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, 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 ----- 55,620,585 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on October 19, 1999. Excluded from the calculation of shares outstanding at October 19, 1999 are 4,942,609 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> - ---------------------------------------------------------------------------------------------------------------- September 30, March 31, ASSETS 1999 1999 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 136,725 10,422 Trade and other receivables 171,751 238,002 Marine operating supplies 27,795 27,971 Other current assets 3,415 4,483 - ---------------------------------------------------------------------------------------------------------------- Total current assets 339,686 280,878 - ---------------------------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 16,320 17,307 Properties and equipment: Vessels and related equipment 1,433,247 1,505,441 Other properties and equipment 42,637 42,744 - ---------------------------------------------------------------------------------------------------------------- 1,475,884 1,548,185 Less accumulated depreciation 879,665 910,005 - ---------------------------------------------------------------------------------------------------------------- Net properties and equipment 596,219 638,180 - ---------------------------------------------------------------------------------------------------------------- Goodwill, net 342,592 347,176 Other assets 104,100 110,917 - ---------------------------------------------------------------------------------------------------------------- $1,398,917 1,394,458 =============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued expenses 64,577 71,256 Accrued property and liability losses 4,364 6,605 Income taxes 1,801 4,485 - ---------------------------------------------------------------------------------------------------------------- Total current liabilities 70,742 82,346 - ---------------------------------------------------------------------------------------------------------------- Deferred income taxes 135,961 128,826 Accrued property and liability losses 53,164 66,052 Other liabilities and deferred credits 51,408 49,527 Stockholders' equity: Common stock of $.10 par value, 125,000,000 shares authorized, issued 60,563,194 shares at September and 60,566,857 shares at March 6,056 6,057 Other stockholders' equity 1,081,586 1,061,650 - ---------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,087,642 1,067,707 - ---------------------------------------------------------------------------------------------------------------- $1,398,917 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> - ------------------------------------------------------------------------------------------------------------------ Quarter Ended Six Months Ended September 30, September 30, ----------------------- ------------------------- 1999 1998 1999 1998 ---------- ---------- --------- ---------- <S> <C> <C> <C> <C> Revenues: Vessel revenues $ 129,735 242,912 278,012 510,545 Other marine revenues 9,211 11,323 15,464 28,567 - ------------------------------------------------------------------------------------------------------------------ 138,946 254,235 293,476 539,112 - ------------------------------------------------------------------------------------------------------------------ Costs and expenses: Vessel operating costs 77,431 123,892 169,323 259,961 Costs of other marine revenues 7,434 8,670 11,789 22,327 Depreciation and amortization 20,335 23,977 43,277 47,799 General and administrative 16,647 18,451 33,593 37,192 - ------------------------------------------------------------------------------------------------------------------ 121,847 174,990 257,982 367,279 - ------------------------------------------------------------------------------------------------------------------ 17,099 79,245 35,494 171,833 Other income (expenses): Foreign exchange gain 275 355 203 369 Gain on sales of assets 6,605 987 8,964 2,640 Equity in net earnings of unconsolidated companies 1,900 1,767 3,886 3,529 Minority interests (44) (353) (291) (968) Interest and miscellaneous income 2,100 1,134 4,014 2,027 Interest and other debt costs (163) (1,015) (289) (1,475) - ------------------------------------------------------------------------------------------------------------------ 10,673 2,875 16,487 6,122 - ------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 27,772 82,120 51,981 177,955 Income taxes 8,887 25,442 16,634 58,505 - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 18,885 56,678 35,347 119,450 ================================================================================================================== Earnings per common share $ .34 .98 .64 2.04 ================================================================================================================== Diluted