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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-10945
OCEANEERING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2628227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11911 FM 529
Houston, Texas
77041
(Address of principal executive offices)
(Zip Code)
(713) 329-4500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
Common Stock, $.25 Par Value 22,489,578 shares
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
1999 1999
---------- ----------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ..................... $ 8,372 $ 8,367
Accounts receivable (net of allowance
for doubtful accounts of $320 and
$398 at June 30 and March 31) ............... 107,571 103,838
Prepaid expenses and other .................... 19,946 16,859
-------- --------
Total current assets .......................... 135,889 129,064
-------- --------
Property and Equipment, at cost:
Marine services equipment ..................... 295,992 285,964
Mobile offshore production equipment .......... 53,713 53,808
Buildings, improvements and other ............. 74,102 72,960
-------- --------
423,807 412,732
Less: accumulated depreciation ................ 177,731 170,993
-------- --------
Net property and equipment .................... 246,076 241,739
-------- --------
Goodwill (net of amortization of $5,721
and $5,478) ................................... 9,999 9,426
-------- --------
Investments and Other Assets .................... 7,987 7,114
-------- --------
TOTAL ASSETS .................................. $399,951 $387,343
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 19,673 $ 23,481
Accrued liabilities ........................... 56,471 54,608
Income taxes payable .......................... 10,962 9,271
Current portion of long-term debt ............. 310 306
-------- --------
Total current liabilities ..................... 87,416 87,666
-------- --------
Long-term Debt, net of current portion .......... 108,233 100,312
-------- --------
Other Long-term Liabilities ..................... 20,073 19,926
-------- --------
Commitments and Contingencies
Shareholders' Equity ............................ 184,229 179,439
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....... $399,951 $387,343
======== ========
See Notes to Consolidated Financial Statements.
Page 2
<PAGE>
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
--------- ---------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues ..................................................... $ 98,860 $ 98,911
Cost of Services ............................................. 80,333 77,424
Selling, General and Administrative Expenses ................. 9,549 10,361
-------- --------
Income from operations ................................... 8,978 11,126
Interest Income .............................................. 143 84
Interest Expense, net of capitalized interest of $390 and $482 (1,346) (567)
Other Income/(Expense), Net .................................. 205 (38)
-------- --------
Income before income taxes ............................... 7,980 10,605
Provision for Income Taxes ................................... (2,946) (4,030)
-------- --------
Net Income ............................................... $ 5,034 $ 6,575
======== ========
Basic Earnings per Share ..................................... $ 0.22 $ 0.29
Diluted Earnings per Share ................................... $ 0.22 $ 0.28
Weighted average number of common shares ..................... 22,391 22,952
Incremental shares from stock options ........................ 276 330
Weighted average number of common shares and equivalents ..... 22,667 23,282
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ...................................................... $ 5,034 $ 6,575
-------- --------
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization ................................... 7,935 6,737
Currency translation adjustments and other ...................... (1,078) 1,973
Increase in accounts receivable ................................. (3,733) (2,942)
Increase in prepaid expenses and other current assets ........... (3,088) (3,896)
Increase in other assets ........................................ -- (296)
Increase (decrease) in current liabilities ...................... (254) 6,561
Increase in other long-term liabilities ......................... 147 119
-------- --------
Total adjustments to net income ................................. (71) 8,256
-------- --------
Net Cash Provided by Operating Activities ........................... 4,963 14,831
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment and other ................... (13,647) (27,125)
-------- --------
Net Cash Used in Investing Activities ............................... (13,647) (27,125)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings .............................. 8,000 14,000
Payments on long-term debt ...................................... (75) (83)
Proceeds from issuance of common stock .......................... 764 514
-------- --------
Net Cash Provided by Financing Activities ........................... 8,689 14,431
-------- --------
Net Increase in Cash and Cash Equivalents ........................... 5 2,137
Cash and Cash Equivalents - Beginning of Year ....................... 8,367 9,064
-------- --------
Cash and Cash Equivalents - End of Period ........................... $ 8,372 $ 11,201
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 4
<PAGE>
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation and Significant Accounting Policies
These Consolidated Financial Statements are unaudited and have been
prepared pursuant to instructions for the Quarterly Report on Form 10-Q
required to be filed with the Securities and Exchange Commission and do
not include all information and footnotes normally included in financial
statements prepared in accordance with generally accepted accounting
principles. Management has reflected all adjustments which it believes are
necessary to present fairly Oceaneering's financial position at June 30,
1999 and its results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in Oceaneering's Annual
Report on Form 10-K for its fiscal year ended March 31, 1999. The results
for interim periods are not necessarily indicative of annual results.
Unless the context indicates otherwise, references to years indicate
Oceaneering's fiscal years. For example, 2000 would refer to the fiscal
year ending March 31, 2000.
