SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the Fiscal Year Ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the Transition Period From ____________________ to
____________________.
Commission file number 1-6311
TIDEWATER INC.
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(Exact name of registrant as specified in its Charter)
Delaware 72-0487776
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 Poydras Street, New Orleans, Louisiana 70130
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (504) 568-1010
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
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Common Stock, par value $0.10 New York Stock Exchange, Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange, Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of April 23, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $2,493,713,216. Excluded
from the calculation of market value are 4,495,630 shares held by the
Registrant's grantor stock ownership trust.
56,047,551 shares of Tidewater Inc. common stock $0.10 par value per share
were outstanding on April 23, 2001. Excluded from the calculation of shares
outstanding at April 23, 2001 are 4,495,630 shares held by the Registrant's
grantor stock ownership trust. Registrant has no other class of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders are incorporated into Part III of this report.
TABLE OF CONTENTS
PART I
Page
Item Number
---- ------
1 & 2. Business and Properties........................................ 3
3. Legal Proceedings.............................................. 7
4. Submission of Matters to a Vote of Security Holders............ 7
4A. Executive Officers of the Registrant........................... 7
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters........................................... 8
6. Selected Financial Data........................................ 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
7A. Quantitative and Qualitative Disclosures About Market Risk..... 20
8. Financial Statements and Supplementary Data.................... 20
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 20
PART III
10. Directors and Executive Officers of the Registrant............. 20
11. Executive Compensation......................................... 20
12. Security Ownership of Certain Beneficial Owners and Management. 20
13. Certain Relationships and Related Transactions................. 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
2
FORWARD LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the company notes that certain statements set
forth in Items 1 and 7 and elsewhere in this report, which provide other than
historical information and which are forward looking, involve risks and
uncertainties that may impact the company's actual results of operations. The
company faces many risks and uncertainties, many of which are beyond the control
of the company, including: fluctuations in oil and gas prices; level of fleet
additions by competitors; changes in capital spending by customers in the energy
industry for exploration, development and production; unsettled political
conditions, civil unrest and governmental actions, especially in higher risk
countries of operations; foreign currency controls; and environmental and labor
laws. Other risk factors are discussed elsewhere in this Form 10-K. Readers
should consider all of these risk factors, as well as other information
contained in this report.
PART I
ITEMS 1 and 2. BUSINESS AND PROPERTIES
GENERAL
Tidewater Inc. (the "company"), a Delaware corporation, provides services and
equipment to the offshore energy industry through the operation of the world's
largest fleet of offshore marine service vessels. The company's worldwide
headquarters and principal executive offices are located at 601 Poydras Street,
New Orleans, Louisiana 70130, and its telephone number is (504) 568-1010. The
company was incorporated in 1956. Unless otherwise required by the context, the
term "company" as used herein refers to Tidewater Inc. and its consolidated
subsidiaries.
RECENT DEVELOPMENTS
Fiscal 2001 proved to be a very active and successful year for the company.
During the fourth quarter of fiscal 2001 the company entered into agreements
with three shipyards for the construction of 12 vessels. Seven of the vessels
to be constructed are large platform supply vessels and five are large anchor-
handling towing supply vessels. Among the three shipyards awarded the contracts
is the company's own shipyard, Quality Shipyards, LLC. The company entered into
these agreements one year after it initially announced its new-build program,
intended to better service the needs of the company's customers in the deepwater
markets of the world. In addition to the new-build program, the company
committed to the construction of three large platform supply vessels and two
large crew boats and also purchased three large platform supply vessels
throughout the fiscal year. During the third quarter of fiscal 2001, the
company purchased four large anchor-handling towing supply vessels and four
large platform supply vessels from the Sanko Steamship Co., Ltd. The company
also sold four vessels to one of its 49%-owned unconsolidated marine joint
ventures, Sonatide Marine, Ltd., and sold its 40% holding in another
unconsolidated joint venture, National Marine Service. A full discussion of
each event is disclosed in the "Acquisitions and Dispositions" section of
Item 7.
In fiscal 2000 the company acquired six new-build vessels from an industry
competitor. The package of vessels included one supply vessel, two offshore
tugs and three crew boats. In July 1999 the company sold all of its
safety/standby vessels because this specialized fleet did not conform to the
company's long-range strategies. A full discussion of each event is disclosed in
the "Acquisitions and Dispositions" section of Item 7.
3
MARINE OPERATIONS
The company is the world's largest provider of offshore supply vessels and
marine support services serving the energy industry. With a fleet of over 570
vessels, the company operates, and has a leading market share, in most of the
world's significant oil and gas exploration and production markets and provides
services supporting all phases of offshore exploration, development and
production, including: towing of and anchor-handling of mobile drilling rigs and
equipment; transporting supplies and personnel necessary to sustain drilling,
workover and production activities; assisting in offshore construction
activities; and a variety of specialized services including pipe laying, cable
laying and 3-D seismic work.
The company's fleet is deployed in the major offshore oil and gas areas of
the world. The principal areas of the company's operations include the U.S.
Gulf of Mexico, areas offshore Australia, Brazil, Egypt, India, Indonesia,
Malaysia, Mexico, Trinidad, Venezuela and West Africa and in the North Sea and
the Persian Gulf. The company conducts its operations through wholly-owned
subsidiaries and joint ventures. Information concerning revenues and operating
profit derived from domestic and international marine operations and domestic
and international marine identifiable assets for each of the fiscal years ended
March 31 are summarized below:
(in thousands)
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2001 2000 1999
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Revenues:
Vessel operations:
United States $ 197,660 140,090 296,161
International 386,271 398,427 614,887
Other marine operations 32,748 36,298 57,944
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$ 616,679 574,815 968,992
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Operating profit:
Vessel operations:
United States $ 26,812 (4,694) 96,376
International 65,241 78,888 171,213
Other marine operations 7,137 6,254 12,526
Gain on sales of assets 22,750 19,441 2,949
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$ 121,940 99,889 283,064
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Identifiable assets:
United States $ 293,070 267,411 315,509
International 1,063,709 881,803 990,062
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Total marine assets $1,356,779 1,149,214 1,305,571
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Please refer to Item 7 of this report and Note 10 of Notes to Consolidated
Financial Statements for further discussion of revenues, operating profit and
identifiable assets.
Marine Vessel Operations. The company's vessels regularly and routinely move
from one operating area to another, often to and from offshore operating areas
of different continents. Tables comparing the average size of the company's
marine fleet by class and geographic distribution for the last three fiscal
years are included in Item 7 of this report.
The company's largest class of vessels consists of towing-supply and supply
vessels. Included in this class are anchor-handling towing supply vessels and
platform supply vessels. This class of vessels is chartered to customers for
use in transporting supplies and equipment from shore bases to offshore drilling
rigs, platforms and other installations. Vessels of the anchor handling towing-
supply class are equipped for and are capable of towing drilling rigs and other
marine equipment and setting anchors for positioning and mooring drilling rigs.
Platform supply vessels, characterized with large cargo handling capabilities,
serve drilling and production facilities and support offshore construction and
maintenance work.
The company's other major classes of vessels include crew and utility vessels
and offshore tugs. Crew and utility vessels are chartered to customers for use
in transporting personnel and small quantities of
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supplies from shore bases to offshore drilling rigs, platforms and other
installations. Offshore tugs tow floating drilling rigs, dock tankers, tow
barges, assist pipe laying, cable laying and construction barges and are used in
a variety of other commercial towing operations, including towing barges
carrying a variety of bulk cargoes and containerized cargo.
The company's vessels also include inshore tugs; inshore barges; offshore
barges; and production, line-handling and various other special purpose vessels.
Inshore tugs, which are operated principally within inland waters, tow drilling
rigs to and from their locations, and tow barges carrying equipment and
materials for use principally in inland waters for drilling and production
operations. Barges are either used in conjunction with company tugs or are
chartered to others.
The company sold its safety/standby vessels in July 1999 because it did not
conform to the company's long-range strategies. This specialized fleet
performed safety patrol functions and remained on station to provide a safety
backup to offshore rigs and production facilities and carry special equipment to
rescue personnel.
Contributions of Main Classes of Vessels. Revenues from vessel operations
were derived from the main classes of vessels in the following percentages:
Year Ended March 31,
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2001 2000 1999
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Towing-supply/Supply.................................. 77.5% 72.8% 73.3%
Offshore Tugs......................................... 9.6% 14.1% 12.7%
Crew/Utility.......................................... 11.5% 9.2% 6.9%
Safety/Standby........................................ --- 2.0% 5.7%
Other................................................. 1.4% 1.9% 1.4%
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Shipyards. Quality Shipyards, LLC, a wholly-owned subsidiary of the company,
operates two shipyards in Houma, Louisiana, which construct, modify and repair
vessels. On January 10, 2001, the company awarded Quality Shipyards, LLC four
new-build program contracts for the construction of four large platform supply
vessels for a total estimated cost of $85.6 million. While the shipyard
performs some work for outside customers, the majority of its business relates
to the construction, repair and modification of the company's vessels.
Risks of Operation and Insurance. The operation of any marine vessel
involves an inherent risk of catastrophic marine disaster, adverse weather
conditions, mechanical failure, collisions, property losses to the vessel and
business interruption due to political action in countries other than the United
States. Any such event may result in a reduction in revenues or increased
costs. The company's vessels are insured for their estimated market value
against damage or loss, including war and pollution risks. The company also
carries workers' compensation, maritime employer's liability, general liability
(including third party pollution) and other insurance customary in the industry.
The company's international marine vessel operations are subject to the usual
risks inherent in doing business in countries other than the United States.
Such risks include political changes, possible vessel seizure, company
nationalization or other governmental actions, currency restrictions and
revaluations, and import/export restrictions, all of which are beyond the
control of the company. Although it is impossible to predict the likelihood of
such occurrences or their effect on the company, the company believes these
risks to be within acceptable limits and, in view of the mobile nature of the
company's principal revenue producing assets, does not consider them to
constitute a factor materially adverse to the conduct of its international
marine vessel operations as a whole.
Industry Conditions, Competition and Customers. The company's operations are
materially dependent upon the levels of activity in offshore oil and natural gas
exploration, development and production throughout the world. Such activity
levels are affected by the trends in worldwide crude oil and natural gas prices
that
5
are ultimately influenced by the supply and demand relationship for the natural
resources. A discussion of current market conditions appears under "General
Market Conditions" in Item 7 of this report.
The principal competitive factors for the offshore vessel service industry
are suitability and availability of equipment, price and quality of service.
The company has numerous competitors in virtually all areas in which it
operates. Certain customers of the company own and operate vessels to service
certain of their offshore activities.
The company's diverse, mobile asset base and geographic distribution allow it
to respond to changes in market conditions and provide a broad range of vessel
services to its customers throughout the world. Management believes that the
company has a significant competitive advantage because of the size, diversity
and geographic distribution of its vessel fleet, the company's financial
condition and economies of scale.
The company's principal customers are major oil and natural gas exploration,
development and production companies, foreign government-owned or controlled
organizations and companies that explore and produce oil and natural gas, and
companies that provide other services to the offshore energy industry. Although
one customer accounted for 11% and the five largest customers accounted for
approximately 27% of its revenues during the year ended March 31, 2001, the
company does not consider its operations dependent on any single customer.
Government Regulations. The company's vessels are subject to various
statutes and regulations governing their operation and maintenance.
Under the citizenship provisions of the Merchant Marine Act of 1920 and the
Shipping Act, 1916, the company would lose the privilege of engaging in U.S.
coastwise trade if more than 25% of the company's outstanding stock was owned by
non-U.S. citizens. The company has a dual stock certificate system to prevent
non-U.S. citizens from owning more than 25% of its common stock. In addition,
the company's charter permits the company certain remedies with respect to any
transfer or purported transfer of shares of the company's common stock that
would result in the ownership by non-U.S. citizens of more than 24% of its
common stock. Based on information supplied to the company by its transfer
agent, approximately 3.3% of the company's outstanding common stock was owned by
non-U.S. citizens as of March 31, 2001.
The company's vessels are subject to various statutes and regulations
governing their operation. The laws of the United States provide that once a
vessel is registered under a flag other than the United States, it cannot
thereafter engage in U.S. coastwise trade. Therefore, the company's non-U.S.
flag vessels must continue to be operated abroad, and if the company were not
able to secure charters abroad for them, and work would otherwise have been
available for them in the United States, its operations would be adversely
affected. Of the total 571 vessels owned or operated by the company at March
31, 2001, 305 were registered under flags other than the United States and 266
were registered under the U.S. flag.
All of the company's offshore vessels are subject to international safety and
classification standards. U.S. flag towing-supply and supply vessels are
required to undergo periodic inspections and to be recertified under drydock
examination at least twice every five years. Vessels registered under flags
other than the United States are subject to similar regulations as governed by
the laws of the applicable jurisdictions.
SEASONALITY
The company's vessel fleet generally has its highest utilization rates in the
warmer temperature months when the weather is more favorable for offshore
exploration, development and construction work. However, business volume for
the company is more dependent on oil and natural gas prices and the global
supply and demand conditions for the company's services than any seasonal
variation.
