UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended September 30, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
________________________
Commission File Number: 0-22032
________________________
AMERICAN OILFIELD DIVERS, INC.
(Exact Name of Registrant as Specified in its Charter)
Louisiana 72-0918249
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
900 Town & Country Lane
Suite 400
Houston, Texas 77024
(Address of Principal Executive Offices) (Zip Code)
(713) 430-1100
(Registrant's telephone number,
including area code)
________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13(b) or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [x] No [ ]
At November 12, 1997 there were 10,640,068 shares of common stock, no
par value, outstanding.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996.................... 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1997 and September
30, 1996......................................................2
Consolidated Statements of Changes in Stockholders' Equity -
Nine Months Ended September 30, 1997 and September 30, 1996...3
Consolidated Statements of Cash Flows -
Three and Nine Months Ended September 30, 1997 and September
30, 1996......................................................4
Notes to Consolidated Financial Statements......................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................8
Part II. Other Information
Item 1. Legal Proceedings......................................15
Item 6. Exhibits and Reports on Form 8-K.......................15
Signatures......................................................16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
American Oilfield Divers, Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,227 $ 1,322
Accounts receivable, net of allowance for
doubtful accounts of $600 and $500 26,373 20,095
Unbilled revenue 12,171 5,929
Other receivables 2,843 2,171
Inventories 4,620 4,651
Prepaid expenses 2,513 1,566
__________ _________
Total current assets 50,747 35,734
Property, plant and equipment, net of
accumulated depreciation of $26,574 and $22,428 55,399 43,041
Trademarks and patents, net of accumulated
amortization 8,353 9,307
Other assets, net of accumulated
amortization 6,945 4,825
__________ _________
$121,444 $92,907
LIABILITIES AND STOCKHOLDERS' EQUITY ========== =========
Current liabilities:
Accounts payable $ 5,245 $ 9,609
Other liabilities 13,340 10,895
Short-term borrowings --- 1,306
Current portion of long-term debt 2,228 1,702
_________ _________
Total current liabilities 20,813 23,512
Borrowings under a line of credit agreement --- 12,450
Long-term debt, less current portion 8,551 8,459
Other liabilities 2,719 2,641
________ _________
Total liabilities 32,083 47,062
Stockholders' equity:
Common stock, no par value 2,278 1,373
Other stockholders' equity 87,083 44,472
______ ________
Total stockholders' equity 89,361 45,845
______ ________
$121,444 $92,907
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
American Oilfield Divers, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
___________________ __________________
(unaudited) (unaudited)
1997 1996 1997 1996
---- ----- ---- -----
Diving and related revenues $37,154 $33,409 $93,907 $79,466
------- ------- ------- -------
Costs and expenses:
Diving and related expenses 25,806 21,384 62,925 51,657
Selling, general and
administrative expenses 7,154 5,258 19,271 14,759
Depreciation and amortization 4,373 1,471 8,949 4,737
------ ------- ------- -------
Total costs and expenses 37,333 28,113 91,145 71,153
Operating income (loss) (179) 5,296 2,762 8,313
Other income (expense), net 177 (295) 509 (153)
------ ------- ------- -------
Income (loss) before income taxes (2) 5,001 3,271 8,160
Income tax provision 620 2,150 2,025 3,470
------ ------- ------ ------
Net income (loss) $(622) $2,851 $1,246 $4,690
====== ======= ====== ======
Net income (loss) per share $(.06) $.42 $ .13 $ .69
====== ======= ====== ======
Weighted average common shares
outstanding 10,588 6,806 10,002 6,769
======= ======= ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
American Oilfield Divers, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Foreign (Accumulated
Additional Currency Deficit)
Common Stock Paid-in Translation Retained
