- ---------- --------- ------- $ 91,410 55,937 55,361 ========== ========= ======= Additions to properties and equipment: Marine equipment operations $ 62,555 40,003 40,994 Discontinued Compression operations 17,597 17,949 5,108 General corporate 2,349 50 14 ---------- --------- ------- $ 82,501 58,002 46,116 ========== ========= ======= </TABLE> (A) One marine customer accounted for 11%, 11% and 12% of revenues for the fiscal years ended March 31, 1998, 1997 and 1996, respectively. (B) Marine support services 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 $795.1 million, $211.5 million and $148.0 million at March 31, 1998, 1997 and 1996, respectively. Other international identifiable assets include accounts receivable and other balances denominated in currencies other than the U.S. dollar which aggregate approximately $19.1 million, $6.7 million and $8.5 million at March 31, 1998, 1997 and 1996, respectively. These amounts are subject to the usual risks of fluctuating exchange rates and government-imposed exchange controls. F-20
(12) SUPPLEMENTARY INFORMATION--QUARTERLY FINANCIAL DATA (UNAUDITED) Years Ended March 31, 1998 and 1997 (in thousands, except per share data) <TABLE> <CAPTION> 1998 First Second Third Fourth - ---- ------- -------- ------- ------- <S> <C> <C> <C> <C> Marine revenues $230,440 270,413 280,697 278,611 ======== ======= ======= ======= Marine operating profit $ 78,774 104,382 115,638 95,193 ======== ======= ======= ======= Earnings from continuing operations $ 48,136 61,053 70,298 63,551 Earnings from discontinued operations 2,625 3,276 3,661 1,161 Gain on sale of discontinued operations --- --- --- 61,738 -------- ------- ------- ------- Net earnings $ 50,761 64,329 73,959 126,450 ======== ======= ======= ======= Earnings per share: Continuing operations $ 0.80 1.01 1.15 1.05 Discontinued operations 0.04 0.05 0.06 .02 Gain on sale of discontinued operations --- --- --- 1.02 -------- ------- ------- ------- Net earnings $ 0.84 1.06 1.21 2.09 ======== ======= ======= ======= Diluted earnings per share: Continuing operations $ 0.80 1.01 1.15 1.05 Discontinued operations 0.04 0.05 0.06 .02 Gain on sale of discontinued operations --- --- --- 1.01 -------- ------- ------- ------- Net earnings $ 0.84 1.06 1.21 2.08 ======== ======= ======= ======= 1997 - ---- Marine revenues $146,639 167,691 184,133 191,963 ======== ======= ======= ======= Marine operating profit $ 34,045 46,338 62,312 69,709 ======== ======= ======= ======= Earnings from continuing operations $ 22,164 31,239 41,132 43,700 Earnings from discontinued operations 2,206 1,713 2,038 1,819 -------- ------- ------- ------- Net earnings $ 24,370 32,952 43,170 45,519 ======== ======= ======= ======= Earnings per share: Continuing operations $ 0.36 0.50 0.66 0.72 Discontinued operations 0.03 0.03 0.04 0.03 -------- ------- ------- ------- Net earnings $ 0.39 0.53 0.70 0.75 ======== ======= ======= ======= Diluted earnings per share: Continuing operations $ 0.36 0.50 0.66 0.71 Discontinued operations 0.03 0.03 0.03 0.03 -------- ------- ------- ------- Net earnings $ 0.39 0.53 0.69 0.74 ======== ======= ======= ======= </TABLE> Operating profit consists of revenues less operating costs and expenses, depreciation, general and administrative expenses and other income and expenses of the Marine division. See Notes 2, 3, 7 and 10 for detailed information regarding transactions which affect fiscal 1998 and 1997 quarterly amounts. F-21
SCHEDULE II TIDEWATER INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1998, 1997, AND 1996 (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 ----------- ----------- --------- ---------- -------- <S> <C> <C> <C> <C> 1998 Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $10,330 3,992 244 (A) 14,078 ======= ===== ==== ====== Deducted in balance sheet from other assets: Amortization of goodwill, prepaid rent and debt issuance costs $ 3,028 9,191 --- 12,219 ======= ===== ==== ====== 1997 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 7,866 3,148 684 (A) 10,330 ======= ===== ==== ====== Deducted in balance sheet from other assets: Amortization of prepaid rent and debt issuance costs $ 2,292 736 --- 3,028 ======= ===== ==== ====== 1996 Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $ 8,934 --- 1,068 (A) 7,866 ======= ===== ===== ====== Deducted in balance sheet from other assets: Amortization of prepaid rent and debt issuance costs $ 1,580 712 --- 2,292 ======= ===== ==== ====== </TABLE> (A) Accounts receivable amounts considered uncollectible and removed from accounts receivable by reducing allowance for doubtful accounts. F-22
TIDEWATER INC. EXHIBITS FOR THE ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED MARCH 31, 1998
EXHIBIT INDEX 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 September 19, 1996 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 1 to Form 8-A on September 30, 1996). 10(a)- $600,000,000 Revolving Credit and Term Loan Agreement dated March 19, 1997 (filed with the Commission as Exhibit 10(a) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 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 (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, 1996).
10(k)- Change in Control Agreement dated September 30, 1996 between Tidewater Inc. and William C. O'Malley (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, 1997). 10(l)- Form of Change in Control Agreement entered into as of September 30, 1996 with four executive officers (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, 1997). 10(m)- Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as Exhibit 10(m) to the company annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(n)- Employment Agreement dated September 25, 1997 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 10-Q for the quarter ended September 30, 1997). *10(o)-Tidewater Inc. 1997 Stock Incentive Plan. *21- Subsidiaries of the company. *23- Consents of Independent Auditors. *27- Financial Data Schedules. 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.