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 December 31, 1996
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.)
16001 Park Ten Place, Suite 600
Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 578-8868
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 January 31, 1997
Common Stock, $.25 Par Value 23,880,801 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
1996 1996
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 39,902 $ 9,351
Accounts receivable (net of allowance
for doubtful accounts of $1,005 at
December 31 and $1,201 at March 31) 83,472 96,391
Prepaid expenses and other 7,032 4,733
-----------------------
Total Current Assets 130,406 110,475
-----------------------
Property and Equipment, at cost:
Marine services equipment 205,978 187,337
Mobile offshore production equipment 31,461 56,607
Buildings, improvements and other 33,234 29,438
-----------------------
270,673 273,382
Less: Accumulated Depreciation 163,639 145,105
-----------------------
Net Property and Equipment 107,034 128,277
-----------------------
Goodwill (net of amortization
of $3,255 and $2,515) 11,649 12,082
Investments and Other Assets 6,166 5,262
-----------------------
TOTAL ASSETS $255,255 $256,096
=======================
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 16,889 $ 25,607
Accrued liabilities 53,020 35,823
Income taxes payable 9,426 6,618
-----------------------
Total Current Liabilities 79,335 68,048
-----------------------
Long-Term Debt --- 48,000
-----------------------
Other Long-Term Liabilities 22,390 12,950
-----------------------
Shareholders' Equity 153,530 127,098
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $255,255 $256,096
=======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
December 31,
1996 1995
(in thousands, except per
share amounts)
Revenues $ 94,117 $ 74,236
Gain on disposition of FPSO 25,047 ---
Cost of services 72,840 59,783
Impairment adjustment and provision
for special drydocking 15,960 ---
Selling, general and administrative expenses 8,924 8,792
-----------------------
Income from operations 21,440 5,661
Interest income 199 551
Interest expense, net (958) (642)
Other income (expense), net 3 (154)
-----------------------
Income before income taxes 20,684 5,416
Provision for income taxes (13,944) (1,888)
-----------------------
Net income $ 6,740 $ 3,528
=======================
Earnings per common share equivalent $0.28 $0.15
Weighted average number of common share
equivalents outstanding 24,138 23,267
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Nine Months Ended
December 31,
1996 1995
(in thousands, except per
share amounts)
Revenues $271,416 $222,865
Gain on disposition of FPSO 25,047 ---
Cost of services 218,465 179,139
Impairment adjustment and provision
for special drydocking 15,960 ---
Selling, general and administrative expenses 26,148 25,753
-----------------------
Income from operations 35,890 17,973
Interest income 848 1,203
Interest expense, net (1,956) (1,574)
Other income (expense), net 276 (131)
-----------------------
Income before income taxes 35,058 17,471
Provision for income taxes (19,491) (6,583)
-----------------------
Net income $ 15,567 $ 10,888
=======================
Earnings per common share equivalent $0.65 $0.47
Weighted average number of common share
equivalents outstanding 23,864 23,216
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended
December 31,
1996 1995
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $15,567 $10,888
Adjustments to reconcile net income to net
cash provided by/(used in) operating activities:
Gain on disposal of property and equipment (25,047) ---
Depreciation and amortization 18,925 15,306
Impairment adjustment 7,980 ---
Currency translation adjustments and other 1,018 462
(Increase)/decrease in accounts receivable 12,919 (31,525)
Increase in prepaid expenses and
other current assets (2,299) (1,052)
Increase in current liabilities 11,431 847
Increase in other long-term liabilities 9,440 1,582
----------------------
Total adjustments to net income 34,367 (14,380)
----------------------
NET CASH PROVIDED BY/(USED IN)OPERATING
ACTIVITIES 49,934 (3,492)
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and
other assets (66,014) (29,272)
Disposal of property and equipment 92,566 ---
Increase in investments (904) (451)
----------------------
NET CASH PROVIDED BY/(USED IN) INVESTING
ACTIVITIES 25,648 (29,723)
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 33,000 30,528
Repayment of long-term borrowings (81,000) ---
Proceeds from issuance of common stock 2,969 1,876
----------------------
NET CASH PROVIDED BY/(USED IN)FINANCING
ACTIVITIES (45,031) 32,404
----------------------
NET INCREASE/(DECREASE) IN CASH 30,551 (811)
----------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,351 12,865
----------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $39,902 $12,054
======================
See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND 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 the Company's financial position at December 31,
1996 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 the
Registrant's Annual Report on Form 10-K for its fiscal year ended
March 31, 1996. The results for interim periods are not
necessarily indicative of annual results.
