UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended September 30, 2001
( ) 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: 0-22739
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Cal Dive International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 95-3409686
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
400 N. Sam Houston Parkway E.
Suite 400
Houston, Texas 77060
(Address of Principal Executive Offices)
(281) 618-0400
(Registrant's telephone number,
Including area code)
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Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13(b) or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 [ ]
At November 14, 2001 there were 32,574,750 shares of common stock, no par
value outstanding.
CAL DIVE INTERNATIONAL, INC.
INDEX
<Table>
<Caption>
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000................................................1
Consolidated Statements of Operations -
Three Months Ended September 30, 2001 and
September 30, 2000.................................................................2
Nine Months Ended September 30, 2001 and
September 30, 2000.................................................................3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and
September 30, 2000.................................................................4
Notes to Consolidated Financial Statements.....................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................8
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K...................................................13
Signatures....................................................................................14
</Table>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
Sept. 30, Dec. 31,
2001 2000
------------ ------------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 36,854 $ 44,838
Restricted Cash 1,489 2,624
Accounts receivable --
Trade, net of revenue allowance on gross
amounts billed of $3,153 and $1,770 44,519 42,924
Unbilled 6,722 1,902
Income tax receivable 0 10,014
Other current assets 20,571 20,975
------------ ------------
Total current assets 110,155 123,277
------------ ------------
PROPERTY AND EQUIPMENT 378,121 266,102
Less - Accumulated depreciation (87,180) (67,560)
------------ ------------
290,941 198,542
------------ ------------
OTHER ASSETS:
Goodwill 15,156 12,878
Other assets, net 12,985 12,791
------------ ------------
$ 429,237 $ 347,488
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 31,680 $ 25,461
Accrued liabilities 18,868 21,435
Income taxes payable 0 0
Current maturities of long-term debt 1,500 0
------------ ------------
Total current liabilities 52,048 46,896
LONG-TERM DEBT 77,083 40,054
DEFERRED INCOME TAXES 48,280 38,272
DECOMMISSIONING LIABILITIES 28,668 27,541
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par, 120,000 shares
authorized, 46,204 and 45,885 shares issued
and outstanding 98,707 93,838
Retained earnings 128,202 104,638
Treasury stock, 13,640 shares, at cost (3,751) (3,751)
------------ ------------
Total shareholders' equity 223,158 194,725
------------ ------------
$ 429,237 $ 347,488
============ ============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
-1-
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Three Months Ended Sept. 30,
-----------------------------
2001 2000
------------ ------------
(unaudited)
NET REVENUES:
Subsea and salvage $ 39,356 $ 26,274
Natural gas and oil production 12,214 23,433
------------ ------------
51,570 49,707
COST OF SALES:
Subsea and salvage 30,025 23,437
Natural gas and oil production 8,338 9,084
------------ ------------
Gross profit 13,207 17,186
SELLING AND ADMINISTRATIVE EXPENSES 4,969 5,032
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INCOME FROM OPERATIONS 8,238 12,154
NET INTEREST EXPENSE AND OTHER 170 505
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INCOME BEFORE INCOME TAXES 8,068 11,649
Provision for income taxes 2,824 4,077
Minority interest 0 (114)
------------ ------------
NET INCOME $ 5,244 $ 7,686
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.16 $ 0.24
Diluted $ 0.16 $ 0.24
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 32,551 31,506
Diluted 33,006 32,366
============ ============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
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CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Nine Months Ended Sept. 30,
------------------------------
2001 2000
------------ ------------
(unaudited)
NET REVENUES:
Subsea and salvage $ 103,215 $ 80,582
Natural gas and oil production 55,623 49,135
------------ ------------
158,838 129,717
COST OF SALES:
Subsea and salvage 78,849 70,197
Natural gas and oil production 27,610 23,519
------------ ------------
Gross profit 52,379 36,001
SELLING AND ADMINISTRATIVE EXPENSES 15,439 14,281
------------ ------------
