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 June 30, 1999 ------------- 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 ----- 55,604,693 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on July 20, 1999. Excluded from the calculation of shares outstanding at July 20, 1999 are 4,958,601 shares held by the Registrant's Grantor Stock Ownership Trust. Registrant has no other class of common stock outstanding. -1-
PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------- June 30, March 31, ASSETS 1999 1999 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 73,698 10,422 Trade and other receivables 185,868 238,002 Marine operating supplies 26,075 27,971 Other current assets 4,300 4,483 - ---------------------------------------------------------------------------------------------------------- Total current assets 289,941 280,878 - ---------------------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 15,057 17,307 Properties and equipment: Vessels and related equipment 1,499,246 1,505,441 Other properties and equipment 43,744 42,744 - ---------------------------------------------------------------------------------------------------------- 1,542,990 1,548,185 Less accumulated depreciation 917,576 910,005 - ---------------------------------------------------------------------------------------------------------- Net properties and equipment 625,414 638,180 - ---------------------------------------------------------------------------------------------------------- Goodwill, net 344,884 347,176 Other assets 116,637 110,917 - ---------------------------------------------------------------------------------------------------------- $1,391,933 1,394,458 ========================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued expenses 62,497 71,256 Accrued property and liability losses 4,608 6,605 Income taxes 2,561 4,485 - ---------------------------------------------------------------------------------------------------------- Total current liabilities 69,666 82,346 - ---------------------------------------------------------------------------------------------------------- Deferred income taxes 135,953 128,826 Accrued property and liability losses 60,593 66,052 Other liabilities and deferred credits 49,332 49,527 Stockholders' equity: Common stock of $.10 par value, 125,000,000 shares authorized, issued 60,563,294 shares at June and 60,566,857 shares at March 6,056 6,057 Other stockholders' equity 1,070,333 1,061,650 - ---------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,076,389 1,067,707 - ---------------------------------------------------------------------------------------------------------- $1,391,933 1,394,458 ========================================================================================================== </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> - ---------------------------------------------------------------------------------------------------------- Three Months Ended June 30, --------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Revenues: Vessel revenues $ 148,277 267,633 Other marine revenues 6,253 17,244 - ---------------------------------------------------------------------------------------------------------- 154,530 284,877 - ---------------------------------------------------------------------------------------------------------- Costs and expenses: Vessel operating costs 91,892 136,069 Costs of other marine revenues 4,355 13,657 Depreciation and amortization 22,942 23,822 General and administrative 16,946 18,741 - ---------------------------------------------------------------------------------------------------------- 136,135 192,289 - ---------------------------------------------------------------------------------------------------------- 18,395 92,588 Other income (expenses): Foreign exchange gain (loss) (72) 14 Gain on sales of assets 2,359 1,653 Equity in net earnings of unconsolidated companies 1,986 1,762 Minority interests (247) (615) Interest and miscellaneous income 1,914 893 Interest and other debt costs (126) (460) - ---------------------------------------------------------------------------------------------------------- 5,814 3,247 - ---------------------------------------------------------------------------------------------------------- Earnings before income taxes 24,209 95,835 Income taxes 7,747 33,063 - ---------------------------------------------------------------------------------------------------------- Net earnings $ 16,462 62,772 ========================================================================================================== Earnings per common share $ .30 1.06 ========================================================================================================== Diluted earnings per common share $ .30 1.05 ========================================================================================================== Weighted average common shares outstanding 55,498,319 59,359,546 Incremental common shares from stock options 167,498 156,993 - ---------------------------------------------------------------------------------------------------------- Adjusted weighted average common shares 55,665,817 59,516,539 ========================================================================================================== Cash dividends declared per common share $ .15 .15 ========================================================================================================== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -3-
TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------- Three Months Ended June 30, ------------------------------ 1999 1998 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Net cash provided by operating activities $ 80,535 104,409 - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 3,679 2,923 Additions to properties and equipment (12,787) (9,991) Tax payments related to sale of Compression operations --- (67,810) Other 37 (118) - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (9,071) (74,996) - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt --- (25,000) Credit facility borrowings --- 40,000 Proceeds from issuance of common stock 150 405 Common stock purchased --- (16,195) Dividends paid (8,338) (8,911) - ---------------------------------------------------------------------------------------------------------- Net cash used in financing activities (8,188) (9,701) - ---------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 63,276 19,712 Cash and cash equivalents at beginning of period 10,422 24,977 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 73,698 44,689 ========================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 197 181 Income taxes $ 6,779 75,713 ========================================================================================================== </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 June 30, 1999 and March 31, 1999, 4,960,866 and 4,985,860 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% and 34.5% for the quarters ended June 30, 1999 and 1998, respectively. (4) Year 2000 Disclosure concerning year 2000 (Y2K) issues facing the company is included as part of management's discussion and analysis at page 13 of this report. -5-
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 June 30, 1999 and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended June 30, 1999 and 1998. 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 generally accepted auditing standards, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Tidewater Inc. and subsidiaries as of March 31, 1999, 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 27, 1999, 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, 1999, 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 July 19, 1999 -6-
Item 2. Management's Discussion and Analysis ------------------------------------ The company provides services to the international offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related disclosures. 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; changes in capital spending by customers in the energy industry for exploration, development and production; unsettled political conditions, civil unrest and governmental actions, especially in higher risk countries of operations; foreign currency controls; and environmental and labor laws. 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 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 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. -7-
The following table compares revenues and operating expenses (excluding general and administrative expense and depreciation expense) for the company's vessel fleet for the quarters ended June 30 and March 31. 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 Ended June 30, March 31, --------------------- (in thousands) 1999 1998 1999 - ------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues: Vessel revenues: United States $ 32,758 110,009 43,631 International 115,519 157,624 139,479 - ------------------------------------------------------------------------------------- 148,277 267,633 183,110 Other marine revenues 6,253 17,244 13,786 - ------------------------------------------------------------------------------------- $154,530 284,877 196,896 ===================================================================================== Operating costs: Vessel operating costs: Crew costs $ 53,409 67,929 60,082 Repair and maintenance 17,062 43,126 25,771 Insurance 5,297 5,833 5,678 Fuel, lube and supplies 6,984 9,997 7,360 Other 9,140 9,184 9,950 - ------------------------------------------------------------------------------------- 91,892 136,069 108,841 Cost of other marine revenues 4,355 13,657 10,322 - ------------------------------------------------------------------------------------- $ 96,247 149,726 119,163 ===================================================================================== </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 June 30, 1999 ($9.7 million of billings as of March 31, 1999), which would otherwise have been recognized as revenue. The company will recognize the amounts as revenue when the uncertainty has been reduced. -8-
