1
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 March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-10945
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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 May 3, 2001
- ---------------------------- --------------------------
Common Stock, $.25 Par Value 23,386,546 shares
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
-------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,151 $ 9,911
Accounts receivable (net of allowance
for doubtful accounts of $1,309 and $510) 131,046 107,417
Prepaid expenses and other 30,108 27,019
-------- --------
Total current assets 168,305 144,347
-------- --------
Property and Equipment, at cost 533,129 523,385
Less: accumulated depreciation 194,564 187,025
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Net property and equipment 338,565 336,360
-------- --------
Goodwill (net of amortization of $7,841 and $7,526) 11,154 11,493
-------- --------
Other Assets 22,524 20,484
-------- --------
TOTAL ASSETS $540,548 $512,684
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and notes payable $ 26,884 $ 25,149
Accrued liabilities 61,169 60,139
Income taxes payable 10,858 8,736
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Total current liabilities 98,911 94,024
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Long-term Debt, net of current portion 195,000 180,000
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Other Long-term Liabilities 32,633 31,766
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Commitments and Contingencies
Shareholders' Equity 214,004 206,894
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $540,548 $512,684
======== ========
See Notes to Consolidated Financial Statements.
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OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
(in thousands, except per
share amounts)
Revenues $ 104,254 $ 111,043
Cost of Services and Products 83,450 93,566
Selling, General and Administrative Expenses 10,516 10,229
----------- -----------
Income from operations 10,288 7,248
Interest Income 81 111
Interest Expense, net of capitalized interest of
$1,345 and $586 (1,879) (1,475)
Other Expense, net (484) (198)
----------- -----------
Income before income taxes 8,006 5,686
Provision for Income Taxes (2,802) (2,047)
----------- -----------
Net Income $ 5,204 $ 3,639
=========== ===========
Basic Earnings per Share $ 0.22 $ 0.16
Diluted Earnings per Share $ 0.22 $ 0.16
Weighted average number of common shares 23,162 22,772
Incremental shares from stock options 488 302
Weighted average number of common shares and
equivalents 23,650 23,074
See Notes to Consolidated Financial Statements.
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OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
(in thousands)
Cash Flows from Operating Activities:
Net income $ 5,204 $ 3,639
----------- -----------
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 10,281 9,084
Currency translation adjustments and other (343) (674)
Increase in accounts receivable (23,629) (8,082)
Decrease (increase) in prepaid expenses and other current assets (3,089) 1,837
Increase in other assets (2,115) (1,976)
Increase in current liabilities 5,354 121
Increase in other long-term liabilities 1,097 10,912
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Total adjustments to net income (12,444) 11,222
----------- -----------
Net Cash Provided by (Used in) Operating Activities (7,240) 14,861
----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment and other (14,582) (32,898)
----------- -----------
Net Cash Used in Investing Activities (14,582) (32,898)
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from revolving credit and other long-term debt 14,927 17,647
Proceeds from issuance of common stock 4,135 1,041
Purchases of treasury stock -- (754)
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Net Cash Provided by Financing Activities 19,062 17,934
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Net Decrease in Cash and Cash Equivalents (2,760) (103)
Cash and Cash Equivalents - Beginning of Year 9,911 11,104
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Cash and Cash Equivalents - End of Period $ 7,151 $ 11,001
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See Notes to Consolidated Financial Statements.
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OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 that it
believes are necessary to present fairly Oceaneering's financial
position at March 31, 2001 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 Report on Form 10-K for the period
ended December 31, 2000. The results for interim periods are not
necessarily indicative of annual results.
2. Shareholders' Equity
Shareholders' Equity consisted of the following:
March 31, December 31,
2001 2000
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(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 80,197 78,945
Treasury stock; 688,744 and 979,285 shares, at average cost (9,230) (13,123)
Retained earnings 157,010 151,806
Accumulated other elements of comprehensive income (19,977) (16,738)
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Total shareholders' equity $ 214,004 $ 206,894
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3. Income Taxes
Cash taxes paid were $1.9 million and $0.8 million for the three months
ended March 31, 2001 and 2000, 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."