6
ENVIRONMENTAL COMPLIANCE
During the ordinary course of business the company's operations are subject
to a wide variety of environmental laws and regulations. The company attempts
to comply with these laws and regulations in order to avoid costly accidents and
related environmental damage. Compliance with existing governmental regulations
that have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has not
had, nor is expected to have, a material effect on the company. The company is
proactive in establishing policies and operating procedures for safeguarding the
environment against any environmentally hazardous material aboard its vessels
and at shore base locations. Whenever possible, hazardous materials are
maintained or transferred in confined areas to ensure containment if accidents
occur. In addition the company has established operating policies that are
intended to increase awareness of actions that may harm the environment.
EMPLOYEES
As of March 31, 2001, the company had approximately 6,400 employees. The
company considers relations with employees to be satisfactory. The company is
not a party to any union contract in the United States but through several
subsidiaries is a party to union agreements covering local nationals in several
countries other than the United States. The company has recently been the
target of a union organization campaign for the U.S. Gulf of Mexico employees by
maritime labor unions. If the Gulf employees were to unionize, the company's
flexibility in managing industry changes in the domestic market could be
adversely affected.
ITEM 3. LEGAL PROCEEDINGS
The company is not a party to any litigation which, in the opinion of
management, is likely to have a material adverse effect on the company's
financial position or results of operations. Please refer to Item 7 and Note 8
of Notes to Consolidated Financial Statements for further discussion of these
matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
William C. O'Malley....... 64 Chairman, President and Chief Executive Officer since October 1994.
Larry T. Rigdon........... 53 Executive Vice President since 2000. Senior Vice President from 1997 to 2000. Vice
President from 1991 to 1997.
Dean E. Taylor............ 52 Executive Vice President since 2000. Senior Vice President from 1998 to 2000. Vice
President from 1995 to 1998.
Cliffe F. Laborde......... 49 Executive Vice President since 2000. Senior Vice President from 1992 to 2000. General
Counsel since 1992.
J. Keith Lousteau......... 53 Senior Vice President and Chief Financial Officer since 2000. Vice President from 1987 to
2000. Treasurer since 1987.
Joseph M. Bennett......... 45 Vice President and Principal Accounting Officer since 2000. Corporate Controller since 1990.
7
There are no family relationships between the directors or executive officers
of the company. The company's officers are elected annually by the Board of
Directors and serve for one-year terms or until their successors are elected.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The company's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol TDW. At March 31, 2001, there were
approximately 1,885 record holders of the company's common stock, based upon the
record holder list maintained by the company's stock transfer agent. The
following table sets forth the high and low closing sale prices of the company's
common stock as reported on the New York Stock Exchange Composite Tape and the
amount of cash dividends per share declared on Tidewater common stock for the
periods indicated.
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Fiscal Year Quarter High Low Dividend
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2001 First $40.125 $26.500 $.15
Second 48.500 30.125 .15
Third 49.686 38.063 .15
Fourth 52.950 39.875 .15
2000 First $31.625 $22.688 $.15
Second 36.313 25.500 .15
Third 36.500 23.563 .15
Fourth 36.188 25.188 .15
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8
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for each
of the last five fiscal years. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the company included in
this report.
Years Ended March 31
(in thousands, except ratio and per share amounts) 2001 2000 1999 1998(2) 1997
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Revenues:
Vessel revenues $ 583,931 538,517 911,048 1,001,651 661,224
Other marine revenues 32,748 36,298 57,944 58,510 29,202
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$ 616,679 574,815 968,992 1,060,161 690,426
=====================================================================================================================
Earnings from continuing operations $ 86,143 76,590 210,719 243,038 138,235
Earnings from discontinued operations --- --- --- 10,723 7,776
Gain on sale of discontinued operations --- --- --- 61,738 ---
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Net earnings $ 86,143 76,590 210,719 315,499 146,011
=====================================================================================================================
Per common share(1):
Earnings from continuing operations $ 1.53 1.37 3.68 3.99 2.23
Earnings from discontinued operations --- --- --- .18 .12
Gain on sale of discontinued operations --- --- --- 1.01 ---
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Net earnings $ 1.53 1.37 3.68 5.18 2.35
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Total assets $1,505,492 1,432,336 1,394,458 1,492,839 1,061,280
=====================================================================================================================
Long-term debt $ --- --- --- 25,000 ---
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Working capital $ 205,000 328,856 198,532 114,907 159,607
=====================================================================================================================
Current ratio 3.45 5.39 3.41 1.56 2.77
=====================================================================================================================
Cash dividends declared per
common share $ .60 .60 .60 .60 .575
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(1) All per share amounts were computed on a diluted basis.
(2) In fiscal 1998 the company sold its compression division for $348 million,
which resulted in an after-tax gain of $61.7 million, or $1.01 per share.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The company provides services and equipment 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 that 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 Selected Financial Data and the Consolidated Financial
Statements and related disclosures.
Acquisitions and Dispositions
On January 10, 2001, the company entered into agreements with three shipyards
for the construction of 12 vessels for a total estimated cost of approximately
$305 million. The new-build program was initiated in order to better service
the needs of the company's customers in the deepwater markets of the world.
Seven of the vessels to be constructed are large platform supply vessels and
five are large anchor-handling towing supply vessels capable of working in most
deepwater markets of the world. Four of the platform supply vessels will be
constructed at the company's shipyard, Quality Shipyards LLC, while the
remaining eight vessels will be built at two Far East shipyards. The four
vessels being constructed at Quality Shipyards LLC will be built to full Jones
Act compliance. As of March 31, 2001, $43.3 million has been expended on these
12 vessels of the estimated $305 million total commitment. Scheduled delivery
of the vessels will commence in December 2001 with final delivery of the last
vessel expected in January 2003. The company expects to finance the new-build
program from its current cash balances, its projected cash flow and, if
necessary, its revolving credit facility.
In addition to the new-build program discussed above, the company has also
committed to the construction of five additional vessels for a total of
approximately $52.9 million. These vessels consist of three large platform
supply vessels under construction in Norway with scheduled completion dates in
April, May and September 2001 and two large crewboats being built at U.S.
shipyards to be delivered in April 2001 and January 2002. As of March 31, 2001,
$11.3 million has been expended on these vessels.
In February 2001 the company committed to a $48 million cash purchase,
subject to final inspection and various other closing matters, of two anchor-
handling towing supply vessels specifically designed and equipped for deepwater
work. The purchase of the vessels was finalized on April 11, 2001.
On December 15, 2000 the company sold four vessels (two offshore tugs and two
crewboats) to one of its 49%-owned unconsolidated joint ventures for $17
million, of which $9 million was financed by the company. The transaction
resulted in a gain on asset sale of $1 million.
On November 21, 2000 the company purchased eight vessels from The Sanko
Steamship Co., Ltd. for $160 million in cash. Four of the vessels are large
anchor-handling towing supply vessels and four are large North Sea-type platform
supply vessels. In addition, throughout fiscal 2001, the company purchased
three large platform supply vessels for approximately $54.6 million.
During the second quarter of fiscal 2001, the company sold its 40% holding in
its unconsolidated marine joint venture, National Marine Service (NMS), for
approximately $31 million resulting in a $16.8 million gain. The after-tax
effect of the gain on the sale was $10.9 million, or $.19 per share. As a
result of the sale, the joint venture vessel count decreased by 24 vessels.
During the second quarter of fiscal 2000, the company acquired six new-build
vessels for an aggregate cash payment of approximately $22 million from an
industry competitor. The package of vessels included one supply vessel, two
offshore tugs and three crew boats. All six vessels were delivered to the
market during fiscal 2000. In July 1999 the company sold all of its
safety/standby vessels for approximately $40 million in an all cash transaction.
The specialized fleet was sold because it did not conform to the company's long-
range strategies.
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GENERAL MARKET CONDITIONS
Fiscal 2001 results of operations improved as compared to fiscal 2000 because
of a stronger energy sector. Oil and natural gas prices appreciated
significantly on the commodity markets during calendar year 1999, strengthened
throughout calendar year 2000, and remained high during the first quarter of
2001. The strong price of oil and natural gas combined with severely tight
inventory levels for both crude oil and natural gas increased the demand for
working drilling rigs and services in the U.S. Gulf of Mexico and on a global
basis. Strong worldwide demand for natural resources prompted the oil and gas
exploration and production companies to increase their capital spending budgets
in order to take advantage of improving industry conditions. U.S.-based vessel
demand increased throughout the current fiscal year as market conditions and
drilling rig utilization rates improved in the U.S. Gulf of Mexico. In spite of
strong oil and natural gas pricing, international drilling expenditures did not
increase as significantly as in the U.S. Gulf of Mexico. International drilling
activity began increasing in the latter half of calendar year 2000 and is
expected to continue to increase throughout 2001. Worldwide offshore drilling
rig utilization rates overall have increased to levels not seen since the latter
part of calendar year 1998. International-based vessel demand is expected to
increase as international drilling activity recovers.
Fiscal 2001 U.S.-based vessel revenues increased approximately 41% as
compared to fiscal 2000 due to higher utilization and average day rates.
Improving market conditions and vessel demand in the U.S. Gulf of Mexico has
resulted in increased average day rates for the U.S.-based towing supply/supply
vessels, the company's major income producing asset. As of March 31, 2001, the
towing-supply/supply vessels operating in the U.S. Gulf of Mexico are
experiencing approximately 70% utilization and average day rates of
approximately $7,100 per day as compared to 56% utilization and average day
rates of approximately $4,000 per day at March 31, 2000.
Fiscal 2001 international-based vessel revenues decreased approximately 3% as
compared to fiscal 2000 due to a decrease in the number of active vessels in the
international-based fleet. International average day rates for the years ended
March 31, 2001 and 2000 were basically unchanged, but began trending upward
during the latter half of fiscal 2001 and are expected to increase as
international drilling activity increases. The number of active vessels in the
international fleet decreased as a result of the company selling its
safety/standby fleet in July 1999, as it did not conform to the company's long-
range strategies. Removing the revenue effect of the safety/standby fleet,
fiscal 2001 revenues were comparable to fiscal 2000. International-based vessel
utilization rates have increased slightly during the comparative periods, but
primarily as a result of withdrawing several older, little used vessels from
active service during the latter part of fiscal 2000 at which time they were
removed from the utilization statistics. At March 31, 2001, the towing-
supply/supply vessels operating in the international areas are experiencing
approximately 76% utilization and average day rates of approximately $5,950
compared to 76% utilization and average day rates of approximately $5,400 per
day at March 31, 2000.
Fiscal 2000 results of operations reflect the continued impact of the
curtailment in capital spending in the oil industry as a result of the drop in
oil prices that commenced in the fall of 1997. The company's average day rates
and utilization both domestically and internationally were lower than those
achieved in fiscal 1999. Although oil prices had increased substantially
throughout calendar year 1999 and into 2000, capital spending levels of oil and
gas exploration and production companies continued to be below 1997 levels. The
oil industry downturn affected the U.S. Gulf of Mexico vessel market immediately
and most sharply during fiscal 1999 and continued into fiscal 2000 as the
duration of vessel contracts in this region normally range from one to three
months. In addition, the delivery of a number of newly-constructed supply
vessels to various industry competitors during fiscal 2000 had negatively
affected the supply and demand balance for supply vessels in the Gulf of Mexico
and some international markets, thereby putting continued downward pressure on
vessel utilization and day rates.
Fiscal 2000 U.S.-based and international-based vessel revenues declined
approximately 53% and 35%, respectively, as compared to fiscal 1999 due to lower
utilization and average day rates as a result of the slow down in the oil
industry. Fiscal 2000 international activity was not as dramatically affected
by the downturn in the oil industry due primarily to the longer-term nature of
international vessel contracts. U.S.-based vessel activity stabilized during
the first quarter of fiscal 2000 and recovered gradually throughout
11
the remainder of fiscal 2000 after it weakened throughout fiscal 1999.
International-based vessel demand weakened sharply during the fourth quarter of
fiscal 1999 and continued its decline during the first and second quarter of
fiscal 2000, stabilizing during the third quarter of fiscal 2000. At March 31,
1999, the towing-supply/supply vessels operating in the U.S. Gulf of Mexico were
experiencing approximately 52% utilization and average day rates of
approximately $4,400. Utilization and average day rates for the international-
based towing-supply/supply vessels were 78% and $6,200, respectively, at March
31, 1999.
The company responded to the fiscal 1999 downturn in the oil industry by
taking the following actions. During the fourth quarter of fiscal 1999, the
company began stacking those vessels that could not find gainful employment.
Drydockings associated with the stacked vessels were deferred thus substantially
reducing repair and maintenance costs for fiscal 2000. Reductions in crew
personnel were made, consequently lowering crew costs for fiscal 2000. The
company sold its safety/standby vessel fleet in July 1999, as it did not conform
to the company's long-range strategies. During the third and fourth quarters of
fiscal 2000, 39 older, little-used vessels were withdrawn from active service at
which time they were removed from the utilization statistics. Fourteen of the
vessels were withdrawn from the domestic market and 25 were withdrawn from the
international market. Vessel utilization rates are a function of vessel days
worked and vessel days available for active vessels only. The removal of vessels
from active service decreased the number of vessel days available that
consequently increased vessel utilization rates during the third and fourth
quarters of fiscal 2000. Vessels withdrawn from active service are intended to
be sold. The company continues to dispose of its older vessels out of the active
fleet and the withdrawn fleet that are not marketable due to obsolescence or are
economically prohibitive to operate due to high repair costs. During the fourth
quarter of fiscal 1999, the company conducted a review of the recoverability of
the values of certain vessels and in March 1999, recorded a write-down of $7.8
million to reduce the carrying value of certain vessels.