earnings per common share $ .34 .98 .64 2.03 ================================================================================================================== Weighted average common shares outstanding 55,523,727 57,791,444 55,511,093 58,528,321 Incremental common shares from stock options 304,923 78,799 236,211 117,896 - ------------------------------------------------------------------------------------------------------------------ Adjusted weighted average common shares 55,828,650 57,870,243 55,747,304 58,646,217 ================================================================================================================== 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, ---------------------------- --------------------- 1999 1998 1999 1998 ------------ ----------- -------- --------- <S> <C> <C> <C> <C> Net cash provided by operating activities $ 51,311 74,986 131,846 179,395 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of assets 49,647 3,412 53,326 6,335 Additions to properties and equipment (29,652) (6,827) (42,439) (16,818) Income tax payments related to sale of compression operations --- (301) --- (68,111) Other 25 178 62 60 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 20,020 (3,538) 10,949 (78,534) =================================================================================================================== Cash flows from financing activities: Principal payments on long-term debt --- (58,172) --- (83,172) Credit facility borrowings --- 40,000 --- 80,000 Proceeds from issuance of common stock 38 32 188 437 Common stock purchased --- (56,753) --- (72,948) Dividends paid (8,342) (8,712) (16,680) (17,623) - ------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (8,304) (83,605) (16,492) (93,306) - ------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 63,027 (12,157) 126,303 7,555 Cash and cash equivalents at beginning of period 73,698 44,689 10,422 24,977 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 136,725 32,532 136,725 32,532 =================================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 129 1,172 326 1,353 Income taxes $ 10,569 50,411 17,348 126,124 =================================================================================================================== </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, 1999 and March 31, 1999, 4,944,997 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 was 32% for the quarter and six-month period ended September 30, 1999. The effective tax rate was 33.4% and 34% for the quarter and six-month period ended September 30, 1998, respectively, excluding a $2 million (or $.03 per share) reduction in deferred taxes resulting from the lowering of United Kingdom corporate income tax rates which had the effect of reducing the effective tax rate for the quarter and six- month period ended September 30, 1998 to 30.9% and 32.8%, respectively. (4) Year 2000 Disclosure regarding 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 September 30, 1999, and the related condensed consolidated statements of earnings and cash flows for the three-month and six-month periods ended September 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 October 18, 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 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, 1999. 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. Effective June 30, 1999 the company sold its fleet of safety-standby vessels. Revenues related to that fleet amounted to $10.7 million in the quarter ended June 30, 1999, $14.3 million in the quarter ended September 30, 1998, and $28.3 million in the six-month period ended September 30, 1998. <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ----------------- ----------------- ----------- (in thousands) 1999 1998 1999 1998 1999 - --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Vessel revenues: United States $ 34,918 81,081 67,676 191,090 32,758 International 94,817 161,831 210,336 319,455 115,519 - -------------------------------------------------------------------------------------- 129,735 242,912 278,012 510,545 148,277 Other marine revenues 9,211 11,323 15,464 28,567 6,253 - -------------------------------------------------------------------------------------- $138,946 254,235 293,476 539,112 154,530 ====================================================================================== Operating costs: Vessel operating costs: Crew costs $ 44,135 66,409 97,544 134,338 53,409 Repair and maintenance 16,334 32,873 33,396 75,999 17,062 Insurance 4,264 6,227 9,561 12,060 5,297 Fuel, lube and supplies 5,508 8,897 12,492 18,894 6,984 Other 7,190 9,486 16,330 18,670 9,140 - --------------------------------------------------------------------------------------- 77,431 123,892 169,323 259,961 91,892 Costs of other marine revenues 