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 December 31, 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.)
11911 FM 529
Houston, Texas 77041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713)329-4500
16001 Park Ten Place, Suite 600
Houston, Texas 77084
(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 January 30, 1998
Common Stock, $.25 Par Value 22,917,172 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Dec. 31, March 31,
1997 1997
ASSETS
Current Assets:
Cash and cash equivalents $20,072 $23,034
Accounts receivable (net of allowance
for doubtful accounts of $134 at
December 31 and $962 at March 31) 105,979 120,095
Prepaid expenses and other 12,281 5,678
-----------------------
Total Current Assets 138,332 148,807
-----------------------
Property and Equipment, at cost:
Marine services equipment 206,968 198,798
Mobile offshore production equipment 46,826 31,231
Buildings, improvements and other 42,209 32,915
-----------------------
296,003 262,944
Less: Accumulated Depreciation 150,503 161,053
-----------------------
Net Property and Equipment 145,500 101,891
-----------------------
Goodwill (net of amortization
of $4,243 and $3,502) 10,661 11,402
Investments and Other Assets 7,236 6,155
-----------------------
TOTAL ASSETS $301,729 $268,255
=======================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,896 $ 27,432
Accrued liabilities 49,357 58,183
Income taxes payable 9,814 10,230
-----------------------
Total Current Liabilities 91,067 95,845
-----------------------
Long-Term Debt 38,000 --
Other Long-Term Liabilities 17,255 16,076
Shareholders' Equity 155,407 156,334
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $301,729 $268,255
=======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
December 31
1997 1996
(in thousands, except per
share amounts)
Revenues $ 86,234 $ 94,117
Gain on disposition of FPSO -- 25,047
Cost of services 67,949 72,840
Impairment adjustment and provision
for special drydocking -- 15,960
Selling, general and administrative
expenses 9,797 8,924
-----------------------
Income from operations 8,488 21,440
Interest income 138 199
Interest expense, net (92) (958)
Other income (expense), net (504) 3
-----------------------
Income before income taxes 8,030 20,684
Provision for income taxes (3,035) (13,944)
-----------------------
Net income $ 4,995 $ 6,740
=======================
Basic earnings per share $0.21 $0.28
Diluted earnings per share $0.21 $0.28
Weighted average number of common shares 23,376 23,842
Incremental shares from stock options 372 296
Weighted average number of common
shares and equivalents 23,748 24,138
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended
December 31
1997 1996
(in thousands, except per
share amounts)
Revenues $271,975 $271,416
Gain on disposition of FPSO -- 25,047
Cost of services 214,125 218,465
Impairment adjustment and provision
for special drydocking -- 15,960
Selling, general and administrative
expenses 28,654 26,148
-----------------------
Income from operations 29,196 35,890
Interest income 704 848
Interest expense, net (214) (1,956)
Other income (expense), net (1,020) 276
-----------------------
Income before income taxes 28,666 35,058
Provision for income taxes (10,993) (19,491)
-----------------------
Net income $ 17,673 $15,567
=======================
Basic earnings per share $0.76 $0.66
Diluted earnings per share $0.75 $0.65
Weighted average number of common shares 23,337 23,572
Incremental shares from stock options 348 292
Weighted average number of common
shares and equivalents 23,685 23,864
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
December 31,
1997 1996
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $17,673 $15,567
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on disposal of property and equipment -- (25,047)
Depreciation and amortization 16,881 18,925
Impairment adjustment -- 7,980
Currency translation adjustments and other 5,295 1,018
Decrease in accounts receivable 14,116 12,919
Increase in prepaid expenses and
other current assets (6,603) (2,299)
Increase in other assets (862) --
Increase(decrease) in current liabilities (3,768) 11,431
Increase in long-term liabilities 1,179 9,440
----------------------
Total adjustments to net income 26,238 34,367
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,911 49,934
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (65,023) (66,014)
Disposal of property and equipment -- 92,566
Increase in investments (224) (904)
----------------------
NET CASH PROVIDED BY(USED IN) INVESTING
ACTIVITIES (65,247) 25,648
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 38,000 33,000
Repayment of long-term borrowings -- (81,000)
Proceeds from issuance of common stock 3,714 2,969
Purchases of Treasury Stock (23,340) --
----------------------
NET CASH PROVIDED BY(USED IN) FINANCING
ACTIVITIES 18,374 (45,031)
----------------------
NET INCREASE(DECREASE) IN CASH (2,962) 30,551
----------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,034 9,351
----------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $20,072 $39,902
======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 31, 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.
Unless the context indicates otherwise, references to years
indicate fiscal years.
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 December 31, 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:
December 31, March 31,
1997 1997
(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 81,128 81,153
Treasury stock, 1,108,670 and 110,017
shares, at cost (18,151) (986)
Retained earnings 93,674 76,001
Cumulative translation adjustments (7,248) (5,838)
-----------------------
Total Shareholders' Equity $155,407 $156,334
========================
4. Income Taxes
Cash taxes paid were $10.3 million and $6.7 million for the nine
months ended December 31, 1997 and 1996, respectively.
5. Earnings Per Share
The Company has computed earnings per share in accordance with
Financial Accounting Standards Board standard number ("SFAS")
128, "Earnings Per Share", which became effective in the third
quarter of 1998. Prior periods comparative figures have been re-
stated.
6. Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS 130,
"Reporting Comprehensive Income", and SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS
130 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.
SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in
interim and annual financial statements. The Company will
adopt SFAS 130 and SFAS 131 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.
Material Changes in Financial Condition
The Company considers its liquidity and capital resources
adequate to support continuing operations and capital commitments
although if significant investment opportunities arise the
Company may require the use of additional external funding. At
December 31, 1997, the Company had working capital of $47
million, including $19 million of unrestricted cash.
Additionally, the Company had $42 million of its $80 million
credit facility available and $39 million was unused under
uncommitted lines of credit.
In April 1997, the Company approved a plan to purchase up to a
maximum of 3,000,000 shares of its Common Stock and 1,439,000
shares have been purchased under this plan in 1998.
Capital expenditures were $65 million during the first nine
months of 1998, as compared to $66 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
production barge operating in Southeast Asia, 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 ROV fleet expansion and $38 million of
construction costs for the Floating Production, Storage and
Offloading system ("FPSO") ZAFIRO PRODUCER.
At December 31, 1997, the Company had commitments for capital
expenditures of approximately $25 million relating to new vessel
construction.
Results of Operations
Consolidated revenue and margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
(in thousands)
Revenues $ 86,234 $ 94,117 $271,975 $271,416
Gain on disposition
of FPSO -- 25,047 - 25,047
Gross Margin 18,285 30,364 57,850 62,038
Gross margin % 21% 32% 21% 23%
Operating Margin % 10% 23% 11% 13%
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 Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
(in thousands)
Revenues $ 43,201 $ 43,829 $140,289 $129,028
Gross Margin 9,816 749 32,510 16,698
Gross margin % 23% 2% 23% 13%
Revenues and gross margins for the nine months ended December 31,
1997 increased over the corresponding periods of the prior year
as a result of improved market conditions. Lower revenues in the
North Sea area, where the Company exited the diving services
market in early 1998, were offset by higher revenues in the U.S.
markets.
Gross margins for the three-month and nine-month periods ended
December 31, 1996 included an adjustment of $8 million to reduce
the carrying value of the Company's North Sea diving support
vessel. This adjustment reduced gross margin percentages by 18%
and 6% for the three-month and nine-month periods ended December
31, 1996, respectively.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
(in thousands)
Revenues $ 21,022 $ 27,268 $ 67,410 $66,802
Gain on disposition
of FPSO -- 25,047 -- 25,047
Gross Margin 3,287 23,801 10,175 31,757
Gross margin % 16% 87% 15% 48%
Revenues and gross margins for the third quarter of the prior
year included operating results of the FPSO ZAFIRO PRODUCER,
which commenced operations in late August 1996, and the gain on
disposition which was recorded when the customer exercised its
option to purchase the FPSO in December 1996. As a result,
revenues and gross margins for offshore field development for the
three-month period ended December 31, 1997 were lower as compared
to the corresponding period of the prior year. The Company
continues to provide project management services on the FPSO.
Gross margins for the three-month and nine-month periods ended
December 31, 1996, included a provision of $8 million for the
cost of a special drydocking for the FPSO OCEAN PRODUCER. This
special drydocking 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.
Gross margin percentages for the three-month and nine-month
periods ended December 31, 1997 for subsea products were reduced
by new product development costs.
Advanced Technologies
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
(in thousands)
Revenues $ 22,011 $ 23,020 $ 64,276 $75,586
Gross Margin 5,182 5,814 15,165 13,583
Gross margin % 24% 25% 24% 18%
Revenues and gross margins for the three-month period ended
December 31, 1997 decreased over the corresponding period of the
prior year as a result of lower activity in subsea cable burial
and civil projects and lower service requirements of the U.S.
Navy.
Revenues for the nine-month period ended December 31, 1997
decreased over the corresponding period of the prior year as a
result of lower activity in subsea cable burial and civil
projects 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 10% for the
third quarter and 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 nine-month periods ended
December 31, 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 period ended December 31,
1997 was net of capitalized interest of $400,000 relating to
investments in MOPS and new vessel construction. Interest
expense for the nine-month period ended December 31, 1996 was net
of capitalized interest of $1,100,000 relating to the FPSO ZAFIRO
PRODUCER conversion project.
Other income and expense for the three-month and nine-month
periods ended December 31, 1997 was impacted adversely by
currency losses arising from weakness in certain Asian currencies
compared to the corresponding periods of the prior year.
Additionally, other income and expense for the nine-month period
ended December 31, 1997 was impacted adversely by higher minority
interest expense compared to the corresponding period of the
prior year as a result of improved profitability in certain joint
ventures.
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. The provision for 1997 included the effect
of provisions made for asset impairment and special drydocking in
its United Kingdom subsidiary, where the Company derives no tax
benefit as it already has net operating losses.
PART II - OTHER INFORMATION
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: February 11, 1998 By: //s// JOHN R. HUFF
John R. Huff, President and
Chief Executive Officer
Date: February 11, 1998 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: February 11, 1998 By: //s// RICHARD V. CHIDLOW
Richard V. Chidlow, Controller
and Chief Accounting Officer