As filed with the Securities and Exchange Commission on December 18, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN OILFIELD DIVERS, INC.
(Exact name of registrant as specified in its charter)
Louisiana 130 East Kaliste Saloom Road 72-0918249
(State or other Lafayette, Louisiana 70508 (I.R.S. Employer
jurisdiction of (318) 234-4590 Indentification No.)
incorporation or
organization)
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Rodney W. Stanley
President and Chief Executive Officer
American Oilfield Divers, Inc.
130 East Kaliste Saloom Road
Lafayette, Louisiana 70508
(318) 234-4590
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Carl C. Hanemann Alan P. Baden
Jones, Walker, Waechter, Vinson & Elkins L.L.P.
Poitevent, Carrere & Denegre, L.L.P. 2300 First City Tower
201 St. Charles Avenue 1001 Fannin Street
New Orleans, Louisiana 70170-5100 Houston, Texas 77002-6760
(504) 582-8000 (713) 758-2222
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant
to Item 11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered<F1> per share<F2> offering price<F2> fee
______________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Common Stock (no par value per share) 3,565,000 Shares $ 9.75 $34,758,750 $10,533.00
======================================================================================================
<FN>
<F1> Includes 465,000 shares subject to the Underwriters' over-allotment option granted by the
Company. See "Underwriting."
<F2> Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1996
[ LOGO]
3,100,000 Shares
AMERICAN OILFIELD DIVERS, INC.
Common Stock
Of the 3,100,000 shares of common stock, no par value
(the "Common Stock"), offered hereby, 2,502,315 shares are
being sold by American Oilfield Divers, Inc. (the
"Company"), and 597,685 shares are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will
not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National
Market under the symbol "DIVE." On January __, 1997, the
last reported sale price of the Common Stock was $_____ per
share.
See "Risk Factors" beginning on page 10 for a
discussion of certain factors that should be considered by
prospective purchasers of the Common Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================
Price to Underwriting Proceeds to Proceeds to
Public Discount<F1> Company<F2> Selling Stockholders
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
Per Share $ $ $ $
___________________________________________________________________________________________
Total $ $ $ $
===========================================================================================
<F1> The Company and the Selling Stockholders have agreed to
indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
<F2> Before deducting expenses payable by the Company
estimated at $ .
<F3> The Company has granted to the Underwriters an option
for 30 days to purchase up to an additional 465,000
shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments,
if any. If such option is exercised in full, the Price
to Public, Underwriting Discount and Proceeds to Company
will be $ , $ ,
and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the several
Underwriters subject to prior sale, when, as and if issued
and sold to and accepted by them, and subject to certain
other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the
shares will be made on or about , 1997.
Morgan Keegan & Company, Inc.
Rauscher Pierce Refsnes, Inc.
Southcoast Capital
Corporation
, 1997.
[PHOTOGRAPH NO 1. - NEWTSUIT(R)]
Current NEWTSUIT(R) technology allows for manned diving in water
depths up to 1,200 feet without saturation or decompression.
[PHOTOGRAPH NO. 2 - DIVER]
The air diving technique is used to provide many of the Company's diving
services in water depths up to approximately 160 feet.
[PHOTOGRAPH NO. 3 - AMERICAN STAR]
Deployed in the Gulf of Mexico, the 165-foot diving support vessel AMERICAN
STAR supports a deck-mounted saturation diving system.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes appearing elsewhere
in this Prospectus. Unless otherwise indicated, all information included in
this Prospectus assumes that the Underwriters' over-allotment option will not
be exercised. Unless the context requires otherwise, the term "Company" when
used herein means American Oilfield Divers, Inc. and its consolidated
subsidiaries. Certain technical terms are defined in the "Glossary of
Certain Technical Terms" appearing immediately before the Index to Financial
Statements.
The Company
General
American Oilfield Divers, Inc. provides subsea services and products to
the offshore oil and gas industry in the Gulf of Mexico, the West Coast and
select international markets. In addition, the Company provides inland
underwater services and products to domestic industrial and governmental
customers. The Company's services are provided through approximately 240
dive crews and are supported by a Company-owned fleet of 20 diving support
vessels ("DSVs"), 14 of which operate in the Gulf of Mexico. Based upon the
number of divers employed, the size of its DSV fleet and the number of
customers served, the Company believes that it is the leading provider of
diving services in the Gulf of Mexico.
In the last three years, the Company's revenue has more than doubled as
a result of improved demand in its core Gulf of Mexico market and through
internal growth and acquisitions that have expanded the Company's services
and products. For the nine months ended September 30, 1996, the Company's
revenues increased 25% to $79.5 million and EBITDA (earnings before interest,
taxes, depreciation, and amortization) more than tripled to $13.1 million as
compared to the nine months ended September 30, 1995. For 1996, subsea
operations in the Gulf of Mexico are expected to contribute approximately 45%
of the Company's revenues.
In November 1996, the Company completed the acquisition of Hard Suits
Inc. ("HSI"), which manufactures, markets and operates a one-atmosphere
diving suit known as the "NEWTSUIT(TM)." The Company believes that the
NEWTSUIT(TM) provides a lower cost alternative to current manned diving
techniques.
Subsea and Other Services
The Company provides subsea services to support all phases of offshore
oil and gas activities, including drilling, production, abandonment, and
salvage. These services include construction, installation, maintenance,
repair, inspection and support of drilling operations, development of
offshore pipeline and production platforms, and on-going production
activities. Subsea services are provided to a diverse group of customers,
including major and independent oil and gas exploration and production
companies, offshore engineering and construction companies, and major
pipeline transmission companies. The Company's offshore operations are
currently performed through manned surface and saturation diving activities
at depths up to 1,000 feet. With the acquisition of HSI, the Company intends
to use the NEWTSUIT(TM) as a cost effective alternative for operations at
depths up to 1,200 feet. The NEWTSUIT(TM) is a diving suit with patented
technology that allows the diver to work at normal atmospheric pressure (one
atmosphere) and requires no decompression.
At November 30, 1996, the Company employed approximately 400 divers,
tenders, and diving supervisors, supported by the Company's fleet of 20 DSVs
ranging in length from 65 to 210 feet and a 150-foot derrick barge with a
220-ton Manitowoc crane. The Company owns and operates seven remotely
operated vehicles ("ROVs"). Five of the Company's ROVs are observation ROVs,
which support its diving activities, and two are work ROVs outfitted with
manipulators to perform tasks in depths up to 3,000 feet. The Company owns
seven NEWTSUITs(TM), which are currently located in Australia, the North Sea,
the Gulf of Mexico, and Canada. The Company's offshore diving operations are
coordinated through regional staging facilities in the Port of Iberia and
Harvey, Louisiana; Houston, Texas; Oxnard, California; Dubai, United Arab
Emirates; and Port Harcourt, Nigeria.
The Company provides a variety of specialized inland diving services to
industrial and governmental customers. These services involve maintenance,
repair, and inspection of bridges, docks, piers, pipelines, and other inland
underwater structures and the inspection and maintenance of hydroelectric and
nuclear power plants. The Company also pursues primarily small to medium-
sized general construction projects requiring its underwater capabilities.
Inland operations are coordinated through regional staging facilities in
Houston, Texas; Kansas City, Kansas; and Columbus, Ohio.
The Company also provides environmental remediation and emergency
response services to customers operating in both inland and offshore markets.
The Company's services include spill containment and removal, remediation of
naturally occurring radioactive material, pit closure, bioremediation,
asbestos abatement services, and confined space entry activities.
Subsea Products
The Company manufactures and markets a patented line of subsea pipeline
connectors used in the construction and repair of underwater pipelines.
These connector products, known by the tradename "Big Inch," are available
worldwide for use in pipeline and flowline tie-ins and emergency repairs to
pipelines, flowlines, and risers. Big Inch products are marketed in
conjunction with the Company's subsea services and are also sold to third-
party installers.
The Company also manufactures and installs the Tarpon System, a
patented production system primarily used in offshore marginal field
development. A Tarpon System consists of underwater anchor-piles, a cable
guying assembly that supports a well-protector caisson, a boat landing and
related structures. This system is a cost-effective alternative to
traditional multi-leg platforms in water depths from 80 to 300 feet.
Hard Suits Acquisition
In November 1996, the Company acquired 97% of the outstanding common
stock of HSI for $11.8 million in cash through an unsolicited tender offer.
HSI's NEWTSUIT(TM) technology allows for manned diving in deep water without
saturation or decompression, which are otherwise required for manned deep
water diving. NEWTSUIT(TM) technology significantly reduces operating costs
associated with deep water projects due to the reduction in personnel and
time needed to complete such projects. The current NEWTSUIT(TM) is capable
of operations to water depths up to 1,200 feet. The Company intends to
manufacture the NEWTSUIT(TM) primarily for its own use and for sale to the
United States Navy and other navies. HSI has developed a suit capable of
operation at depths up to 2,000 feet and is working with the United States
Navy to produce a prototype. The Company is also considering the feasibility
of a one-atmosphere diving suit for deployment in shallower waters using HSI
technology. HSI also manufactures and markets the Remora(TM), a subsea
rescue vehicle for submarines.
Growth Strategy
Key elements of the Company's growth strategy are to continue to:
* Focus on Gulf of Mexico Market. The Company's Gulf of Mexico
operations will continue to be the Company's core business.
Since 1993, the Company has significantly increased the number
and capabilities of its DSVs in the Gulf of Mexico. The Company
believes it is well positioned to take advantage of opportunities
in the Gulf of Mexico market.
* Diversify Revenue Base. Over the past three years, the Company
has expanded its operations to inland markets, the West Coast
market, and select international markets, including West
Africa, Latin America, and the Middle East. Revenues from these
sources have increased substantially over the past three years,
from $12.3 million, or 23% of total revenue, in the twelve months
ended October 31, 1994 to $32.3 million, or 40% of total revenue,
for the nine months ended September 30, 1996.
* Provide Single-Source Solutions for Customers. Through expansion
of its fleet of DSVs and the broadening of its services and
products, the Company can offer total project management
services. Management believes this integrated approach
simplifies a customer's procurement process and reduces the
Company's dependence on third-party contractors.
* Expand Services and Products. By adding the Big Inch, Tarpon
Systems and NEWTSUIT(TM) products, the Company has significantly
broadened its capabilities and complemented its core subsea
services business. The Company intends to continue to expand its
services and products internally and through strategic
acquisitions.
____________________
In December, 1996, the Company announced that Rodney W. Stanley had
been promoted to serve as the Company's President and Chief Executive
Officer. Mr. Stanley had served as the Company's Vice President -
International Operations since August, 1996. Mr. Stanley has over 33 years
experience in the subsea services industries. From 1995 to 1996, he served as
President and Chief Executive Officer of HSI, which was acquired by the Company
in 1996. From 1986 to 1995, Mr. Stanley was President and Chief Executive
Officer of Sonsub, Inc., a provider of specialist subsea engineering and heavy
work class ROV services, which he founded in 1986. From 1969 to 1984, he held
various management positions at Divecon, Inc. and its successor, Oceaneering
International, Inc. George C. Yax, who had been President and Chief Executive
Officer, will continue as Chairman of the Board of the Company. See
"Management."
The Offering
Common Stock offered by the Company 2,502,315 shares<F1>
Common Stock offered by the Selling Stockholders 597,685 shares
Total Common Stock offered 3,100,000 shares<F1>
Common Stock to be outstanding after the Offering 9,313,497 shares<F1><F2>
Use of proceeds To repay debt, including debt
incurred to finance the acquisition
of HSI, and for working capital and
other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol DIVE
____________________
<F1> Does not include up to 465,000 shares that may be offered by the Company
pursuant to the Underwriters' over-allotment option.
<F2> Based on the number of shares outstanding on September 30, 1996. Does not
include 865,218 shares subject to stock options granted by the Company
under certain benefit plans, of which options for 170,800 shares are
currently exercisable.
The principal executive offices of the Company are located at 130 East
Kaliste Saloom Road, Lafayette, Louisiana 70508, and its telephone number is
(318) 234-4590. The Company plans to relocate its corporate headquarters to
the Houston, Texas area in 1997.
<PAGE>
Summary Consolidated Financial and Other Data
(In thousands, except per share and operating data)
</TABLE>
<TABLE>
<CAPTION>
Two Months Ended Nine Months Ended
Year Ended October 31, December 31, September 30,
_______________________ _________________ ____________________
1993 1994 1995 1994<F1> 1995<F1> 1995 1996
_______ _______ _______ _________ ________ _________ _________
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Diving and related revenues $ 51,023 $ 52,755 $ 88,660 $ 15,259 $ 15,486 $ 63,689 $ 79,466
Operating income (loss) 7,427 (220) 1,098 1,228 1,196 79 8,313
Nonrecurring charge<F2> (27,301) -- -- -- -- -- --
Income (loss) before income
taxes, minority interest
and discontinued operations (20,030) (264) (151) 1,091 994 (906) 8,160
Net income (loss) $(13,837)$ (1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
========= ========= ======== ======== ======== ========== ========
Net income (loss) per share $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
========= ========= ======== ======== ======== ========== ========
Weighted average common shares
outstanding 5,484 6,706 6,709 6,709 6,709 6,709 6,769
Pro forma net income (loss)<F3> $(5,630) $ 277
======== =========
Pro forma net income (loss) per
common share<F3> $ (.84) $ .04
======== =========
Other Data:
EBITDA<F4> $ 9,580 $ 3,195 $ 6,162 $ 2,027 $ 2,085 $ 3,875 $13,050
EBITDA margin<F4> 19% 6% 7% 13% 13% 6% 16%
Depreciation and amortization $ 2,153 $ 3,415 $ 5,064 $ 799 $ 889 $ 3,796 $ 4,737
Capital expenditures 8,287 17,824 7,884 315 322 7,559 15,757
expenditures
Operating Data:
Average number of dive crews
employed<F5> 112 180 212 208 227 230 243
Dive crew days<F6> 25,149 22,455 35,869 6,288 5,922 26,354 29,630
Number of DSVs at end of period 11 15 14 15 14 14 20
DSV days<F7> 2,227 2,376 2,831 527 443 1,714 2,402
DSV utilization<F8> 59% 49% 47% 58% 52% 43% 52%
<PAGE>
September 30, 1996
_________________________________________________
Historical Pro Pro Forma
Forma<F3> As Adjusted<F9>
Balance Sheet Data (at end of period):
Working capital $ 20,231 $ 6,730 $
Property, plant and equipment, net 31,731 37,731
Intangible assets 1,747 12,589
Total assets 72,999 91,350
Borrowings under line of credit agreement 4,033 16,483
Long-term debt, including current portion 10,000 10,765
Total stockholders' equity 44,965 44,965
____________________
<FN>
<F1>In June, 1996 the Board of Directors of the Company changed the Company's
fiscal year end from October 31, to December 31.
<F2>Nonrecurring, non-cash incentive compensation charge incurred at the time
of the Company's initial public offering, at which time forfeiture
restrictions applicable to stock previously awarded to Company employees
were eliminated.
<F3>The pro forma net income (loss) and pro forma net income (loss) per share
data for the year ended October 31, 1995 and the nine months ended
September 30, 1996 combine the results of the Company for the year ended
October 31, 1995 with that of HSI for the year ended December 31, 1995,
the most recent fiscal year of each company, and the data of both entities
for the nine months ended September 30, 1996, assuming the acquisition
occurred on November 1, 1994. The pro forma balance sheet combines the
historical statements of the two companies assuming the acquisition
occurred on September 30, 1996.
<F4>EBITDA is earnings before interest, taxes, depreciation and amortization.
EBITDA should not be considered as an alternative to net income as an
indication of the Company's operating performance or as an alternative to
cash flow as a better measure of liquidity. EBITDA margin represents
EBITDA divided by the Company's total revenues in that period.
<F5>A dive crew generally consists of (i) a diver and a tender (diver
trainee/assistant) or (ii) one diving supervisor.
<F6>A dive crew day is one calendar day during which one Company dive crew was
engaged in an active project, was in transit or was waiting on inclement
weather while under contract.
<F7>A DSV day is one calendar day in which one Company DSV is offshore
performing services, in transit or waiting on inclement weather while
under contract.
<F8>DSV utilization is DSV days expressed as a percentage of DSV capacity. DSV
capacity is the average number of DSVs available for operation in a given
period times the number of days in that period. The Company's maximum DSV
utilization is limited by the seasonality of offshore operations. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."
<F9>Adjusted to give effect to (i) the sale by the Company of 2,502,315 shares
of Common Stock, after deducting the underwriting discount and estimated
expenses payable by the Company and (ii) application of the net proceeds
to repay indebtedness. See "Use of Proceeds."
<PAGE>
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
Certain of the statements set forth under "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus, such as
planned capital expenditures and market opportunities, are forward-looking
and are based upon the Company's current belief as to the outcome and
timing of such future events. Many risks and uncertainties can affect
the outcome and timing of such events, including many factors beyond the
control of the Company. These factors include, but are not limited to,
the matters described in "Risk Factors." Should one or more of these
risks or uncertainties occur, or should underlying assumptions prove
incorrect, the Company's actual results and plans could differ materially
from those expressed in the forward-looking statements.
RISK FACTORS
Prospective purchasers of Common Stock should consider carefully the
following information, as well as the other information contained in this
Prospectus, before making an investment decision.
Cyclical Demand; Dependence on Energy Industry
The demand for the Company's offshore diving services has traditionally
been cyclical, depending on the condition of the oil and gas industry, and
specifically on the capital expenditures of oil and gas companies for
exploration and production activities. These capital expenditures are
influenced by oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering oil and gas, the sale and expiration
dates of offshore leases in the United States and other nations, the
discovery rate of new oil and gas reserves in offshore areas,
local and international political, regulatory and economic conditions and the
ability of oil and gas companies to generate capital. The Company believes
there has been a general increase in the level of exploration and production
activities in the Gulf of Mexico in recent years resulting from increases in
oil and gas prices, but the extent and duration of this condition is beyond
the control of the Company and will depend primarily upon worldwide oil and
gas prices and the capital expenditures of oil and gas companies for offshore
development. A significant or prolonged reduction in natural gas or oil
prices in the future would likely depress offshore drilling and development
activity, reduce the demand for the Company's services and could have a
material adverse effect on the Company's financial condition and results of
operations.
Operating Risks and Limitation of Insurance Coverage
The Company's operations involve a high degree of operational risk,
particularly of personal injuries, fines and costs imposed by government
agencies, product liability and warranty claims, and third party
consequential damage claims. The Company's diving and vessel operations
involve numerous hazards to divers, vessel crew members and equipment, and
result in a greater incidence of employee injury and death and equipment loss
and damage than occurs in many other service industries. Virtually all
employees engaged in the Company's offshore diving operations are covered by
provisions of the Jones Act, the Death on the High Seas Act and general
maritime law, which operate to exempt these employees from the limits of
liability established under worker's compensation laws and, instead, permit
them or their representatives to maintain actions against the Company for
damages or job related injuries, with no limitations on the Company's
potential liability. The Company's ownership and operation of vessels give
rise to large and varied liability risks, such as risks of collisions with
other vessels or structures, sinkings, fires and other marine casualties,
which can result in significant claims for damages against both the Company
and third parties for, among other things, personal injury, death, property
damage, pollution and loss of business. The Company's manufacturing
operations involve significant risks, particularly product liability and
warranty claims and installation risks. Company-manufactured products
installed in the past, as well as those to be installed in the future, could
give rise to such claims. The Company maintains insurance that it believes is
in accordance with general industry standards against the normal risks of its
operations. Such insurance, however, is subject to various exclusions, and
there can be no assurance that the Company's insurance policies will be
sufficient or effective under all circumstances or against all liabilities to
which the Company may be subject. Liabilities to customers and third parties
for claimed defects in products or damages caused by defective products
manufactured by the Company may be significant and are not insured to the
extent that they are in the nature of warranty claims or other claims based
on breach of contract, nor has the Company established substantial reserves
for such claims. A successful claim for which the Company is not fully
insured could have a material adverse effect upon the Company and its
financial condition. Moreover, no assurance can be given that the Company
will be able to maintain adequate insurance in the future at rates that it
considers reasonable or that all types of coverage will be available. See
"Business -- Insurance."
Availability of Divers
Divers require up to two years of diving school followed by two or more
years of apprenticeship and on-the-job training before they are considered
qualified to work as divers for the Company. With only six diving schools
producing diving graduates (a decrease from 12 in 1980), fewer divers are
available for employment. As a result, there can be no assurance that the
Company will have a supply of qualified divers sufficient to conduct and
expand the Company's diving operations. Although the terms and conditions of
employment of none of the Company's divers are determined by collective
bargaining with a union, there can be no assurance that the Company's divers
may not be subject to union organization attempts and collective bargaining
in the future. The Company believes that its ability to employ divers and
other employees not subject to a collective bargaining agreement is important
to its ability to compete successfully for diving work.
Contract Bidding Risks
A significant percentage of the Company's total revenues are derived
from contracts performed on a fixed-price basis, and this percentage is
expected to increase in the future. Fixed-priced contracts are inherently
risky because of the possibility of underbidding and the Company's assumption
of substantially all of the project's operational risks. The revenue, cost
and gross profit realized on such contracts often vary from the estimated
amounts for various reasons including, among others, changes in weather and
other job conditions and variation in labor and equipment productivity (such
as equipment failure) from original estimates. These variations and the risks
inherent in the diving and the inland marine construction industry can result
in reduced profitability or losses on fixed-price contracts. Moreover, when
demand for the Company's diving services decreases, the percentage of fixed-
price contracts may increase. Accordingly, the normal negative effects on the
Company's operations resulting from decreased demand can be exacerbated by an
increased percentage of fixed-price contracts. See "Business -- Customers and
Competition."
Effect of Adverse Weather Conditions; Seasonality
The Company's diving services -- both offshore and inland -- are often
curtailed when adverse weather conditions are present or anticipated. During
such periods of curtailed activity, the Company continues to incur operating
expenses, but revenues from operations are delayed or reduced. Weather
conditions during the winter months are generally adverse and substantially
curtail the Company's diving activities in the Gulf of Mexico and, to a
lesser but nevertheless substantial extent, in the inland waters of the
United States. Winter conditions typically begin in December and continue
until April, although in some years, can begin as early as late September and
continue through early May. Although adverse weather is more typical during
the winter months, operations can be curtailed by weather conditions at any
time, as has happened, for example, during extended periods when hurricanes
and tropical depressions are present or expected in the Gulf of Mexico.
Availability of DSVs
There has been no significant construction of vessels within the
worldwide marine support services industry since the early 1980s. As a
result, there is a shortage of both new and used DSVs and vessels convertible
into DSVs. Thus, the Company's ability to replace vessels or increase the
size of its DSV fleet through the purchase of new, used or converted vessels
may be significantly adversely affected by this shortage and any acquisition
may be cost prohibitive.
International Operations
The Company's international diving activities, which started in West
Africa in 1992, have continued to expand and play an increasingly important
role in Company operations. These international operations are subject to
additional risks, including the Company's relative inexperience in new
international markets, financial and political instability, civil unrest,
asset seizures or nationalization, currency restrictions, fluctuations and
revaluations, import-export restrictions, and tax and other regulatory
requirements. See "Business -- Diving and Related Services -- International
Diving Operations."
Dependence on Key Personnel
The Company's success depends on the continued active participation of
the Company's key officers and operating personnel. The loss of the services
of any one of these persons could have a material adverse effect upon the
Company. The Company does not hold key-man life insurance policies covering
any Company officer, nor does the Company have employment agreements or non-
competition agreements with any of its key officers or employees other than
Rodney W. Stanley, the Company's President and Chief Executive Officer. See
"Management."
Regulatory and Environmental Matters
The Company's DSVs and operations are subject to various types of
governmental regulation, including many federal, state and local
environmental protection laws and regulations, which are becoming
increasingly complex and stringent. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, the
Company's operations are affected by laws and regulations, as well as
changing taxes and policies, relating to the oil and gas industry generally.
Significant fines and penalties may be imposed for non-compliance, and
certain environmental laws impose joint and several "strict liability" for
remediation of spills and releases of oil and hazardous substances rendering
a person liable for environmental damage, without regard to negligence or
fault on the part of such person. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or
for acts of the Company which are in compliance with all applicable laws at
the time such acts were performed. The Company does not believe that
compliance with current environmental laws or regulations is likely to have a
material adverse effect on the Company's business or financial condition or
results of operations. See "Business -- Government Regulation."
Competition
The Company's business is highly competitive. Although some
consolidation has occurred in the Gulf of Mexico diving services industry in
recent years, the remaining companies aggressively compete for available
diving projects. While the Company believes that customers continue to
consider the quality of the supplier's services and equipment, price has
become an increasingly more important factor in the selection process. In
all of its operations, the Company competes with both large and small
companies, and certain of these competitors are larger and have greater
financial and other resources than the Company. Should the Company's
competitors develop and market services or products that are technologically
superior to those of the Company, the Company's ability to market its
services and products would be significantly impaired. In addition, it is
possible for an experienced individual in the industry who has at least
minimal contacts with customers and divers to begin a business that could
compete successfully with the Company, particularly with respect to smaller,
independent customers. See "Business -- Manufacturing -- Pipeline Connector
Products" and "Business -- Competition."
Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and By-laws, including, among
others, provisions allowing the Company's Board of Directors to issue
preferred stock, and certain provisions of the Louisiana Business Corporation
Law under which the Company is incorporated, may tend to deter potential
unsolicited offers or other efforts to obtain control of the Company that are
not approved by the Board of Directors. Such provisions may therefore
deprive the stockholders of opportunities to sell shares of the Common Stock
at prices higher than prevailing market prices. See "Description of Capital
Stock."
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and
intends for the near future to retain any earnings otherwise available for
dividends for the future operation and growth of the Company's business. In
addition, the Company's loan agreement restricts the payment of cash
dividends on its capital stock. See "Price Range of Common Stock and
Dividend Policy."
Limitation on Foreign Ownership
The Company's Articles of Incorporation contain limitations on the
percentage of outstanding Common Stock and other classes of securities that
can be owned by persons who are not United States citizens within the meaning
of certain statutes relating to the ownership of United States flag vessels.
Consistent with statutory requirements, the Articles of Incorporation
prohibit the ownership of more than 23% of the outstanding Common Stock by
persons other than United States citizens. The restrictions imposed by the
Company's Articles of Incorporation may at times preclude United States
citizens from transferring their Common Stock to persons other than United
States citizens. This may restrict the available market for resale of shares
of Common Stock and for the issuance of shares of Common Stock by the
Company. See "Business -- Government Regulation" and "Description of Capital
Stock -- Foreign Ownership."
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $ million (approximately $ million if the
Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discount and estimated expenses from the Offering payable by
the Company, assuming a public offering price of $_____ per share, the last
reported sales price of the Common Stock on the Nasdaq National Market on
____________, 1997.
The Company intends to use the net proceeds to repay long-term
indebtedness and all or a portion of its short-term indebtedness; any excess
proceeds will be used for general corporate purposes, including working
capital requirements and capital expenditures for the acquisition of
additional DSVs, equipment or businesses. Approximately $15.5 million was
outstanding under the Company's bank line of credit as of December 12,
1996, including $12.4 million incurred to complete the acquisition of HSI, and
$9.6 million was outstanding under its long-term note payable with a bank. The
indebtedness under the line of credit bears interest at a variable rate
(8.25% at December 12, 1996). The indebtedness under the long-term note
bears interest at the fixed rate of 7.9% and is due and payable on May 31,
2001. Until used, the Company intends to invest the remaining net proceeds
from the Offering in money market obligations, certificates of deposit or
short-term, interest-bearing securities.
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at September 30, 1996, (ii) the pro forma capitalization of the
Company at September 30, 1996 to give effect to the acquisition of HSI, and
(iii) such pro forma capitalization of the Company at September 30, 1996 as
adjusted to reflect the sale by the Company of the 2,502,315 shares of Common
Stock offered hereby at an assumed public offering price of $_____ per share
and the use of the proceeds thereof as described in "Use of Proceeds." The
table set forth below should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto, the pro forma
financial statements giving effect to the acquisition of HSI, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
September 30, 1996
____________________________________
Pro Forma
Pro As
Historical Forma Adjusted
__________ _______ ____________
(In thousands)
Long-term debt, less current $ 8,500 $ 8,972 $
portion
Stockholders' equity:
Preferred stock, no par value;
5,000,000 shares
authorized; none issued -- --
Common stock, no par value;
30,000,000 shares
authorized; 6,811,182
issued and outstanding at
stated value; 9,311,182
shares issued and
outstanding at stated value
as adjusted 1,368 1,368
Additional paid-in capital 41,548 41,548
Foreign currency translation
adjustments (131) (131)
Retained earnings 2,180 2,180
____________ ___________ ___________
Total stockholders' equity 44,965 44,965
____________ ___________ ___________
Total capitalization $ 53,465 $53,937 $
============ =========== ===========
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company commenced trading on the Nasdaq National
Market under the symbol "DIVE" on July 21, 1993. The following table
presents high and low bid quotes for the Company's Common Stock as reported
by the NASDAQ National Market for each fiscal quarter and interim period
since trading began on July 21, 1993. In 1996, the Company changed the end
of its fiscal year from October 31 to December 31.
