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 December 31, 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) <TABLE> <S> <C> 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) </TABLE> Registrant's telephone number, including area code: (504) 568-1010 ----------------------- NOT APPLICABLE --------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or of such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- 56,117,116 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on January 11, 2002. Excluded from the calculation of shares outstanding at January 11, 2002 are 4,426,227 shares held by the Registrant's Grantor Stock Ownership Trust. Registrant has no other class of common stock outstanding. -1-
PART I. FINANCIAL INFORMATION <TABLE> <CAPTION> Item 1. Financial Statements -------------------- TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) - -------------------------------------------------------------------------------------------------- December 31, March 31, ASSETS 2001 2001 - -------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 12,042 95,153 Trade and other receivables 180,227 160,677 Marine operating supplies 28,604 28,632 Other current assets 2,971 4,125 - -------------------------------------------------------------------------------------------------- Total current assets 223,844 288,587 - -------------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 14,898 16,544 Properties and equipment: Vessels and related equipment 1,808,806 1,613,604 Other properties and equipment 42,520 42,837 - -------------------------------------------------------------------------------------------------- 1,851,326 1,656,441 Less accumulated depreciation 886,664 884,765 - -------------------------------------------------------------------------------------------------- Net properties and equipment 964,662 771,676 - -------------------------------------------------------------------------------------------------- Goodwill, net 328,754 328,836 Other assets 106,500 99,849 - -------------------------------------------------------------------------------------------------- Total assets $ 1,638,658 1,505,492 ================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued expenses 68,623 68,426 Accrued property and liability losses 9,946 6,825 Income taxes 5,907 8,336 - -------------------------------------------------------------------------------------------------- Total current liabilities 84,476 83,587 - -------------------------------------------------------------------------------------------------- Long-term debt 40,000 --- Deferred income taxes 167,830 155,744 Accrued property and liability losses 35,171 38,682 Other liabilities and deferred credits 47,119 49,139 Stockholders' equity: Common stock of $.10 par value, 125,000,000 shares authorized, issued 60,543,343 shares at December and 60,543,181 shares at March 6,054 6,055 Other stockholders' equity 1,258,008 1,172,285 - -------------------------------------------------------------------------------------------------- Total stockholders' equity 1,264,062 1,178,340 - -------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,638,658 1,505,492 ================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -2-
<TABLE> <CAPTION> TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share and per share data) - ---------------------------------------------------------------------------------------------------------------------- Quarter Ended Nine Months Ended December 31, December 31, ------------------------ ----------------------- 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Vessel revenues $ 178,616 154,766 550,526 415,713 Other marine revenues 3,212 4,361 9,128 26,435 - ---------------------------------------------------------------------------------------------------------------------- 181,828 159,127 559,654 442,148 - ---------------------------------------------------------------------------------------------------------------------- Costs and expenses: Vessel operating costs 96,565 94,202 290,269 270,457 Costs of other marine revenues 2,012 3,170 5,585 20,479 Depreciation and amortization 19,771 19,926 58,364 58,452 General and administrative 16,600 16,592 49,349 48,869 - ---------------------------------------------------------------------------------------------------------------------- 134,948 133,890 403,567 398,257 - ---------------------------------------------------------------------------------------------------------------------- 46,880 25,237 156,087 43,891 Other income (expenses): Foreign exchange gain (loss) (53) 82 (1,178) 20 Gain on sales of assets 780 2,335 1,021 22,659 Equity in net earnings of unconsolidated companies 1,585 1,479 4,527 5,514 Minority interests (49) 112 (142) (60) Interest and miscellaneous income 685 3,933 2,540 12,886 Interest and other debt costs (237) (326) (597) (650) - ---------------------------------------------------------------------------------------------------------------------- 2,711 7,615 6,171 40,369 - ---------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 49,591 32,852 162,258 84,260 Income taxes 16,049 10,513 54,356 27,466 - ---------------------------------------------------------------------------------------------------------------------- Net earnings $ 33,542 22,339 107,902 56,794 ====================================================================================================================== Earnings per common share $ .60 .40 1.93 1.02 ====================================================================================================================== Diluted earnings per common share $ .60 .40 1.92 1.01 ====================================================================================================================== Weighted