1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Quarterly Period Ended June 30, 1997 ------------- 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) 1440 Canal Street, Suite 2100, New Orleans, Louisiana 70112 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 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 --------- ---------- 60,390,024 shares of Tidewater Inc. common stock $.10 par value per share were outstanding on July 22, 1997. Registrant has no other class of common stock outstanding.
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> June 30, March 31, ASSETS 1997 1997 ---------- ---------- <S> <C> <C> Current assets: Cash, including temporary cash investments $ 26,868 41,114 Trade and other receivables 246,805 187,612 Inventories 38,076 36,016 Other current assets 7,173 3,984 ---------- ---------- Total current assets 318,922 268,726 ---------- ---------- Investments in, at equity, and advances to unconsolidated companies 14,408 20,556 Properties and equipment: Marine equipment 1,533,675 1,265,633 Compression equipment 325,399 322,512 Other 44,861 39,826 ---------- ---------- 1,903,935 1,627,971 Less accumulated depreciation 957,457 946,880 ---------- ---------- Net properties and equipment 946,478 681,091 Goodwill, net 387,847 21,357 Other assets 59,423 47,270 ---------- ---------- $1,727,078 1,039,000 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt 64,405 -- Accounts payable and accrued expenses 156,191 81,500 Accrued property and liability losses 10,821 13,248 ---------- ---------- Total current liabilities 231,417 94,748 ---------- ---------- Long-term debt 422,690 -- Deferred income taxes 172,421 95,595 Accrued property and liability losses 40,594 32,146 Other liabilities and deferred credits 47,791 46,847 Stockholders' equity: Common stock of $.10 par value; issued 60,377,900 shares at June and 60,334,889 shares at March 6,038 6,033 Additional paid-in capital 342,086 341,415 Retained earnings 475,055 433,347 ---------- ---------- 823,179 780,795 Less: Cumulative foreign currency translation adjustment 10,582 10,676 Deferred compensation - restricted stock 432 455 ---------- ---------- Total stockholders' equity 812,165 769,664 ---------- ---------- $1,727,078 1,039,000 ========== ========== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -2-
3 TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share and per share data) <TABLE> <CAPTION> Three Months Ended June 30, ---------------------------- 1997 1996 ------------ ------------ <S> <C> <C> Revenues: Marine operations $ 230,440 146,639 Compression operations 26,157 29,255 ------------ ------------ 256,597 175,894 ------------ ------------ Costs and expenses: Marine operations 123,184 91,216 Compression operations 13,166 16,888 Depreciation and amortization 25,108 20,017 General and administrative 18,869 15,075 ------------ ------------ 180,327 143,196 ------------ ------------ 76,270 32,698 Other income (expenses): Foreign exchange (loss) gain (65) 143 Gain on sales of assets 3,485 1,434 Equity in net earnings of unconsolidated companies 1,024 1,243 Minority interests (295) (178) Interest and miscellaneous income 996 911 Interest and other debt costs (4,504) (413) ------------ ------------ 641 3,140 ------------ ------------ Earnings before income taxes 76,911 35,838 Income taxes 26,150 11,468 ------------ ------------ Net earnings $ 50,761 24,370 ============ ============ Primary and fully-diluted net earnings per common share $ .83 .39 ============ ============ Weighted average common shares and equivalents 60,933,347 62,660,947 ============ ============ Cash dividends declared per common share $ .15 .125 ============ ============ </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -3-
4 TIDEWATER INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Three Months Ended June 30, -------------------------- 1997 1996 ----------- ----------- <S> <C> <C> Net cash provided by operating activities $ 95,069 45,667 ----------- ----------- Cash flows from investing activities: Proceeds from sales of assets 10,557 5,079 Additions to properties and equipment (20,117) (12,826) Acquisition of O.I.L. Ltd., net of cash acquired (541,944) -- Acquisition of joint-venture interest, net of cash acquired (13,448) (3,435) Dividends received from unconsolidated companies net of additional investments 3,162 2,943 Dividends paid to minority interest (462) (658) Increase in other assets (3,433) -- ----------- ----------- Net cash used in investing activities (565,685) (8,897) ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt (35,253) (25,554) Credit facility borrowings 500,000 -- Proceeds from issuance of common stock 676 1,730 Dividends paid (9,053) (7,744) ----------- ----------- Net cash provided by (used in) financing activities 456,370 (31,568) ----------- ----------- Net (decrease) increase in cash, including temporary cash investments (14,246) 5,202 ----------- ----------- Cash, including temporary cash investments at beginning of period 41,114 28,768 ----------- ----------- Cash, including temporary cash investments at end of period $ 26,868 33,970 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 640 352 Income taxes $ 5,567 1,411 =========== =========== </TABLE> See Notes to Unaudited Condensed Consolidated Financial Statements. -4-