EARNINGS OVERVIEW
Fiscal 2001 earnings increased 5% over fiscal 2000 but decreased 64% as
compared to fiscal 1999 amounts after eliminating the effects of unusual items.
Fiscal 2001 earnings included a $10.9 million, or $.19 per common share, after-
tax gain on the sale of the company's 40% holding in its marine joint venture,
National Marine Service. Fiscal 2000 earnings included a $5 million, or $.09
per common share, reduction in income tax expense from the reversal of
previously provided taxes resulting from the settlement of open income tax
audits. Fiscal 1999 earnings included a $5.1 million, or $.09 per common share,
after-tax write-down on certain vessels as previously discussed and a $30
million, or $.52 per common share, reduction in income tax expense. The
reduction in income tax expense consisted of a $2 million reduction of deferred
income taxes resulting from the lowering of United Kingdom corporate income tax
rates and a $28 million realization of foreign tax credits not previously
recognized resulting from a tax planning strategy of selling certain vessels
from one taxing jurisdiction to another through intercompany sales. The result
of such sales was to pay foreign taxes that are fully creditable on a current
basis against U.S. income taxes and the release of previously accrued deferred
foreign tax credits.
MARINE OPERATIONS
Offshore service vessels provide a diverse range of services and equipment to
the energy industry. Fleet size, utilization and vessel day rates primarily
determine the amount of revenues and operating profit because operating costs
and depreciation do not change proportionally when revenue changes. Operating
costs primarily consist of crew costs, repair and maintenance, insurance, fuel,
lube oil and supplies. Fleet size and utilization are the major factors which
affect crew costs. The timing and amount of repair and maintenance costs are
influenced by customer demands, vessel age and scheduled drydockings to satisfy
safety and inspection requirements mandated by regulatory agencies. Whenever
possible, vessel drydockings are done during seasonally slow periods to minimize
any impact on vessel operations and are only done if economically justified,
given the vessel's age and physical condition. The following table compares
revenues and operating expenses (excluding general and administrative expenses
and depreciation expense) for the company's vessel fleet for the years ended
March 31. Vessel revenues and operating costs relate to vessels owned and
operated by the company, while other marine
12
services relate to third-party activities of the company's shipyards, brokered
vessels and other miscellaneous marine-related activities.
(in thousands) 2001 2000 1999
---------------------------------------------------------------------------------
Revenues (A):
Vessel revenues:
United States $197,660 140,090 296,161
International 386,271 398,427 614,887
--------------------------------------------------------------------------------
583,931 538,517 911,048
Other marine revenues 32,748 36,298 57,944
--------------------------------------------------------------------------------
Total revenues $616,679 574,815 968,992
================================================================================
Operating costs:
Vessel operating costs:
Crew costs $183,502 189,202 262,014
Repair and maintenance 100,087 66,709 132,109
Insurance 20,035 18,626 24,216
Fuel, lube and supplies 29,140 24,462 35,228
Other 31,420 31,536 38,833
--------------------------------------------------------------------------------
364,184 330,535 492,400
Costs of other marine revenues 25,096 29,446 44,672
--------------------------------------------------------------------------------
Total operating costs $389,280 359,981 537,072
================================================================================
(A) For fiscal 2001 and 2000, one customer accounted for 11% and 12%,
respectively, of revenues. In fiscal 1999 a different customer accounted
for 8% of revenues.
Marine operating profit and other components of earnings before income taxes
for the years ended March 31 consists of the following:
(In thousands) 2001 2000 1999
--------------------------------------------------------------------------------
Vessel activity:
United States $ 26,812 (4,694) 96,376
International 65,241 78,888 171,213
--------------------------------------------------------------------------------
92,053 74,194 267,589
Gain on sales of assets 22,750 19,441 2,949
Other marine services 7,137 6,254 12,526
--------------------------------------------------------------------------------
Operating profit 121,940 99,889 283,064
--------------------------------------------------------------------------------
Other income 19,701 17,117 8,439
Corporate expenses (13,026) (11,012) (12,317)
Interest and other debt costs (1,195) (714) (2,445)
--------------------------------------------------------------------------------
Earnings before income taxes $127,420 105,280 276,741
================================================================================
Operating profit for fiscal 2001 increased 22% as compared to fiscal 2000 as
a result of increases in vessel revenues partially offset by higher repair and
maintenance costs. Repair and maintenance costs increased as a result of costs
incurred from an intense drydocking program the company initiated during the
first quarter of fiscal 2001 and continued during the second and third quarters
of fiscal 2001 in order to ready equipment for an expected improvement in demand
for its vessels. The company initiated this drydocking program while vessel
demand and average day rates had not fully recovered, thus sacrificing higher
profitability in anticipation of higher average day rates and vessel demand when
market conditions improved. Gains on sales of assets increased primarily as a
result of the sale of the company's 40% holding in its unconsolidated marine
joint venture, National Marine Service, for approximately $31 million resulting
in a $16.8 million gain.
Operating profit for fiscal 2000 decreased 65% as compared to fiscal 1999 due
to declines in utilization and average day rates for both U.S.-based vessels and
international-based vessels and a decrease in the total number of vessels
operating worldwide. Utilization and average day rates for both U.S.-based
vessels and international-based vessels declined during fiscal 2000 as a result
of reductions in customer drilling programs due to the downturn in the oil
industry. Decreases in operating profit were partially offset by higher gains
on asset sales. Included in fiscal 1999 gain on sales of assets is a fourth
quarter write-down of $7.8 million to reduce the carrying value of certain
vessels. The write-down 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.
13
As a result of the uncertainty of a certain customer to make payment of
vessel charter hire, the company has deferred the recognition of approximately
$7.0 million of billings as of March 31, 2001, $10.7 million of billings as of
March 31, 2000 and $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 as cash is collected or at such time as the uncertainty has
been reduced.
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
each of the quarters in the years ended March 31:
14
UTILIZATION:
------------
Fiscal Year 2001 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply 57.1% 64.2 64.0 68.7 63.4
Crew/Utility 86.9 89.2 93.0 87.5 89.1
Offshore Tugs 33.5 40.6 32.4 37.1 35.9
Other 30.7 23.9 11.2 27.2 23.2
Total 56.0% 61.7 59.9 63.7 60.3
International-based fleet:
--------------------------
Towing-supply/Supply 76.7% 75.7 80.5 78.2 77.8
Crew/Utility 93.9 91.5 95.3 88.5 92.3
Offshore Tugs 66.8 67.3 72.8 64.5 67.8
Other 42.4 47.0 49.7 41.1 45.1
Total 74.5% 74.1 78.8 74.8 75.5
Worldwide fleet:
----------------
Towing-supply/Supply 69.0% 71.3 74.3 74.8 72.4
Crew/Utility 91.5 90.7 94.5 88.2 91.2
Offshore Tugs 51.9 55.0 54.2 52.2 53.3
Other 39.9 42.0 41.1 37.8 40.3
Total 67.5% 69.4 71.8 70.8 69.9
================================================================================
Fiscal Year 2000 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply 47.2% 52.3 58.7 56.4 53.6
Crew/Utility 77.3 74.1 77.1 80.0 77.1
Offshore Tugs 38.9 46.8 42.8 35.6 41.2
Other 46.6 76.8 44.7 35.5 50.8
Total 49.4% 55.2 57.8 55.1 54.3
International-based fleet:
--------------------------
Towing-supply/Supply 71.9% 67.0 74.0 76.0 72.0
Crew/Utility 89.2 90.4 83.3 93.7 89.1
Offshore Tugs 65.4 51.2 66.3 76.6 64.8
Safety/Standby 77.5 --- --- --- 77.5
Other 52.1 48.3 48.5 43.7 48.2
Total 72.0% 66.3 71.9 75.6 71.3
Worldwide fleet:
----------------
Towing-supply/Supply 62.6% 61.6 68.1 68.4 65.0
Crew/Utility 85.2 84.9 81.2 89.0 85.0
Offshore Tugs 54.1 49.4 56.3 59.1 54.9
Safety/Standby 77.5 --- --- --- 77.5
Other 50.9 54.4 47.7 41.9 48.8
Total 64.1% 62.3 66.6 67.9 65.1
================================================================================
Fiscal Year 1999 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply 85.4% 73.2 74.1 60.1 73.4
Crew/Utility 88.8 86.5 79.8 84.1 85.0
Offshore Tugs 61.1 55.8 50.7 38.1 51.7
Other 45.7 48.2 49.7 35.2 44.8
Total 79.9% 71.0 69.6 58.3 70.0
International-based fleet:
--------------------------
Towing-supply/Supply 86.3% 84.0 81.0 79.2 82.6
Crew/Utility 80.2 88.0 89.3 89.6 86.8
Offshore Tugs 76.1 71.7 74.9 70.1 73.2
Safety/Standby 80.7 84.6 78.6 75.2 79.9
Other 67.9 69.8 69.2 72.1 69.7
Total 82.2% 81.8 80.2 78.5 80.7
Worldwide fleet:
----------------
Towing-supply/Supply 85.9% 80.0 78.4 72.2 79.2
Crew/Utility 83.6 87.5 85.9 87.7 86.1
Offshore Tugs 69.6 65.2 64.8 56.8 64.2
Safety/Standby 80.7 84.6 78.6 75.2 79.9
Other 62.7 64.4 64.6 63.5 63.8
Total 81.4% 78.0 76.5 71.5 76.9
================================================================================
15
AVERAGE DAY RATES:
------------------
Fiscal Year 2001 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply $3,990 4,533 6,059 6,842 5,387
Crew/Utility 2,046 2,197 2,544 2,724 2,373
Offshore Tugs 6,235 5,927 6,298 6,902 6,325
Other 1,305 1,643 1,434 2,071 1,630
Total $3,735 4,169 5,306 5,967 4,803
International-based fleet:
--------------------------
Towing-supply/Supply $5,066 5,149 5,321 5,783 5,340
Crew/Utility 2,237 2,246 2,244 2,334 2,264
Offshore Tugs 3,814 4,224 4,226 4,662 4,223
Other 1,624 1,318 1,362 974 1,335
Total $4,173 4,245 4,391 4,841 4,415
Worldwide fleet:
----------------
Towing-supply/Supply $4,717 4,936 5,560 6,127 5,356
Crew/Utility 2,173 2,229 2,346 2,467 2,301
Offshore Tugs 4,516 4,804 4,796 5,378 4,867
Other 1,572 1,357 1,366 1,163 1,373
Total $4,035 4,220 4,674 5,202 4,539
================================================================================
Fiscal Year 2000 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply $3,734 3,484 3,646 4,019 3,721
Crew/Utility 1,806 1,790 1,871 2,014 1,872
Offshore Tugs 6,028 5,922 5,751 5,733 5,868
Other 1,345 1,250 1,188 1,331 1,273
Total $3,572 3,427 3,512 3,732 3,558
International-based fleet:
--------------------------
Towing-supply/Supply $5,698 5,522 5,189 5,273 5,423
Crew/Utility 2,250 2,172 2,188 2,290 2,226
Offshore Tugs 4,048 3,818 3,827 4,009 3,969
Safety/Standby 6,087 --- --- --- 6,087
Other 1,265 1,383 1,358 1,604 1,393
Total $4,676 4,401 4,247 4,334 4,423
Worldwide fleet:
----------------
Towing-supply/Supply $5,143 4,878 4,677 4,873 4,889
Crew/Utility 2,114 2,059 2,084 2,204 2,116
Offshore Tugs 4,652 4,638 4,456 4,452 4,566
Safety/Standby 6,087 --- --- --- 6,087
Other 1,282 1,343 1,322 1,553 1,366
Total $4,377 4,088 4,009 4,151 4,160
================================================================================
Fiscal Year 1999 First Second Third Fourth Year
--------------------------------------------------------------------------------
Domestic-based fleet:
---------------------
Towing-supply/Supply $7,709 6,331 4,545 4,043 5,844
Crew/Utility 2,280 2,121 2,021 2,014 2,121
Offshore Tugs 7,649 7,543 7,643 7,311 7,561
Other 3,449 3,053 2,073 2,006 2,674
Total $6,658 5,631 4,450 3,968 5,315
International-based fleet:
--------------------------
Towing-supply/Supply $6,523 6,643 6,562 6,229 6,495
Crew/Utility 2,447 2,406 2,428 2,399 2,419
Offshore Tugs 4,273 4,141 4,303 4,411 4,280
Safety/Standby 6,541 6,351 6,201 6,014 6,291
Other 876 918 891 1,250 973
Total $5,330 5,320 5,225 5,024 5,223
Worldwide fleet:
----------------
Towing-supply/Supply $6,975 6,536 5,860 5,555 6,269
Crew/Utility 2,376 2,303 2,293 2,270 2,311
Offshore Tugs 5,558 5,341 5,396 5,218 5,388
Safety/Standby 6,541 6,351 6,201 6,014 6,291
Other 1,313 1,317 1,104 1,347 1,253
Total $5,806 5,420 4,980 4,725 5,253
================================================================================
16
The average age of the company's owned or chartered vessel fleet is
approximately 19 years. The following table compares the average number of
vessels by class and geographic distribution during the years ended March 31 and
the actual March 31, 2001 vessel count:
Actual Vessel Average Number
Count at of Vessels During
March 31, Year Ended March 31,
-------------------------------------------------------------------------------------
2001 2001 2000 1999
-------------------------------------------------------------------------------------
Domestic-based fleet:
Towing-supply/supply 115 120 128 137
Crew/utility 25 26 26 32
Offshore tugs 31 32 35 39
Other 9 9 9 10
-------------------------------------------------------------------------------------
Total 180 187 198 218
-------------------------------------------------------------------------------------
International-based fleet:
Towing-supply/supply 212 200 209 231
Crew/utility 49 48 50 55
Offshore tugs 39 38 48 53
Safety/standby --- --- 6 28
Other 28 31 32 33
-------------------------------------------------------------------------------------
Total 328 317 345 400
-------------------------------------------------------------------------------------
Owned or chartered vessels
included in marine revenues 508 504 543 618
Vessels withdrawn from active service 35 44 54 29
Joint-venture and other 28 35 45 48
-------------------------------------------------------------------------------------
Total 571 583 642 695
=====================================================================================
During the second quarter of fiscal 2001, the company sold its 40% holding in
its unconsolidated marine joint venture, National Marine Service. As a result
of the sale, the joint venture vessel count decreased by 24 vessels.
