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 June 30, 1998
OR
[ ] 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 1-10945
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
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
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 July 23, 1998
Common Stock, $.25 Par Value 23,016,178 shares
Page 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, March 31,
1998 1998
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 11,201 $ 9,064
Accounts receivable (net of allowance
for doubtful accounts of $240 at
June 30 at March 31) 117,865 114,923
Prepaid expenses and other 10,973 7,077
-----------------------
Total Current Assets 140,039 131,064
-----------------------
Property and Equipment, at cost:
Marine services equipment 239,077 221,311
Mobile offshore production equipment 53,287 52,856
Buildings, improvements and other 48,525 44,542
-----------------------
340,889 318,709
Less: Accumulated Depreciation 153,448 149,874
-----------------------
Net Property and Equipment 187,441 168,835
-----------------------
Goodwill (net of amortization
of $4,737 and $4,490) 10,167 10,414
Investments and Other Assets 6,462 6,230
-----------------------
TOTAL ASSETS $344,109 $316,543
=======================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,553 $ 26,364
Accrued liabilities 56,064 51,385
Income taxes payable 11,117 8,425
-----------------------
Total Current Liabilities 92,734 86,174
Long-term Debt, net of current portion 68,543 54,626
Other Long-term Liabilities 15,539 15,421
Shareholders' Equity 167,293 160,322
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $344,109 $316,543
=======================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 2
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
June 30,
1998 1997
(in thousands, except per
share amounts)
Revenues $ 98,911 $ 95,163
Cost of services 77,424 76,230
Selling, general and administrative expenses 10,361 9,277
-----------------------
Income from operations 11,126 9,656
Interest income 84 333
Interest expense, net of capitalized
interest of $482 and $-- (567) (65)
Other expense, net (38) (65)
-----------------------
Income before income taxes 10,605 9,859
Provision for income taxes (4,030) (3,895)
-----------------------
Net income $ 6,575 $ 5,964
=======================
Basic Earnings per Share $0.29 $0.26
Diluted Earnings per Share $0.28 $0.25
Weighted average number of common shares 22,952 23,288
Incremental shares from stock options 330 206
Weighted average number of common
shares and equivalents 23,282 23,494
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
June 30,
1998 1997
(unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,575 $ 5,964
Adjustments to reconcile net income to net
cash provided by/(used in)operating activities:
Depreciation and amortization 6,737 5,162
Currency translation adjustments and other 1,973 3,794
(Increase)/decrease in accounts receivable (2,942) 20,880
Increase in prepaid expenses and
other current assets (3,896) (2,753)
Increase in other assets (296)
Increase/(decrease) in current liabilities 6,561 (4,154)
Increase in other long-term liabilities 119 784
--------------------
Total adjustments to net income 8,256 23,713
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,831 29,677
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (27,125) (17,654)
-------------------
NET CASH USED IN INVESTING ACTIVITIES (27,125) (17,654)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings,
net of payments 13,917 --
Proceeds from issuance of common stock 514 99
Purchases of treasury stock -- (12,503)
-------------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES 14,431 (12,404)
-------------------
NET INCREASE (DECREASE) IN CASH 2,137 (381)
-------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,064 23,034
-------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $11,201 $22,653
===================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 4
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 June 30, 1998
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, 1998. 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 includes 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 June 30, 1998 and March 31, 1998 was
restricted and deposited in interest bearing accounts as security
in connection with legal proceedings.
3. Shareholders' Equity
Shareholders' Equity consisted of the following:
June 30, March 31,
1998 1998
(unaudited) (audited)
(in thousands, except
share data)
Common Stock, par value $0.25;
90,000,000 shares authorized;
24,017,046 shares issued $ 6,004 $ 6,004
Additional paid-in capital 81,284 81,442
Treasury stock, 1,014,569 and 1,075,303
shares, at average cost (16,638) (17,634)
Retained earnings 104,577 98,002
Accumulated other elements of
comprehensive income (7,934) (7,492)
------- -------
Total shareholders' equity $167,293 $160,322
======= =======
Page 5
4. Income Taxes
Cash taxes paid were $1.3 million and $1.9 million for the first
quarters of 1999 and 1998, 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 restated.
6. Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income is the total of net income
and all non-owner changes in equity. The amount of comprehensive
income for each of the three-month periods ended June 30, 1998 and
1997 and the components of accumulated other elements of comprehensive
income in Shareholders' Equity at June 30, 1998 and March 31, 1998 are
as follows:
For the Three Months Ended
June 30,
1998 1997
(in thousands)
Net income per Consolidated Statements
of Income $6,575 $5,964
Foreign currency translation losses (442) (931)
----- -----
Comprehensive income $6,133 $5,033
===== =====
Amounts comprising other elements of comprehensive income in
Shareholders' Equity:
June 30, March 31,
1998 1998
(in thousands)
Accumulated foreign currency translation
adjustments $(7,934) $(7,492)
======= =======
7. New Accounting Pronouncement
The FASB has issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for
the way that public business enterprises report information about
operating segments in interim and annual financial statements. As
required, the Company will adopt SFAS 131 commencing with the 1999
Annual Report on Form 10-K.