(unaudited) Shares Amount Capital Adjustment Earnings Total
------ ------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,1995 6,709,497 $1,360 $40,837 $(132) $(2,510) $39,555
Adjustment to valuation of
common stock issued in
connection with an acquisition (52) (52)
Issuance of common stock 101,685 8 763 771
Net effects of translation of 1 1
foreign currency
Net income 4,690 4,690
__________ _______ ________ ___________ _________ __________
Balance at September 30, 1996 6,811,182 $1,368 $41,548 $(131) $ 2,180 $44,965
========== ======= ======== =========== ========= ==========
Balance at December 31, 1996 6,879,867 $1,373 $42,059 $ (98) $ 2,511 $45,845
Issuance of common stock
in a secondary stock offering 3,128,315 379 34,871 35,250
Issuance of common stock
from underwriter's
exercise of overallotment option 425,000 52 4,818 4,870
Issuance of common stock 48,193 5 495 500
for asset purchases
Exercise of stock options 148,378 14 1,207 1,221
Tax benefit related to employee
stock options 455 455
Net effects of translation of
foreign currency (26) (26)
Net income 1,246 1,246
_________ _______ _________ _________ __________ _________
Balance at September 30, 1997 10,629,753 $1,823 $83,905 $ (124) $ 3,757 $89,361
========== ======== ========= ========= ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
American Oilfield Divers, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
_______________ ___________________
1997 1996 1997 1996
---- ---- ---- ----
(unaudited)
Net cash flows from operating
activities:
Net income (loss) $(622) $ 2,851 $ 1,246 $ 4,690
Non-cash items included in net
income:
Depreciation and amortization 4,373 1,471 8,949 4,737
Net (gain) loss on disposition of
assets (46) 41 424 (536)
Other (7,789) (1,892) (16,525) 1,508
_______ _______ ________ _______
Net cash provided by (used
by) operating activities (4,084) 2,471 (5,906) 10,399
Cash flows from investing activities:
Capital expenditures (6,044) (5,536) (19,707) (15,757)
Proceeds from disposal of assets --- 12 2,358 5,681
Proceeds from insurance claim --- --- --- 535
Other (1,175) 133 (2,310) 462
_______ _______ ________ ______
Net cash used by investing
activities (7,219) (5,391) (19,659) (9,079)
Cash flows from financing activities:
Proceeds from issuance of
common stock 809 34 41,341 170
Proceeds from long-term borrowing --- --- --- 10,500
Repayments of term debt (398) (375) (2,253) (7,288)
Net borrowings (payments) under
line-of-credit agreement --- 3,683 (12,618) (3,842)
________ _______ _________ ________
Net cash provided by (used by)
financing activities 411 3,342 26,490 (460)
-------- ------- -------- ---------
Net increase (decrease)in cash (10,892) 422 905 860
Cash and cash equivalents at
beginning of period 13,119 1,266 1,322 788
________ _______ ________ _________
Cash and cash equivalents at
at end of period $ 2,227 $1,648 $2,227 $1,648
======== ======= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
American Oilfield Divers, Inc.
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Principles
The consolidated financial statements include the accounts of American
Oilfield Divers, Inc. and its wholly-owned and majority-owned subsidiaries
(the "Company"). The Company provides subsea construction, installation,
and repair and maintenance services to the offshore oil and gas industry,
primarily in the United States Gulf of Mexico, the United States west coast
and select international areas, and to inland industrial and governmental
customers. In addition, the Company manufactures and markets subsea
pipeline connectors, a patented marginal well production system and concrete
storage barges to the domestic and international oilfield industry, as well
as a one-atmosphere diving suit and a submarine rescue vehicle for sale to
worldwide navies. All material intercompany transactions and balances have
been eliminated in consolidation.
In February 1997, the Company completed a secondary stock offering of
3,553,315 shares of common stock, which provided the Company with net
proceeds of approximately $40 million. The Company used approximately $16
million to repay borrowings outstanding under its line of credit and has
used the remaining proceeds for general corporate purposes, including
working capital requirements, and to fund capital expenditures and
strategic asset acquisitions.
