SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Quarterly Period Ended September 30, 2001 ------------------ [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Transition Period From to --------------------- ------------------------------- Commission file number 1-6311 TIDEWATER INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 72-0487776 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 601 Poydras Street, Suite 1900, New Orleans, Louisiana 70130 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 568-1010 ---------------------------- -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or of such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- 56,095,113 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on October 15, 2001. Excluded from the calculation of shares outstanding at October 15, 2001 are 4,448,554 shares held by the Registrant's Grantor Stock Ownership Trust. Registrant has no other class of common stock outstanding.
PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> ---------------------------------------------------------------------------------------------- September 30, March 31, ASSETS 2001 2001 ---------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 36,275 95,153 Trade and other receivables 183,606 160,677 Marine operating supplies 30,100 28,632 Other current assets 3,191 4,125 ---------------------------------------------------------------------------------------------- Total current assets 253,172 288,587 ---------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 15,286 16,544 Properties and equipment: Vessels and related equipment 1,776,090 1,613,604 Other properties and equipment 42,694 42,837 ---------------------------------------------------------------------------------------------- 1,818,784 1,656,441 Less accumulated depreciation 878,423 884,765 ---------------------------------------------------------------------------------------------- Net properties and equipment 940,361 771,676 ---------------------------------------------------------------------------------------------- Goodwill, net 328,754 328,836 Other assets 104,817 99,849 ---------------------------------------------------------------------------------------------- Total assets $ 1,642,390 1,505,492 ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY ---------------------------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued expenses 70,443 68,426 Accrued property and liability losses 7,981 6,825 Income taxes 16,325 8,336 ---------------------------------------------------------------------------------------------- Total current liabilities 94,749 83,587 ---------------------------------------------------------------------------------------------- Long-term debt 60,000 --- Deferred income taxes 164,267 155,744 Accrued property and liability losses 36,329 38,682 Other liabilities and deferred credits 49,084 49,139 Stockholders' equity: Common stock of $.10 par value, 125,000,000 shares authorized, issued 60,543,667 shares at September and 60,543,181 shares at March 6,054 6,055 Other stockholders' equity 1,231,907 1,172,285 ---------------------------------------------------------------------------------------------- Total stockholders' equity 1,237,961 1,178,340 ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,642,390 1,505,492 ============================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -2-
TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share and per share data) <TABLE> <CAPTION> -------------------------------------------------------------------------------------------------------------------------- Quarter Ended Six Months Ended September 30, September 30, ------------------------- ------------------------ 2001 2000 2001 2000 -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Vessel revenues $ 184,096 135,642 371,910 260,947 Other marine revenues 3,167 10,495 5,916 22,074 -------------------------------------------------------------------------------------------------------------------------- 187,263 146,137 377,826 283,021 -------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Vessel operating costs 96,878 88,304 193,704 176,255 Costs of other marine revenues 2,041 8,066 3,573 17,309 Depreciation and amortization 19,412 19,455 38,593 38,526 General and administrative 16,997 16,337 32,749 32,277 -------------------------------------------------------------------------------------------------------------------------- 135,328 132,162 268,619 264,367 -------------------------------------------------------------------------------------------------------------------------- 51,935 13,975 109,207 18,654 Other income (expenses): Foreign exchange loss (473) (139) (1,125) (62) Gain on sales of assets 187 19,360 241 20,324 Equity in net earnings of unconsolidated companies 1,443 1,693 2,942 4,035 Minority interests (269) 24 (93) (172) Interest and miscellaneous income 866 4,661 1,855 8,953 Interest and other debt costs (160) (163) (360) (324) --------------------------------------------------------------------------------------------------------------------------- 1,594 25,436 3,460 32,754 -------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 53,529 39,411 112,667 51,408 Income taxes 18,200 13,114 38,307 16,953 -------------------------------------------------------------------------------------------------------------------------- Net earnings $ 35,329 26,297 74,360 34,455 ========================================================================================================================== Earnings per common share $ .63 .47 