7,434 8,670 11,789 22,327 4,355 - -------------------------------------------------------------------------------------- $ 84,865 132,562 181,112 282,288 96,247 ====================================================================================== </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 $9.2 million of billings as of September 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 and six-month periods ended September 30 and for the quarter ended June 30, 1999 consist of the following: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ----------------- ------------------ ---------- (In thousands) 1999 1998 1999 1998 1999 - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Operating profit - vessel activity: United States $ 399 28,881 2 82,368 (397) International 18,633 51,866 39,680 90,918 21,047 - ---------------------------------------------------------------------------------------------- 19,032 80,747 39,682 173,286 20,650 Gains on sales of assets 6,598 987 8,955 2,640 2,357 Other marine services 1,661 2,467 3,325 5,859 1,664 - ---------------------------------------------------------------------------------------------- Operating profit 27,291 84,201 51,962 181,785 24,671 - ---------------------------------------------------------------------------------------------- Equity in net earnings of unconsolidated companies 1,900 1,767 3,886 3,529 1,986 Interest and other debt costs (163) (1,015) (289) (1,475) (126) Corporate general and administrative (3,120) (3,129) (6,065) (6,507) (2,945) Other income 1,864 296 2,487 623 623 - ---------------------------------------------------------------------------------------------- Earnings before income taxes $27,772 82,120 51,981 177,955 24,209 ============================================================================================== </TABLE> Operating profit for the quarter and six-month periods ended September 30, 1999 decreased significantly from the comparative periods in fiscal year 1999 due to declines in utilization, average day rates and active vessels for the worldwide fleet offset somewhat 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. Despite significant increases in the price of oil over the past six months, the number of working drilling rigs has not yet rebounded in full from its sharp decline experienced during fiscal year 1999. U.S.-based vessel revenues for the quarter and six-month periods ended September 30, 1999 have decreased by approximately 57% and 65%, respectively, as compared to these same periods in fiscal year 1999 resulting in minimal operating profit for the current quarter and six-month period. Average day rates for the U.S.- based towing-supply/supply vessels (the company's major revenue-producing assets in the U.S.) for the current quarter and six-month period have decreased by approximately 45% and 49%, respectively, as compared to these same periods in fiscal year 1999. The number of working drilling rigs in the U.S. Gulf of Mexico has shown an upward trend during this quarter; however, weak vessel demand is expected to continue until further improvements in rig utilization occurs. In addition the expected delivery of several 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. International-based vessel operating profit for the quarter and six-month periods ended September 30, 1999 decreased approximately 64% and 56%, respectively, as compared to these same periods in fiscal year 1999 as international-based vessel utilization and average day rates continued their decline which began during the previous quarter. Up until six months ago, international activity had not been as dramatically affected by the oil industry downturn as the U.S. Gulf of Mexico due primarily to the longer-term nature of international vessel contracts. However, depressed oil prices up until the beginning of this fiscal year has resulted in curtailments of customer projects, thus lowering international vessel demand which will likely continue for the remainder of fiscal year 2000. -9-
In response to the oil industry downturn the following actions have been taken. During the last quarter of fiscal year 1999 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 deferred thus substantially reducing repair and maintenance costs for the current quarter and six-month period versus these same periods in fiscal year 1999. Reductions in crew personnel have also been made. These personnel reductions lowered crew costs for the quarter and six-month periods ended September 30, 1999 versus these same periods in fiscal year 1999 and the preceding quarter. Current quarter operating results for the U.S.-based vessels show signs of stabilization as compared to the previous quarter. A slight increase in U.S.