2. Cash and Cash Equivalents
Cash and cash equivalents includes demand deposits and highly
liquid interest-bearing investment grade securities. Approximately
$1.5 million and $1.4 million of the Company's cash at December 31
and March 31, 1996, respectively, was restricted and is posted as
security in interest-bearing accounts related to litigation
involving the Company's United Kingdom subsidiary. The Company
believes it has adequate defenses to the claims and that the
outcome will not have a material adverse effect on the financial
position or results of operations of the Company.
3. Property and Equipment
During the third quarter of fiscal 1997, a major oil company
customer exercised its option to purchase the Floating Production,
Storage and Offloading system ("FPSO"), ZAFIRO PRODUCER. Upon
disposition, the related property and equipment cost and
accumulated depreciation accounts were relieved and the resulting
gain of $25 million was included in the Company's consolidated
statement of income as gain on disposition of FPSO.
4. Shareholders' Equity
Shareholders' Equity consisted of the following:
December 31, March 31,
1996 1996
(unaudited) (audited)
(in thousands, except
share data)
Shareholders' Equity:
Common Stock, par value $0.25;
90,000,000 shares authorized;
24,017,046 shares issued $ 6,004 $ 6,004
Additional paid-in capital 80,595 81,921
Treasury stock, 159,945 and 793,170
shares, at cost (1,434) (6,976)
Retained earnings 72,123 56,556
Cumulative translation adjustments (3,758) (10,407)
-----------------------
Total Shareholders' Equity $153,530 $127,098
=======================
5. Income Taxes
Cash taxes paid were $6.7 million and $6.2 million for the nine
months ended December 31, 1996 and 1995, respectively.
6. Accounting for impairment of long-lived assets
In March 1995, Statement of Financial Accounting Standards Board
standard number ("SFAS") 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was
issued. SFAS 121, effective for fiscal years beginning after
December 15, 1995, requires that certain long-lived assets be
reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment
loss be recognized under certain circumstances in the amount by
which the carrying value exceeds the fair value of the asset. The
Company adopted SFAS 121 on April 1, 1996, as required. There was
no material effect on the Company's results of operations or
financial position as a result of the adoption of SFAS 121.
However, during the third quarter of fiscal 1997 it became apparent
that operating results for the Company's North Sea diving support
vessel were below expectation. The vessel was originally acquired
as a construction support vessel but changing market conditions
necessitated utilizing the vessel in an inspection and maintenance
mode at lower margins. After management review of the first full
work season it was concluded that the manner in which the vessel
was being used had changed significantly from its originally
intended purpose and the recoverability of the carrying amount of
the asset should be assessed. The Company determined that an
impairment loss of $8 million should be recorded. The amount was
determined by comparing the carrying value of the vessel with the
net present value of the expected cash flows from the vessel over
its remaining life. The impairment adjustment was recorded and
included in the Company's Oilfield Marine Services business
segment.
7. Commitments and Contingencies
During the third quarter of fiscal 1997, the Company determined that
substantial repairs will be necessary to maintain the FPSO OCEAN
PRODUCER in operating condition in compliance with regulatory
requirements. The unit is currently working offshore West Africa
under a contract which expires in January 2000. These repairs will
require a special drydocking and are expected to be performed in
fiscal 1998. The Company recorded an $8 million provision in the
third quarter of fiscal 1997.
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 the
Company's 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. The Company utilizes a variety of internal and external data
and management judgment in order to develop such forward-looking
information. Although the Company believes 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 the Company
operates, it can give no assurance that such expectations will prove
to have been correct. Accordingly, evaluation of future prospects of
the Company must be made with caution when relying on forward-looking
information.
