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, 1999
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)
(713) 329-4500
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 FEBRUARY 1, 2000
- ---------------------------- -------------------------------
Common Stock, $.25 Par Value 22,756,583 shares
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31, March 31,
1999 1999
------------ ---------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ........................ $ 11,104 $ 8,367
Accounts receivable (net of allowance
for doubtful accounts of $500 and
$398 at December 31 and March 31) .............. 110,490 103,838
Prepaid expenses and other ....................... 20,827 16,859
------------ ---------
Total current assets ............................. 142,421 129,064
------------ ---------
Property and Equipment, at cost:
Marine services equipment ........................ 317,424 285,964
Mobile offshore production equipment ............. 54,988 53,808
Buildings, improvements and other ................ 77,047 72,960
------------ ---------
449,459 412,732
Less: accumulated depreciation ................... 192,130 170,993
------------ ---------
Net property and equipment ....................... 257,329 241,739
------------ ---------
Goodwill (net of amortization of $6,252
and $5,478) ...................................... 11,104 9,426
------------ ---------
Investments and Other Assets ....................... 8,589 7,114
------------ ---------
TOTAL ASSETS ..................................... $ 419,443 $ 387,343
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................. $ 23,497 $ 23,481
Accrued liabilities .............................. 61,492 54,608
Income taxes payable ............................. 8,835 9,271
Current portion of long-term debt ................ 317 306
------------ ---------
Total current liabilities ........................ 94,141 87,666
------------ ---------
Long-term Debt, net of current portion ............. 110,073 100,312
------------ ---------
Other Long-term Liabilities ........................ 22,206 19,926
------------ ---------
Commitments and Contingencies
Shareholders' Equity ............................... 193,023 179,439
------------ ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 419,443 $ 387,343
============ =========
See Notes to Consolidated Financial Statements.
Page 2
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues ............................................ $ 106,512 $ 98,275 $ 305,777 $ 307,228
Cost of Services .................................... 88,329 76,782 251,612 240,716
Selling, General and Administrative Expenses ........ 9,855 10,339 29,114 31,005
------------- ------------- ------------- -------------
Income from operations .......................... 8,328 11,154 25,051 35,507
Interest Income ..................................... 128 319 422 664
Interest Expense, net of capitalized interest of $430 (1,619) (1,141) (4,461) (2,333)
and $656, and $1,230 and $1,832
Other Expense, Net .................................. (599) (76) (473) (240)
------------- ------------- ------------- -------------
Income before income taxes ...................... 6,238 10,256 20,539 33,598
Provision for Income Taxes .......................... (2,243) (3,905) (7,394) (12,777)
------------- ------------- ------------- -------------
Net Income ...................................... $ 3,995 $ 6,351 $ 13,145 $ 20,821
============= ============= ============= =============
Basic Earnings per Share ............................ $ 0.17 $ 0.28 $ 0.58 $ 0.91
Diluted Earnings per Share .......................... $ 0.17 $ 0.28 $ 0.57 $ 0.91
Weighted average number of common shares ............ 23,165 22,590 22,752 22,785
Incremental shares from stock options ............... 158 132 271 212
Weighted average number of common shares and
equivalents........................................ 23,323 22,722 23,023 22,997
See Notes To Consolidated Financial Statements.
Page 3
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................................... $ 13,145 $ 20,821
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 24,864 21,619
Currency translation adjustments and other ......................... 2,256 (1,110)
Decrease (increase) in accounts receivable ......................... (6,652) 7,114
Increase in prepaid expenses and other current assets .............. (3,968) (6,365)
Increase in other assets ........................................... (946) (47)
Increase in current liabilities .................................... 7,228 5,284
Increase in other long-term liabilities ............................ 2,280 2,261
-------- --------
Total adjustments to net income .................................... 25,062 28,756
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............................. 38,207 49,577
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and other ...................... (43,144) (83,048)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................. (43,144) (83,048)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of costs ................... -- 98,537
Net proceeds (payments) on revolving credit and other long-term debt 9,772 (54,201)
Proceeds from issuance of common stock ............................. 5,205 2,168
Purchases of treasury stock ........................................ (7,303) (5,495)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............................. 7,674 41,009
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 2,737 7,538
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR .......................... 8,367 9,064
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD .............................. $ 11,104 $ 16,602
======== ========
See Notes to Consolidated Financial Statements.
Page 4
OCEANEERING INTERNATIONAL, INC. & 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 Oceaneering's financial position at December
31, 1999 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 Oceaneering's Annual
Report on Form 10-K for its fiscal year ended March 31, 1999. The results
for interim periods are not necessarily indicative of annual results.
