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, 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 October 28, 1998
Common Stock, $.25 Par Value 22,567,301 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, March 31,
1998 1998
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 30,241 $ 9,064
Accounts receivable (net of allowance
for doubtful accounts of $203 and
$240) 116,048 114,923
Prepaid expenses and other 12,729 7,077
--------------------------------
Total Current Assets 159,018 131,064
--------------------------------
Property and Equipment, at cost:
Marine services equipment 256,889 221,311
Mobile offshore production equipment 54,122 52,856
Buildings, improvements and other 57,426 44,542
--------------------------------
368,437 318,709
Less: Accumulated Depreciation 160,029 149,874
--------------------------------
Net Property and Equipment 208,408 168,835
--------------------------------
Goodwill (net of amortization
of $4,984 and $4,490) 9,920 10,414
Investments and Other Assets 6,638 6,230
--------------------------------
TOTAL ASSETS $383,984 $316,543
================================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and current portion
of Long-term Debt $ 28,050 $ 26,364
Accrued liabilities 54,076 51,385
Income taxes payable 10,747 8,425
--------------------------------
Total Current Liabilities 92,873 86,174
Long-term Debt, net of current portion 100,458 54,626
Other Long-term Liabilities
17,797 15,421
Commitments and Contingencies
Shareholders' Equity
172,856 160,322
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $383,984 $316,543
================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
September 30,
1998 1997
(in thousands, except per
share amounts)
Revenues $110,042 $ 90,578
Cost of services 86,510 69,946
Selling, general and administrative expenses 10,305 9,580
-----------------------
Income from operations 13,227 11,052
Interest income 261 233
Interest expense, net of capitalized
interest of $694 and $48 (625) (57)
Other expense, net (126) (451)
-----------------------
Income before income taxes 12,737 10,777
Provision for income taxes (4,842) (4,063)
-----------------------
Net income $ 7,895 $ 6,714
=======================
Basic Earnings per Share $0.34 $0.29
Diluted Earnings per Share $0.34 $0.28
Weighted average number of common shares 22,813 23,346
Incremental shares from stock options 174 466
Weighted average number of common
shares and equivalents 22,987 23,812
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Six Months Ended
September 30,
1998 1997
(in thousands, except per
share amounts)
Revenues $208,953 $185,741
Cost of services 163,934 146,176
Selling, general and administrative
expenses 20,666 18,857
--------------------
Income from operations 24,353 20,708
Interest income 345 566
Interest expense, net at capitalized
interest of $1,176 and $48 (1,192) (122)
Other expense, net (164) (516)
--------------------
Income before income taxes 23,342 20,636
Provision for income taxes (8,872) (7,958)
--------------------
Net income $ 14,470 $ 12,678
====================
Basic Earnings per Share $0.63 $0.54
Diluted Earnings per Share $0.62 $0.54
Weighted average number of common shares 22,883 23,317
Incremental shares from stock options 252 336
Weighted average number of common
shares and equivalents 23,135 23,653
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
September 30,
1998 1997
(unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $14,470 $12,678
Adjustments to reconcile net income to net
cash provided by/(used in)operating activities:
Depreciation and amortization 14,099 10,797
Currency translation adjustments and other (44) 4,265
(Increase)/decrease in accounts receivable (1,125) 15,736
Increase in prepaid expenses and
other current assets (5,652) (3,470)
Increase in other assets (82) (916)
Increase/(decrease) in current liabilities 6,699 (13,589)
Increase in other long-term liabilities 2,376 646
--------------------
Total adjustments to net income 16,271 13,469
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,741 26,147
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (52,257) (41,194)
Other investing activity 1,704 (221)
--------------------
NET CASH USED IN INVESTING ACTIVITIES (50,553) (41,415)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowing,
net of costs 98,620 --
Net proceeds/(payments) on revolving credit
and other long-term debt (54,168) 16,000
Proceeds from issuance of common stock 1,541 3,031
Purchases of treasury stock (5,004) (12,503)
--------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 40,989 6,528
--------------------
NET INCREASE (DECREASE) IN CASH 21,177 (8,740)
--------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,064 23,034
--------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $30,241 $14,294
====================
The accompanying Notes are an integral part of these 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, 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. Current Assets
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
March 31, 1998 was restricted and deposited in interest bearing accounts as
security in connection with legal proceedings. Such legal proceedings were
settled in the quarter ended September 30, 1998 and the restriction was
removed.
Prepaid expenses and other current assets as of September 30 and March 31,
1998 include spare parts of $6.7 million and $3.3 million, respectively,
primarily for the Company's ROV fleet.
3. Long-term Debt
Long-term debt consisted of the following:
September 30, March 31,
1998 1998
(unaudited) (audited)
(in thousands)
6.72% Senior Notes due 2010 $100,000 $ --
Revolving Credit Facility -- 54,000
Capital Leases 757 919
------- ------
100,757 54,919
Current portion of capital leases (299) (293)
------- ------
$100,458 $ 54,626
======== ======
In September 1998, the Company issued $100 million aggregate principal
amount of 6.72% Senior Notes dues 2010. The net proceeds were $98.6 million
after issuance costs and were used to retire existing debt under the
Company's revolving credit facility. The notes have an average life of ten
years and are scheduled to be paid in five equal annual installments
beginning at the end of the eighth year.
In October 1998, the Company entered into a new $80 million revolving credit
facility to replace its prior one which was scheduled to convert to a term
loan in April 1999.
The Senior Notes and the new revolving credit facility have similar
maintenance covenants relative to the level of debt to total capitalization,
fixed charge coverages and minimum net worth.