2. Shareholders' Equity
Shareholders' Equity consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
--------- ---------
(in thousands, except per share amounts)
<S> <C> <C>
Common Stock, par value $0.25;
90,000,000 shares authorized;
24,017,046 shares issued .................................. $ 6,004 $ 6,004
Additional paid-in capital .................................... 82,061 82,421
Treasury stock; 1,550,182 and 1,653,922 shares, at average cost (21,373) (22,803)
Retained earnings ............................................. 128,743 123,709
Accumulated other elements of comprehensive income ............ (11,206) (9,892)
--------- ---------
Total shareholders' equity .................................... $ 184,229 $ 179,439
========= =========
</TABLE>
3. Income Taxes
Cash taxes paid were $1.2 million and $1.3 million for the first quarters
of 2000 and 1999, respectively.
4. Earnings Per Share
Oceaneering has computed earnings per share in accordance with Financial
Accounting Standards Board Standard Number ("SFAS") 128, "Earnings Per
Share".
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5. Business Segment Information
Oceaneering supplies a comprehensive range of integrated technical
services to a wide array of industries and is one of the world's largest
underwater services contractors. Oceaneering's Oilfield Marine Services
business consists of underwater intervention and above-water inspection,
maintenance and repair. Oceaneering's Offshore Field Development business
includes the engineering, procurement, construction and installation of
mobile offshore production systems, subsea intervention services and the
production of subsea control umbilical cables. Oceaneering's Advanced
Technologies business provides project management, engineering services
and equipment for applications in harsh environments, primarily in
non-oilfield markets.
The following summarizes certain financial data by business segment:
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
------- -------
(IN THOUSANDS)
Revenues
Oilfield Marine Services ................... $43,114 $52,704
Offshore Field Development ................. 24,066 27,654
Advanced Technologies ...................... 31,680 18,553
------- -------
Total ............................... $98,860 $98,911
======= =======
Gross Margins (Revenues less Cost of Services) ..
Oilfield Marine Sercices ................... $ 7,302 $11,710
Offshore Field Development ................. 5,755 7,246
Advanced Technologies ...................... 5,470 2,531
------- -------
Total ............................... $18,527 $21,487
======= =======
There are no differences in the basis of segmentation or in the basis of
measurement of segment profit or loss from those used in the consolidated
financial statements for the fiscal year ended March 31, 1999.
6. Comprehensive Income
Effective April 1, 1998, Oceaneering adopted SFAS 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting
and display of comprehensive income and its components. Comprehensive
income is the total of net income and all non-owner changes in equity. The
amount of comprehensive income for each of the three-month periods ended
June 30, 1999 and 1998 and the components of accumulated other elements of
comprehensive income in Shareholders' Equity at June 30, 1999 and March
31, 1999 are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net Income per Consolidated Statements of Income .. $ 5,034 $ 6,575
Foreign Currency Translation Gains (Losses) ....... (1,314) (442)
------- -------
Comprehensive Income .............................. $ 3,720 $ 6,133
======= =======
</TABLE>
Amounts comprising other elements of comprehensive income in Shareholders'
Equity:
JUNE 30, 1999 MARCH 31, 1999
-------------- --------------
(IN THOUSANDS)
Accumulated Foreign Currency
Translation Adjustments ................. $(11,206) $(9,892)
======== =======
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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 out business strategy, plans
for future operations, and industry conditions, are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. We use a variety of internal and external data and
management judgment in order to develop such forward-looking information.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, because of the inherent limitations in the
forecasting process, as well as the relatively volatile nature of the industry
in which we operate, we can give no assurance that such expectations will prove
to have been correct. Accordingly, evaluation of our future prospects must be
made with caution when relying on forward-looking information.
MATERIAL CHANGES IN FINANCIAL CONDITION
We consider our liquidity and capital resources adequate to support our
operations and capital commitments. At June 30, 1999, we had working capital of
$48 million, including $8 million of unrestricted cash; we had utilized $8
million of our available $80 million credit facility and $21 million was unused
under uncommitted lines of credit.
Our capital expenditures were $14 million during the first three months of 2000,
as compared to $27 million during the corresponding period of the prior fiscal
year. Capital expenditures in 2000 consisted of additions to our fleet of
remotely operated vehicles ("ROVs") and multiservice vessel construction. Prior
fiscal year expenditures consisted of additions to our fleet of ROVs,
multiservice vessel construction and subsea products facilities expansion.
Commitments for capital expenditures at June 30, 1999 were approximately $13
million for multiservice vessel construction.
RESULTS OF OPERATIONS
Consolidated revenue and margin information is as follows:
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
------- -------
(IN THOUSANDS)
Revenues ............................. $98,860 $98,911
Gross margin ......................... 18,527 21,487
Gross margin % ....................... 19% 22%
Operating margin % ................... 9% 11%
The quarters ending June 30 and September 30 have generally been the peak in
both revenues and net income for our Oilfield Marine Services business. However,
our exit from the diving sector in the North Sea in early 1998 and the
substantial number of multi-year ROV contracts which were entered into since
calendar 1997 should reduce the seasonality of our Oilfield Marine Services
operations. Revenues and net income in our Offshore Field Development and
Advanced Technologies businesses are generally not seasonal.