Unless the context indicates otherwise, references to years indicate
Oceaneering's fiscal years. For example, 2000 would refer to the current
fiscal year ending March 31, 2000.
2. Shareholders' Equity
Shareholders' Equity consisted of the following:
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
Common Stock, par value $0.25;
90,000,000 shares authorized;
24,017,046 shares issued .................................. $ 6,004 $ 6,004
Additional paid-in capital .................................... 77,564 82,421
Treasury stock; 1,226,276 and 1,653,922 shares, at average cost (16,339) (22,803)
Retained earnings ............................................. 136,854 123,709
Accumulated other elements of comprehensive income ............ (11,060) (9,892)
------------ ---------
Total shareholders' equity .................................... $ 193,023 $ 179,439
============ =========
3. Income Taxes
Cash taxes paid were $7.1 million and $8.4 million for the first nine
months of 2000 and 1999, respectively.
4. Earnings Per Share
Oceaneering has computed earnings per share in accordance with Financial
Accounting Standards Board Standard Number ("SFAS") 128, "Earnings Per
Share".
Page 5
5. Business Segment Information
Oceaneering supplies a comprehensive range of integrated technical services
to a wide array of industries and is one of the world's largest underwater
services contractors. Oceaneering's Oilfield Marine Services business
consists of underwater intervention and above-water inspection, maintenance
and repair. Oceaneering's Offshore Field Development business includes the
engineering, procurement, construction and installation of mobile offshore
production systems, subsea intervention services and the production of
subsea control umbilical cables. Oceaneering's Advanced Technologies
business provides project management, engineering services and equipment
for applications in harsh environments, primarily in non-oilfield markets.
The following summarizes certain financial data by business segment:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(IN THOUSANDS)
Revenues
Oilfield Marine Services ................ $ 53,801 $ 46,252 $ 145,243 $ 154,868
Offshore Field Development .............. 18,112 24,757 62,441 81,108
Advanced Technologies ................... 34,599 27,266 98,093 71,252
------------ ------------ ------------ ------------
Total ............................ $ 106,512 $ 98,275 $ 305,777 $ 307,228
============ ============ ============ ============
Gross Margins (Revenues less Cost of Services)
Oilfield Marine Services ................ $ 8,451 $ 9,323 $ 25,558 $ 33,485
Offshore Field Development .............. 2,862 5,560 11,525 19,587
Advanced Technologies ................... 6,870 6,610 17,082 13,440
------------ ------------ ------------ ------------
Total ............................ $ 18,183 $ 21,493 $ 54,165 $ 66,512
============ ============ ============ ============
There are no differences in the basis of segmentation or in the basis of
measurement of segment profit or loss from those used in the consolidated
financial statements for the fiscal year ended March 31, 1999.
6. Comprehensive Income
Effective April 1, 1998, Oceaneering adopted SFAS 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting
and display of comprehensive income and its components. Comprehensive
income is the total of net income and all non-owner changes in equity. The
amounts of comprehensive income for each of the three and nine-month
periods ended December 31, 1999 and 1998 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(IN THOUSANDS)
Net Income per Consolidated Statements of Income $ 3,995 $ 6,351 $ 13,145 $ 20,821
Foreign Currency Translation Losses ............ (1,691) (1,879) (1,168) (1,003)
------------ ------------ ------------ ------------
Comprehensive Income ........................... $ 2,304 $ 4,472 $ 11,977 $ 19,818
============ ============ ============ ============
Amounts comprising other elements of comprehensive income in Shareholders'
Equity:
DECEMBER 31, 1999 MARCH 31, 1999
----------------- --------------
(IN THOUSANDS)
Accumulated Foreign Currency Translation Adjustments .... $ (11,060) $ (9,892)
================= ==============
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 our 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. We use a variety of internal and external data and
management judgment in order to develop such forward-looking information.
Although we believe 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 we operate, we can give no assurance that such expectations will prove
to have been correct. Accordingly, evaluation of our future prospects must be
made with caution when relying on forward-looking information.
MATERIAL CHANGES IN FINANCIAL CONDITION
We consider our liquidity and capital resources adequate to support our
operations and capital commitments. At December 31, 1999, we had working capital
of $48 million, including $11 million of unrestricted cash; we had utilized $10
million of our available $80 million credit facility and $16 million was unused
under uncommitted lines of credit.
Our capital expenditures were $44 million during the first nine months of 2000,
as compared to $86 million during the corresponding period of the prior fiscal
year. Capital expenditures in 2000 consisted of additions to our fleet of
remotely operated vehicles ("ROVs") and multiservice vessel construction. Prior
fiscal year expenditures consisted of additions to our fleet of ROVs,
multiservice vessel construction and subsea products facilities expansion.