INCOME FROM OPERATIONS 36,940 21,720
NET INTEREST EXPENSE AND OTHER 903 332
------------ ------------
INCOME BEFORE INCOME TAXES 36,037 21,388
Provision for income taxes 12,613 7,486
Minority interest (140) (658)
------------ ------------
NET INCOME $ 23,564 $ 14,560
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.73 $ 0.46
Diluted $ 0.71 $ 0.45
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 32,443 31,384
Diluted 33,083 32,202
============ ============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
Nine Months Ended Sept. 30,
------------------------------
2001 2000
------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,564 $ 14,560
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 27,321 22,249
Deferred income taxes 10,008 4,100
Gain on sale of property (1,201) (2,809)
Minority interest in earnings (140) (658)
Changes in operating assets and liabilities:
Accounts receivable, net (7,137) 18,298
Other current assets 60 (5,895)
Accounts payable and accrued liabilities 4,321 1,698
Income taxes payable/receivable 11,197 2,933
Other non-current, net (5,896) (12,672)
------------ ------------
Net cash provided by operating activities 62,097 41,804
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (115,713) (71,178)
Restricted cash 1,135 5,626
Prepayment of lease abandonment costs 0 0
Cash received in acquisition, net 0 0
Proceeds from sale of properties 1,500 3,124
Deposits restricted for salvage operations 782 1,704
------------ ------------
Net cash used in investing activities (112,296) (60,724)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan facility 38,529 40,054
Sale of common stock, net of transaction costs 0 15,367
Exercise of stock options 3,686 1,916
------------ ------------
Net cash provided by financing activities 42,215 57,337
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,984) 38,417
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 44,838 11,310
------------ ------------
Balance, end of period $ 36,854 $ 49,727
============ ============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and Significant Accounting Policies
The accompanying financial statements include the accounts of Cal Dive
International, Inc. (Cal Dive or the Company) and its wholly owned subsidiaries,
Energy Resource Technology, Inc. (ERT) and Aquatica, Inc. All significant
intercompany accounts and transactions have been eliminated. These financial
statements are unaudited, 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 were normal recurring
adjustments) which it believes are necessary for a fair presentation of the
consolidated balance sheets, results of operations, and cash flows, as
applicable. Operating results for the period ended September 30, 2001, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's 2000 Annual Report on Form 10-K.
Note 2 - Recent Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, Business Combinations which supersedes Accounting Principles Board (APB)
Opinion No. 16, Business Combinations. SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations and modifies
the application of the purchase accounting method. The elimination of the
pooling-of-interests method is effective for transactions initiated after June
30, 2001. The remaining provisions of SFAS 141 will be effective for
transactions accounted for using the purchase method that are completed after
June 30, 2001.
In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142, Goodwill and Intangible Assets which supersedes APB Opinion No. 17,
Intangible Assets. SFAS 142 eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment testing and
recognition for goodwill and intangible assets. SFAS 142 will apply to goodwill
and intangible assets arising from transactions completed before and after the
Statement's effective date. SFAS 142 is effective for 2002. We believe adoption
of this standard will have an immaterial effect on CDI's financial position and
results of operations.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which is effective for the
Company beginning January 1, 2002. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions relating to
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the disposal of a segment of a business of Accounting Principles Board Opinion
No. 30. The Company does not anticipate that the adoption of SFAS No. 144 will
have a material impact on its financial position or results of operations.
In July 2001, the FASB released SFAS No. 143, "Accounting for Asset Retirement
Obligations," which is required to be adopted by the Company no later than
January 1, 2003. SFAS No. 143 addresses the financial accounting and reporting
for obligations and retirement costs related to the retirement of tangible
long-lived assets. The Company is currently reviewing the provisions of SFAS No.
143 to determine the standard's impact, if any, on its financial statements upon
adoption.