Included in the international-based towing-supply/supply vessel count for
fiscal 2001 are the eight vessels purchased on November 21, 2000 from the Sanko
Steamship Co., Ltd. Also included in the international-based count are three
large platform supply vessels purchased throughout fiscal year 2001.
During the third quarter of fiscal 2001, the company sold four vessels (two
offshore tugs and two crew boats) to its 40%-owned unconsolidated joint venture,
Sonatide Marine, Ltd. In addition, the company sold or scrapped a total of 37
vessels throughout the current fiscal year.
The company sold all of its safety/standby vessels during the second quarter
of fiscal 2000 because this specialized fleet did not conform to the company's
long-range strategies. During the latter part of fiscal 2000, the company
withdrew from active service, 39 older, little-used vessels. Fourteen of the
vessels were withdrawn from the domestic-based fleet and 25 were withdrawn from
the international-based fleet.
Consolidated general and administrative expenses for the years ended March 31
consists of the following components:
(In thousands) 2001 2000 1999
--------------------------------------------------------------------------------
Personnel $40,214 40,206 44,666
Office and property 10,983 11,056 13,193
Sales and marketing 4,793 4,306 5,405
Professional service 4,262 5,729 5,587
Other 5,253 4,396 4,617
--------------------------------------------------------------------------------
$65,505 65,693 73,468
================================================================================
General and administrative expenses for fiscal 2001 were comparable to fiscal
2000. Fiscal year 2000 amounts decreased from fiscal year 1999 levels due
primarily to personnel reductions resulting from the sale of the safety/standby
vessel fleet and the declining business environment.
17
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
The company's current ratio, level of working capital and amount of cash
flows from operations for any year are directly related to fleet activity and
vessel day rates. Variations from year-to-year in these items are primarily the
result of market conditions. Cash from operations in combination with an
available line of credit provide the company, in management's opinion, with
adequate resources to satisfy financing requirements. At March 31, 2001, all of
the company's $200 million revolving line of credit was available for future
financing needs. Continued payment of dividends, most recently $.15 per quarter
per common share, is subject to declaration by the Board of Directors.
Net cash provided by operating activities for any fiscal year will fluctuate
according to the level of business activity for the applicable year. Fiscal
year 2001 net cash from operating activities was lower than the previous fiscal
year due to increases in accounts receivable resulting from revenue growth in
the domestic market.
Investing activities for fiscal 2001 used approximately $258.9 million of
cash. Proceeds from the sale of assets totaling $46.6 million decreased as
compared to fiscal 2000 primarily due to fewer vessels being sold. Included in
fiscal 2001 proceeds on the sale of assets is approximately $31 million from the
sale of the company's 40% interest in its unconsolidated marine joint venture
company National Marine Service and $15.6 million from the sale or scrapping of
41 vessels during the year. Sale proceeds were offset by additions to
properties and equipment totaling $302.8 million which was comprised of
approximately $13.6 million of capitalized repairs and maintenance and $286.4
million for the construction of offshore marine vessels and the acquisition of
11 vessels. Additions to properties and equipment were higher in fiscal 2001 as
compared to fiscal 2000 primarily because of the addition of several new
deepwater vessels purchased throughout the current fiscal year or currently
under construction as disclosed in the "Acquisitions and Dispositions" section
of Item 7.
Investing activities for fiscal 2000 provided cash of approximately $14.4
million. Proceeds from the sale of assets totaling $71.6 million were higher in
fiscal 2000 than fiscal 1999 due to a greater number of vessels being sold,
primarily the safety/standby vessels which were sold in July 1999 for
approximately $40 million in an all cash transaction. Additions to properties
and equipment were higher in fiscal 2000 than fiscal 1999 due to a greater
amount of vessel acquisitions. Additions to properties and equipment in fiscal
2000 totaled $57.4 million of which $7.6 million related to capitalized repairs
and maintenance and $47.3 million in new vessel construction. The new
construction includes approximately $22 million for the purchase of six new-
build vessels from an industry competitor.
Fiscal 2001 financing activities used $23.8 million of cash primarily for
payment of quarterly common stock dividends. Fiscal 2000 financing activities
used $33.4 million of cash for payment of quarterly common stock dividends.
Fiscal 1999 financing activities used $175 million of cash which included a $105
million prepayment on the credit facility and a repayment of $6.5 million of
debt incurred from the acquisition of the remaining 50% equity interest in an
Australian joint-venture company during fiscal 1998. In addition $80 million
was borrowed primarily for income tax payments of which approximately $68
million related to the sale of the compression division during fiscal 1998. The
company purchased 3,950,000 shares of common stock during fiscal year 1999 at an
aggregate cost of $109.3 million including broker commissions and fees.
GOODWILL
At March 31, 2001 the company had goodwill, net of accumulated amortization,
which represented 22% of total assets and 28% of stockholders' equity. The
goodwill amount primarily relates to the O.I.L. acquisition made during fiscal
1998 and is being amortized over 40 years. In assigning such amortization
period the company considered many factors, including the projected future cash
flows of the acquired business and the effects of obsolescence, demand,
competition and other economic factors that may reduce a useful life.
Management periodically evaluates whether subsequent events or circumstances
have occurred that indicate the remaining useful life of goodwill may warrant
revision or that the remaining goodwill balance may not be recoverable. If an
evaluation is necessary, projected undiscounted future operating cash flows of
the net assets acquired will be compared to the carrying amount to determine if
an impairment exists. If goodwill is considered to be impaired, the impairment
to be recognized is measured based upon projected
18
discounted future operating cash flows using the company's average cost of funds
for the discount rate. At March 31, 2001 management determined that there is no
persuasive evidence that any material portion of goodwill will dissipate over a
shorter period than the amortization period used. Goodwill amortization totaled
$9.2 million for each of the three years ended March 31, 2001, 2000 and 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," that amends certain
provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The pronouncements require that all derivatives be recognized as
either assets or liabilities and measured at fair value, and are effective for
all fiscal years beginning after June 15, 2000. The company will adopt the
statement as of April 1, 2001 and does not anticipate that the adoption of SFAS
No. 133, as amended, will have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 that outlines the criteria for recognizing
revenue and the disclosure related to revenue recognition. The company believes
that its revenue recognition policies are consistent with the criteria
stipulated in SAB No. 101; therefore, the January 1, 2001 implementation of SAB
No. 101 did not have an impact on its financial statements.
CURRENCY FLUCTUATIONS AND INFLATION
Because of its significant international operations, the company is exposed
to currency fluctuations and exchange risk. To minimize the financial impact of
these items the company attempts to contract a majority of its services in
United States dollars. The company is exposed to possible currency fluctuations
related to its commitment to construct three of its new-build platform supply
vessels at a Singapore shipyard. The company is required, per the construction
agreements, to make all payments in Singapore dollars and is currently exposed
to possible currency fluctuations on the remaining commitment which totals a
current U.S. dollar equivalent of approximately $49 million. The company
continually monitors the currency exchange risks associated with all contracts
in foreign currencies.
Day-to-day operating costs are generally affected by inflation. However,
because the energy services industry requires specialized goods and services,
general economic inflationary trends may not affect the company's operating
costs. The major impact on operating costs is the level of offshore
exploration, development and production spending by energy exploration and
production companies. As this spending increases, prices of goods and services
used by the energy industry and the energy services industry will increase.
Future increases in vessel day rates may shield the company from the
inflationary effects on operating costs.
ENVIRONMENTAL MATTERS
During the ordinary course of business the company's operations are subject
to a wide variety of environmental laws and regulations. The company attempts
to comply with these laws and regulations in order to avoid costly accidents and
related environmental damage. Compliance with existing governmental regulations
that have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has not
had, nor is expected to have, a material effect on the company. The company is
proactive in establishing policies and operating procedures for safeguarding the
environment against any environmentally hazardous material aboard its vessels
and at shore base locations. Whenever possible, hazardous materials are
maintained or transferred in confined areas to ensure containment if accidents
occur. In addition the company has established operating policies that are
intended to increase awareness of actions that may harm the environment.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2001 the company had no debt financial instruments outstanding.
The company is exposed to foreign currency fluctuations and exchange risks but
attempts to minimize the financial impact of these items by contracting the
majority of its services in United States dollars.
The company periodically enters into spot and forward derivative financial
instruments as a hedge against foreign currency denominated assets and
liabilities and currency commitments. At March 31, 2001 the company had one
forward currency contract outstanding in the amount of $11 million. For full
disclosure on the company's derivative financial instruments see Note 9 of the
Notes to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors of the company is incorporated by reference
from the company's definitive proxy statement to be filed on or before July 26,
2001. For information regarding executive officers of the company, see Item 4A
of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference
from the proxy statement described in Item 10 of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference from the proxy statement described in
Item 10 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference from the proxy statement described in Item 10 of this
report.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules
The Consolidated Financial Statements and Schedule of the company listed on
the accompanying Index to Financial Statements and Schedule (see page F-1) are
filed as part of this report.
B. Reports on Form 8-K
1. The company's report on Form 8-K dated January 10, 2001 reported that the
company committed to the construction of twelve new vessels.
2. The company's report on Form 8-K dated February 7, 2001 reported that
William C. O'Malley, Chairman, President and Chief Executive Officer,
issued a Quarterly Report to Shareholders.
3. The company's report on Form 8-K dated March 26, 2001 reported that
William C. O'Malley, Chairman, President and Chief Executive Officer,
made a public presentation at the Howard Weil Energy Conference in New
Orleans, Louisiana that disclosed details of the company's acquisition
program of vessels designed and built to operate in the deepwater segment
of the offshore oil and gas industry.
4. The company's report on Form 8-K dated April 11, 2001 reported that the
company took delivery of three new vessels - one platform supply vessel
and two anchor-handling towing supply vessels specifically designed and
equipped for deepwater work.
C. Exhibits
The index below describes each exhibit filed as a part of this report.
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference to
a prior filing as indicated.
3(a) - Restated Certificate of Incorporation of Tidewater Inc. (filed with
the Commission as Exhibit 3(a) to the company's quarterly report on
Form 10-Q for the quarter ended September 30, 1993).
3(b) - Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to
the company's quarterly report on Form 10-Q for the quarter ended June
30, 1999).
4(a) - Restated Rights Agreement dated as of September 19, 1996 between
Tidewater Inc. and The First National Bank of Boston (filed with the
Commission as Exhibit 1 to Form 8-A on September 30, 1996).
*10(a) - $200,000,000 Revolving Credit and Term Loan Agreement dated April 26,
2001.
10(b) - Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in
1990 (filed with the Commission as Exhibit 10(c) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1991).
*10(c) - Tidewater Inc. Amended and Restated 1992 Stock Option and Restricted
Stock Plan dated July 27, 2000.
10(d) - Tidewater Inc. Second Amended and Restated Supplemental Executive
Retirement Plan dated October 1, 1999 (filed with the Commission as
Exhibit 10(f) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
21
10(e) - Second Amended and Restated Employees' Supplemental Savings Plan of
Tidewater Inc. dated October 1, 1999 (filed with the Commission as
Exhibit 10(d) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(f) - Supplemental Health Plan for Executive Officers of Tidewater Inc.
(filed with the Commission as Exhibit 10(i) to a Registration Statement
on September 12, 1989, Registration No. 33-31016).
10(g) - Amended and Restated Deferred Compensation Plan for Outside Directors
of Tidewater Inc., effective October 1, 1999 (filed with the Commission
as Exhibit 10(I) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(h) - Restated Non-Qualified Pension Plan for Outside Directors of Tidewater
Inc., effective October 1, 1999 (filed with the Commission as Exhibit
10(h) to the company's quarterly report on Form 10-Q for the quarter
ended December 31, 1999).