A description of the organization and operations of the Company, the
significant accounting policies followed, and the financial condition and
results of operations as of December 31, 1996, are contained in the audited
consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 1996. The unaudited third quarter
financial statements contained herein should be read in conjunction with the
audited 1996 financial statements.
The unaudited financial statements at, and for the three and nine months
ended, September 30, 1997 and 1996 and the notes thereto have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 for Regulation S-X. In the opinion of
management, all adjustments (consisting of normally recurring accruals)
considered necessary for a fair statement of the financial position and
results of operations have been included.
Operating results for interim periods are not necessarily indicative of the
results that can be expected for full fiscal years. The offshore oilfield
services 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. Utilization of the company's dive crews and diving support vessels
("DSV") and therefore the related scope and extent of the company's offshore
diving operations are limited by winter weather conditions generally
prevailing in the Gulf of Mexico and in certain of the Company's inland
markets from December to April. Although adverse weather conditions
occurring from time to time from May through November may also adversely
affect vessel utilization and diving operations, historically a greater
proportion of the Company's diving services has been performed during the
period from May through November. In a typical year, 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.
On June 21, 1997, the Company acquired substantially all of the assets of
Contract Diving Services, Pty Ltd., and its affiliates, a subsea services
provider based in Perth, Western Australia. The acquisition was accounted
for using the purchase method of accounting. The purchase price was paid
through an initial cash payment and a non-interest-bearing note for the
balance, payable over three years. The fair market value of the assets
acquired, along with goodwill created as a result of the purchase, has been
included in the accompanying consolidated balance sheet as of September 30,
1997. Also, the results of operations since the purchase date are included
in the accompanying consolidated statements of income for the three and nine
months ended September 30, 1997. Pro forma results of operations, assuming
the acquisition had occurred at the beginning of each year presented, would
not be materially different from the results reported.
During the three months ended September 30, 1997, the Company closed its
American Inland Divers facility located in Kansas, resulting in a write-off
of goodwill of approximately $400,000 which is included in depreciation and
amortization expense in the consolidated statements of income for the three
and nine months ended September 30, 1997.
From October 31, 1996 to November 15, 1996, a subsidiary of the Company
acquired approximately 97% of the outstanding common stock of Hard Suits Inc.
The transaction was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. During the third quarter, adjustments were made to deferred
taxes upon completion of an assessment of net operating losses generated at
Hard Suits prior to the acquisition. Upon completion of this assessment, it
was revealed that certain net operating losses incurred prior to the Company
acquiring Hard Suits, were not utilizable as of the acquisition date.
Accordingly, the Company recorded an adjustment to increase goodwill from its
original amount of aproximately $2.9 million to $3.9 million which represents
the final revision to the purchase price allocation. In connection with a
SFAS 121 impairment review (Note 5), a portion of this goodwill was written
off as of September 30, 1997.
Note 2 - Inventories
The major classes of inventories consist of the following (in thousands):
September 30, December 31,
1997 1996
____________ _____________
(Unaudited)
Fuel $ 109 $ 152
Supplies 1,495 659
Work in Process 1,237 2,491
Finished Goods 1,779 1,349
______ ______
$4,620 $4,651
====== ======
Note 3 - Earnings per Share
Earnings per share are calculated by dividing net income by the weighted
average number of common shares, including redeemable common shares,
outstanding during each period. Outstanding stock options are common stock
equivalents but are excluded from earnings per common share as the effect
would not be materially dilutive.
In March 1997 the FASB issued SFAS 128, "Earnings per
Share." This Statement replaces APB No. 15 "Earnings
per Share," establishes standards for computing and
presenting earnings per share ("EPS"), and is effective for
the year ended December 31, 1997. This statement is not
expected to have a material effect on the Company's
reported EPS amounts.