High Low
_________ _________
Quarter Ended:
______________
July 31, 1993<F1> $ 9.750 $9.000
October 31, 1993 12.500 9.250
Quarter Ended:
_______________
January 31, 1994 12.250 8.375
April 30, 1994 10.250 7.250
July 31, 1994 9.750 6.500
October 31, 1994 7.500 6.000
Quarter Ended:
_______________
January 31, 1995 7.000 5.375
April 30, 1995 6.750 5.500
July 31, 1995 6.750 5.750
October 31, 1995 6.313 5.375
Transition Period:
___________________
November 1, 1995 to
December 31, 1995 7.875 5.625
Quarter Ended:
___________________
March 31, 1996 8.750 6.750
June 30, 1996 11.000 8.125
September 30, 1996 11.375 8.125
Current Period:
___________________
October 1, 1996 to
December ___, 1996
____________________
<F1> Prices are for the period July 21 to July 31, 1993.
____________________
On January __, 1997, the last reported sales price of the Common Stock
on the Nasdaq National Market was $_____ per share. At November 30, 1996,
the Company had approximately 1,500 holders of its Common Stock, including
record holders and individual participants in security position listings.
The Company has not paid cash dividends on its Common Stock since its
inception. The Board of Directors does not anticipate payment of any cash
dividends in the near future and intends to continue its present policy of
retaining earnings for reinvestment in the operations of the Company. The
amended and restated loan agreement between the Company and its lending bank
restricts the Company's payment of dividends for any fiscal quarter to 15% of
the average of quarterly net income of the Company for the immediately
preceding four fiscal quarters.
<PAGE>
DILUTION
At September 30, 1996, the Company's net tangible book value was $43.2
million, or $6.35 per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing the tangible net worth (total
tangible assets of the Company less liabilities) by 6,811,182 shares, the
total number of shares of Common Stock outstanding prior to the consummation
of this Offering. Such net tangible book value, adjusted to reflect the sale
of the 2,502,315 shares of Common Stock being offered by the Company at an
assumed public offering price of $________ per share and after deducting the
underwriting discount and estimated expenses of the Offering to be paid by
the Company, is $________ million, or $________ per share. This represents an
immediate increase in net tangible book value of $________ per share to
current holders of Common Stock and an immediate dilution of approximately
$________ per share to the purchasers of the Common Stock offered hereby.
Dilution is determined by subtracting the pro forma net tangible book value
per share of Common Stock after the Offering from the public offering price.
The following table illustrates this per share dilution to new
investors:
Public offering price per share $________
Net tangible book value per share before the Offering $6.35
Increase per share attributable to new investors $_____
Pro forma net tangible book value per share after the
Offering<F1> $________
Dilution per share to new investors<F1> $
========
________________
<F1>If the Underwriters' over-allotment option is exercised in full, pro forma
net tangible book value per share would be $_____, representing dilution
to new investors of $_____ per share.
The above computations do not give effect to the 865,218 shares
issuable upon exercise of stock options granted by the Company under certain
benefit plans. To the extent any such stock options are exercised in the
future at an exercise price less than the offering price, there will be
further dilution to new investors.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
in conjunction with the consolidated financial statements of the Company and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
In June, 1996, the Board of Directors of the Company changed the Company's
fiscal year end from October 31 to December 31 so as to report its quarterly
and annual results of operations on a comparable basis with other companies
in the oil and gas industry. The following historical selected consolidated
financial data at and for each of the five fiscal years ended October 31,
1995, and at and for the two months ended December 31, 1995, are derived from
the consolidated financial statements of the Company, which have been audited
by the Company's independent accountants. The historical selected financial
data for the two months ended December 31, 1994, the nine months ended
September 30, 1995, and at and for the nine months ended September 30,
1996, are derived from unaudited consolidated financial statements of the
Company that, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations as of such
dates and for such periods. Due to the seasonality of the Company's
business, the results of operations for the nine-month period ended September
30, 1996, are not necessarily indicative of the results expected to be achieved
during the entire fiscal 1996 year.
</TABLE>
<TABLE>
<CAPTION> Two Months Ended Nine Months Ended
Year Ended October 31, December 31, September 30,
_______________________________________________ ________________ __________________
1991 1992 1993 1994 1995 1994 1995 1995 1996
_________ _________ _________ ________ ________ ________ _______ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Diving and related
revenues $ 41,032 $ 36,875 $ 51,023 $ 52,755 $ 88,660 $ 15,259 $ 15,486 $ 63,689 $ 79,466
Diving and related
expenses 23,755 22,084 30,635 35,338 63,180 10,359 10,346 45,486 51,657
Selling, general
and administrative
expense 9,977 8,303 10,808 14,222 19,318 2,873 3,055 14,328 14,759
Depreciation and
amortization 1,571 1,650 2,153 3,415 5,064 799 889 3,796 4,737
_________ _________ _________ ________ _______ ________ ________ _______ __________
Operating income (loss)5,729 4,838 7,427 (220) 1,098 1,228 1,196 79 8,313
Nonrecurring charge<F1> -- -- (27,301) -- -- -- -- -- --
Interest expense 455 277 341 297 1,377 182 220 1,075 817
__________ _________ ________ ________ ________ ________ ________ ________ __________
Income (loss)
before income
taxes,
minority
interest and
discontinued
operations 5,916 4,834 (20,030) (264) (151) 1,091 994 (906) 8,160
Provision for
income taxes 1,999 1,565 (6,777) 75 62 480 420 (280) 3,470
Minority interest
in loss of
subsidiary -- -- 54 82 (116) -- -- -- --
Loss from
discontinued
operations,
net of tax -- (555) (638) (1,696) -- -- -- -- --
__________ _________ ________ ________ ________ ________ ________ ________ __________
Net income (loss) $ 3,917 $ 2,714 $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) 4,690
========== ========= ======== ======== ======== ======== ======== ======== ==========
Earnings (loss)
per share $ .82 $ .54 $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
========== ========= ======== ======== ======== ======== ======== ======== ==========
Weighted average
shares
outstanding 4,779 5,044 5,484 6,706 6,709 6,709 6,709 6,709 6,769
Pro Forma Data:
Pro forma net
income(loss)<F2> (5,630) 277
======= =========
Pro forma net income
per share<F2> $ (.84) $ .04
Supplemental net
income per share
======== =========
Other Data:
EBITDA<F3> $ 7,300 $ 6,488 $ 9,580 $3,195 $ 6,162 $ 2,027 $2,085 $3,875 $13,050
EBITDA margin<F3> 18% 18% 19% 6% 7% 13% 13% 6% 16%
</TABLE>
<TABLE>
October 31, December 31, September 30, 1996
________________________________________________ __________ ______________________________
Pro
Forma
as
1991 1992 1993 1994 1995 1995 Historical Adjusted<F2><F4>
__________ _________ ________ __________ _________ _________ ____________ ________________
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
(at end of period):
Working capital $ 6,639 $ 8,366 $ 26,362 $ 14,087 $ 14,067 $ 15,898 $ 20,231 $
Property, plant
and equipment, net 7,540 8,693 14,659 24,424 26,079 25,550 31,731
Intangible assets
Total assets 21,971 26,068 47,601 61,607 69,408 63,921 72,999
Borrowings under
line of credit
agreement 1,502 1,772 -- 4,830 7,300 7,875 4,033
Long-term debt,
including current
portion 3,188 3,333 121 7,931 7,121 6,788 10,000
Total stockholders'
equity 11,478 14,168 41,099 39,327 38,989 39,555 44,965
________________
<FN>
<F1> Nonrecurring, non-cash incentive compensation charge incurred at the
time of the Company's initial public offering, at which time forfeiture
restrictions applicable to stock previously awarded to Company
employees were eliminated.
<F2> Gives effect to the acquisition of HSI. The pro forma net income
(loss) and pro forma net income (loss) per share data for the year
ended October 31, 1995 and the nine months ended September 30, 1996
combine the results of the Company for the year ended October 31, 1995
with that of HSI for the year ended December 31, 1995, the most recent
fiscal year of each company, and the data of both entities for the nine
months ended September 30, 1996, assuming the acquisition occurred on
November 1, 1994. The pro forma balance sheet combines the historical
statements of the two companies assuming the acquisition occurred on
September 30, 1996.
<F3> EBITDA is earnings before interest, taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to net
income as an indication of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity. EBITDA
margin represents EBITDA divided by the Company's total revenues in
that period.
<F4> Adjusted to give effect to (i) the sale by the Company of 2,502,315
shares of Common Stock, after deducting the underwriting discount and
estimated expenses payable by the Company and (ii) application of the
net proceeds to repay indebtedness. See "Use of Proceeds."
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results
of operations, historical financial resources and working capital, and income
taxes should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto included in this Prospectus.
In June, 1996, the Board of Directors of the Company changed the
Company's fiscal year end from October 31 to December 31 so as to report its
quarterly and annual results of operations on a comparable basis with other
companies in the oil and gas industry. As a result of this change in year
end, the following discussion includes the three fiscal years ended October
31, 1993, 1994 and 1995; the two-month transition periods ended December 31,
1994 and 1995; and the nine-month interim periods ended September 30, 1995
and 1996.
Overview
The Company's operations are affected by a number of factors, the most
significant of which is the offshore oilfield services industry in the Gulf
of Mexico, especially the timing of capital expenditures by oil and gas
companies. These capital expenditures are influenced by oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the sale and expiration dates of offshore leases in
the United States and international markets, the discovery rate of new
oil and gas reserves in offshore areas, local, state, federal and
international political, regulatory and economic conditions, and the ability
of oil and gas companies to generate capital, all of which are beyond the
control of the Company. Natural gas factors have a greater effect on the
operation of the Company than oil factors because a majority of the production
in the Gulf of Mexico is natural gas.
The Company's results of operations will generally vary from reporting
period to reporting period depending in large part on the location and type
of work being performed, the mix of the marine services being performed, the
season of the year and the job conditions encountered. The diving industry
is highly seasonal as a result of the weather conditions that affect the
timing of platform and pipeline construction and other diving related
activities of oil and gas companies in the Gulf of Mexico, and the inland
activities of the Company's customers. The winter conditions that are
generally present from December through April substantially reduce the work
that could otherwise be performed by the Company's dive crews and limit the
use of the Company's DSVs stationed in the Gulf of Mexico. Although adverse
weather conditions occurring from time to time from May through November may
also adversely affect vessel use and diving operations, historically a
disproportionate amount of the Company's diving services have been performed
during this period. The Company expects a higher concentration of its total
revenues and net income to be earned during the third (July through
September) and fourth (October through December) quarters of its fiscal year
compared to the first (January through March) and second (April through June)
quarters. The Company expects the winter weather patterns to continue to
have an adverse effect on the Company's Gulf of Mexico and inland diving
operations.
In general, large, complex underwater inland diving projects are
awarded on a fixed price basis. With such projects, contract revenues are
recognized on a percentage of completion basis for individual contracts based
on the ratio of costs incurred to total estimated costs at completion.
Contract price and cost estimates are reviewed periodically as work
progresses and adjustments proportionate to the percentage of completion are
reflected in contract revenues and gross profit in the reporting period when
such estimates are revised. All known or anticipated losses on contracts are
provided for currently. At September 30, 1996, the Company accounted for 14
contracts ($836,000 or 10% of unbilled revenue at September 30, 1996) using
the percentage of completion method. If the Company continues to expand its
operations in the inland market and the number of turnkey projects in the
Gulf of Mexico awarded to the Company increases, the Company believes that a
greater proportion of its inland and Gulf of Mexico diving contracts will be
accounted for using the percentage of completion accounting method.
Results of Operations
The Company analyzes the results of its operations by separating them
into four geographic and product markets: (i) Gulf of Mexico diving and
related services, derrick barge services, and environmental remediation and
emergency oil spill response services ("Gulf Services"); (ii) all diving and
related services performed outside the United States and its coastal waters,
except Latin America ("International Services"); (iii) diving and related
services off the United States West Coast, inland within the United States
and in the coastal waters off Latin America ("Inland and West Coast
Services"); and (iv) Big Inch pipeline connectors and Tarpon Systems
marginal well production systems products ("Subsea Products"). The following
table sets forth, for the periods indicated, additional information on the
operating results of the Company in each of those four markets:
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Two Months Ended Nine Months Ended
Year Ended October 31, December 31, September 30,
_________________________________ _______________________ _______________________
1993 1994 1995 1994 1995 1995 1996
___________ __________ __________ ___________ ___________ __________ ____________
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Gulf Services
Diving and related revenues $ 39,306 $ 35,733 $ 49,522 $ 9,463 $ 9,929 $ 35,369 $ 40,735
Diving and related expenses 23,779 24,887 37,362 6,087 6,888 27,130 26,874
___________ __________ ___________ ___________ ___________ __________ ____________
Gross profit 15,527 10,846 12,160 3,376 3,041 8,239 13,861
Gross profit percentage 39.5% 30.4% 24.6% 35.7% 30.6% 23.3% 34.0%
International Services
Diving and related revenues $ 5,489 $ 3,889 $ 17,079 $ 1,350 $ 924 $ 14,071 $ 6,202
Diving and related expenses 3,291 2,545 11,318 1,077 595 8,862 4,286
___________ __________ ____________ __________ ___________ ___________ ___________
Gross profit 2,198 1,344 5,761 273 329 5,209 1,916
Gross profit percentage 40.0% 35.0% 33.7% 20.2% 35.6% 37.0% 30.9%
Inland and West Coast Services
Diving and related revenues $ 1,632 $ 8,439 $14,539 $ 3,268 $ 3,909 $ 8,402 $ 26,127
Diving and related expenses 1,078 5,619 10,114 2,528 2,488 6,194 17,118
___________ __________ ____________ __________ ___________ ___________ ___________
Gross profit 554 2,820 4,425 740 1,421 2,208 9,009
Gross profit percentage 33.9% 33.4% 30.4% 22.6% 36.4% 26.3% 34.5%
Subsea Products
Diving and related revenues $ 4,596 $ 4,694 $ 7,520 $ 1,178 $ 724 $ 5,847 $ 6,402
Diving and related expenses 2,487 2,287 4,386 667 375 3,300 3,379
___________ __________ ____________ __________ ___________ ___________ ___________
Gross profit 2,109 2,407 3,134 511 349 2,547 3,023
Gross profit percentage 45.9% 51.3% 41.7% 43.4% 48.2% 43.6% 47.2%
Total
Diving and related revenues $ 51,023 $52,755 $88,660 $15,259 $15,486 $63,689 $79,466
Diving and related expenses 30,635 35,338 63,180 10,359 10,346 45,486 51,657
____________ __________ __________ __________ ___________ __________ ___________
Gross profit 20,388 17,417 25,480 4,900 5,140 18,203 27,809
Gross profit percentage 40.0% 33.0% 28.7% 32.1% 33.2% 28.6% 35.0%
</TABLE>
For additional information concerning the operations of the Company in
geographic areas, see note 11 to the financial statements of the Company
included in this Prospectus.
The following table sets forth for the periods indicated certain
consolidated income statement data expressed as a percentage of consolidated
revenues.
<TABLE>
<CAPTION>
Two Months Nine Months
Ended Ended
Year Ended October 31, December 31, September 30,
_______________________ _______________ _______________
1993 1994 1995 1994 1995 1995 1996
_______ _______ ________ _______ _______ ________ _______
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of consolidated
revenues:
Selling, general and
administrative
expenses 21.2% 27.0% 21.8% 18.8% 19.7% 22.5% 18.6%
Depreciation and
amortization 4.2 6.5 5.7 5.2 5.7 6.0 6.0
Operating income (loss) 14.6 (.4) 1.2 8.0 7.7 .1 10.5
Stock compensation
expense 53.5 --- --- --- --- --- ---
Income (loss) from
continuing
operations before
income taxes and
minority interest (39.2) (.5) (.2) 7.2 6.4 (1.4) 10.3
Income (loss) from
continuing
operations (25.9) (6.9) (.4) 4.0 3.7 (1.0) 5.9
Net income (loss) (27.1) (3.7) (.4) 4.0 3.7 (1.0) 5.9
</TABLE>
In the fiscal year ended October 31, 1995, and continuing into the
first nine months of 1996, the Company has continued to experience
significant growth in its operations and related revenues. Although the
Company has experienced increased levels of activity, there can be no
assurances that they will continue. Factors contributing to the increased
activity include the following:
First, the oil and gas industry in the Gulf of Mexico has
continued to strengthen resulting in an increase in both the
demand and the day rates charged for the Company's divers and
DSVs. The improved industry trends have also contributed to
increased demand for the Company's subsea pipeline connector
products and derrick barge services in the Gulf of Mexico. The
Company anticipates that this trend will continue as long as
supply and demand fundamentals for oil and gas and demand for
infrastructure-related projects remain strong in the Gulf of
Mexico.
Second, the activity level of Inland and West Coast
Services has increased substantially primarily due to improved
bidding and estimating processes, and the Company's ability to
obtain large turnkey projects such as the approximately $15
million Chevron platform abandonment project, which was completed
in 1996, and the approximately $8 million Port of Brownsville
project, which is expected to be completed in late 1997.
Although no assurances can be given that the Company will obtain
projects of a size similar to the Chevron platform abandonment and
Port of Brownsville projects, the Company believes it has
positioned itself to bid on competitive projects of similar size
and scope going forward.
Although the revenue and activity level of International Services were
significant in fiscal 1995, this was due primarily to the installation of a
Tarpon System off the Ivory Coast. Revenue and activity levels returned to a
more stable level during 1996.
The Company's profitability improved substantially from 1995 to 1996
due primarily to the non-recurrence of several adverse factors that gave rise
to losses in 1995.
First, the Company experienced cost overruns and losses on
certain nonrecurring turnkey diving projects in the Gulf of
Mexico and Dubai aggregating approximately $1.5 million. The
Company identified the causes of these problems and, in response,
has implemented new project management and bidding procedures.
Second, the pipelay/bury barge "American Enterprise"
recorded an operating loss of approximately $1.5 million in
fiscal 1995 due to low use and lower than expected gross profit
margins, both of which adversely affected the Company's overall
gross profit margins. After evaluating "American Enterprise's"
results of operations, the Company sold the barge on March 1,
1996 for $5,400,000, resulting in a nonrecurring gain in the
first quarter of 1996.
Third, the inland operations recorded an operating loss of
approximately $660,000 in fiscal 1995. This loss was
attributable primarily to low revenue levels in the first and
second quarters of fiscal 1995 coupled with the fixed costs of
developing the inland market and lower than expected gross profit
margins on the larger construction projects, which involve a
relatively high percentage of third party costs. The Company
believes a portion of the inland diving market is sensitive to
similar weather patterns affecting the Gulf of Mexico diving
market. However, during the latter half of 1995 and continuing
into the first nine months of 1996, the inland operations
experienced high activity levels and was profitable. Further,
the Company believes the inland diving market can reduce the
Company's overall dependence on the oil and gas industry, which
is subject to several external factors as previously described.
During the first six months of 1996, the Company acquired four DSVs and
certain diving assets to be used in its Gulf of Mexico diving operations. In
July, 1996, the Company acquired the "American Pioneer" (formerly the
"Northern Surveyor"), a 200-foot dynamically positioned vessel dedicated to
supporting work-class ROVs. In August, 1996, the Company acquired the
"American Recovery" (formerly the "Recovery One"), a 150-foot tug/diving
support vessel to support its West Coast operations.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Diving and related revenues. The Company's consolidated revenues
increased 25%, from $63.7 million for the nine months ended September 30,
1995 to $79.5 million for the nine months ended September 30, 1996. The
difference between these two amounts is due primarily to the following
increases: (i) approximately $17.7 million was attributable to increased
activity by Inland and West Coast Services, approximately $14.4 million of
which resulted from the Chevron platform abandonment project off the coast
of California; (ii) approximately $6.7 million was attributable to
increased diving and vessel activity in the Gulf of Mexico; (iii) approximately
$2.4 million was attributable to the operations of the "American Intrepid,"
the Company's jack-up derrick barge, which was not operational for the entire
nine months ended September 30, 1995; and (iv) approximately $1.8
million was attributable to increased sales of the Company's subsea pipeline
connector products. The increase in revenue was offset by certain revenue
decreases, including (i) approximately $3.8 million attributable to the
"American Enterprise," the Company's pipelay/bury barge that was sold on March
1, 1996, (ii) approximately $7.9 million attributable to International
Services, primarily as a result of decreased activity in Nigeria,
and (iii) approximately $1.3 million attributable to decreased demand for
the Company's Tarpon Systems.
Diving and related expenses. The Company's diving and related expenses
increased 14%, from $45.5 million for the nine months ended September 30,
1995 to $51.7 million for the nine months ended September 30, 1996. The
difference between these two amounts is due primarily to the following
increases: (i) approximately $10.9 million was attributable to increased
activity by Inland and West Coast Services, approximately $7.7 million of
which resulted from the Chevron platform abandonment project off the coast
of California; (ii) approximately $2.6 million was attributable to increased
diving and vessel activity in the Gulf of Mexico; (iii) approximately $2.4
million was attributable to the operations of the "American Intrepid,"
the Company's jack-up derrick barge, which was not operational for the entire
nine months ended September 30, 1996; and (iv) approximately $1.1
million was attributable to increased sales of the Company's subsea pipeline
connector products. The increase in expenses was offset by certain expense
decreases, including (i) approximately $5.2 million attributable to the
"American Enterprise," the Company's pipelay/bury barge that was sold
on March 1, 1996, (ii) approximately $4.6 million attributable to the
International Services, primarily as a result of decreased activity
in Nigeria, and (iii) approximately $1.0 million attributable to decreased
demand for the Company's Tarpon Systems.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 3%, from $14.3 million for the nine months
ended September 30, 1995 to $14.7 million for the nine months ended September
30, 1996. The increase was attributable to (i) a $148,000 increase in the
selling, general and administrative expenses of International Services
primarily as a result of supporting the activities of the operations and
sales office in Dubai, which did not have full operations for the entire
first nine months of fiscal 1995, and (ii) $125,000 in severance paid in
connection with personnel layoffs during the three months ended March 31,
1996. Although there was an overall increase in the level of selling,
general and administrative expenses during the nine months ended
September 30, 1996, selling, general and administrative expenses as a
percentage of revenues decreased from 22.5% for the nine months ended
September 30, 1995 to 18.6% for the nine months ended September 30, 1996.
Depreciation and amortization. Depreciation and amortization increased
25%, from $3.8 million for the nine months ended September 30, 1995 to $4.7
million for the nine months ended September 30, 1996. The increase includes
a pretax charge of $500,000, $290,000 after tax, attributable to the
implementation of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," (SFAS 121) effective January 1, 1996. The charge is
included in depreciation and amortization in the consolidated statement of
operations for the nine months ended September 30, 1996. The remaining
increase of $441,000 was attributable to additions and improvements to the
Company's operational and administrative assets primarily in Gulf Services
and International Services, offset by a reduction in depreciation expense of
the "American Enterprise," which was sold on March 1, 1996.
Operating income. For the nine months ended September 30, 1996,
operating income was $8.3 million compared to operating income of $79,000 for
the nine months ended September 30, 1995. The significant change in
operating income was due primarily to an overall increase in the Company's
gross profit margin for reasons described above from $18.2 million, or 28.6%,
in the first nine months of 1995 to $27.8 million, or 35.0%, in the first
nine months of fiscal 1996. This improved gross profit margin for the nine
months ended September 30, 1996 was offset slightly by increases in both
selling, general and administrative expenses and depreciation and
amortization.
Other income (expense). For the nine months ended September 30, 1996,
other expense (net) of $153,000 was comprised of interest expense of
$817,000, which was offset by a net gain on disposal of assets of $531,000
and other income of $133,000. The net gain on the disposal of assets
includes the non-recurring gain on the sale of the "American Enterprise"
offset by losses on the disposal of other fixed assets. This compares to
other expense (net) of $985,000 in the comparable period of fiscal 1995,
which was comprised of interest expense of $1,075,000, and a loss on the
disposal of assets of $125,000, offset by other income of $215,000.
Net income (loss). As a result of the conditions discussed above, the
Company recorded net income of $4.7 million, or $.69 per share, in the nine
months ended September 30, 1996, compared to a net loss of $626,000, or
($.09) per share, in the nine months ended September 30, 1995.
Two Months Ended December 31, 1995 Compared to Two Months Ended December 31,
1994
Diving and related revenues. The Company's consolidated revenues
increased 1%, from $15.3 million in the two months ended December 31, 1994 to
$15.5 million in the two months ended December 31, 1995. The $227,000
increase in revenues was comprised of (i) an increase of approximately
$640,000 attributable to increased diving activity by Inland and West Coast
Services; (ii) an increase of approximately $1.0 million attributable to the
operations of the "American Intrepid," the Company's jack-up derrick barge;
(iii) a decrease of $393,000 attributable to the operations of the "American
Enterprise," the Company's pipelay/bury barge, which was sold on March 1,
1996; (iv) a decrease of $426,000 attributable to the diving activity of
International Services; and (v) a decrease of $454,000 attributable to
decreased subsea products sales.
Diving and related expenses. The Company's diving and related expenses
decreased 1%, from $10.4 million in the two months ended December 31, 1994 to
$10.3 million in the two months ended December 31, 1995. The $14,000
decrease in expenses was comprised of (i) an increase of approximately
$40,000 attributable to increased diving activity by Inland and West Coast
Services; (ii) an increase of approximately $1.0 million attributable to the
operations of the "American Intrepid," the Company's jack-up derrick barge;
(iii) a decrease of $278,000 attributable to the operations of the "American
Enterprise," the Company's pipelay/bury barge, which was sold on March 1,
1996; (iv) a decrease of $481,000 attributable to the diving activity of
International Services; and (v) a decrease of $291,000 attributable to
decreased subsea products sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 6%, from $2.9 million for the two months
ended December 31, 1994 to $3.1 million for the two months ended December 31,
1995. This increase was primarily due to a $127,000 increase in expenses
attributable to supporting the activities of the operations and sales office
in Dubai for the two months ended December 31, 1995. This office did not
have full operations in the same period of 1994. Although there was an
overall increase in the level of selling, general and administrative expenses
during the two months ended December 31, 1995, these expenses, as a
percentage of revenues, increased less than 1.0%, from 18.8% for the two
months ended December 31, 1994 to 19.7% for the two months ended December 31,
1995.
Depreciation and amortization. Depreciation and amortization increased
11%, from $799,000 in the two months ended December 31, 1994 to $889,000 for
the two months ended December 31, 1995. The increase was attributable to
additions and improvements to the Company's operational and administrative
assets primarily in Gulf Services and International Services.
Operating income. Operating income decreased from $1,228,000 for the
two months ended December 31, 1995 to $1,196,000 for the two months ended
December 31, 1994. The slight decrease was due to the increase in selling,
general and administrative expenses and depreciation and amortization
expenses for the two months ended December 31, 1995 as described above.
Other income (expense). For the two months ended December 31, 1995,
other expense (net) of $202,000 was comprised of interest expense of
$220,000, offset by miscellaneous other income items totaling $18,000. This
compares to other expense (net) of $137,000 in the comparable two-month
period ended December 31, 1994, which was comprised of interest expense of
$183,000, offset by miscellaneous other income items of $46,000.
Net income. As a result of the conditions discussed above, the Company
recorded net income of $574,000, or $.09 per share, in the two months ended
December 31, 1995, compared to net income of $611,000, or $.09 per share, in
the two months ended December 31, 1994.
Twelve Months Ended October 31, 1995 Compared to Twelve Months Ended October
31, 1994
Diving and related revenues. The Company's total revenues increased
68%, from $52.8 million in fiscal 1994 to $88.7 million in fiscal 1995. Of
the $35.9 million increase, (i) $13.2 million was attributable to increased
diving activity of International Services, primarily in West Africa, (ii)
$8.3 million was attributable to increased diving and vessel activity in the
Gulf of Mexico, (iii) $10.5 million was attributable to the results of
operations of assets acquired and operations established in fiscal 1994 that
were not operational for the entire year of fiscal 1994, and (iv) $1.9
million was attributable to the operations of the "American Intrepid," the
Company's new jackup derrick barge. Of the $10.5 million increase from the
Company's expanded operations, $3.1 million was from pipelay/bury barge
operations, $5.1 million was due to activity of Inland and West Coast
Services, $1.8 million was from Tarpon Systems operations, and $565,000 was
from environmental remediation and oil spill response operations.
Diving and related expenses. Diving and related expenses in fiscal
1995 increased 79%, from $35.3 million in fiscal 1994 to $63.2 million in
fiscal 1995. Of the $27.9 million increase, (i) $8.8 million was
attributable to the increased diving activity of International Services
primarily in West Africa, (ii) $6.3 million was attributable to the increased
diving and vessel activity in the Gulf of Mexico, (iii) $10.0 million was
attributable to the expanded operations discussed above, and (iv) $1.3
million was attributable to the derrick barge operations. Of the $10.0
million increase from the Company's expanded operations, $4.4 million was
from pipelay/bury barge operations, $3.7 million was from Inland and West
Coast Services, $1.5 million was from Tarpon Systems operations, and $434,000
was from environmental remediation and oil spill response operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 36%, from $14.2 million in fiscal 1994 to
$19.3 million in fiscal 1995. Approximately $2.6 million, or 52% of the
increase, was attributable to supporting the assets acquired and operations
established during fiscal 1994. Although there was an overall increase in
the level of selling, general and administrative expenses during the fiscal
year, these expenses as a percentage of total revenues decreased from 27.0%
in fiscal 1994 to 21.8% in fiscal 1995. In fiscal 1995, the Company
introduced a number of measures to reduce its selling, general and
administrative costs.
