UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1999
[ ] 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: 0-22739
Cal Dive International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 95-3409686
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
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)
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 15, 1999 there were 15,485,323 shares of common stock, no par
value outstanding.
<PAGE>
CAL DIVE INTERNATIONAL, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998.................... 1
Consolidated Statements of Operations -
Three Months Ended September 30, 1999 and
September 30, 1998....................................... 2
Nine Months Ended September 30, 1999 and
September 30, 1998....................................... 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and
September 30, 1998......................................... 4
Notes to Consolidated Financial Statements....................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K........................ 12
Signatures...................................................... 13
<PAGE>
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,
1999 1998
-------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 9,325 $ 32,380
Restricted Cash .............................................. 7,552 463
Accounts receivable --
Trade, net of revenue allowance on gross
amounts billed of $2,180 and $1,335 ................ 33,830 20,350
Unbilled ................................................ 11,951 10,703
Other current assets ......................................... 12,659 9,190
--------- ---------
Total current assets ................................. 75,317 73,086
--------- ---------
PROPERTY AND EQUIPMENT ............................................. 174,904 107,421
Less - Accumulated depreciation .............................. (41,436) (28,262)
--------- ---------
133,468 79,159
--------- ---------
OTHER ASSETS:
Cash deposits restricted for salvage
operations .............................................. 2,539 2,408
Investment in Aquatica, Inc. ................................. 0 7,656
Goodwill ..................................................... 13,941 0
Other assets, net ............................................ 4,802 1,926
--------- ---------
$ 230,067 $ 164,235
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 26,019 $ 15,949
Accrued liabilities .......................................... 9,632 10,020
Income taxes payable ......................................... 3,050 1,201
--------- ---------
Total current liabilities ............................... 38,701 27,170
LONG-TERM DEBT ..................................................... 0 0
DEFERRED INCOME TAXES .............................................. 16,162 13,539
DECOMMISSIONING LIABILITIES ........................................ 28,420 9,883
MINORITY INTEREST .................................................. 147 0
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par, 60,000 shares
authorized, 22,297 and 21,402 shares issued
and outstanding ......................................... 72,230 52,981
Retained earnings ............................................ 78,158 64,413
Treasury stock, 6,821 shares, at cost ........................ (3,751) (3,751)
--------- ---------
Total shareholders' equity .............................. 146,637 113,643
--------- ---------
$ 230,067 $ 164,235
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30,
-----------------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
NET REVENUES:
Subsea and salvage ....................................... $ 42,861 $ 40,782
Natural gas and oil production ........................... 15,609 2,131
-------- --------
58,470 42,913
COST OF SALES:
Subsea and salvage ....................................... 31,781 25,758
Natural gas and oil production ........................... 8,734 2,039
-------- --------
Gross profit ........................................ 17,955 15,116
-------- --------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling expenses ......................................... 273 293
Administrative expenses .................................. 3,810 4,121
-------- --------
Total selling and administrative expenses ........... 4,083 4,414
-------- --------
INCOME FROM OPERATIONS ......................................... 13,872 10,702
OTHER INCOME AND EXPENSE:
Equity in earnings of Aquatica, Inc. ..................... 150 700
Net interest (income) and other .......................... (78) (253)
-------- --------
INCOME BEFORE INCOME TAXES ..................................... 14,100 11,655
Provision for income taxes ............................... 4,936 4,078
Minority interest ........................................ 147 0
-------- --------
NET INCOME ..................................................... $ 9,017 $ 7,577
======== ========
EARNINGS PER COMMON SHARE:
Basic .................................................... $ 0.59 $ 0.52
Diluted .................................................. $ 0.58 $ 0.51
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic .................................................... 15,215 14,553
Diluted .................................................. 15,641 14,985
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