Note 4 - Commitments and Contingencies
Legal Matters
In November 1996, a large oil and gas company instituted litigation
against subsidiaries of the Company in Edinburgh, Scotland seeking
damages of approximately $3,000,000, plus interest and costs, on the
basis of allegations that a product supplied by the subsidiaries
exhibited design faults upon installation in a North Sea pipeline.
Prior to installation the product was hydrostatically tested onshore
and during the test it did not leak or otherwise malfunction. After
installation but before oil or gas flowed through the pipeline under
pressure the product was removed and replaced by the customer against
the recommendations of the Company's subsidiaries. The product did not
leak and no environmental damage is alleged. The Company believes at
this time that the product was fully suitable for service and intends to
defend itself vigorously against the claim, although no assurance can
be given as to the ultimate outcome of the litigation. There has been
no material developments in the third quarter ended September 1997.
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 alleged "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 or results of operations.
Note 5 - Impairment of Identifiable Intangible Assets
In accordance with Financial Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets to be Disposed of," (SFAS 121) the Company
reviews for impairment long-lived assets and certain identifiable intangibles
to be held and used whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable. Accordingly, in connection with
a delay in the Company's ability to produce and deliver Hard Suits capable of
working in depths of up to 2,000 feet, the Company reviewed
for impairment the carrying amounts of certain long-lived assets, identifiable
intangible assets and associated goodwill recorded on the books of its Hard
Suits Inc. subsidiary and recorded a charge of $1.5 million in the third
quarter of 1997. The charge represents the difference between the carrying
amount of certain identifiable intangible assets and associated goodwill and
the fair value of such assets, which was determined using a risk adjusted
cash flow model under which net cash flows are discounted, taking into account
risks related to the existing and future markets and the life expectancy of
the completed technology. The charge is included in depreciation and
amortization expense in the consolidated statements of income for the three
and nine months ended September 30, 1997.
<PAGE>
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion of the Company's financial condition,
results of operations, and liquidity and capital resources
should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and in
conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations"
appearing in the Company's registration statement on Form
S-2 (Registration No. 333-18153), as declared effective
by the SEC on April 3, 1997.
The following tables set forth, for the periods indicated, additional
information on the operating results of the Company in its geographic
and product markets:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
(Unaudited) ________________________________________________________________________
Inland and
Gulf International West Coast Subsea
Services<F1> Services<F2> Services<F3> Products<F4> Total
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Diving and related revenues $20,299 $5,269 $ 7,317 $ 4,269 $37,154
Diving and related expenses $13,851 $3,463 $ 5,248 $ 3,244 $25,806
Gross profit $ 6,448 $1,806 $ 2,069 $ 1,025 $11,348
Gross profit percentage 31.8% 34.3% 28.3% 24.0% 30.5%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
(Unaudited) ________________________________________________________________________
Inland and
Gulf International West Coast Subsea
Services<F1> Services<F2> Services<F3> Products<F4> Total
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Diving and related revenues $18,478 $770 $11,351 $2,810 $33,409
Diving and related expenses $11,414 $1,264 $ 7,247 $1,459 $21,384
Gross profit $ 7,064 $ (494) $ 4,104 $1,351 $12,025
Gross profit percentage 38.2% (64.2)% 36.2% 48.1% 36.0%
<F1> Includes diving and related services, derrick barge services provided
by American Marine Construction, Inc. and environmental remediation and
oil spill response services provided by American Pollution Control,
Inc., all of which were performed in the Gulf of Mexico.
<F2> Includes all diving and related services performed outside of the
United States and its coastal waters except for Latin America, which is
included in Inland and West Coast Services.
<F3> Includes diving and related services off the U.S. West Coast provided
by American Pacific Marine, Inc. and diving and related services
provided by American Inland Divers, Inc.
<F4> Includes manufacturing and marketing of Big Inch pipeline connectors,
Hard Suits Inc. products and Tarpon marginal well production systems
and concrete storage systems.