1.33 .62 ========================================================================================================================== Diluted earnings per common share $ .63 .47 1.32 .61 ========================================================================================================================== Weighted average common shares outstanding 56,022,155 55,673,269 56,010,341 55,644,550 Incremental common shares from stock options 252,822 468,207 391,666 442,589 -------------------------------------------------------------------------------------------------------------------------- Adjusted weighted average common shares 56,274,977 56,141,476 56,402,007 56,087,139 ========================================================================================================================== Cash dividends declared per common share $ .15 .15 .30 .30 ========================================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -3-
TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> -------------------------------------------------------------------------------------------------------------- Quarter Ended Six Months Ended September 30, September 30, ---------------------- -------------------- 2001 2000 2001 2000 -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net cash provided by operating activities $ 72,380 23,752 107,075 57,580 -------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 5,215 39,272 6,452 42,026 Additions to properties and equipment (107,191) (37,197) (216,816) (43,807) Other --- --- 195 (23) -------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (101,976) 2,075 (210,169) (1,804) ============================================================================================================== Cash flows from financing activities: Credit facility borrowings 60,000 --- 60,000 --- Proceeds from issuance of common stock 223 1,431 1,038 2,263 Cash dividends (8,411) (8,359) (16,821) (16,715) Other --- --- (1) --- -------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 51,812 (6,928) 44,216 (14,452) -------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 22,216 18,899 (58,878) 41,324 Cash and cash equivalents at beginning of period 14,059 249,335 95,153 226,910 -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 36,275 268,234 36,275 268,234 ============================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 485 128 596 129 Income taxes $ 7,860 4,615 19,874 8,386 ============================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -4-
TIDEWATER INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) Interim Financial Statements The consolidated financial information for the interim periods presented herein has not been audited by independent accountants, but in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated balance sheets and the condensed consolidated statements of earnings and cash flows at the dates and for the periods indicated have been made. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. (2) Stockholders' Equity At September 30, 2001 and March 31, 2001, 4,451,560 and 4,506,962 shares, respectively, of common stock were held in a grantor stock ownership plan trust for the benefit of stock-based employee benefits programs. These shares are not included in common shares outstanding for earnings per share calculations and transactions between the company and the trust, including dividends paid on the company's common stock, are eliminated in consolidating the accounts of the trust and the company. (3) Income Taxes Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The effective tax rate applicable to pre-tax earnings was 34% for the quarter and six-month period ended September 30, 2001. The effective tax rate applicable to pre-tax earnings for the quarter and six-month period ended September 30, 2000 was 33.3% and 33.0%, respectively. (4) New Accounting Pronouncements Effective April 1, 2001, the company adopted Statement of Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities," that amends certain provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The pronouncements require that all derivatives be recognized as either assets or liabilities and measured at fair value. The adoption of SFAS No. 133, as amended, did not have a material impact on the company's financial statements. In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes a new method of testing goodwill for impairment using a fair-value-based approach and does not permit amortization of goodwill as previously required by Accounting Principles Board (APB) Opinion No. 17, "Intangible Assets." An impairment loss would be recorded if the recorded goodwill exceeds its implied fair value. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, early adoption is allowed for companies with fiscal years beginning after March 15, 2001 provided the first quarter financial statements have not been previously issued. The company elected to adopt SFAS No. 142 effective April 1, 2001 and, accordingly, no goodwill amortization was recorded during fiscal 2002. The company completed its transitional goodwill impairment test within six months of adopting SFAS No. 142 as required and the test determined there is no goodwill impairment. The transitional impairment test requires fair value be tested as of the first day of the company's fiscal year and therefore the fair value of the reporting unit was determined using carrying amounts as of April 1, 2001. The company will perform its annual impairment test on December 31. Interim testing will be performed when an event occurs or circumstances indicate that the carrying amount of goodwill may be -5-