10(i) - Amended and Restated Change of Control Agreement dated October 1, 1999
between Tidewater and William C. O'Malley (filed with the Commission as
Exhibit 10(b) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(j) - Form of Amended and Restated Change of Control Agreement dated October
1, 1999 with three executive officers of Tidewater Inc. (filed with the
Commission as Exhibit 10(c) to the company's quarterly report on Form
10-Q for the quarter ended December 31, 1999).
10(k) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission
as Exhibit 10(m) to the company's annual report on Form 10-K for the
fiscal year ended March 31, 1997).
10(l) - Employment Agreement dated September 25, 1997 between Tidewater Inc.
and William C. O'Malley (filed with the Commission as Exhibit 10 to the
company's report on Form 10-Q for the quarter ended September 30,
1997).
10(m) - Amendment No. 1 to Employment Agreement dated October 1, 1999 between
Tidewater Inc. and William C. O'Malley (filed with the Commission as
Exhibit 10(a) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
*10(n) - Restated Tidewater Inc. 1997 Stock Incentive Plan dated June 9, 2000.
10(o) - Restated Non-Qualified Deferred Compensation Plan and Trust Agreement
as Restated October 1, 1999 between Tidewater Inc. and Merrill Lynch
Trust Company of America (filed with the Commission as Exhibit 10(e) to
the company's quarterly report on Form 10-Q for the quarter ended
December 31, 1999).
10(p) - Second Restated Executives Supplemental Retirement Trust as Restated
October 1, 1999 between Tidewater Inc. and Hibernia National Bank
(filed with the Commission as Exhibit 10(j) to the company's quarterly
report on Form 10-Q for the quarter ended December 31, 1999).
*10(q) - Continuing Employment and Separation Agreement ("Agreement") between
the Company and Richard M. Currence dated December 31, 2000.
*10(r) - Amendment To Restated Tidewater Inc. 1997 Stock Incentive Plan dated
June 9, 2000.
*21 - Subsidiaries of the company.
*23 - Consents of Independent Auditors.
22
SIGNATURES OF REGISTRANT
------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on May 1, 2001.
TIDEWATER INC.
(Registrant)
By: /s/ William C. O'Malley
---------------------------------------------
William C. O'Malley
Chairman of the Board of Directors, President,
and Chief Executive Officer
By: /s/ J. Keith Lousteau
---------------------------------------------
J. Keith Lousteau
Senior Vice President and Chief Financial
Officer
By: /s/ Joseph M. Bennett
---------------------------------------------
Joseph M. Bennett
Vice President and Corporate Controller
(Principal Accounting Officer)
SIGNATURES OF DIRECTORS
-----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on May 1, 2001.
/s/ Robert H. Boh /s/ Paul W. Murrill
--------------------------- ------------------------------
Robert H. Boh Paul W. Murrill
/s/ Donald T. Bollinger /s/ William C. O'Malley
--------------------------- ------------------------------
Donald T. Bollinger William C. O'Malley
/s/ Arthur R. Carlson /s/ Lester Pollack
--------------------------- ------------------------------
Arthur R. Carlson Lester Pollack
/s/ Jon C. Madonna /s/ J. Hugh Roff, Jr.
--------------------------- ------------------------------
Jon C. Madonna J. Hugh Roff, Jr.
/s/Donald G. Russell
------------------------------
Donald G. Russell
23
TIDEWATER INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(a), AND 14(d)
Index to Financial Statements and Schedule
FINANCIAL STATEMENTS Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets, March 31, 2001 and 2000 F-3
Consolidated Statements of Earnings, three years ended March 31, 2001 F-4
Consolidated Statements of Stockholders' Equity, three years ended March 31, 2001 F-5
Consolidated Statements of Cash Flows, three years ended March 31, 2001 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE
II. Tidewater Inc. and Subsidiaries Valuation and Qualifying Accounts F-21
All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or the related notes.
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Tidewater Inc.
We have audited the accompanying consolidated balance sheets of Tidewater Inc.
as of March 31, 2001 and 2000 and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 2001. Our audits also included the financial
statement schedule listed in the accompanying Index to Financial Statements and
Schedule. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tidewater Inc. at March 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 2001, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
New Orleans, Louisiana
April 23, 2001
F-2
TIDEWATER INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------
March 31, 2001 and 2000
(in thousands)
ASSETS 2001 2000
----------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 95,153 226,910
Trade and other receivables, less allowance for doubtful accounts
of $7,981 in 2001 and $12,331 in 2000 160,677 149,006
Marine operating supplies 28,632 25,405
Other current assets 4,125 2,372
----------------------------------------------------------------------------------------------
Total current assets 288,587 403,693
----------------------------------------------------------------------------------------------
Investments in, at equity, and advances to unconsolidated companies 16,544 23,275
Properties and equipment:
Vessels and related equipment 1,613,604 1,356,177
Other properties and equipment 42,837 42,474
----------------------------------------------------------------------------------------------
1,656,441 1,398,651
Less accumulated depreciation 884,765 842,620
----------------------------------------------------------------------------------------------
Net properties and equipment 771,676 556,031
----------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $35,494 in
2001, and $26,324 in 2000 328,836 338,006
Other assets 99,849 111,331
----------------------------------------------------------------------------------------------
Total assets $1,505,492 1,432,336
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses 68,426 66,943
Accrued property and liability losses 6,825 4,322
Income taxes 8,336 3,572
----------------------------------------------------------------------------------------------
Total current liabilities 83,587 74,837
----------------------------------------------------------------------------------------------
Deferred income taxes 155,744 145,076
Accrued property and liability losses 38,682 49,549
Other liabilities and deferred credits 49,139 48,673
Stockholders' equity 1,178,340 1,114,201
----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,505,492 1,432,336
==============================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-3
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF EARNINGS
------------------------------------------------------------------------------------------------
Years Ended March 31, 2001, 2000, and 1999
(in thousands, except share and per share data)
2001 2000 1999
------------------------------------------------------------------------------------------------
Revenues:
Vessel revenues $ 583,931 538,517 911,048
Other marine revenues 32,748 36,298 57,944
------------------------------------------------------------------------------------------------
616,679 574,815 968,992
------------------------------------------------------------------------------------------------
Costs and expenses:
Vessel operating costs 364,184 330,535 492,400
Costs of other marine revenues 25,096 29,446 44,672
Depreciation and amortization 79,527 82,502 94,783
General and administrative 65,505 65,693 73,468
------------------------------------------------------------------------------------------------
534,312 508,176 705,323
------------------------------------------------------------------------------------------------
82,367 66,639 263,669
Other income (expenses):
Foreign exchange gain (loss) 297 43 (12)
Gain on sales of assets 22,750 19,443 2,949
Equity in net earnings of unconsolidated companies 6,994 8,994 7,505
Minority interests 127 (486) (1,601)
Interest and miscellaneous income 16,080 11,361 6,676
Interest and other debt costs (1,195) (714) (2,445)
------------------------------------------------------------------------------------------------
45,053 38,641 13,072
------------------------------------------------------------------------------------------------
Earnings before income taxes 127,420 105,280 276,741
Income taxes 41,277 28,690 66,022
------------------------------------------------------------------------------------------------
Net earnings $ 86,143 76,590 210,719
================================================================================================
Earnings per common share $1.55 1.38 3.68
================================================================================================
Diluted earnings per common share $1.53 1.37 3.68
================================================================================================
Weighted average common shares outstanding 55,741,624 55,546,832 57,189,946
Incremental common shares from stock options 525,735 249,976 78,579
------------------------------------------------------------------------------------------------
Adjusted weighted average common shares 56,267,359 55,796,808 57,268,525
================================================================================================
Cash dividends declared per common share $.60 .60 .60
================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-4
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years Ended March 31, 2001, 2000 and 1999
(in thousands)
Grantor
Deferred Accumulated Trust Stock
Additional compensation- Other Ownership
Common paid-in Retained restricted Comprehensive Program
stock capital earnings stock Income (GSOP) Total
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $5,948 295,153 712,463 (4,206) (10,582) --- 998,776
Net earnings --- --- 210,719 --- --- --- 210,719
Issuance of restricted stock --- --- --- (48) --- --- (48)
Exercise of stock options 4 788 --- --- --- --- 792
Cash dividends declared --- --- (34,394) --- --- --- (34,394)
Common stock purchased (395) (108,917) --- --- --- --- (109,312)
Establishment of GSOP 500 106,688 --- --- --- (107,188) ---
Issuance of common shares --- (27) --- --- --- 304 277
Other --- (127) --- 1,024 --- --- 897
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 6,057 293,558 888,788 (3,230) (10,582) (106,884) 1,067,707
Net earnings --- --- 76,590 --- --- --- 76,590
Currency translation adjustments --- --- --- --- 2 --- 2
Unrealized gains on available-for-
sale securities --- --- --- --- 676 --- 676
---------
Comprehensive income 77,268
---------
Issuance of restricted stock --- 43 --- (43) --- --- ---
Exercise of stock options (1) (265) --- --- --- 733 467
Cash dividends declared --- --- (33,370) --- --- --- (33,370)
Issuance of common shares --- 340 --- --- --- 862 1,202
Other --- (59) --- 986 --- --- 927
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 6,056 293,617 932,008 (2,287) (9,904) (105,289) 1,114,201
Net earnings --- --- 86,143 --- --- --- 86,143
Currency translation adjustments --- --- --- --- --- --- ---
Unrealized losses on available-for-
sale securities --- --- --- --- (147) --- (147)
Supplemental Executive Retire-
ment Plan minimum liability --- --- --- --- (877) --- (877)
---------
Comprehensive income 85,119
---------
Issuance of restricted stock --- (2) --- --- --- 138 136
Exercise of stock options (1) 2,019 --- --- --- 7,683 9,701
Cash dividends declared --- --- (33,481) --- --- --- (33,481)
Issuance of common shares --- 682 --- --- --- 850 1,532
Other --- 2 --- 1,130 --- --- 1,132
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 $6,055 296,318 984,670 (1,157) (10,928) (96,618) 1,178,340
==================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-5
TIDEWATER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended March 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
-------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 86,143 76,590 210,719
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 79,527 82,502 94,783
Provision for deferred income taxes 8,934 6,968 (29,910)
Gain on sales of assets (22,750) (19,443) (2,949)
Equity in earnings of unconsolidated companies, less dividends (2,408) (2,232) (2,512)
Minority interests, less dividends (322) (879) 918
Compensation expense - restricted stock 1,130 944 976
Changes in assets and liabilities, net:
Trade and other receivables (9,085) 84,330 19,558
Marine operating supplies (3,175) 2,542 3,527
Other current assets (1,739) 2,098 (204)
Accounts payable and accrued expenses 14,093 (3,048) (39,822)
Accrued property and liability losses 2,710 (1,693) (5,792)
Other, net (2,142) 6,383 5,072
-------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 150,916 235,062 254,364
-------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sales of assets 46,578 71,676 21,396
Proceeds from sale of Compression operations --- --- (68,442)
Additions to properties and equipment (302,793) (57,362) (48,283)
Other (2,680) 114 950
-------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (258,895) 14,428 (94,379)
-------------------------------------------------------------------------------------------------------
Financing activities:
Common stock purchased --- --- (109,312)
Principal payments on long-term debt --- --- (111,466)
Borrowings --- --- 80,000
Proceeds from issuance of common stock 9,703 426 632
Cash dividends (33,481) (33,370) (34,394)
Other --- (58) ---
-------------------------------------------------------------------------------------------------------
Net cash used in financing activities (23,778) (33,002) (174,540)
-------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (131,757) 216,488 (14,555)
Cash and cash equivalents at beginning of year 226,910 10,422 24,977
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 95,153 226,910 10,422
=======================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,049 685 2,360
Income taxes $ 23,559 38,373 203,354
=======================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-6
TIDEWATER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 2001, 2000, and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The company provides services and equipment to the offshore energy industry
through the operation of the world's largest fleet of offshore service vessels.
Revenues, net earnings and cash flows from operations are dependent upon the
activity level for 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.
USE OF ESTIMATES
In preparing the company's financial statements, management makes informed
estimates and judgements that affect the amounts reported in the financial
statements and related disclosures. Actual results may differ from these
estimates.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Tidewater Inc.
and its subsidiaries. Significant intercompany balances and transactions are
eliminated in consolidation.
CASH EQUIVALENTS
The company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which consist primarily of operating parts and supplies for the
company's vessels, are stated at the lower of weighted-average cost or market.
PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost. Depreciation for financial
reporting purposes is computed primarily on the straight-line basis beginning
with the date of construction, with salvage values of 5%-10% for marine
equipment, using estimated useful lives of:
Years
--------------------------------------------------------------------------------
Marine equipment (from date of construction) 15-25
Other properties and equipment 3-30
Used equipment is depreciated in accordance with the above schedule; however,
no life less than six years is used for marine equipment regardless of the date
constructed.
Maintenance and repairs are charged to operations as incurred during the
asset's original estimated useful life. Major repair costs incurred after the
original estimated useful life that also have the effect of extending the useful
life of the asset are capitalized and amortized over three years. Major
modifications to equipment are capitalized and amortized over the remaining life
of the equipment.
