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, 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
(Registrant's telephone number, including area code)
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 NOVEMBER 1, 1999
Common Stock, $.25 Par Value 23,327,601 shares
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
1999 1999
-------------- -----------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ................... $ 8,177 $ 8,367
Accounts receivable (net of allowance
for doubtful accounts of $61 and
$398 at September 30 and March 31) ........ 112,309 103,838
Prepaid expenses and other .................. 20,987 16,859
-------- --------
Total current assets ........................ 141,473 129,064
-------- --------
Property and Equipment, at cost:
Marine services equipment ................... 307,984 285,964
Mobile offshore production equipment ........ 55,053 53,808
Buildings, improvements and other ........... 76,598 72,960
-------- --------
439,635 412,732
Less: accumulated depreciation .............. 187,637 170,993
-------- --------
Net property and equipment .................. 251,998 241,739
-------- --------
Goodwill (net of amortization of $5,985
and $5,478) ................................. 10,766 9,426
-------- --------
Investments and Other Assets .................. 7,930 7,114
-------- --------
TOTAL ASSETS ................................ $412,167 $387,343
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................ $ 18,153 $ 23,481
Accrued liabilities ......................... 55,972 54,608
Income taxes payable ........................ 8,515 9,271
Current portion of long-term debt ........... 313 306
-------- --------
Total current liabilities ................... 82,953 87,666
-------- --------
Long-term Debt, net of current portion ........ 112,154 100,312
-------- --------
Other Long-term Liabilities ................... 20,046 19,926
-------- --------
Commitments and Contingencies
Shareholders' Equity .......................... 197,014 179,439
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $412,167 $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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues ..................................................... $ 100,405 $ 110,042 $ 199,265 $ 208,953
Cost of Services ............................................. 82,950 86,510 163,283 163,934
Selling, General and Administrative Expenses ................. 9,710 10,305 19,259 20,666
--------- --------- --------- ---------
Income from operations ................................... 7,745 13,227 16,723 24,353
Interest Income .............................................. 151 261 294 345
Interest Expense, net of capitalized interest of $410 and
$694, and $800 and $1,176 .................................. (1,496) (625) (2,842) (1,192)
Other Income (Expense), Net .................................. (79) (126) 126 (164)
--------- --------- --------- ---------
Income before income taxes ............................... 6,321 12,737 14,301 23,342
Provision For Income Taxes ................................... (2,205) (4,842) (5,151) (8,872)
--------- --------- --------- ---------
Net Income ............................................... $ 4,116 $ 7,895 $ 9,150 $ 14,470
========= ========= ========= =========
Basic Earnings Per Share ..................................... $ 0.18 $ 0.34 $ 0.41 $ 0.63
Diluted Earnings Per Share ................................... $ 0.18 $ 0.34 $ 0.40 $ 0.62
Weighted average number of common shares ..................... 22,699 22,813 22,545 22,883
Incremental shares from stock options ........................ 380 174 328 252
Weighted average number of common shares and
equivalents ................................................ 23,079 22,987 22,873 23,135
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................................... $ 9,150 $ 14,470
-------- --------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization .................................... 16,345 14,099
Currency translation adjustments and other ....................... 2,356 (44)
Increase in accounts receivable .................................. (8,471) (1,125)
Increase in prepaid expenses and other current assets ............ (4,128) (5,652)
Increase in other assets ......................................... (894) (82)
Increase (decrease) in current liabilities ....................... (3,956) 6,699
Increase in other long-term liabilities .......................... 121 2,376
-------- --------
Total adjustments to net income .................................. 1,373 16,271
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................ 10,523 30,741
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment and other .................... (27,074) (50,553)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ................................ (27,074) (50,553)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of costs ................. -- 98,620
Net proceeds (payments) on revolving credit and other
long-term debt ................................................. 11,849 (54,168)
Proceeds from issuance of common stock ........................... 4,512 1,541
Purchases of treasury stock ...................................... -- (5,004)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 16,361 40,989
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. (190) 21,177
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR ........................ 8,367 9,064
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD ............................ $ 8,177 $ 30,241
======== ========
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 September
30, 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 fiscal
year ending March 31, 2000.