5. Business Segment Information
Oceaneering supplies a comprehensive range of technical services and
specialty products to a variety of industries. Oceaneering's Offshore
Oil and Gas business consists of four business segments: Remotely
Operated Vehicles ("ROVs"); Subsea Products; Mobile Offshore Production
Systems; and Other Services. Oceaneering's Advanced Technologies
business is a separate segment that provides project management,
engineering services and equipment for applications outside the oil and
gas industry.
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There are no differences in the basis of segmentation or in the basis
of measurement of segment profit or loss from those used in
Oceaneering's consolidated financial statements for the period ended
December 31, 2000. The following summarizes certain financial data by
business segment:
For the Three Months Ended
------------------------------------
Mar. 31, Mar. 31, Dec. 31,
2001 2000 2000
---------- ---------- ----------
(in thousands)
Revenues
Offshore Oil and Gas
ROVs $ 32,234 $ 22,032 $ 28,956
Subsea Products 22,161 26,394 22,212
Mobile Offshore Production Systems 6,979 5,865 4,527
Other Services 19,767 28,085 21,820
---------- ---------- ----------
Total Offshore Oil and Gas 81,141 82,376 77,515
Advanced Technologies 23,113 28,667 25,712
---------- ---------- ----------
Total $ 104,254 $ 111,043 $ 103,227
========== ========== ==========
Gross Margins
Offshore Oil and Gas
ROVs $ 9,832 $ 6,026 $ 7,752
Subsea Products 3,028 3,094 2,784
Mobile Offshore Production Systems 1,854 2,188 2,275
Other Services 2,072 160 4,248
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Total Offshore Oil and Gas 16,786 11,468 17,059
Advanced Technologies 4,018 6,009 2,266
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Total $ 20,804 $ 17,477 $ 19,325
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6. Comprehensive Income
Effective April 1, 1998, Oceaneering adopted SFAS 130, "Reporting
Comprehensive Income." This statement establishes standards for
reporting and displaying comprehensive income and its components.
Comprehensive income is the total of net income and all nonowner
changes in equity. The amounts of comprehensive income for each of the
three-month periods ended March 31, 2001 and 2000 are as follows:
Three Months Ended
March 31,
------------------------
(in thousands)
Net Income per Consolidated Statements of Income $ 5,204 $ 3,639
Foreign Currency Translation Losses (3,239) (1,659)
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Comprehensive Income $ 1,965 $ 1,980
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Amounts comprising other elements of comprehensive income in
Shareholders' Equity:
March 31, 2001 December 31, 2000
-------------- -----------------
(in thousands)
Accumulated Foreign Currency Translation Adjustments $(19,977) $(16,738)
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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
headings "Business - Risks and Insurance" and "Cautionary Statement Concerning
Forward-Looking Statements" in Part I of our Report on Form 10-K for the period
ended December 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
those expectations will prove to be 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 March 31, 2001, we had working capital of
$69 million and we had $35 million available for borrowing under our bank
revolving credit facility.
Our capital expenditures were $15 million during the three months ended March
31, 2001, as compared to $37 million during the corresponding period of the
prior fiscal year. Capital expenditures in the current fiscal year consisted of
ongoing costs related to the conversion of a jackup drilling rig to a mobile
offshore production unit, the Ocean Legend, and additions to our fleet of ROVs.
Capital expenditures in the corresponding period of the prior year consisted of
the start of the conversion of the jackup drilling rig to a mobile offshore
production unit, additions to our fleet of ROVs and multiservice vessel
construction.
We had no material commitments for capital expenditures at March 31, 2001.
Results of Operations
We operate in five business segments. 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"). Our segments within the Offshore Oil and Gas business are
Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production
Systems and Other Services. We report our Advanced Technologies business as one
segment.