Depreciation and amortization. Depreciation and amortization expenses
increased 48%, from $3.4 million in fiscal 1994 to $5.1 million in fiscal
1995. Of the $1.7 million increase, approximately $1.1 million was
attributable to depreciation of assets acquired and operations established
during fiscal 1994. The remainder of the increase was attributable to
additions and improvements to the Company's operational and administrative
assets.
Operating income (loss). For fiscal 1995, the Company recorded
operating income of approximately $1.1 million compared to an operating loss
of approximately $220,000 in fiscal 1994. The increase in operating income
was primarily due to substantial increases in the Company's total revenues
offset by several factors that adversely affected the Company's combined
gross profit percentage. These factors include losses on certain turnkey
projects, the operating losses on the American Enterprise, and the operating
loss of the inland diving operations, all of which were previously described.
Other income (expense). For fiscal 1995, other expense (net) of
$1,249,000 was comprised of interest expense of $1,377,000, a loss of
$130,000 on the disposal of fixed assets, and other income of $258,000. This
compares to other expense (net) of $44,000 for fiscal 1994, which was
comprised of interest expense of $297,000, a gain on the disposal of fixed
assets of $21,000, and other income of $232,000. The increase in interest
expense in 1995 was due primarily to increased average borrowings under the
Company's revolving line of credit during the year compared to fiscal 1994.
In addition, fiscal 1995 interest expense includes a discount of $159,000 on
the sale of notes receivable during the year.
Net loss. As a result of the conditions discussed above, the Company
recorded a net loss of $329,000, or $.05 per share, for fiscal 1995 compared
to a net loss of $1,953,000, or $.29 per share, for fiscal 1994.
Twelve Months Ended October 31, 1994 Compared to Twelve Months Ended October
31, 1993
Diving and related revenues. For fiscal 1994, the Company's total
revenues increased 3%, from $51.0 million in fiscal 1993 to $52.8 million in
fiscal 1994. The increase was due primarily to the addition of $12.6 million
of revenues attributable to the results of operations of assets acquired and
operations established in 1994 of which $4.9 million was attributable to the
pipelay/bury barge operations and $6.3 million was attributable to Inland and
West Coast Services. The increase was partially offset by a $9.0 million
revenue decrease in diving and vessel activity in the Gulf of Mexico compared
to the prior year and a $1.6 million revenue decrease in International
Services, compared to the prior year due primarily to the interruption in
diving activity in Nigeria caused by political instability. This decrease in
Gulf of Mexico activity was partially offset by a strong fiscal 1994 fourth
quarter demand for the Company's Gulf of Mexico dive crews and DSVs.
Diving and related expenses. Diving and related expenses in fiscal
1994 increased 15%, from $30.6 million in fiscal 1993 to $35.3 million in
fiscal 1994. Of the $4.7 million increase, $8.8 million was due to expenses
related to the Company's expanded operations. Specifically, $4.0 million was
attributable to the pipelay/bury barge operations and $4.0 million was
attributable to Inland and West Coast Services. The increase was partially
offset by a $3.2 million decrease in expenses related to diving and vessel
activity in the Gulf of Mexico and a $747,000 decrease in diving and related
expenses of International Services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 31.6%, from $10.8 million in fiscal 1993 to
$14.2 million in fiscal 1994. The increase was attributable primarily to the
addition of the expanded operations and to increased expenses related to the
administration of these operations. Selling, general and administrative
expenses increased as a percentage of total revenues from 21.2% in fiscal
1993 to 27.0% in fiscal 1994.
Depreciation and amortization. Depreciation and amortization expenses
increased 58.6%, from $2.1 million in fiscal 1993 to $3.4 million in fiscal
1994. The $1.3 million increase was due primarily to the inclusion in the
Company's depreciable assets for a full year of newly acquired assets,
including four DSVs, the pipelay/bury barge, two saturation diving systems
and related diving and other equipment, as a result of the Company's 1994
acquisition program and the addition of assets to Gulf Services and
International Services.
Operating income (loss). For fiscal 1994, the Company recorded an
operating loss of approximately $220,000 compared to operating income of $7.4
million for fiscal 1993. The decrease in fiscal 1994 operating income was
primarily due to a $9.0 million revenue decrease for Gulf Services that
resulted primarily from a decrease in the number of diving projects and a
corresponding reduction in average dive crew day rates and average DSV day
rates charged by the Company. The decrease was partially offset by operating
income of approximately $1.3 million attributable primarily to the Company's
new operations.
Other income (expense). For fiscal 1994, other expense (net) of
$44,000 was comprised of interest expense of $297,000, a gain of $21,000 on
the disposal of fixed assets, and other income of $232,000. This compares to
other expense (net) of $27.5 million for fiscal 1993, which was comprised of
interest expense of $341,000, a gain on the disposal of fixed assets of
$42,000, other income of $143,000, and a $27.3 million nonrecurring, non-cash
compensation expense charge resulting from the elimination of forfeiture
restrictions on common stock previously awarded to employees upon the
occurrence of the Company's July, 1993 initial public offering.
Loss from continuing operations. For fiscal 1994, the Company recorded
a loss from continuing operations of $257,000 compared to a loss from
continuing operations of $13.2 million for fiscal 1993. The fiscal 1993 loss
from continuing operations was attributable primarily to the $27.3 million
nonrecurring and non-cash charge described above. Excluding the after-tax
impact of such compensation expense, income from continuing operations for
fiscal 1993 would have been $4.6 million compared to a loss from continuing
operations of $257,000 in fiscal 1994. The $4.8 million difference is
attributable primarily to the factors discussed above.
Loss from discontinued operations. In fiscal 1994, the Company
recorded an operating loss from discontinued operations of $1.05 million, net
of $539,000 of tax benefit, and a capital asset loss of $642,000 directly
related to the sale of the Company's anode foundry operations. The aggregate
loss from discontinued operations of approximately $1.7 million represents
the loss associated with the sale of substantially all the assets of the
anode foundry operations. The loss includes expenses associated with the
sale of the anode foundry operations, including inventory writedown,
professional fees and other closure expenses relating to the sale.
Net loss. During fiscal 1994, the Company recorded a net loss of $1.95
million compared to a net loss of $13.8 million in fiscal 1993 as a result of
the factors discussed above.
Liquidity and Capital Resources
The Company's primary liquidity needs are, generally, to fund working
capital requirements and to make capital expenditures for acquisitions of,
and improvements to, facilities, DSVs, and diving and related equipment. The
Company also incurs expenses for mobilization and project execution
throughout the course of its contracts, while collections from customers
typically do not occur until approximately 90 days after completion of the
job. The Company has traditionally supported these working capital
requirements by using a combination of internally generated funds and short-
term and long-term debt.
The Company believes that cash flows from operations, borrowings
available under its bank credit facility and the net proceeds from this
Offering will provide sufficient funds through the end of 1997 to meet its
working capital and capital expenditure requirements.
Cash flow from operations. The Company has generated positive net cash
flow from operations of $3.9 million, $4.4 million, and $1.4 million for
fiscal 1993, 1994, and 1995, respectively; $928,000 and $297,000 for the two
months ended December 31, 1994 and 1995, respectively; and $693,000 and $10.4
million for the nine months ended September 30, 1995 and 1996, respectively.
Cash flows from operating activities are primarily cash received from
customers and cash paid to employees and suppliers. The factors affecting
amounts and timing of cash flows from operating activities are the same as
those affecting results of operations discussed above.
Investing activities. Cash flows from investing activities are
primarily related to capital expenditures. In the nine-month period ended
September 30, 1996, capital expenditures were $15.8 million, which included
the acquisition of six DSVs and certain other diving equipment to be used in
the Company's operations. These expenditures were funded by a combination of
long-term borrowings under the line of credit and proceeds of $5.4 million
received from the sale of the "American Enterprise." Management expects
that the Company will continue to make capital expenditures for improvements
to its existing assets and for acquisitions of assets in support of its
growth strategy.
Financing activities. Cash flows from financing activities are
primarily attributable to borrowings and repayments on both the Company's
long-term indebtedness and credit facilities. The Company has a $15 million
revolving line of credit with a bank at the prime rate (8.25% at September
30, 1996). The line is secured by and limited to certain qualifying
accounts receivable and is cross collateralized by certain of the Company's
vessels and equipment. At September 30, 1996, $4 million was outstanding
under the line of credit agreement. Subsequent to September 30, 1996, the
Company received a $5 million increase in the line of credit to facilitate
the funding of its purchase of the outstanding common shares of
HSI until such time as permanent financing could be arranged. As of December
12, 1996, the balance outstanding under the line of credit was $15.5 million.
The Company also has a long-term note payable with a bank in the amount
of $10.0 million at September 30, 1996 at a fixed interest rate of 7.9%. The
terms of the note require monthly principal payments of $125,000, plus
interest, with a balloon payment of $3.1 million due on May 31, 2001. This
debt is secured by eleven vessels and certain diving equipment. The Company
intends to repay all its outstanding indebtedness with the net proceeds of
this Offering.
Income Taxes
The Company conducts operations in various foreign tax jurisdictions
including Canada, the United Kingdom, Nigeria, and the United Arab Emirates
and anticipates that it will expand its operations into other foreign tax
jurisdictions. It is possible that a number of these foreign tax
jurisdictions may have corporate income tax rates that exceed the current
maximum U.S. corporate income tax rate of 34%. As a result, the Company's
operations in these jurisdictions could result in the Company experiencing an
overall effective tax rate in excess of the current maximum U.S. tax rate
applicable to corporations. In addition, the Company intends to conduct
operations through subsidiaries incorporated in foreign jurisdictions and,
therefore, the Company may pay tax rates with respect to such operations that
are different from U.S. tax rates. See Note 7 to the consolidated financial
statements elsewhere in this Prospectus for the reconciliation of the
statutory federal income tax rate to the Company's effective tax rate.
At December, 1995, the Company had a deferred tax asset of $1,757,000
based in part on its federal net operating loss carryforwards (NOLs) of
$8,500,000, which can be used to offset future taxable income through 2007
and 2010. A substantial portion of such NOLs are expected to be utilized
during 1996. Accordingly, taxable income beyond fiscal 1996 is expected to
result in currently payable income taxes.
HSI Acquisition
Pursuant to the terms of an unsolicited cash tender offer, the Company
purchased approximately 97% of the outstanding common shares of HSI for an
aggregate cash purchase price of approximately $11.8 million.
The shares were purchased at various times from October 31, 1996 to November
15, 1996. The Company intends to use the NEWTSUIT(TM) in its own diving
operations, but does not intend to market NEWTSUITs(TM) to other commercial
diving operators. The Company also intends to market the suit to
the United States Navy and to other navies. The navies of France and Italy
and the defense force of Japan have purchased at least one NEWTSUIT(TM) each.
The following table sets forth certain pro forma combined
statement of operations data for the year ended October 31, 1995 and the
nine months ended September 30, 1996. These pro forma combined statements of
operations combine the results of operations of the Company for
the year ended October 31, 1995 with that of HSI for the year ended December
31, 1995, the most recent fiscal year of each company, and the results of
operations of both entities for the nine months ended September 30, 1996,
assuming the acquisition occurred on November 1, 1994.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1995 Nine Months Ended September 30, 1996
___________________________________________ __________________________________________
Pro Forma Pro Forma
Actual Actual _____________________ Actual Actual _______________________
AOD HSI Adjustments Combined AOD HSI Adjustments Combined
________ ________ ___________ __________ _________ ________ ____________ __________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diving and related revenues $ 88,660 $ 13,401 $ -- $102,061 $ 79,466 $ 3,714 $ -- $ 83,180
Diving and related expenses 63,180 10,455 -- 73,635 51,657 3,622 -- 55,279
Selling, general and
administrative expenses 19,318 4,022 -- 23,340 14,759 1,979 -- 16,738
Depreciation and
amortization 5,064 1,535 1,834<F1> 8,433 4,737 572 1,376<F1> 6,685
Operating income 1,098 (2,611) (1,834) (3,347) 8,313 (2,459) (1,376) 4,478
Interest expense (1,377) (98) (1,058)<F2> (2,533) (817) (38) (794)<F2> (1,649)
Income (loss) before income taxes (267) (2,840) (2,892) (5,999) 8,160 (2,564) (2,170) 3,426
Provision for income taxes 62 (3) (428)<F3> (369) (3,470) -- (321)<F3> 3,149
Net income (loss) $ (329) $(2,837) $(2,464) $(5,630) $(4,690) $(2,564)$(1,849) $ 277
======== ======== ========= ========== ========= ======== ======== =========
Net income (loss) per share $ (.05) $ (.84) $ .69 $ .04
======== ========== =========
<FN>
<F1> Additional depreciation of property and equipment using the straight-line method
based on estimated useful lives ranging from 5 to 10 years. Amortization of
patents on purchased technology and intagible assets using the straight-line method
based on estimated useful lives ranging from 5 to 10 years, and amortization of
goodwill over 10 years.
<F2> Interest charges on borrowings of $12,450,000 on line of credit, at an estimated
average interest rate of 8.5%
<F3> Tax benefit related to additional interest charges.
</FN>
</TABLE>
These pro forma combined statements of operations
reflect both the historical operating losses of HSI and
certain pro forma expense adjustments related to the purchase
of HSI. Pro form expense adjustments include additional interest
expense on the borrowings under the line of credit and additional
depreciation and amortization related to assets acquired. The
Company plans to repay the debt incurred to purchase HSI with a
portion of the proceeds of this offering and therefore there will
not be ongoing interest expense related to the HSI acquisition.
<PAGE>
BUSINESS
General
The Company provides subsea services and products to the
offshore oil and gas industry in the Gulf of Mexico, the West
Coast and select international markets. In addition, the
Company provides inland underwater services and products to
domestic industrial and governmental customers. The Company's
services are provided through approximately 240 dive crews and
are supported by a Company-owned fleet of 20 DSVs, 14 of which
operate in the Gulf of Mexico. Based upon the number of
divers employed, the size of its DSV fleet and the number of
customers served, the Company believes that it is the leading
provider of diving services in the Gulf of Mexico.
In the last three years, the Company's revenue has more
than doubled as a result of improved demand in its core Gulf
of Mexico market and through internal growth and acquisitions
that have expanded the Company's services and products. For
the nine months ended September 30, 1996, the Company's
revenues increased 25% to $79.5 million and EBITDA (earnings
before interest, taxes, depreciation, and amortization) more
than tripled to $13.1 million as compared to the nine months
ended September 30, 1995. For 1996, subsea operations in the
Gulf of Mexico are expected to contribute approximately 45% of
the Company's revenues.
In November 1996, the Company completed the acquisition
of HSI, which manufactures, markets and operates a one-
atmosphere diving suit known as the "NEWTSUIT(TM)." The
Company believes that the NEWTSUIT(TM) provides a lower cost
alternative to current manned diving techniques.
Subsea and Other Services
The Company provides subsea services to support all
phases of offshore oil and gas activities, including drilling,
production, abandonment, and salvage. These services include
construction, installation, maintenance, repair, inspection
and support of drilling operations, development of offshore
pipeline and production platforms, and on-going production
activities. Subsea services are provided to a diverse group
of customers, including major and independent oil and gas
exploration and production companies, offshore engineering and
construction companies, and major pipeline transmission
companies. The Company's offshore operations are currently
performed through manned surface and saturation diving
activities at depths up to 1,000 feet. With the acquisition
of HSI, the Company intends to use the NEWTSUIT(TM) as a cost
effective alternative for operations at depths up to 1,200
feet. The NEWTSUIT(TM) is a diving suit with patented
technology that allows the diver to work at normal atmospheric
pressure (one atmosphere) and requires no decompression.
At November 30, 1996, the Company employed approximately
400 divers, tenders, and diving supervisors, supported by the
Company's fleet of 20 DSVs ranging in length from 65 to 210
feet and a 150-foot derrick barge with a 220-ton Manitowoc
crane. The Company owns and operates seven ROVs, five of
which are observation ROVs, which support its diving
activities, and two are work ROVs outfitted with manipulators
to perform tasks in depths up to 3,000 feet. The Company owns
seven NEWTSUITs(TM), which are currently located in Australia,
the North Sea, the Gulf of Mexico, and Canada. The Company's
offshore diving operations are coordinated through regional
staging facilities in the Port of Iberia and Harvey,
Louisiana; Houston, Texas; Oxnard, California; Dubai, United
Arab Emirates; and Port Harcourt, Nigeria.
The Company provides a variety of specialized inland
diving services to industrial and governmental customers.
These services involve maintenance, repair, and inspection of
bridges, docks, piers, pipelines, and other inland underwater
structures and the inspection and maintenance of hydroelectric
and nuclear power plants. The Company also pursues primarily
small to medium-sized general construction projects requiring
its underwater capabilities. Inland operations are
coordinated through regional staging facilities in Houston,
Texas; Kansas City, Kansas; and Columbus, Ohio.
The Company also provides environmental remediation and
emergency response services to customers operating in both
inland and offshore markets. The Company's services include
spill containment and removal, remediation of naturally
occurring radioactive material, pit closure, bioremediation,
asbestos abatement services, and confined space entry
activities.
The Company's operations are subject to weather-related
seasonality as well as cyclical demand based on the capital
expenditures of oil and gas companies for offshore production
and exploration activities. See "Risk Factors--Cyclical
Demand; Dependence on Energy Industry" and "--Effect of
Adverse Weather Conditions; Seasonality."
Diving Techniques. The Company conducts its diving
operations using the three traditional diving techniques: air
diving, mixed gas diving and saturation diving, all of which
use a surface-supplied breathing media. With the addition of
the NEWTSUIT(TM) technology, the Company has an alternative
method of diving at depths between 300 and 1,200 feet. See
"Business -- Diving and Related Services -- One-Atmosphere
Diving."
The choice among the three traditional techniques is
determined by diver decompression requirements, which are in
turn determined by the depth at which the diver works and the
time to be spent at that depth. Decompression is the process
by which the diver's depth (or the ambient pressure) is
decreased over a period of time long enough to prevent the
gases absorbed by the diver's body tissues from expanding into
vapor and causing the "bends," a medical condition that can
result in injury or death. As dive depth and dive time
increase, the diver's body tissues absorb increasing amounts
of ambient gases and require a corresponding increase in
decompression time. After a given time at a given depth, the
diver's body tissues reach a "saturation point," the point at
which no additional gases are absorbed. As a result,
additional time spent at that depth will not require
additional decompression time when the diver ascends. As a
general rule, one day of decompression time is required for
ascent from each 100 feet of water depth.
The air diving technique is employed in relatively
shallow water projects (up to approximately 160 feet) of short
duration and does not require divers to reach the saturation
point. In air diving, which the Company uses to provide many
of its diving services, divers are linked to the surface by a
diving umbilical containing compressed air lines and
communications equipment. The diver enters the water
directly, without the use of a diving bell, descends to the
work site, accomplishes project-related activities, and begins
to decompress in the water as he ascends to the surface.
Decompression is conducted through timed stops at intervals of
ten feet and in a decompression chamber upon return to the
surface. The length of time a diver is required to remain at
each interval depends upon dive length and depth. Generally,
at depths in excess of approximately 220 feet the diver is
required to enter a diving bell before surfacing.
Mixed gas diving is used for projects of relatively
short duration in water depths between 160 and 300 feet. For
this type of diving, divers breathe a mixture of helium and
oxygen, which reduces the harmful effects of nitrogen and
oxygen when breathed at relatively high pressures for extended
periods. This type of diving also requires decompression as
the diver ascends in the water and the use of a surface
decompression chamber. The decompression times required for
gas diving generally exceed those required for air diving.
For extended subsea projects in depths of approximately
180 to 1,000 feet, the Company typically conducts its
operations by using saturation diving procedures or techniques
from a special pressurized chamber on the surface in which the
divers live at a pressure equivalent to the depth of the work
site. Saturation diving is generally considered the safest and
most efficient form of the three traditional diving procedures
or techniques at these depths. The chamber in which the divers
live is filled with a mixture of helium and oxygen that
saturates the divers' body tissues. Divers are transported
from the surface to the work site by a pressurized diving
bell. After working underwater for six to eight hours, divers
are transported back to the DSV by the diving bell, and return
to the pressurized living chamber to be replaced by a new
group of divers who are lowered to the job site to continue
the underwater work. The Company currently operates five
saturation diving systems that can accommodate four to six
divers at a time. This allows the Company to conduct diving
operations 24 hours a day. During such a project, the
pressurized chamber functions as living quarters with food,
showers, sleeping accommodations and sanitary facilities.
Saturation diving systems and their associated life-support
equipment are generally built into DSVs, but can also be
located on drilling rigs, production platforms, barges or
other vessels or structures. The primary advantage of
saturation diving is that the divers can remain under pressure
and make repeated dives for extended periods (generally up to
a maximum of 30 days) before beginning decompression. This
method reduces the risks and delays associated with frequent
decompression and enhances overall productivity.
The headquarters and principal staging facilities of the
Company's Gulf of Mexico diving operations are at the Port of
Iberia, Louisiana. A regional staging facility is located in
Harvey, Louisiana. Both the Port of Iberia and Harvey offices
are full-service, decentralized operations centers,
strategically located for the rapid deployment of personnel
and equipment.
One-Atmosphere Diving. One-atmosphere diving, in which
the diver is maintained at normal surface atmospheric
pressure, is an alternative to saturation diving for jobs up
to 1,200 feet. In this method of diving, the diver wears a
proprietary diving suit developed by HSI known as the
"NEWTSUIT(TM)." The diver wearing a NEWTSUIT(TM) enters the
water and returns to the surface with the assistance of a
NEWTSUIT(TM) launch and recovery diving system but without the
need of a pressurized diving bell. Atmospheric pressure is
maintained at all times in the NEWTSUIT(TM), thereby
eliminating the diver's need for any decompression and permits
the diver to make repeated dives at atmospheric pressure
without the delays and costs associated with frequent
decompression or saturation diving.
Vessels. The Company's offshore diving activities are
performed from the Company's twenty DSVs, as well as from
structures and vessels owned by others. Except for the
"American Intrepid," the self-elevating derrick barge time
chartered by the Company, all of the Company's vessels are
owned by the Company. Eleven vessels are currently subject to
ship mortgages. The DSVs are offshore utility and supply
vessels that have been converted and equipped to support
diving operations for offshore construction, inspection,
maintenance, and repair work. All of the Company's vessels
are United States-flagged vessels except for the "American
Eagle" (Honduranian-flagged), the "American Constitution"
(Panamanian-flagged), and the "American Pioneer" (Panamanian-
flagged). The following table describes the Company's DSVs:
<TABLE>
<CAPTION>
Vessel
Length Year
Vessel Vessel Type Home Port (feet) Acquired
_____________________ __________________ _____________________ _________ ___________
<S> <C> <C> <C> <C>
American Constitution Four-point anchor Port of Iberia, La. 210 1996
system/saturation
diving/moonpool
American Pioneer Dynamically Port of Iberia, La. 200 1996
positioned
American Recovery Tug/diving support Oxnard, Ca. 150 1996
American Pride Four-point anchor Port Harcourt, Nigeria 185 1990
system
American Victory Four-point anchor Port of Iberia, La. 166 1993
system
American Star Four-point anchor Port of Iberia, La. 165 1989
system / saturation
diving
American Patriot Four-point anchor Oxnard, Ca. 165 1994
system/40-ton crane
American Triumph Four-point anchor Port of Iberia, La. 165 1996
system
American Independence Four-point anchor Port of Iberia, La 165 1996
system
American Eagle Four-point anchor Port Harcourt, Nigeria 150 1986
system
American Spirit Four-point anchor Port of Iberia, La. 130 1994
system
American Liberty Four-point anchor Fourchon, La. 125 1990
system
American Diver Diving support Port of Iberia, La. 110 1983
Pipeline Surveyor Diving support Fourchon, La. 110 1985
American Scout Diving support Port of Iberia, La. 110 1996
Pipeline Inspector Diving support Port of Iberia, La. 105 1985
Pipeline Diver Diving support Port of Iberia, La. 105 1985
Pipeline Observer Diving support Fourchon, La. 95 1990
American Progress Crewboat/survey Oxnard, Ca. 65 1994
support
American Endeavor Utility tug/ROV Oxnard, Ca. 65 1994
support
</TABLE>
In addition to the DSVs listed above, the Company has a
self-elevating derrick barge, the "American Intrepid," which
it time-chartered in 1995. The Company owns a 220-ton
Manitowoc crane that is installed on the "American Intrepid."
The Company manages its vessel fleet so as to maintain a
competitive presence in each of its targeted market areas and
to pursue project opportunities as they arise in each area.
The Company frequently evaluates the need to reposition
vessels and from time to time does so. For example, in
August, 1995, the Company repositioned the American Pride from
its Dubai, United Arab Emirates operations base to its Port
Harcourt, Nigeria base to pursue chartering opportunities in
West Africa in fiscal 1996 and, in November, 1996, the Company
repositioned the American Eagle from its Port of Iberia,
Louisiana base to its Port Harcourt, Nigeria base. The
average age of the Company's vessels is approximately 25
years.
The Company's vessel fleet is maintained, as required by
law and by its insurers, in accordance with governmental
regulations and classification standards of either or both the
American Bureau of Shipping and the U.S. Coast Guard or, with
respect to its foreign-flagged vessels, the regulations of the
respective foreign governments. The Company's United States-
flagged vessels are subject to annual inspections and to
drydocking in which compliance with applicable regulations and
standards is monitored, after which any necessary
modifications or repairs are made. In addition to complying
with these regulations and standards, the Company performs
supplemental repairs and maintenance on its vessels as part of
a regular preventive maintenance schedule and on an as-needed
basis.
The vessels are also equipped with various winches,
cranes and other support equipment. Several of the Company's
DSVs are equipped with a four-point anchor system that
maintains the ship in proper position to support diving
operations. The dynamic positioning system of the "American
Pioneer" can, through thrusters coordinated by the vessel's
onboard computer system, maintain the vessel on station for an
extended period of time without the use of anchors.
ROVs. The Company's ROVs are submersible, unmanned,
remotely controlled vehicles that are powered and operated
from a surface platform (a DSV, barge or other platform) by a
crew of trained pilots through an umbilical containing
electric power and communications cables. At November 30,
1996, the Company owned and operated five observation ROVs,
which are equipped with subsea lights, video cameras and other
equipment that transmit subsea video and other information to
their surface operators to support the work of the Company's
divers. Also at November 30, 1996, the Company operated two
work ROVs, which are equipped with lights and video equipment
as well as manipulators, which permit them to perform tasks in
water depths up to 3,000 feet.
Diving Support Services. In connection with its diving
operations, the Company provides support services that
minimize dependence on third-party subcontractors and maximize
safety and use of the Company's vessels, equipment, personnel
and organizational structure. The Company operates a fleet of
leased crew cabs and vans that transport its dive crews and
small equipment items from its facilities to the Company's
DSVs. This capability minimizes the Company's reliance on
third-party truck fleets, permits project scheduling
efficiency, enhances reliability and quality control, and
significantly reduces its costs. For medium to large
equipment hauls, the Company generally uses third-party truck
fleets, which for these purposes are capable of providing
reliable, quality service at greatly reduced costs. As part
of the Company's DSV operations, the Company also provides
full-service catering services to the vessel and dive crews,
which minimize dependence on third-party caterers and permit
the Company to further control costs. The Company's diving
support services distinguish the Company from its competitors
and are consistent with the Company's business strategy.
International Services. In July, 1992, the Company
established administrative offices in Lagos, Nigeria and an
operations office and shop in Port Harcourt, Nigeria to provide
diving services to oil and gas companies operating in Nigeria
and other West African locations. The Company intends to expand
its activities in West and South Africa and to seek further
international expansion of its diving services in Latin
America, the Middle East, and Southeast Asia. In March,
1995, the Company acquired certain diving and related assets
located in Dubai, United Arab Emirates, and established an
operational and sales office in Dubai to provide diving
services to oil and gas companies operating in the Middle
East. The Company currently maintains two DSVs in Port
Harcourt.
Inland and West Coast Services. The Company's inland
United States diving operations have historically provided a
variety of specialized domestic diving services, including
pipeline repair, pipeline lowering and anchoring, underwater
drilling, underwater welding and sawing, bridge inspection, dock
and pier inspection and repair, and installation and repair of
water intake and outflow structures. The Company also performs
underwater construction, maintenance, repair and inspection of
hydroelectric and nuclear plants. The Company's inland
operations are conducted in lakes, rivers and along coast
lines. The operations bases of the Company's inland
operations are located in Houston, Texas; Kansas City, Kansas;
and Columbus, Ohio. Recently, the Company has changed the
focus of its inland operations to larger marine construction
projects, in which the Company functions as prime contractor.
To reduce the effect of seasonality, the Company expects to
focus primarily on projects in warm-weather states that are
less likely to be adversely affected by winter weather.
Environmental Remediation and Oil Spill Response
Operations. The Company is an environmental contractor
serving customers operating in both inland and offshore
markets and specializes in emergency response and hazardous
waste remediation activities. The Company's areas of expertise
include bioremediation, spill containment and removal,
remediation of naturally occurring radioactive material
(NORM), pit closure, asbestos abatement services, and confined
space entry activities.