5 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) Earnings per Share Data Primary and fully diluted earnings per share data are computed on the weighted average number of shares and dilutive equivalent shares of common stock (stock options and restricted stock grants) outstanding during each period using the treasury stock method. (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 34% and 32% for the quarters ended June 30, 1997 and 1996, respectively. (4) Marine Acquisitions On May 16,1997 the Company acquired all of the shares of O.I.L. Ltd. (O.I.L.) from Ocean Group plc in exchange for a cash payment of 328 million pounds sterling or approximately $534 million. In addition a 3 million pound sterling, or approximately $5 million, advance payment was made for the net working capital of O.I.L., with the final purchase price to be adjusted for the final net working capital of O.I.L. as of the closing date. Available cash of $39 million and borrowings of $500 million were used to fund the purchase. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing- supply vessels, in several international offshore oil and gas exploration areas outside of the United States. The total estimated cost of the acquisition of $630 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, including accruals for the estimated balance of O.I.L. working capital and professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $356 million has been recorded in the Condensed Consolidated Balance Sheet. The results of O.I.L.'s operations have been consolidated with the Company's effective May 16, 1997. Pro forma combined results of operations of the Company and of O.I.L. including appropriate purchase accounting adjustments for the quarters ended June 30, 1997 and 1996, as though the acquisition had taken place on April 1 of the respective years are as follows: <TABLE> <CAPTION> Quarter Ended June 30, 1997 1996 ----------- ----------- <S> <C> <C> Revenues $ 277,402 208,415 =========== =========== Net earnings $ 50,104 20,098 =========== =========== Primary and fully-diluted earnings per common share $ .82 .32 =========== =========== </TABLE> -5-
6 The $500 million of debt incurred to finance the O.I.L. acquisition was borrowed pursuant to a $600 million Revolving Credit and Term Loan agreement with several banks and consists of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. Quarterly repayments of the term loan begin September 30, 1997 and the indebtedness bears interest at fluctuating rates subject to certain options chosen in advance by the Company. On June 30, 1997 the Company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint-venture companies in Australia for a cash payment of $13.2 million and issuance of debt totalling $13.9 million. The debt has been discounted to yield interest at 7% and is to be repaid in installments beginning September 30, 1997. The total estimated cost of the acquisition of $36 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, including accruals for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $11.6 million has been recorded in the Condensed Consolidated Balance Sheet. (5) The Internal Revenue Service has notified the Company of proposed deficiencies aggregating approximately $17.5 million of additional income taxes resulting from audits of the Company's income tax returns for the years ended March 31, 1993, 1994 and 1995. The Company is the defendant to several alleged labor-law pay violations claimed by certain current and former employees in various areas of the world where its marine vessel operations are conducted. While the amount, if any, of such claims for which the Company ultimately may be held liable is not presently determinable, if the claimants and all similarly situated employees and former employees who might file claims were successful, the aggregate amount of the Company's liability, based on available information, could approximate $15 million. The Company is in the process of defending against these claims and assessments and, in management's opinion, the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position or the results of its ongoing operations. -6-