impaired. Goodwill amortization on a pre-tax basis for the quarter and six-month period ended September 30, 2001 would have been $2.3 million and $4.6 million, respectively, or $.03 per share and $.05 per share after tax, respectively, had the company not adopted SFAS No. 142. For the quarter and six-month period ended September 30, 2000, pre-tax goodwill amortization amounted to $2.3 million and $4.6 million, respectively, or $.03 per share and $.05 per share after tax, respectively. Also in July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement will have no impact on the company's financial statements. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The company does not anticipate any financial statement impact with the adoption of this statement. -6-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders Tidewater Inc. We have reviewed the accompanying condensed consolidated balance sheet of Tidewater Inc. and subsidiaries as of September 30, 2001, and the related condensed consolidated statements of earnings and cash flows for the three-month and six-month periods ended September 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Tidewater Inc. and subsidiaries as of March 31, 2001, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended, not presented herein, and in our report dated April 23, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP New Orleans, Louisiana October 17, 2001 -7-
Item 2. Management's Discussion and Analysis The company provides services to the global offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related disclosures. 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 this Quarterly Report on Form 10-Q which provide other than historical information and which are forward looking, involve risks and uncertainties that may impact the company's actual results of operations. The company faces many risks and uncertainties, many of which are beyond the control of the company, including: fluctuations in oil and gas prices; level of fleet additions by competitors; 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 fluctuations; and environmental and labor laws. Readers should consider all of these risk factors as well as other information contained in this report. MARINE OPERATIONS ----------------- Offshore service vessels provide a diverse range of services and equipment to the energy industry. Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally when revenue changes. Operating costs 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 customer demands, 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 the impact on vessel operations and are only done if economically justified, given the vessel's age and physical condition. -8-
The following table compares revenues and operating costs (excluding general and administrative expense and depreciation expense) for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 2001. Vessel revenues and operating costs relate to vessels owned and operated by the company while other marine services relate to third-party activities of the company's shipyards, brokered vessels and other miscellaneous marine-related activities. <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------------------ --------------------- ----------- (In thousands) 2001 2000 2001 2000 2001 --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Vessel revenues: United States $ 59,252 44,807 128,254 81,310 69,002 International 124,844 90,835 243,656 179,637 118,812 --------------------------------------------------------------------------------------------------------- 184,096 135,642 371,910 260,947 187,814 Other marine revenues 3,167 10,495 5,916 22,074 2,749 --------------------------------------------------------------------------------------------------------- $ 187,263 146,137 377,826 283,021 190,563 ========================================================================================================= Operating costs: Vessel operating costs: Crew costs $ 52,395 45,986 102,920 89,351 50,525 Repair and maintenance 20,064 24,190 44,702 50,078 24,638 Insurance 6,008 4,718 10,701 9,687 4,693 Fuel, lube and supplies 7,780 6,711 15,551 12,823 7,771 Other 10,631 6,699 19,830 14,316 9,199 --------------------------------------------------------------------------------------------------------- 96,878 88,304 193,704 176,255 96,826 Costs of other marine revenues 2,041 8,066 3,573 17,309 1,532 --------------------------------------------------------------------------------------------------------- $ 98,919 96,370 197,277 193,564 98,358 ========================================================================================================= </TABLE> Marine support services are conducted worldwide with assets that are highly mobile. Revenues are principally derived from offshore service vessels, which regularly and routinely move from one operating area to another, often to and from offshore operating areas in different continents. Because of this asset mobility, revenues and long-lived assets attributable to the company's international marine operations in any one country are not "material" as that term is defined by SFAS No. 131. As a result of the uncertainty of certain customers to make payment of vessel charter hire, the company has deferred the recognition of approximately $8.1 million of billings as of September 30, 2001 ($7.0 million of billings as of March 31, 2001), which would otherwise have been recognized as revenue. The company will recognize the