---------------------------
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
NET REVENUES:
Subsea and salvage ....................................... $ 95,678 $ 105,351
Natural gas and oil production ........................... 22,902 9,245
--------- ---------
118,580 114,596
COST OF SALES:
Subsea and salvage ....................................... 74,940 70,150
Natural gas and oil production ........................... 14,704 6,632
--------- ---------
Gross profit ........................................ 28,936 37,814
--------- ---------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling expenses ......................................... 911 937
Administrative expenses .................................. 8,200 10,014
--------- ---------
Total selling and administrative expenses ........... 9,111 10,951
--------- ---------
INCOME FROM OPERATIONS ......................................... 19,825 26,863
OTHER INCOME AND EXPENSE:
Equity in earnings of Aquatica, Inc. ..................... 600 1,333
Net interest (income) and other .......................... (948) (687)
--------- ---------
INCOME BEFORE INCOME TAXES ..................................... 21,373 28,883
Provision for income taxes ............................... 7,481 10,109
Minority interest ........................................ 147 0
--------- ---------
NET INCOME ..................................................... $ 13,745 $ 18,774
========= =========
EARNINGS PER COMMON SHARE:
Basic .................................................... $ 0.93 $ 1.29
Diluted .................................................. $ 0.90 $ 1.25
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic .................................................... 14,841 14,544
Diluted .................................................. 15,211 14,977
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
----------------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 13,745 $ 18,774
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization ................................ 15,519 6,389
Deferred income taxes ........................................ 1,924 1,200
Gain on sale of property ..................................... (7,354) 0
Equity in earnings of Aquatica, Inc. ......................... (600) (1,333)
Minority interest in earnings ................................ 147 0
Changes in operating assets and liabilities:
Accounts receivable, net ..................................... (11,904) (3,637)
Other current assets ......................................... (2,801) (4,954)
Accounts payable and accrued liabilities ..................... 9,879 3,290
Income taxes payable/receivable .............................. 3,823 5,033
Other non-current, net ....................................... (5,226) (876)
-------- --------
Net cash provided by operating activities ................. 17,152 23,886
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................. (51,474) (12,232)
Prepayment of lease abandonment costs ............................. 7,750 0
Cash received in acquisition, net ................................. 418 0
Proceeds from sale of properties .................................. 7,702 0
Investment in Aquatica, Inc. ...................................... 0 (5,023)
Purchase of deposits restricted for salvage operations ............ (131) 0
Changes in restricted funds ....................................... (7,089) 0
-------- --------
Net cash used in investing activities ..................... (42,824) (17,255)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan facility ............................... 0 0
Exercise of stock options ......................................... 2,617 108
-------- --------
Net cash provided by financing activities ................. 2,617 108
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... (23,055) 6,739
CASH AND CASH EQUIVALENTS:
Balance, beginning of period ...................................... 32,380 13,025
-------- --------
Balance, end of period ............................................ $ 9,325 $ 19,764
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
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 subsidiaries, Energy
Resource Technology, Inc. (ERT), Aquatica, Inc., Cal Dive Aker CAHT I, LLC and
Cal Dive Offshore, Ltd. All significant intercompany accounts and transactions
have been eliminated. These 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 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 periods ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K.
NOTE 2 - OFFSHORE PROPERTY TRANSACTIONS
During the first quarter, ERT acquired interests in ten blocks involving seven
separate fields from Sonat Exploration Company, five offshore blocks from Shell
Offshore, Inc. and two blocks from Vastar Resources, Inc. in exchange for cash
consideration, as well as assumption of the pro rata share of the related
decommissioning liabilities. In the second quarter, ERT acquired interests in
two fields from Spirit Energy and one from Newfield, along with the acquisition
of additional interest in a currently owned ERT property from Samedan, in
exchange for cash consideration, as well as assumption of the seller's pro rata
share of the related decommissioning liability. Decommissioning obligations of
$19.5 million were assumed in these six transactions.