GOODWILL
Goodwill primarily relates to the O.I.L. acquisition made during fiscal 1998
and is being amortized over 40 years. Management periodically evaluates whether
subsequent events or circumstances have occurred that indicate the remaining
useful life of goodwill may warrant revision or that the remaining goodwill
balance may not be recoverable. If an evaluation is necessary, projected
undiscounted future operating cash flows of the net assets acquired will be
compared to the carrying amount to determine if an impairment exists. If
F-7
goodwill is considered to be impaired, the impairment to be recognized is
measured based upon projected discounted future operating cash flows using the
company's average cost of funds for the discount rate. Goodwill amortization
totaled $9.2 million for each of the three years ended March 31, 2001, 2000 and
1999.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment losses are recorded on long-lived assets used in operations or to
be disposed of when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by these assets or through their sale are
less than the assets' carrying amount. In March 1999 the company recorded a
charge to earnings of $7.8 million (included in gain on sales of assets) to
reduce the carrying amount of certain vessels. The write-down of these vessels
was determined based on internally developed valuations.
ACCRUED PROPERTY AND LIABILITY LOSSES
The company's insurance subsidiary establishes case based reserves for
estimates of reported losses on direct business written, estimates received from
ceding reinsurers, and reserves based on past experience of unreported losses.
Such losses principally relate to the company's marine operations and are
included as a component of costs of marine operations in the Consolidated
Statements of Earnings. The liability for such losses and the related
reimbursement receivable from reinsurance companies are classified in the
Consolidated Balance Sheet into current and noncurrent amounts based upon
estimates of when the liabilities will be settled and when the receivables will
be collected.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension costs are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 87 and are funded to at
least meet the minimum funding requirements as required by law. Prior service
costs are amortized on the straight-line basis over the average remaining
service period of employees expected to receive pension benefits.
Postretirement benefits other than pensions are accounted for in accordance with
SFAS No. 106. The estimated cost of postretirement benefits other than pensions
are accrued during the employees' active service period.
The company follows the disclosure provisions of SFAS No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits," which standardizes
the disclosures for pensions and other postretirement benefit plans.
INCOME TAXES
Income taxes are accounted for in accordance with the provisions of SFAS No.
109. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Marine services are generally contracted for on a rate per day of service
basis; therefore, marine vessel revenues are recognized on a daily basis
throughout the contract period.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency for all of the company's existing
international operations, as transactions in these operations are predominately
denominated in U.S. dollars. Foreign currency exchange gains and losses are
included in the Consolidated Statements of Earnings.
EARNINGS PER SHARE
Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share," which requires the reporting of both earnings per share and diluted
earnings per share. The calculation of earnings
F-8
per share is based on the weighted average number of shares outstanding and
therefore excludes any dilutive effect of stock options, while diluted earnings
per share includes the dilutive effect of stock options. Per share amounts
disclosed in these Notes to Consolidated Financial Statements are on a diluted
basis.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to concentrations
of credit risk consist principally of trade and other receivables. These
receivables are with a variety of domestic, international and national energy
companies and also include reinsurance companies for recoverable insurance
losses. The company manages its exposure to risk through ongoing credit
evaluations of its customers and generally does not require collateral. The
company maintains an allowance for doubtful accounts for potential losses and
does not believe it is generally exposed to concentrations of credit risk that
are likely to have a material adverse impact on the company's financial position
or results of operations.
STOCK-BASED COMPENSATION
The company uses the intrinsic value method of accounting for stock-based
compensation prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, adopted the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
COMPREHENSIVE INCOME
The Company uses SFAS No. 130, "Reporting Comprehensive Income," which
requires the reporting and display of total comprehensive income and its
components in the financial statements. Total comprehensive income represents
the net change in stockholders' equity during a period from sources other than
transactions with stockholders and as such, includes net earnings. For the
company, accumulated other comprehensive income is comprised of the net after-
tax effect of accumulated foreign currency translation adjustments, unrealized
gains and losses on available-for-sale securities, and a minimum pension
liability for the company's Supplemental Executive Retirement Plan.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," that amends certain
provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The pronouncements require that all derivatives be recognized as
either assets or liabilities and measured at fair value, and are effective for
all fiscal years beginning after June 15, 2000. The company will adopt the
statement as of April 1, 2001 and does not anticipate that the adoption of SFAS
No. 133, as amended, will have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 that outlines the criteria for recognizing
revenue and the disclosure related to revenue recognition. The company believes
that its revenue recognition policies are consistent with the criteria
stipulated in SAB No. 101; therefore, the January 1, 2001 implementation of SAB
No. 101 did not have an impact on its financial statements.
(2) UNCONSOLIDATED COMPANIES
Investments in, at equity, and advances to unconsolidated marine joint-
venture companies at March 31 were as follows:
Percentage (in thousands)
ownership 2001 2000
----------------------------------------------------------------------------------
National Marine Service (Abu Dhabi-UAE) 40% $ --- 13,480
Sonatide Marine, Ltd. (Luanda, Angola) 49% 13,780 4,128
Others 20%-50% 2,764 5,667
----------------------------------------------------------------------------------
$16,544 23,275
==================================================================================
F-9
During the second quarter of fiscal 2001, the company sold its 40% holding in
its unconsolidated marine joint venture, National Marine Service (NMS), for
approximately $31 million resulting in a $16.8 million gain. The after-tax
effect of the gain on the sale was $10.9 million, or $0.19 per share.
On December 15, 2000 the company sold four vessels (two offshore tugs and two
crewboats) to Sonatide Marine Ltd., its 49%-owned unconsolidated joint venture,
for $17 million, of which $9 million was financed by the company.
The aggregate amount of undistributed earnings of all unconsolidated joint-
venture companies included in consolidated stockholders' equity at March 31,
2001 is approximately $27.7 million.
(3) INCOME TAXES
Earnings before income taxes derived from United States and international
operations for the years ended March 31 are as follows:
(in thousands)
2001 2000 1999
--------------------------------------------------------------------------
United States $ 34,504 11,032 96,421
International 92,916 94,248 180,320
--------------------------------------------------------------------------
$127,420 105,280 276,741
==========================================================================
Income tax expense for the years ended March 31 consists of the following:
(in thousands)
U.S.
-----------------------
Federal State International Total
--------------------------------------------------------------------------------------------
2001
--------------------------------------------------------------------------------------------
Current $ 9,566 1,364 21,413 32,343
Deferred 14,033 --- (5,099) 8,934
--------------------------------------------------------------------------------------------
$23,599 1,364 16,314 41,277
============================================================================================
2000
--------------------------------------------------------------------------------------------
Current $(7,660) 2,567 26,815 21,722
Deferred 10,518 --- (3,550) 6,968
--------------------------------------------------------------------------------------------
$ 2,858 2,567 23,265 28,690
============================================================================================
1999
--------------------------------------------------------------------------------------------
Current $ (386) 8,333 87,985 95,932
Deferred 5,710 --- (35,620) (29,910)
--------------------------------------------------------------------------------------------
$ 5,324 8,333 52,365 66,022
============================================================================================
The actual income tax expense for the years ended March 31, 2001, 2000, and
1999 differs from the amounts computed by applying the U.S. federal tax rate of
35% to pre-tax earnings as a result of the following:
(in thousands)
2001 2000 1999
------------------------------------------------------------------------------------------------
Computed "expected" tax expense $44,597 36,848 96,859
Increase (reduction) resulting from:
Effect of United Kingdom tax rate change --- --- (2,000)
Overaccrual of income tax expense in prior years --- (5,000) ---
Foreign tax credits not previously recognized (5,099) (3,550) (35,620)
Utilization of net operating loss carryforwards --- (52) (792)
Expenses which are not deductible for tax purposes 655 771 833
State taxes 887 1,669 5,416
Other, net 237 (1,996) 1,326
------------------------------------------------------------------------------------------------
$41,277 28,690 66,022
================================================================================================
F-10
The reversal in fiscal year 2000 of taxes overaccrued in prior years is the
result of settlements of open income tax audits with the Internal Revenue
Service for fiscal years 1993 through 1997.
During the fourth quarter of the year ended March 31, 1999 approximately $28
million of foreign tax credits not previously recognized were realized as the
result of a tax planning strategy of selling certain vessels from one taxing
jurisdiction to another through intercompany sales. The result of such sales
was to pay foreign taxes which are fully creditable on a current basis against
U.S. income taxes and to accelerate the release of previously accrued deferred
foreign tax credits.
The significant components of deferred income tax expense for the years ended
March 31 are as follows:
(in thousands)
2001 2000 1999
----------------------------------------------------------------------------------------------------
Deferred income tax expense (benefit) (exclusive of the effects of
other components listed below) $17,308 15,434 12,719
Investment, foreign and minimum tax credits (3,275) (4,916) (5,009)
Foreign tax credits not previously recognized (5,099) (3,550) (35,620)
Effect of United Kingdom tax rate charges --- --- (2,000)
----------------------------------------------------------------------------------------------------
$ 8,934 6,968 (29,910)
====================================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2001 and 2000 are as follows:
(in thousands)
2001 2000
------------------------------------------------------------------------------
Deferred tax assets:
Financial provisions not deducted for tax purposes $ 16,406 16,346
Foreign net operating loss carryforwards 14,283 7,924
Tax credit carryforwards 10,502 13,776
Other 2,040 3,451
------------------------------------------------------------------------------
Gross deferred tax assets 43,231 41,497
Less valuation allowance (14,283) (14,283)
------------------------------------------------------------------------------
Net deferred tax assets 28,948 27,214
------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (137,582) (130,814)
Other (18,162) (14,262)
------------------------------------------------------------------------------
Gross deferred tax liabilities (155,744) (145,076)
------------------------------------------------------------------------------
Net deferred tax liabilities $(126,796) (117,862)
==============================================================================
The valuation allowance is primarily the result of a doubt over the ultimate
realization of benefits from certain foreign net operating losses. The
remaining balance of the deferred tax assets is expected to be realized through
future operating results and the reversal of taxable temporary differences.
The company has not recognized a deferred tax liability of approximately
$31.5 million for the undistributed earnings of certain non-U.S. subsidiaries
that arose in prior years because the company currently does not expect those
unremitted earnings to reverse and become taxable to the company in the
foreseeable future. A deferred tax liability will be recognized when the
company expects that it will realize those undistributed earnings in a taxable
manner, such as through receipt of dividends or sale of investments. As of
March 31, 2001, the undistributed earnings of these subsidiaries were
approximately $90 million.
The company receives a tax benefit that is generated by certain employee
stock benefit plan transactions. This benefit is recorded directly to
additional paid-in-capital and does not reduce the company's effective income
tax rate. The tax benefit for the years ended March 31, 2001, 2000 and 1999
totaled approximately $2.3 million, $30,000 and $146,000, respectively.
F-11
(4) LONG-TERM DEBT
At March 31, 2001 the company had a $200 million revolving credit facility
with a group of banks and at that date there were no borrowings outstanding
under the facility. On April 20, 2001 the company signed a new $200 million
revolving credit and term loan agreement which became effective April 26, 2001.
Under the new agreement, borrowings bear interest, at the company's option, at
prime or Federal Funds rates plus .5% or Eurodollar rates plus margins from .5%
to .75% based on the company's funded debt to total capitalization ratio. The
new revolving credit commitment will expire on April 30, 2004, at which time the
then outstanding balance will convert to a term loan payable in eight quarterly
installments beginning July 31, 2004. All of the borrowings under the agreement
are unsecured and the company pays an annual fee of .225% on the unused portion
of the facility.
Under the terms of the agreement, the company has agreed to limitations on
future levels of investments and aggregate indebtedness, and maintenance of
certain debt to capitalization ratios and also debt to earnings ratios. The
agreement also limits the company's ability to encumber its assets for the
benefit of others.
(5) BENEFIT PLANS
Upon meeting various citizenship, age and service requirements, employees are
eligible to participate in a defined contribution savings plan and can
contribute from 2% to 15% of their base salary to an employee benefit trust.
The company matches with company common stock 50% of the employee's contribution
to the plan up to a maximum of 6% of the employee's base salary. The plan held
434,746 shares and 424,503 shares of the company's common stock at March 31,
2001 and 2000, respectively. Amounts charged to expense for the plan for 2001,
2000 and 1999 were $1.8 million, $1.7 million and $1.8 million, respectively.
A defined benefits pension plan covers certain U.S. citizen employees and
employees who are permanent residents of the United States. Benefits are based
on years of service and employee compensation. The company's policy is to fund
the plan based upon minimum funding requirements of the Employee Retirement
Income Security Act of 1974. The company also has a supplemental retirement plan
(supplemental plan) that provides pension benefits to certain employees in
excess of those allowed under the company's tax-qualified pension plan. Certain
benefits programs are maintained in several other countries which provide
retirement income for covered employees.
Qualified retired employees currently are covered by a program which provides
limited health care and life insurance benefits. Costs of the program are based
on actuarially determined amounts and are accrued over the period from the date
of hire to the full eligibility date of employees who are expected to qualify
for these benefits. This plan is not funded.