Subsea Products
One-Atmosphere Diving Suits. The NEWTSUIT(TM) is an
articulated metal suit with patented joints that permit the
diver a relatively wide range of motion and allow the diver to
work at surface atmospheric pressure (one atmosphere). The
NEWTSUIT(TM) and other products and related services are
manufactured and developed by HSI at facilities in North
Vancouver, British Columbia, Canada. The current NEWTSUIT(TM)
is capable of operations to water depths up to 1,200 feet.
HSI has developed a suit capable of operation at depths up to
2,000 feet and is working with the United States Navy to
produce a prototype. The Company is also considering the
feasibility of a one-atmosphere diving suit for deployment in
shallower waters using HSI technology.
Submarine Rescue System. HSI also manufactures a subsea
submarine rescue vehicle known as the "Remora(TM)," a
submersible decompression chamber that has an articulated
skirt to permit docking with a disabled submarine at angles of
up to 60 . The Remora(TM) is capable of recovering, and
subsequently transferring under pressure, up to nine persons
at a time from a disabled submarine. One fully operational
Remora(TM) has been sold to the Royal Australian Navy, and the
Company is currently marketing the Remora(TM) to the navies of
other nations.
Pipeline Connector Products. The "Big Inch" product
line manufactured by the Company includes Flexiforge(TM) end
connectors, Ball Flange(TM) connectors and Load Limiting(TM)
connectors used in pipeline tie-ins, flow line tie-ins,
emergency repairs to pipelines, flow lines and risers and
retrofit mainline lateral tie-ins. The Company offers a
standard product line and also offers modifications of its
connectors for specialized applications. In the last two
years, the Company has diversified into land-based pipeline
components with a product line of electrical isolation joints
known as Big Inch Insulating Flanges(TM), which are used to
isolate segments of pipelines from corrosion. The Company has
also developed the InnerLOCK(TM) Cutter system, a mechanical
cutter that removes stubs (abandoned in-place drillpipe)
without the use of explosives, by cutting them from inside the
pipe and the BIMS-Tap(TM) Tee, a mechanical subsea "hot tap"
device that permits the joining of two subsea pipelines
without requiring the pipelines to be brought to the surface
and without interrupting the flow in the pipelines. The
Company believes that the Big Inch products permit pipeline
construction, repair and removal to be performed faster and
more efficiently than conventional systems.
Components of Big Inch connectors are forged and
machined to Big Inch specifications by various unaffiliated
contractors in the United States and the United Kingdom. At
its Houston plant, the Company assembles these components, and
the assembled products are shipped to customers, and used by
the Company in its own diving operations. Assembly, quality
control and warehousing of Big Inch products are conducted at
offices in Houston, Texas and Aberdeen, Scotland. Although
Big Inch sales are made primarily to users in the Gulf of
Mexico and the North Sea, Big Inch products are marketed and
sold worldwide through both its Aberdeen and Houston offices.
The Company has two major competitors (Hydro Tech, Inc.
and Oceaneering International, Inc.) that manufacture product
lines of connectors used in the repair and construction of
underwater pipelines, both of which manufacture connectors
using elastimer seal technology as opposed to the patented Big
Inch metal-to-metal seal technology. Both of these
competitors have well developed international sales
capabilities. Several smaller companies also compete in the
connector market, one of which offers metal-to-metal seal
technology. Despite the generally higher price of Big Inch
products, management believes that the Company competes
effectively on the basis of the installation, responsiveness
and quality advantages associated with its metal-to-metal seal
technology.
Marginal Well Production System. The Tarpon System
consists of underwater anchor piles and a cable guying
assembly that supports a site-specific well protector caisson,
boat landing, platform and related production equipment.
Tarpon Systems are best suited for marginal well production in
water depths from 80 to 300 feet and for the production of
larger fields using a satellite system of multiple Tarpon
System structures tied into a central production facility.
The Company believes that Tarpon Systems are a cost-effective
alternative to traditional, fixed multi-leg platforms or other
minimal systems because of their relatively low construction
costs and ability for rapid installation, allowing oil and gas
producers to recognize early cash flows from production. The
Company has at least seven competitors in this market,
comprised primarily of engineering firms. The Company is
actively seeking opportunities for the Tarpon System both in
the United States and select international areas including
West Africa, the Middle East, India, and Southeast Asia.
Marketing
The Company's marketing efforts with respect to its
diving services are primarily concentrated in the Gulf Coast
and West Coast of the United States and in West Africa and the
Middle East. The Company maintains a focused marketing effort
through a direct sales force consisting of approximately
twenty full-time sales personnel operating from Lafayette,
Houma, and Harvey, Louisiana; Houston, Texas; Oxnard,
California; Kansas City, Kansas; and Columbus, Ohio; together
with sales offices located in Lagos, Nigeria and Dubai,
United Arab Emirates. The Company's senior management is also
involved in the Company's marketing efforts. The Company's
diving services are often marketed in conjunction with Big
Inch and Tarpon System products and the Company's other
service and product lines.
Safety and Quality Assurance
The Company maintains a stringent safety and quality
assurance program that encompasses all areas of its operations
and relies substantially on employee experience and
involvement. An offshore safety officer is assigned to every
diving project regardless of size. In connection with its
safety program, the Company maintains a rigorous in-house
diver training program. The Company's training program
requires each new diver (who must be a graduate of a certified
diving school) to spend at least two years as a diving tender,
maintaining equipment and providing other top-side support to
more experienced divers and, in the process, learning how to
complete diving assignments safely and efficiently, and
approximately two years as a junior diver on a large crew,
gaining more experience from the Company's senior divers. The
Company stresses diver safety and training throughout the
diver's tenure with the Company. The Company believes that
its safety program and commitment to quality have given it a
competitive advantage in attracting and retaining customers
and divers. The accomplishments of the Company's safety
program are evidenced by the National Oceans Industries
Association Safety in the Seas Award, which the Company
received in 1996.
Customers and Competition
The Company's offshore customers include a broad base of
major and independent oil and gas companies, offshore
engineering and construction companies and major pipeline
transmission firms. The Company provided diving and related
services to approximately 300 customers in the fiscal year
ended October 31, 1995. The Company's ten largest customers
accounted for 39% and 46% of the Company's total revenues
during the fiscal years ended October 31, 1994 and 1995,
respectively. During fiscal 1994 and fiscal 1995, Chevron
USA, Inc. and United Meridian Corporation accounted for 14%
and 10%, respectively, of the Company's total revenues. In
1995 the Company entered into an alliance agreement with
Chevron USA's Gulf of Mexico business unit under which the
Company is a preferred provider of services and has received a
major portion of that Chevron unit's undersea work at
prevailing rates.
The level of activity that the Company may perform for a
single offshore customer depends on, among other things, the
amount of the customer's capital expenditure budget devoted to
diving projects in any single year, and this amount may vary
substantially from year to year. As a result, customers that
account for a significant portion of revenues in one fiscal
year may represent an immaterial portion of revenues in other
years.
The available market for diving services is essentially
divided between the call-out (or day rate) market and the
turnkey (fixed price) market. Contracts are obtained either
through direct negotiation with the customer or pursuant to
bidding procedures established by the offshore customer. The
Company enters into "master service agreements" or similar
arrangements with most of its offshore customers, that
expedite providing call-out diving services for those
customers and enhance the Company's customer relationships.
These contracts establish daily rates and terms (such as
insurance requirements) for services that the customer may
need in the future or on an emergency basis. Master service
agreements may be long-term, may be reviewed and renewed each
year, or may be of whatever duration the parties stipulate.
In past years the Company derived approximately 80% to
90% of its revenues from the call-out market and approximately
10% to 20% of its revenues from the turnkey market. More
recently, however, the percentage of turnkey revenues derived
by the Company has increased, moving from 14% in fiscal 1993
to 23% in fiscal 1994 to 30% in fiscal 1995. The Company
expects this trend to continue as its customer base attempts
to use fixed price contracts as a method of reducing their
costs and risks. The Company attempts to minimize the
financial risks associated with fixed-price contracts by
stipulating certain conditions to its performance that, if not
met by the customer, result in increased charges. In some
situations, however, especially in a very competitive market,
the Company may not be able to obtain such protective terms.
See "Risk Factors -- Competition."
The Company's inland customers include utility
companies, railroad companies, state and federal governmental
agencies (such as the U.S. Army Corps of Engineers and the
U.S. Bureau of Reclamation) and political subdivisions such as
city and county governments. Inland diving and related
services contracts are obtained generally pursuant to formal
bidding procedures established by the inland customer.
Competition in the inland market is based largely on price,
although type of equipment available, location of or ability
to deploy such equipment and quality of service are other
factors considered by the customer.
Because diving services contracts in the call-out market
are generally bid upon and entered into one to two weeks prior
to the planned commencement of the projects, the Company in
the past has had no significant call-out diving services
backlog. However, as a result of recent increases in turnkey
projects and the increased activities of Inland and West Coast
Services (in which turnkey projects are more common), at
November 30, 1996 the Company's backlog of projects to be
performed in 1997 was approximately $13.0 million, of which
$6.5 million was for the Port of Brownsville project.
The offshore diving industry is highly competitive and
is influenced by events largely beyond the control of the
Company. Since 1986, many oil and gas companies significantly
decreased their expenditures for development projects in the
Gulf of Mexico in response to substantial declines in oil and
gas prices at various times during that period. Also during
that period, a number of smaller diving firms have been
acquired or have ceased operations entirely. In addition,
some of the Company's major competitors have reorganized and
redirected their efforts to different or more specialized
markets. While more than 50 independent diving companies
operated in the Gulf of Mexico in 1980, fewer than ten
currently operate on an on-going basis in the Gulf of Mexico.
In addition, three offshore construction companies operating
in the Gulf of Mexico own diving subsidiaries or divisions
that provide substantially all of the diving services required
by their respective parent companies. The Company has three
principal competitors in its Gulf of Mexico market,
Oceaneering International, Inc., Global Industries, Ltd. and
Cal Dive International, Inc. The remaining smaller diving
companies in the Gulf of Mexico also compete with the Company
for diving projects that require less sophisticated equipment
or diving techniques. Although the Company occasionally
provides diving services to offshore construction companies
with in-house diving operations, the Company does not expect
to derive substantial revenues from such services. Moreover,
such in-house diving operations also provide diving services
to unaffiliated third parties and compete with the Company and
other diving companies in the Gulf of Mexico on a limited
basis.
Competition for underwater services historically has
been based upon the type of underwater equipment available,
location of or ability to deploy such equipment, quality of
service and price. In recent years, price has been the most
important factor in obtaining contracts, although the
abilities to develop improved equipment and techniques and to
attract and retain skilled personnel are also important
competitive factors. The Company believes, however, that the
awarding of contracts on the basis of pre-existing
relationships between the customer and supplier, combined with
the reliability and quality of the supplier's services, is a
trend that has benefited the Company. An example of this is
the Company's relationship with Chevron USA's Gulf of Mexico
business unit, which has resulted in the Company's obtaining
one of only two such alliances currently existing between a
diving contractor and a major oil company in the Gulf of
Mexico market. The Company competes in all of its service and
product lines with both large and small companies, and certain
of these companies are larger and have greater financial and
other resources than the Company. Should the Company's
competitors develop and market products or services that are
technologically superior to any products manufactured or
services rendered by the Company, the Company's ability to
market its products and services would be significantly
impaired.
Facilities and Equipment
Facilities. The Company typically leases office
facilities to house its administrative staff (other than the
Lafayette corporate headquarters building and the Port of
Iberia operations base, which it owns), shops equipped for
fabrication, testing, repair and maintenance activities,
warehouses and yard areas for storage and mobilization of
equipment enroute to work sites, and dock facilities for the
Company's DSVs. The Company has facilities in California,
Kansas, Louisiana, Ohio, Texas, Canada, Nigeria, and the
United Arab Emirates. The Company also owns a facility in
Houma, Louisiana that is currently held for sale and not used
as an operations base. The following table describes the
Company's primary facilities:
Estimated
Number
Location of Square Feet Primary Use
_______________ ___________________ __________________
Lafayette, Louisiana 24,000 Corporate headquarters
Lafayette, Louisiana 6,000 TarponSystems/pollution control
headquarters
Port of Iberia, Louisiana 29,000<F1> Gulf of Mexico diving operations
Harvey, Louisiana 31,000<F2> Gulf of Mexico diving operations
Houston, Texas 27,240<F3> Big Inch/Inland headquarters
Oxnard, California 23,000<F4> West Coast diving operations
Kansas City, Kansas 9,000<F5> Inland diving operations
Columbus, Ohio 8,600<F6> Inland diving operations
Dubai, UAE 11,500<F7> International diving operations
Port Harcourt, Nigeria 29,500<F8> International diving operations
Vancouver, Canada 8,000<F9> HSI headquarters/shop space
<F1>Includes approximately 23 acres of yard space, 1,800 feet of
waterfront access, 6,000 square feet of office space and
23,000 square feet of shop/warehouse space.
<F2>The Company relocated its Belle Chasse diving operations
base to Harvey, Louisiana in March, 1995. The Harvey
facility includes approximately 4,000 square feet of office
space and 27,000 square feet of shop/warehouse space.
<F3>Includes approximately 8,500 square feet of office space,
18,740 square feet of shop/warehouse space and 83,160 square
feet of yard space and parking.
<F4>Includes approximately 10,000 square feet of office space
and 13,000 square feet of shop/warehouse space.
<F5>Includes approximately 2,700 square feet of office space,
6,300 square feet of shop/warehouse space and approximately
one acre of yard space.
<F6>Includes approximately 3,000 square feet of office space,
5,600 square feet of shop/warehouse space and two acres of
yard space.
<F7>Includes approximately 3,000 square feet of office space and
8,500 square feet of shop/warehouse space.
<F8>Includes approximately 3,500 square feet of office space,
10,000 square feet of shop/warehouse space and 16,000 square
feet of yard space.
<F9>Includes approximately 2,970 square feet of office space and
2,000 square feet of shop/warehouse space.
Equipment. The Company owns an extensive inventory of
diving equipment, including six saturation diving systems (five
of which are operational), seven NEWTSUITs(TM) (one of which is
used for training and demonstration only), compressors,
decompression chambers, high pressure water blasters, jet
pumps, hydraulic power tools, welding machines, tuggers,
underwater video systems, Ultrascan(TM) recordable non-
destructive testing systems, and TH-1000 x-ray systems. The
Company performs routine maintenance on all of its equipment
and generates timely status reports to track use and
availability of the Company's equipment.
Patents and Licenses
The Company owns certain patents and licenses with
respect to its Big Inch pipeline connector products line, the
pressurized rotary joints used in the NEWTSUIT(TM), certain
underwater Ultrascan(TM) radiography systems, its Sonar
ScourVision(TM) system, and the Tarpon System. See "Inland
Operations," "Pipeline Connector Products," and "Marginal Well
Production Systems." The Company believes that its customer
relationships and reputation, together with its technical
expertise, responsiveness to customers and full-service
capabilities, are of greater competitive significance to the
Company than its patents and licenses. While the Company's
business is not dependent on any one of its licenses or
patents, the loss of license or patent protection for the
Company's entire Big Inch product line could have a material
adverse effect on the Company's competitive position. The
Company's Big Inch patents generally are scheduled to expire
from 1999 to 2003. Although the patent for Flexiforge(TM)
expires in 1997, due to the high start-up costs of this system,
management does not believe that the loss of the exclusive use
of this patent will have a material adverse effect on the
Company's competitive position. The patents covering the
NEWTSUIT(TM) joints will expire in the years 2004 through 2009
and have an average remaining term of approximately 11 years.
Government Regulation
Many aspects of the Company's operations are subject to
governmental regulation, including regulation by the U.S. Coast
Guard and the Occupational Safety and Health Administration, as
well as by private industry organizations such as the American
Bureau of Shipping and the Association of Diving Contractors.
The Coast Guard sets safety standards and is authorized to
investigate vessel accidents and recommend improved safety
standards relating to vessels and offshore diving. The
Occupational Safety and Health Administration performs similar
functions with respect to the Company's onshore facilities and
operations. Virtually all employees engaged in the Company's
offshore diving operations are covered by provisions of the
Jones Act, the Death on the High Seas Act and general maritime
law, which operate to exempt these employees from the limits of
liability established under worker's compensation laws and
instead permit them or their representative to maintain an
action against the Company for damages for a job related
injury, with no limitations on the Company's potential
liability. Certain of the Company's employees may also be
covered by the Longshoremen and Harbor Worker's Act, which
permits such employees to seek compensation for a job related
injury under that act. As a result of the Company's expansion
into Nigeria, the Middle East and other foreign jurisdictions,
the Company is also subject to regulation by other governments.
The Company is required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to its operations. The kinds of
permits, license and certificates required in the Company's
operations depend upon a number of factors. The Company
believes that it has obtained or can obtain all permits,
licenses and certificates that are necessary to the conduct of
its business.
In addition, the Company depends on the demand for its
services from the oil and gas industry and, therefore, the
Company's business is affected by laws and regulations, as well
as changing taxes and governmental policies, relating to the
oil and gas industry generally. In particular, the exploration
and development of oil and gas properties located on the Outer
Continental Shelf of the United States is regulated primarily
by the Minerals Management Service.
The operations of the Company are also affected by
numerous federal, state and local laws and regulations relating
to protection of the environment including the Outer
Continental Shelf Lands Act, the Federal Water Pollution
Control Act of 1972 and the Oil Pollution Act of 1990. In
addition, the Company's environmental services operations are
subject to regulation by various local, state and federal
agencies including the Louisiana Department of Environmental
Quality and U.S. Environmental Protection Agency, among others.
The Company is not aware of any non-compliance with applicable
environmental laws and regulations that would likely have a
material adverse effect on the Company's business or financial
condition. The requirements of these laws and regulations are
becoming increasingly complex, stringent and expensive, and
some provide for liability for damages to natural resources or
threats to public health and safety. Certain environmental
laws provide for "strict liability" for remediation of spills
and releases of hazardous substances. Sanctions for non-
compliance may include revocation of permits, corrective action
orders, administrative or civil penalties, and criminal
prosecution. Such laws and regulations may expose the Company
to liability for (i) its actions that may cause environmental
damage such as vessel collisions with rigs, tankers or
pipelines or defective Company manufactured products or
improper installation of products or others, (ii) the conduct
of or conditions caused by others, or (iii) acts of the Company
that are in compliance with all applicable laws at the time
such acts were performed. It is possible that changes in the
environmental laws and enforcement policies thereunder, or
claims for damages to persons, property, natural resources or
the environment could result in substantial costs and
liabilities to the Company. The Company's insurance policies
provide liability coverage for sudden and accidental
occurrences of pollution, clean-up and containment of the
foregoing in amounts that the Company believes are comparable
to policy limits carried in the offshore diving industry.
The Company's vessel operations in the Gulf of Mexico
are considered to be engaged in "coastwise trade" under federal
maritime law and are, therefore, subject to special regulation
by federal government agencies. Under these laws and
regulations, only vessels owned by United States citizens that
are built in and documented under the laws of the United States
may engage in "coastwise trade." Certain provisions of the
Company's Articles of Incorporation are intended to aid in
compliance with the foregoing requirements regarding ownership
by persons other than United States citizens. See "Description
of Capital Stock -- Foreign Ownership."
Legal Proceedings
An overseas operator has instituted litigation in
Edinburgh, Scotland seeking damages of approximately U.S. $3
million, plus interest and costs, against subsidiaries of the
Company, on the basis of allegations that a product supplied by
the subsidiaries exhibited design faults upon installation in a
North Sea pipeline. The product was hydrostatically tested
onshore and did not leak and otherwise met the customer's bid
specification. The product was removed by the customer against
the recommendations of the Company's subsidiaries and replaced
before the pipeline was placed in service. The product did not
leak or otherwise malfunction and no environmental damage is
alleged. The Company believes that the product was fully
suitable for service and intends to defend the claim
vigorously, although no assurance can be given as to the
ultimate outcome of the litigation.
The Company and certain of its subsidiaries are also
parties to various routine legal proceedings primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence or "unseaworthiness" of the Company's
vessels. While the outcome of these lawsuits cannot be
predicted with certainty, the Company believes that its
insurance coverage with respect to such claims is adequate and
that the outcome of all such proceedings, even if determined
adversely, would not have a material adverse effect on its
business or financial condition.
Insurance
The Company's operations are subject to the inherent
risks of offshore and inland marine activity including
accidents resulting in personal injury, the loss of life or
property, environmental mishaps, mechanical failures and
collisions. The Company's diving and vessel operations involve
numerous hazards to divers, vessel crew members and equipment,
and can result in greater incidence of employee injury and
death and equipment loss and damage than occurs in many other
service industries. The Company's ownership and operation of
vessels gives rise to large and varied liability risks, severe
risks of collisions with other vessels or structures, sinkings,
fires and other marine casualties, which can result in
significant claims for damages against both the Company and
third parties for, among other things, personal injury, death,
property damage, pollution and loss of business. The Company's
manufacturing operations involve significant risks,
particularly product liability and warranty claims. Company-
manufactured products installed in the past, as well as those
installed in the future, could give rise to such claims.
The Company maintains insurance that it believes is in
accordance with general and industry standards against normal
risks of its operations. The Company also carries workers'
compensation, maritime employer's liability, general liability,
product liability and other insurance customary in its
business. All insurance is carried at levels of coverage and
deductibles that the Company considers financially prudent,
although there can be no guarantee that the amount of insurance
carried by the Company is sufficient to protect it fully in all
events. Liabilities to customers and third parties for damages
caused by claimed defects in products manufactured by the
Company may be significant and are not insured to the extent
that they are in the nature of warranty claims or consequential
damages. A successful liability claim for which the Company is
underinsured or uninsured could have a material adverse effect
on the Company. Moreover, no assurance can be given that the
Company will be able to maintain adequate insurance in the
future at rates that it considers reasonable or that all types
of coverage will be available.
Employees
The size of the Company's work force, other than its
clerical and administrative personnel, is variable and depends
upon the Company's workload at any particular time. Diving
personnel are paid only for actual days worked, but are
available on a year round basis and are entitled to participate
in all of the Company's employee benefit programs. At December
9, 1996, the Company had approximately 182 divers, 141 tenders,
43 diving supervisors, 327 vessel crewmen, barge crewmen and
operations support personnel, and 207 clerical and
administrative personnel. Of these persons, 760 are hourly
employees (divers are paid on an hourly basis) and 140 are
salaried employees. The Company believes that its relationship
with its employees is satisfactory. See "Risk Factors --
Availability of Divers."
MANAGEMENT
The following table sets forth certain information as of
the date of this Prospectus with respect to the directors and
executive officers of the Company.
Name Age Position
__________________ _____ ____________
George C. Yax 55 Director and Chairman of the Board
Rodney W. Stanley 52 Director, President and Chief Executive Officer
Prentiss A. Freeman 48 Director, Executive Vice President and Chief
Operating Officer
Stephen A. Lasher 48 Director
William C. O'Malley 59 Director
Cathy M. Green 31 Vice President-Finance and Chief Financial
Officer
Quinn J. Hebert 33 Corporate Counsel and Secretary
Robert B. Suggs 49 Vice President/General Manager-Offshore Division
The following biographies describe the business
experience of the directors and executive officers of the
Company:
George C. Yax co-founded the Company in 1981 and has
served as Chairman of the Board since its inception. Mr. Yax
served as President and Chief Executive Officer from the
Company's inception until December, 1996. Mr. Yax has over 28
years of experience in the subsea services industry. Mr. Yax
is a director of the National Oceans Industries Association and
has also served in various officer capacities for the
Association of Diving Contractors. Mr. Yax holds a BBA degree
and an MBA degree from Sam Houston State University.
Rodney W. Stanley joined the Company on August 1, 1996 as
a Director and Senior Vice President-International Operations
and became President and Chief Executive Officer of the Company
in December, 1996. Mr. Stanley has over 33 years of experience
in the subsea services industries. From 1995 to 1996, he
served as President and Chief Executive Officer of HSI, which
was acquired by the Company in 1996. From 1986 to 1995, Mr.
Stanley was President and Chief Executive Officer of Sonsub,
Inc., a provider of specialist subsea engineering and heavy
work class ROV services, which he founded in 1986. From 1969
to 1984, he held various management positions at Divecon, Inc.
and its successor, Oceaneering International, Inc.
Prentiss A. Freeman joined the Company in 1986 as Vice
President and General Manager of the Company's New Orleans
office. He became Executive Vice President and General Manager
of the Company in 1987 and has served as the Company's
Executive Vice President and Chief Operating Officer since
1988. From 1983 to 1986, he served as President and Chief
Operating Officer of Sonat Subsea Services (Americas), Inc.,
which was acquired by the Company in 1986. Mr. Freeman has
over 28 years of experience in the subsea services industry,
including six years as a diver.
Stephen A. Lasher was elected a director of the Company
in 1993 and is co-founder and President of The Gulf Star Group,
Inc., a provider of financial advisory services. Mr. Lasher
has served as President of The Gulf Star Group, Inc. since
1990. Prior to 1990, Mr. Lasher served in various capacities
with Rotan, Mosle Financial Corporation, an investment banking
firm, including as Executive Vice President, head of corporate
finance, until 1990. Mr. Lasher is also a director of
Weingarten Realty Investors and Weingarten Properties, public
real estate investment trusts, which directorships he has held
since 1984.
William C. O'Malley was elected a director of the Company
in 1993 and is Chairman of the Board, President, and Chief
Executive Officer of Tidewater, Inc., a publicly held provider
of offshore marine and gas compression services, a position he
has held since September, 1994. Prior to that time, he had
been Chairman of the Board of Directors of Sonat Offshore
Drilling, Inc. ("Sonat Offshore"), a publicly held offshore oil
and gas contract drilling company, since April, 1987, and Chief
Executive Officer of Sonat Offshore since May, 1990. From 1987
until May, 1993, Mr. O'Malley served as a director and
Executive Vice President of Sonat, Inc., a holding company of
various energy-related subsidiaries and principal stockholder
of Sonat Offshore. Mr. O'Malley is also a director of Hibernia
Corporation, a publicly held, Louisiana-based bank holding
company.
Cathy M. Green joined the Company in 1994 as Corporate
Controller. She became Vice President-Finance and Chief
Financial Officer in January, 1996. Ms. Green has over eight
years of experience in the accounting profession. From 1988 to
1994, she was employed by Price Waterhouse LLP, an independent
public accounting firm, and served as a manager at such firm
from 1992 to 1994. Ms. Green holds a BS degree from the
University of New Orleans. She is a Certified Public
Accountant.
Quinn J. Hebert joined the Company in 1993 as Corporate
Counsel and Secretary. Mr. Hebert has over eight years of
experience in the legal profession. From 1988 to 1993, he was
an associate with the law firm of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P., New Orleans, Louisiana.
Mr. Hebert holds a BA degree from Louisiana State University
and a JD Degree from Boston College. He is a member of the
Louisiana Bar Association.
Robert B. Suggs joined the Company in 1985 as the
Company's Vice President-Operations. He became Vice
President/General Manager-Offshore Division in 1990. From 1981
to 1985, Mr. Suggs served as Vice President-Diving Services for
Sea Con, Inc. In 1975, Mr. Suggs co-founded Sea Dive, Inc.,
which was sold to Sea Con, Inc. in 1981. He has over 25 years
of experience in the diving industry, including six years as a
diver. He served in the United States Navy aboard a nuclear
submarine from 1966 to 1970.
The Company and Mr. Stanley entered into a five-year
employment agreement effective August 1, 1996. Pursuant to the
provisions of such agreement, Mr. Stanley's initial annual
salary as President and Chief Executive Officer will be in the
range of $225,000 to $275,000, as determined by the
Compensation Committee of the Board of Directors. During each
year of such agreement, Mr. Stanley will be eligible for an
annual bonus upon the attainment of certain Company-wide
performance goals. Pursuant to the terms of such agreement,
Mr. Stanley was granted options to purchase 375,000 shares of
Common Stock on August 1, 1996 at an option exercise price of
$8.75 per share. The grant of the option to purchase 225,000
of these shares is subject to approval by the Company
stockholders at their 1997 annual meeting. Such options will
become exercisable in installments of 75,000 shares each year
during the term of such agreement, provided certain Company-
wide performance goals are attained. If such shareholder
approval is not obtained, the Company will provide Mr. Stanley
with the economic equivalent of those options not approved.
SELLING STOCKHOLDERS
The following table sets forth for each of the Selling
Stockholders such person's beneficial ownership of the
Company's Common Stock and as adjusted to reflect the sale of
the shares of Common Stock offered hereby (assuming no exercise
of the Underwriters' over-allotment option). To the Company's
knowledge, all shares shown as beneficially owned are held with
sole voting and dispositive power unless otherwise indicated.
The information set forth below has been determined in
accordance with Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934
(the "Exchange Act") on the basis of the most recent
information furnished by the person listed.