Consolidated revenue and margin information is as follows:
For the Three Months Ended
--------------------------------------
Mar. 31, Mar. 31, Dec. 31,
2001 2000 2000
---------- ---------- ----------
(in thousands)
Revenues $ 104,254 $ 111,043 $ 103,227
Gross margin 20,804 17,477 19,325
Gross margin % 20% 16% 19%
Operating margin % 10% 7% 9%
We generate a material amount of our consolidated revenue 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 multiyear ROV contracts that we have entered into since
calendar year 1997 have reduced the seasonality of our ROV and Other Services
operations. Revenues in our Mobile Offshore Production Systems, Subsea Products
and Advanced Technologies segments are generally not seasonal.
Our Offshore Oil and Gas business results are influenced by the level of capital
spending by oil and gas companies in the offshore sector. We have seen increases
in activity compared to the quarter ended December 31, 2000, and anticipate that
this trend will continue through this year and into 2002.
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OFFSHORE OIL AND GAS.
The table below sets forth our revenues and gross margins for our Offshore Oil
and Gas business for the periods indicated.
For the Three Months Ended
--------------------------------------
Mar. 31 Mar. 31, Dec 31,
2001 2000 2000
---------- ---------- ----------
(in thousands)
ROVs
Revenues $ 32,234 $ 22,032 $ 28,956
Gross margin 9,832 6,026 7,752
Gross margin % 31% 27% 27%
Work class utilization % 71% 60% 68%
Subsea Products
Revenues $ 22,161 $ 26,394 $ 22,212
Gross margin 3,028 3,094 2,784
Gross margin % 14% 12% 13%
Mobile Offshore Production Systems
Revenues $ 6,979 $ 5,865 $ 4,527
Gross margin 1,854 2,188 2,275
Gross margin % 27% 37% 50%
Other Services
Revenues $ 19,767 $ 28,085 $ 21,820
Gross margin 2,072 160 4,248
Gross margin % 10% 1% 19%
Total Offshore Oil and Gas
Revenues $ 81,141 $ 82,376 $ 77,515
Gross margin 16,786 11,468 17,059
Gross margin % 21% 14% 22%
ROV segment operating income has been increasing due to both additional units
available for service and higher utilization. The higher utilization rates have
resulted from the return to service of more floating deepwater drilling rigs and
a rise in offshore construction-related activities.
Our Subsea Products revenues were lower compared to the corresponding period of
the prior year due to a large steel tube umbilical order in our U.K. plant,
which had higher activity levels in the prior year. The margin effect of this
decrease has not been material as this order has earned a low margin. Subsea
Products results for the first quarter of 2001 were similar to those achieved in
the immediately preceding quarter, with a slight increase in gross margin from
our umbilical plants in the U.S. and Brazil. During the first quarter of 2001,
we were awarded a new contract to supply approximately $30 million of umbilicals
to Halliburton Company for the Barracuda and Caratinga Fields offshore Brazil.
These will be manufactured in our Brazil plant with delivery anticipated to be
in September 2002.
Our Mobile Offshore Production Systems revenues were higher in the first quarter
of 2001 compared to both the immediately preceding quarter and the corresponding
quarter of the prior year as we started receiving partial dayrate revenue from
the Ocean Legend. We anticipate that the Ocean Legend will go on full dayrate
during May 2001. Gross margins were lower than those of the corresponding period
of the prior year due to lower project management fees from the Zafiro Producer
and lower production-based revenues from the Ocean Producer. During the first
quarter of 2001, we entered into a letter of intent to contract the Ocean
Producer for seven years at another field in Angola. We anticipate that we will
disconnect the Ocean Producer from its present location in May 2001 and commence
moving it to a shipyard for modification, life extension and repair as required
for the new location. We anticipate the Ocean Producer will be on its new
location in the third quarter of 2001. Margins were lower than those of the
immediately preceding quarter as that quarter included a gain of $1.8 million
from the sale of an out-of-service semisubmersible rig. Although the prior year
included a full year of operation of the Ocean Producer and a total $1.8 million
of net gain from two sales and a writedown of out-of-service equipment, we
anticipate that our Mobile Offshore Production Systems revenues and margins will
be higher in 2001 than those of 2000 as a result of operations of the Ocean
Legend.