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
(Unaudited) ________________________________________________________________________
Inland and
Gulf International West Coast Subsea
Services<F1> Services<F2> Services<F3> Products<F4> Total
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Diving and related revenues $50,785 $11,146 $18,929 $13,047 $93,907
Diving and related expense $33,855 $ 7,083 $13,822 $ 8,165 $62,925
Gross profit $16,930 $ 4,063 $ 5,107 $ 4,882 $30,982
Gross profit percentage 33.3% 36.5% 27.0% 37.4% 33.0%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
(Unaudited) ________________________________________________________________________
Inland and
Gulf International West Coast Subsea
Services<F1> Services<F2> Services<F3> Products<F4> Total
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Diving and related revenues $40,735 $6,202 $26,127 $6,402 $79,466
Diving and related expenses $26,874 $4,286 $17,118 $3,379 $51,657
Gross profit $13,861 $1,916 $ 9,009 $3,023 $27,809
Gross profit percentage 34.0% 30.9% 34.5% 47.2% 35.0%
<F1> Includes diving and related services, pipelay/bury and derrick
barge services provided by American Marine Construction, Inc.
and environmental remediation and oil spill response services
provided by American Pollution Control, Inc., all of which were
performed in the Gulf of Mexico.
<F2> Includes all diving and related services performed outside of
the United States and its coastal waters except for Latin
America, which is included in Inland and West Coast Services.
<F3> Includes diving and related services off the U.S. West Coast
provided by American Pacific Marine, Inc. and diving and
related services provided by American Inland Divers, Inc.
<F4> Includes manufacturing and marketing of Big Inch pipeline
connectors, Hard Suits Inc. products and Tarpon marginal well
production systems and concrete storage systems.
</TABLE>
Results of Operations
For the third quarter ended September 30, 1997, the Company
reported revenue of $37.2 million and a net loss of $622,000,
compared to revenue of $33.4 million and net income of $2.9
million for the same period of the previous year. The
primary factors that affected the Company's results of
operations for the third quarter of 1997 as compared to the
same quarter of 1996 are as follows. First, the Company
recorded $2.9 million in non-recurring charges ($2.3 million
after tax) that include (i) recording an impairment adjustment
of $1.5 million on goodwill associated with the Company's Hard
Suits Inc. subsidiary; (ii) costs of approximately $500,000
related to the closure of American Inland Divers' Kansas
office; and (iii) the establishment of a $900,000 reserve
related to American Marine Construction, Inc.'s platform
abandonment contract. Excluding the impact of these
non-recurring charges, the Company would have reported net
income of $1.7 million or $.16 per share for the three months
ended September 30, 1997.
Second, the Company continues its long-term focus on
expansion into deepwater Gulf of Mexico markets and certain
international markets which in turn is increasing both SG&A
and depreciation expense as it adds strategic assets and key
management infrastucture, negatively impacting short-term
results while positioning the Company for long-term growth.
Third, although the Company's core Gulf of Mexico diving and
vessel business continued to experience strong utilization
with gradually increasing day rates, the current quarter's
results of operations were adversely affected by the delayed
commencement of operations of two of the Company's largest
Gulf of Mexico vessels, both of which had been undergoing
drydocking and were further impacted by a loss on a large
turnkey project caused in large part by a mechanical failure
on one of those vessels when it commenced operations late in
the third quarter.
Fourth, there was lower diving and marine construction
activity in the Company's Inland and West Coast Services
sector in the third quarter of 1997 as compared to the third
quarter of 1996, which included the large Chevron platform
abandonment project off the coast of California. The Inland
and West Coast Services sector's 1997 third quarter results
of operations were also adversely affected by a customer
change order that reduced revenues approximately $500,000 on
the Port of Brownsville project.
Fifth, due to the timing of orders, there were fewer sales of
the Company's subsea pipeline connector products in the third
quarter of 1997, despite strong demand in the first six
months of 1997 and a solid backlog of orders for the fourth
quarter of 1997.