Material Changes in Financial Condition
The Company considers its liquidity and capital resources adequate to
support continuing operations and capital commitments. At December
31, 1996, the Company had working capital of $51 million, including
$38 million of unrestricted cash. Additionally, the Company has
available all of its $120 million credit facility and $14 million
under its $20 million uncommitted line of credit.
In November 1995, the Company announced that it had been awarded a
contract by a major oil company to provide an FPSO. The contract was
a dayrate lease arrangement which had an initial term of three years
with a commencement date of August 1996. The Company purchased and
converted an existing 268,000 dwt crude oil tanker into the FPSO
ZAFIRO PRODUCER at a capital cost of $68 million. To facilitate the
funding of the capital expenditures required for this project, the
Company expanded its committed credit facility from $75 million to
$120 million during the first quarter of fiscal 1997.
The contract provided the customer with an option to purchase the FPSO
ZAFIRO PRODUCER and terminate the lease at any time during the initial
three-year period. The customer exercised the purchase option in
December 1996. Proceeds from the disposition were used to repay
borrowings under the credit facility. Upon disposition of the FPSO,
the related property and equipment accounts were relieved and the
resulting gain of $25 million was included in the Company's
consolidated statement of income as gain on disposition of FPSO.
As a result of the above transaction, total long-term debt of $48
million as of the end of fiscal 1996 was fully repaid at the end of
December 1996.
Capital expenditures were $66 million during the first nine months of
fiscal 1997, as compared to $29 million during the corresponding
period of the prior fiscal year. Fiscal 1997 expenditures included
$16 million of additions to the Company's fleet of remotely operated
vehicles ("ROV") and construction costs of $38 million to complete the
FPSO ZAFIRO PRODUCER, discussed above. Expenditures of $29 million
for the corresponding period of fiscal 1996 included $12 million
relating to the FPSO ZAFIRO PRODUCER, upgrade costs of two offshore
support vessels and upgrades to the Company's ROV fleet.
There were no material commitments for capital expenditures at
December 31, 1996.
Results of Operations
Consolidated revenue and margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
(in thousands)
Revenues $ 94,117 $ 74,236 $271,416 $222,865
Gain on disposition
of FPSO 25,047 --- 25,047 ---
Gross margin 30,364 14,453 62,038 43,726
Gross margin % 32% 19% 23% 20%
Operating margin % 23% 8% 13% 8%
The quarters ending June 30 and September 30 have generally been the
Company's peak in both revenues and net income for its Oilfield Marine
business. Revenues and net income in the Offshore Field Development
and Advanced Technologies businesses are generally not seasonal.
Oilfield Marine Services
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
(in thousands)
Revenues $ 43,829 $ 32,865 $129,028 $100,910
Gross margin 749 2,917 16,698 16,461
Gross margin % 2% 9% 13% 16%
During the three-month and nine-month periods ended December 31, 1996,
revenues for the Oilfield Marine Services segment increased and gross
margin percentage decreased compared to the corresponding periods of
the prior year. The Company experienced increased demand for all
service lines.
Gross margin for the third quarter includes an adjustment of $8
million to reduce the carrying value of the Company's North Sea diving
support vessel. The vessel was originally acquired as a construction
support vessel but changing market conditions have necessitated
utilizing the vessel for inspection and maintenance work with lower
revenues and margins. After review of the first full work season it
was concluded that the manner in which the vessel was being used had
changed significantly from its originally intended purpose and the
recoverability of the carrying amount of the asset should be assessed.
This adjustment reduced gross margin percentages by 18% and 6% for the
three and nine month periods ended December 31, 1996, respectively.
See Note 6 of Notes to Consolidated Financial Statements.
Gross margin for the nine-month period ended December 31, 1995
included a gain of $1.1 million arising from the settlement of a
dispute relating to a contract executed in West Africa in fiscal 1992;
this gain increased gross margin percentage by 1%.