amounts as revenue as cash is collected or at such time as the uncertainty has been significantly reduced. Domestic results of operations for the first half of fiscal 2002 benefited from increased average day rates; however, current quarter domestic results of operations felt the impact of reduced natural gas drilling activity in the U.S. Gulf of Mexico as a result of lower natural gas prices. Natural gas prices began softening at the end of the first quarter of fiscal 2002 on the news that inventory levels for the resource were increasing. Prices continued to decrease throughout the current quarter as moderate summer weather and continued economic slowdowns in the U.S. and globally reduced natural gas demands, consequently applying even more downward pressure on gas prices. Possibly aggravating the delicate supply/demand equation is the effect the terrorist attacks on New York City and Washington D.C. on September 11, 2001 will have on the U.S. economy. Economic forecasters believe the terrorist attacks may have accelerated the downturn in the U.S. economy, thus possibly reducing energy demands further and perhaps delaying or eliminating the potential for a rapid recovery in natural gas prices. Throughout the current quarter exploration and production companies in the U.S. Gulf of Mexico, cautious over the decrease in the commodity prices for -9-
natural gas, have eased their capital investments as evidenced by the significant drop in offshore rig fleet utilization rates. Although there is uncertainty in the market, leading energy analysts believe exploration and production capital spending will increase and expect the natural gas market to self-correct by mid-2002. Vessel demand in the domestic market is primarily driven by natural gas exploration and production and at present, it is unknown what effect and the extent of the effect, the current softening in natural gas prices and the state of the global economic environment will have on demand for the company's vessels in the domestic market. International results of operations for the first half of fiscal 2002 also benefited from increases in average day rates. International vessel demand is primarily driven by crude oil production, and at present time crude oil commodity prices are strong and it is unknown what effect, if any, the terrorist attacks will have on long-term crude oil commodity prices. International exploration and production spending is expected to continue to increase which should strengthen international vessel demand. Marine operating profit and other components of earnings before income taxes for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 2001 consist of the following: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, -------------------- -------------------------------- ---------- (In thousands) 2001 2000 2001 2000 2001 ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Vessel activity: United States $ 19,023 420 47,861 (5,055) 28,838 International 34,829 14,559 65,166 26,775 30,337 ------------------------------------------------------------------------------------------------------------------- 53,852 14,979 113,027 21,720 59,175 Gain on sales of assets 187 19,360 241 20,324 54 Other marine services 1,015 2,306 2,143 4,536 1,128 ------------------------------------------------------------------------------------------------------------------- Operating profit 55,054 36,645 115,411 46,580 60,357 ------------------------------------------------------------------------------------------------------------------- Equity in net earnings of unconsolidated companies 1,443 1,693 2,942 4,035 1,499 Interest and other debt costs (160) (163) (360) (324) (200) Corporate general and administrative (3,381) (3,576) (6,635) (6,887) (3,254) Other income 573 4,812 1,309 8,004 736 ------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 53,529 39,411 112,667 51,408 59,138 =================================================================================================================== </TABLE> U.S.-based vessel revenues for the quarter and six-month period ended September 30, 2001 increased 32% and 58%, respectively, as compared to the same periods in fiscal 2001 as a result of higher average day rates. Average day rates increased due to stronger demand for the company's vessels in the U.S. Gulf of Mexico. Average day rates for the towing supply/supply vessels, the company's major income producing asset in the domestic market, increased by approximately 66% for the current quarter as compared to the same period in fiscal 2001 and increased approximately 79% for the current six-month period as compared to the same period in fiscal 2001. Utilization rates for the towing-supply/supply vessels decreased 6% for the current quarter as compared to the same period in fiscal 2001 as a result of the current softening in the domestic market. Utilization for the towing-supply/supply vessels for the current six-month period ended September 30, 2001 increased 10% as compared to the same period in fiscal 2001. U.S.-based operating profit for the quarter and six-month period ended September 30, 2001 increased significantly as compared to the same periods in fiscal 2001 primarily due to higher vessel revenues and lower repair and maintenance costs. Repair and maintenance costs decreased during the comparative periods as a result of fewer domestic drydockings being performed. The company incurred high repair and maintenance cost during the first two quarters of fiscal 2001 as a result of an intense drydocking program the company initiated while vessel demand and average day rates in -10-
