FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Committee File Number 1-10945
OCEANEERING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2628227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16001 Park Ten Place, Suite 600
Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281)578-8868
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X , No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
Common Stock, $.25 Par Value 23,479,381 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 30, March 31,
1997 1997
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $14,294 $23,034
Accounts receivable (net of allowance
for doubtful accounts of $905 at
September 30 and $962 at March 31) 104,359 120,095
Prepaid expenses and other 9,151 5,678
-----------------------
Total Current Assets 127,804 148,807
-----------------------
Property and Equipment, at cost:
Marine services equipment 199,606 198,798
Mobile offshore production equipment 39,861 31,231
Buildings, improvements and other 37,441 32,915
-----------------------
276,908 262,944
Less: Accumulated Depreciation 148,595 161,053
-----------------------
Net Property and Equipment 128,313 101,891
-----------------------
Goodwill (net of amortization
of $3,996 and $3,502) 10,908 11,402
Investments and Other Assets 7,280 6,155
-----------------------
TOTAL ASSETS $274,305 $268,255
=======================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 23,230 $ 27,432
Accrued liabilities 48,747 58,183
Income taxes payable 9,351 10,230
-----------------------
Total Current Liabilities 81,328 95,845
-----------------------
Long-Term Debt 16,000 --
Other Long-Term Liabilities 16,722 16,076
Shareholders' Equity 160,255 156,334
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $274,305 $268,255
=======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
September 30,
1997 1996
(in thousands, except per
share amounts)
Revenues $ 90,578 $ 96,764
Cost of services 69,946 79,940
Selling, general and administrative
expenses 9,580 8,316
-----------------------
Income from operations 11,052 8,508
Interest income 233 146
Interest expense, net (57) (568)
Other income (expense), net (451) 193
-----------------------
Income before income taxes 10,777 8,279
Provision for income taxes (4,063) (3,199)
-----------------------
Net income $ 6,714 $ 5,080
=======================
Earnings per common share equivalent $0.28 $0.21
Weighted average number of common share
equivalents outstanding 23,812 23,863
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Six Months Ended
September 30,
1997 1996
(in thousands, except per
share amounts)
Revenues $185,741 $177,299
Cost of services 146,176 145,625
Selling, general and administrative
expenses 18,857 17,224
-----------------------
Income from operations 20,708 14,450
Interest income 566 649
Interest expense, net (122) (998)
Other income (expense), net (516) 273
-----------------------
Income before income taxes 20,636 14,374
Provision for income taxes (7,958) (5,547)
-----------------------
Net income $ 12,678 $ 8,827
=======================
Earnings per common share equivalent $0.54 $0.37
Weighted average number of common share
equivalents outstanding 23,653 23,727
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
September 30,
1997 1996
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $12,678 $ 8,827
Adjustments to reconcile net income to net
cash provided by/(used in)operating activities:
Depreciation and amortization 10,797 11,460
Currency translation adjustments and other 4,265 1,574
Decrease in accounts receivable 15,736 10,806
Increase in prepaid expenses and
other current assets (3,470) (2,139)
Increase in other assets (916) (882)
Increase(decrease) in current liabilities (13,589) 10,136
Increase(decrease) in long-term liabilities 646 (1,058)
----------------------
Total adjustments to net income 13,469 29,897
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,147 38,724
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (41,415) (55,960)
----------------------
NET CASH USED IN INVESTING ACTIVITIES (41,415) (55,960)
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings,
net of payments 16,000 33,000
Proceeds from issuance of common stock 3,031 2,495
Purchases of Treasury Stock (12,503) --
----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,528 35,495
----------------------
NET INCREASE/(DECREASE) IN CASH (8,740) 18,259
----------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,034 9,351
----------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $14,294 $27,610
======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
These Consolidated Financial Statements are unaudited and have
been prepared pursuant to instructions for the Quarterly Report
on Form 10-Q required to be filed with the Securities and
Exchange Commission and do not include all information and
footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles.
Management has reflected all adjustments which it believes are
necessary to present fairly the Company's financial position at
September 30, 1997 and its results of operations and cash flows
for the periods presented. All such adjustments are of a normal
recurring nature. The financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K
for its fiscal year ended March 31, 1997. The results for
interim periods are not necessarily indicative of annual results.
2. Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and highly
liquid investments with original maturities of three months or
fewer from the date of the investment. Approximately $1.5
million of the Company's cash at September 30, 1997 and March 31,
1997, was restricted and is deposited in interest bearing
accounts as security in connection with legal proceedings.
3. Shareholders' Equity
Shareholders' Equity consisted of the following:
September 30, March 31,
1997 1997
(unaudited) (audited)
(in thousands, except
share data)
Shareholders' Equity:
Common Stock, par value $0.25;
90,000,000 shares authorized;
24,017,046 shares issued $ 6,004 $ 6,004
Additional paid-in capital 80,738 81,153
Treasury stock, 559,261 and 110,017
shares, at cost (8,031) (986)
Retained earnings 88,679 76,001
Cumulative translation adjustments (7,135) (5,838)
-----------------------
Total Shareholders' Equity $160,255 $156,334
=======================
4. Income Taxes
Cash taxes paid were $7.9 million and $5.3 million for the six
months ended September 30, 1997 and 1996, respectively.
5. Earnings Per Share
The Financial Accounting Standards Board has issued standard
number ("SFAS") 128, "Earnings Per Share", which establishes
standards for computing and presenting earnings per share. The
Company will adopt SFAS 128 in the third quarter of 1998, as
required, and believes that diluted earnings per share, as
defined in SFAS 128, will approximate EPS as shown in these
financial statements.
6. Comprehensive Income
The Financial Accounting Standards Board has issued SFAS 130,
"Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components.
The primary component of other comprehensive income for the
Company is the foreign currency translation adjustment accounted
for under SFAS 52. The Company will adopt SFAS 130 in 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
All statements in this Form 10-Q, other than statements of
historical facts, including, without limitation, statements
regarding the Company's business strategy, plans for future
operations, and industry conditions, are forward-looking
statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company
utilizes a variety of internal and external data and management
judgment in order to develop such forward-looking information.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, because of the
inherent limitations in the forecasting process, as well as the
relatively volatile nature of the primary industry in which the
Company operates, it can give no assurance that such expectations
will prove to have been correct. Accordingly, evaluation of
future prospects of the Company must be made with caution when
relying on forward-looking information.
Unless the context indicates otherwise, references to years
indicate fiscal years.
Material Changes in Financial Condition
The Company considers its liquidity and capital resources
adequate to support continuing operations and capital
commitments. At September 30, 1997, the Company had working
capital of $46 million, including $13 million of unrestricted
cash. Additionally, the Company had $64 million of its $80
million credit facility available and $38 million was unused
under uncommitted lines of credit. The Company incurred $16
million of long-term debt during the second quarter of 1998 to
finance capital expenditures.
In April 1997, the Company approved a plan to purchase up to a
maximum of 3,000,000 shares of its Common Stock and 839,000
shares have been purchased under this plan in 1998.
Capital expenditures were $41 million during the first six months
of 1998, as compared to $56 million during the corresponding
period of the prior fiscal year. Capital expenditures in 1998
included additions to the Company's fleet of remotely operated
vehicles ("ROV"), acquisition of and construction of additional
support vessels, the purchase of a tanker for possible future
conversion to production systems use, and two out-of-service
mobile offshore platforms for potential conversion to production
systems or alternative service. Prior fiscal year expenditures
included construction costs of $38 million for the Floating
Production, Storage and Offloading system ("FPSO") ZAFIRO
PRODUCER and ROV fleet expansion.
At September 30, 1997, the Company had commitments for capital
expenditures of approximately $10 million relating to new vessel
construction.
Results of Operations
Consolidated revenue and margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands, except percentages)
Revenues $ 90,578 $ 96,764 $185,741 $177,299
Gross Margin 20,632 16,824 39,565 31,674
Gross margin % 23% 17% 21% 18%
Operating Margin % 12% 9% 11% 8%
The quarters ending June 30 and September 30 have generally been
the Company's peak in both revenues and net income for its
Oilfield Marine business. However, the Company's exit from the
diving sector in the North Sea in early 1998 and the substantial
number of multi-year ROV contracts which were entered into during
1997 and 1998 should reduce the seasonality of the Company's
Oilfield Marine Services operations. Revenues and operating
income in the Offshore Field Development and Advanced
Technologies businesses are generally not seasonal.