Offshore Field Development
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
(in thousands)
Revenues $ 27,268 $ 17,884 $ 66,802 $62,394
Gain on disposition
of FPSO 25,047 - 25,047 -
Gross margin 23,801 6,444 31,757 15,762
Gross margin % 87% 36% 48% 25%
Revenues for offshore production systems were higher in the third
quarter of fiscal 1997 compared to the corresponding period of the
prior year as a result of contributions from the Company's second
FPSO, ZAFIRO PRODUCER, which commenced operations in August 1996 under
a three-year contract. The Company's FPSO OCEAN PRODUCER continued to
work offshore West Africa under a contract which expires in January
2000.
During the third quarter, the customer exercised its option to
purchase the FPSO ZAFIRO PRODUCER and the Company recognized a gain of
$25 million as a result of this transaction. The Company will
continue to operate the unit under a management agreement for the
remainder of the contract term.
Gross margins for the three-month and nine-month periods ended
December 31, 1996 were negatively impacted by an $8 million provision
for repairs on the Company's first FPSO, OCEAN PRODUCER. During the
third quarter, the Company determined that substantial repairs are
necessary to maintain the unit in operating condition in compliance
with regulatory requirements. These repairs will be performed as soon
as is practicable. Excluding the gain on the disposition of the FPSO
ZAFIRO PRODUCER, the effect on gross margins of the repair provision
was to reduce gross margin percentages by 29% from 25% to (4%)for the
third quarter and by 12% from 22% to 10% for the nine months ended
December 31, 1996.
For the nine month period ended December 31, 1996, higher revenues and
gross margins from FPSO operations were offset by lower revenues and
gross margins in project management compared to the corresponding
period of the prior year. In fiscal 1996 the Company undertook a
project to convert a rig to a production system. The Company did not
have a similar project in fiscal 1997. Revenues and gross margins for
the three and nine-month periods ended December 31, 1995 included a
$2.7 million gain on the involuntary conversion of the OCEAN DEVELOPER
rig which sank while under tow in August 1995.
Advanced Technologies
Revenue and gross margin information is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
(in thousands)
Revenues $ 23,020 $ 23,487 $ 75,586 $59,561
Gross margin 5,814 5,092 13,583 11,503
Gross margin % 25% 22% 18% 19%
Gross margin for the third quarter of fiscal 1997 increased over the
corresponding period of the prior year as a result of improved
profitability in subsea cable burial and deep ocean search services.
For the nine months ended December 31, 1996, revenues and gross
margins increased as a result of higher activity in subsea cable
burial and space related products.
Other
Interest expense for the nine-month period ended December 31, 1996 was
net of capitalized interest of $1.1 million relating to the FPSO
ZAFIRO PRODUCER conversion project. For the three-month and nine-
month periods ended December 31, 1996, interest income decreased and
net interest expense increased compared to the corresponding periods
of the prior year as the Company had utilized its cash resources and
drawn on its loan facilities to finance conversion of the FPSO ZAFIRO
PRODUCER. As of the end of the third quarter of fiscal 1997, the
Company had no debt outstanding.
The provisions for income taxes were related to U.S. income taxes
which were 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. During the third quarter, an
impairment adjustment relating to the North Sea diving support vessel
and vessel repair costs relating to the FPSO OCEAN PRODUCER totaling
$16 million were incurred in the Company's United Kingdom subsidiary
for which no tax benefit was available owing to net operating losses.
These costs increased the Company's effective tax rate from 38% to 67%
for the third quarter and from 38% to 56% for the nine months ended
December 31, 1996.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
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: February 7, 1997 By: //s// JOHN R. HUFF
John R. Huff, President and
Chief Executive Officer
Date: February 7, 1997 By: //s// MARVIN J. MIGURA
Marvin J. Migura, Senior Vice
President and Chief Financial Officer
Date: February 7, 1997 By: //s// RICHARD V. CHIDLOW
Richard V. Chidlow, Controller
and Chief Accounting Officer
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements filed as part of the Company's 10-Q and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
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<ALLOWANCES> 1,005
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<PP&E> 270,673
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<COMMON> 6,004
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<TOTAL-LIABILITY-AND-EQUITY> 255,255
<SALES> 271,416
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<CGS> 209,378
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