<TABLE>
<CAPTION>
Shares Benefically Owned Shares to Shares Beneficially Owned
Before the Offering be Sold After the Offering
_________________________ _________ _________________________
Name of Selling Stockholder Number Percentage Number Number Percentage
_____________________________ ____________ ____________ ________ ____________ ____________
<S> <C> <C> <C> <C> <C>
George C. Yax<F1> 1,561,731 22.9% 500,000 1,061,731 11.4%
Prentiss A. Freeman<F2> 239,165<F2> 3.5 26,000 213,165<F2> 2.3
Gulf Coast Marine Divers Inc. 71,685 1.1 71,685 0 0
Company
____________ _________ __________ ____________ _________
Total 1,872,581 27.5% 597,685 1,274,896 13.7%
============ ========= ========== ============ =========
</TABLE>
<F1> See "Management" for a description of the position with
and relationship to the Company of Messrs. Yax and
Freeman. Their address is c/o American Oilfield Divers,
Inc., 130 East Kaliste Saloom Road, Lafayette, Louisiana
70508.
<F2> Includes exercisable options to purchase 16,665 shares of
Common Stock granted by the Company.
<F3> The address of Gulf Coast Marine Divers Inc. is 1025
South Hospital Drive, Abbeville, Louisiana 70510.
DESCRIPTION OF CAPITAL STOCK
General
The following summary description is qualified in its
entirety by reference to the Company's Articles of
Incorporation and By-laws, which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The
Articles of Incorporation were amended and restated by the
Company's stockholders effective as of June 21, 1993. The
Company is authorized by its Articles of Incorporation to issue
an aggregate of 30 million shares of Common Stock, no par value
per share, and five million shares of Preferred Stock, no par
value per share (the "Preferred Stock"). Upon consummation of
this offering, 9,313,497 shares of Common Stock (9,778,497
shares if the Underwriters' over-allotment option is exercised
in full) and no shares of Preferred Stock will be outstanding.
Prior to this offering, at September 30, 1996 there were
6,811,182 shares of Common Stock outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per
share in the election of directors and on all other matters
submitted to a vote of stockholders. Such holders do not have
the right to cumulate their votes in the election of directors.
Holders of Common Stock have no redemption or conversion rights
and no preemptive or other rights to subscribe for securities
of the Company. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled
to share equally and ratably in all of the assets remaining, if
any, after satisfaction of all debts and liabilities of the
Company, and the preferential rights of any series of Preferred
Stock, if any, then outstanding. The outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby
will be, upon payment therefor as contemplated herein, validly
issued, fully paid and nonassessable. See "-- Certain Anti-
takeover and Other Provisions of the Articles of Incorporation
and By-Laws."
Holders of Common Stock have an equal and ratable right
to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor and only
after payment of, or provision for, full dividends (on a
cumulative basis if applicable) on all outstanding shares of
any series of Preferred Stock and after the Company has made
provisions for any sinking or purchase funds for any series of
Preferred Stock. The Company does not intend to pay any cash
dividends. See "Price Range of Common Stock and Dividend
Policy."
The Company's transfer agent and registrar for the Common
Stock is Key Corp Shareholder Services, Inc.
Preferred Stock
The Preferred Stock may be issued, from time to time, in
one or more series, and the Board of Directors, without further
approval of the stockholders, is authorized to amend the
Articles of Incorporation to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each
such series of Preferred Stock with voting or conversion rights
that could adversely affect the voting power of the holders of
Common Stock. The issuance of shares of Preferred Stock could
be used, under certain circumstances, in an attempt to prevent
an acquisition of the Company. The Company has no present
intention to issue any shares of Preferred Stock.
Foreign Ownership
The Company's Articles of Incorporation contain
provisions that limit foreign ownership of the Company's
capital stock to protect the Company's ability to register its
vessels under federal law and operate its vessels in United
States coastwise trade. Under the Shipping Act of 1916, as
amended (the "Shipping Act"), the Company's vessel operations
are deemed to be part of U.S. coastwise trade for the purpose
of the Shipping Act. To engage in United States coastwise
trade, the Company must maintain United States citizenship as
defined in the Shipping Act and the regulations thereunder.
Under these regulations, to remain a United States citizen
qualified to engage in coastwise trade, the Company's President
or Chief Executive Officer and Chairman of the Board of
Directors must be United States citizens, and a majority of a
quorum of its Board of Directors must be United States
citizens. Further, at least 75% of the ownership and voting
power of the Company's capital stock must be held by United
States citizens, as defined in the Shipping Act and the
regulations thereunder. Violation of these regulations could
result in forfeiture of the Company's DSVs.
Under the provisions of the Articles of Incorporation (i)
any transfer, or attempted or purported transfer, of any shares
of capital stock that would result in the ownership or control
by one or more persons who are not United States citizens for
purposes of United States coastwise domestic shipping (as
defined in the Shipping Act) of an aggregate percentage of the
shares of the Company's capital stock or voting power in excess
of a fixed percentage (the "Permitted Percentage"), which is
equal to 2% less than the percentage that would prevent the
Company from being a United States citizen (currently 25%) for
purposes of engaging in United States coastwise domestic
shipping, will, until such ownership no longer exceeds the
Permitted Percentage, be void and ineffective as against the
Company, and (ii) if at any time ownership of capital stock or
voting power (either of record or beneficial) by persons other
than United States citizens exceeds the Permitted Percentage,
the Company will withhold payment of dividends on and will
suspend the voting rights of such shares deemed to be in excess
of the Permitted Percentage.
Certificates representing the Common Stock bear legends
concerning the restrictions on ownership by persons other than
United States citizens. In addition, the Board of Directors is
authorized by the Articles of Incorporation (i) to require, as
a condition precedent to the transfer of shares on the records
of the Company, representations and other proof as to the
identity of existing or prospective stockholders and (ii) to
establish and maintain a dual stock certificate system under
which different forms of certificates may be used to indicate
whether or not the owner thereof is a United States citizen.
Effect of Subsequent Issuances
The authorized and unissued shares of Common Stock and
Preferred Stock may be used for various purposes, including
possible future acquisitions. The Company currently does not
have any plans to issue additional shares of Common Stock or
Preferred Stock (other than the sale of the shares of Common
Stock offered hereby and pursuant to the terms of the existing
benefit plans).
One of the effects of the existence of authorized but
unissued Common Stock and undesignated Preferred Stock may be
to enable the Board of Directors to make it more difficult or
to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise,
and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a
takeover proposal was not in the Company's best interest, such
shares could be issued by the Board of Directors without
stockholder approval in one or more transactions that might
prevent or render more difficult or costly the completion of
the takeover transaction by diluting the voting or other rights
of the proposed acquiror or insurgent stockholder group, by
putting a substantial voting block in institutional or other
hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
In addition, certain other charter provisions, which are
described below, may have the effect, either alone, in
combination with each other or with the existence of authorized
but unissued capital stock, of making more difficult or
discouraging an acquisition of the Company deemed undesirable
by the Board of Directors.
Certain Anti-takeover and Other Provisions of the Articles of
Incorporation and By-laws
Classified Board of Directors. The Articles of
Incorporation and By-laws divide the members of the Board of
Directors who are elected by the holders of the Common Stock
into three classes serving three-year staggered terms.
Advance Notice of Intention to Nominate a Director. The
Articles of Incorporation and By-laws permit a stockholder to
nominate a person for election as a director only if written
notice of such stockholder's intent to make a nomination has
been given to the Secretary of the Company not less than 45
days or more than 90 days prior to an annual meeting, unless
less than 55 days notice is given of the meeting, in which case
notice by the stockholder must be received on the 10th day
after notice of the meeting was given. This provision also
requires that the stockholder's notice set forth, among other
things, a description of all arrangements or understandings
between the nominee and the stockholder pursuant to which the
nomination is to be made or the nominee is to be elected and
such other information regarding the nominee as would be
required to be included in a proxy statement filed pursuant to
the proxy rules promulgated under the Securities Exchange Act
of 1934, as amended, had the nominee been nominated by the
Board of Directors of the Company. Any nomination that fails to
comply with these requirements may be disqualified.
Stockholders' Right to Call Special Meeting. The
Articles of Incorporation and By-laws provide that a special
stockholders' meeting may be requested by a stockholder or
group of stockholders holding in the aggregate 50% or more of
the Company's total voting power.
Supermajority and Fair Price Provisions. The Company's
Articles of Incorporation contain certain provisions designed
to provide safeguards for stockholders when an Interested
Stockholder (as defined below) attempts to effect a Business
Combination (as defined below) with the Company. In general, a
Business Combination between the Company and an Interested
Stockholder must be approved by the affirmative vote of (i) a
majority of the Continuing Directors (as defined below) and
(ii) at least 80% of the total voting power of the Company and
two thirds of the total voting power entitled to be cast by the
Independent Stockholders, voting together as a single class;
otherwise certain minimum price, form of consideration and
procedural requirements must be satisfied. If the requisite
approval of the Continuing Directors is obtained or the minimum
price, form of consideration and procedural requirements are
satisfied, only the affirmative vote otherwise required by law
and the other provisions of the Company's Articles of
Incorporation or By-laws would be required. The Louisiana
Business Corporation Law has provisions similar to the
provisions of the Articles of Incorporation described under
this heading.
For purposes of these provisions, an "Interested
Stockholder" is defined as any person or entity, or any group
of two or more persons or entities acting in concert (other
than the Company, any majority-owned subsidiary, any employee
benefit plan of the Company, any person or entity who owned at
least 20% of the shares of capital stock of the Company as of
the date of filing of the Articles of Incorporation, or any
Affiliate or Associate (both terms as defined in the Securities
Exchange Act of 1934, as amended) of any of the foregoing),
that (i) is the beneficial owner, directly or indirectly, of
10% or more of any class or series of the Company's voting
stock, or (ii) is an Affiliate or Associate of the Company and
at any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of any class or series of the
Company's voting stock.
A "Continuing Director" is defined as (i) any member of
the Board of Directors who is neither an Interested Stockholder
nor an Affiliate or Associate thereof, and who was a director
of the Company prior to the time that the Interested
Stockholder became an Interested Stockholder; and (ii) any
other member of the Board of Directors who is not an Interested
Stockholder or an Affiliate or Associate thereof, and was
recommended or elected by a majority of the Continuing
Directors at a meeting at which a quorum consisting of a
majority of the Continuing Directors was present.
A "Business Combination" includes the following
transactions: (i) any merger, consolidation or share exchange
of the Company with an Interested Stockholder or any Affiliate
or Associate thereof or the adoption of any plan or proposal
for the liquidation or dissolution of the Company in which
anything other than cash will be received by an Interested
Stockholder; (ii) any sale, lease, transfer, exchange,
mortgage, pledge, loan, advance, or other similar disposition,
other than in the ordinary course of business, with or for the
direct or indirect benefit of any Interested Stockholder or any
Affiliate or Associate thereof of assets of the Company or any
subsidiary thereof having a market value of 10% or more of the
outstanding Common Stock of the Company or 10% or more of its
net worth; (iii) any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Company to an Interested Stockholder
except proportionately as a stockholder; or (iv) certain non-
pro rata issuances or distributions to an Interested
Stockholder or any Affiliate or Associate thereof of securities
of the Company having a market value of 5% or more of the
outstanding Common Stock of the Company or resulting in an
increase by 5% or more of such Interested Stockholder's
proportionate ownership interest in the Company.
The supermajority and fair price provisions are designed
to prevent a purchaser from utilizing two-tier pricing and
similar inequitable tactics in the event of an attempted
takeover of the Company. In the absence of the supermajority
and fair price provisions, a purchaser who acquired control of
the Company could be in a position, by virtue of such control,
to compel minority stockholders to accept a lower price or a
less desirable form of consideration than that given to other
stockholders. The effect of the provisions is to encourage any
Interested Stockholder or potential Interested Stockholder
interested in a Business Combination to negotiate the terms of
such transaction with the Board of Directors of the Company
prior to its acquisition of a substantial amount of the capital
stock of the Company and in a context that would provide
adequate time and information so that all relevant
considerations would receive the requisite attention and, if
necessary, publicity.
Although the supermajority and fair price provisions are
designed to assure fair treatment of all stockholders in the
event of a takeover, the provisions may discourage acquisitions
of stock by persons attempting to acquire control through
market purchases, and may deprive holders of Common Stock of an
opportunity to sell their stock at a temporarily higher market
price. Such purchases may cause the market price of the stock
temporarily to reach levels that are higher than would
otherwise be the case. In addition, tender offers are usually
made at premium prices above the prevailing market price of a
company's stock. Because of the higher percentage requirements
for stockholder approval of any subsequent Business
Combination, and the possibility of having to pay a higher
price to other stockholders in such a Business Combination, it
may become more costly for a purchaser to acquire control of
the Company. A potential purchaser of stock seeking to obtain
control may also be discouraged from purchasing stock because a
vote of at least two-thirds of the Company's total voting power
would be required in order to change or eliminate these
provisions. See "-- Amendment of Certain Provisions of the
Articles of Incorporation." The provisions would not
necessarily discourage persons who would be willing to seek
control by acquiring 80% or more of the Company's total voting
power.
Since only the Continuing Directors will have the
authority to avoid the requirement of a supermajority
stockholder vote to approve Business Combinations if the
minimum price, form of consideration and procedural
requirements are not met, the provisions also may tend to
insulate management against the possibility of removal in the
event of a takeover bid. Further, if an Interested Stockholder
were to replace all of the directors who were in office on the
date it became an Interested Stockholder there would be no
Continuing Directors and, consequently, the 80% stockholder
vote requirement would apply to any Business Combination,
unless the minimum price, form of consideration and procedural
requirements were satisfied.
Removal of Directors; Filling Vacancies on Board of
Directors. The Articles of Incorporation and By-laws provide
that any director elected by holders of the Common Stock may be
removed at any time during which there is no Interested
Stockholder, with or without cause, by a two-thirds vote of the
entire Board of Directors. In addition, any director or the
entire Board may be removed at any time, with or without cause,
by a vote of the holders of two-thirds of the total voting
power held by all holders of voting stock present or
represented at a special stockholders' meeting called for that
purpose. The Articles of Incorporation and By-laws also
provide that any vacancies on the Board of Directors (including
any resulting from an increase in the authorized number of
directors) may be filled by the affirmative vote of two-thirds
of the directors remaining in office at any time during which
there is no Interested Stockholder and at all other times by
two-thirds of the directors unaffiliated with any Interested
Stockholder, provided the stockholders shall have the right, at
any special meeting called for that purpose prior to such
action by the Board, to fill the vacancy.
Adoption and Amendment of By-laws. The Articles of
Incorporation provide that the By-laws may be (i) adopted only
by a majority vote of the Board of Directors and (ii) amended
or repealed by either a two-thirds vote of the Board of
Directors or the holders of two-thirds of the total voting
power present or represented at any stockholders' meeting. Any
provisions amended or repealed by the stockholders may be re-
amended or re-adopted by the Board of Directors. At any time
during which there is an Interested Stockholder, the Board may
adopt, amend or repeal By-laws only upon the majority vote of
the full Board and of those directors that are unaffiliated
with the Interested Stockholder.
Consideration of Tender Offers and Other Extraordinary
Transactions. Under Louisiana law, the Board of Directors,
when considering a tender offer, exchange offer, merger or
consolidation, may consider, among other factors, the social
and economic effects of the proposal on the Company, its
subsidiaries and their respective employees, customers,
creditors and communities.
Amendment of Certain Provisions of the Articles of
Incorporation; Other Corporate Action. Under Louisiana law,
unless the articles of incorporation specify otherwise, a
corporation's articles of incorporation may be amended by the
affirmative vote of the holders of two-thirds of the voting
power present at a meeting of the stockholders. The Company's
Articles of Incorporation require the affirmative vote of not
less than two-thirds of the total voting power of the Company
to amend, alter or repeal certain provisions of the Company's
Articles of Incorporation with respect to (i) the
classification, filling of vacancies and removal of the Board
of Directors, (ii) amendments to the By-laws, (iii) business
combinations, (iv) limitation of liability of directors, (v)
limitation of foreign ownership, and (vi) amendments to the
Articles of Incorporation. Unless approved by a vote of at
least two-thirds of the Board of Directors, a merger,
consolidation, sale of all or substantially all of the assets
or a voluntarily dissolution of the Company may be authorized
only by the affirmative vote of the holders of two-thirds of
the total voting power.
The provisions of the Company's Articles of Incorporation
and By-laws summarized in the preceding paragraphs may have
anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
such stockholder's best interest, including those attempts that
might result in the payment of a premium over the market price
for the shares of Common Stock held by such stockholder.
Louisiana Control Share Acquisition Statute
The Louisiana Control Share Acquisition Statute provides
that any shares acquired by a person or group (an "Acquiror")
in an acquisition that causes such person or group to have the
power to direct the exercise of voting power in the election of
directors in excess of 20%, 33-1/3% or 50% thresholds shall
have only such voting power as shall be accorded by the holders
of all shares other than "interested shares," as defined below,
at a meeting called for the purpose of considering the voting
power to be accorded to such shares. "Interested shares"
include all shares as to which the Acquiror, any officer of a
company and any director of a company who is also an employee
of a company may exercise or direct the exercise of voting
power. If a meeting of stockholders is held to consider the
voting rights to be accorded to an Acquiror and the
stockholders do not vote to accord voting rights to such
shares, a company may have the right to redeem the shares held
by the Acquiror for their fair value. The statute permits the
articles of incorporation or by-laws of a company to exclude
from the statute's application acquisitions occurring after the
adoption of the exclusion. The Company's Articles of
Incorporation and By-laws do not contain such an exclusion.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement among the Company, the Selling
Stockholders and the Underwriters named below (the
"Underwriting Agreement"), the Company and the Selling
Stockholders have severally agreed to sell to each of such
Underwriters, for whom Morgan Keegan & Company, Inc., Rauscher
Pierce Refsnes, Inc., and Southcoast Capital Corporation are
acting as representatives (collectively, the
"Representatives"), and each of such Underwriters has severally
agreed to purchase from the Company and from the Selling
Stockholders the respective number of shares of Common Stock
set forth opposite its name below.
Number of
Shares of
Underwriters Common Stock
____________ _____________
Morgan Keegan & Company, Inc...................
Rauscher Pierce Refsnes, Inc...................
Southcoast Capital Corporation.................
Total.................................... 3,100,000
Under the terms and conditions of the Underwriting
Agreement, the Underwriters are committed to take and pay for
all of the shares of Common Stock offered hereby, if any are
taken.
The Underwriters propose to offer the shares of Common
Stock in part directly to the public at the Offering price set
forth on the cover page of this Prospectus and in part to
certain dealers at such price, less a concession of $_____ per
share. The Underwriters may allow, and such dealers may
reallow, a concession of $_____ per share to certain brokers
and dealers. After the shares of Common Stock are released for
sale to the public, the Offering price and other selling terms
may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to
purchase up to 465,000 additional shares of Common Stock solely
to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally
agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of
shares of Common Stock to be purchased by each of them, as
shown in the table above, bears to the total number of shares
of Common Stock initially offered by the Underwriters hereby.
The Company and each officer and director of the Company
and certain stockholders, including the Selling Stockholders,
who each own 1% or more of the outstanding Common Stock have
agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any equity
securities or any securities convertible into, or exchangeable
for, equity securities of the Company for a period of 180 days
after the effective date of the Registration Statement of which
this Prospectus is a part, without the prior consent of the
Representatives pursuant to the Underwriting Agreement or, in
the case of the Company, other than an aggregate maximum of
865,218 shares of Common Stock issuable or subject to purchase
or stock appreciation rights pursuant to employee or director
benefit plans.
In connection with this Offering, the Underwriters may
engage in passive market making transactions in the Common
Stock of the Company on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act during the
two business day period before commencement of offers or sales
of the Common Stock. The passive market making transactions
must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest
independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, such bid
must then be lowered when certain purchase limits are exceeded.
The Company and the Selling Stockholders have agreed to
indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock being offered
by this Prospectus will be passed upon for the Company and the
Selling Stockholders by Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P., New Orleans, Louisiana. Certain
legal matters in connection with this Offering will be passed
upon for the Underwriters by Vinson & Elkins L.L.P., Houston,
Texas.
EXPERTS
The consolidated financial statements of American
Oilfield Divers, Inc. at October 31, 1994 and 1995 and for each
of the three years in the period ended October 31, 1995 and the
consolidated financial statements at December 31, 1995 and for
the two months ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Hard Suits Inc.
as of December 31, 1994 and 1995 and for the two years ended
December 31, 1995 included in this Prospectus have been so
included in reliance on the report (which includes an
explanatory paragraph relating to the Company's ability to
continue as a going concern as described in Note 1 to the
financial statements) of Arthur Andersen LLP, independent
accountants, given on authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form
S-2, File No. ___________ (the "Registration Statement"), under
the Securities Act with respect to the Common Stock being
offered pursuant to this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements
contained herein concerning the provisions of any documents are
not necessarily complete and, in each instance, reference is
made to the copy of such document filed or incorporated by
reference as an exhibit to the Registration Statement.
The Company is subject to the informational requirements
of the Exchange Act, and in accordance therewith files reports,
proxy statements and other information with the Commission.
The Registration Statement, as well as such reports, proxy
statements and other information filed with the Commission by
the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at the
regional offices of the Commission at the following locations:
New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048 and Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511.
Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers
that file electronically with the Commission
(http://www.sec.gov). The Company's Common Stock is traded on
the Nasdaq National Market. Reports, proxy statements and
other information may also be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the
Commission under the Exchange Act, are incorporated into this
Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for
the quarter ended January 31, 1996, April 30, 1996,
June 30, 1996, and September 30, 1996;
(3) The Company's Transition Report on Form 10-Q for
the transition period from November 1, 1995 to
December 31, 1995; and
(4) The Company's Current Reports on Form 8-K filed on
June 25, 1996, July 11, 1996, July 31, 1996, August
19, 1996, September 12, 1996, September 26, 1996,
and November 15, 1996.
The Company will provide without charge to each person to
whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits
to such documents that are not specifically incorporated by
reference in such documents). Written requests for such copies
should be directed to Greg Rosenstein, American Oilfield
Divers, Inc., 130 East Kaliste Saloom Road, Lafayette,
Louisiana 70508. Telephone requests may be directed to (318)
234-4590.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of
this Prospectus.
GLOSSARY OF CERTAIN TECHNICAL TERMS
air diving: Diving performed in relatively shallow water
(generally less than 160 feet) in which the
diver breathes air supplied through an
umbilical from the surface and need not enter
a diving bell for decompression before
surfacing as he decompresses in the water
during his ascent to the surface.
decompression: The procedure that must be followed by
a diver after diving to certain depths
in which the diver's ambient pressure
is gradually reduced in order to avoid
the bends (i.e., the vaporization of
gasses absorbed by the diver's body
tissues during the dive).
DSV: Diving support vessel, which is a specially
constructed vessel that provides an above
water platform or operational base for
divers; subsea services are typically
performed with the use of such vessels.
dynamic positioning:A dynamic positioning system allows a
vessel to stay in position without the use of
anchors. Computer controlled thrusters
mounted on the vessel's hull ensure the
proper counteraction to wind, current, and
wave forces to maintain the vessel's
position.
flowlines: Steel subsea pipelines for the movement of
petroleum products from one location to
another.
mixed gas diving: Mixed gas diving is used at water depths
between 160 and 300 feet and involves
providing the diver with a mixture of helium
and oxygen through a diving umbilical; the
diver must make use of a surface chamber for
decompression.
moonpool: A walled hole cut in the midpoint of a DSV's
deck to permit deployment of divers and
equipment in relatively high seas.
one-atmosphere diving: One-atmosphere diving is used as an
alternative to saturation diving at
water depths between 300 and 1,200 feet
and involves the use of the Company's
NEWTSUIT(TM) without the need for
saturation or decompression.
risers: The vertical portion of a subsea pipeline
attached to an offshore structure, for the
movement of the petroleum products to and
from the upper levels of the structure.
ROV: Remotely operated vehicle, which is a
robotic, unmanned vehicle used to compliment,
support, and increase the efficiency of
diving and subsea operations and for tasks at
depths where the use of divers is impossible;
they may be employed for observation or for
repair and maintenance.
saturation diving:Diving under conditions in which the diver's
body tissues become fully saturated with
ambient gasses. Saturation diving is
normally required at water depths greater
than 300 feet and involves divers working
from special surface chambers for extended
periods at a pressure equivalent to the depth
of the work site and being transported
between the surface chamber and the work site
in a pressurized diving bell.
turnkey project: A project that a party has agreed to perform
for a fixed price regardless of the time and
materials actually required to complete the
project. A turnkey project of the Company
may involve fabrication, testing,
installation (both subsea and topside) and
the use of subcontractors.
AMERICAN OILFIELD DIVERS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
American Oilfield Divers, Inc. Financial Statements
Report of Independent Accountants.................................
Consolidated Balance Sheets -
October 31, 1994 and 1995, December 31, 1995 and September 30,
1996 (unaudited)..............................................
Consolidated Statements of Operations -
Years Ended October 31, 1993, 1994 and 1995, Two Months Ended
December 31, 1994 (unaudited) and 1995 and Nine Months Ended
September 30, 1995 (unaudited) and 1996 (unaudited)...........
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended October 31, 1993, 1994 and 1995, Two Months Ended
December 31, 1995 and Nine Months Ended September 30, 1996
(unaudited)...................................................
Consolidated Statements of Cash Flows -
Years Ended October 31, 1993, 1994 and 1995, Two Months Ended
December 31, 1994 (unaudited) and 1995 and Nine Months Ended
September 30, 1995 (unaudited) and 1996 (unaudited)............
Notes to Consolidated Financial Statements.........................
Hard Suits Inc. Financial Statements
Report of Independent Accountants...................................
Consolidated Balance Sheets -
December 31, 1994 and 1995 .......................................
Consolidated Statements of Operations -
Years Ended December 31, 1994 and 1995 ...........................
Consolidated Statements of Deficit-
Years Ended December 31, 1994 and 1995 ...........................
Consolidated Statements of Changes in Financial Position -
Years Ended December 31, 1994 and 1995 ...........................
Notes to Consolidated Financial Statements .........................
Hard Suits Inc. Interim Financial Statements (unaudited)
Consolidated Balance Sheet -
September 30, 1996 ................................................
Consolidated Statements of Operations -
Nine Months Ended September 30, 1995 and 1996 .....................
Consolidated Statements of Deficit -
Nine Months Ended September 30, 1995 and 1996 .....................
Consolidated Statements of Changes in Financial Position -
Nine Months Ended September 30, 1995 and 1996 .....................
Pro Forma Financial Information of American Oilfield Divers, Inc. (unaudited)
Balance Sheet - September 30, 1996....................................
Statements of Operations -
Year Ended October 31, 1995 and the Nine Months Ended
September 30, 1996................................................