2. Shareholders' Equity
Shareholders' Equity consisted of the following:
SEPTEMBER 30, 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 ............................................ 77,253 82,421
Treasury stock; 705,938 and 1,653,922 shares, at average cost ......... (9,733) (22,803)
Retained earnings ..................................................... 132,859 123,709
Accumulated other elements of comprehensive income .................... (9,369) (9,892)
--------- ---------
Total shareholders' equity ............................................ $ 197,014 $ 179,439
========= =========
3. Income Taxes
Cash taxes paid were $5.1 million and $5.6 million for the first six
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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
Revenues
Oilfield Marine Services ........................... $ 48,328 $ 55,912 $ 91,442 $108,616
Offshore Field Development ......................... 20,263 28,697 44,329 56,351
Advanced Technologies .............................. 31,814 25,433 63,494 43,986
-------- -------- -------- --------
Total ....................................... $100,405 $110,042 $199,265 $208,953
======== ======== ======== ========
Gross Margins (Revenues Less Cost of Services)
Oilfield Marine Services ........................... $ 9,805 $ 12,452 $ 17,107 $ 24,162
Offshore Field Development ......................... 2,908 6,781 8,663 14,027
Advanced Technologies .............................. 4,742 4,299 10,212 6,830
-------- -------- -------- --------
Total ....................................... $ 17,455 $ 23,532 $ 35,982 $ 45,019
======== ======== ======== ========
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 six-month
periods ended September 30, 1999 and 1998 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
------- ------- ------- -------
(IN THOUSANDS)
Net Income Per Consolidated Statements of Income ..... $ 4,116 $ 7,895 $ 9,150 $14,470
Foreign Currency Translation Gains (Losses) .......... 1,837 1,318 523 876
------- ------- ------- -------
Comprehensive Income ................................. $ 5,953 $ 9,213 $ 9,673 $15,346
======= ======= ======= =======
Amounts comprising other elements of comprehensive income in
Shareholders' Equity:
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ -----------------
(IN THOUSANDS)
Accumulated Foreign Currency Translation Adjustments .......... $(9,369) $(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 September 30, 1999, we had working
capital of $59 million, including $8 million of unrestricted cash; we had
utilized $12 million of our available $80 million credit facility and $16
million was unused under uncommitted lines of credit.
Our capital expenditures were $27 million during the first six months of 2000,
as compared to $52 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 September 30, 1999 were approximately $9
million for multiservice vessel construction.
RESULTS OF OPERATIONS
Consolidated revenue and margin information is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(IN THOUSANDS)
Revenues ........................ $100,405 $110,042 $199,265 $208,953
Gross margin .................... 17,455 23,532 35,982 45,019
Gross margin % .................. 17% 21% 18% 22%
Operating margin % .............. 8% 12% 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- -----------
(IN THOUSANDS)
Revenues ................... $ 48,328 $ 55,912 $ 91,442 $108,616
Gross margin ............... 9,805 12,452 17,107 24,162
Gross margin % ............. 20% 22% 19% 22%
Revenues and gross margins for our Oilfield Marine Services segment decreased
during 2000 compared to the corresponding periods of the prior year, primarily
as a result of decreased worldwide demand for oilfield services and products due
to a significant reduction in capital spending by oil and gas companies. This
reduced demand effected our diving and related vessel services. Results from ROV
operations 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
(IN THOUSANDS)
Revenues ................. $20,263 $28,697 $44,329 $56,351
Gross margin ............. 2,908 6,781 8,663 14,027
Gross margin % ........... 14% 24% 20% 25%
Revenues were lower in 2000 compared to the corresponding periods of the prior
year as a result of decreased umbilical sales due to lower demand. Revenues and
margins on engineering and project management related to mobile offshore
production systems were also lower in 2000. Our new umbilical plant in Brazil
made its first customer delivery in the second quarter. The contracts for the
FPSOs OCEAN PRODUCER and SAN JACINTO have been extended to January 2001 and
October 2000, respectively.