During the third quarter, ERT substantially completed its 1999 Well Exploitation
Program, which included five rig recompletions and which led to the sale of its
interest in two offshore blocks. It is an operating policy that ERT will sell
assets (offshore leases, platforms, compressors, etc.) when the expected future
revenue stream can be accelerated in a single transaction. Since inception ERT
has acquired interests in 41 offshore leases, sold six (two in 1997 and two in
1998), and taken one field full cycle to decommissioning. The well exploitation
work completed during the third quarter also enabled ERT to assess and write
down the carrying value of three ERT fields, including one where a third party
vendor damaged the reservoir formation. The net result of the sale and the 1999
Well Exploitation Program was to add approximately ten cents to third quarter
diluted earnings per share.
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<PAGE>
NOTE 3 - BUSINESS SEGMENT INFORMATION (IN THOUSANDS)
SEPT. 30, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
Identifiable Assets --
Subsea and Salvage .................. $179,949 $142,629
Natural Gas and Oil Production ...... 50,118 21,606
-------- --------
Total .......................... $230,067 $164,235
-------- --------
NOTE 4 - ACQUISITION OF DP VESSEL
In June 1999, CDI acquired Hvide Marine's interest in Cal Dive Aker CAHT I, LLC,
the Company which owns the CAL DIVE AKER DOVE (a newbuild DP anchor handling and
subsea construction vessel) for $15.6 million. CDI is also committed to fund up
to (and not to exceed) an additional $3.3 million for the completion of the
construction of the vessel. During the third quarter CDI funded $2.4 million of
such commitment. Results of operations of this company are consolidated in the
accompanying financial statements with Aker's share being reflected as minority
interest.
NOTE 5 - ACQUISITION OF AQUATICA, INC.
In February 1998, CDI purchased a significant minority equity interest in
Aquatica, Inc., a surface diving company. CDI accounted for this investment on
the equity basis of accounting for financial reporting purposes. The related
Shareholder Agreement provided that the remaining shares of Aquatica, Inc. could
be converted into Cal Dive shares at a ratio based on a formula which, among
other things, values their shares of Aquatica, Inc. and must be accretive to Cal
Dive shareholders. Effective August 1, 1999, 696,000 shares of common stock of
Cal Dive were issued for all of the remaining common stock of Aquatica, Inc.
pursuant to these terms. This acquisition was accounted for as a purchase in the
third quarter with the purchase price of $16.2 million being allocated to the
assets acquired and liabilities assumed based upon their estimated fair values.
The fair value of tangible assets acquired and liabilities assumed was $6.4
million and $2.2 million, respectively. The balance of the purchase price ($12
million) was recorded as excess of cost over net assets acquired (goodwill) and
is being amortized over twenty-five years on a straight-line basis. Results of
operations for Aquatica, Inc. are consolidated with Cal Dive's results for
periods subsequent to August 1, 1999.
-6-
<PAGE>
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 may contain or incorporate by reference
certain forward-looking statements, including by way of illustration and not of
limitation, statements relating to liquidity, margins, the Company's business
strategy, plans for future operations, and the industry conditions. 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 changes. Accordingly, evaluation of future prospects of the
Company must be made with caution when relying on forward-looking information.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. During the three months ended September 30, 1999, the Company's
revenues increased 36% to $58.5 million compared to $42.9 million for the three
months ended September 30, 1998 due principally to the natural gas and oil
production segment and improved salvage operations. In addition, approximately
$3.9 million of revenue was generated by new assets in 1999: the August 1
acquisition of the 55% of Aquatica not previously owned and the DP vessel CAL
DIVE AKER DOVE which commenced operations in September 1999.