the domestic market were not fully recovered in order to ready its equipment for the expected increase in demand for its vessels when market conditions in the U.S. Gulf of Mexico improved. Current quarter U.S.-based vessel revenues decreased 14% as compared to the previous quarter as a result of lower average day rates and utilization resulting from the current softening in the U.S. Gulf of Mexico natural gas market. As of September 30, 2001, the towing supply/supply vessels operating in the U.S. Gulf of Mexico are experiencing approximately $7,000 average day rates and 50% utilization. U.S.-based operating profit for the current quarter decreased approximately 34% as compared to the prior quarter due to lower revenues. International-based vessel revenues for the quarter and six-month period ended September 30, 2001 increased 37% and 36%, respectively, from the comparative periods in fiscal 2001 as a result of higher average day rates and an increase in the number of active vessels in the international-based fleet. Vessel demand in the international markets continues to remain strong as international drilling activity continues to recover from the curtailment in oil industry capital investment as a result of the drop in oil prices that commenced in the fall of 1997. The number of active vessels in the international-based fleet increased due to an aggressive deepwater vessel acquisition program that began during the second quarter of fiscal 2001. Sixteen deepwater vessels have been purchased to date, seven of which are fulfilling bareboat contractual obligations that existed at the time the vessels were purchased. The bareboat charter agreements on these seven vessels will expire at various times over the next two years with the option to extend certain contracts for another two years. In a bareboat charter agreement, the bareboat charterer leases a vessel for a pre-arranged fee and is able to market the vessel and is also responsible for providing the crew and all other operating costs related to the vessel. For the vessels that Tidewater has under bareboat contracts, only revenue and depreciation expense is recorded related to the vessels' activity. As Tidewater incurs no operating costs related to the vessels, the related bareboat day rates are less than comparable vessels operating under normal charter hire agreements. For the quarter and six-month period ended September 30, 2001 and for the quarter ended June 30, 2001, the seven bareboat chartered deepwater vessels experienced 100% utilization for each respective period and average day rates of approximately $6,100, $6,150 and $6,200, respectively. International-based vessel operating profit for the quarter and six-month period ended September 30, 2001 increased approximately 139% and 143%, respectively, from the comparative periods in fiscal 2001 due to an increase in revenues. Revenues increased as a result of an increase in the number of active vessels in the international fleet and also as a result of improved average day rates. Current quarter international-based vessel revenues increased 5% as compared to the previous quarter as a result of higher average day rates. Current quarter operating profit increased 15% as compared to the prior quarter due to higher revenues. In September 2001, the company withdrew from active service 20 older little-used vessels at which time they were removed from the utilization statistics. Nine vessels were withdrawn from the domestic market and 11 were withdrawn from the international market. Vessels withdrawn from active service are intended to be sold. Vessel utilization rates are a function of vessel days worked and vessel days available for active vessels only. Current quarter gain on sales of assets includes a $1.6 million gain from the sale of the company's interest in its consolidated marine joint venture, Maritide Offshore Oil Services Company S.A.E. in August 2001 for approximately $3.5 million. Also included in gain on sales of assets is a gain of approximately $1.1 million from vessel sales. The current quarter gain was offset by a $2.5 million writedown in the carrying values of certain vessels that were withdrawn from active service and held for sale. The writedown is a result of reviewing the recoverability of the carrying values of the vessels that were withdrawn from active service. Gain on sales of assets for the six-month period -11-
ended September 30, 2000 included a $16.8 million gain resulting from the sale of the company's 40% holding in its marine joint venture, National Marine Service. Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created through the level of offshore exploration, development and production spending by energy companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The day based utilization percentages and average day rates tables include a new vessel class category for the deepwater vessel fleet. Included in this class are large platform supply vessels and large, high-horsepowered anchor-handling towing supply vessels that are capable of operating in deepwater markets globally. The deepwater vessel fleet statistics for the prior year were included in the towing-supply/supply vessel class statistics. Accordingly, prior year's towing-supply/supply vessel class statistics have been restated to exclude the effect of the deepwater vessels. The following tables compare day-based utilization percentages and average day rates by vessel class and in total for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 2001: -12-
<TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ------------------ ----------------- ---------- 2001 2000 2001 2000 2001 ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> UTILIZATION: ----------- Domestic-based fleet: -------------------- Deepwater vessels 100.0% 100.0 100.0 99.3 100.0 Towing-supply/supply 59.3 63.3 65.4 59.7 71.5 Crew/utility 93.2 89.2 92.3 88.1 91.4 Offshore tugs 42.6 40.6 40.3 37.1 38.1 Other 47.7 23.9 35.4 27.3 22.0 Total 61.1% 61.7 63.9 58.8 66.7 International-based fleet: ------------------------- Deepwater vessels 92.5% 81.4 94.1 76.2 95.6 Towing-supply/supply 77.3 75.4 75.9 76.2 74.5 Crew/utility 84.0 91.5 86.3 92.7 88.7 Offshore tugs 70.1 67.3 70.5 67.0 70.9 Other 56.0 47.0 51.3 44.7 46.9 Total 76.8% 74.1 76.0 74.3 75.2 Worldwide fleet: --------------- Deepwater vessels 93.1% 86.6 94.5 82.9 96.0 Towing-supply/supply 70.7 70.8 72.1 69.7 73.4 Crew/utility 86.9 90.7 88.3 91.1 89.6 Offshore tugs 58.4 55.0 57.6 53.4 56.9 Other 54.0 42.0 47.6 41.0 41.5 Total 71.4% 69.4 71.9 68.4 72.3 ----------------------------------------------------------------------------------------------- AVERAGE VESSEL DAY RATES: ------------------------ Domestic-based fleet: -------------------- Deepwater vessels $ 11,774 11,643 11,768 11,633 11,756 Towing-supply/supply 7,042 4,248 7,119 3,969 7,181 Crew/utility 2,948 2,197 2,893 2,123 2,838 Offshore tugs 7,467 5,927 7,795 6,062 8,160 Other 1,467 1,643 1,456 1,455 1,427 Total $ 6,088 4,169 6,271 3,962 6,437 International-based fleet: ------------------------- Deepwater vessels $ 10,778 8,954 10,357 8,278 9,936 Towing-supply/supply 5,971 4,981 5,874 4,983 5,774 Crew/utility 2,479 2,246 2,431 2,242 2,385 Offshore tugs 4,682 4,224 4,740 4,017 4,799 Other 1,070 1,318 1,014 1,463 953 Total $ 5,346 4,245 5,255 4,209 5,163 Worldwide fleet: --------------- Deepwater vessels $ 10,864 9,827 10,477 9,445 10,091 Towing-supply/supply 6,299 4,727 6,287 4,644 6,276 Crew/utility 2,640 2,229 2,588 2,201 2,537 Offshore tugs 5,541 4,804 5,651 4,664 5,765 Other 1,155 1,357 1,090 1,461 1,007 Total $ 5,565 4,220 5,566 4,129 5,568 ============================================================================================= </TABLE> -13-
The following table compares the average number of vessels by class and geographic distribution for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 2001: <TABLE> <CAPTION> Quarter Actual Vessel Quarter Ended Six Months Ended Ended Count At September 30, September 30, June 30, ----------------- ------------------ --------- Sept. 30, 2001 2001 2000 2001 2000 2001 ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Domestic-based fleet: -------------------- Deepwater vessels 2 2 3 2 3 2 Towing-supply/supply 103 109 118 111 120 112 Crew/utility 35 24 26 24 26 25 Offshore tugs 28 29 33 30 33 30 Other 9 9 9 8 9 8 ---------------------------------------------------------------------------------------------------- Total 177 173 189 175 191 177 ---------------------------------------------------------------------------------------------------- International-based fleet: ------------------------- Deepwater vessels 24 23 8 23 7 23 Towing-supply/supply 183 189 187 191 187 194 Crew/utility 51 52 48 51 48 50 Offshore tugs 40 40 38 40 39 40 Other 25 26 33 28 33 29 ---------------------------------------------------------------------------------------------------- Total 323 330 314 333 314 336 ---------------------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 500 503 503 508 505 513 Vessels held for sale 45 34 48 33 50 32 Joint-venture and other 28 28 34 28 42 28 ------------------------------------------------------------------------------------------------------ Total 573 565 585 569 597 573 ====================================================================================================== </TABLE> The above table includes a new vessel class for the deepwater vessel fleet. Prior year's vessel averages for the deepwater vessel fleet were reported with the towing-supply/supply class; and accordingly, the average number of vessels for the towing-supply/supply class have been restated to exclude the effect of the deepwater vessel fleet. In September 2001 the company withdrew from active service 20 older little-used vessels, primarily towing-supply/supply vessels, at which time they were removed from the utilization statistics. Nine vessels were withdrawn from the domestic market and 11 were withdrawn from the international market. The company's sale of its interest in its consolidated marine joint venture, Maritide Offshore Oil Services Company S.A.E. resulted in a decrease of five international towing-supply/supply vessels. During the first half of fiscal 2002, the company sold or scrapped 11 vessels. On September 30, 2001 the company purchased 10 large crewboat vessels which are included in the domestic-based fleet. During the second quarter of fiscal 2001, the company sold its 40% holding in its unconsolidated marine joint venture, National Marine Service. As a result of the sale, the joint venture vessel count decreased by 24 vessels. During the third quarter of fiscal 2001, the company sold four vessels to its 40%-owned unconsolidated joint venture, Sonatide Marine, Ltd. In addition, throughout fiscal 2001, the company sold or scrapped a total of 37 vessels. -14-