ADVANCED TECHNOLOGIES.
Revenue and gross margin information is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
(IN THOUSANDS)
Revenues ................. $31,814 $25,433 $63,494 $43,986
Gross margin ............. 4,742 4,299 10,212 6,830
Gross margin % ........... 15% 17% 16% 16%
Revenues and gross margins for 2000 compared to the corresponding periods of the
prior year reflect greater demand for engineering and manufacturing services.
OTHER.
Interest expense for the three and six-month periods ended September 30, 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. Interest expense of $1,496,000 and $2,842,000 in 2000 was
net of capitalized interest of
Page 8
$410,000 and $800,000.
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.
The Year 2000 ("Y2K") issue is the result of using computer programs which were
written using two digits rather than four to define the applicable year.
Programs that have date-sensitive software may recognize "00" as the year 1900
rather than the year 2000. The problem can arise in computer programs and in
equipment with embedded processors.
We consider a system or process to be Year 2000 Ready if neither performance nor
functionality is affected by dates prior to, during, or after the Year 2000. A
system or process being Year 2000 Ready is conditional upon all other systems or
processes with which it interacts also being Year 2000 Ready and properly
exchanging date and time data with it, and our critical suppliers continuing to
provide an acceptable level of service.
We have completed a comprehensive review of our operations to assess the
capability of our process control, business and accounting systems to handle
Year 2000 issues and, based on the results of our review, we are confident that
our critical internal systems will be capable of operating without interruption
during the period after December 31, 1999. We have also surveyed critical
suppliers of goods and services to determine their readiness for the millennium
change which will affect our overall Year 2000 Readiness.
Although we have not to date identified any material exposures, we are
continuing to monitor our business systems, vendors and customers with whom we
have a material relationship. Our business interruption contingency plans
include responses to possible Year 2000 disruptions.
Although we can give no assurances, as a result of efforts to date, we do not
anticipate any material adverse effects regarding Year 2000 compliance on our
consolidated results of operations, financial position or cash flows. We believe
that third party noncompliance will be the area of greatest risk of Year 2000
having an adverse effect on us.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its Annual Meeting of Shareholders on August 20,
1999. The following matters were voted upon at the Annual Meeting:
ELECTION OF DIRECTOR
NOMINEE SHARES FOR SHARES ABSTAINING
-------------------- ---------- -----------------
D. Michael Hughes 19,533,987 1,170,687
Approval of the 1999 Incentive Plan. Oceaneering reserved 1,450,000
shares of Common Stock for use in its 1999 Incentive Plan, no more
than 550,000 of which may be available for awards other than stock
options or stock appreciation rights.
SHARES FOR SHARES AGAINST SHARES ABSTAINING SHARES NON-VOTING
---------- -------------- ----------------- -----------------
14,470,801 4,148,191 140,505 1,945,177
Ratification of the appointment of Arthur Andersen LLP as
independent auditors for the Company.
SHARES FOR SHARES AGAINST SHARES ABSTAINING
---------- -------------- -----------------
20,455,227 128,267 121,180
Page 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10 Material Contracts
10.1 1999 Restricted Stock Award Incentive Agreements
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: November 12, 1999 By: /s/ JOHN R. HUFF
John R. Huff
Chairman and Chief Executive Officer
Date: November 12, 1999 By: /s/ MARVIN J. MIGURA
Marvin J. Migura
Senior Vice President and Chief
Financial Officer
Date: November 12, 1999 By: /s/ JOHN L. ZACHARY
John L. Zachary
Controller and Chief Accounting
Officer
Page 11