7 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Shareholders of Tidewater Inc.: We have reviewed the accompanying condensed consolidated balance sheet of Tidewater Inc. and subsidiaries as of June 30, 1997, and the related condensed consolidated statements of earnings and cash flows for the three-month period ended June 30, 1997. These financial statements are the responsibility of the Company's management. The condensed consolidated balance sheet and the related condensed consolidated statements of earnings and cash flows of Tidewater Inc. and subsidiaries as of June 30, 1996, and for the three-month period then ended were reviewed by other accountants whose report dated July 17, 1996 stated that they were not aware of any material modifications that should be made to those statements for them to be in conformity with generally accepted accounting principles. We conducted our review 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 review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements at June 30, 1997, and for the three-month period then ended for them to be in conformity with generally accepted accounting principles. The consolidated financial statements for the year ended March 31, 1997, from which the accompanying condensed balance sheet was derived, were audited by other accountants and they expressed an unqualified opinion on those financial statements in their report dated April 30, 1997. Ernst & Young LLP New Orleans, Louisiana July 21, 1997 -7-
8 MANAGEMENT'S DISCUSSION AND ANALYSIS The company provides services and equipment to the energy industry through its marine and compression divisions. Revenues, net earnings and cash flows from operations are dependent upon activity levels of the marine vessel fleet and the natural gas compression rental fleet. Activity levels for the marine vessel fleet and the natural gas compression rental fleet are 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. MARINE DIVISION The Marine division provides a diverse range of services and equipment to the offshore energy industry. Fleet size, utilization and vessel day rates primarily determine revenue and operating profit levels because operating costs and depreciation do not change proportionally when revenue changes. Operating costs principally consist of crew costs, repair and maintenance, insurance, fuel, lube oil and supplies. Fleet size and utilization are the major factors which affect crew costs. The timing and amount of repair and maintenance costs are influenced by vessel age and scheduled drydockings to satisfy safety and inspection requirements mandated by regulatory agencies. Whenever possible, vessel drydockings are done during seasonally slow periods to minimize any impact on vessel operations and are only done if economically justified given the vessel's age and physical condition. The following tables compare revenues, operating expenses (excluding general and administrative expense and depreciation expense) and operating margins of the Marine division's owned and operated vessel fleet and provide a breakdown of Marine operating profit for the quarters ended June 30 and March 31. <TABLE> <CAPTION> June 30, March 31, -------------------- -------- (in thousands) 1997 1996 1997 -------- -------- -------- <S> <C> <C> <C> Revenues: United States $105,956 68,196 99,798 International 110,040 70,353 88,202 -------- -------- -------- 215,996 138,549 188,000 -------- -------- -------- Expenses: Crew costs 52,748 37,884 47,714 Repair and maintenance 34,003 26,658 24,899 Insurance 8,450 7,931 8,365 Fuel, lube oil and supplies 8,137 7,181 8,886 Other 7,510 4,787 6,676 -------- -------- -------- 110,848 84,441 96,540 -------- -------- -------- Operating margins $105,148 54,108 91,460 ======== ======== ======== Operating margin percentages 48.7% 39.1% 48.6% ======== ======== ======== </TABLE> Current quarter operating margins rose above fiscal 1997's first quarter as a result of higher average day rates for the worldwide vessel fleet and a larger international-based fleet offset partially by higher operating costs. A much more favorable supply/demand relationship for offshore marine services in the U.S. Gulf of Mexico was the cause of the 56% increase in average vessel day rates for the domestic-based vessel fleet for the current quarter compared with fiscal 1997's first quarter level. Better international market conditions contributed to a 33% increase in average vessel day rates for the current quarter compared with corresponding quarter of fiscal 1997. A larger international-based vessel fleet resulted from the current quarter's acquisition of O.I.L. Ltd. Higher current quarter operating costs compared with fiscal 1997's first quarter resulted from increased costs associated with attracting, -8-
9 training and retaining qualified vessel personnel, a greater number of vessel drydockings and the expansion of the fleet as a result of the acquisition of O.I.L. Ltd. Current quarter operating margins rose above the preceding quarter's amount due to higher average day rates for the worldwide vessel fleet and the expansion of the fleet as a result of the O.I.L acquisition. The positive effect of these factors on current quarter operating margins was partially offset by higher repair and maintenance costs resulting from a greater number of vessel drydockings. Revenues, operating expenses (excluding general and administrative expense and depreciation expense) and operating margins of brokered vessels, shipyard and other activities for the quarters ended June 30 and March 31 were: <TABLE> <CAPTION> June 30, March 31, ----------------------- ---------- (in thousands) 1997 1996 1997 ---------- ---------- ---------- <S> <C> <C> <C> Revenues $ 14,444 8,090 3,963 Expenses 12,336 6,775 3,031 ---------- ---------- ---------- Margins $ 2,108 1,315 932 ========== ========== ========== </TABLE> Marine division operating profit for the quarters ended June 30 and March 31 consist of the following: <TABLE> <CAPTION> June 30, March 31, ----------------------- ---------- (in thousands) 1997 1996 1997 ---------- ---------- ---------- <S> <C> <C> <C> Owned and operated vessels: United States $ 47,251 15,862 43,266 International 26,292 16,349 21,958 ---------- ---------- ---------- 73,543 32,211 65,224 Gains from asset sales 3,308 716 3,793 Brokered vessels, shipyard and other 1,923 1,118 692 ---------- ---------- ---------- Operating profit $ 78,774 34,045 69,709 ========== ========== ========== </TABLE> Marine fleet utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Utilization of the domestic-based vessel fleet, which operates in U.S. waters, is primarily influenced by offshore activity related to the exploration, development and production of natural gas in the U.S. Gulf of Mexico, whereas, utilization of the international-based vessel fleet, which operates in waters other than the United States, is primarily influenced by offshore activity related to the exploration, development and production of oil. Marine vessel day rates are determined by the demand created through the level of offshore exploration, development and production spending by energy exploration and production companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The following tables compare day-based Marine fleet utilization percentages and average day rates by vessel class and in total for the quarters ended June 30 and March 31. -9-
10 <TABLE> <CAPTION> June 30, March 31, -------------------------- ----------- 1997 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> UTILIZATION: Domestic-based fleet : Towing-supply/supply 91.0% 91.3 93.3 Crew/utility 90.9 90.9 86.7 Offshore tugs 63.1 62.4 63.9 Other 59.5 48.8 45.1 Total 84.8% 83.6 84.0 International-based fleet : Towing-supply/supply 89.4% 87.5 92.1 Crew/utility 82.4 90.5 83.6 Offshore tugs 83.1 75.4 85.9 Safety/standby 78.1 84.4 80.1 Other 83.0 76.2 82.0 Total 86.0% 84.0 87.8 Worldwide fleet: Towing-supply/supply 90.1% 89.2 92.7 Crew/utility 86.1 90.7 85.2 Offshore tugs 74.7 69.7 75.9 Safety/standby 78.1 84.4 80.1 Other 77.7 69.7 72.1 Total 85.5% 83.8 86.2 =========== =========== =========== AVERAGE VESSEL DAY RATES: Domestic-based fleet: Towing-supply/supply $ 6,986 4,278 6,382 Crew/utility 1,976 1,424 1,800 Offshore tugs 6,443 4,994 6,355 Other 2,626 3,158 3,224 Total $ 5,876 3,773 5,470 International-based fleet: Towing-supply/supply $ 4,806 3,695 4,116 Crew/utility 1,982 1,728 1,958 Offshore tugs 3,413 2,708 3,299 Safety/standby 6,002 5,194 5,906 Other 873 719 812 Total $ 3,909 2,939 3,475 Worldwide fleet: Towing-supply/supply $ 5,750 3,965 5,177 Crew/utility 1,979 1,562 1,875 Offshore tugs 4,492 3,602 4,468 Safety/standby 6,002 5,194 5,906 Other 1,173 1,123 1,213 Total $ 4,677 3,298 4,310 =========== =========== =========== </TABLE> Additional investment in the vessel fleet for the current quarter, excluding the acquisitions of O.I.L. Ltd and the nine vessels acquired from Australian joint-venture companies, totaled $13.2 million and included the purchase of a towing-supply vessel and a utility vessel for $2.8 million. The remainder of additions in the current quarter were for modifications to the existing vessel fleet. The following table compares the average number of vessels by class and geographic distribution for the quarters ended June 30 and March 31. -10-
11 <TABLE> <CAPTION> June 30, March 31, ------------- --------- 1997 1996 1997 ----- ----- ----- <S> <C> <C> <C> Domestic-based fleet: Towing-supply/supply 144 139 143 Crew/utility 39 43 41 Offshore tugs 39 41 43 Other 11 15 15 ----- ----- ----- Total 233 238 242 ----- ----- ----- International-based fleet: Towing-supply/supply 192 169 164 Crew/utility 49 35 38 Offshore tugs 54 53 51 Safety/standby 26 9 26 Other 38 47 41 ----- ----- ----- Total 359 313 320 ----- ----- ----- Owned or chartered vessels included in marine revenues 592 551 562 Vessels withdrawn from active service 14 24 16 Joint-venture and other 67 66 47 ----- ----- ----- Total 673 641 625 ===== ===== ===== Worldwide fleet: Towing-supply/supply 365 351 346 Crew/utility 98 91 88 Offshore tugs 102 100 98 Safety/standby 26 24 25 Other 82 75 68 ----- ----- ----- Total 673 641 625 ===== ===== ===== </TABLE> The information presented above gives effect to the O.I.L acquisition as of May 16, 1997. Because of the timing of the acquisition the averages presented above distort the effect of O.I.L. on a forward-looking basis. To provide a better understanding of the effect of this acquisition the table below lists average utilization, average day rates and number of vessels by class and geographic distribution as of June 30, 1997. <TABLE> <CAPTION> Average Average Number Utilization Day Rate of Vessels ----------- ---------- ---------- <S> <C> <C> <C> Domestic-based fleet : Towing-supply/supply 90% $ 7,000 145 Crew/utility 89 2,000 39 Offshore tugs 60 6,550 39 Other 56 2,860 11 --------- --------- --------- Total 84% $ 5,900 234 --------- --------- --------- International-based fleet : Towing-supply/supply 89% $ 4,950 231 Crew/utility 82 1,960 57 Offshore tugs 78 3,280 56 Safety/standby 79 6,090 31 Other 81 800 40 --------- --------- --------- Total 85% $ 4,150 415 --------- --------- --------- Worldwide fleet: Towing-supply/supply 89% $ 5,800 376 Crew/utility 85 1,980 96 Offshore tugs 71 4,400 95 Safety/standby 79 6,090 31 Other 75 1,140 51 --------- --------- --------- Total 84% $ 4,800 649 --------- --------- --------- </TABLE> -11-