Oilfield Marine Services
Revenue and gross margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands, except percentages)
Revenues $ 47,527 $ 43,560 $ 97,088 $85,199
Gross Margin 12,332 8,605 22,694 15,949
Gross margin % 26% 20% 23% 19%
Revenues and gross margins for the three-month and six-month
periods ended September 30, 1997 increased over the corresponding
periods of the prior year as a result of higher activity in the
offshore oilfield services sector. The increase in worldwide
revenues was partially offset by lower revenues in the North Sea
area, where the Company exited the diving services market in
early 1998. As a result of improved market conditions, gross
margin percentages also increased over the corresponding periods
of the prior year.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands, except percentages)
Revenues $ 21,760 $ 22,970 $ 46,388 $39,534
Gross Margin 2,588 4,610 6,888 7,956
Gross margin % 12% 20% 15% 20%
Revenues and gross margins for offshore field development were
lower in the three-month period ended September 30, 1997 compared
to the corresponding period of the prior year.
The special drydocking of the OCEAN PRODUCER which commenced in
the first quarter of 1998 was completed in September 1997 and the
FPSO returned to work offshore West Africa under a contract which
expires in January 2000. As the FPSO continued to earn a base
dayrate for the period of the drydocking there was no material
impact on revenue or income from operations. Results for the
second quarter of 1997 included the FPSO ZAFIRO PRODUCER which
commenced operations in late August 1996. In December 1996, the
customer exercised its option to purchase the ZAFIRO PRODUCER.
Gross margins for subsea products were reduced by new product
development costs.
Advanced Technologies
Revenue and gross margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands, except percentages)
Revenues $ 21,291 $ 30,234 $ 42,265 $52,566
Gross Margin 5,712 3,609 9,983 7,769
Gross margin % 27% 12% 24% 15%
Revenues for the three-month and six-month periods ended
September 30, 1997 decreased over the corresponding periods of
the prior year as a result of lower search and recovery and
subsea cable burial activities, and lower service requirements by
the U.S. Navy. Gross margins improved as a result of improved
operational execution. Results for the prior year were
negatively impacted by losses in a fixed price deep water cable
burial contract offshore Australia which required more time to
complete than had been originally planned.
Other
Selling, general and administrative expense increased 15% for the
second quarter of 1998 and 9% year-to-date compared to the
corresponding periods of the prior year reflecting additional
resources required to support both the increased levels of
current activity and expected future growth.
Interest expense for the three-month and six-month periods ended
September 30, 1997 declined compared to the corresponding periods
of the prior year as a result of lower average outstanding debt.
Interest expense for the three-month and six-month periods ended
September 30, 1996 was net of capitalized interest of $500,000
and $1,100,000, respectively, relating to the FPSO ZAFIRO
PRODUCER conversion project.
Other income and expense for the three-month and six-month
periods ended September 30, 1997 was impacted adversely by higher
minority interest expense during 1998 compared to the
corresponding periods of the prior year as a result of improved
profitability in certain joint ventures and by currency losses
arising from weakness in certain Asian currencies.
The provision for income taxes was provided at an estimated
annual effective rate using assumptions as to earnings and other
factors which would affect the tax calculation for the remainder
of the fiscal year.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Shareholders on
August 22, 1997.
The following matters were voted upon at the Annual Meeting:
Election of Directors.
Nominee Shares For Shares Withheld
Charles B. Evans 19,861,228 97,524
John R. Huff 19,860,928 97,824
Ratification of the appointment of Arthur Andersen LLP as
independent auditors of the Company.
Shares For Shares Against Shares Abstained
19,921,985 6,727 30,040
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements 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.
OCEANEERING INTERNATIONAL, INC.
(Registrant)
Date: November 5, 1997 By: //s// JOHN R. HUFF
John R. Huff, President and
Chief Executive Officer
Date: November 5, 1997 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: November 5, 1997 By: //s// RICHARD V. CHIDLOW
Richard V. Chidlow, Controller
and Chief Accounting Officer