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, 2002
--------------
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 April 25, 2002
- ---------------------------- -----------------------------
Common Stock, $.25 Par Value 24,594,272 shares
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
Mar. 31, Dec. 31,
2002 2001
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 18,285 $ 10,474
Accounts receivable, net of allowance
for doubtful accounts of $1,309 and $1,349 142,752 154,364
Prepaid expenses and other 41,025 40,380
-------- --------
Total current assets 202,062 205,218
-------- --------
Property and Equipment, at cost 572,750 573,738
Less: accumulated depreciation 237,569 231,402
-------- --------
Net property and equipment 335,181 342,336
-------- --------
Goodwill, net of amortization of $9,220 and $9,221 14,181 13,884
-------- --------
Other Assets 19,530 18,173
-------- --------
TOTAL ASSETS $570,954 $579,611
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 28,183 $ 28,902
Accrued liabilities 63,938 74,193
Income taxes payable 12,036 10,739
-------- --------
Total current liabilities 104,157 113,834
-------- --------
Long-term Debt, net of current portion 145,000 170,000
-------- --------
Other Long-term Liabilities 45,749 44,344
-------- --------
Commitments and Contingencies
Shareholders' Equity 276,048 251,433
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $570,954 $579,611
======== ========
</Table>
See Notes to Consolidated Financial Statements.
Page 2
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<Table>
<Caption>
For the Three Months Ended
March 31,
--------------------------
2002 2001
--------- ---------
Revenue $ 138,849 $ 104,254
Cost of Services and Products 110,106 83,450
--------- ---------
Gross margin 28,743 20,804
Selling, General and Administrative Expenses 10,911 10,516
--------- ---------
Income from operations 17,832 10,288
Interest Income 70 81
Interest Expense, net of capitalized interest of
$1,345 in 2001 (2,327) (1,879)
Other Income (Expense), net 113 (484)
--------- ---------
Income before income taxes 15,688 8,006
Provision for Income Taxes (5,491) (2,802)
--------- ---------
Net Income $ 10,197 $ 5,204
========= =========
Basic Earnings per Share $ 0.42 $ 0.22
Diluted Earnings per Share $ 0.42 $ 0.22
Weighted average number of common shares 24,026 23,162
Incremental shares from stock options 422 488
Weighted average number of common shares and
equivalents 24,448 23,650
</Table>
See Notes to Consolidated Financial Statements.
Page 3
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<Table>
<Caption>
For the Three Months Ended
March 31,
--------------------------
2002 2001
-------- --------
Cash Flows from Operating Activities:
Net Income $ 10,197 $ 5,204
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,371 10,281
Currency translation adjustments and other 768 (343)
Increase (decrease) in cash from:
Accounts receivable 11,612 (23,629)
Prepaid expenses and other current assets (645) (3,089)
Other assets (731) (2,115)
Current liabilities (7,354) 5,354
Other long-term liabilities 1,405 1,097
-------- --------
Total adjustments to net income 17,426 (12,444)
-------- --------
Net Cash Provided by (Used in) Operating Activities 27,623 (7,240)
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment and other (7,083) (14,582)
-------- --------
Net Cash Used in Investing Activities (7,083) (14,582)
-------- --------
Cash Flows from Financing Activities:
Net proceeds from (payments of) revolving credit and other long-term debt (25,000) 14,927
Proceeds from issuance of common stock 12,271 4,135
-------- --------
Net Cash Provided by (Used in) Financing Activities (12,729) 19,062
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,811 (2,760)
Cash and Cash Equivalents - Beginning of Year 10,474 9,911
-------- --------
Cash and Cash Equivalents - End of Period $ 18,285 $ 7,151
======== ========
</Table>
See Notes to Consolidated Financial Statements.
Page 4
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
These consolidated 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. These financial statements reflect all
adjustments that Oceaneering's management believes are necessary to
present fairly Oceaneering's financial position at March 31, 2002 and
its results of operations and cash flows for the periods presented. All
such adjustments are of a normal and 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 the year ended December 31, 2001. The results
for interim periods are not necessarily indicative of annual results.
2. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
<Table>
<Caption>
Mar. 31, Dec. 31,
2002 2001
-------- --------
(in thousands)
Spare parts for remotely operated vehicles $13,683 $14,316
Inventories, primarily raw materials 11,693 9,385
Deferred taxes 10,359 10,359
Other 5,290 6,320
------- -------
$41,025 $40,380
======= =======
</Table>
3. Shareholders' Equity
Shareholders' Equity consisted of the following:
<Table>
<Caption>
Mar. 31, Dec. 31,
2002 2001
-------- --------
(in thousands)
Common Stock, par value $0.25;
90,000,000 shares authorized; 24,557,992 and
24,017,046 shares issued $ 6,139 $ 6,004
Additional paid-in capital 95,818 84,105
Treasury stock; 249,872 shares in 2001, at average cost -- (3,353)
Retained earnings 195,112 184,915
Other comprehensive income (21,021) (20,238)
-------- --------
Total shareholders' equity $276,048 $251,433
======== ========
</Table>
4. Income Taxes
Cash taxes paid were $1.9 million for each of the three-month periods
ended March 31, 2002 and 2001.
Page 5
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.
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 year ended
December 31, 2001. The following summarizes certain financial data by
business segment:
<Table>
<Caption>
For the Three Months Ended
------------------------------
Mar. 31, Mar. 31, Dec. 31,
2002 2001 2001
-------- -------- --------
(in thousands)
Revenue
Offshore Oil and Gas
ROVs $ 36,136 $ 32,234 $ 41,155
Subsea Products 32,558 22,161 36,844
Mobile Offshore Production Systems 12,227 6,979 12,014
Other Services 31,121 19,767 27,925
-------- -------- --------
Total Offshore Oil and Gas 112,042 81,141 117,938
Advanced Technologies 26,807 23,113 27,724
-------- -------- --------
Total $138,849 $104,254 $145,662
======== -------- ========
Gross Margins
Offshore Oil and Gas
ROVs $ 8,553 $ 9,832 $ 10,389
Subsea Products 6,223 3,028 7,957
Mobile Offshore Production Systems 5,443 1,854 2,945
Other Services 5,018 2,072 3,189
-------- -------- --------
Total Offshore Oil and Gas 25,237 16,786 24,480
Advanced Technologies 3,506 4,018 4,071
-------- -------- --------
Total $ 28,743 $ 20,804 $ 28,551
======== ======== ========
</Table>
6. Comprehensive Income
Comprehensive income is the total of net income and all nonowner
changes in equity. The amounts of comprehensive income for the
three-month periods ended March 31, 2002 and 2001 are as follows:
<Table>
<Caption>
Three Months Ended
March 31,
--------------------
2002 2001
-------- --------
(in thousands)
Net Income per Consolidated Statements of Income $10,197 $ 5,204
Foreign Currency Translation Losses (1,042) (3,239)
Change in Fair Value of Interest Rate Hedge 259 --
------- -------
Comprehensive Income $ 9,414 $ 1,965
======= =======
</Table>
Amounts comprising other comprehensive income in Shareholders' Equity:
<Table>
<Caption>
March 31, 2002 December 31, 2001
-------------- -----------------
(in thousands)
Accumulated Net Foreign Currency Translation Losses $(21,344) $(20,302)
Fair Value of Interest Rate Hedge 323 64
-------- --------
Other Comprehensive Income $(21,021) $(20,238)
======== ========
</Table>
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
headings "Business -- Risks and Insurance" and "Cautionary Statement Concerning
Forward-Looking Statements" in Part I of our Annual Report on Form 10-K for the
period ended December 31, 2001. 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, 2002, we had working capital of
$98 million. Additionally, we had $79 million of borrowing capacity available
under our bank revolving credit facility.
Our capital expenditures were $7 million during the three months ended March 31,
2002, as compared to $15 million during the corresponding period of last year.
Capital expenditures in the current year consisted of expenditures relating to
the addition of units to our fleet of ROVs to replace older units we retired.
Prior year expenditures consisted of ongoing costs related to the conversion of
a jackup drilling rig to a mobile production unit, the OCEAN LEGEND, and
additions to our fleet of ROVs.
We had no material commitments for capital expenditures at March 31, 2002.