Commitments for capital expenditures at December 31, 1999 were approximately $79
million, including $70 million for the conversion of a jackup drilling rig to a
mobile offshore production unit and $9 million for multiservice vessel
construction. The mobile offshore production unit will be used for a three-year
contract in Western Australia. Operations are anticipated to begin in mid
calendar 2001.
RESULTS OF OPERATIONS
Consolidated revenue and margin information is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
1999 1998 1999 1998
-------- ------- -------- --------
(IN THOUSANDS)
Revenues ................ $106,512 $98,275 $305,777 $307,228
Gross margin ............ 18,183 21,493 54,165 66,512
Gross margin % .......... 17% 22% 18% 22%
Operating margin % ...... 8% 11% 8% 12%
The quarters ending June 30 and September 30 have generally been the peak in
both revenues and net income for our Oilfield Marine Services business. However,
our 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
calendar 1997 should reduce the seasonality of our Oilfield Marine Services
operations. Revenues and net income in our Offshore Field Development and
Advanced Technologies businesses are generally not seasonal.
Page 7
OILFIELD MARINE SERVICES.
Revenue and gross margin information is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
Revenues ................... $ 53,801 $ 46,252 $145,243 $154,868
Gross margin ............... 8,451 9,323 25,558 33,485
Gross margin % ............. 16% 20% 18% 22%
During the quarter, revenues for our Oilfield Marine Services segment improved
on higher sales of diving and topside inspection services. However, gross margin
percentage declined due to competitive pricing pressure on diving and related
vessel operations. For the nine month period ending December 31, 1999, revenues
and gross margin declined on lower sales and profitability derived from diving
and related vessel operations. The financial contribution from ROV operations
during both periods were relatively flat as contributions from long-term ROV
contracts offset declines in utilization of other units.
OFFSHORE FIELD DEVELOPMENT.
Revenue and gross margin information is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
Revenues ....................... $ 18,112 $ 24,757 $ 62,441 $ 81,108
Gross margin ................... 2,862 5,560 11,525 19,587
Gross margin % ................. 16% 22% 18% 24%
Revenues and gross margin declined in the current fiscal year periods on lower
umbilical sales and reduced contributions from mobile offshore production system
related engineering and project management work. During the quarter, we sold the
Zeus, a former jackup drilling rig, at a small loss as this asset no longer fit
with opportunities we are pursuing. The financial impact of this asset
disposition is included in this business segment's gross margin reported for the
current quarter.
ADVANCED TECHNOLOGIES.
Revenue and gross margin information is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
Revenues ....................... $ 34,599 $ 27,266 $ 98,093 $ 71,252
Gross margin ................... 6,870 6,610 17,082 13,440
Gross margin % ................. 20% 24% 17% 19%
For the quarter, increased revenues were achieved from higher sales of civil
engineering project work, diving services, and other engineering and
manufacturing services. During this period we performed a large outfall project
in Asia using resources from the Oilfield Marine Services group. Gross margin
remained essentially unchanged primarily due to a lower profit contribution from
subsea telecommunication cable services.
For the nine months ending December 31, 1999, revenues and gross margin improved
on higher sales of engineering and manufacturing services, civil engineering
project work, search and recovery services and the previously mentioned outfall
project.
Page 8
OTHER.
Interest expense for the three and nine-month periods ended December 31, 1999
increased compared to the corresponding periods of the prior year as we had
higher debt levels. This debt had been incurred to fund the acquisition of
additional equipment and expansion of subsea products production capacity.
Interest expense of $1,619,000 and $4,461,000 in 2000 was net of capitalized
interest of $430,000 and $1,230,000.
The provisions for income taxes were related to U.S. income taxes which we
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.
We completed a comprehensive review of our operations to assess the capability
of our process control, business and accounting systems to handle Year 2000
issues. To date, we have not experienced any significant computer or systems
problems related to the Year 2000. As a result of these findings, we do not
anticipate any material adverse effects regarding Year 2000 compliance on our
consolidated results of operations, financial position or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There are no material changes from the information provided in Item 7A of
Oceaneering's Annual Report on Form 10-K for the fiscal year ended March 31,
1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3 Articles of Incorporation and By-laws
3.1 Amended and Restated By-laws
10 Material Contracts
10.1 Amended and Restated Supplemental Executive Retirement Plan
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 9
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, 2000 By: //s// JOHN R. HUFF
John R. Huff
Chairman and Chief Executive Officer
Date: February 11, 2000 By: //s// MARVIN J. MIGURA
Marvin J. Migura
Senior Vice President and Chief
Financial Officer
Date: February 11, 2000 By: //s// JOHN L. ZACHARY
John L. Zachary
Controller and Chief Accounting
Officer
Page 10