average common shares outstanding 56,043,842 55,770,190 56,021,765 55,686,582 Incremental common shares from stock options 182,053 591,772 321,795 492,317 - ---------------------------------------------------------------------------------------------------------------------- Adjusted weighted average common shares 56,225,895 56,361,962 56,343,560 56,178,899 ====================================================================================================================== Cash dividends declared per common share $ .15 .15 .45 .45 ====================================================================================================================== </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 Nine Months Ended December 31, December 31, ------------------------ ----------------------- 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net cash provided by operating activities $ 46,654 33,901 153,729 91,481 - -------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 3,549 3,102 10,001 45,128 Additions to properties and equipment (46,101) (209,340) (262,917) (253,147) Other --- (2,657) 195 (2,680) - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (42,552) (208,895) (252,721) (210,699) - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Credit facility borrowings $ --- --- 60,000 --- Principal payments on debt (20,000) --- (20,000) --- Proceeds from issuance of common stock 82 1,018 1,120 3,281 Cash dividends (8,417) (8,378) (25,238) (25,093) Other $ --- --- (1) --- - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (28,335) (7,360) 15,881 (21,812) - -------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (24,233) (182,354) (83,111) (141,030) Cash and cash equivalents at beginning of period 36,275 268,234 95,153 226,910 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 12,042 85,880 12,042 85,880 ==================================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 296 420 892 549 Income taxes $ 27,253 6,696 47,127 15,082 ==================================================================================================================== </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 December 31, 2001 and March 31, 2001, 4,429,844 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 32.4% and 33.5% for the quarter and nine-month period ended December 31, 2001. The effective tax rate applicable to pre-tax earnings was 32% and 32.6% for the quarter and nine-month period ended December 31, 2000, 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 required 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 performed its annual impairment test as of December 31, 2001 and the test determined -5-
there is no goodwill impairment. Interim testing will be performed when an event occurs or circumstances indicate that the carrying amount of goodwill may be impaired. Goodwill amortization on a pre-tax basis for the quarter and nine-month period ended December 31, 2001 would have been $2.3 million and $6.9 million, respectively, or $.03 per share and $.08 per share after tax, respectively, had the company not adopted SFAS No. 142. For the quarter and nine-month period ended December 31, 2000, pre-tax goodwill amortization amounted to $2.3 million and $6.9 million, respectively, or $.03 per share and $.08 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 company does not anticipate any financial statement impact with the adoption of this statement. 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 supersedes SFAS No. 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 December 31, 2001, and the related condensed consolidated statements of earnings and cash flows for the three-month and nine-month periods ended December 31, 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 January 16, 2002 -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 nine-month periods ended December 31 and for the quarter ended September 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 Nine Months Ended Ended December 31, December 31, Sept 30, ----------------- ------------------ ------- (In thousands) 2001 2000 2001 2000 2001 - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Vessel revenues: United States $ 44,328 54,367 172,582 135,677 59,252 International 134,288 100,399 377,944 280,036 124,844 - -------------------------------------------------------------------------------------------------- 178,616 154,766 550,526 415,713 184,096 Other marine revenues 3,212 4,361 9,128 26,435 3,167 - -------------------------------------------------------------------------------------------------- $ 181,828 159,127 559,654 442,148 187,263 ================================================================================================== Operating costs: Vessel operating costs: Crew costs $ 52,205 46,600 155,125 135,951 52,395 Repair and maintenance 20,386 25,719 65,088 75,797 20,064 Insurance 5,350 5,464 16,051 15,151 6,008 Fuel, lube and supplies 7,479 8,002 23,030 20,825 7,780 Other 11,145 8,417 30,975 22,733 10,631 - -------------------------------------------------------------------------------------------------- 96,565 94,202 290,269 270,457 96,878 Costs of other marine revenues 2,012 3,170 5,585 20,479 2,041 - -------------------------------------------------------------------------------------------------- $ 98,577 97,372 295,854 290,936 98,919 ================================================================================================== </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 $5.2 million of billings as of December 31, 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. For the nine months ended December 31, 2001 domestic results of operations benefited from increases in average day rates; however, current quarter domestic results of operations continued to feel 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 fiscal year as warmer than normal weather and economic slowdowns in the U.S. and globally reduced natural gas demands, consequently applying even more downward pressure on gas prices. Exploration and production companies in the U.S. Gulf of Mexico, cautious over the decrease in the commodity prices for natural gas, have eased their capital investments as evidenced by the significant drop in offshore rig fleet utilization rates during the last half of calendar year 2001. Although there is uncertainty in the market, leading energy analysts believe the natural gas market will improve in the latter half of 2002. Vessel demand in the domestic market is -9-