General and administrative expenses for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 2001 were as follows: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ----------------- ---------------- ---------- (In thousands) 2001 2000 2001 2000 2001 ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 9,930 10,052 19,375 20,142 9,445 Office and property 2,798 2,758 5,526 5,482 2,728 Sales and marketing 1,273 1,079 2,450 2,198 1,177 Professional services 1,656 1,144 2,924 1,994 1,268 Other 1,340 1,304 2,474 2,461 1,134 ----------------------------------------------------------------------------------- $ 16,997 16,337 32,749 32,277 15,752 =================================================================================== </TABLE> General and administrative expenses for the quarter and six-month period ended September 30, 2001 were comparable to the same periods in fiscal 2001 and were slightly higher than the previous period. 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 present financing requirements. At September 30, 2001, $140 million of the company's $200 million revolving line of credit was available for future financing needs. Continued payment of dividends, currently $.15 per quarter per common share, is subject to declaration by the Board of Directors. Net cash provided by operating activities for any period will fluctuate according to the level of business activity for the applicable period. For the six months ended September 30, 2001, net cash from operating activities was $107.1 million as compared to $57.6 million for the six months ended September 2000. Even though earnings were higher for the six months ended September 30, 2001 as compared to the same period in fiscal year 2001, accounts receivable balances were also higher as a result of revenue growth. Investing activities for the six months ended September 30, 2001 used $210.1 million of cash which included $6.5 million from proceeds from the sale of assets, primarily the sale of the company's interest in its consolidated marine joint venture, Maritide Offshore Oil Services Company S.A.E. Sale proceeds were offset by additions to properties and equipment which was comprised of approximately $8.1 million in capitalized repairs and maintenance and $208.2 million for the construction of offshore marine vessels and the acquisition of two deepwater anchor-handling towing supply vessels and 10 large crewboats. Investing activities for the six months ended September 30, 2000 used $1.8 million of cash which included $42 million of proceeds from the sale of assets, primarily the sale of the company's 40% holding in National Marine Service, that were offset by additions to properties and equipment totaling $43.8 million which were comprised of approximately $6 million in capitalized repairs and maintenance and $36.4 million for the construction of offshore marine vessels and the acquisition of one platform supply vessel. Financing activities for the six months ended September 30, 2001 and 2000 included $16.8 million and $16.7 million, respectively, of cash for quarterly cash dividends of $.15 per share. -15-
On January 10, 2001 the company entered into agreements with three shipyards for the construction of 12 vessels. The new-build program was initiated in order to better service the needs of the company's customers in the deepwater markets of the world. Seven of the vessels to be constructed are large platform supply vessels and five are large anchor-handling towing supply vessels capable of working in most deepwater markets of the world. Four of the platform supply vessels are being constructed at the company's shipyard, Quality Shipyards LLC, while the remaining eight vessels are being constructed at two Far East shipyards. The four vessels being constructed at Quality Shipyards LLC are being built to full Jones Act compliance. As of September 30, 2001, $116.8 million has been expended on these 12 vessels of the total $318 million commitment to the shipyards. Scheduled delivery of the vessels will commence in January 2002 with final delivery of the last vessel expected in January 2003. The company is financing the new-build program from its current cash balances, its projected cash flow and its revolving line of credit. During the current quarter the company borrowed $60 million from its revolving line of credit to help finance the new-build program. The company is capitalizing interest costs incurred on the funds used to construct the new-build vessels. Interest and debt costs incurred net of interest capitalized for the quarter and six-month period ended September 30, 2001 was approximately $160,000 and $360,000, respectively. Interest costs capitalized for the current quarter was approximately $285,000. In addition to the new-build program discussed above, the company has committed to the construction of three platform supply vessels, one 135-foot crewboat and four 175-foot crewboats for approximately $65 million. Seven of the vessels are being built at U.S. shipyards and one platform supply vessel is being built in Brazil. Scheduled delivery of the three platform supply vessels is expected to commence in October 2002 with final delivery in December 2002. The expected delivery date of the 135-foot crewboat is January 2002. Scheduled delivery of the four 175-foot crewboats is expected to commence in October 2002 with final delivery of the last vessel in October 2003. As of September 30, 2001, $5.3 million has been expended on these vessels. On September 30, 2001 the company also committed to the construction of four 162-foot crewboats to be delivered from a domestic shipyard in May and August of 2002 and May and September of 2003 for a total of $18.6 million. No amounts have been expended on these vessels as the total purchase price is due upon delivery of the vessels. 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. The company is exposed to possible currency fluctuations related to its commitment to construct three of its new-build platform supply vessels at a Singapore shipyard. The company is required, per the construction agreements, to make all payments in Singapore dollars and is currently exposed to possible currency fluctuations on the remaining commitment which totals a current U.S. dollar equivalent of approximately $40 million. The company continually monitors the currency exchange risks associated with all contracts in foreign currencies. 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 increases in vessel day rates may shield the company from the inflationary effects on operating costs. -16-