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of American Oilfield Divers, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of American Oilfield Divers, Inc. and
its subsidiaries at October 31, 1994 and 1995 and December 31, 1995, and
the results of their operations and their cash flows for each of the
three years in the period ended October 31, 1995 and the two months
ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New Orleans, Louisiana
August 6, 1996
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 31, December 31, September 30,
1994 1995 1995 1996
_________ ________ _________ ___________
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,226 $ 1,174 $ 788 $ 1,648
Accounts receivable, net of
allowance for doubtful accounts
of $408, $300, $380 and $500 17,297 23,870 13,014 21,812
Unbilled revenue 5,290 7,080 13,683 7,967
Other receivables 1,131 1,415 2,025 1,574
Current deferred tax asset 750 1,700 1,700 200
Current portion of assets held
for sale (Note 1) 2,681 -- -- --
Inventories 1,642 2,191 2,261 2,817
Prepaid expenses 1,023 1,935 1,380 2,547
_________ ________ ________ __________
Total current assets 31,040 39,365 34,851 38,565
Property, plant and equipment, net 24,424 26,079 25,550 31,731
Deferred tax asset 1,407 477 57 --
Assets held for sale, net of
current portion (Note 1) 2,206 -- -- --
Other assets 2,530 3,487 3,463 2,703
________ _________ ________ __________
$ 61,607 $ 69,408 $ 63,921 $72,999
________ _________ ________ __________
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
October 31, December 31, September 30,
_____________
1994 1995 1995 1996
_______ _______ ________ _________
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,178 $ 5,806 $ 3,506 $ 5,128
Income taxes payable -- -- -- 585
Other liabilities 4,457 10,192 6,197 7,088
Borrowings under a line of
credit agreement 4,830 7,300 7,875 4,033
Current portion of long-term debt 2,488 2,000 1,375 1,500
________ _________ _________ _________
Total current liabilities 16,953 25,298 18,953 18,334
Deferred tax liability -- -- -- 1,200
Long-term debt, less current
portion 5,443 5,121 5,413 8,500
________ _________ _________ _________
Total liabilities 22,396 30,419 24,366 28,034
________ _________ _________ _________
Commitments and contingencies
(Note 12) -- -- -- --
Minority interest in consolidated
subsidiary (116) -- -- --
Stockholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized;
none issued -- -- -- --
Common stock, no par value;
30,000,000 shares authorized;
6,709,497 issued and outstanding
at stated value at October 31,
1994 and 1995 and December 31,
1995; 6,811,182 at September 30,
1996 1,360 1,360 1,360 1,368
Additional paid-in capital 40,837 40,837 40,837 41,548
Foreign currency translation
adjustments (115) (124) (132) (131)
Retained earnings (accumulated
deficit) (2,755) (3,084) (2,510) 2,180
________ ________ _________ ________
Total stockholders' equity 39,327 38,989 39,555 44,965
________ ________ __________ ________
$ 61,607 $69,408 $ 63,921 $ 72,999
======== ======== ========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Two Months Ended Nine Months Ended
Year Ended October 31, December 31, September 30,
_________________________ ________________ ________________
1993 1994 1995 1994 1995 1995 1996
________ ________ ________ _______ _________ _______ ________
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Diving and related revenues $ 51,023 $ 52,755 $ 88,660 $ 15,259 $ 15,486 $ 63,689 $ 79,466
________ ________ ________ ________ ________ ________ ________
Costs and expenses:
Diving and related expenses 30,635 35,338 63,180 10,359 10,346 45,486 51,657
Selling, general and
administrative expenses 10,808 14,222 19,318 2,873 3,055 14,328 14,759
Depreciation and amortization 2,153 3,415 5,064 799 889 3,796 4,737
________ ________ ________ ________ ________ ________ ________
Total costs and expenses 43,596 52,975 87,562 14,031 14,290 63,610 71,153
________ ________ ________ ________ ________ ________ ________
Operating income (loss) 7,427 (220) 1,098 1,228 1,196 79 8,313
________ ________ ________ ________ ________ ________ ________
Other income (expense):
Interest expense (341) (297) (1,377) (183) (220) (1,075) (817)
Other income 143 232 258 45 13 215 133
Gain (loss) on sale or
abandonment of property
and equipment and other
assets 42 21 (130) 1 5 (125) 531
Non-recurring incentive
compensation charge related
to initial public offering
of common stock (Note 8) (27,301) -- -- -- -- -- --
________ ________ ________ ________ ________ ________ ________
Total other expense (27,457) (44) (1,249) (137) (202) (985) (153)
________ ________ ________ ________ ________ ________ ________
Income (loss) from continuing
operations before income taxes
and minority interest (20,030) (264) (151) 1,091 994 (906) 8,160
Income tax expense (benefit)
attributable to continuing
operations (6,777) 75 62 480 420 (280) 3,470
________ ________ ________ ________ ________ ________ ________
Income (loss) from continuing
operations before minority
interest (13,253) (339) (213) 611 574 (626) 4,690
Minority interest in (earnings)
loss of subsidiary 54 82 (116) -- -- -- --
_______ ________ ________ ________ ________ _______ _______
Income (loss) from continuing
operations (13,199) (257) (329) 611 574 (626) 4,690
________ ________ ________ ________ ________ ________ ________
Discontinued operations (Note 1):
Loss from discontinued operations
through October 31, 1994, less
income tax benefits of $539 in
1994 and $328 in 1993 (638) (1,054) -- -- -- -- --
Estimated loss on disposal, less
income tax benefit of $331 -- (642) -- -- -- -- --
________ ________ ________ ________ ________ ________ ________
Loss from discontinued operations (638) (1,696) -- -- -- -- --
________ ________ ________ ________ ________ ________ ________
Net income (loss) $ (13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $4,690
======== ======== ======== ======== ======== ======== =========
Net income (loss) per share:
Continuing operations $ (2.41) $ (.04) $ (.05) $ .09 $ .09 $ (.09) $ .69
Discontinued operations (.11) (.25) -- -- -- -- --
________ ________ ________ ________ ________ ________ ________
Net income (loss) per share $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding 5,484 6,706 6,709 6,709 6,709 6,709 6,769
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995, THE TWO MONTHS
ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands, except share data)
<TABLE>
<CAPTION> Foreign (Accumulated)
Common Stock Additional Currency Deficit)
________________ Paid-in Translation Retained
Shares Amount Capital Adjustments Earnings Total
________ ________ ________ _____________ __________ _________
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992 1,950,000 $ 1,215 $ -- $ (82) $ 13,035 $ 14,168
Issuance of common stock in
initial public offering 1,150,000 103 8,826 -- -- 8,929
Issuance of common stock from
underwriters' exercise of
overall option 450,000 41 3,599 -- -- 3,640
Termination of Buy-Sell
Agreements on redeemable
common stock (Note 8) 3,138,750 -- 948 -- -- 948
Non-recurring incentive
compensation charge related
to initial public offering
of common stock (Note 8) -- -- 27,301 -- -- 27,301
Net effects of translation of
foreign currency -- -- -- (50) -- (50)
Net loss -- -- -- -- (13,837) (13,837)
__________ ________ __________ _________ __________ __________
Balance at October 31, 1993 6,688,750 1,359 40,674 (132) (802) 41,099
Issuance of common stock 20,747 1 163 -- -- 164
Net effects of translation
of foreign currency -- -- -- 17 -- 17
Net loss -- -- -- -- (1,953) (1,953)
__________ ________ __________ _________ __________ __________
Balance at October 31, 1994 6,709,497 1,360 40,837 (115) (2,755) 39,327
Net effects of translation of
foreign currency -- -- -- (9) -- (9)
Net loss -- -- -- -- (329) (329)
__________ ________ __________ _________ __________ __________
Balance at October 31, 1995 6,709,497 1,360 40,837 (124) (3,084) 38,989
Net effects of translation of
foreign currency -- -- -- (8) -- (8)
Net income -- -- -- -- 574 574
__________ ________ __________ _________ __________ __________
Balance at December 31, 1995 6,709,497 1,360 40,837 (132) (2,510) 39,555
Other -- -- (52) -- -- (52)
Issuance of common stock 101,685 8 763 -- -- 771
Net effects of translation of
foreign currency -- -- -- 1 -- 1
Net income -- -- -- -- 4,690 4,690
__________ ________ __________ _________ __________ __________
Balance at September 30, 1996
(unaudited) 6,811,182 $ 1,368 $ 41,548 $ (131) $ 2,180 $44,965
__________ ________ __________ _________ __________ __________
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Two Months Ended Nine Months Ended
Year Ended October 31, December 31, September 30,
_________________________ __________________ ____________________
1993 1994 1995 1994 1995 1995 1996
________ ________ ________ ________ _________ __________ _________
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 52,828 $ 51,962 $ 80,070 $ 13,125 $ 19,657 $ 57,263 $ 75,843
Cash paid to suppliers and employees (46,293) (53,570) (77,285) (13,527) (19,137) (55,936) (65,080)
Interest paid (362) (273) (1,217) (182) (220) (1,075) (817)
Income taxes refunded (paid) (1,903) 6,112 (167) 12 (21) (15) (129)
Other cash received (paid) (302) 192 (26) (356) (576) 456 582
__________ ________ ________ ________ ________ ________ __________
Net cash provided by operating
activities 3,968 4,423 1,375 (928) (297) 693 10,399
__________ ________ ________ ________ ________ ________ __________
Cash flows from investing activities:
Decrease (increase) to other assets (425) (1,902) (1,551) (37) (44) (213) 462
Capital expenditures (8,287) (17,824) (7,884) (315) (322) (7,559) (15,757)
Net proceeds from sales of assets
(Note 1) 64 17 1,541 -- 35 1,571 5,681
Proceeds from insurance claim -- -- 1,565 -- -- 1,565 535
Proceeds from sale of notes receivable
(Note 1) -- -- 2,762 -- -- 2,762 --
Receipt of payments on notes receivable -- -- 480 -- -- 467 --
Purchase of short-term investment (498) -- -- -- -- -- --
Maturity of short-term investment -- 498 -- -- -- -- --
__________ ________ ________ ________ ________ ________ __________
Net cash used by investing
activities (9,146) (19,211) (3,087) (352) (331) (1,407) (9,079)
__________ ________ ________ ________ ________ ________ __________
Cash flows from financing activities:
Repayments of long-term debt (4,212) (213) (2,810) (401) (333) (2,242) (7,288)
Proceeds from long-term borrowings 1,000 8,023 2,000 -- -- 2,000 10,500
Net proceeds (payments) under line
of credit agreement (1,772) 4,830 2,470 950 575 1,270 (3,842)
Issuance of common stock under
exercise of options -- -- -- -- -- -- 170
Proceeds from initial public offering
of common stock 12,569 -- -- -- -- -- --
__________ ________ ________ ________ ________ ________ __________
Net cash provided by financing
activities 7,585 12,640 1,660 549 242 1,028 (460)
__________ ________ ________ ________ ________ ________ __________
Net increase (decrease) in cash 2,407 (2,148) (52) (731) (386) 314 860
Cash and cash equivalents at
beginning of year 967 3,374 1,226 1,226 1,174 495 788
__________ ________ ________ ________ ________ ________ __________
Cash and cash equivalents at
end of year $ 3,374 $ 1,226 $ 1,174 $ 495 $ 788 $ 809 $ 1,648
========== ======== ======== ======== ======= ======== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE> Two Months Ended Nine Months Ended
<CAPTION> Year Ended October 31, December 31, September 30,
____________________ ____________ _____________
1993 1994 1995 1994 1995 1995 1996
____ _____ _____ ____ _____ ______ ______
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income (loss) $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) on sale or abandonment of
property and equipment and other
assets (42) (21) 130 -- (5) 125 (530)
Discount on sale of note receivable -- -- 159 -- -- -- --
Write-down of assets held for sale -- 648 -- -- -- -- --
Stock bonus compensation expense 81 -- -- -- -- -- --
Minority interest in earnings (loss) of
subsidiary (54) (82) 116 -- -- -- --
Non-recurring incentive compensation
charge related to initial public
offering of common stock 27,301 -- -- -- -- -- --
Depreciation and amortization 2,401 4,022 5,064 799 889 3,796 4,737
Provision for loss on receivables 120 92 237 70 80 190 543
Receivables written off (65) (144) (345) (20) -- (143) --
(Increase) decrease in deferred tax
asset -- (1,407) 930 -- -- 752 57
Increase (decrease) in deferred tax
liability 349 (1,017) -- -- -- -- 1,200
(Increase) decrease in current assets,
net of the effect of businesses
acquired (Note 1):-
Accounts receivable (1,547) (4,521) (6,465)(1,876) 10,775 (1,152) (9,340)
Unbilled receivables (2,078) (1,764) (1,790) (151) (6,604) (5,275) 5,716
Tax refund receivable (6,275) 6,149 125 (102) -- -- --
Other receivables (445) (40) (409) (400) (590) 109 450
Current deferred tax asset (2,275) 1,525 (950) 492 400 (657) 1,500
Inventories 369 (803) (549) 120 (70) (95) (556)
Prepaid expenses (202) (239) (912) (83) 555 (2,006) (1,167)
Increase (decrease) in current
liabilities, net of the effect of
businesses acquired (Note 1):-
Accounts payable 1,189 1,397 628 (1,526) (2,300) 2,976 1,622
Other liabilities (1,022) 2,581 5,735 1,138 (4,001) 2,699 1,477
________ _______ _______ ______ ________ ______ _______
Total adjustments 17,805 6,376 1,704 (1,539) (871) 1,319 5,709
________ _______ _______ ______ ________ ______ _______
Net cash provided by
operating activities $ 3,968 $ 4,423 $ 1,375 $ (928) $ (297) $ 693 $10,399
======== ======= ======= ====== ======== ====== =======
</TABLE>
Supplemental disclosure of noncash activities:-
Fixed assets and inventory totalling $4,886,890 are classified as assets
held for sale at October 31, 1994. The Company issued common stock
valued at $164,000 in connection with its acquisition of a business
during 1994.
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
____________________________________________________
The Company and Principles of Consolidation
___________________________________________
The consolidated financial statements include the accounts of American
Oilfield Divers, Inc. and its wholly-owned and majority-owned
subsidiaries (the Company). All material intercompany transactions and
balances have been eliminated in consolidation.
Effective October 31, 1994, the Company sold certain operating assets of
its subsidiary, American Corrosion Services, Inc. (ACS), a manufacturer
and marketer of corrosion protection devices. Accordingly, ACS is
reported as a discontinued operation at October 31, 1994. The loss on
disposal of ACS operations of $642,000 (net of income taxes of $331,000)
includes the loss on the sale of the assets, and other estimated costs
incurred in connection with the disposition. Revenues from corrosion
protection device sales were $5,492,369 in 1994 and $5,429,242 in 1993.
During fiscal 1994, the Company completed acquisitions of two businesses
involved in the diving and related services industry, as well as certain
other diving related assets. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately
$502,000 was recorded as goodwill and is being amortized over 15 years.
The operating results of the acquisitions are included in the Company's
consolidated results of operations from the date of acquisition. Pro
forma results of these acquisitions, assuming they had been made at the
beginning of fiscal 1994 and 1993, would not be materially different
from the results reported.
On June 26, 1996, the Company's Board of Directors resolved to change
the Company's fiscal year-end from October 31 to December 31 to enable
the Company to report its quarterly and annual results of operations on
a comparable basis with other companies in the oil and gas industry.
Revenue Recognition
___________________
Revenue is recognized on projects of short duration at the time services
are rendered at estimated collectible amounts. Revenue is recognized on
fixed price (turnkey) contracts on the percentage of completion method
based on the ratio of costs incurred to total estimated costs at
completion. Contract price and cost estimates are reviewed periodically
as work progresses and adjustments are reflected in the period in which
such estimates are revised. Provisions for estimated losses on fixed
price contracts are made in the period such losses are determined.
Unbilled revenue represents revenue attributable to work completed prior
to the balance sheet date which has not been billed and work in progress
at the balance sheet date which will be billed at the completion of the
related contract. All amounts included in unbilled revenue at October
31, 1994 and 1995, December 31, 1995 and September 30, 1996 are
estimated to be billed and collected within the current year.
Diving and related expenses include all the direct labor and benefits,
materials unique to or installed in the project, and vessel related
expenses, and are charged as incurred. General and administrative
expenses are charged to expense as incurred.
Inventories
___________
Inventories are valued at the lower of cost or market determined on the
first-in, first-out basis.
Other Assets
____________
Other assets include goodwill, patents and trademarks, organization
costs, deferred drydock costs and noncompete agreements, which are
amortized on the straight-line method over their estimated useful lives,
ranging from five to fifteen years. Accumulated amortization on other
assets was $576,928 and $1,323,709 at October 31, 1994 and 1995,
$1,391,658 at December 31, 1995 and $1,690,895 at September 30, 1996
(unaudited).
Property, Plant and Equipment
_____________________________
Property, plant and equipment are carried at cost. Depreciation of
assets is computed by the straight-line method over the estimated useful
lives of the related assets. Amortization of leasehold improvements is
computed by the straight-line method over the shorter of the useful life
of the asset or the life of the lease. Useful lives range from 5 to 10
years for vessels and surveying equipment; 3 to 10 years for diving and
other equipment; 3 to 5 years for transportation equipment; 3 to 10
years for leasehold improvements; 5 years for furniture and fixtures and
30 years for buildings. As the Company has not had any construction
projects of significant duration, no interest costs have been
capitalized in connection with these projects; however, certain labor
and other direct construction costs have been capitalized as part of the
assets.
Assets retired or otherwise disposed of are removed from the accounts
along with any related depreciation and amortization and the resultant
gain or loss is reflected in income. Maintenance and repairs are
charged to expense as incurred.
As a result of the change in fiscal year-end, the Company is required to
implement Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," (SFAS 121) for the fiscal year ended December
31, 1996. This pronouncement requires a review for impairment whenever
circumstances indicate that the carrying amount of long-lived assets,
certain identifiable intangibles and goodwill may not be recoverable
through future cash flows. In accordance with SFAS 121, the Company
recognized a pre-tax charge of $500,000 ($290,000 after tax, or $.04 per
share), effective January 1, 1996. The charge is included in
depreciation and amortization in the consolidated statement of income
for the nine months ended September 30, 1996.
Foreign Currency Translation
____________________________
Income statement accounts are translated at average exchange rates
during the year and the balance sheet is converted as of the last day of
the fiscal year at the current rate of exchange. The resulting
translation adjustment is recorded as a separate component of
stockholders' equity.
Income Taxes
_____________
The Company files a consolidated federal income tax return. The Company
provides for taxes on the basis of items included in the determination
of income for financial reporting purposes regardless of the period when
such items are reported for tax purposes. Accordingly, the Company
records deferred tax liabilities and assets for future tax consequences
of events that have been recognized in different periods for financial
and tax purposes.
Earnings (loss) per share
_________________________
Earnings (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares, including
redeemable common shares, outstanding during each year. Outstanding
stock options are common stock equivalents but are excluded from
earnings per common share as the effect would not be materially dilutive.
Cash and Cash Equivalents
_________________________
For purposes of the consolidated statement of cash flows, cash and cash
equivalents include short-term highly liquid investments with original
maturities of three months or less.
Interim Financial Statements
_____________________________
The accompanying financial statements for the two months ended December
31, 1994 and the nine months ended September 30, 1995 and 1996 are
unaudited. In management's opinion, such interim financial statements
reflect all normal recurring adjustments necessary for a fair statement
of the results of operations for such interim periods. These interim
financial statements should be read in conjunction with the Company's
audited financial statements included herein.
The offshore oilfield sources industry in the Gulf of Mexico is highly
seasonal as a result of weather conditions and the timing of capital
expenditures by the oil and gas industry. As a result, a
disproportionate amount of the Company's total revenues and net income
is earned during the third (July through September) and fourth (October
through December) quarters of its fiscal year. Results for interim
periods are not necessarily indicative of the results that may be
expected for the complete fiscal year.
NOTE 2 - INVENTORIES
____________________
Inventories consist of the following (in thousands):
October 31, December 31, September 30,
______________ ____________ ____________
1994 1995 1995 1996
________ _______ ___________ ___________
(Unaudited)
Fuel $ 134 $ 112 $ 101 $ 49
Supplies 659 1,007 1,026 759
Work-in-process 287 389 444 453
Finished goods 562 683 690 1,556
________ ________ __________ ____________
$1,642 $2,191 $ 2,261 $ 2,817
======== ======== ========== ============
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
_______________________________________
Property, plant and equipment consist of the following (in thousands):
October 31, December 31, September 30,
_______________ ___________ _____________
1994 1995 1995 1996
________ ________ __________ ____________
(Unaudited)
Diving $ 11,440 $ 15,719 $ 16,056 $ 18,572
Manufacturing and related equipment 682 832 892 1,073
Vessels and surveying equipment 17,994 17,416 17,454 21,280
Transportation equipment 702 688 703 652
Furniture and fixtures 2,742 3,401 3,463 3,762
Leasehold improvements 899 1,051 1,080 1,104
Construction in progress 970 946 665 3,395
Building 1,681 2,663 2,699 2,732
Land 377 591 591 591
_________ _________ ___________ __________
37,487 43,307 43,603 53,161
Less - Accumulated depreciation
and amortization (13,063) (17,228) (18,053) (21,430)
__________ _________ __________ ___________
$ 24,424 $ 26,079 $ 25,550 $ 31,731
========== ========= ========== ===========
Construction in progress at December 31, 1995 primarily consists of
construction of various items of equipment. The total costs to compete
the projects have been estimated by management to approximate $1,000,000
and are estimated to be completed at various times during fiscal 1996.
The net book value of assets pledged as collateral to secure the
Company's debt (Note 6) was $12,472,000 at October 31, 1994, $9,975,000
at October 31, 1995, $9,555,623 at December 31, 1995 and $10,768,997 at
September 30, 1996.
NOTE 4 - OTHER LIABILITIES
___________________________
Other liabilities consist of the following (in thousands):
October 31, December 31, September 30,
_____________ _____________ _____________
1994 1995 1995 1996
_______ _______ ____________ _____________
(Unaudited)
Accrued salaries, wages, bonuses
and sales commissions $ 663 $ 1,400 $ 313 $ 607
Bank overdraft 1,147 2,537 2,521 516
Workers' compensation liability 268 466 624 304
Other (primarily job related
accruals) 2,379 5,789 2,739 5,661
________ _________ __________ ___________
$4,457 $10,192 $6,197 $7,088
======== ========= ========== ===========
NOTE 5 - LINE OF CREDIT AGREEMENT
_________________________________
The Company has a $15,000,000 revolving line of credit agreement with a
bank with interest due quarterly at a prime rate plus .5% (9.00% at
December 31, 1995). In April 1996, the line was amended to extend the
maturity date to March 31, 1997 and reduce the interest rate to prime.
The line of credit is secured by and limited to certain qualifying
accounts receivable, is cross-collateralized by certain of the Company's
vessels and certain other assets and is subject to certain covenants
(Note 6). Subsequent to September 30, 1996, the amount available under
the agreement was increased (Note 13).
NOTE 6 - LONG-TERM DEBT
________________________
Long-term debt consists of the following (in thousands):
October 31, December 31, September 30,
_____________ _____________ _____________
1994 1995 1995 1996
(Unaudited)
Note payable to a bank, interest
at 9.50%; monthly principal
installments of $33 plus interest
through April 3, 2000; secured by
a vessel $ -- $1,800 $ 1,733 $ --
Note payable to a bank, interest
at 8.75%; monthly principal
installments of $50 plus interest
through August 9, 1999; secured by
a vessel 2,950 2,300 2,200 --
Note payable to a bank, interest
at 8.75%; monthly principal
installments of $33 plus interest
through August 9, 1999; secured by
three vessels 1,967 1,533 1,467 --
Note payable to a bank, interest
at a prime rate plus .75% (9.25%
at December 31, 1995); monthly
principal installments of $50 plus
interest through September 22, 1999;
secured by two vessels and certain
diving equipment 3,000 1,488 1,388 --
Note payable to a bank, interest
at 7.90%; monthly principal
installments of $125 plus interest
with a balloon payment of
$3,125 on May 31, 2001; secured by
11 vessels and certain diving
equipment -- -- -- 10,000
Other long-term debt 14 -- -- --
_________ _________ __________ _________
7,931 7,121 6,788 10,000
Less - Current portion (2,488) (2,000) (1,375) (1,500)
_________ _________ __________ _________
$ 5,443 $ 5,121 $ 5,413 $ 8,500
========= ========= ========== =========
Included in the classification of long-term debt at December 31, 1995
are certain current maturities totaling $625,000 which were refinanced
in April 1996.
Aggregate maturities of long-term debt under the new agreement in the
fiscal years subsequent to September 30, 1996 are as follows (in
thousands):
1996 $ 1,500
1997 1,500
1998 1,500
1999 1,500
2000 and thereafter 4,000
__________
$10,000
==========
The Company's long term debt and line of credit agreements require the
Company to maintain certain financial ratios and a specified amount of
equity, include restrictions on capital expenditures and also limit
payment or declaration of dividends to an amount not to exceed 15% of
average net income for the four previous quarters.
NOTE 7 - INCOME TAXES
_____________________
The provision (benefit) for income taxes attributable to continuing
operations is comprised of the following (in thousands):
Year Ended Two Months Ended
October 31, December 31,
________________________ _____________
1993 1994 1995 1995
______ ______ _______ ______
Current tax expense (benefit):
Federal $ (4,910) $ 305 $ -- $ --
State 11 140 13 --
Foreign 48 -- 69 --
________ ________ _______ _______
Total current tax expense
(benefit) (4,851) 445 82 --
Deferred tax (expense) provision (1,926) (370) (20) 420
________ ________ ________ ______
Total provision (benefit) for
income taxes $ (6,777) $ 75 $ 62 $420
========= ======== ======= ======
A summary of the components of the provision (benefit) for deferred
income taxes follows (in thousands):
Year Ended Two Months Ended
October 31, December 31,
________________________ _____________
1993 1994 1995 1995
______ ______ _______ ______
Recognition of tax loss and credit
carryforwards attributable to
incentive compensation charge $(1,550) $ -- $ -- $ --
Utilization of tax loss
carryforwards -- -- -- 338
Foreign tax loss carryforward (187) (329) -- --
Excess tax over book depreciation (164) (100) (111) 80
Other, net (25) 59 91 2
_________ ________ ________ ________
Total provision (benefit) for
deferred income taxes $ (1,926) $ (370) $ (20) $ 420
========= ======== ======== ========
The difference between the taxes provided for continuing operations at
the United States statutory rate and the Company's actual tax provision
is reconciled below (in thousands):
Year Ended Two Months Ended
October 31, December 31,
________________________ _____________
1993 1994 1995 1995
______ ______ _______ ______
Taxes provided at United States
statutory rate $ (6,810) $ (90) $ (51) $ 338
State tax expense, net of federal
benefit 7 76 13 33
Non-deductible meals and entertainment 70 99 118 20
Other, net (44) (10) (18) 29
________ _______ _______ _______
Total provision (benefit) for
income taxes $ (6,777) $ 75 $ 62 $ 420
========= ======= ======= =======
The approximate effect of temporary differences and carryforwards that
give rise to deferred tax balances were as follows (in thousands):
October 31, December 31,
______________ ___________
1994 1995 1995
_______ ________ ______
Federal net operating loss carryforward $ 501 $ 1,679 $ 1,679
Deferred drydock expense (49) (317) (317)
Allowance for doubtful accounts 129 102 102
Accrued insurance 100 182 182
Other, net 69 54 54
_______ ________ _________
Current deferred tax asset $ 750 $ 1,700 $ 1,700
======= ======== =========
Depreciation $(1,475) $(2,320) $(2,400)
Federal, state and foreign net operating
loss carryforward 2,413 2,255 1,917
Foreign tax credit carryforward 95 163 163
Minimum tax credit carryforward 372 372 372
Other, net 2 7 5
________ __________ _________
Noncurrent deferred tax asset $ 1,407 $ 477 $ 57
======== ========== =========
At December 31, 1995, the Company had federal net operating loss
carryforwards (NOL's) of $8,500,000 which can be used to offset future
taxable income. Such carryforwards, which may provide future tax
benefits, expire in 2007 through 2010. Based on the Company's forecast
for future earnings, management has determined that future taxable
income will more likely than not be sufficient to utilize the NOL's
prior to their expiration.
NOTE 8 - STOCKHOLDERS' EQUITY
______________________________
Incentive Compensation Charge
_____________________________
Prior to its Initial Public Offering (IPO) of common stock in July 1993,
the Company had Buy-Sell Agreements with certain employees for 3,138,750
shares of common stock issued to them at no cost under an incentive
award program. These Agreements terminated immediately prior to the IPO
and in 1993, the Company recognized a non-recurring, non-cash charge to
incentive compensation expense of $27,300,700, with a corresponding
credit to additional paid in capital. This amount represented the
difference between the IPO price of $9.00 per share, or $28,248,750, and
$948,050 previously recognized as expense. Additionally, $948,050 was
reclassified from mandatorily redeemable common stock to additional paid
in capital. The Company recorded a tax benefit of $9,490,000 associated
with this charge.
Stock Options
_____________
During 1993, the Company implemented an Incentive Compensation Plan
whereby officers and other employees of the Company may be granted stock
options, stock awards, restricted stock, performance share awards or
cash awards by the Compensation Committee of the Board of Directors. A
total of 500,000 shares of common stock have been reserved for issuance
under the Plan. The exercise price of an incentive option may not be
less than the fair market value of the shares subject to the option on
the date of the grant and the exercise price of a non-qualified option
may not be less than 85% of the fair market value of the shares subject
to the options on the date of grant. At December 31, 1995, outstanding
options for 332,500 shares had been granted under this plan during
fiscal years 1993 through 1995 at fair market value prices ranging from
$5.67 to $9.00. These options are exercisable over various periods
through 1998 and expire over various periods through 2005. No
compensation expense was recognized in connection with the issuance of
options under the Incentive Compensation Plan and no options have been
exercised as of December 31, 1995.
During 1993, the Company also implemented a Director Plan, pursuant to
which each non-employee director will automatically receive options to
purchase 1,500 shares of common stock upon first becoming a director and
annually thereafter on the day following the date of the Company's
annual meeting of stockholders at an exercise price equal to the fair
market value of the common stock on the date of grant. A maximum of
50,000 shares may be issued pursuant to options granted under the
Director Plan. As of December 31, 1995, options to purchase 9,000
shares of common stock at prices ranging from $6.625 per share to $10.50
per share have been granted under the Director Plan. No compensation
expense was recognized in connection with the issuance of these options.
The stock options outstanding are immediately exercisable over a period
of time not to exceed 5 years after the date of grant. No options have
been exercised during the three years ended October 31, 1995 and the two
months ended December 31, 1995.
During 1993, the Company also implemented an Employee Stock Option Plan
(the Employee Plan) to provide for the one-time grant of non-qualified
stock options to purchase shares of common stock to employees meeting
certain eligibility requirements. A total of 160,000 shares of common
stock have been reserved for issuance under the Employee Plan and in
September 1993 options for 149,952 shares were granted to certain
employees. The fair market value of the common stock on the date of
grant was $10.00. The options with respect to one-third of the shares
became exercisable on September 21, 1995 at a price of $9.00 per share
and were required to be exercised no later than December 21, 1995 or
automatically expire. The options with respect to a second one-third of
the shares become exercisable on March 21, 1997 at a price of $10.00 per
share and must be exercised no later than September 21, 1998 or
automatically expire. The options with respect to the final one-third
of the shares become exercisable on March 21, 1998 at a price of $10.00
per share and must be exercised no later than September 21, 1998 or
automatically expire. No compensation expense was recognized with the
issuance of these options. No options have been exercised during the
three years ended October 31, 1995 and the two months ended December 31,
1995. At December 31, 1995, 80,260 options have expired or terminated.
NOTE 9 - EMPLOYEE BENEFITS
___________________________
Effective January 1, 1989 the Company established a qualified 401(k)
profit sharing plan (the Plan) for employees. The Plan provides for a
10% match by the Company for employee contributions of up to 15% of
gross pay. Such employer contributions vest over a period of 5 years
and totalled $74,492 in 1993, $80,241 in 1994 and $89,795 in 1995 and
$17,038 for the two months ended December 31, 1995. Under the terms of
the Plan, participants may elect to purchase shares of the Company's
common stock on the open market through a broker.