is primarily driven by natural gas exploration and production and at present, it is unknown how much further vessel demand will be affected by the current softening in natural gas prices and the state of the global economic environment. Fiscal 2002 international results of operations continue to benefit 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 at levels high enough to sustain growth. 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 nine-month periods ended December 31 and for the quarter ended September 30, 2001 consist of the following: <TABLE> <CAPTION> Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, ---------------- ------------------ ------- (In thousands) 2001 2000 2001 2000 2001 - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Vessel activity: United States $ 6,923 10,125 54,784 5,070 19,023 International 42,310 18,090 107,476 44,865 34,829 - ------------------------------------------------------------------------------------------------- 49,233 28,215 162,260 49,935 53,852 Gain on sales of assets 784 2,335 1,025 22,659 187 Other marine services 1,085 1,036 3,228 5,572 1,015 - ------------------------------------------------------------------------------------------------- Operating profit 51,102 31,586 166,513 78,166 55,054 - ------------------------------------------------------------------------------------------------- Equity in net earnings of unconsolidated companies 1,585 1,479 4,527 5,514 1,443 Interest and other debt costs (237) (326) (597) (650) (160) Corporate general and administrative (3,276) (3,520) (9,911) (10,407) (3,381) Other income 417 3,633 1,726 11,637 573 - ------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $ 49,591 32,852 162,258 84,260 53,529 ================================================================================================= </TABLE> U.S.-based vessel revenues for the quarter ended December 31, 2001 decreased approximately 18.5% from the comparative period in fiscal 2001 primarily due to a 36.6% decrease in utilization rates for the towing-supply/supply vessels, the company's major income producing asset in the domestic market, as a result of the current softness in the domestic market. Average day rates for the towing-supply/supply vessels increased 12.4% for the comparative periods; however, the increase in average day rates was insufficient to mitigate the downward effect that lower vessel utilization had on revenues. U.S.-based vessel revenues for the nine-month period ended December 31, 2001 increased 27.2% as compared to the same period 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 increased by approximately 51.3% for the current nine-month period as compared to the same period in fiscal 2001. Utilization for the towing-supply/supply vessels for the current nine-month period ended December 31, 2001 decreased slightly from the comparative period in fiscal 2001 as a result of the current softness in the domestic market. U.S.-based operating profit for the quarter ended December 31, 2001 decreased 31.6% from the comparative period in fiscal 2001 primarily due to lower revenues. U.S.-based operating profit increased significantly for the nine-month period ended December 31, 2001 as compared to the same period in fiscal 2001 primarily due to higher vessel revenues and lower repair and maintenance -10-
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 costs for the nine-month period ended December 30, 2000 as a result of an intense drydocking program the company initiated while vessel demand and average day rates in 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 25.2% as compared to the previous quarter as a result of lower utilization and average day rates resulting from the current softness in the U.S. Gulf of Mexico natural gas market. As of December 31, 2001, the towing supply/supply vessels operating in the U.S. Gulf of Mexico are experiencing approximately $7,200 average day rates and 30% utilization. U.S.-based operating profit for the current quarter also decrease due to lower revenues. International-based vessel revenues for the quarter and nine-month period ended December 31, 2001 increased 33.8% and 35.0%, respectively, as compared to the same periods in fiscal 2001 as a result of higher average day rates, utilization 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 four of the seven vessels will expire at various times over the next two years while the bareboat charter agreements on the remaining three 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 nine-month period ended December 31, 2001 and for the quarter ended September 30, 2001, the seven bareboat chartered deepwater vessels experienced 100% utilization for each respective period and average day rates of approximately $6,200, $6,175 and $6,100, respectively. International-based vessel operating profit for the quarter and nine-month period ended December 31, 2001 increased approximately 134% and 140%, respectively, as compared to the same 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 and utilization. Current quarter international-based vessel revenues increased 8% as compared to the previous quarter due to higher utilization and average day rates. Current quarter operating profit increased 21.5% as compared to the prior quarter due to higher revenues. During the second quarter of fiscal 2002, 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. -11-