Natural gas and oil production revenue for the three months ended
September 30, 1999 increased 632% to $15.6 million from $2.1 million during the
comparable prior year period. Production increased 140% during the third quarter
of 1999 compared to the same period of 1998 due to the acquisition of 20
offshore blocks during the first four months of 1999 and an intense well
exploitation program. Also contributing to the increase in revenue was an
increase in natural gas prices which averaged $2.62/mcf during the three months
ended September 30, 1999 as compared to $1.99/mcf for the three months ended
September 30, 1998. Finally, during the third quarter of 1999 CDI completed the
sale of its interest in two offshore blocks pursuant to our policy of selling
assets when the expected future revenue stream can be accelerated in a single
transaction.
GROSS PROFIT. Gross profit of $18.0 million for the third quarter of 1999
represents a 19% increase compared to the $15.1 million recorded in the
comparable prior year period. The natural gas and oil production segment
generated a $6.8 million increase due mainly to the improved pricing and
production (including the sale of interests in two blocks) as discussed above
offsetting a $3.9 million decline in the subsea and salvage segment due mainly
to much stronger demand for offshore construction services during last year's
third quarter compared to this year. This negative variance for subsea and
salvage was minimized by two unique, deepwater projects during the quarter in
which CDI functioned as prime contractor. The Uncle John performed
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<PAGE>
installation tasks in 4,800 feet of water at Exxon Diana which had never been
performed from a construction vessel. In addition, CDI commenced the Cooper
field abandonment, the first ever deepwater subsea decommissioning project in
the Gulf of Mexico. Margins of 26% for subsea and salvage (vs. 37% during the
third quarter 1998) reflect in part the competitive market and the high volume
of third party "pass through" costs associated with the increased mix of work as
prime contractor.
Natural gas and oil production gross profit increased from $92,000 in the
third quarter of 1998 to $6.9 million for the three months ended September 30,
1999, due to the aforementioned reasons. The sale of interests in two blocks
during quarter and the well exploitation work completed during the quarter
enabled management to assess and reduce the carrying value of three ERT fields.
The net result of the sale and the 1999 Well Exploitation Program was to add
approximately $3.1 million to gross profit.
SELLING & ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were $4.1 million in the third quarter of 1999, which is 7% less than the $4.4
million incurred in the third quarter of 1998 due mainly to lower labor costs in
Subsea and salvage. This was partially offset by ERT administrative costs
increasing $1.4 million as we added personnel to handle a three fold increase in
the number of wells operated by ERT and there has been a significant increase in
accrued incentive compensation. Finally, consolidating two months of Aquatica
operations added $500,000 of overhead. Administrative costs represented 7% of
revenues in the third quarter compared to 10% in the same period of 1998 due to
lower personnel costs and improvements to our supply chain management system.
NET INTEREST. The Company reported net interest income and other of
$78,000 for the three months ended September 30, 1999 in contrast to $253,000
for the three months ended September 30, 1998 due mainly to lower invested cash
balances.
INCOME TAXES. Income taxes increased to $4.9 million for the three months
ended September 30, 1999, compared to $4.1 million in the comparable prior year
period due to increased profitability.
NET INCOME. Net income of $9.0 million for the three months ended
September 30, 1999 was $1.4 million, or 19%, greater than the comparable period
in 1998 as a result of factors described above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. During the nine months ended September 30, 1999, the Company's
revenues increased 3% to $118.6 million from $114.6 million in the nine months
ended September 30, 1998 with the natural gas and oil production segment
providing a $13.7 million increase offsetting a $9.7 million decline in subsea
and salvage segment revenues. This level of subsea and salvage sales volume is
actually within 2% of last year's first nine months after eliminating $8 million
of Coflexip charter revenue from 1998 sales figures.
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<PAGE>
Natural gas and oil production revenue for the nine months ended September
30, 1999 increased as a result of a 65% increase in production (due to
properties acquired during the first half of 1999), a slight increase in average
natural gas prices ($2.20/mcf in the first nine months of 1999 compared to
$2.15/mcf during the comparable period in 1998) and the third quarter 1999 sale
of two offshore blocks.