NOTE 10 - RELATED PARTY TRANSACTIONS
_____________________________________
The Company incurred costs related to property leases with two major
shareholders of $58,935 in 1995, $84,402 in 1994 and $109,402 in 1993.
With the exception of one lease with an annual cost of approximately
$15,600, all leases had been terminated at October 31, 1995.
NOTE 11 - BUSINESS SEGMENT, GEOGRAPHIC AREA AND MAJOR CUSTOMER INFORMATION
__________________________________________________________________________
The Company classifies its operations under one business segment, diving
and related revenues. A summary operations by geographical area
follows (in thousands):
United States Consolidated
Africa(1) and Other Corporate Total
_________ __________ _________ _______
Year Ended October 31, 1993
____________________________
Diving and related revenues $ 5,489 $ 45,534 $ - $51,023
Operating income 1,020 6,407 - 7,427
Identifiable assets (2) 2,206 43,120 2,275 47,601
Year Ended October 31, 1994
____________________________
Diving and related revenues $ 3,889 $ 48,866 $ - $52,755
Operating income (loss) (241) 21 - (220)
Identifiable assets (2) 3,146 56,304 2,157 61,607
Year Ended October 31, 1995
____________________________
Diving and related revenues $ 18,974 $ 69,686 $ - $88,660
Operating income (loss) 2,883 (1,785) - 1,098
Identifiable assets (2) 10,354 56,877 2,177 69,408
Two Months Ended December 31, 1995
__________________________________
Diving and related revenues $ 924 $ 14,562 $ - $15,486
Operating income (loss) (150) 1,346 - 1,196
Identifiable assets (2) 4,436 57,728 1,757 63,921
(1) Includes the Company's diving and related services provided off the
coast of West Africa and Dubai, United Arab Emirates.
(2) Identifiable assets are those assets used in the Company's
operations in each area. Corporate assets consist of the Company's
deferred tax asset.
The Company's ten largest customers accounted for $29,163,000 or 52%
during 1993; $23,027,000 or 39% during 1994; $40,451,000 or 46%
during 1995 and $5,591,707 or 65% of the Company's total revenues during
the two months ended December 31, 1995. Of the ten customers, there was
one that accounted for more than 10% of the Company's revenues during
each of the following periods: $15,100,000 or 27% during 1993,
$6,022,000 or 10% during 1994, $12,782,000 or 14% during 1995 and
$2,445,311 or 16% for the two months ended December 31, 1995.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
________________________________________
In the normal course of business, the Company becomes involved as a
defendant or plaintiff in various lawsuits. While the outcome of these
lawsuits cannot be predicted with certainty, based upon the evaluation
by the Company's legal counsel of the merits of pending or threatened
litigation, management believes that the outcome of such litigation
would not have a material effect on the accompanying financial
statements.
The Company's operations involve a higher degree of operational risk,
product liability and warranty claims than that found in other
industries. Although a successful claim for which the Company is not
fully insured could have a material effect on the Company's financial
condition or results of operations, management is of the opinion that it
maintains adequate insurance, in line with industry standards, to insure
itself against the normal risks of operations.
Leases are primarily for buildings and vehicles used in operations and
are classified as operating leases. The amount of future minimum
rentals for these noncancellable leases with terms in excess of one year
are as follows at December 31, 1995 (in thousands):
1996 $ 742
1997 407
1998 124
1999 14
________
$1,287
========
Total rental expense under operating leases was $948,483, $983,214 and
$1,249,196 for the years ended October 31, 1993, 1994 and 1995,
respectively and $153,316 for the two months ended December 31, 1995.
In the ordinary course of business, the Company issues letters of credit
which may be drawn down upon certain events including the Company's
failure to perform under certain contracts. At December 31, 1995, the
Company had letters of credit outstanding totaling $413,000 which expire
at various times in fiscal 1996.
NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED)
______________________________________
Acquisition
Subsequent to September 30, 1996, a subsidiary of the Company acquired
approximately 97% of the outstanding common stock of Hard SuitsF Inc., a
publicly traded company on the Toronto and Vancouver Stock Exchanges,
for a cash purchase price of approximately $12,450,000, including
estimated transaction costs. The purchase was funded through borrowings
on the Company's line of credit. The Company intends to acquire the
remaining common shares outstanding and to seek delisting of all shares
from both the Toronto and Vancouver Stock Exchanges. The acquisition
will be accounted for under the purchase method of accounting.
Line of Credit
In October 1996, the line of credit agreement was amended to increased
the facility by $5,000,000 in order to facilitate the funding of its
purchase of Hard Suits Inc. until such time as permanent financing is
arranged. Advances under the increased line of credit facility mature
on January 31, 1997. At December 12, 1996, the balance outstanding
under the line of credit was $15,529,010 and bears interest at a prime
rate ( 8.25% at December 12, 1996).
Litigation
In October, 1996, an overseas operator instituted litigation in
Edinburgh, Scotland seeking damages of approximately $3,000,000, plus
interest and costs, against subsidiaries of the Company, on the basis of
allegations that a product supplied by the subsidiaries exhibited design
faults upon installation in a North Sea pipeline. The product was
hydrostatically tested onshore and did not leak and otherwise met the
customer's requirements. The product was removed by the overseas
company against the recommendations of the subsidiaries and replaced
before the pipeline was placed in service and the product did not leak
or otherwise malfunction. No environmental damage is alleged. The
Company contends the product was fully suitable for service, intends to
defend the claim vigorously and does not believe that the ultimate
resolution of the matter will have a material adverse impact on the
financial position or results of operations of the Company.
<PAGE>
Selected Quarterly Financial Data
(in thousands, except per share data)
The following table sets forth selected unaudited quarterly financial
information.
<TABLE>
<CAPTION>
Quarter ended
January 31 April 30 July 31 October 31
1994 1994 1994 1994
______ _____ ______ _____
<S> <C> <C> <C> <C>
Diving and related revenues $ 8,305 $ 8,946 $ 13,570 $21,934
Operating income (loss) from continuing
operations (709) (699) (614) 1,802
Income (loss) from continuing operations (328) (407) (412) 890
Loss from discontinued operations (including
loss on disposal) (274) (170) (266) (986)
Net loss (602) (577) (678) (96)
Earnings (loss) per share:
Continuing operations (.05) (.06) (.06) .13
Discontinued operations (.04) (.03) (.04) (.14)
Net loss (.09) (.09) (.10) (.01)
Weighted average common shares outstanding 6,695 6,709 6,709 6,709
Quarter ended
January 31 April 30 July 31 October 31
1995 1995 1995 1995
______ _____ ______ _____
Diving and related revenues $ 19,638 $ 12,287 $ 24,908 $ 31,827
Operating income (loss) from continuing
operations 384 (3,117) 1,632 2,199
Net income (loss) 141 (2,126) 685 971
Earnings (loss) per share .02 (.32) .10 .14
Weighted average common shares outstanding 6,709 6,709 6,709 6,709
Quarter ended
January 31 April 30 June 30 September 30
1996 1996 1996 1996
______ _____ ______ _____
Diving and related revenues $ 22,162 $ 19,179 $ 26,829 $ 33,409
Operating income from continuing operations 1,427 595 2,992 5,296
Net income 709 471 1,735 2,851
Earnings per share .11 .07 .26 .42
Weighted average common shares outstanding 6,709 6,726 6,788 6,806
<PAGE>
HARD SUITS INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1994 AND 1995
TOGETHER WITH AUDITORS' REPORT
AUDITORS' REPORT
To the Shareholders of
Hard Suits Inc.:
We have audited the consolidated balance sheets of Hard Suits Inc. (a British
Columbia company) as at December 31, 1994 and 1995 and the consolidated
statements of operations, deficit and changes in financial position for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1994 and 1995 and the results of its operations and the changes in its
financial position for the years then ended in accordance with generally
accepted accounting principles in Canada. As required by the British Columbia
Company Act, we report that, in our opinion, these principles have been
applied on a consistent basis.
Vancouver, British Columbia
March 8, 1996.
Comments by Auditors for United States of America Readers
On Canada-United States Reporting Conflict
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph when the consolidated financial
statements are affected by significant uncertainties such as described in Note
1 ("Future Operations") to the consolidated financial statements. Our report
to the shareholders dated March 8, 1996 is expressed in accordance with
Canadian reporting standards, which do not permit a reference to such
uncertainties in the auditors' report when the uncertainties are adequately
disclosed in the consolidated financial statements.
Vancouver, British Columbia
March 8, 1996.
HARD SUITS INC.
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1995
---- ----
ASSETS (Note 9)
------
CURRENT ASSETS:
Cash $ 1,556,614 $ 1,049,147
Accounts receivable, net 2,009,024 2,986,264
Inventories (Note 4) 1,403,670 780,188
Prepaid expenses and other 215,032 173,202
----------- -----------
5,184,340 4,988,801
DUE FROM AFFILIATE (Note 5) 43,057 167,247
RECEIVABLE 252,369 --
EQUIPMENT AND OTHER CAPITAL ASSETS (Note 6) 3,642,636 3,870,281
PATENTS, net of accumulated amortization of
$745,485 (1994- $346,671) 398,814 --
DEFERRED DEVELOPMENT COSTS (Note 7) 671,264 469,295
DEFERRED FINANCING COSTS 33,521 --
----------- -----------
$10,226,001 $ 9,495,624
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,671,833 $ 3,089,167
Income taxes payable 15,491 20,615
Due to affiliates (Note 8) 91,309 562,506
Debt, current portion (Note 9) 303,557 417,510
Customer deposits -- --
----------- -----------
2,082,190 4,089,798
DEFERRED REVENUE -- --
DEBT (Note 9) 709,545 650,997
DEFERRED INCOME TAXES 10,641 --
NON-CONTROLLING INTEREST (Note 10) 1,206,490 1,189,592
----------- -----------
4,008,866 5,930,387
----------- -----------
CONTINGENCY (Note 17)
SHAREHOLDERS' EQUITY:
Share capital (Note 11) 8,976,921 9,927,263
Deficit (2,850,063) (6,373,871)
Cumulative translation account 90,277 11,845
----------- -----------
6,217,135 3,565,237
----------- -----------
$10,226,001 $ 9,495,624
=========== ===========
The accompanying notes are an integral part of these consolidated balance sheets.
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
December 31,
____________________
1994 1995
_________ ___________
Revenue $ 10,314,362 $ 18,247,983
Cost of sales 6,778,250 16,325,686
------------ ------------
Gross profit 3,536,112 1,922,297
------------ ------------
Selling expenses:
Salaries and other 600,637 279,623
Commissions 117,862 60,687
------------ ------------
718,499 340,310
------------ ------------
Administrative expenses:
Management fees (Note 13) 223,379 1,138,652
Office 580,178 1,034,426
Salaries and wages 469,532 971,155
Professional fees 265,623 638,985
Insurance 658,379 558,626
Rent 271,722 307,518
Interest, royalties and
bank charges 44,811 133,242
Corporate promotion 77,459 91,631
Securities Fees 8,449 48,780
------------ ------------
2,629,532 4,923,015
------------ ------------
3,348,031 5,263,325
------------ ------------
Income (loss) before
provision for (recovery
of) income taxes 188,081 (3,341,028)
Provision for (recovery of)
income taxes (Note 14) (145,122) 4,211
------------ ------------
Income (loss) before
non-controlling
interest 333,203 (3,345,239)
Non-controlling interest in
(income) loss (100,827) 178,569
------------ ------------
Net income (loss) $ 434,030 $ (3,523,808)
============ ============
Income (loss) per share-
Basic (Note 12) $ 0.06 $ (0.42)
============ ============
The accompanying notes are an integral part of these consolidated statements.
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF DEFICIT
Years ended
December 31,
1994 1995
---- ----
DEFICIT, beginning of year $ (3,278,485) $ (2,850,063)
Net income (loss) 434,030 (3,523,808)
Acquisition of BMD Can-Dive Ltd. (Note 3) (5,608) --
------------ ------------
DEFICIT, end of year $ (2,850,063) $ (6,373,871)
============ ============
The accompanying notes are an integral part of these consolidated statements.
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years ended
December 31,
1994 1995
---- ----
CASH PROVIDED FROM (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $ 434,030 $ (3,523,808)
Add (deduct) items not affecting cash-
Depreciation and amortization 666,390 2,090,213
Non-controlling interest 100,827 178,569
Deferred income taxes (38,980) (10,641)
----------- ------------
1,162,267 (1,265,667)
Change in non-cash working capital
accounts (Note 16) (2,274,356) 1,362,899
----------- ------------
(1,112,089) 97,232
----------- ------------
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES:
Proceeds from stock private placement -- --
Common shares issued for cash, net of
issuance expenses 97,658 950,342
Advances from (to) affiliates (862,789) 347,007
Debt issuance (repayment) (98,046) 55,405
Joint venturer's advances 821,806 (195,467)
Common shares issued in settlement of
debts 60,000 --
Funds held in trust 4,173,195 --
Proceeds from stock options exercised -- --
----------- ------------
4,191,824 1,157,287
----------- ------------
CASH PROVIDED FROM (USED IN)
INVESTING ACTIVITIES:
Deferred revenue -- --
Proceeds from disposal of equipment 55,348 20,591
Equipment purchases (1,596,967) (1,357,289)
Development costs incurred and deferred (342,962) (346,856)
Cumulative translation account 90,277 (78,432)
Acquisition of subsidiary (Note 3)-
Cash acquired 245,583 --
----------- ------------
(1,548,721) (1,761,986)
------------ -------------
Increase (decrease) in cash 1,531,014 (507,467)
CASH, beginning of year 25,600 1,556,614
----------- -------------
CASH, end of year $ 1,556,614 $ 1,049,147
=========== =============
The accompanying notes are an integral part of these consolidated statements.
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. FUTURE OPERATIONS
The consolidated financial statements of Hard Suits Inc. (the "Company")
are prepared on a going-concern basis, which assumes that the Company will
continue realizing its assets and discharging its liabilities in the
normal course of business, and accordingly do not reflect adjustments in
the carrying value and classifications of the assets and liabilities that
would be required if this assumption were not valid.
The Company experienced a loss of approximately $3.5 million in 1995 and
had working capital of approximately $.9 million at December 31, 1995.
The Company's first quarter, for seasonal reasons, is historically
unprofitable and, consequently, additional financing may be required in
1996.
The Company's management has implemented a business plan for 1996 which
calls for revenues at approximately the same level as in 1995, an increase
in margins and a reduction in administrative expenses. Management expects
the Company to return to profitability in 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The financial statements are presented in accordance with generally accepted
accounting principles in Canada. Amounts are expressed in Canadian dollars.
Principles of Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, International Hard Suits Ltd.
and Can-Dive Marine Services Ltd. ("CDMS"). The accounts of CDMS include
the accounts of its subsidiaries, GMC-Candive Limited based in Aberdeen,
Scotland, CDC Can-Dive Ltd. based in Vancouver, British Columbia, BMD Can-
Dive Ltd. based in Toronto, Ontario, and United Marine Services J.V. based
in Spokane, Washington. All material intercompany balances and
transactions have been eliminated.
Subsequent to year-end, BMD Can-Dive Ltd. was closed down. Costs relating
to the closure have been accrued in the consolidated financial statements.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies have been
translated at the exchange rate prevailing at the balance sheet date.
Revenues and expenses denominated in foreign currencies have been
translated at the exchange rate on the transaction date. Gains and losses
resulting from translation of foreign currencies are recognized in the
statement of operations during the year in which they arise.
Financial statements of self-sustaining foreign operations are translated
into Canadian dollars as follows:
* assets and liabilities using the exchange rates in effect at the
balance sheet dates;
* revenue and expense items at approximate exchange rates prevailing at
the time the transactions occurred;
* unrealized translation gains and losses are deferred and included as a
separate component of shareholders' equity. These cumulative currency
translation adjustments are recognized in income when there has been a
reduction in the net investment in the self-sustaining foreign
operation.
Inventories
Inventories of raw materials and components are carried at the lower of
cost and net realizable value. Work-in-progress represents costs and
estimated profits (based on the percentage of completion) in excess of
billings and customer deposits.
Equipment and Other Capital Assets
Equipment and other capital assets are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the following methods and rates:
Assets Method Rate
---------------------- ----------------- ---------------
Equipment Declining-balance 20% per annum
Straight-line 5 years
Computer equipment Straight-line 2 years
Patterns and dies Straight-line Over 24 suits
Leasehold improvements Straight-line 5 years
Demonstration units Declining-balance 20% per annum
Development Costs
Costs relating to new products under development are deferred until
commercial production of the product commences, at which time amortization
begins. Costs relating to products that management determines to be no
longer viable are fully written off at that time.
The 2000 foot NEWTSUIT and Shallow Water NEWTSUIT are still under
development and, consequently, an appropriate amortization period has not
yet been determined.
Revenue Recognition
Revenue on units in production under sales contracts is recorded using the
percentage of completion method.
Revenue on services is recorded in the period when services are rendered.
Comparative Figures
Certain of the comparative figures for the year ended December 31, 1994
have been reclassified to conform with the current year's presentation.
3. ACQUISITION
On June 1, 1995, the Company acquired the remaining 49% interest in BMD
Can-Dive Ltd. The acquisition was accounted for by the purchase method
and, since the transaction was between related parties, the purchase price
for accounting purposes was based upon the historical cost balances of BMD
Can-Dive Ltd. as follows:
Assets acquired:
Cash $ 23,510
Accounts receivable 83,437
Inventories 244
Prepaid expenses 6,629
Property and equipment, net 72,221
----------
186,041
Liabilities assumed:
Accounts payable and accrued liabilities $ 57,814
Shareholder loans 184,835 242,649
--------- ----------
Net liabilities assumed (56,608)
Goodwill purchased 52,026
----------
Purchase price payable $ 4,582
==========
Additional consideration of up to $40,833 may be payable to the vendor and
is dependent upon the amount realized on a specific account receivable.
4. INVENTORIES
1994 1995
---- ----
Work-in-progress $ 16,102 $ 213,603
Raw materials 519,465 5,421
Components 868,103 561,164
----------- ---------
$ 1,403,670 $ 780,188
=========== =========
5. DUE FROM AFFILIATE
1994 1995
---- ----
Due from Nuytco Services Ltd. $ 43,057 $ 167,247
=========== =========
6. EQUIPMENT AND OTHER CAPITAL ASSETS
1994 1995
______ ________
Net
Net Book Accumulated Book
Value Cost Depreciation Value
____________ __________ _____________ _________
Equipment $ 2,281,309 $ 5,486,481 $ 2,468,387 $ 3,018,094
Patterns and dies 20,137 223,402 215,817 7,585
Leasehold improvements 108,524 218,096 135,381 82,715
Computer equipment 144,919 217,162 155,943 61,219
Demonstration units 103,390 211,094 128,594 82,500
Projects in progress 984,357 618,168 -- 618,168
----------- ----------- ----------- -----------
$ 3,642,636 $ 6,974,403 $ 3,104,122 $ 3,870,281
=========== =========== =========== ===========
7. DEFERRED DEVELOPMENT COSTS
1994 1995
---- ----
Net Book Accumulated Net Book
Value Cost Depreciation Value
----- ---- ------------ -----
Shallow Water NEWTSUIT $ 213,011 $ 359,770 $ -- $ 359,770
2000 foot NEWTSUIT -- 100,833 -- 100,833
Other 85,159 118,053 109,361 8,692
1200 foot NEWTSUIT 44,108 200,366 200,366 --
Sea Urchin assets and
technology 271,631 364,857 364,857 --
Thruster packs 40,708 74,690 74,690 --
Rotary Joint Developments 16,647 25,604 25,604 --
--------- ---------- --------- ---------
$ 671,264 $1,244,173 $ 774,878 $ 469,295
========= ========== ========= =========
During the year, the Company wrote off the deferred costs related to the
1200 foot NEWTSUIT, Sea Urchin, Thruster Pack and Rotary Joint
Developments as management does not currently intend to continue
developing these products.
8. DUE TO AFFILIATES
1994 1995
---- ----
Due to Nuytco Services Ltd. $ -- $ 562,506
Due to Totem Art Ltd. 2,978 --
Due to Can-Dive Services Ltd. 14,179 --
Due to Can-Dive Services (1991) Ltd. 74,152 --
--------- ---------
$ 91,309 $ 562,506
========= =========
9. DEBT
1994 1995
---- ----
Venture term loan repayable at $12,000 per
month May 23, 1994 to December 23, 1996.
Interest at 11.25% plus royalties on gross
annual sales (1.3% of first $3,000,000,
0.6% of balance) is payable for the duration
of the loan. The loan is secured by a general
security agreement on substantially all the
assets of the Company, corporate guarantee
by an affiliated company and assignment of
life insurance. $ 288,000 $ 144,000
Long-term loan repayable at $4,749 per month
including interest at 10% to August 1998,
secured by a general security agreement on
substantially all the assets of the Company's
subsidiary. 175,642 140,150
Customer advance, non-interest bearing and
payable on demand. 310,000 250,000
Government assistance received in connection
with product development, unsecured, and
repayable in quarterly installments of $4,179,
without interest. 20,891 4,175
Government assistance received for inventory
financing, non-interest bearing, unsecured
and repayable at $7,000 per completed suit
and $3,000 per Thruster pack sold. Any unpaid
balance is due and payable December 31, 1996. 190,000 145,472
Government assistance received for product
development, non-interest bearing, unsecured,
and repayable in twelve equal quarterly
installments beginning July 31, 1996 and
ending April 30, 1999. -- 340,467
Government assistance received for implementation
of quality standard to achieve ISO certification,
non-interest bearing, unsecured and repayable
in two equal annual installments on March 31,
1996 and 1997. 28,569 44,243
--------- ---------
1,013,102 1,068,507
Less- Current portion 303,557 417,510
--------- ---------
$ 709,545 $ 650,997
========= =========
The customer advance has been classified as long term as the customer has
indicated it will not demand repayment prior to December 31, 1996.
In summary, principal repayments of debt are as follows:
Year ending December 31-
1996 $ 417,510
1997 435,317
1998 158,936
1999 56,744
-----------
$ 1,068,507
===========
10. NON-CONTROLLING INTEREST
1994 1995
---- ----
Joint venturers' advances, non-interest bearing
and have no specific terms of repayment $ 1,023,459 $ 827,992
Non-controlling interest 183,031 361,600
----------- ----------
$ 1,206,490 $1,189,592
=========== ==========
11. SHARE CAPITAL
1994 1995
Authorized- ---- ----
100,000,000 common shares, no par value
5,000,000 Class "A" performance shares,
no par value
Issued-
8,677,188 common shares (1994- 7,971,764) $ 8,951,921 $ 9,902,263
2,500,000 Class "A" performance shares 25,000 25,000
----------- -----------
$ 8,976,921 $ 9,927,263
=========== ===========
Performance Shares
The Class "A" performance shares are convertible into common shares up to
June 29, 2000. Three Class "A" performance shares are convertible into
one common share for every $2.40 of cash flow generated from sales derived
from the Sea Urchin assets. The Class "A" performance shares are voting
and non-participatory. Any Class "A" performance share not converted by
June 29, 2000 will be gifted back to the Company for cancellation. As at
December 31, 1995, no Class "A" performance shares had been converted.
Common Shares
A summary of the changes in common shares is as follows:
</TABLE>
<TABLE>
<CAPTION>
1994 1995
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, beginning of year 5,236,454 $ 4,557,418 7,971,764 $ 8,951,921
Exercise of various share
purchase options 9,333 11,200 405,424 494,342
Issue of common shares from
treasury -- -- 300,000 456,000
Exercise of special warrants,
net of issuance costs of
$241,033 2,380,950 3,995,812 -- --
Exercise of share purchase
warrants 256,410 200,000 -- --
Exercise of share warrants 60,710 127,491 -- --
Issue of common shares upon
settlement of a debt 27,907 60,000 -- --
--------- ----------- --------- -----------
Balance, end of year 7,971,764 $ 8,951,921 8,677,188 $ 9,902,263
========= =========== ========= ===========
</TABLE>
Share Purchase Options
The following is a summary of the share purchase options granted by the
Company and outstanding as at December 31, 1995:
Number of
Common Exercise
Optionee Shares Price Expiry Date
__________ __________ ________ __________________
Executive officers 50,000 $ 2.20 March 9, 1999
30,000 1.41 January 24, 2000
80,000 1.55 March 31, 2000
35,000 1.68 May 26, 2000
65,000 1.78 May 26, 2000
290,000 1.04 December 13, 2000
Employees 166 1.20 July 14, 1998
4,000 2.20 March 9, 1999
14,500 1.41 January 24, 2000
61,500 1.68 May 26, 2000
54,000 1.04 December 13, 2000
Others 50,000 1.80 January 22, 1996
100,000 2.21 January 22, 1996
95,239 1.41 January 24, 2000
105,000 1.68 May 26, 2000
100,000 1.04 December 13, 2000
---------
Total 1,134,405
=========
12. EARNINGS PER SHARE
The earnings per share figures are calculated using the weighted average
number of shares outstanding during the respective fiscal years.
13. RELATED PARTY TRANSACTIONS
(a) Management fees of $150,000 (1994- $148,000) were paid to a company
controlled by a shareholder and officer. Management fees of $988,652
(1994- $75,379) were paid to the joint venture partners.
(b) Sales of $125,000 (1994 - $144,534) were with a company controlled by
a shareholder and officer.
14. INCOME TAXES
The Company's provision for (recovery of) income taxes is determined as
follows:
1994 1995
________ ________
Combined federal and provincial income
tax rates 45.34% 45.62%
========= ===========
Provision for (recovery of) income taxes
based on the combined federal and provincial
tax rates $ 78,778 $(1,524,177)
Increase (decrease) in provision for income
taxes resulting from-
Benefit of loss carryforward and other deductions
not recognized -- 1,688,151
Utilization of loss carryforwards not previously
recognized (263,846) (133,307)
Stock issuance fees deductible for tax purposes (85,610) (86,139)
Life insurance not deductible for tax purposes -- 62,795
Lower effective tax rates on the losses of
foreign subsidiaries 131,581 --
Other items (6,025) (3,112)
--------- -----------
$(145,122) $ 4,211
========= ===========
The Company has available non-capital losses of approximately $2,000,000
(1994- $480,000) which may be carried forward to reduce future income for
tax purposes up to and including 2002. The potential tax benefit of these
loss carryforwards have not been recognized in these consolidated
financial statements.
15. OPERATING LEASE COMMITMENTS
The Company has entered into a number of agreements to lease office and
shop facilities and office equipment. The aggregate future minimum lease
payments under these agreements are approximately as follows:
Year ending December 31-
1996 $ 238,000
1997 188,000
1998 15,000
16. CHANGE IN NON-CASH WORKING CAPITAL ACCOUNTS
1994 1995
---- ----
Accounts receivable $ (804,971) $ (724,871)
Inventories (1,335,497) 623,482
Prepaid expenses and other (103,113) 41,830
Accounts payable and accrued liabilities (46,266) 1,417,334
Income taxes payable 15,491 5,124
------------ -----------
$ (2,274,356) $ 1,362,899
============ ===========
17. CONTINGENCY
An action has been raised against GMC-Candive Limited by a supplier in
the value of approximately $57,000. The directors of GMC-Candive Limited
believe that the case will be successfully defended and,
accordingly, no amount has been provided for in the consolidated financial
statements.
18. DIFFERENCES IN ACCOUNTING POLICIES BETWEEN THE UNITED STATES AND CANADA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States of America generally accepted
accounting principles ("U.S. GAAP"). The financial statements have been
prepared in accordance with Canadian GAAP, which are in agreement with
U.S. GAAP, except as set forth below.
Consolidated Balance Sheets
If U.S. GAAP were applied, the condensed consolidated balance sheets
would be adjusted as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------ --------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
---- ---- ---- ----
<S> <C> <C> <C> <C>
Deferred Development Costs
(Note 18(a)) $ 671,264 $ -- $ 469,295 $ --
Share Capital (Note 18(b)) $ 8,976,921 $ 8,997,657 $ 9,927,263 $ 9,927,263
Deficit (Notes 18(a) and (b)) $(2,850,063) $(3,542,063) $(6,373,871) $ (6,843,166)
</TABLE>
Consolidated Statements of Operations and Deficit
<TABLE>
<CAPTION>
1994 1995
--------- ------------
<S> <C> <C>
Net income (loss) according to Canadian GAAP $ 434,030 $ (3,523,808)
Development costs (Note 18(a)) (342,966) (347,304)
Non-cash compensation expense (Note 18(b)) (20,736) --
--------- ------------
Net income (loss) according to U.S. GAAP $ 70,328 $ (3,871,112)
========= ============
Income (loss) per share - Basic
according to U.S. GAAP $ 0.01 $ (0.46)
========= ============
</TABLE>
(a) Canadian GAAP permits the deferral of development costs if certain
criteria are met. Under U.S. GAAP, development costs are charged to
expense as incurred.