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Other Services revenues were lower than those of the corresponding quarter of
the prior year due to the exchange of our Asia, Australia and Middle East diving
operations in September 2000 for ROVs. Margins increased as the March 2000
quarter included losses incurred on two large jobs in India. Compared to the
immediately preceding quarter, margins were lower on Gulf of Mexico projects and
from inspection services. We anticipate that Other Services will operate at
improved margins for the balance of 2001 as we expect higher utilization of our
Ocean Intervention-class vessels doing project work.
ADVANCED TECHNOLOGIES.
Revenue and gross margin information is as follows:
For the Three Months Ended
--------------------------------------
Dec. 31, Mar. 31, Mar. 31,
2001 2000 2000
---------- ---------- ----------
(in thousands)
Revenues $ 23,113 $ 28,667 $ 25,712
Gross margin 4,018 6,009 2,266
Gross margin % 17% 21% 9%
Advanced Technologies revenues and margins were lower in the first quarter of
2001 than the corresponding quarter of last year due to lower results from our
space services division and lower telecommunication activities, most of which
were put into an unconsolidated joint venture in March 2000. The results in the
first quarter of 2000 also included a large outfall job in Southeast Asia, which
was performed using resources associated with our Other Services segment. The
related assets were among those we later exchanged for ROVs. Compared to the
immediately preceding quarter, margins were higher as that quarter reflected a
$1.1 million loss provision related to a division which we no longer own. Our
Advanced Technologies segment results depend on the level of government funding
for NASA and U.S. Navy programs in which we currently participate or are
pursuing.
OTHER.
Our equity in the earnings of our telecommunications joint venture was $377,000
for the quarter ended March 31, 2001, compared to a loss of $180,000 for the
quarter ended March 31, 2000.
Interest expense for the quarter ended March 31, 2001 increased compared to the
corresponding period 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 our subsea products production capacity. Interest expense of $1,879,000 for
the quarter ended March 31, 2001 was net of capitalized interest of $1,345,000.
Other expense in the first quarter of 2001 included the writeoff of $600,000
related to shares of Friede Goldman Halter, Inc. received as proceeds for the
sale of an out-of-service jackup rig in the fourth quarter of 1999. Friede
Goldman Halter, Inc. filed a voluntary petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code on April 19, 2001. Friede Goldman Halter, Inc.
was delisted from the New York Stock Exchange on April 19, 2001, at a closing
price of $0.20 a share. It now trades on the Over the Counter Bulletin Board of
NASDAQ (OTCBB) under the symbol FGHLQ.
The provisions for income taxes were related to U.S. income taxes that we
provided at estimated annual effective rates using assumptions as to earnings
and other factors that would affect the tax calculation for the remainder of the
fiscal year and to the operations of foreign branches and subsidiaries that 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 our
Report on Form 10-K for the period ended December 31, 2000.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Registration
or File Form or Report Exhibit
Number Report Date Number
------------ -------- ------ -------
*3.01 Restated Certificate of Incorporation 1-10945 10-Q Sept. 2000 3.01
3.02 Amended and Restated By-Laws
* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated and incorporated herein by reference.
(b) Reports on Form 8-K.
The registrant filed a report on Form 8-K dated March 26, 2001
furnishing under Item 9 information regarding the posting of a
presentation on the Company's web site.
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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: May 10, 2001 By: //s// JOHN R. HUFF
-------------------------------------------------
John R. Huff
Chairman and Chief Executive Officer
Date: May 10, 2001 By: //s// MARVIN J. MIGURA
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Marvin J. Migura
Senior Vice President and Chief Financial Officer
Date: May 10, 2001 By: //s// JOHN L. ZACHARY
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John L. Zachary
Controller and Chief Accounting Officer
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EXHIBIT INDEX
Registration
Exhibit or File Form or Report Exhibit
Number Description Number Report Date Number
- ------- ----------- ------------ -------- ------ -------
*3.01 Restated Certificate of Incorporation 1-10945 10-Q Sept. 2000 3.01
3.02 Amended and Restated By-Laws
* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated and incorporated herein by reference.