Note 3 - Professional Divers Acquisition
In March, 2001, CDI acquired substantially all of the assets of Professional
Divers of New Orleans, Inc. (PDNO) in exchange for $11.5 million. The assets
purchased included the Sea Level 21 (a 165-foot four-point moored DSV renamed
the Mr. Sonny), three utility vessels and associated diving equipment including
two saturation diving systems. This acquisition was accounted for as a purchase
with the acquisition price of $11.5 million being allocated to the assets
acquired and liabilities assumed based upon their estimated fair values. The
fair value of tangible asset acquired and liabilities assumed was $8.7 million
and $0, respectively. The balance of the purchase price ($2.8 million) was
recorded as excess of cost over net assets acquired (goodwill) and is currently
being amortized over its estimated remaining useful life of 25 years.
Note 4 - Horizon Offshore
In February, 2001, CDI formed a joint venture with Horizon Offshore, Inc. to
conduct small diameter reeled pipelay projects in deepwater areas of the U.S.
Gulf of Mexico. The two companies are funding the estimated $15 million cost of
pipelay equipment to be deployed from CDI's Sea Sorceress. In addition, Horizon
is constructing a pipe spooling facility at its Port Arthur, Texas shore base.
In March, 2001, the two companies announced that the Alliance Agreement covering
operation on the Outer Continental Shelf was extended for a three-year period.
Principal features of the Alliance are that CDI provides Dive Support Vessel
services behind Horizon pipelay barges while Horizon supplies pipelay, derrick
barge and heavy lift capacity to Cal Dive. The Alliance was also expanded to
include CDI providing the diving personnel working from Horizon barges, a
service Horizon handled internally last year.
Note 5 - Business Segment Information (in thousands)
<Table>
<Caption>
Sept. 30, 2001 Dec. 31, 2000
-------------- -------------
(unaudited)
Identifiable Assets --
Subsea and Salvage $ 390,700 $ 301,416
Natural Gas and Oil Production 38,537 46,072
------------ ------------
Total $ 429,237 $ 347,488
============ ============
</Table>
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Note 6 - Acquisition of Deepwater Vessels
In May 2001, Cal Dive acquired a dynamically positioned (DP) marine construction
vessel, the Mystic Viking (formerly the Bergen Viking). The 240 foot by 52 foot
vessel is DP-2 class, similar to the Witch Queen. The Mystic Viking replaces the
Balmoral Sea (lost last year to fire).
In October 2001, Cal Dive announced the acquisition of another DP marine
construction vessel, the Eclipse (formerly the C.S. Seaspread). The 370 X
67-foot vessel is a sister ship to Coflexip Stena Offshore's Constructor and
EMC's Bar Protector. She was sold out of the energy services industry into the
telecom cable sector in the early 1990s. Following delivery in the first quarter
of 2002, her original marine construction features will be restored by
installing a saturation diving system (salvaged from the Balmoral Sea),
restoring the ballast system, and upgrading the DP system to DP-2 standards. The
total cost of the two vessels and related upgrades will approximate $40 million.
Note 7 - MARAD Debt
In August 2001, the Company drew an additional $38.5 million on the MARAD debt
taking Cal Dive's total outstanding debt on this $138.5 million commitment to
$78.5 million ($1.5 million of which was included in current maturities of
long-term debt at September 30, 2001).