Marine operating profit and other components of earnings before income taxes for the quarters ended June 30 and March 31 consists of the following: <TABLE> <CAPTION> Quarter Quarter Ended Ended June 30, March 31, ----------------- (in thousands) 1999 1998 1999 - ----------------------------------------------------------------------------------- <S> <C> <C> <C> Vessel activity: United States $ (397) 53,487 965 International 21,047 39,052 39,025 - ----------------------------------------------------------------------------------- 20,650 92,539 39,990 Gain (loss) on sales of assets 2,357 1,653 (4,799) Other marine services 1,664 3,392 3,321 - ----------------------------------------------------------------------------------- Operating profit $24,671 97,584 38,512 - ----------------------------------------------------------------------------------- Equity in net earnings of unconsolidated companies 1,986 1,762 2,228 Interest and other debt costs (126) (460) (395) Corporate general and administrative (2,945) (3,378) (2,916) Other income 623 327 1,085 - ----------------------------------------------------------------------------------- Earnings before income taxes $24,209 95,835 38,514 =================================================================================== </TABLE> Current quarter operating profit decreased significantly from the comparative amount in fiscal year 1999 due to declines in utilization, average day rates and active vessels for the worldwide fleet. Declines in revenues were somewhat offset by reductions in vessel operating costs for the worldwide fleet. Declines in utilization and average day rates are directly related to the current oil industry downturn. This downturn in activity and spending in the oil industry commenced with the drop in the price of oil in the fall of 1997 due primarily to worldwide oil surpluses. Cutbacks in customer drilling programs resulted, negatively affecting the U.S. Gulf of Mexico vessel market first as the duration of vessel contracts in this region normally range from one to three months. The number of working drilling rigs in the U.S. Gulf of Mexico declined steadily throughout fiscal year 1999 and, while oil prices have been trending upwards since the beginning of this quarter, the number of active drilling rigs has remained at a low level during the current quarter. U.S.-based vessel revenues for the current quarter have decreased by approximately 70% as compared to the same period in fiscal year 1999 resulting in a small operating loss for the current quarter. Average utilization and average day rates for the U.S.-based towing-supply/supply vessels for the current quarter have decreased by approximately 45% and 52%, respectively, as compared to the quarter ended June 30, 1998. Weak domestic activity is expected to continue for some time with the decline in the number of working drilling rigs. In addition the expected delivery of even more newly-constructed supply vessels to various industry competitors may create an even further imbalance and/or delay a recovery in the Gulf of Mexico supply vessel market thereby putting continued downward pressure on vessel utilization and day rates. Current quarter international-based vessel operating profit decreased approximately 46% as compared to the same quarter in fiscal year 1999 as international-based vessel utilization and day rates showed their most significant quarterly decrease thus far in the current oil industry downturn. International activity has not yet been as dramatically affected by the downturn as the U.S. Gulf of Mexico due primarily to the longer-term nature of international vessel contracts. However, the prolonged drop in oil prices has resulted in curtailments of customer projects, thus lowering vessel demand which will likely continue for the remainder of fiscal year 2000. In response to the oil industry downturn the following actions were taken during the previous quarter. The company began stacking and removing from its actively marketed fleet those vessels that cannot find gainful employment. Drydockings associated with the stacked vessels have been -9-
deferred thus reducing repair and maintenance costs in the current quarter versus the same quarter in fiscal year 1999 and the preceding quarter. Reductions in crew personnel were also made and may continue throughout fiscal year 2000 as necessary. These personnel reductions lowered crew costs in the current quarter versus the same quarter in fiscal year 1999 and the preceding quarter. Current quarter operating profit decreased significantly as compared to the preceding quarter's amount due to continued declines in utilization and average day rates for the worldwide fleet. Declines in revenues were offset somewhat by a decrease in operating expenses for the worldwide fleet. Declines in worldwide utilization and average day rates were expected as the oil industry continues to curtail spending during this current downturn. International-based vessel operating profit for the current quarter declined approximately 46% versus the preceding quarter's amount. U.S.-based vessels incurred a small operating loss for the current quarter as compared to an operating profit of just under a million dollars in the preceding quarter. Crew costs and repair and maintenance costs decreased as the result of cost-saving measures as described earlier. Included in gain (loss) on sales of assets in the previous quarter is a writedown of $7.8 million to reduce the carrying value of certain vessels. The writedown resulted from a review of the recoverability of the values of certain vessels. The review was performed due to industry conditions and having stacked and withdrawn from the active fleet several vessels at March 31, 1999. 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 following tables compare day-based utilization percentages and average day rates by vessel class and in total for the quarters ended June 30 and March 31: -10-