Page 7
<PAGE>
OILFIELD MARINE SERVICES.
Revenue and gross margin information is as follows:
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
------- -------
(IN THOUSANDS)
Revenues ...................... $43,114 $52,704
Gross margin .................. 7,302 11,710
Gross margin % ................ 17% 22%
Revenues and gross margins for our Oilfield Marine Services segment decreased
during the first quarter of 2000, compared to the corresponding period of the
prior year, primarily as a result of decreased worldwide demand for oilfield
services and products due to a significant reduction in capital spending by oil
and gas companies. Contributions from long-term ROV drill support contracts
partially offset a decline in diving and related vessel services.
OFFSHORE FIELD DEVELOPMENT.
Revenue and gross margin information is as follows:
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
------- -------
(IN THOUSANDS)
Revenues ...................... $24,066 $27,654
Gross margin .................. 5,755 7,246
Gross margin % ................ 24% 26%
Revenues were lower in the first quarter of 2000 compared to the corresponding
period of the prior year as a result of decreased umbilical sales. Our new
umbilical plant in Brazil will make its first customer delivery in the second
quarter. The FPSO OCEAN PRODUCER continued to operate offshore West Africa under
a contract which expires in January 2000.
ADVANCED TECHNOLOGIES.
Revenue and gross margin information is as follows:
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
------- -------
(IN THOUSANDS)
Revenues ...................... $31,680 $18,553
Gross margin .................. 5,470 2,531
Gross margin % ................ 17% 14%
Revenues and gross margins for the first quarter of 2000 compared to the
corresponding period of the prior year reflect higher activity in and
profitability from subsea cable burial and search and recovery projects.
OTHER.
Interest expense for the three-month period ended June 30, 1999 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. Interest expense of $1,346,000 in 2000 was net of capitalized
interest of $390,000.
The provisions for income taxes were related to U.S. income taxes which we
provided at estimated annual effective rates using assumptions as to earnings
and other factors which would affect the tax calculation for the remainder of
the fiscal year, and to the operations of foreign branches and subsidiaries
which were subject to local income
Page 8
<PAGE>
and withholding taxes.
YEAR 2000.
The Year 2000 ("Y2K") issue is the result of using computer programs which were
written using two digits rather than four to define the applicable year.
Programs that have date-sensitive software may recognize "00" as the year 1900
rather than the year 2000. The problem can arise in computer programs and in
equipment with embedded processors.
We consider a system or process to be Year 2000 Ready if neither performance nor
functionality is affected by dates prior to, during, or after the Year 2000. A
system or process being Year 2000 Ready is conditional upon all other systems or
processes with which it interacts also being Year 2000 Ready and properly
exchanging date and time data with it, and our critical suppliers continuing to
provide an acceptable level of service.
We have substantially completed a comprehensive review of our operations to
assess the capability of our process control, business and accounting systems to
handle Year 2000 issues and, based on the results of our review to date, are
confident that our critical internal systems will be capable of operating
without interruption during the period after December 31, 1999. We have also
surveyed critical suppliers of goods and services to determine their readiness
for the millennium change which will affect our overall Year 2000 Readiness.
Although we have not to date identified any material exposures, we are
continuing to monitor our business systems, vendors and customers with whom we
have a material relationship. We are reviewing and updating business
interruption contingency plans to include responses to possible Year 2000
disruptions.
Although we can give no assurances, as a result of efforts to date, we do not
anticipate any material adverse effects regarding Year 2000 compliance on our
consolidated results of operations, financial position or cash flows. We believe
that third party noncompliance will be the area of greatest risk of Year 2000
having an adverse effect on us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There are no material changes from the information provided in Item 7A of
Oceaneering's Annual Report on Form 10-K for the fiscal year ended March 31,
1999.
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.
Page 9
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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:August 10, 1999 By: /s/ JOHN R. HUFF
John R. Huff, Chairman and
Chief Executive Officer
Date:August 10, 1999 By: /s/ MARVIN J. MIGURA
Marvin J. Migura, Senior Vice President and
Chief Financial Officer
Date:August 10 1999 By: /s/ JOHN L. ZACHARY
John L. Zachary, Controller and
Chief Accounting Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 8,372
<SECURITIES> 0
<RECEIVABLES> 107,891
<ALLOWANCES> 320
<INVENTORY> 0
<CURRENT-ASSETS> 135,889
<PP&E> 423,807
<DEPRECIATION> 177,731
<TOTAL-ASSETS> 399,951
<CURRENT-LIABILITIES> 87,416
<BONDS> 108,233
0
0
<COMMON> 6,004
<OTHER-SE> 178,225
<TOTAL-LIABILITY-AND-EQUITY> 399,951
<SALES> 98,860
<TOTAL-REVENUES> 98,860
<CGS> 80,333
<TOTAL-COSTS> 80,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,346
<INCOME-PRETAX> 7,980
<INCOME-TAX> 2,946
<INCOME-CONTINUING> 5,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,034
<EPS-BASIC> .22
<EPS-DILUTED> .22
</TABLE>
