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, 2000
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
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(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 AUGUST 1, 2000
- --------------------------------------------- -----------------------------
Common Stock, $.25 Par Value 22,924,506 shares
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 10,351 $ 11,001
Accounts receivable (net of allowance
for doubtful accounts of $500
at June 30 and March 31) ................... 116,313 118,572
Prepaid expenses and other ................... 22,200 18,990
------------ ------------
Total current assets ......................... 148,864 148,563
------------ ------------
Property and Equipment, at cost ................ 486,787 461,285
Less: accumulated depreciation ................. 186,591 184,918
------------ ------------
Net property and equipment ..................... 300,196 276,367
------------ ------------
Goodwill (net of amortization of $6,922
and $6,612) .................................. 11,330 11,611
------------ ------------
Investments and Other Assets ................... 14,569 14,435
------------ ------------
TOTAL ASSETS ................................. $ 474,959 $ 450,976
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and notes payable ................... $ 34,103 $ 34,905
Accrued liabilities .......................... 55,631 53,645
Income taxes payable ......................... 7,269 7,238
------------ ------------
Total current liabilities .................... 97,003 95,788
------------ ------------
Long-term Debt, net of current portion ......... 150,000 128,000
------------ ------------
Other Long-term Liabilities .................... 30,248 31,488
------------ ------------
Commitments and Contingencies
Shareholders' Equity ........................... 197,708 195,700
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $ 474,959 $ 450,976
============ ============
See Notes to Consolidated Financial Statements.
Page 2
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues ....................................... $ 104,039 $ 98,860
Cost of Services ............................... 88,666 80,333
Selling, General and Administrative Expenses ... 9,995 9,549
------------ ------------
Income from operations ..................... 5,378 8,978
Interest Income ................................ 149 143
Interest Expense, net of capitalized interest
of $793 and $390 ............................. (1,612) (1,346)
Other Income, Net .............................. 309 205
------------ ------------
Income before income taxes ................. 4,224 7,980
Provision for Income Taxes ..................... (1,521) (2,946)
------------ ------------
Net Income ................................. $ 2,703 $ 5,034
============ ============
Basic Earnings per Share ....................... $ 0.12 $ 0.22
Diluted Earnings per Share ..................... $ 0.12 $ 0.22
Weighted average number of common shares ....... 22,865 22,391
Incremental shares from stock options .......... 321 276
Weighted average number of common shares
and equivalents .............................. 23,186 22,667
See Notes to Consolidated Financial Statements.
Page 3
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,703 $ 5,034
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................ 9,055 7,935
Currency translation adjustments and other ... 164 (171)
Decrease (increase) in accounts receivable ... 2,259 (3,733)
Increase in prepaid expenses and other
current assets ............................. (3,210) (3,088)
Increase in other assets ..................... (146) (907)
Increase (decrease) in current liabilities ... 1,294 (254)
Increase (decrease) in other long-term
liabilities ................................ (1,240) 147
------------ ------------
Total adjustments to net income .............. 8,176 (71)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........ 10,879 4,963
------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment and
other ...................................... (34,624) (13,647)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ............ (34,624) (13,647)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on revolving credit and other
long-term debt ............................. 21,907 7,925
Proceeds from issuance of common stock ....... 1,188 764
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........ 23,095 8,689
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................... (650) 5
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR .... 11,001 8,367
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD ........ $ 10,351 $ 8,372
============ ============
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 June 30,
2000 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, 2000. 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, 2001 refers to the current fiscal
year ending March 31, 2001.
2. Shareholders' Equity
Shareholders' Equity consisted of the following:
JUNE 30, MARCH 31,
2000 2000
------------ ------------
(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 ..................... 78,264 77,972
Treasury stock; 1,107,371 and 1,197,705 shares,
at average cost .............................. (14,840) (16,050)
Retained earnings .............................. 143,196 140,493
Accumulated other elements of comprehensive
income ....................................... (14,916) (12,719)
------------ ------------
Total Shareholders' Equity ..................... $ 197,708 $ 195,700
============ ============
3. Income Taxes
Cash taxes paid were $1.5 million and $1.2 million for the first three
months of 2001 and 2000, respectively. Oceaneering also received a cash
tax refund of $4.4 million during the first quarter of 2001.