Changes in plan assets and obligations during the years ended March 31, 2001
and 2000 and the funded status of the U.S. defined benefits pension plan and the
supplemental plan (referred to collectively as
F-12
"Pension Benefits") and the postretirement health care and life insurance plan
(referred to as "Other Benefits") at March 31, 2001 and 2000 were as follows:
(in thousands)
Pension Benefits Other Benefits
---------------------------------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $34,684 34,798 13,336 15,526
Service cost 890 1,014 848 900
Interest cost 2,616 2,432 979 942
Participant contributions --- --- 286 265
Plan amendments --- --- --- (976)
Benefits paid (1,158) (1,073) (860) (829)
Actuarial (gain) loss 2,405 (2,487) 1,186 (2,492)
---------------------------------------------------------------------------------------------
Benefit obligation at end of year $39,437 34,684 15,775 13,336
---------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $31,073 29,102 --- ---
Actual return 2,627 2,961 --- ---
Employer contributions 184 83 574 564
Participant contributions --- --- 286 265
Benefits paid (1,158) (1,073) (860) (829)
---------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $32,726 31,073 --- ---
---------------------------------------------------------------------------------------------
Funded (unfunded) status (6,710) (3,611) (15,775) (13,336)
Unrecognized actuarial (gain) loss 1,202 (1,169) (4,037) (5,570)
Unrecognized prior service cost 555 687 (67) (129)
---------------------------------------------------------------------------------------------
Net accrued benefit cost $(4,953) (4,093) (19,879) (19,035)
============================================================================================
NET ACCRUED BENEFIT COST CONSISTS OF:
Prepaid benefit cost $ 1,783 1,869 --- ---
Accrued benefit liability (8,085) (5,962) (19,879) (19,035)
Accumulated other comprehensive income 1,349 --- --- ---
---------------------------------------------------------------------------------------------
Net accrued benefit cost $(4,953) (4,093) (19,879) (19,035)
============================================================================================
For pension plans with benefit obligations in excess of plan assets, the
projected benefit obligation at March 31, 2001 and 2000 was $9.0 million and
$6.6 million, respectively. The accumulated benefit obligation for pension
plans with benefit obligations in excess of plan assets was $8.1 million and
$5.4 million at March 31, 2001 and 2000, respectively.
Net periodic pension cost for the U.S. defined benefit pension plan and the
supplemental plan for 2001, 2000 and 1999 include the following components:
(in thousands)
2001 2000 1999
-------------------------------------------------------------------
Service cost $ 890 1,014 848
Interest cost 2,616 2,432 2,189
Expected return on plan assets (2,900) (2,718) (2,693)
Amortization of prior service cost 126 204 269
Recognized actuarial (gain) loss 312 538 (29)
-------------------------------------------------------------------
Net periodic pension cost $ 1,044 1,470 584
===================================================================
Net periodic postretirement health care and life insurance costs for 2001,
2000 and 1999 include the following components:
(in thousands)
2001 2000 1999
------ ----- -----
Service cost $ 848 900 1,068
Interest cost 979 942 961
Other amortization and deferral (409) (284) (205)
--------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,418 1,558 1,824
============================================================================================
F-13
Assumptions used in actuarial calculations were as follows:
2001 2000 1999
--------------------------------------------------------------------------------------------
Discount rate 7.5% 7.5% 7.0%
Expected long-term rate of return on assets 8.3% 9.5% 9.5%
Rates of annual increase in compensation levels 4.0% 4.0% 4.0%
============================================================================================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation will be 7% in 2002, gradually declining to 5%
in the year 2006 and thereafter. A 1% increase in the assumed health care cost
trend rates for each year would increase the accumulated postretirement benefit
obligation by approximately $2.3 million at March 31, 2001 and increase the cost
for the year ended March 31, 2001 by $.3 million. A 1% decrease in the assumed
health care cost trend rates for each year would decrease the accumulated
postretirement benefit obligation by approximately $1.9 million at March 31,
2001 and decrease the cost for the year ended March 31, 2001 by $.2 million.
A defined contribution retirement plan covers all eligible U.S. fleet
personnel, along with all new eligible employees of the company hired after
December 31, 1995. This plan is noncontributory by the employee, but the
company has contributed in cash 3% of an eligible employee's compensation to an
employee benefit trust. The cost of the plan for fiscal 2001, 2000 and 1999 was
$2.3 million, $2.2 million and $1.7 million, respectively. Fiscal 1999 cost of
the plan has been reduced by $.9 million of forfeitures due to employee
severances.
(6) OTHER ASSETS, OTHER LIABILITIES AND DEFERRED CREDITS AND ACCUMULATED OTHER
COMPREHENSIVE INCOME
A summary of other assets at March 31 follows:
(in thousands)
2001 2000
-----------------------------------------------------------------------------------------------------------
Recoverable insurance losses $38,907 49,549
Assets held for sale 19,299 23,545
Deferred income tax assets 28,948 27,214
Other 12,695 11,023
-----------------------------------------------------------------------------------------------------------
$99,849 111,331
===========================================================================================================
A summary of other liabilities and deferred credits at March 31 follows:
(in thousands)
2001 2000
-----------------------------------------------------------------------------------------------------------
Postretirement benefits liability $19,879 19,035
Pension liability 4,953 4,093
Minority interests in net assets of subsidiaries 3,460 3,782
Deferred vessel revenues 7,628 11,692
Other 13,219 10,071
-----------------------------------------------------------------------------------------------------------
$49,139 48,673
===========================================================================================================
A summary of accumulated other comprehensive income at March 31 follows:
(in thousands)
2001 2000
-----------------------------------------------------------------------------------------------------------
Currency translation adjustments $10,580 10,580
Unrealized gains on available-for-sale securities (529) (676)
Supplemental Executive Retirement Plan minimum liability 877 ---
-----------------------------------------------------------------------------------------------------------
$10,928 9,904
===========================================================================================================
(7) CAPITAL STOCK
The company has 125 million shares of $.10 par value common stock authorized.
At March 31, 2001 and 2000, 60,543,181 shares and 60,561,892 shares,
respectively, were issued. At March 31, 2001 and 2000, 4,506,962 and 4,911,445
shares, respectively, were held by the Grantor Trust Stock Ownership
F-14
Program, which are not included in common shares outstanding for earnings per
share calculations. At March 31, 2001 and 2000, three million shares of no par
value preferred stock were authorized and unissued.
Under the company's stock option and restricted stock plans, the Compensation
Committee of the Board of Directors has authority to grant stock options and
restricted shares of the company's stock to officers and other key employees.
At March 31, 2001, 3,844,211 shares of common stock are reserved for issuance
under the plans of which 286,744 shares are available for future grants. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant. All outstanding stock options have ten-year terms
and most of the outstanding options vest and become exercisable in equal
installments over a three-year period from the grant date.
The per share weighted-average fair values of stock options granted during
fiscal years 2001, 2000 and 1999 were $18.60, $13.28 and $8.37, respectively, on
the dates of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions:
2001 2000 1999
-----------------------------------------------------------------------------
Risk-free interest rate 4.70% 6.50% 5.15%
Expected dividend yield 1.20% 2.00% 2.50%
Expected stock price volatility 48.43% 45.71% 42.79%
Expected stock option life 5 years 5 years 5 years
=============================================================================
The company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the company's net earnings would have been reduced to the pro forma
amounts as follows:
2001 2000 1999
-----------------------------------------------------------------------------
Net earnings (in thousands):
As reported $86,143 76,590 210,719
Pro forma $78,232 69,434 204,778
Earnings per common share:
As reported $ 1.55 1.38 3.68
Pro forma $ 1.40 1.25 3.58
Diluted earnings per common share:
As reported $ 1.53 1.37 3.68
Pro forma $ 1.39 1.24 3.58
=============================================================================
Stock option activity during 2001, 2000 and 1999 was as follows:
Weighted-average Number
Exercise Price of Shares
----------------------------------------------------------------------------
Balance at March 31, 1998 $38.89 1,960,065
Granted 23.18 1,121,000
Exercised 19.78 (33,061)
Expired or cancelled 42.04 (38,998)
----------------------------------------------------------------------------
Balance at March 31, 1999 33.21 3,009,006
Granted 32.02 609,000
Exercised 15.64 (33,699)
Expired or cancelled 33.77 (24,000)
----------------------------------------------------------------------------
Balance at March 31, 2000 33.17 3,560,307
Granted 42.68 616,000
Exercised 22.79 (358,397)
Expired or cancelled 35.00 (264,169)
----------------------------------------------------------------------------
Balance at March 31, 2001 $35.73 3,553,741
=============================================================================
F-15
The 3,553,741 options outstanding at March 31, 2001 fall into three general
exercise-price ranges as follows:
Exercise Price Range
-------------------------------------------------------------------------------------------------------------
$12.13 - $22.75 $23.38 - $35.75 $39.00-$59.00
-------------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 2001 883,547 881,000 1,789,194
Weighted average exercise price $ 22.42 $ 29.62 $ 45.30
Weighted average remaining contractual life 7.4 years 7.4 years 7.5 years
Options exercisable at March 31, 2001 578,870 536,652 1,295,694
Weighted average exercise price of options exercisable
at March 31, 2001 $ 22.24 $ 27.93 $ 46.20
=============================================================================================================
At March 31, 2001, 2000, and 1999, the number of options exercisable under
the stock option plans was 2,411,216, 2,049,618, and 1,302,653, respectively;
and the weighted average exercise price of those options was $36.38, $35.02, and
$34.47, respectively.
A total of 38,900 shares of restricted common stock of the company were
granted to certain key employees during fiscal years 1998 through 2000. These
restricted shares vest and become freely transferable over a four-year period
provided the employee remains employed by the company during the vesting period.
During the restricted period, the restricted shares may not be transferred or
encumbered, but the recipient has the right to vote and receive dividends on the
restricted shares. The fair market value of the stock at the time of the grants
totaled approximately $1.7 million and was classified in stockholders' equity as
deferred compensation - restricted stock. The deferred amount is being
amortized by equal monthly charges to earnings over the four-year vesting
period.
In accordance with an employment agreement with the company's chairman of the
board entered into on September 25, 1997, 50,000 shares of restricted common
stock were granted on that date. These restricted shares vest at varying
intervals when the average market price of the common stock reaches certain
predetermined levels. The fair market value of the stock at the time of grant
totaling approximately $3 million was deferred and is being amortized by equal
monthly charges to earnings over five years.
From time to time the company's Board of Directors has authorized share
repurchase programs whereby the company could purchase shares of company common
stock in the open market or through privately negotiated transactions. There
were no stock repurchases during fiscal years 2001 or 2000 and all previously
authorized programs had expired by March 31, 2000. During fiscal year 1999 the
company repurchased 3,950,000 shares of company common stock at a total cost of
$109.3 million, or $27.67 per share.
On January 29, 1999 the company established a Grantor Trust Stock Ownership
Program in connection with which the company entered into a trust agreement with
a bank providing for the establishment of the related trust (the "trust"). The
trust is designed to acquire, hold and distribute shares of the common stock of
the company to provide for the payment of benefits and compensation under the
company's employee benefit plans, including its stock option plans and 401(k)
plan. The trust will not increase or alter the amount of benefits or
compensation that will be paid under these plans.
On January 29, 1999 the company sold at market value 5,000,000 shares (the
"acquired shares") of common stock to the trust for $107,187,500, or $21.4375
per share. In payment for the acquired shares, the trust paid $500,000 in cash
and issued a promissory note payable to the company for the remaining balance.
Acquired shares will be released to satisfy the company's obligations to pay
benefits under company benefit plans as the promissory note is paid down or
forgiven.
For financial reporting purposes the trust is consolidated with the company.
Any dividend transactions between the company and the trust are eliminated.
Acquired shares held by the trust remain valued at the market price at the date
of purchase and are shown as a reduction to stockholders' equity in the
company's
F-16
consolidated balance sheet. The difference between the trust share value and the
fair market value on the date shares are released from the trust is included in
additional paid-in capital. Common stock held in the trust is not considered
outstanding in the computation of earnings per share. The trust held 4,506,962
and 4,911,445 shares of common stock at March 31, 2001 and 2000, respectively.
The trustee will vote or tender shares held by the trust in accordance with the
confidential instructions of participants in the company's stock option plans
and 401(k) plan.
Under a Shareholder Rights Plan, one preferred stock purchase right has been
distributed as a dividend for each outstanding common share. Each right
entitles the holder to purchase, under certain conditions, one one-hundredth of
a share of Series A Participating Preferred Stock at an exercise price of $160,
subject to adjustment. The rights will not be exercisable unless a person (as
defined in the plan) acquires beneficial ownership of 15% or more of the
outstanding common shares, or a person commences a tender offer or exchange
offer, which upon its consummation such person would beneficially own 15% or
more of the outstanding common shares. The Board of Directors is authorized in
certain circumstances to lower the beneficial ownership percentage to not less
than 10%.
If after the rights become exercisable a person becomes the beneficial owner
of 15% or more of the outstanding common shares (except pursuant to an offer for
all shares approved by the Board of Directors), each holder (other than the
acquirer) will be entitled to receive, upon exercise, common shares having a
market value of twice the exercise price. In addition, if the company is
involved in a merger (other than a merger which follows an offer for all shares
approved by the Board of Directors), major sale of assets or other business
combination after a person becomes the beneficial owner of 15% or more of the
outstanding common shares, each holder of a right (other than the acquirer) will
be entitled to receive, upon exercise, common stock of the acquiring company
having a market value of twice the exercise price.
The rights may be redeemed for $.01 per right at any time prior to ten days
following the acquisition by a person of 15% or more of the outstanding common
shares. The rights expire on November 1, 2006.