Finally, the Company's new subsidiary, Hard Suits Inc.,
continued to experience operating losses in the third quarter
of 1997. Management's continued focus going forward is to
utilize Hard Suits technology to support the Company's
intervention technologies group, develop the substantial
opportunities the Company believes exist in the military
market and review ways to reduce costs. The Company has
received an order from the Italian government for a Hard
Suit, and is nearing completion of a prototype suit that it
is developing for the U.S. Navy. This next-generation suit
will be able to operate at depths of up to 2,000 feet. The
Company believes Hard Suits will continue to experience
operating losses for the remainder of fiscal 1997, due in
large part to the long lead time necessary to develop
military sales opportunities.
Management is analyzing its existing cost structure companywide,
seeking ways to reduce costs and improve efficiencies. As part
of the effort to reduce costs, in the third quarter the Company
consolidated its Inland diving operations by closing its
Kansas office and, in the fourth quarter, will consolidate
its Gulf of Mexico operations by closing its office in New
Orleans, Louisiana.
For the nine months ended September 30, 1997, the Company
reported revenue of $93.9 million and net income of $1.2
million, compared to revenue of $79.5 million and net income
of $4.7 million for the same period of 1996. During this
period the Company benefited from (i) increased utilization
of the Company's dive crews and vessels in the Gulf Services
sector although at slightly lower gross profit margins; (ii)
increased utilization of the Company's dive crews and vessels
in the International Services sector; and (iii) increased
sales of products manufactured by newly-acquired Tarpon
Concrete Storage Systems and Hard Suits Inc. These favorable
variances were offset by (i) the non-recurring charges
discussed above; (ii) a decrease in activity from the Inland
and West Coast Services sector; (iii) operating losses at
Hard Suits of $2.5 million; and (iv) increased selling, general
and administrative expenses and depreciation and amortization
expenses as a result of the Company's addition of management
and assets to expand its international and deepwater remote
intervention presence.
During the first nine months of 1997, the Company has
benefited from the continued strength of the oil and gas
industry, particularly in the Gulf of Mexico, and experienced
strong demand for its subsea services and related products in
the Gulf of Mexico. Based on a variety of traditional
industry indicators that are currently positive such as
stable commodity prices, increased Gulf of Mexico drilling
rig count, large number of pipeline construction projects,
lease sales and other similar indices, the Company believes
that this trend will continue for the remainder of fiscal
1997.
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. Weather conditions in
the Gulf of Mexico and in certain of the Company's inland
markets, particularly the winter weather 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 utilization of the
Company's support vessels in the Gulf of Mexico. The Company
expects winter weather patterns and other adverse weather
conditions to continue to have an adverse effect on the
Company's diving operations, both in the Gulf of Mexico and
elsewhere.
During October 1997, the Company sold American Pollution
Control, Inc., its environmental remediation subsidiary, for
an undisclosed sum.
Three Months Ended September 30, 1997 Compared to Three
Months Ended September 30, 1996
Total revenues. The Company's consolidated revenues
increased $3.8 million, or 11%, from $33.4 million for the
three months ended September 30, 1996 to $37.2 million for
the current quarter. The increase was primarily attributable
to increased diving and vessel activity in the Gulf of Mexico
and in the International Services operations, partially
offset by reductions in Inland and West Coast Services
activity.
Diving and related expenses. The Company's consolidated
diving and related expenses increased $4.4 million, or 21%,
from $21.4 million for the three months ended September 30,
1996 to $25.8 million for the current three-month period.
The increase was primarily attributable to increased activity
levels in general in the Gulf Services and International
Services operations, and, in particular, increased wage and
salary levels to attract and retain offshore personnel.
These expense increases were partially offset by a decrease
of approximately $2.0 million attributable to the lower
activity of the Inland and West Coast Services sector, as
previously discussed.