At March 31, 2002, we had long-term debt of $145 million and a 34% debt-to-total
capitalization ratio. We have $100 million of Senior Notes outstanding, to be
repaid from 2006 through 2010. We have an $80 million revolving credit facility,
under which we had $1 million in outstanding borrowings and $79 million
available for future borrowings at March 31, 2002. This facility expires in
October 2003. We also have a term loan facility that is to be repaid through
April 2004. At March 31, 2002, we had $44 million in outstanding borrowings
under the term loan facility. Both the revolving credit and term loan facilities
have short-term interest rates that float with market rates, plus applicable
spreads. We have effectively fixed the interest rate on the term loan at
approximately 4% through an interest rate swap. We have no off balance sheet
debt and have not guaranteed any debt not reflected on our consolidated balance
sheets.
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.
Page 7
Consolidated revenue and margin information is as follows:
<Table>
<Caption>
For the Three Months Ended
------------------------------
Mar. 31, Mar. 31, Dec. 31,
2002 2001 2001
-------- -------- --------
(in thousands, except for percentages)
Revenue $138,849 $104,254 $145,662
Gross margin 28,743 20,804 28,551
Gross margin % 21% 20% 20%
Operating margin % 13% 10% 12%
</Table>
We generate a material amount of our consolidated revenue from contracts for
marine services in the Gulf of Mexico and the North Sea, which are usually more
active from April through November compared to the rest of the year. Our exit
from the diving sector in the North Sea in early 1998 and the substantial number
of multi-year ROV drill support contracts that we 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, particularly in
deepwater, that is, at water depths of 1,000 feet or more. In early 2002, we
have seen a decrease in deepwater exploration activity, particularly in the Gulf
of Mexico. We expect this trend to reverse later in 2002 or in 2003.
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.
<Table>
<Caption>
For the Three Months Ended
------------------------------
Mar. 31, Mar. 31, Dec. 31,
2002 2001 2001
-------- -------- --------
(in thousands)
ROVs
Revenue $ 36,136 $ 32,234 $ 41,155
Gross margin 8,553 9,832 10,389
Gross margin % 24% 31% 25%
Work class utilization % 70% 71% 76%
Subsea Products
Revenue $ 32,558 $ 22,161 $ 36,844
Gross margin 6,223 3,028 7,957
Gross margin % 19% 14% 22%
Mobile Offshore Production Systems
Revenue $ 12,227 $ 6,979 $ 12,014
Gross margin 5,443 1,854 2,945
Gross margin % 45% 27% 25%
Other Services
Revenue $ 31,121 $ 19,767 $ 27,925
Gross margin 5,018 2,072 3,189
Gross margin % 16% 10% 11%
Total Offshore Oil and Gas
Revenue $112,042 $ 81,141 $117,938
Gross margin 25,237 16,786 24,480
Gross margin % 23% 21% 21%
</Table>
Page 8
ROV segment gross margin had been increasing over the past several years due to
both additional units available for service and higher utilization rates. The
higher utilization rates had resulted from the return to service of more
floating drilling rigs and a rise in offshore construction-related activities.
This trend reversed in the first quarter of 2002 as there was weakness in the
semi-submersible drilling market, particularly in the Gulf of Mexico where we
have a large market share of ROV drill support. We expect improved ROV results
in the second quarter.
Our Subsea Products results were improved over the corresponding period of the
prior year because our umbilical plants are now producing under contracts that
were awarded in improved market conditions. During the first quarter of 2001 we
were producing a large steel tube umbilical order, the largest umbilical
contract we had ever undertaken, at a loss. It was bid and undertaken during a
period of reduced demand. The completion of this project in the first half of
2001 freed up capacity at our U.K. plant for profitable work. Our Subsea
Products gross margin percentage was down from the immediately preceding
quarter, as our U.K. plant had more steel tube umbilical work on which we
generally earn lower margin percentages due to higher subcontractor content.