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 that 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. The company is proactive in establishing policies and operating procedures for safeguarding the environment against any environmentally hazardous material aboard its vessels and at shore base locations. Whenever possible, hazardous materials are maintained or transferred in confined areas to ensure containment if accidents occur. In addition the company has established operating policies that are intended to increase awareness of actions that may harm the environment. Item 3. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- At September 30, 2001 the company had $60 million debt outstanding. The outstanding debt represents unsecured borrowings from the company's revolving credit facility. The fair value of this debt approximates the carrying value because the borrowings will bear interest at market rates, which currently range from 3.34 to 3.41 percent. Monies were borrowed under the revolving credit facility to finance the company's new-build program previously disclosed. Interest expense associated with the borrowings is being capitalized. The company is exposed to foreign currency fluctuations and exchange risks but attempts to minimize the financial impact of these items by contracting the majority of its services in United States dollars. The company periodically enters into spot and forward derivative financial instruments as a hedge against foreign currency denominated assets and liabilities and currency commitments. As of September 30, 2001 the company had no forward currency contracts outstanding. -17-
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- A. The Annual Meeting of Stockholders of the company was held in New Orleans, Louisiana on July 26, 2001. B. Listed below are the nominees who were elected directors at the Annual Meeting and the name of each other director whose term of office continued after the Meeting. Nominee or Director Name Continuing in Office ---- -------------------- Robert H. Boh Director Continuing in Office Donald T. Bollinger Director Continuing in Office Arthur R. Carlson Director Continuing in Office Jon C. Madonna Director Continuing in Office Paul W. Murrill Nominee William C. O'Malley Director Continuing in Office Lester Pollack Nominee J. Hugh Roff, Jr. Nominee Donald G. Russell Director Continuing in Office C. The company's Stockholders voted as follows with respect to the proposals presented at the meeting: 1. Paul W. Murrill was elected director with 54,032,298 votes cast for and 777,683 votes withheld. 2. Lester Pollack was elected director with 54,024,940 votes cast for and 785,041 votes withheld. 3. J. Hugh Roff, Jr. was elected director with 54,034,915 votes cast for and 775,067 votes withheld. 4. The company's 2001 Stock Incentive Plan was approved with 48,048,529 votes cast for, 6,635,478 votes against, and 125,957 abstentions. 5. The selection of Ernst & Young LLP as the company's independent accountants for the fiscal year ending March 31, 2002 was ratified with 54,351,079 votes cast for, 407,646 votes against and 51,225 abstentions. -18-
Item 6. Exhibits and Reports on Form 8-K -------------------------------- A. At page 21 of this report is the index for those exhibits required to be filed as a part of this report. B. The company's report on Form 8-K dated August 16, 2001 reported that William C. O'Malley, chairman, president and chief executive officer, issued a Quarterly Report to Shareholders. C. The company's report on Form 8-K dated September 20, 2001 reported that Tidewater's results for its second quarter ending September 30, 2001 are expected to be lower than many analyst estimates and will likely fall in the range of $.58-$.63 per share. D. The company's report on Form 8-K dated September 25, 2001 reported that Tidewater has committed up to $100 million to expand its crewboat fleet by 21 vessels by the year 2003. E. The company's report on Form 8-K dated September 27, 2001 reported that Tidewater elected Richard A. Pattarozzi to it's Board of Directors. -19-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TIDEWATER INC. ----------------------------------------------- (Registrant) Date: October 22, 2001 /s/ William C. O'Malley ----------------------------------------------- William C. O'Malley Chairman of the Board and Chief Executive Officer Date: October 22, 2001 /s/ J. Keith Lousteau ----------------------------------------------- J. Keith Lousteau Senior Vice President and Chief Financial Officer Date: October 22, 2001 /s/ Joseph M. Bennett ----------------------------------------------- Joseph M. Bennett Vice President and Corporate Controller (Principal Accounting Officer) -20-
EXHIBIT INDEX Exhibit Number ------ 10 Amended and Restated Non-Qualified Pension Plan for Outside Directors of Tidewater Inc. 15 Letter re Unaudited Interim Financial Information -21-