12 COMPRESSION DIVISION The Compression division provides natural gas compression services and equipment for a variety of applications primarily in the energy industry. Rental revenues are determined, for the most part, by utilization and fleet size. Utilization is affected by natural gas storage levels and by the number and age of producing oil and natural gas wells which, in turn, are dependent upon the price levels of oil and natural gas. Quality of service, availability and rental rates for equipment are also major factors which affect utilization. Operating expenses are generally consistent from period-to-period and usually vary in the short-term due to fluctuations in the amount of repair and maintenance expense. Long-term growth in operating expenses will occur primarily as a result of increased fleet size and general inflationary factors. Compression division operating profit is primarily determined by operating margins from rental gas compression operations. The following tables compare revenues, operating expenses (excluding general and administrative expense and depreciation expense), operating margins and related statistics for gas compression operations for the quarters ended June 30 and March 31. <TABLE> <CAPTION> June 30, March 31, ---------------------- --------- (in thousands, except statistics) 1997 1996 1997 --------- --------- --------- <S> <C> <C> <C> Revenues: Rentals $ 19,354 17,802 18,717 Repair, service and other 569 1,298 696 --------- --------- --------- 19,923 19,100 19,413 --------- --------- --------- Expenses: Wages and benefits 3,024 2,919 2,870 Repairs and maintenance 3,773 3,240 4,033 Other 1,871 2,003 2,090 --------- --------- --------- 8,668 8,162 8,993 --------- --------- --------- Operating margins $ 11,255 10,938 10,420 ========= ========= ========= Operating margins as a percent of revenues 56.5% 57.3% 53.7% ========= ========= ========= Horsepower based statistics: Utilization 80.8% 75.5% 79.4% Average monthly rental rate $ 16.69 16.58 16.62 Average fleet size 476,309 472,108 470,104 ========= ========= ========= </TABLE> Greater demand for natural gas compression services in the current quarter pushed utilization and rental rates above prior year and prior quarter levels which positively affected current quarter operating margins. This positive effect on operating margins in the current quarter compared with the preceding quarter and compared with fiscal 1997's first quarter was partially offset by higher repair and maintenance expense as a result of a greater number of compressor overhauls. The Compression division also designs, fabricates and installs engineered compressor systems and sells, primarily to its customers, related parts and equipment. The following table compares revenues, costs of sales and sales margins for equipment and parts sales for the quarters ended June 30 and March 31. <TABLE> <CAPTION> June 30, March 31, ------------------ --------- (in thousands) 1997 1996 1997 ------- ------- ------- <S> <C> <C> <C> Revenues $ 6,234 10,155 9,439 Costs of sales 4,498 8,726 7,608 ------- ------- ------- Gross profit margins $ 1,736 1,429 1,831 ======= ======= ======= Gross profit margins as a percent of revenues 27.8% 14.1% 19.4% ======= ======= ======= </TABLE> Fluctuations in the level of equipment and parts sales for the periods presented are due to the timing of sales of engineered products. Fluctuations in gross profit margin percentages are the result of -12-
13 competitive market forces. Costs of sales consist primarily of wages and benefits and material costs associated with the design, fabrication and installation of packaged compressor systems. Additional investment in the natural gas compression rental fleet during the current quarter totaled $3.6 million and was primarily for additional natural gas compressors. CORPORATE On May 16,1997 the Company acquired all of the shares of O.I.L. Ltd. (O.I.L.) from Ocean Group plc in exchange for a cash payment of 328 million pounds sterling or approximately $534 million. In addition a 3 million pound sterling, or approximately $5 million, advance payment was made for the net working capital of O.I.L., with the final purchase price to be adjusted for the final net working capital of O.I.L. as of the closing date. Available cash of $39 million and borrowings of $500 million were used to fund the purchase. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several international offshore oil and gas exploration areas outside of the United States. The total estimated cost of the acquisition of $630 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, including accruals for the estimated balance of O.I.L. working capital and professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $356 million has been recorded in the Condensed Consolidated Balance Sheet. The $500 million of debt incurred to finance the O.I.L. acquisition was borrowed pursuant to a $600 million Revolving Credit and Term Loan agreement with several banks and consists of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. Quarterly repayments of the term loan begin September 30, 1997 and the indebtedness bears interest at fluctuating rates subject to certain options chosen in advance by the Company. On June 30, 1997 the Company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint-venture companies in Australia for a cash payment of $13.2 million and issuance of debt totalling $13.9 million. The debt has been discounted to yield interest at 7% and is to be repaid in installments beginning September 30, 1997. The total estimated cost of the acquisition of $36 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, including accruals for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $11.6 million has also been recorded in the Condensed Consolidated Balance Sheet. Financing activities for the quarter ended June 30, 1997 provided $456.4 million of cash and included borrowings of $500 million for the acquisition of O.I.L. Ltd discussed above. Principal payments on long-term debt include $30 million of repayments on the revolving line of credit. Higher dividend payments are the result of the fiscal 1997 second quarter increase in the per share dividend from $.125 per share to $.15 per share. -13-
14 General and administrative expenses for the quarters ended June 30 and March 31 consist of the following components: <TABLE> <CAPTION> June 30, March --------------------- --------- (in thousands) 1997 1996 1997 --------- --------- --------- <S> <C> <C> <C> Personnel $ 11,427 8,801 10,793 Office and property 3,362 2,641 3,026 Sales and marketing 1,320 933 1,173 Professional services 1,455 1,268 1,377 Other 1,305 1,432 1,275 --------- --------- --------- $ 18,869 15,075 17,644 ========= ========= ========= </TABLE> The increase in general and administrative costs from the preceding quarter to the current quarter is principally the result of the O.I.L. acquisition. The Internal Revenue Service has notified the Company of proposed deficiencies aggregating approximately $17.5 million of additional income taxes resulting from audits of the Company's income tax returns for the years ended March 31, 1993, 1994 and 1995. The Company is the defendant to several alleged labor-law pay violations claimed by certain current and former employees in various areas of the world where its marine vessel operations are conducted. While the amount, if any, of such claims for which the Company ultimately may be held liable is not presently determinable, if the claimants and all similarly situated employees and former employees who might file claims were successful, the aggregate amount of the Company's liability, based on available information, could approximate $15 million. The Company is in the process of defending against these claims and assessments and, in management's opinion, the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position or the results of its ongoing operations. 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 and development spending by energy exploration and production companies. As this spending increases, prices of goods and services used by the energy industry and the energy services industry will increase. Future improvements in vessel day rates and compressor rental rates may buffer 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 any related environmental damage. -14-
15 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 filed the following two Current Reports on Form 8-K during the quarter ended June 30, 1997: 1. A Current Report on Form 8-K dated May 16, 1997 disclosed the Company's acquisition of all of the outstanding shares of O.I.L. Limited and its related international marine operating companies from the Ocean Group plc and its affiliates. 2. A Current Report on Form 8-K dated May 30, 1997 disclosed that the Company had dismissed KPMG Peat Marwick LLP as the Company's independent accountants and engaged Ernst & Young LLP as the Company's new independent accountants. -15-
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: July 22, 1997 /s/ William C. O'Malley -------------------------------- William C. O'Malley Chairman of the Board, President and Chief Executive Officer Date: July 22, 1997 /s/ Ken C. Tamblyn -------------------------------- Ken C. Tamblyn Executive Vice President and Chief Financial Officer -16-
17 EXHIBIT INDEX Exhibit Number - ------- 11 Statement - Computation of Per Share Earnings 27 Financial Data Schedule