Page 6
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 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. At June 30,
1998, the Company had working capital of $47 million, including $10
million of unrestricted cash. At June 30, 1998, the Company had
utilized $68 million of its available $80 million credit facility and
$39 million was unused under uncommitted lines of credit.
In order to provide longer term funding, the Company has agreed to
terms on a private placement of $100 million of senior notes. The
notes will have an average life of 10 years, bear interest at a rate
of 6.72% per annum with an effective rate of under 7%, and be repaid
in five equal annual installments beginning at the end of the eighth
year. The Company has also agreed to terms on a new $80 million five
year revolving credit facility. Formal closing for both the senior
notes and the revolving credit facility and funding of the senior
notes is expected in August 1998.
Capital expenditures were $27 million during the first three months of
1999, as compared to $18 million during the corresponding period of
the prior fiscal year. Capital expenditures in 1999 consisted of
additions to the Company's fleet of remotely operated vehicles
("ROVs"), multi-service support vessel construction and subsea
products facilities expansion. Prior fiscal year expenditures
consisted of additions to the Company's fleet of ROVs, support vessel
expenditures and two out-of-service mobile offshore platforms for
potential conversion to production systems or alternative service.
Commitments for capital expenditures at June 30, 1998 were
approximately $30 million for subsea product manufacturing facilities
and multi-service support vessel construction.
Page 7
Results of Operations
Consolidated revenue and margin information is as follows:
Three Months Ended
June 30,
1998 1997
(in thousands)
Revenues $98,911 $95,163
Gross margin 21,487 18,933
Gross margin % 22% 20%
Operating margin % 11% 10%
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
Services 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 since 1997 should reduce
the seasonality of the Company's Oilfield Marine Services operations.
Revenues and net 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
June 30,
1998 1997
(in thousands, except percentages)
Revenues $52,704 $49,561
Gross margins 11,710 10,362
Gross margin % 22% 21%
Revenues and gross margins for the Oilfield Marine Services segment
increased during the first quarter of 1999, compared to the
corresponding period of the prior year, primarily as a result of
additional ROVs placed in service.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended
June 30,
1998 1997
(in thousands, except percentages)
Revenues $27,654 $24,628
Gross margins 7,246 4,300
Gross margin % 26% 17%
Page 8
Revenues were higher in the first quarter of 1999 compared to the
corresponding period of the prior year as a result of increased
product sales and the acquisition of a production barge in January
1998. Project management work benefitted from higher margins. The
Company's FPSO OCEAN PRODUCER continued to operate offshore West
Africa under a contract which expires in January 2000.
Advanced Technologies
Revenue and gross margin information is as follows:
Three Months Ended
June 30,
1998 1997
(in thousands, except percentages)
Revenues $18,553 $20,974
Gross margins 2,531 4,271
Gross margin % 14% 20%
Revenues and gross margins for the first quarter of 1999 compared to
the corresponding period of the prior year reflect lower activity on
subsea cable burial projects.
Other
Interest income for the three-month period ended June 30, 1998
declined compared to the corresponding period of the prior year
primarily as a result of lower cash balances available for investment.
Interest expense for the three-month period ended June 30, 1998
increased compared to the corresponding period of the prior year as
the Company incurred debt to fund the acquisition of additional
equipment. Interest expense of $567,000 in 1999 was net of
capitalized interest of $482,000.
The provisions for income taxes were related to U.S. income taxes
which were provided at estimated annual effective rates using
assumptions as to earnings and other factors which would affect the
tax calculation for the remainder of the fiscal year, and to the
operations of foreign branches and subsidiaries which were subject to
local income and withholding taxes.
Year 2000
The Year 2000 problem is the result of computer programs which were
written using two digits rather than four to define the applicable
year. Programs that have time sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. The Company
has conducted a review of its computer systems to identify potential
problem areas. Much of the cost of compliance is included in regular
system and equipment upgrades which are planned or are in progress.
The Company does not expect the cost of compliance to have a material
Page 9
effect on its financial position, results of operations or liquidity.
However, there is no assurance that the systems of other companies on
which the Company relies will be converted timely and will not have an
adverse effect on the Company.
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.
Page 10
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: August 7, 1998 By: //s// JOHN R. HUFF
John R. Huff, President and
Chief Executive Officer
Date: August 7, 1998 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: August 7, 1998 By: //s// RICHARD V. CHIDLOW
Richard V. Chidlow, Controller
and Chief Accounting Officer
Page 11