<TABLE> <CAPTION> Quarter Quarter Ended Ended June 30, March 31, --------------- 1999 1998 1999 - ------------------------------------------------------------------- <S> <C> <C> <C> UTILIZATION: - ------------ Domestic-based fleet: -------------------- Towing-supply/supply 47.2% 85.4 60.1 Crew/utility 77.3 88.8 84.1 Offshore tugs 38.9 61.1 38.1 Other 46.6 45.7 35.2 Total 49.4% 79.9 58.3 International-based fleet : ------------------------- Towing-supply/supply 71.9% 86.3 79.2 Crew/utility 89.2 80.2 89.6 Offshore tugs 65.4 76.1 70.1 Safety/standby 77.5 80.7 75.2 Other 52.1 67.9 72.1 Total 72.0% 82.2 78.5 Worldwide fleet: ---------------- Towing-supply/supply 62.6% 85.9 72.2 Crew/utility 85.2 83.6 87.7 Offshore tugs 54.1 69.6 56.8 Safety/standby 77.5 80.7 75.2 Other 50.9 62.7 63.5 Total 64.1% 81.4 71.5 =================================================================== AVERAGE VESSEL DAY RATES: - ------------------------- Domestic-based fleet: --------------------- Towing-supply/supply $3,734 7,709 4,043 Crew/utility 1,806 2,280 2,014 Offshore tugs 6,028 7,649 7,311 Other 1,345 3,449 2,006 Total 3,572 6,658 3,968 International-based fleet: -------------------------- Towing-supply/supply $5,698 6,523 6,229 Crew/utility 2,250 2,447 2,399 Offshore tugs 4,048 4,273 4,411 Safety/standby 6,094 6,541 6,014 Other 1,265 876 1,250 Total $4,676 5,330 5,024 Worldwide fleet: ---------------- Towing-supply/supply $5,143 6,975 5,555 Crew/utility 2,114 2,376 2,270 Offshore tugs 4,652 5,558 5,218 Safety/standby 6,094 6,541 6,014 Other 1,282 1,313 1,347 Total $4,377 5,806 4,725 =================================================================== </TABLE> -11-
The following table compares the average number of vessels by class and geographic distribution for the quarters ended June 30 and March 31: <TABLE> <CAPTION> Quarter Quarter Ended Ended June 30, March 31, ---------------- 1999 1998 1999 - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> Domestic-based fleet: - --------------------- Towing-supply/supply 131 142 134 Crew/utility 26 35 28 Offshore tugs 37 40 37 Other 10 10 10 - --------------------------------------------------------------------------------------------- Total 204 227 209 - --------------------------------------------------------------------------------------------- International-based fleet: - -------------------------- Towing-supply/supply 219 228 228 Crew/utility 50 54 53 Offshore tugs 50 53 53 Safety/standby 25 29 26 Other 33 32 33 - --------------------------------------------------------------------------------------------- Total 377 396 393 - --------------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 581 623 602 Vessels held for sale 50 26 40 Joint-venture and other 46 48 47 - --------------------------------------------------------------------------------------------- Total 677 697 689 ============================================================================================= </TABLE> In July 1999 the company acquired six new-build vessels from an industry competitor for an aggregate price of approximately $22 million. Also in July 1999 the company sold all of its safety/standby vessels for approximately $40 million. Consolidated general and administrative expenses for the quarters ended June 30 and March 31 consist of the following components: <TABLE> <CAPTION> Quarter Quarter Ended Ended June 30, March 31, ----------------- (in thousands) 1999 1998 1999 - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> Personnel $10,133 11,125 10,515 Office and property 2,899 3,309 3,361 Sales and marketing 1,110 1,471 1,295 Professional services 1,232 1,625 1,533 Other 1,572 1,211 (447) - --------------------------------------------------------------------------------------------- $16,946 18,741 16,257 ============================================================================================= </TABLE> During the quarter ended March 31, 1999 the company reversed approximately $966,000 of previously recorded bad debt expense when payment was received for an overdue receivable from one customer. 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 -12-
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 June 30, 1999, all 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. Excluding the tax payments related to the sale of Compression operations included in the three-months ended June 30, 1998, investing activities for the quarters ended June 30, 1999 and 1998 were comparable with no significant activity. Financing activities for the quarter ended June 30, 1999 included $8.3 million of cash for quarterly cash dividends of $.15 per share. INFLATION AND CURRENCY FLUCTUATIONS - ----------------------------------- Because of its significant international operations, the company is exposed to currency fluctuations and exchange risks. To minimize the financial impact of these items the company attempts to contract a majority of its services in United States dollars. Day-to-day operating costs are generally affected by inflation. However, because the energy services industry requires specialized goods and services, general economic inflationary trends may not affect the company's operating costs. The major impact on operating costs is the level of offshore exploration, development and production spending by energy exploration and production companies. As this spending increases, prices of goods and services used by the energy industry and the energy services industry will increase. Future increases in vessel day rates may mitigate the effects on the company from the inflationary effects on operating costs. ENVIRONMENTAL MATTERS - --------------------- During the ordinary course of business the company's operations are subject to a wide variety of environmental laws and regulations. The company attempts to comply with these laws and regulations in order to avoid costly accidents and related environmental damage. Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, nor is expected to have, a material effect on the company. YEAR 2000 - --------- The Year 2000 (Y2K) issue is the result of computer programs written using two digits rather than four to define the applicable year. In response to the Y2K issue, the company began a program in fiscal 1997 designed to identify, assess and address significant Y2K issues in its information technology (IT) systems and non-IT systems. As of June 30, 1999, the company believes that it is on schedule to successfully implement any required systems and equipment modifications that might be necessary to make the company's critical systems Y2K compliant before December 31, 1999. The company's critical IT systems are comprised primarily of the company's mainframe computer and the software programs used on the mainframe, including general ledger accounting and financial reporting software programs and related application modules, personnel and payroll systems, and an insurance claims and accounting system. The assessment of the company's IT systems found that some of the IT systems were not Y2K compliant. Approximately 90% of the changes necessary to make these systems Y2K compliant have been completed, with the remaining changes expected to be completed well in advance of year end. Because many of the company's computer systems have been upgraded or replaced in recent years as part of the company's ongoing upgrade program, specific Y2K compliance costs have been insignificant to date (believed to be less than $100,000). Remaining compliance costs related to the IT systems are also expected to be insignificant (probably -13-
less than $100,000) because the company will continue to utilize existing personnel resources to assist in the implementation of its Y2K compliance initiative. Non-IT systems are comprised primarily of computer-controlled equipment and electronic devices, including equipment with embedded microprocessors that are used to operate equipment on the company's vessels. Telephone systems and other office-based electronic equipment systems are also being considered in the assessment of non-IT systems. The company has substantially completed the process of identifying the components that are likely to have a Y2K problem and is in the process of communicating with the appropriate vendors to assess what, if any, changes are necessary to make the component Y2K compliant. The company believes that this assessment will be completed well in advance of December 31, 1999 and does not expect the costs of any required modifications or upgrades to be material with respect to the company's results of operations and financial position. The company has contacted its key vendors and financial services providers to assess their progress with their own Y2K issues and to anticipate potential risks associated with those third parties. Although there is currently no indication that these parties will not achieve their Y2K compliance plans, there can be no guarantee that the systems of other companies with whom the company transacts business will be timely converted. Additionally, there can be no guarantee that the company will not experience Y2K problems. Despite efforts to address all significant Y2K issues in advance, the company could potentially experience disruptions to some aspects of its activities or operations, including, but not limited to, delays in payments to the company from customers or payments by the company to suppliers and disruptions in shipments of equipment and supplies required to operate the company's vessels. Based upon the company's current assessment of its IT systems and non-IT systems and based upon communications to date with vendors, the company has not determined a need to develop a contingency plan for Y2K issues. The company will continue to monitor its decision on contingency planning and such a plan will be developed if and when it is considered necessary to do so. Item 3. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- No change from 1999 annual report disclosure. -14-
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- A. At page 17 of this report is the index for those exhibits required to be filed as a part of this report. B. The company did not file any reports during the quarter for which this report is filed. -15-
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: July 20, 1999 /s/ William C. O'Malley ------------------------------------------------------ William C. O'Malley Chairman of the Board, President and Chief Executive Officer Date: July 20, 1999 /s/ Ken C. Tamblyn ------------------------------------------------------ Ken C. Tamblyn Executive Vice President and Chief Financial Officer (Principal Accounting Officer) -16-
EXHIBIT INDEX Exhibit Number - ------ 3 Amended and Restated Bylaws Dated May 20, 1999 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule -17-