Note 8 - Gunnison
In October 2001, operator Kerr-Mcgee announced sanction of the Gunnison
deepwater development which encompasses three Garden Banks fields. Because
exploratory costs had increased to ensure field delineation, the limited
partnership (the investors of which are Cal Dive senior management) which
assumed the exploratory risk funded $21.5 million of drilling costs,
considerably above the initial $15 million estimate. Now that sanction has
occurred, ERT (funded by Cal Dive) will cover ensuing project development costs
which are currently estimated in a range of $100 million to $110 million with
over half of that for construction of the spar. ERT (with a corporate guarantee
by Cal Dive) has received a commitment from a financial institution to provide a
five-year synthetic lease (i.e., operating lease for financial reporting
purposes) for construction of the spar, including an option for ERT to convert
the lease into a long-term (20 year) leveraged lease after construction is
completed.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q includes or incorporates by
reference certain statements that may be deemed "forward looking statements"
under applicable law. Forward looking statements and assumptions in this Form
10-Q that are not statements of historical fact involve risks and assumptions
that could cause actual results to vary materially from those predicted,
including among other things, unexpected delays and operational issues
associated with turnkey projects, the price of crude oil and natural gas,
offshore weather conditions, change in site conditions, and capital expenditures
by customers. The Company strongly encourages readers to note that some or all
of the assumptions, upon which such forward looking statements are based, are
beyond the Company's ability to control or estimate precisely, and may in some
cases be subject to rapid and material change.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2001 and 2000
Revenues. During the three months ended September 30, 2001, the
Company's revenues increased 4% to $51.6 million compared to $49.7 million for
the three months ended September 30, 2000. The increase was generated by the
Subsea and Salvage segment as contracting revenues increased by 50% with that
improvement coming in all water depths. Our DP fleet achieved 85% utilization
compared to 47% in the same period a year ago, resulting in an additional $6.0
million in revenues. Aquatica contributed an additional $4.9 million in revenues
in 2001 due in part to additional vessel capacity and to the ability to
effectively manage and complete over 200 jobs in the third quarter.
Natural gas and oil production revenue for the three months ended
September 30, 2001 decreased $11.2 million, or 48%, to $12.2 million from $23.4
million during the comparable prior year period. The decrease was due mainly to
a lower average realized natural gas price of $2.82 per mcf versus $4.31 during
the third quarter of 2000. Realized oil prices also dropped $5/bbl to $25.60
during the third quarter of 2001 versus $30.60 during the comparable prior year
quarter. These decreases in price were coupled with a decline in production from
4.2 Bcfe in the third quarter of 2000 to 3.29 Bcfe during the three months ended
September 30, 2001.
Gross Profit. Gross profit of $13.2 million for the third quarter of
2001 represents a 23% decrease compared to the $17.2 million recorded in the
comparable prior year period due to the decrease in natural gas and oil
production revenues and margins, which more than offset significant improvements
in the Subsea and Salvage segment. Subsea and Salvage margins increased from
only 10% in the third quarter of 2000 to 24% for the three months ended
September 30, 2001 due primarily to improved utilization and pricing with
respect to the DP fleet.
Natural gas and oil production gross profit decreased $10.5 million, or
73%, to $3.9 million in the third quarter of 2001 from $14.3 million in the
three months ended September 30, 2000, due to the aforementioned decreases in
average gas and oil prices and production levels. Gross profit margins were 32%
in the third quarter of 2001 in contrast to 61% a year ago when commodity prices
were rapidly increasing.
-8-
Selling & Administrative Expenses. Selling and administrative expenses
were $5.0 million in the third quarter of 2001, which equals the $5.0 million
incurred in the third quarter of 2000 as the impact of salary increases has been
offset by management's focus on decreasing all aspects of controllable costs.
Net Interest. The Company reported net interest expense and other of
$170,000 for the three months ended September 30, 2001 in contrast to $505,000
for the three months ended September 30, 2000. The decrease between periods is
due primarily to a decline in interest rates, as well as the capitalization of
interest expense related to the construction of the Q4000.
Income Taxes. Income taxes decreased to $2.8 million for the three
months ended September 30, 2001 compared to $4.1 million in the comparable prior
year period due to decreased profitability.
Net Income. Net income of $5.2 million for the three months ended
September 30, 2001 was $2.4 million, or 32%, less than the comparable period in
2000 as a result of factors described above.