Selling, general and administrative expenses. Selling,
general and administrative expenses increased $1.9 million,
or 36%, to $7.2 million during the third quarter of 1997,
compared to $5.3 million for the same period of 1996. The
increase was primarily attributable to, among other things,
supporting higher diving and vessel activity in the Gulf of
Mexico, supporting the operations of the newly acquired
Tarpon Concrete Storage Systems, Hard Suits and Contract
Diving Services subsidiaries, and to supporting the Company's
new international and deepwater management infrastructure.
During the third quarter of 1997, selling, general and
administrative expenses as a percentage of revenues were 19%,
compared to 16% for the third quarter of 1996.
Depreciation and amortization. Depreciation and amortization
increased $2.9 million, or 197%, to $4.4 million for the
third quarter of 1997, compared to $1.5 million for the third
quarter of 1996. The increase was primarily attributable to a
charge of $1.5 million recorded in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets to be Disposed of," (SFAS
No. 121) to adjust the carrying value of certain Hard Suits
Inc. identifiable intangible assets and associated goodwill
to their expected net realizable value and to a charge of
approximately $400,000 to write off certain American Inland Divers
intangible assets due to the closure of its Kansas office.
Operating income. Although the Company experienced an
overall revenue increase in the third quarter of 1997, the
Company's overall gross profit and related percentage
decreased from $12.0 million and 36% in the third quarter of
1996 to $11.3 million and 31% in the current quarter.
Further, selling, general and administrative expenses and
depreciation and amortization expenses increased, as
discussed above, in the current quarter, such that the
resulting operating income decreased from $5.3 million in
1996 to a $179,000 loss in the current quarter.
Other income/expense. During the current quarter, other
income (net) of $177,000 was comprised of miscellaneous
income of $468,000, partially offset by interest expense of
$204,000 and a loss on the disposal of fixed assets of
$87,000. This compares to other expense (net) of $295,000
for the comparable period of 1996, which was comprised of
interest expense of $288,000 and a loss on the disposal of
assets of $48,000, partially offset by other income of
$41,000.
Net income (loss). As a result of the factors discussed
above, the Company recorded a net loss of $622,000, or ($.06)
per share on 10.6 million weighted average common shares for
the three months ended September 30, 1997, compared to net
income of $2.9 million, or $.42 per share on 6.8 million
weighted average common shares for the same period of 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months
Ended September 30, 1996
Total revenues. The Company's consolidated revenues
increased 18% from $79.5 million for the nine months ended
September 30, 1996 to $93.9 million for the current period.
The $14.4 million revenue increase was attributable primarily
to increased diving and vessel activity in the Gulf of Mexico
and in the International Services group as well as sales of
the Company's manufactured products by Tarpon Concrete
Storage Systems and Hard Suits Inc., both of which were
acquired after the third quarter of 1996. This increase was
partially offset by a decrease of $7.2 million in the Inland
and West Coast services sectors.
Diving and related expenses. The Company's consolidated
diving and related expenses increased $11.3 million, or 22%,
from $51.6 million for the nine months ended September 30,
1996 to $62.9 million for the current nine-month period. The
increase was primarily attributable to increased activity
levels in general in the Gulf Services and International
Services operations, and in particular increased wage and
salary levels to attract and retain offshore personnel.
These expense increases were partially offset by a decrease
of approximately $3.3 million attributable to the lower
activity of the Inland and West Coast Services sector, as
previously discussed.
Selling, general and administrative expenses. Selling,
general and administrative expenses increased $4.5 million,
or 31%, to $19.3 million during the nine months ended
September 30, 1997 compared to $14.8 million for the nine
months ended September 30, 1996. The increase was primarily
attributable to, among other things, supporting the
operations of the newly acquired Tarpon Concrete Storage
Systems, Hard Suits Inc. and Contract Diving Services
subsidiaries, supporting higher diving and vessel activity in
the Gulf of Mexico and supporting the Company's new
international and deepwater management infrastructure.