- based vessel utilization offset somewhat by a modest decline in the average day rates resulted in a small operating profit for the current quarter versus an operating loss in the preceding quarter. Increases in domestic oil prices and working drilling rigs appear to have reversed, for now, the declining vessel demand in the U.S. Gulf of Mexico vessel market. Current quarter international-based vessel operating profit decreased approximately 11% from the preceding quarter as a result of continued declines in utilization and average day rates offset somewhat by reduced operating costs for the international fleet. Declines in utilization and average day rates for international-based vessels were expected as international activity is now being negatively affected by the depressed oil prices that were experienced throughout calendar year 1998. International operating costs, mainly crew costs, have been reduced because of the decreasing demand for international-based vessels. Also contributing to the reduction in international operating costs was the sale of the safety/standby vessel fleet in early July 1999 for approximately $40 million. Gains on sales of assets increased in the current quarter due to an increase in vessel sales. Interest and other debt costs were negligible as the company had no outstanding debt during the current six-month period. Other income increased during the current six-month period as the result of interest earned on an increased cash balance. 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 and six- month periods ended September 30 and for the quarter ended June 30, 1999: -10-
<TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, ---------------- ----------------- ---------- 1999 1998 1999 1998 1999 - ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> UTILIZATION: - ----------- Domestic-based fleet: -------------------- Towing-supply/supply 52.3% 73.2 49.7 79.3 47.2 Crew/utility 74.1 86.5 75.7 87.7 77.3 Offshore tugs 46.8 55.8 42.8 58.6 38.9 Other 76.8 48.2 61.1 47.0 46.6 Total 55.2% 71.0 52.3 75.5 49.4 International-based fleet: ------------------------- Towing-supply/supply 67.0% 84.0 69.5 85.1 71.9 Crew/utility 90.4 88.0 89.8 84.2 89.2 Offshore tugs 51.2 71.7 58.2 73.8 65.4 Safety/standby ---- 84.6 77.5 82.6 77.5 Other 48.3 69.8 50.2 68.8 52.1 Total 66.3% 81.8 69.2 82.0 72.0 Worldwide fleet: --------------- Towing-supply/supply 61.6% 80.0 62.1 82.9 62.6 Crew/utility 84.9 87.5 85.0 85.6 85.2 Offshore tugs 49.4 65.2 51.7 67.4 54.1 Safety/standby ---- 84.6 77.5 82.6 77.5 Other 54.4 64.4 52.6 63.5 50.9 Total 62.3% 78.0 63.2 79.7 64.1 - ---------------------------------------------------------------------------------- AVERAGE VESSEL DAY RATES: - ------------------------ Domestic-based fleet: -------------------- Towing-supply/supply $3,484 6,331 3,603 7,075 3,734 Crew/utility 1,790 2,121 1,798 2,205 1,806 Offshore tugs 5,922 7,543 5,969 7,600 6,028 Other 1,250 3,053 1,288 3,241 1,345 Total $3,427 5,631 3,496 6,180 3,572 International-based fleet: ------------------------- Towing-supply/supply $5,522 6,643 5,613 6,583 5,698 Crew/utility 2,172 2,406 2,211 2,425 2,250 Offshore tugs 3,818 4,141 3,944 4,208 4,048 Safety/standby ---- 6,351 6,087 6,444 6,094 Other 1,383 918 1,322 897 1,265 Total $4,401 5,320 4,548 5,325 4,676 Worldwide fleet: --------------- Towing-supply/supply $4,878 6,536 5,012 6,761 5,143 Crew/utility 2,059 2,303 2,086 2,338 2,114 Offshore tugs 4,638 5,341 4,646 5,453 4,652 Safety/standby ---- 6,351 6,087 6,444 6,094 Other 1,343 1,317 1,313 1,315 1,282 Total $4,088 5,420 4,237 5,616 4,377 ================================================================================ </TABLE> -11-
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, 1999: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, --------------- ------------------- 1999 1998 1999 1998 1999 - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Domestic-based fleet: - -------------------- Towing-supply/supply 129 139 130 141 131 Crew/utility 26 33 26 34 26 Offshore tugs 36 38 37 39 37 Other 9 10 9 10 10 - -------------------------------------------------------------------------------------------- Total 200 220 202 224 204 - -------------------------------------------------------------------------------------------- International-based fleet: - ------------------------- Towing-supply/supply 219 234 219 231 219 Crew/utility 50 56 50 55 50 Offshore tugs 52 54 51 54 50 Safety/standby --- 29 12 29 25 Other 33 31 33 31 33 - -------------------------------------------------------------------------------------------- Total 354 404 365 400 377 - -------------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 554 624 567 624 581 Vessels held for sale 43 25 47 26 50 Joint-venture and other 44 49 45 49 46 - -------------------------------------------------------------------------------------------- Total 641 698 659 699 677 ============================================================================================ </TABLE> During the current quarter the company acquired six