(b) Options to purchase shares of the Company were issued to employees at
prices which were below the estimated fair market value of the options
at the date of granting. Under Canadian GAAP, the issuance of these
shares is recorded as an increase to the capital stock of the Company
at the issue price of the shares. Under U.S. GAAP, the difference
between the estimated fair market value of the shares subject to the
option at the date of granting and the exercise price of the options is
required to be charged to expense, with the corresponding amount being
credited to capital stock.
Additional Disclosures Under U.S. GAAP
Income Taxes
____________
In accordance with SFAS No. 109, "Accounting for Income Taxes", U.S. GAAP
requires that the Company use the liability method of accounting for
income taxes. Deferred income taxes are recognized on the difference
between financial statement and income tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse. The provision for income taxes represents the
total of income taxes paid or payable for the current year, plus the
change in deferred taxes during the year.
Deferred tax assets totalling approximately $1.5 million at December 31,
1994, and $2.8 million at December 31, 1995 consist primarily of the tax
effect of net operating loss carryforwards and the difference between the
financial statement reporting and the tax bases of capital assets which
are not yet deductible for tax purposes. The Company has provided a full
valuation allowance on the deferred tax asset because of uncertainty
regarding realizability.
<PAGE>
HARD SUITS INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
ASSETS
------
CURRENT ASSETS:
Cash $ 58,144
Accounts receivable, net 948,619
Inventories 832,284
Prepaid expenses and other 185,840
-----------
2,024,887
EQUIPMENT AND OTHER CAPITAL ASSETS 3,528,078
DEFERRED DEVELOPMENT COSTS 738,942
-----------
$ 6,291,907
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,381,279
Income taxes payable 36,579
Due to affiliates 609,626
Debt, current portion 399,761
Customer deposits 61,400
-----------
3,488,645
DEFERRED REVENUE 97,980
DEBT 642,981
DEFERRED INCOME TAXES --
NON-CONTROLLING INTEREST 1,161,940
-----------
5,391,546
-----------
CONTINGENCY
SHAREHOLDERS' EQUITY:
Share capital 10,492,334
Deficit (9,597,437)
Cumulative translation account 5,464
-----------
900,361
-----------
$ 6,291,907
===========
<PAGE>
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended
September 30,
1995 1996
______ ________
Revenue $ 12,681,863 $ 5,062,475
Cost of sales 9,929,037 4,937,202
------------ ------------
Gross profit 2,752,826 125,273
------------ ------------
Selling expenses:
Salaries and other 321,992 195,392
Commissions 32,250 12,963
------------ ------------
354,242 208,355
------------ ------------
Administrative expenses:
Management fees 112,500 170,229
Office 492,858 479,486
Salaries and wages 707,732 1,096,817
Professional fees 266,983 462,498
Insurance 456,030 481,761
Rent 243,086 199,712
Interest, royalties and
bank charges 119,920 52,429
Corporate promotion 79,288 37,809
Securities fees 41,827 69,009
------------ ------------
2,520,224 3,049,750
------------ ------------
2,874,466 3,258,105
------------ ------------
Income (loss) before
provision for (recovery
of) income taxes (121,640) (3,132,832)
Provision for (recovery of)
income taxes -- --
------------ ------------
Income (loss) before
non-controlling
interest (121,640) (3,132,832)
Non-controlling interest in
(income) loss 293,153 90,734
------------ ------------
Net income (loss) $ (414,793) $ (3,223,566)
============ ============
Income (loss) per share-
Basic $ (.05) $ (.32)
============ ============
<PAGE>
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF DEFICIT (UNAUDITED)
Nine Months Ended
September 30,
______________________
1995 1996
___________ ______________
DEFICIT, beginning of year $(2,850,063) $ (6,373,871)
Net loss (414,793) (3,223,566)
------------ -------------
DEFICIT, end of year $(3,264,856) $ (9,597,437)
============ =============
<PAGE>
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
Nine Months Ended
September 30,
1995 1996
---- ----
CASH PROVIDED FROM (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $ (414,793) $ (3,223,566)
Add (deduct) items not affecting cash-
Depreciation and amortization 721,741 778,684
Non-controlling interest (327,229) 90,734
Deferred income taxes (352) --
----------- -------------
(20,633) (2,354,148)
Change in non-cash working capital
accounts (1,268,735) 1,342,406
----------- -------------
(1,289,368) (1,011,742)
----------- -------------
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES:
Proceeds from stock private placement 456,000 --
Common shares issued for cash, net of
issuance expenses -- --
Advances from (to) affiliates (30,447) 214,367
Debt issuance (repayment) 39,434 (25,765)
Joint venturer's advances -- (118,386)
Common shares issued in settlement of
debts -- --
Funds held in trust -- --
Proceeds from stock options exercised 496,163 565,071
----------- -------------
961,150 635,287
----------- -------------
CASH PROVIDED FROM (USED IN)
INVESTING ACTIVITIES:
Deferred revenue 21,335 97,980
Proceeds from disposal of equipment -- --
Equipment purchases (908,767) (394,423)
Development costs incurred and deferred (184,042) (311,704)
Cumulative translation account (26,163) (6,401)
Acquisition of subsidiary
Cash acquired -- --
----------- -------------
(1,097,637) (614,548)
----------- -------------
Increase (decrease) in cash (1,425,855) (991,003)
CASH, beginning of year 1,556,614 1,049,147
----------- -------------
CASH, end of year $ 130,759 $ 58,144
=========== =============
<PAGE>
Basis of Presentation
______________________
The financial statements are presented in accordance with generally
accepted accounting principles in Canada. Amounts are expressed in
Canadian dollars.
The accompanying financial statements for the nine months ended September
30, 1995 and 1996 are unaudited. In management's opinion, such interim
financial statements reflect all normal recurring adjustments necessary
for a fair statement of the results of operations for such interim
periods. These interim financial statements should be read in conjunction
with the Company's audited financial statements included herein. The
results of operations for the interim period are not necessarily
indicative of the results expected for the complete year.
RECONCILIATION OF ACCOUNTING POLICIES BETWEEN THE UNITED STATES AND CANADA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States of America generally accepted
accounting principles ("U.S. GAAP"). The financial statements have been
prepared in accordance with Canadian GAAP, which are in agreement with
U.S. GAAP, except as set forth below.
Consolidated Balance Sheets
If U.S. GAAP were applied, the condensed consolidated balance sheet
would be adjusted as follows:
September 30, 1996
-------------------------
(unaudited)
Canadian U.S.
GAAP GAAP
---- ----
Deferred Development Costs(Note a) $ 738,942 $ --
Share Capital $10,492,334 $ 10,492,334
Deficit $(9,597,437) $(10,336,359)
Consolidated Statements of Operations and Deficit
Nine Months Ended
September 30,
1995 1996
---------- ------------
(unaudited)
Net income (loss) according to Canadian GAAP $ (414,793) $ (3,223,566)
Development costs (Note a) (86,986) (269,667)
Non-cash compensation expense -- --
---------- ------------
Net income (loss) according to U.S. GAAP $ (501,779) $ (3,493,233)
========== ============
Income (loss) per share - Basic
according to U.S. GAAP $ (0.06) $ (0.41)
========== ============
(a) Canadian GAAP permits the deferral of development costs if certain
criteria are met. Under U.S. GAAP, development costs are charged to
expense as incurred.
Additional Disclosures Under U.S. GAAP
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes", U.S. GAAP
requires that the Company use the liability method of accounting for
income taxes. Deferred income taxes are recognized on the difference
between financial statement and income tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse. The provision for income taxes represents the
total of income taxes paid or payable for the current year, plus the
change in deferred taxes during the year.
Deferred tax assets totalling approximately $3.8 million at September 30,
1996 consist primarily of the tax effect of net operating loss carryforwards
and the difference between the financial statement reporting and the tax
bases of capital assets which are not yet deductible for tax purposes.
The Company has provided a full valuation allowance on the deferred tax
asset because of uncertainty regarding realizability.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
_______________________________
PRO FORMA COMBINED FINANCIAL STATEMENTS
_______________________________________
(UNAUDITED)
The following unaudited pro forma financial statements reflect the
acquisition by American Oilfield Divers, Inc. (the Company) of Hard
Suits Inc. (HSI) using the purchase method of accounting. Under the
purchase method of accounting, the total purchase cost has been
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based on respective estimated fair values, with any
remaining unallocated purchase price applied to goodwill. The Company's
management is evaluating its appraisals of the assets and liabilities of
HSI and the allocation between the tangible and various identifiable
intangible assets noted above is subject to change based upon final
determination of such values. The pro forma balance sheet combines the
historical statements of the two entities assuming the acquisition
occurred on September 30, 1996. The pro forma statements of operations
combines the historical statement of the Company for the year ended
October 31, 1995 with that of HSI for the year ended December 31, 1995,
the most recent fiscal years, and the historical statements of both
entities for the nine months ended September 30, 1996, assuming the
acquisition occurred on November 1, 1994. The historical balance sheet
and statements of operations of HSI reflected in the pro forma financial
statements have been converted to United States generally accepted
accounting principles expressed in United States dollars. These
unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of the
Company and HSI included elsewhere in this document.
The Unaudited Pro Forma Combined Financial Statements do not purport to
present the actual financial position or results of operations of the
Company as if the acquisition of HSI and the events assumed in
connection therewith had in fact occurred on the dates specified, nor
are they necessarily indicative of the results of operations that may be
achieved in the future.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
______________________________
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
____________________________________________
SEPTEMBER 30, 1996
__________________
(In thousands)
<TABLE>
<CAPTION>
American Pro Forma
Oilfield Hard _______________________
Divers, Inc. Suits Inc. Adjustments Combined
__________ _________ ____________ ____________
(Note 1) (Note 2)
ASSETS
_________
<S> <C> <C> <C> <C>
Current assets $ 38,565 $ 1,486 $ 23 $ 40,074
Property, plant and equipment, net 31,731 2,588 3,412 37,731
Other assets 956 -- -- 956
Patents on purchased technology and
other intangible assets 1,747 -- 8,900 (a) 10,647
Goodwill -- -- 1,942 (a) 1,942
__________ ___________ _____________ ____________
$ 72,999 $ 4,074 $14,277 $ 91,350
========== =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
_____________________________________
Borrowings under line of credit
agreement $ 4,033 $ -- $12,450 (b) $ 16,483
Current portion of long-term debt 1,500 293 -- 1,793
Other current liabilities 12,801 2,267 -- 15,068
__________ ___________ _____________ ____________
Total current liabilities 18,334 2,560 12,450 33,344
Deferred tax liability 1,200 -- 1,942 (c) 3,142
Other liabilities -- 71 -- 71
Long-term debt, less current portion 8,500 472 -- 8,972
Advances and non-controlling interest -- 853 -- 853
__________ ___________ _____________ ____________
Total liabilities 28,034 3,956 14,392 46,382
__________ ____________ _____________ ____________
Minority interest -- -- 3 (d) 3
Stockholders' equity:
Common stock
American Oilfield Divers, Inc. 1,368 -- -- 1,368
Hard Suits Inc. -- 7,698 (7,698)(e) --
Additional paid-in capital 41,548 -- -- 41,548
Foreign currency translation adjustments (131) 3 (3)(e) (131)
Retained earnings (accumulated deficit) 2,180 (7,583) 7,583 (e) 2,180
__________ ___________ _____________ ____________
Total stockholders' equity 44,965 118 (118) 44,965
_________ ___________ _____________ ___________
$ 72,999 $ 4,074 $ 14,277 $91,350
========= =========== ============== ===========
See accompanying Notes to the pro forma balance sheet.
</TABLE>
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
_______________________________
NOTES TO PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
_____________________________________________________
Note 1 - The historical balance sheet and statements of operations of
HSI, a Canada Corporation, have been converted to United States
generally accepted accounting principles expressed in United States
dollars (converted at an estimated exchange rate of .734 United States
dollar for each Canadian dollar).
Note 2 - During the period beginning October 31, 1996 and ending
November 15, 1996, the Company purchased approximately 9.6 million
common shares or 97% of HSI for a cash purchase price of approximately
$12.4 million including estimated direct expenses of approximately
$600,000. The following is a summary of the allocation of the purchase
price to the assets acquired and liabilities assumed (in thousands).
Current assets $ 1,509
Property, plant and equipment 6,000
Patents on purchased technology and other
intangible assets 8,900
Goodwill 1,942
Liabilities assumed (3,959)
Deferred tax liability (1,942)
_________
$12,450
=========
The purchase price was allocated to the assets of HSI based on estimated
fair values. Property, plant and equipment acquired was valued at
estimated fair market value. Patents on purchased technology products
that have reached technological feasibility were valued using a risk
adjusted cash flow model under which net future net cash flows were
discounted, taking into account risks related to existing and future
markets and assessments of the life expectancy of the completed
technology. Future net cash flows represent management's estimate of
the future cash inflows expected to be generated from projected sales,
including signed and/or pending contracts, less the future cash outflows
expected to obtain those inflows which consist of direct and indirect
costs. The ultimate allocation of the purchase price between tangible
and intangible assets to the assets acquired is subject to change based
on the final determination of their respective fair values.
Pro forma adjustments reflect:
(a) Allocation of purchase price based on estimated fair values of
assets acquired.
(b) Borrowings under the Company's line of credit to purchase shares
of HSI.
(c) Deferred tax liability resulting from excess of book basis over
tax basis of depreciable assets, net of deferred tax assets
related to operating loss carry-fowards.
(d) Minority interest of HSI (approximately 3%).
(e) Elimination of stockholders' equity accounts of HSI.
<PAGE.
AMERICAN OILFIELD DIVERS, INC.
_______________________________
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
______________________________________________________
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
____________________________________________
(In thousands, except per share data)
<TABLE>
<CAPTION>
American Pro Forma
Oilfield Hard _______________________
Divers, Inc. Suits Inc. Adjustments Combined
__________ _________ ____________ ____________
<S> <C> <C> <C> <C>
Diving and related revenues $ 79,466 $ 3,714 $ -- $ 83,180
Costs and expenses:
Diving and related expenses 51,657 3,622 -- 55,279
Selling, general and administrative
expenses 14,759 1,979 -- 16,738
Depreciation and amortization 4,737 572 1,376 (a) 6,685
___________ ___________ ______________ ___________
Total costs and expenses 71,153 6,173 1,376 78,702
___________ ___________ ______________ ___________
Operating income (loss) 8,313 (2,459) (1,376) 4,478
___________ ___________ ______________ ___________
Other income(expense):
Interest expense (817) (38) (794) (b) (1,649)
Other income 664 -- -- 664
Non controlling interest in earnings
of subsidiaries -- (67) -- (67)
___________ ___________ ______________ ___________
Total other expense (153) (105) (794) (1,052)
___________ ___________ ______________ ___________
Income (loss) before income taxes 8,160 (2,564) (2,170) 3,426
___________ ___________ ______________ ___________
Income tax expense (benefit) 3,470 -- (321) (c) 3,149
___________ ___________ ______________ ___________
Net income (loss) $ 4,690 $ (2,564) $ (1,849) $ 277
=========== =========== ============== ===========
Net income per share $ .69 $ .04
=========== ===========
Weighted average common shares
outstanding 6,769 6,769
=========== ===========
</TABLE>
Pro forma adjustments:
(a) Additional depreciation of property and equipment using the
straight-line method based on estimated useful lives ranging from 5
to 10 years. Amortization of patents on purchased technology and
intangible assets using the straight-line method based on estimated
useful lives ranging from 5 to 10 years, and amortization of goodwill
over 10 years.
(b) Interest charges on borrowings of $12,450,000 on line of credit,
at an estimated average interest rate of 8.5%.
(c) Tax benefit related to additional interest charges.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
______________________________
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
______________________________________________________
FOR THE YEAR ENDED OCTOBER 31, 1995
___________________________________
(In thousands, except per share data)
<TABLE>
<CAPTION>
American Pro Forma
Oilfield Hard _______________________
Divers, Inc. Suits Inc. Adjustments Combined
__________ _________ ____________ ____________
<S> <C> <C> <C> <C>
Diving and related revenues $ 88,660 $ 13,401 $ -- $ 102,061
__________ ___________ ___________ ____________
Costs and expenses:
Diving and related expenses 63,180 10,455 -- 73,635
Selling, general and administrative
expenses 19,318 4,022 -- 23,340
Depreciation and amortization 5,064 1,535 1,834 (a) 8,433
__________ ___________ ___________ ____________
Total costs and expenses 87,562 16,012 1,834 105,408
__________ ___________ ___________ ____________
Operating income (loss) 1,098 (2,611) (1,834) (3,347)
__________ ___________ ___________ ____________
Other income (expense):
Interest expense (1,377) (98) (1,058)(b) (2,533)
Other income 128 -- -- 128
Non controlling interest in earnings
of subsidiaries (116) (131) -- (247)
__________ ___________ ___________ ____________
Total other expense (1,365) (229) (1,058) (2,652)
__________ ___________ ___________ ____________
Loss before income taxes (267) (2,840) (2,892) (5,999)
__________ ___________ ___________ ____________
Income tax expense (benefit) 62 (3) (428)(c) (369)
__________ ___________ ___________ ____________
Net loss $ (329) $ (2,837) $ (2,464) $ (5,603)
========== =========== =========== ============
Net loss per share $ (.05) $ (.84)
========== ===========
Weighted average common shares
outstanding 6,709 6,709
========== ===========
</TABLE>
Pro forma adjustments:
(a) Additional depreciation of property and equipment using the
straight-line method based on estimated useful lives ranging from 5
to 10 years. Amortization of patents on purchased technology and
intangible assets using the straight-line method based on estimated
useful lives ranging from 5 to 10 years, and amortization of
goodwill over 10 years.
(b) Interest charges on borrowings of $12,450,000 on line of credit,
at an estimated average interest rate of 8.5%.
(c) Tax benefit related to additional interest charges.
<PAGE>
No person has been authorized to give any
information or to make any Shares 3,100,000
representations in connection with this
offering other than those contained in this
Prospectus and, if given or made, such
information or representations must not be
relied upon as having been authorized by
the Company, any Selling Stockholder or any [LOGO}
Underwriter. This Prospectus does not
constitute an offer to sell, or a
solicitation of an offer to purchase, any
securities other than the securities to
which it relates or an offer to or a AMERICAN OILFIELD
solicitation of any person in any DIVERS, INC.
jurisdiction where such an offer or
solicitation would be unlawful. Neither
the delivery of this Prospectus nor any Common Stock
sale made hereunder shall, under any
circumstances, create any implication that
there has been no change in the affairs of
the Company since the date hereof or that
the information contained herein is correct
as of any time subsequent to the date _________________
hereof. P R O S P E C T U S
-----------------
MORGAN KEEGAN &
TABLE OF CONTENTS COMPANY, INC.
Page
Prospectus Summary RAUSCHER PIERCE
Uncertainty of Forward-Looking Information REFSNES, INC.
Risk Factors
Use of Proceeds SOUTHCOAST CAPITAL
Capitalization CORPORATION
Price Range of Common Stock and Dividend
Policy
Dilution _____________, 1997
Selected Consolidated Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business
Management
Principal and Selling Stockholders
Description of Capital Stock
Underwriting
Legal Matters
Experts
Available Information
Incorporation of Certain Documents by
Reference
Glossary of Certain Technical Terms
Index to Consolidated Financial Statements F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Estimated expenses payable in connection with the proposed sale of
Common Stock covered hereby are as follows:
SEC registration fee $ 10,533.00
NASD filing fee *
Printing expenses *
Legal fees and expenses *
Accounting fees and expenses *
Blue Sky fees and expenses (including counsel fees) *
Transfer Agent *
Miscellaneous expenses *
_____________
Total expenses $ *
=============
____________
* To be supplied by amendment.
Item 15. Indemnification of Directors and Officers.
The Louisiana Business Corporation Law (the "LBCL"), Section 83,
gives Louisiana corporations broad powers to indemnify their present and
former directors and officers and those of affiliated corporations
against expenses incurred in the defense of any lawsuit to which they
are made parties by reason of being or having been such directors or
officers; subject to specific conditions and exclusions gives a director
or officer who successfully defends an action the right to be so
indemnified; and authorizes Louisiana corporations to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of
any other rights to which those indemnified may be entitled under any
by-law, agreement, authorization of shareholders or otherwise.
The Company's By-laws make mandatory the indemnification of
directors and officers permitted by the LBCL. The standard to be applied
in evaluating any claim for indemnification (excluding claims for
expenses incurred in connection with the successful defense of any
proceeding or matter therein for which indemnification is mandatory
without reference to any such standard) is whether the claimant acted in
good faith and in a manner he reasonably believed to be in or not
opposed to, the best interests of the Company. With respect to any
criminal action or proceeding, the standard is that the claimant had no
reasonable cause to believe the conduct was unlawful. No indemnification
is permitted in respect of any claim, issue or matter as to which a
director or officer shall have been adjudged by a court of competent
jurisdiction to be liable for willful or intentional misconduct or to
have obtained an improper personal benefit, unless, and only to the
extent that the court shall determine upon application that, in view of
all the circumstances of the case, he is fairly and reasonably entitled
to indemnity for such expenses that the court shall deem proper.
The Company intends to apply for and purchase liability policies
to indemnify its officers and directors against loss arising from claims
by reason of their legal liability for acts as officers and directors,
subject to limitations and conditions to be set forth in the policies.
The Underwriters have also agreed to indemnify the directors and
certain of the Company's officers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that such directors and officers may be required
to make in respect thereof.
Prior to completion of this offering, each of the Company's
directors and executive officers will enter into an indemnity agreement
with the Company, pursuant to which the Company has agreed under certain
circumstances to purchase and maintain directors' and officers'
liability insurance. The agreements also provide that the Company will
indemnify the directors and executive officers against any costs and
expenses, judgments, settlements and fines incurred in connection with
any claim involving a director or executive officer by reason of his
position as director or officer that are in excess of the coverage
provided by any such insurance, provided that the director or officer
meets certain standards of conduct. A form of indemnity agreement
containing such standards of conduct is included as an exhibit to the
Company's Registration Statement, of which this Prospectus is a part.
Under the indemnity agreements, the Company is not required to purchase
and maintain directors' and officers' liability insurance if it is not
reasonably available or, in the reasonable judgment of the Board of
Directors, there is insufficient benefit to the Company from the
insurance.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of
the Company.(1)
3.2 By-laws of the Company.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Company's Amended and Restated Articles of
Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen of Common Stock certificate.(1)
5 Opinion of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P.*
10.1 American Oilfield Divers, Inc. 1993 Incentive
Compensation Plan.(1)
10.2 American Oilfield Divers, Inc. Non-Employee
Director Stock Option Plan.(1)
10.3 American Oilfield Divers, Inc. Profit Sharing and
Retirement Plan.(1)
10.4 American Oilfield Divers, Inc. Employee Stock
Option Plan.(2)
10.5 Lease dated December 1, 1984 between American
Oilfield Divers, Inc. and Le Triomphe General
Partnership, a Louisiana general partnership, of
which George C. Yax, the Chairman of the Board,
President, and Chief Executive Officer, is a
general partner owning a 9.1% interest, relating
to the Company's Broussard, Louisiana
facility.(1)
10.6 Business Park Lease dated April 23, 1993, between
American Oilfield Divers, Inc. and The Texas
Development Company relating to the Houston,
Texas facility.(2)
10.7 Lease dated July 21, 1989 between Mr. Yax and
American Oilfield Divers, Inc. with respect to
the Texas hunting facility and Amendment No. 1
thereto dated December 1, 1994.(3)
10.8 Lease dated September 28, 1989 between Mr.
Freeman and American Oilfield Divers, Inc. with
respect to Mississippi hunting facility and
Amendment No. 1 thereto dated December 1,
1994.(3)
10.9 Second Amended and Restated Loan Agreement dated
as of April 3, 1996, between American Oilfield
Divers, Inc. and First National Bank of
Commerce.(4)
10.10 Form of Indemnity Agreement by and between
American Oilfield Divers, Inc. and each of
Messrs. Yax, Stanley, Freeman, Suggs, Green,
Hebert, O'Malley and Lasher.(1)
10.11 Employment Agreement dated effective as of July
16, 1996, between American Oilfield Divers, Inc.
and Rodney W. Stanley.(5)
10.12 Lock-Up Agreement dated October 28, 1996, among
American Oilfield Divers, Inc., AOD Acquisition
Corp., and Rene T. Nuytten.(6)
10.13 Acquisition Agreement dated October 28,1996,
among American Oilfield Divers, Inc., AOD
Acquisition Corp., Hard Suits Inc., Rene T.
Nuytten, Edward G. Hauptmann, and David S.
Porter.(6)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. (included in Exhibit
5).*
24 Power of Attorney (included in the Signature Page
to this Registration Statement).
________________
* To be filed by Amendment.
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-63920) filed on June 4,
1993, as amended.
(2) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1996.
(5) Incorporated by reference from the Company's Current Report on
Form 8-K filed on July 31, 1996.
(6) Incorporated by reference from the Company's Current Report on
Form 8-K filed on November 15, 1996.
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933 (the "Securities Act"), the
information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions described in Item 15,
above, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New Orleans,
State of Louisiana, on December 16, 1996.
AMERICAN OILFIELD DIVERS, INC.
By: /s/ Rodney W. Stanley
__________________________
Rodney W. Stanley
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints George C. Yax, Rodney W. Stanley,
Prentiss A. Freeman, Cathy M. Green, and Quinn J. Hebert, and each of
them acting individually, his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place,
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ George C. Yax Director and Chairman of December 16, 1996
George C. Yax the Board
/s/ Rodney W. Stanley Director, President and December 16, 1996
Rodney W. Stanley Chief Executive Officer
(Principal Executive
Officer)
/s/ Prentiss A. Freeman Director, Executive Vice December 16, 1996
Prentiss A. Freeman President, and Chief
Operating Officer
/s/ Stephen A. Lasher Director December 16, 1996
Stephen A. Lasher
/s/ William C. O'Malley Director December 16, 1996
William C. O'Malley
/s/ Cathy M. Green Vice President - Finance December 16, 1996
Cathy M. Green and Chief Financial
Officer (Principal
Financial Officer and
Principal Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description of Exhibits Page
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of
the Company.(1)
3.2 By-laws of the Company.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Company's Amended and Restated Articles of
Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen of Common Stock certificate.(1)
5 Opinion of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P.*
10.1 American Oilfield Divers, Inc. 1993 Incentive
Compensation Plan.(1)
10.2 American Oilfield Divers, Inc. Non-Employee
Director Stock Option Plan.(1)
10.3 American Oilfield Divers, Inc. Profit Sharing and
Retirement Plan.(1)
10.4 American Oilfield Divers, Inc. Employee Stock
Option Plan.(2)
10.5 Lease dated December 1, 1984 between American
Oilfield Divers, Inc. and Le Triomphe General
Partnership, a Louisiana general partnership, of
which George C. Yax, the Chairman of the Board,
President, and Chief Executive Officer, is a
general partner owning a 9.1% interest, relating
to the Company's Broussard, Louisiana
facility.(1)
10.6 Business Park Lease dated April 23, 1993, between
American Oilfield Divers, Inc. and The Texas
Development Company relating to the Houston,
Texas facility.(2)
10.7 Lease dated July 21, 1989 between Mr. Yax and
American Oilfield Divers, Inc. with respect to
the Texas hunting facility and Amendment No. 1
thereto dated December 1, 1994.(3)
10.8 Lease dated September 28, 1989 between Mr.
Freeman and American Oilfield Divers, Inc. with
respect to Mississippi hunting facility and
Amendment No. 1 thereto dated December 1,
1994.(3)
10.9 Second Amended and Restated Loan Agreement dated
as of April 3, 1996, between American Oilfield
Divers, Inc. and First National Bank of
Commerce.(4)
10.10 Form of Indemnity Agreement by and between
American Oilfield Divers, Inc. and each of
Messrs. Yax, Stanley, Freeman, Suggs, Green,
Hebert, O'Malley and Lasher.(1)
10.11 Employment Agreement dated effective as of July
16, 1996, between American Oilfield Divers, Inc.
and Rodney W. Stanley.(5)
10.12 Lock-Up Agreement dated October 28, 1996, among
American Oilfield Divers, Inc., AOD Acquisition
Corp., and Rene T. Nuytten.(6)
10.13 Acquisition Agreement dated October 28,1996,
among American Oilfield Divers, Inc., AOD
Acquisition Corp., Hard Suits Inc., Rene T.
Nuytten, Edward G. Hauptmann, and David S.
Porter.(6)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. (included in Exhibit
5).*
24 Power of Attorney (included in the Signature Page
to this Registration Statement).
________________
* To be filed by Amendment.
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-63920) filed on June 4,
1993, as amended.
(2) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1996.
(5) Incorporated by reference from the Company's Current Report on
Form 8-K filed on July 31, 1996.
(6) Incorporated by reference from the Company's Current Report on
Form 8-K filed on November 15, 1996.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated August 6, 1996
relating to the financial statements of American Oilfield Divers, Inc.,
which appears in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedules for the three years
ended October 31, 1995 listed under Item 14(a) of the American Oilfield
Divers, Inc. Annual Report on Form 10-K for the year ended October 31,
1995 when such schedules are read in conjunction with the financial
statements referred to in our report. We also consent to the references
to us under the headings "Experts" and "Selected Consolidated Financial
Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New Orleans, Louisiana
December 18, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated March 8, 1996 relating
to the consolidated financial statements of Hard Suits Inc., which
appears in such Prospectus.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Vancouver, British Columbia, Canada
December 18, 1996