GROSS PROFIT. Gross profit of $28.9 million for the first nine months of
1999 is 23% less than the $37.8 million gross profit recorded in the comparable
prior year period due mainly to a nine point decline in margins (from 33% to
24%). Subsea and salvage gross profit declined by $14.5 million due primarily to
the more competitive market conditions and to the impact of the Uncle John being
out of service for six weeks for thruster repairs. In addition, the pass through
costs associated with CDI functioning as prime contractor resulted in third
party costs that were 37% of subsea and salvage revenues in contrast to 28% in
the first nine months of 1998.
Natural gas and oil production gross profit increased $5.6 million from
$2.6 million in the first three quarters of 1998 to $8.2 million for the first
nine months of 1999, due to increased revenues as described above offset
somewhat by the effect of the third quarter 1999 carrying value adjustments
associated with the 1999 Well Exploitation Program.
SELLING & ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were $9.1 million in the first nine months of 1999, which is 17% less than the
$11.0 million incurred in the comparable period of 1998 due mainly to lower
labor costs in Subsea and salvage. This was partially offset by ERT
administrative costs increasing $1.5 million for the reasons mentioned above.
NET INTEREST. The Company reported net interest income and other of
$948,000 for the nine months ended September 30, 1999 which is 38% more than the
$687,000 reported for the nine months ended September 30, 1998 due to an
increase in average cash balances during the first three quarters of 1999 as
compared to the first three quarters of 1998.
INCOME TAXES. Income taxes decreased to $7.5 million for the nine months
ended September 30, 1999, compared to $10.1 million in the comparable prior year
period due to lower profitability.
NET INCOME. Net income of $13.7 million for the nine months ended
September 30, 1999 was $5.0 million, or 27%, less than the comparable period in
1998 as a result of factors described above.
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<PAGE>
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 1992 and 1998/1999. The Company completed an initial public offering of
common stock on July 7, 1997, with the sale of 2,875,000 shares generating net
proceeds to the Company of approximately $39.5 million, which resulted in $15
million of cash on hand after paying off all debt outstanding. In the past 27
months internally generated cash flow has funded approximately $90 million of
capital expenditures while enabling the Company to remain debt free. As of
September 30, 1999, the Company had $36.6 million of working capital (including
$9.3 million of unrestricted cash on hand) and no debt outstanding.
Additionally, CDI had approximately $40.0 million available under a Revolving
Credit Agreement at the end of the quarter.
OPERATING ACTIVITIES. Net cash provided by operating activities was $17.2
million in the nine months ended September 30, 1999, as compared to $23.9
million in the first nine months of 1998. This reduction was due mainly to
decreased profitability during the first nine months of 1999. Accounts
receivable and accounts payable balances as of September 30, 1999 were
significantly greater than December 31, 1998 due mainly to the substantial
increase in operating activity during the third quarter 1999 compared to the
fourth quarter 1998, along with the consolidation of Aquatica accounts effective
August 1, 1999. Depreciation and amortization increased $9.1 million to $15.5
million for the first nine months of 1999 due mainly to increased ERT depletion
as a result of the increased production and carrying value adjustments.
INVESTING ACTIVITIES. The Company incurred $51.4 million of capital
expenditures during the first nine months of 1999 compared to $17.3 million
during the comparable prior year period. Included in the $51.4 million of
capital expenditures in the first three quarters of 1999 is $18 million for the
acquisition of Hvide Marine's interest in Cal Dive Aker CAHT I, LLC, the Company
which owns the CAL DIVE AKER DOVE (a newbuild DP anchor handling and subsea
construction vessel) and $12.5 million related to the construction of the Q4000,
a newbuild, ultra-deepwater multi-service vessel . In addition, $14.8 million is
related to ERT property acquisitions and well recompletion work on the ERT
properties acquired. In connection with the aforementioned ERT property
acquisitions the seller prepaid $7.8 million of the decommissioning liability.