4. Shareholders' Equity
Shareholders' Equity consisted of the following:
September 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 81,610 81,442
Treasury stock, 1,400,106 and 1,075,303
shares, at average cost (20,614) (17,634)
Retained earnings 112,472 98,002
Accumulated other elements of
comprehensive income (6,616) (7,492)
------- -------
Total shareholders' equity $172,856 $160,322
======= =======
5. Income Taxes
Cash taxes paid were $5.6 million and $7.9 million for the first six months
of 1999 and 1998, respectively.
6. 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.
7. 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 and six-month periods ended September 30, 1998 and 1997 and the
components of accumulated other elements of comprehensive income in
Shareholders' Equity at September 30, 1998 and March 31, 1998 are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands) (in thousands)
Net income per
Consolidated Statements
of Income $7,895 $6,714 $14,470 $12,678
Foreign currency
translation gains/(losses) 1,318 (361) 876 (1,292)
----- ----- ----- ------
Comprehensive income $9,213 $6,353 $15,346 $11,386
===== ===== ====== ======
Amounts comprising other elements of comprehensive income in Shareholders'
Equity:
September 30, 1998 March 31, 1998
(in thousands) (in thousands)
Accumulated foreign
currency translation
adjustments $(6,616) $(7,492)
===== =====
8. New Accounting Pronouncements
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 its 1999 Annual Report on Form 10-K.
The FASB has also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes standards for the way
derivative instruments and hedging activities are reported. It requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. Changes in a derivative's fair value are to be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company
has not yet quantified the impact, if any, on its financial statements that
may result from adoption of SFAS No. 133, which is required no later than
April 1, 2000.
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 industries 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 September 30,
1998, the Company had working capital of $66 million, including $30 million
of unrestricted cash. At September 30, 1998, the Company had utilized none
of its available $80 million credit facility and $20 million was unused
under uncommitted lines of credit.
In order to provide longer term funding, the Company issued $100 million of
6.72% Senior Notes which are repayable in five equal annual principal
installments beginning at the end of the eighth year. In October 1998, the
Company replaced its revolving credit facility with a new $80 million five
year revolving credit facility.
Capital expenditures were $52 million during the first six months of 1999,
as compared to $41 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 September 30, 1998 were
approximately $20 million for subsea product manufacturing facilities and
multi-service support vessel construction.
Results of Operations
Consolidated revenue and margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $110,042 $90,578 $208,953 $185,741
Gross margin 23,532 20,632 45,019 39,565
Gross margin % 21% 23% 22% 21%
Operating margin % 12% 12% 12% 11%
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 Six Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $55,912 $47,527 $108,616 $97,088
Gross margins 12,452 12,332 24,162 22,694
Gross margin % 22% 26% 22% 23%
Revenue for the Oilfield Marine Services segment increased due to the
expansion of the company's work class ROV fleet and increased sales of
diving and engineering project management services. Gross margins showed a
slight improvement on the strength of improved profitability associated with
engineering project services.
The gross margin percentage in the three months ended September 30, 1998 was
lower than that of the comparable period of the prior year as a result of
higher ROV-related training and payroll costs, a higher subcontractor
component in work performed and inefficiencies due to an unusually high
number of tropical storms in or threatening Gulf of Mexico work areas.
Additionally the gross margin percentage from the year-earlier quarter was
unusually high as the gross margin percentage for all of 1998 was 22%.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $28,697 $21,760 $56,351 $46,388
Gross margins 6,781 2,588 14,027 6,888
Gross margin % 24% 12% 25% 15%
Revenues and gross margins were higher in the 1999 periods compared to the
corresponding periods of the prior year as a result of increased product
sales and the acquisition of a production barge in January 1998. Gross
margins also benefitted from higher profitability on project management
work. 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 Six Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $25,433 $21,291 $43,986 $42,265
Gross margins 4,299 5,712 6,830 9,983
Gross margin % 17% 27% 16% 24%
Revenues rose on increased activity levels for subsea telecommunications
cable services and the design and assembly of large, dynamic, animated
figures for theme parks. However, gross margins declined due to a reduction
in civil engineering and construction work and lower profitability on search
and recovery services.
Other
Interest expense for the three and six month periods ended September 30,
1998 increased compared to the corresponding periods of the prior year as
the Company incurred debt to fund the acquisition of additional equipment.
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 been reviewing its
computer systems to identify potential problem areas. Based upon its
assessment to date, 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 effect on
its financial position, results of operations or liquidity. The Company
will also be working with its major trading partners to avoid operational
disruptions. 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 4. Submission of Matters to aVote of Security Holders.
(a) The Company held its Annual Meeting of Shareholders on
August 21, 1998.
The following matters were voted upon at the Annual Meeting.
Election of Directors.
Nominee Shares For Shares Withheld
David S Hooker 19,636,850 272,644
Harris J. Pappas 19,572,375 337,119
Ratification of the appointment of Arthur Andersen LLP as independent
auditors of the Company.
Shares For Shares Against Shares Abstained
19,814,100 9,216 86,178
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4 Instruments defining the rights of security holders,
including indentures.
4.01 Note Purchase Agreement dated as of
September 8, 1998 relating to
$100,000,000 6.72% Senior Notes due
September 8, 2010
4.02 Loan Agreement ($80,000,000 Revolving
Credit Facility) dated as of
October 23, 1998
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 12, 1998 By: //s// JOHN R. HUFF
John R. Huff, Chief Executive Officer
Date: November 12, 1998 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: November 12, 1998 By: //s// JOHN L. ZACHARY
John L. Zachary, Controller
and Chief Accounting Officer