Comparison of Nine Months Ended September 30, 2001 and 2000
Revenues. During the nine months ended September 30, 2001, the
Company's revenues increased 22% to $158.8 million compared to $129.7 million
for the nine months ended September 30, 2000 with the Subsea and Salvage segment
contributing $22.6 million of the increase and the Natural Gas and Oil
Production segment contributing the remaining $6.5 million increase. Aquatica
revenues almost doubled to $27.5 million for the nine months ended September 30,
2001 from $14.5 million in the prior year period due, in part, to added capacity
as a result of our acquisition of Professional Divers of New Orleans, Inc. in
March 2001 and increased utility. An increase in nine month revenues from our
DP fleet and saturation and surface diving of $11.2 million more than offset a
$2.9 million decrease in salvage work, as compared to the same period a year
ago.
Natural gas and oil production revenue for the nine months ended
September 30, 2001 increased 13% to $55.6 million from $49.1 million during the
comparable prior year period due to a 39% increase in average realized natural
gas prices from $3.52 per mcf during the first nine months of 2000 compared to
$4.90 per mcf during the first nine months of 2001. These increased natural gas
prices more than offset a slight decrease (6%) in production from 11.8 Bcfe in
the first nine months of 2000 compared to 11.1 Bcfe during the first nine months
of 2001. Realized oil prices also declined (by 6%) to $26.36/bbl for the nine
months ended September 30, 2001 from $28.03/bbl for the comparable prior year
period.
Gross Profit. Gross profit of $52.4 million for the first nine months
of 2001 was 45% better than the $36.0 million gross profit recorded in the
comparable prior year period due mainly to the revenue improvement as well as a
5 point improvement in margins (33% the first nine months of 2001 versus 28% in
the comparable prior year period). Subsea and Salvage margins improved from 13%
for the first nine months of 2000 to 24% during the first nine months of 2001
due mainly to the increase in utilization and excellent offshore performance
during the second quarter of 2001.
-9-
Natural gas and oil production gross profit increased $2.4 million from
$25.6 million in the first nine months of 2000 to $28.0 million for the nine
months ended September 30, 2001 (despite a slight drop in margins from 52% to
50%) due to the aforementioned increase in natural gas prices in the first half
of the year.
Selling & Administrative Expenses. Selling and administrative expenses
were $15.4 million in the first nine months of 2001, which is 8% more than the
$14.3 million incurred in the first nine months of 2000 due mainly to the ERT
employee incentive program which tracks that subsidiary's significantly improved
operating results. Such expenses were 10% of revenues in the nine month period
ended September 30, 2001 versus 11% in the comparable prior year period.
Net Interest. The Company reported net interest expense and other of
$903,000 for the nine months ended September 30, 2001 in contrast to $332,000
for the comparable period in the prior year as average cash balances (net of
MARAD financing) declined during the first nine months of 2001 as compared to
the first nine months of 2000 due mainly to the Company's capital spending
program (Q4000 vessel construction and Sea Sorceress upgrade).
Income Taxes. Income taxes increased to $12.6 million for the nine
months ended September 30, 2001, compared to $7.5 million in the comparable
prior year period due to increased profitability.
Net Income. Net income of $23.6 million for the nine months ended
September 30, 2001 was $9.0 million, or 62%, more than the comparable period in
2000 as a result of factors described above.
-10-
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operating activities
principally from internally generated cash flow, even during industry-depressed
years such as the period since 1998. The Company completed an initial public
offering of common stock on July 7, 1997, with the net proceeds of approximately
$39.5 million resulting in $15 million of cash on hand after paying off all debt
outstanding. The following three years internally generated cash flow funded
approximately $164 million of capital expenditures while enabling the Company to
remain essentially debt free. During the third quarter of 2000 we closed the
long-term MARAD financing for construction of the Q4000 and made an initial draw
of $40.1 million on a total commitment of $138.5 million. In August 2001, the
Company drew an additional $38.5 million on the MARAD debt taking Cal Dive's
total outstanding debt to $78.5 million ($1.5 million of which was included in
current maturities of long-term debt at September 30, 2001). Through September
30, 2001, we have funded over $132 million of the newbuild vessel's construction
costs. Significant internally generated cash flow in the first nine months of
2001, coupled with the collection of a $10 million tax refund, enabled us to
acquire the Mystic Viking (a 240 foot DP vessel) and Professional Divers of New
Orleans, Inc. while maintaining cash balances of $38.3 million as of September
30, 2001.