new-build vessels from an industry competitor for an aggregate price of approximately $22 million. The package of vessels included one supply vessel, two offshore tugs and three crew boats. At September 30, 1999, four of the vessels were still under construction and were not included in the vessel count. Also during the current quarter the company sold all of its safety/standby vessels for approximately $40 million in an all cash transaction. This specialized fleet was sold because it did not conform with the company's long-range strategies. General and administrative expenses for the quarters and six-month periods ended September 30 and for the quarter ended June 30, 1999: <TABLE> <CAPTION> Quarter Quarter Ended Six Months Ended Ended September 30, September 30, June 30, --------------- ---------------- (In thousands) 1999 1998 1999 1998 1999 - -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 9,916 11,110 20,049 22,235 10,133 Office and property 2,752 3,327 5,651 6,636 2,899 Sales and marketing 1,058 1,209 2,168 2,680 1,110 Professional services 1,353 1,083 2,585 2,708 1,232 Other 1,568 1,722 3,140 2,933 1,572 - -------------------------------------------------------------------- $16,647 18,451 33,593 37,192 16,946 ==================================================================== </TABLE> General and administrative expenses for the current quarter and six-month period decreased as compared to these same periods in fiscal year 1999 due to the declining business environment and also personnel reductions resulting from the sale of the safety/standby vessel fleet. 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 -12-
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, 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. Investing activities for the six months ended September 30, 1999 provided $10.9 million of cash which included $53.3 million from proceeds from sales of assets, primarily the safety/standby fleet for approximately $40 million during the current quarter. Sale proceeds were offset by additions to properties and equipment totaling $42.4 million comprised of approximately $5.1 million in capitalized repairs and maintenance and approximately $35.3 million in new construction. The new construction includes approximately $18.3 million for the purchase of six new-build vessels from an industry competitor as previously discussed. Financing activities includes 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. 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. 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 September 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. -13-
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 95% 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 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 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 27, 1999. 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 Nominee Donald T. Bollinger Nominee Arthur R. Carlson Director Continuing in Office Larry D. Hornbeck Nominee Hugh J. Kelly Director Continuing in Office John P. Laborde Director Continuing in Office Jon C. Madonna Nominee Paul W. Murrill Director Continuing in Office William C. O'Malley Director Continuing in Office Lester Pollack Director Continuing in Office J. Hugh Roff, Jr. Director Continuing in Office Donald G. Russell Nominee C. The company's Stockholders voted as follows with respect to the proposals presented at the meeting: 1. Robert H. Boh was elected director with 50,541,933 votes cast for and 541,067 votes withheld. 2. Donald T. Bollinger was elected director with 50,544,344 votes cast for and 538,656 votes withheld. 3. Larry D. Hornbeck was elected director with 50,542,338 votes cast for and 540,662 votes withheld. 4. Jon C. Madonna was elected director with 50,421,485 votes cast for and 661,515 votes withheld. 5. Donald G. Russell was elected director with 50,541,596 votes cast for and 541,404 votes withheld. -15-
6. The selection of Ernst & Young LLP as the company's independent accountants for the fiscal year ending March 31, 2000 was ratified with 50,825,174 votes cast for, 88,354 votes against and 169,472 abstentions. Item 6. Exhibits and Reports on Form 8-K -------------------------------- A. At page 18 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. -16-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TIDEWATER INC. ------------------------------------ (Registrant) Date: October 19, 1999 /s/ William C. O'Malley ------------------------------------ William C. O'Malley Chairman of the Board, President and Chief Executive Officer Date: October 19, 1999 /s/ Ken C. Tamblyn ------------------------------------ Ken C. Tamblyn Executive Vice President and Chief Financial Officer (Principal Accounting Officer) -17-
EXHIBIT INDEX Exhibit Number - ------ 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule -18-