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, 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 January 29, 1999
Common Stock, $.25 Par Value 22,634,004 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
1998 1998
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 16,602 $ 9,064
Accounts receivable (net of allowance
for doubtful accounts of $198 and
$240)
107,809 114,923
Prepaid expenses and other 13,442 7,077
-----------------------
Total Current Assets 137,853 131,064
-----------------------
Property and Equipment, at cost:
Marine services equipment 274,640 221,311
Mobile offshore production equipment 53,928 52,856
Buildings, improvements and other 70,206 44,542
-----------------------
398,774 318,709
Less: Accumulated Depreciation 165,602 149,874
-----------------------
Net Property and Equipment 233,172 168,835
-----------------------
Goodwill (net of amortization
of $5,231 and $4,490) 9,673 10,414
Investments and Other Assets 6,662 6,230
-----------------------
TOTAL ASSETS $387,360 $316,543
=======================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and current portion
of Long-term Debt $ 21,446 $ 26,364
Accrued liabilities 58,218 51,385
Income taxes payable 11,798 8,425
-----------------------
Total Current Liabilities 91,462 86,174
Long-term Debt, net of current portion 100,416 54,626
Other Long-term Liabilities 17,682 15,421
Commitments and Contingencies
Shareholders' Equity 177,800 160,322
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $387,360 $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
December 31,
1998 1997
(in thousands, except per
share amounts)
Revenues $ 98,275 $ 86,234
Cost of services 76,782 67,949
Selling, general and administrative expenses 10,339 9,797
-----------------------
Income from operations 11,154 8,488
Interest income 319 138
Interest expense, net of capitalized
interest of $656 and $358 (1,141) (92)
Other expense, net (76) (504)
-----------------------
Income before income taxes 10,256 8,030
Provision for income taxes (3,905) (3,035)
-----------------------
Net income $ 6,351 $ 4,995
=======================
Basic Earnings per Share $0.28 $0.21
Diluted Earnings per Share $0.28 $0.21
Weighted average number of common shares 22,590 23,376
Incremental shares from stock options 132 372
Weighted average number of common
shares and equivalents 22,722 23,748
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Nine Months Ended
December 31,
1998 1997
(in thousands, except per
share amounts)
Revenues $307,228 $271,975
Cost of services 240,716 214,125
Selling, general and administrative
expenses
31,005 28,654
-----------------------
Income from operations 35,507 29,196
Interest income 664 704
Interest expense, net of capitalized
interest of $1,832 and $406 (2,333) (214)
Other expense, net (240) (1,020)
-----------------------
Income before income taxes 33,598 28,666
Provision for income taxes (12,777) (10,993)
-----------------------
Net income $ 20,821 $ 17,673
=======================
Basic Earnings per Share $0.91 $0.76
Diluted Earnings per Share 0.91 0.75
Weighted average number of common shares 22,785 23,337
Incremental shares from stock options 212 348
Weighted average number of common
shares and equivalents 22,997 23,685
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
December 31,
1998 1997
(unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $20,821 $17,673
Adjustments to reconcile net income to net
cash provided by/(used in)operating activities:
Depreciation and amortization 21,619 16,881
Decrease in accounts receivable 7,114 14,116
Increase in prepaid expenses and
other current assets (6,365) (6,603)
Increase in other assets (47) (862)
Increase/(decrease) in current liabilities 5,284 (3,768)
Increase in other long-term liabilities 2,261 1,179
Currency translation adjustments and other (1,110) 5,295
--------------------
Total adjustments to net income 28,756 26,238
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,577 43,911
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (85,532) (65,023)
Other investing activity 2,484 (224)
-------------------
NET CASH USED IN INVESTING ACTIVITIES (83,048) (65,247)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowing,
net of costs 98,537 38,000
Payments on revolving credit and
other long-term debt (54,201) --
Proceeds from issuance of common stock 2,168 3,714
Purchases of treasury stock (5,495) (23,340)
-------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 41,009 18,374
-------------------
NET INCREASE (DECREASE) IN CASH 7,538 (2,962)
-------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,064 23,034
-------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $16,602 $20,072
===================
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 December 31, 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 (fiscal 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 December 31 and March 31,
1998 include spare parts of $6.1 million and $3.3 million, respectively,
primarily for the Company's ROV fleet.
3. Long-term Debt
Long-term debt consisted of the following:
December 31, March 31,
1998 1998
(unaudited) (audited)
(in thousands)
6.72% Senior Notes due 2010 $100,000 $ --
Revolving Credit Facility -- 54,000
Capital Leases 718 919
------- ------
100,718 54,919
Current portion of capital leases (302) (293)
------- ------
Long-term debt, net of current portion $100,416 $ 54,626
======== ======
In September 1998, the Company issued $100 million aggregate principal
amount of 6.72% Senior Notes due 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.