Operating Activities. Net cash provided by operating activities was
$62.1 million during the nine months ended September 30, 2001, as compared to
$41.8 million during the first nine months of 2000. This increase was due mainly
to increased profitability and collection of a $10 million tax refund from the
Internal Revenue Service (reflected in Changes in Income Taxes
Payable/Receivable) relating to the deduction of Q4000 construction costs as
research and development expenditures for federal tax purposes. This was offset
by a $25.4 million decrease in funding from accounts receivable collections
during the first nine months of 2001 compared to the first nine months of 2000
when we collected all amounts due on the EEX Cooper abandonment project (the
largest contract ever in CDI's history) during the first quarter of 2000. In
addition, depreciation and amortization increased $5.1 million to $27.3 million
for the first nine months of 2001 due mainly to ERT depletion and to the
depreciation of newly acquired vessels in service.
Investing Activities. The Company incurred $115.7 million of capital
expenditures during the first nine months of 2001 compared to $71.2 million
during the comparable prior year period. Included in the $115.7 million of
capital expenditures in the first nine months of 2001 is $40 million for the
construction of the Q4000 and $23 million relating to the Sea Sorceress DP
conversion project. In March, 2001, CDI acquired substantially all of the assets
of Professional Divers of New Orleans, Inc. (PDNO) in exchange for $11.5
million. The assets purchased included the Sea Level 21 (a 165-foot four-point
moored DSV renamed the Mr. Sonny), three utility vessels and associated diving
equipment including two saturation diving systems. In addition, in May 2001, Cal
Dive acquired a DP marine construction vessel, the Mystic Viking (formerly the
Bergen Viking) for cash. The remaining capital expenditures relate primarily to
rig recompletion and exploitation work of ERT.
Included in the $71.2 million of capital expenditures in the first nine
months of 2000 was $51 million for the construction of the Q4000. Also during
the first quarter of 2000, ERT acquired interests in six offshore blocks from
EEX Corporation and agreed to operate the remaining EEX properties on the Outer
Continental Shelf (OCS). The acquired offshore blocks include working interests
from 40% to 75% in five platforms, one caisson and 13 wells. ERT agreed to a
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purchase price of $4.9 million and assumed EEX's prorated share of the
abandonment obligation for the acquired interests, and entered into a two-year
contract to manage the remaining EEX operated properties. In connection with
this transaction, $8.2 million of previously restricted funds were utilized in
the acquisition (these funds were obtained in late 1999 from the sale of
properties qualifying as "Like-Kind Exchanges" for tax purposes).
Financing Activities. In August 2000, we closed the long-term MARAD
financing for construction of the Q4000 and made an initial draw of $40.1
million. In August 2001, the Company drew an additional $38.5 million on the
MARAD debt taking Cal Dive's total outstanding debt on this $138.5 million
commitment to $78.5 million. In September 2000, exercise of the over-allotment
option upon completion of the secondary offer of shares by Coflexip resulted in
proceeds of $15.4 million, net of transaction costs. The only other financing
activity during the first nine months of 2001 and 2000 represents exercise of
employee stock options.
Capital Commitments. Our Board of Directors has approved a capital
budget for the year 2001 which includes approximately $80 million associated
with the Q4000 and the Sea Sorceress. In June, 2001, we reached an agreement
with Amfels Shipyard to further enhance the Q4000's deepwater capabilities. This
upgrade will result in additional capital expenditures of $30 million; delivery
of the Q4000 is now scheduled for the end of the first quarter of 2002.