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 technical services and
specialty products to a variety of industries and is one of the world's
largest underwater services contractors. Oceaneering's Offshore Oil and
Gas business consists of remotely operated vehicles ("ROVS"), Subsea
Products, Mobile Offshore Production Systems and Other Services.
Oceaneering's Advanced Technologies business provides project management,
engineering services and equipment for applications in harsh environments
outside the oil and gas industry.
The following summarizes certain financial data by business segment:
THREE MONTHS
ENDED JUNE 30,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS)
Revenues
Offshore Oil and Gas
ROVS ....................................... $ 27,551 $ 22,870
Subsea Products ............................ 22,490 17,210
Mobile Offshore Production Systems ......... 5,980 7,369
Other Services ............................. 22,946 19,330
-------- --------
Total Offshore Oil and Gas .................... 78,967 66,779
Advanced Technologies ......................... 25,072 32,081
-------- --------
Total ...................................... $104,039 $ 98,860
======== ========
Gross Margins
Offshore Oil and Gas
ROVS ....................................... $ 6,412 $ 5,673
Subsea Products ............................ 2,336 2,824
Mobile Offshore Production Systems ......... 1,351 3,083
Other Services ............................. 1,335 1,909
-------- --------
Total Offshore Oil and Gas .................... 11,434 13,489
Advanced Technologies ......................... 3,939 5,038
-------- --------
Total ...................................... $ 15,373 $ 18,527
======== ========
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, 2000.
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-month periods ended June 30,
2000 and 1999 are as follows:
THREE MONTHS
ENDED JUNE 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Net Income per Consolidated Statements of Income ....... $ 2,703 $ 5,034
Foreign Currency Translation Losses .................... (2,197) (1,314)
-------- --------
Total .......................................... $ 506 $ 3,720
======== ========
Amounts comprising other elements of comprehensive income in Shareholders'
Equity:
JUNE 30, 2000 MARCH 31, 2000
--------------- ---------------
(IN THOUSANDS)
Accumulated Foreign Currency Translation $ (14,916) $ (12,719)
=============== ===============
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. These forward-looking statements are subject to various
risks, uncertainties, and assumptions, including those we refer to under the
heading "Cautionary Statement Concerning Forward-Looking Statements" in Part I
of our Report on Form 10-K for our fiscal year ended March 31, 2000. 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 industries 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 June 30, 2000 we had working capital of
$52 million, including $10 million of unrestricted cash; we had $80 million
available under committed credit facilities and $15 million was unused under
uncommitted lines of credit.
Our capital expenditures were $35 million during the first three months of 2001,
as compared to $14 million during the corresponding period of the prior fiscal
year. Capital expenditures in 2001 consisted of ongoing costs related to the
conversion of a jackup to a mobile offshore production unit ("MOPU"), additions
to our fleet of 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 June 30, 2000 were approximately $41
million for the conversion of a jackup drilling rig to a MOPU. The MOPU will be
used for a three-year contract in Western Australia. Operations are anticipated
to begin in mid calendar 2001.
RESULTS OF OPERATIONS
Effective with the fourth quarter of 2000, we increased our reporting segments
from three to five to assist the investment community in better understanding
our company. The segments are contained within two businesses - services and
products provided to the offshore oil and gas industry ("Offshore Oil and Gas")
and all other services and products ("Advanced Technologies" or "ADTECH"). Our
segments within the Offshore Oil and Gas business are Remotely Operated Vehicles
("ROVs"), Subsea Products, Mobile Offshore Production Systems ("MOPS") and Other
Services. We are reporting our ADTECH business as one segment.
Consolidated revenue and margin information is as follows:
Three Months Ended
JUNE 30,
-----------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
Revenues ..................................... $ 104,039 $ 98,860
Gross margin ................................. 15,373 18,527
Gross margin % ............................... 15% 19%
Operating margin % ........................... 5% 9%
A material amount of our consolidated revenue is generated from contracts for
marine services in the Gulf of Mexico and North Sea, which are usually more
active from April through November compared to the rest of the year. 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 have reduced the seasonality of our ROV and Other Services
operations. Revenues in our MOPS, Subsea Products and Advanced Technologies
segments are generally not seasonal.