Our Mobile Offshore Production Systems gross margins were higher in the first
quarter of 2002 compared to both the immediately preceding quarter and the
quarter ended March 31, 2001. The current quarter represented the first time we
received full dayrate for our three mobile offshore production system units for
an entire quarter. The OCEAN LEGEND started receiving partial dayrate during a
portion of the first quarter of 2001 and full dayrate when its initial
three-year contract began mid-second quarter of 2001. However, the OCEAN LEGEND
experienced brief operating problems during the third and fourth quarters of
2001, preventing it from achieving full dayrate for the entire quarter. We feel
we are entitled to a portion of the unrecognized dayrate and we are negotiating
a settlement with our customer. The OCEAN PRODUCER began operations in the
fourth quarter of 2001 under a new seven-year contract, which should provide
higher margins than its prior contract. After taking into account a possible
decrease in the OCEAN LEGEND dayrate beginning in the second quarter of 2002, as
described below, we anticipate that our Mobile Offshore Production Systems
revenue and margins will be higher in 2002 than those of 2001, as a result of
operations of the OCEAN LEGEND and OCEAN PRODUCER. During the second quarter of
2002, our customer has the option to extend the OCEAN LEGEND contract for an
additional two years. If the customer exercises this option, our revenue and
margin on this contract will decrease by approximately $19,000 per day, for four
more years from mid-May 2002, as compared to the first quarter of 2002.
Increased offshore activity in the Gulf of Mexico contributed to the significant
improvement in gross margins for the three months ended March 31, 2002 in our
Other Services segment. We experienced an increase in utilization of and
profitability from our two Gulf of Mexico Ocean Intervention multi-service
vessels in the first quarter of 2002 compared to the immediately preceding
quarter and the corresponding quarter of 2001. Additionally, gross margin
improved as a result of a significant engineering and specialized diving
contract, as well as increased demand for topside inspection services. We now
believe that for 2002 our Other Services segment will earn more revenue at
higher margins than it did in 2001.
ADVANCED TECHNOLOGIES
Revenue and gross margin information is as follows:
<Table>
<Caption>
For the Three Months Ended
------------------------------
Mar. 31, Mar. 31, Dec. 31,
2002 2001 2001
-------- -------- --------
(in thousands)
Revenue $26,807 $23,113 $27,724
Gross margin 3,506 4,018 4,071
Gross margin % 13% 17% 15%
</Table>
Advanced Technologies revenue and margins were down in the first quarter of 2002
compared to the immediately preceding quarter from lower levels of activity from
our telecommunications cable ROV services and from our space division as a
result of lower NASA spending. Our Advanced Technologies segment results depend
in part on the level of government funding for NASA and U.S. Navy programs in
which we currently participate or are pursuing.
Page 9
OTHER
Interest expense for the three months ended March 31, 2002 increased compared to
the corresponding period of the prior year as interest on the construction of
the OCEAN LEGEND was capitalized until it was placed in service during the
second quarter of 2001. Our debt had been incurred to fund the acquisition of
additional equipment and expansion of our Subsea Products production capacity.
Before capitalized interest, interest costs for the three months ended March 31,
2002 were less than the year-earlier period, as we had lower debt levels for the
quarter. Interest expense of $1,879,000 for the three months ended March 31,
2001 was net of capitalized interest of $1,345,000.
Our equity in the earnings of our telecommunications joint venture was $392,000
and $377,000 for the three months ended March 31, 2002 and 2001, respectively.
The outlook for the near-term joint venture results is negative, as industry
conditions indicate that demand for subsea cable installation activity will be
substantially lower for the near future.
Other expense in the first quarter of 2001 included a writeoff of $600,000
related to the shares of Friede Goldman Halter, Inc. we 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.
The provisions for income taxes were related to U.S. income taxes that we
estimated at annual effective rates using assumptions as to earnings and other
factors that would affect the tax calculation for the remainder of the year and
to the operations of foreign branches and subsidiaries 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
Annual Report on Form 10-K for the period ended December 31, 2001.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<Table>
<Caption>
Registration
or File Form or Report Exhibit
Number Report Date Number
------------- ------- ------ ------
* 3.01 Restated Certificate of Incorporation 1-10945 10-K Dec. 2000 3.01
* 3.02 Amended and Restated By-Laws 1-10945 10-K Dec. 2001 3.02
</Table>
- --------------------
* Indicates exhibit previously filed with the Securities and Exchange
Commission as indicated and incorporated herein by reference.
(b) We filed no 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: May 3, 2002 By: /s/ JOHN R. HUFF
------------------------------
John R. Huff
Chairman and Chief Executive
Officer
Date: May 3, 2002 By: /s/ MARVIN J. MIGURA
------------------------------
Marvin J. Migura
Senior Vice President and
Chief Financial Officer
Date: May 3, 2002 By: /s/ JOHN L. ZACHARY
------------------------------
John L. Zachary
Controller and Chief
Accounting Officer
Page 11