Cash interest payments were $2.0 million and $.5 million for the first nine
months of 1999 and 1998, respectively.
4. Shareholders' Equity
Shareholders' Equity consisted of the following:
December 31, 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 82,014 81,442
Treasury stock, 1,405,897 and 1,075,303
shares, at average cost (20,546) (17,634)
Retained earnings 118,823 98,002
Accumulated other elements of
comprehensive income (8,495) (7,492)
------- -------
Total shareholders' equity $177,800 $160,322
======= =======
5. Income Taxes
Cash taxes paid were $8.4 million and $10.3 million for the first nine
months of 1999 and 1998, respectively.
6. Earnings Per Share
The Company computes 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.
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 nine-month periods ended December 31, 1998 and 1997 and the
components of accumulated other elements of comprehensive income in
Shareholders' Equity at December 31, 1998 and March 31, 1998 are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
(in thousands) (in thousands)
Net income per
Consolidated Statements
of Income $6,351 $4,995 $20,821 $17,673
Foreign currency
translation gains/(losses) (1,879) (118) (1,003) (1,410)
----- ----- ----- ------
Comprehensive income $4,472 $4,877 $19,818 $16,263
===== ===== ====== ======
Amounts comprising other elements of comprehensive income in Shareholders'
Equity:
December 31, 1998 March 31, 1998
(in thousands) (in thousands)
Accumulated foreign
currency translation
adjustments $(8,495) $(7,492)
===== =====
8. Recent 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 its continuing operations and capital commitments. At December 31,
1998, the Company had working capital of $46 million, including $17 million
of unrestricted cash. At December 31, 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, in September 1998 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. Most
of the proceeds from the Senior Notes were used to pay off the then
outstanding borrowings under the Company's prior revolving credit facility,
which had been used to fund capital expenditures. In October 1998, the
Company replaced that revolving credit facility with a new $80 million five
year revolving credit facility.
Capital expenditures were $86 million during the first nine months of 1999,
as compared to $65 million during the corresponding period of the prior
fiscal year. Capital expenditures in fiscal 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, 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.
Commitments for capital expenditures at December 31, 1998 were approximately
$6 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 Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $98,275 $86,234 $307,228 $271,975
Gross margins 21,493 18,285 66,512 57,850
Gross margin % 22% 21% 22% 21%
Operating margin % 11% 10% 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 fiscal 1998 ("FY98") and the substantial number of
multi-year ROV contracts which were entered into since calendar 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 Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $46,252 $43,201 $154,868 $140,289
Gross margins 9,323 9,816 33,485 32,510
Gross margin % 20% 23% 22% 23%
For the nine month period of FY99, revenues for the Oilfield Marine Services
segment increased due to the expansion of the Company's work class ROV fleet
and improved demand for diving services. Gross margin improved on increased
profitability from ROV, diving, and engineering project services. These
increases were partially offset by decreases in revenues and gross margins
from survey services.
The three month period of FY99 reflected increased revenues and gross
margins in the same areas as the nine month period. However, the total
gross margin and percentage was lower than that of the prior year due to
lower revenues and profitability of survey and topside inspection services.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $24,757 $21,022 $81,108 $67,410
Gross margins 5,560 3,287 19,587 10,175
Gross margin % 22% 16% 24% 15%
For the nine month period of FY99, revenues and gross margins were higher as
compared to the corresponding period of the prior year as a result of
increased product sales and mobile offshore production systems operations,
including a production barge which commenced in the fourth quarter of FY98.
Gross margins in the three month period of FY99 were higher than those of
FY98 for both product sales and mobile offshore production systems
operations. Revenues also increased, with the increase in revenues from
mobile offshore production systems operations being partially offset by
lower product sales. 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 Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
(in thousands, except percentages)
Revenues $27,266 $22,011 $71,252 $64,276
Gross margins 6,610 5,182 13,440 15,165
Gross margin % 24% 24% 19% 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. Gross margins for the three months rose due to the
increased telecommunications volume Gross margins for the nine months
declined due to lower profitability on search and recovery services and less
civil engineering and construction work.
Other
Interest expense for the three and nine month periods ended December 31,
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 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, 1999 By: //s// JOHN R. HUFF
John R. Huff, Chief Executive Officer
Date: February 11, 1999 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: February 11, 1999 By: //s// JOHN L. ZACHARY
John L. Zachary, Controller
and Chief Accounting Officer