Our Offshore Oil and Gas business results are most influenced by the level of
capital spending by oil and gas companies in the offshore sector. While crude
oil and natural gas prices were higher than those during the comparable period
of 2000, capital spending levels have not yet increased as we had anticipated
three months ago. The fixed costs associated with our underutilized assets have
impacted our profit margins, particularly in Subsea Products (umbilical plants)
and Other Services (multiservice vessels). Our bidding activity is up, but
projects are planned for execution in calendar year 2001. Our 2001 ADTECH
segment results are anticipated to be lower than those achieved in 2000 as our
cable venture is expected to be about break-even in its first year of operation
and its other operations are expected to be comparable to 2000. Therefore, we
currently project that our consolidated full fiscal year results will be within
a range of 85% to 100% of those achieved in fiscal 2000, depending upon the
timing and actual realization of an expected increase in demand for our products
and services.
Page 7
OFFSHORE OIL AND GAS.
The table below sets forth our revenues and gross margins for our Offshore Oil
and Gas business for the periods ended June 30, 2000 and 1999.
THREE MONTHS ENDED JUNE 30,
----------------------------
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)
ROVs
Revenues ................................... $ 27,551 $ 22,870
Gross margin ............................... 6,412 5,673
Gross margin % ............................. 23% 25%
Subsea Products
Revenues ................................... $ 22,490 $ 17,210
Gross margin ............................... 2,336 2,824
Gross margin % ............................. 10% 16%
MOPS
Revenues ................................... $ 5,980 $ 7,369
Gross margin ............................... 1,351 3,083
Gross margin % ............................. 23% 42%
Other Services
Revenues ................................... $ 22,946 $ 19,330
Gross margin ............................... 1,335 1,909
Gross margin % ............................. 6% 10%
Total Offshore Oil and Gas
Revenues ................................... $ 78,967 $ 66,779
Gross margin ............................... 11,434 13,489
Gross margin % ............................. 14% 20%
Our ROV revenues and gross margin were higher than those achieved during the
comparable period of 2000 due to a higher number of ROVs available. Utilization
rates for work class vehicles were 63% for both 2001 and 2000. The gross margin
percentage decreased from 25% to 23% as a result of a change in the mix of
services.
Our Subsea Products revenues were higher than those of the prior year due to
increased umbilical sales from our plants in Brazil and the United States.
Profitability was down as a result of competitive pricing and a large steel tube
umbilical order in our U.K. plant which had a lower-than-average profit margin
due to higher subcontractor content.
MOPS revenues and profits were lower than the prior year as we completed a major
modification project for the FPSO ZAFIRO PRODUCER during fiscal 2000. Other MOPS
activities were at comparable levels.
Other Services revenues were up 19% over the prior year due to an increase in
diving activity in the Gulf of Mexico and an ongoing construction job in India.
During the fourth quarter of 2000, we determined that the India job was going to
be completed at a loss and we estimated and accrued the loss at that time. There
was no change in that estimate during the first quarter of 2001. Gross margins
were down from 2000 due to lower profitability from our foreign diving
operations.
Page 8
ADVANCED TECHNOLOGIES.
Revenue and gross margin information is as follows:
THREE MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)
Revenues ..................................... $ 25,072 $ 32,081
Gross margin ................................. 3,939 5,038
Gross margin % ............................... 16% 16%
Our ADTECH segment revenue and gross margins were lower as our
telecommunications activities were put into an unconsolidated joint venture. The
results of this venture are reported as other income. Other ADTECH results were
at comparable levels to 2000.
OTHER.
Our telecommunications joint venture started its first revenue producing
activities during the first quarter of 2001 and operated at approximately a
break-even level.
Interest expense for the three-month period ended June 30, 2000 increased
compared to the corresponding periods of the prior year as we had higher debt
levels and higher interest rates. This debt had been incurred to fund the
acquisition of additional equipment and expansion of subsea products production
capacity. Interest expense of $1,612,000 in 2001 was net of capitalized interest
of $793,000.
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.
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,
2000.
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 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: August 10, 2000 By: /s/ JOHN R. HUFF
John R. Huff
Chairman and Chief Executive Officer
Date: August 10, 2000 By: /s/ MARVIN J. MIGURA
Marvin J. Migura
Senior Vice President and Chief Financial Officer
Date: August 10, 2000 By: /s/ JOHN L. ZACHARY
John L. Zachary
Controller and Chief Accounting Officer
Page 10