In May 2001, we acquired a DP marine construction vessel, the Mystic Viking
(formerly the Bergen Viking) and in October 2001 announced the acquisition of
another DP marine construction vessel, the Eclipse (formerly the C.S.
Seaspread). The cost of two DP vessels and related upgrade programs is expected
to approximate $40 million.
Certain Relationships and Related Transactions. During 2000, ERT
acquired a 20% working interest in the Gunnison prospect which encompasses three
Garden Banks fields. Gunnison is a Deepwater project that has encountered
significant potential reserves of more than 120 million barrels of oil
equivalent and is in partnership with Kerr-McGee Oil & Gas Corporation, the
operator with a 50% working interest, and Nexen, a 30% owner. Consistent with
CDI's philosophy of avoiding exploratory risk, financing for up to $15 million
of the exploratory costs was agreed to be provided by an affiliated investment
partnership (the investors of which are most of CDI senior management) in
exchange for a 25% override of the ultimate produced cash flow and other
proceeds from the Company's 20% working interest. Among other factors
considered, the partnership's funding terms to ERT and Cal Dive were no less
favorable than could have been obtained at the time from unaffiliated third
parties. In October 2001, operator Kerr-McGee announced sanction of Gunnison.
Because the exploratory phase had been expanded to ensure field delineation, the
affiliated investment partnership funded $21.5 million of drilling costs,
considerably above the initial $15 million estimate. ERT's share of the ensuing
project development costs is estimated in a range of $100 million to $110
million with over half of that for construction of the spar. ERT (guaranteed by
Cal Dive) has received a commitment from a financial institution to provide a
five-year synthetic lease on the spar, including an option for ERT to convert
the lease into a long-term (20 year) leveraged lease after construction is
completed.
In connection with our business strategy, we evaluate acquisition
opportunities (including additional vessels as well as interests in offshore
natural gas and oil properties).
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings primarily
involving claims for personal injury under the General Maritime Laws of the
United States and Jones Act as a result of alleged negligence. In addition, the
Company from time to time incurs other claims, such as contract disputes, in the
normal course of business. The Company believes that the outcome of all such
proceedings would not have a material adverse effect on its consolidated
financial position, results of operations or net cash flows.
In 1998 the Company entered into a subcontract with Seacore Marine
Contractors Limited to provide the Sea Sorceress for subsea excavation in
Canada. Seacore was in turn contracted by Coflexip Stena Offshore Newfoundland
Limited, a subsidiary of Coflexip ("CSO Nfl"), as representative of the
consortium of companies contracted to perform services on the project. Due to
difficulties with respect to the sea states and soil conditions the contract was
terminated. Cal Dive provided Seacore a performance bond of $5 million with
respect to the subcontract. No call has been made on this bond. Although CSO Nfl
has alleged that the Sea Sorceress was unable to adequately perform the
excavation work required under the subcontract, Seacore and the Company believe
the contract was wrongfully terminated and are vigorously defending this claim
and seeking damages in arbitration. In another commercial dispute, EEX
Corporation sued Cal Dive and others alleging breach of fiduciary duty by a
former EEX employee and damages resulting from certain construction agreements.
Cal Dive has responded alleging EEX Corporation breached various provisions of
the same contracts and is seeking a declaratory judgment that the defendants are
not liable. The Company believes that the outcome of all such proceedings is not
likely to have a material adverse effect on its business or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
None
(b) Reports on Form 8-K -
Current Report on Form 8-K filed November 3, 2001 to report
the Company's 2001 third quarter financial results and its
forecasted results for the quarter ending December 31, 2001.
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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.
CAL DIVE INTERNATIONAL, INC.
Date: November 14, 2001 By: /s/ S. JAMES NELSON
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S. James Nelson, Vice Chairman
Date: November 14, 2001 By: /s/ A. WADE PURSELL
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A. Wade Pursell, Senior Vice President
Chief Financial Officer
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