Gain on sales of assets for the nine-month period ended December 31, 2001 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; a gain of approximately $2.7 million from vessel sales; and a $3.3 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 nine-month period ended December 31, 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 nine-month periods ended December 31 and for the quarter ended September 30, 2001: -12-
<TABLE> <CAPTION> Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, ---------------- ----------------- -------- 2001 2000 2001 2000 2001 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> UTILIZATION: ----------- Domestic-based fleet: -------------------- Deepwater vessels 100.0% 88.7 100.0 96.1 100.0 Towing-supply/supply 40.2 63.4 57.4 60.9 59.3 Crew/utility 84.9 93.0 89.3 89.6 93.2 Offshore tugs 48.8 32.4 43.1 35.5 42.6 Other 57.2 11.2 42.9 21.9 47.7 Total 51.8% 59.9 59.8 59.2 61.1 International-based fleet: ------------------------- Deepwater vessels 90.8% 79.0 92.9 77.5 92.5 Towing-supply/supply 82.4 80.6 78.0 77.7 77.3 Crew/utility 90.2 95.3 87.6 93.6 84.0 Offshore tugs 75.9 72.8 72.3 68.9 70.1 Other 67.0 49.7 56.2 46.3 56.0 Total 82.3% 78.8 78.1 75.8 76.8 Worldwide fleet: --------------- Deepwater vessels 91.5% 80.5 93.5 81.9 93.1 Towing-supply/supply 67.2 74.0 70.5 71.1 70.7 Crew/utility 88.1 94.5 88.2 92.2 86.9 Offshore tugs 64.4 54.2 59.9 53.7 58.4 Other 64.4 41.1 53.0 41.0 54.0 Total 71.5% 71.8 71.7 69.6 71.4 ==================================================================================================================== AVERAGE VESSEL DAY RATES: ------------------------ Domestic-based fleet: -------------------- Deepwater vessels $ 11,761 11,530 11,765 11,605 11,774 Towing-supply/supply 6,631 5,897 7,010 4,632 7,042 Crew/utility 3,089 2,544 2,971 2,265 2,948 Offshore tugs 6,131 6,298 7,175 6,135 7,467 Other 1,490 1,434 1,471 1,451 1,467 Total $ 5,255 5,306 5,974 4,410 6,088 International-based fleet: ------------------------- Deepwater vessels $ 11,763 8,633 10,832 8,448 10,778 Towing-supply/supply 6,140 5,095 5,965 5,022 5,971 Crew/utility 2,622 2,244 2,497 2,242 2,479 Offshore tugs 4,566 4,226 4,680 4,089 4,682 Other 1,148 1,362 1,064 1,428 1,070 Total $ 5,496 4,391 5,338 4,272 5,346 Worldwide fleet: --------------- Deepwater vessels $ 11,764 9,148 10,911 9,320 10,864 Towing-supply/supply 6,245 5,361 6,274 4,892 6,299 Crew/utility 2,803 2,346 2,666 2,250 2,640 Offshore tugs 5,073 4,796 5,446 4,708 5,541 Other 1,227 1,366 1,143 1,430 1,155 Total $ 5,434 4,674 5,522 4,316 5,565 ==================================================================================================================== </TABLE> -13-
The following table compares the average number of vessels by class and geographic distribution for the quarters and nine-month periods ended December 31 and for the quarter ended September 30, 2001: <TABLE> <CAPTION> Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, ---------------- ----------------- -------- 2001 2000 2001 2000 2001 - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Domestic-based fleet: - -------------------- Deepwater vessels 2 3 2 3 2 Towing-supply/supply 103 117 108 119 109 Crew/utility 34 25 28 26 24 Offshore tugs 29 32 29 32 29 Other 9 9 8 9 9 - ------------------------------------------------------------------------------------------ Total 177 186 175 189 173 - ------------------------------------------------------------------------------------------ International-based fleet: - ------------------------- Deepwater vessels 24 13 23 9 23 Towing-supply/supply 183 186 189 187 189 Crew/utility 52 48 51 48 52 Offshore tugs 39 38 40 38 40 Other 25 31 27 32 26 - ------------------------------------------------------------------------------------------ Total 323 316 330 314 330 - ------------------------------------------------------------------------------------------ Owned or chartered vessels included in marine revenues 500 502 505 503 503 Vessels held for sale 43 41 36 47 34 Joint-venture and other 28 27 28 37 28 - ------------------------------------------------------------------------------------------ Total 571 570 569 587 565 ========================================================================================== </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. During the second quarter of fiscal 2002, 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. For the nine months ended December 31, 2001 the company sold or scrapped 22 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 nine-month periods ended December 31 and for the quarter ended September 30, 2001: <TABLE> <CAPTION> Quarter Quarter Ended Nine Months Ended Ended December 31, December 31, Sept 30, -------------------- --------------------- -------- (In thousands) 2001 2000 2001 2000 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 9,995 9,989 29,370 30,131 9,930 Office and property 3,011 2,690 8,537 8,172 2,798 Sales and marketing 1,002 1,094 3,452 3,292 1,273 Professional services 997 1,126 3,921 3,120 1,656 Other 1,595 1,693 4,069 4,154 1,340 - ------------------------------------------------------------------------------------------------------------------- $ 16,600 16,592 49,349 48,869 16,997 =================================================================================================================== </TABLE> General