(8) COMMITMENTS AND CONTINGENCIES
An employment agreement exists with the company's chairman of the board
whereby he will serve in such capacity as well as president and chief executive
officer through March 28, 2002. The terms of the employment agreement provide
for an annual base salary and certain other benefits. Compensation continuation
agreements exist with all other officers of Tidewater Inc. whereby each receives
compensation and benefits in the event that their employment is terminated
following certain events relating to a change in control of the company. The
maximum amount of cash compensation that could be paid under the agreements,
based on present salary levels, is approximately $16.4 million.
On January 10, 2001, the company entered into agreements with three shipyards
for the construction of 12 vessels for a total estimated cost of approximately
$305 million. Seven of the vessels to be constructed are large platform supply
vessels and five are large anchor-handling towing supply vessels capable of
working in most deepwater markets of the world. Four of the platform supply
vessels will be constructed at the company's shipyard, Quality Shipyards LLC,
while the remaining eight vessels will be built at two Far East shipyards. As
of March 31, 2001, $43.3 million has been expended on these 12 vessels of the
estimated $305 million total commitment. Scheduled delivery of the vessels will
commence in December 2001 with final delivery of the last vessel expected in
January 2003.
The company has also committed to the construction of five additional vessels
for a total of approximately $52.9 million. These vessels consist of three
large platform supply vessels under construction in Norway with scheduled
completion dates in April, May and September 2001 and two large crewboats being
built at U.S. shipyards to be delivered in April 2001 and January 2002. As of
March 31, 2001, $11.3 million has been expended on these vessels.
F-17
In February 2001 the company committed to a $48 million cash purchase,
subject to final inspection and various other closing matters, of two anchor-
handling towing supply vessels specifically designed and equipped for deepwater
work. The purchase of the vessels was finalized on April 11, 2001.
Various legal proceedings and claims are outstanding which arose in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the company's financial position or results of its
ongoing operations.
(9) FINANCIAL INSTRUMENTS
The company's financial instruments consist primarily of cash and cash
equivalents, trade receivables and trade payables whose book values are
considered to be representative of their respective fair values. The company
also periodically enters into spot and forward currency derivative financial
instruments as a hedge against foreign currency denominated assets and
liabilities and currency commitments.
Spot contracts are short-term in nature and settle within two business days.
The fair value approximates the carrying value due to the short-term nature of
this instrument, and as a result, no gains or losses are recognized. At March
31, 2001, 2000 and 1999 the company had no spot contracts outstanding.
Forward currency contracts are generally longer-term in nature but generally
do not exceed one year. Any gains or losses on forward contracts are deferred
if the transaction qualifies as a hedge. At March 31, 2001 the company had one
forward contract outstanding totaling $11 million that qualified as a hedge
instrument. The forward contract was purchased to hedge against any possible
foreign exchange exposure the company may experience with its commitment to a
Norwegian shipyard that is currently constructing one platform supply vessel for
delivery in September 2001 as disclosed in Note 8 above. The company had no
outstanding derivative financial instruments at March 31, 2000 or 1999.
F-18
(10) SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS
The company follows SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" but operates in only one business segment.
The following table provides a comparison of revenues, operating profit,
identifiable assets, and depreciation and amortization and additions to
properties and equipment for the years ended March 31. Vessel revenues and
operating costs relate to vessels owned and operated by the company while other
marine services relate to the activities of the company's shipyards, brokered
vessels and other miscellaneous marine-related businesses.
(in thousands)
2001 2000 1999
----------------------------------------------------------------------------------------------------------
Marine revenues (A):
Vessel revenues:
United States $ 197,660 140,090 296,161
International (B) 386,271 398,427 614,887
----------------------------------------------------------------------------------------------------------
583,931 538,517 911,048
Other marine services 32,748 36,298 57,944
----------------------------------------------------------------------------------------------------------
$ 616,679 574,815 968,992
==========================================================================================================
Marine operating profit:
Vessel activity:
United States $ 26,812 (4,694) 96,376
International 65,241 78,888 171,213
----------------------------------------------------------------------------------------------------------
92,053 74,194 267,589
Gains on sales of assets 22,750 19,441 2,949
Other marine services 7,137 6,254 12,526
----------------------------------------------------------------------------------------------------------
121,940 99,889 283,064
Other income 19,701 17,117 8,439
Corporate expenses (13,026) (11,012) (12,317)
Interest and other debt costs (1,195) (714) (2,445)
----------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 127,420 105,280 276,741
==========================================================================================================
Identifiable assets:
Marine:
United States $ 292,952 268,234 317,411
International (B) 1,047,283 857,705 970,853
----------------------------------------------------------------------------------------------------------
1,340,235 1,125,939 1,288,264
Investments in and advances to unconsolidated Marine companies 16,544 23,275 17,307
----------------------------------------------------------------------------------------------------------
1,356,779 1,149,214 1,305,571
General corporate 148,713 283,122 88,887
----------------------------------------------------------------------------------------------------------
$1,505,492 1,432,336 1,394,458
==========================================================================================================
Depreciation and amortization:
Marine equipment depreciation $ 69,596 72,662 84,823
General corporate depreciation 761 670 790
Goodwill amortization 9,170 9,170 9,170
----------------------------------------------------------------------------------------------------------
$ 79,527 82,502 94,783
==========================================================================================================
Additions to properties and equipment:
Marine equipment operations $ 302,706 56,476 40,959
General corporate 87 886 7,324
----------------------------------------------------------------------------------------------------------
$ 302,793 57,362 48,283
==========================================================================================================
(A) One customer accounted for 11% and 12% of revenues for the fiscal year
ended March 31, 2001 and 2000, respectively. In fiscal 1999 a different
customer accounted for 8% of revenues.
(B) 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. Equity in net assets of
non-U.S. subsidiaries is $798.5 million, $581.9 million and $674.5 million
at March 31, 2001, 2000, and 1999, respectively. Other international
identifiable assets include accounts receivable and other balances
denominated in currencies other than the U.S. dollar which aggregate
approximately $5.5 million, $5.0 million, and $12.9 million at March 31,
2001, 2000, and 1999, respectively. These amounts are subject to the usual
risks of fluctuating exchange rates and government-imposed exchange
controls.
F-19
(11) SUPPLEMENTARY INFORMATION--QUARTERLY FINANCIAL DATA (UNAUDITED)
Years Ended March 31, 2001 and 2000
(in thousands, except per share data)
2001 First Second Third Fourth
----------------------------------------------------------------------
Marine revenues $136,884 146,137 159,127 174,531
======================================================================
Marine operating profit $ 9,935 36,645 31,586 43,774
======================================================================
Net earnings $ 8,158 26,297 22,339 29,349
======================================================================
Earnings per share $ .15 .47 .40 .53
======================================================================
Diluted earnings per share $ .15 .47 .40 .52
======================================================================
2000 First Second Third Fourth
----------------------------------------------------------------------
Marine revenues $154,530 138,946 141,770 139,569
======================================================================
Marine operating profit $ 24,671 27,291 22,232 25,695
======================================================================
Net earnings $ 16,462 18,885 22,233 19,010
======================================================================
Earnings per share $ .30 .34 .40 .34
======================================================================
Diluted earnings per share $ .30 .34 .40 .34
======================================================================
Operating profit consists of revenues less operating costs and expenses,
depreciation, general and administrative expenses and other income and expenses
of the Marine division.
See Notes 2 and 3 for detailed information regarding transactions which
affect fiscal 2001 and 2000 quarterly amounts. A discussion of current market
conditions appears in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
F-20
SCHEDULE II
TIDEWATER INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(IN THOUSANDS)
Column A Column B Column C Column D Column E
----------- --------- -------- ----------- --------
Balance
Balance at at
Beginning Additions End of
Description of period at Cost Deductions Period
------------- ----------- --------- ----------- --------
2001
Deducted in balance sheet from
trade accounts receivable:
Allowance for doubtful accounts $12,331 664 5,014(A) 7,981
======= ====== ===== ======
Deducted in balance sheet from
other assets:
Amortization of goodwill $28,058 9,170 --- 37,228
======= ====== ===== ======
Amortization of prepaid rent and
debt issuance costs $ 3,666 146 --- 3,812
======= ====== ===== ======
2000
Deducted in balance sheet from
trade accounts receivables:
Allowance for doubtful accounts $11,125 1,800 594(A) 12,331
======= ====== ===== ======
Deducted in balance sheet from
other assets:
Amortization of goodwill $18,888 9,170 --- 28,058
======= ====== ===== ======
Amortization of prepaid rent and
debt issuance costs $ 3,423 243 --- 3,666
======= ====== ===== ======
1999
Deducted in balance sheet from
trade accounts receivables:
Allowance for doubtful accounts $14,078 685 3,638(A) 11,125
======= ====== ===== ======
Deducted in balance sheet from
other assets:
Amortization of goodwill $ 9,718 9,170 --- 18,888
======= ====== ===== ======
Amortization of prepaid rent and
debt issuance costs $ 2,501 922 --- 3,423
======= ====== ===== ======
(A) Accounts receivable amounts considered uncollectible and removed from
accounts receivable by reducing allowance for doubtful accounts.
F-21
TIDEWATER INC
EXHIBITS FOR THE
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED MARCH 31, 2001
EXHIBIT INDEX
The index below describes each exhibit filed as a part of this report.
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference to
a prior filing as indicated.
3(a) - Restated Certificate of Incorporation of Tidewater Inc. (filed with the
Commission as Exhibit 3(a) to the company's quarterly report on Form
10-Q for the quarter ended September 30, 1993).
3(b) - Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the
company's quarterly report on Form 10-Q for the quarter ended June 30,
1999).
4(a) - Restated Rights Agreement dated as of September 19, 1996 between
Tidewater Inc. and The First National Bank of Boston (filed with the
Commission as Exhibit 1 to Form 8-A on September 30, 1996).
*10(a) - $200,000,000 Revolving Credit and Term Loan Agreement dated April 26,
2001.
10(b) - Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in
1990 (filed with the Commission as Exhibit 10(c) to the company's
annual report on Form 10-K for the fiscal year ended March 31, 1991).
*10(c) - Tidewater Inc. Amended and Restated 1992 Stock Option and Restricted
Stock Plan dated July 27, 2000.
10(d) - Tidewater Inc. Second Amended and Restated Supplemental Executive
Retirement Plan dated October 1, 1999 (filed with the Commission as
Exhibit 10(f) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(e) - Second Amended and Restated Employees' Supplemental Savings Plan of
Tidewater Inc. dated October 1, 1999 (filed with the Commission as
Exhibit 10(d) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(f) - Supplemental Health Plan for Executive Officers of Tidewater Inc.
(filed with the Commission as Exhibit 10(i) to a Registration Statement
on September 12, 1989, Registration No. 33-31016).
10(g) - Amended and Restated Deferred Compensation Plan for Outside Directors
of Tidewater Inc., effective October 1, 1999 (filed with the Commission
as Exhibit 10(I) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(h) - Restated Non-Qualified Pension Plan for Outside Directors of Tidewater
Inc., effective October 1, 1999 (filed with the Commission as Exhibit
10(h) to the company's quarterly report on Form 10-Q for the quarter
ended December 31, 1999).
10(i) - Amended and Restated Change of Control Agreement dated October 1, 1999
between Tidewater and William C. O'Malley (filed with the Commission as
Exhibit 10(b) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
10(j) - Form of Amended and Restated Change of Control Agreement dated October
1, 1999 with three executive officers of Tidewater Inc. (filed with the
Commission as Exhibit 10(c) to the company's quarterly report on Form
10-Q for the quarter ended December 31, 1999).
10(k) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as
Exhibit 10(m) to the company's annual report on Form 10-K for the
fiscal year ended March 31, 1997).
10(l) - Employment Agreement dated September 25, 1997 between Tidewater Inc.
and William C. O'Malley (filed with the Commission as Exhibit 10 to the
company's report on Form 10-Q for the quarter ended September 30,
1997).
10(m) - Amendment No. 1 to Employment Agreement dated October 1, 1999 between
Tidewater Inc. and William C. O'Malley (filed with the Commission as
Exhibit 10(a) to the company's quarterly report on Form 10-Q for the
quarter ended December 31, 1999).
*10(n) - Restated Tidewater Inc. 1997 Stock Incentive Plan dated June 9, 2000.
10(o) - Restated Non-Qualified Deferred Compensation Plan and Trust Agreement
as Restated October 1, 1999 between Tidewater Inc. and Merrill Lynch
Trust Company of America (filed with the Commission as Exhibit 10(e) to
the company's quarterly report on Form 10-Q for the quarter ended
December 31, 1999).
10(p) - Second Restated Executives Supplemental Retirement Trust as Restated
October 1, 1999 between Tidewater Inc. and Hibernia National Bank
(filed with the Commission as Exhibit 10(j) to the company's quarterly
report on Form 10-Q for the quarter ended December 31, 1999).
*10(q) - Continuing Employment and Separation Agreement ("Agreement") between
the Company and Richard M. Currence dated December 31, 2000.
*10(r) - Amendment To Restated Tidewater Inc. 1997 Stock Incentive Plan dated
June 9, 2000.
*21 - Subsidiaries of the company.
*23 - Consents of Independent Auditors.