The third quarter, 1999, sale of interests in two offshore blocks was structured
as a Section 1031 "Like Kind" exchange for tax purposes. Accordingly, the cash
received is restricted for acquisition of additional natural gas and oil
properties.
In January 1998, ERT acquired interests in six blocks involving two
separate fields from Sonat Exploration Company and incurred costs to put the
MERLIN and SEA SORCERESS into service. In February 1998, the Company purchased a
significant minority equity investment in Aquatica, Inc. (a surface diving
company) for $5.0 million. Effective August 1, 1999, 696,000 shares of common
stock of Cal Dive were issued for the remaining common stock of Aquatica, Inc.
which Cal Dive had not previously acquired. This acquisition was accounted for
as a purchase in the third quarter with the purchase price being allocated to
the assets acquired and liabilities assumed based upon their estimated fair
values resulting in goodwill of approximately $12 million. Results of operations
for Aquatica, Inc. are consolidated with Cal Dive's results for periods
subsequent to August 1, 1999. At the date of this acquisition, Aquatica had $2.6
million of cash on hand which was used to retire the $2.2 million outstanding
under their loan facility.
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<PAGE>
FINANCING ACTIVITIES. The only financing activity during the first three
quarters of 1999 and 1998 represents exercise of employee stock options.
CAPITAL COMMITMENTS. In July 1999, the Company's Board of Directors
approved the construction of the Q4000, a newbuild, ultra-deepwater
multi-service vessel, at a total estimated cost of $150,000,000. Funding for
this project is expected to come from cash balances on hand, long-term
borrowings and perhaps the issuance of additional equity. In addition, as
discussed previously, in connection with its business strategy, management
expects the Company to acquire additional vessels as well as buy additional
natural gas and oil properties.
IMPACT OF YEAR 2000 ISSUE
The Company has assessed what computer software and hardware will require
modification or replacement so that its computer systems will properly utilize
dates beyond December 31, 1999. The Company has purchased, and has implemented,
a new project management accounting system which is Year 2000 compliant. This
system, which fully integrates all of its modules, provides project managers and
accounting personnel with up-to-date information enabling them to better control
jobs in addition to providing benefits in inventory control and planned vessel
maintenance. CDI's vessel computer DP systems are partially dependent on
government satellites and the government has not yet confirmed that they have
solved Year 2000 data problems. If necessary, the vessels could operate for
sometime safely on redundant systems other than satellite information.
Accordingly, the Company believes that the Year 2000 issue will be resolved in a
timely manner and presently does not believe that the cost to become Year 2000
compliant will have a material adverse effect on the Company's consolidated
financial statements. The foregoing statements are intended to be and are hereby
designated "Year 2000 Readiness Disclosure" within the meaning of the Year 2000
Information Readiness and Disclosure Act.
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<PAGE>
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.
Item 5. Other Matters
Effective September 13, 1999, Jean-Bernard Fay and Thomas Ehret resigned
as directors of the Company and were replaced by Aline Montel and Claire Giraut
who were designated by Coflexip as provided under an agreement with the Company.
Effective May 5, 1999, William E. Macaulcy resigned as a director of the Company
after the sale of shares of the Company's common stock by First Reserve
Corporation and affiliates, also in accordance with the same agreement. Cal
Dive's current Directors are:
Owen Kratz
Jim Nelson
Martin Ferron
Gordon Ahalt
Bernard Duroc-Danner
Ben Guill
Aline Montel
Claire Giraut
Kevin Wood
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule. (Exhibit 27 is being submitted
as an exhibit only in the electronic format of this Quarterly Report
on Form 10-Q being submitted to the Securities and Exchange
Commission.)
(b) Reports on Form 8-K - None.
-12-
<PAGE>
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 15, 1999 By: __________________________________________
S. James Nelson, Executive Vice President
and Chief Financial Officer
Date: November 15, 1999 By: __________________________________________
A. Wade Pursell, Vice President-Finance
and Chief Accounting Officer
-13-
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