and administrative expenses for the quarter and nine-month period ended December 31, 2001 were comparable to the same periods in fiscal 2001 and were slightly lower 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 December 31, 2001, $160 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 nine months ended December 31, 2001, net cash from operating activities was $153.7 million as compared to $91.2 million for the nine months ended December 2000. Investing activities for the nine months ended December 31, 2001 used $252.7 million of cash which included $10 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 $12 million in capitalized repairs and maintenance and $249.2 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 nine months ended December 31, 2000 used $210.7 million of cash which included $45.1 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 $253.1 million which were comprised of approximately $11.1 million in capitalized repairs and maintenance and $240.4 million for the construction of offshore marine vessels and the acquisition of seven large platform supply vessels and four large anchor-handling towing supply vessels. Financing activities for the nine months ended December 31, 2001 and 2000 included $25.2 million and $25.1 million, respectively, of cash for quarterly cash dividends of $.15 per share. 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 -15-
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 December 31, 2001, $150 million has been expended on these 12 vessels of the total $323 million commitment to the shipyards. Scheduled delivery of the vessels will commence in February 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. 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, four 165-foot crewboats and four 175-foot crewboats for approximately $84 million. Eleven 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 February 2002. Scheduled delivery of the four 165-foot crewboats is expected to commence in May 2002 with final delivery of the last vessel in September 2003. 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 December 31, 2001, $12 million has been expended on these vessels. Subsequent to December 31, 2001 the company committed to the construction of three platform supply vessels for a total of $40.6 million. A U.S. shipyard will build two of the vessels and a Norwegian shipyard will construct the third vessel. Scheduled delivery of the three vessels is expected to commence in July 2002 with final delivery of the last vessel in April 2003. The company is capitalizing interest costs incurred on borrowed funds used to construct vessels. Interest and debt costs incurred net of interest capitalized for the quarter and nine-month period ended December 31, 2001 was approximately $237,000 and $597,000, respectively. Interest costs capitalized for the quarter and nine month period ended December 31, 2001 was approximately $423,000 and $708,000, respectively. 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 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. 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 -16-
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 December 31, 2001 the company had $40 million of 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 2.56 to 3.35 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 December 31, 2001 the company had eight forward contracts outstanding totaling $22.3 million that qualified as hedge instruments. The forward contracts were purchased to hedge against any possible foreign exchange exposure the company may experience with its commitment to a Singapore shipyard that is currently constructing three platform supply vessels for delivery between July 2002 and November 2002. -17-
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- A. At page 20 of this report is the index for those exhibits required to be filed as a part of this report. B. The company's report on Form 8-K dated October 8, 2001 reported that Dean E. Taylor has been promoted to President of the company and has also been appointed to the Tidewater Board of Directors. It is expected that Mr. Taylor will become Chief Executive Officer in March 2002. C. The company's report on Form 8-K dated December 6, 2001 reported that Tidewater elected Jeff Platt, head of its South and Central American divisions, and Jim Donnelly, head of its European and African divisions, to the office of Vice President. The company also announced the promotion of Stephen Dick to Executive Vice President in charge of all North American operations. D. The company's report on Form 8-K dated December 19, 2001 reported that William C. O'Malley, chairman and chief executive officer, issued a Quarterly Report to Shareholders. -18-
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: January 30, 2002 /s/ William C. O'Malley --------------------------------------------------- William C. O'Malley Chairman of the Board, and Chief Executive Officer Date: January 30, 2002 /s/ J. Keith Lousteau --------------------------------------------------- J. Keith Lousteau Senior Vice President and Chief Financial Officer Date: January 30, 2002 /s/ Joseph M. Bennett --------------------------------------------------- Joseph M. Bennett Vice President and Corporate Controller (Principal Accounting Officer) -19-
EXHIBIT INDEX Exhibit Number - ------ 3(a) Tidewater Inc. Bylaws 10(a) Amended and Restated Tidewater Inc. 1992 Stock Option and Restricted Stock Plan dated September 27, 2001 10(b) Amended and Restated Tidewater Inc. 1997 Stock Incentive Plan dated September 27, 2001 10(c) Tidewater Inc. 2001 Stock Incentive Plan dated July 27, 2001 15 Letter re Unaudited Interim Financial Information -20-