During the nine months ended September 30, 1997, selling,
general and administrative expenses as a percentage of
revenues was 21% for the nine months ended September 30,
1997, compared to 19% for the same period of 1996.
Depreciation and amortization. Compared to the nine months
ended September 30, 1996, depreciation and amortization
increased $4.2 million, or 89%, from $4.7 million in 1996 to
$8.9 million for the nine months ended September 30, 1997.
The increase was primarily attributable to charges of $1.5
million recorded in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed of," (SFAS No. 121) to
adjust the carrying value of certain Hard Suits Inc. identifiable
intangible assets and associated goodwill to their expected net
realizable value and to a charge of $400,000 to write off certain
American Inland Divers intangible assets due to the closure of
its Kansas office. The remaining increase in depreciation
and amortization is attributable to the acquisition of Hard
Suits, Inc. and Contract Diving Services, as well as other
additions and improvements to the Company's operational and
administrative assets, primarily in the Gulf Services group.
Operating income. Although the Company's revenues increased
by $14.4 million in the current nine month period, the gross
profit percentage was approximately 33% for 1997, compared to
35% for 1996. Further, selling, general and administrative
expenses and depreciation and amortization expenses
increased, as discussed above, in the current quarter, such
that the resulting operating income decreased from $8.3
million in 1996 to $2.8 million in 1997.
Other income/expense. For the first nine months of 1997,
other income (net) of $509,000 was comprised of gains on the
disposal of assets of $383,000 and interest and other income
of $810,000, partially offset by interest expense of
$684,000. The net gain on the disposal of assets includes
the non-recurring gain on the sale of the Company's corporate
headquarters in Lafayette, Louisiana. This compares to other
expense (net) of $153,000 for the comparable period of 1996,
which was comprised of interest expense of $817,000,
partially offset by gains on the disposal of assets of
$531,000 and other income of $133,000.
Net income. As a result of the factors discussed above, the
Company recorded net income of $1.2 million, or $.13 per
share on 10.0 million weighted average common shares for the
nine months ended September 30, 1997, compared to net income
of $4.7 million, or $.69 per share on 6.8 million weighted
average common shares for the comparable period of 1996.
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, its facilities, its
DSVs and diving and related equipment and other capital
equipment and inventory. The Company also incurs expenses
for mobilization and project execution on an ongoing basis
throughout the course of its contracts, while collections
from customers typically do not occur until approximately 90
to 120 days after completing the project. The Company has
traditionally supported these working capital requirements by
using a combination of internally generated funds and short-
term and long-term debt.
As previously discussed, the Company's new subsidiary, Hard
Suits Inc. has continued to experience operating losses
during fiscal 1997, resulting in increased working capital
requirements. Although the Company expects this trend to
continue for the remainder of fiscal 1997, management
believes it should be reversed through its strategy to
utilize Hard Suits technology to support the Company's
intervention technologies group, develop the substantial
opportunities the Company believes exist in the military market
and review ways to reduce costs.
The Company has a $15 million revolving line of credit with a
bank at the prime rate. No amounts were outstanding at
September 30, 1997. The Company has a long-term note with a
bank at a fixed interest rate of 7.9%. At September 30, 1997
the outstanding principal balance of the note was $8,500,000.
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
DSVs and certain diving equipment. Also at September 30,
1997, the Company has various government assistance notes
which are non-interest bearing, unsecured and are payable in
various installments through July 1999.
In February 1997, the Company completed a secondary stock
offering of 3,553,315 shares of common stock. This offering
provided the Company with net proceeds of approximately $40
million. The Company used approximately $16 million to repay
borrowings outstanding under its line of credit and has used
the remaining proceeds for general corporate purposes,
including working capital requirements, and to fund capital
expenditures and strategic asset acquisitions.
The Company believes that cash flows from operations and
borrowings available under its bank credit facility will
provide sufficient funds for the next twelve to eighteen
months to meet its working capital and capital expenditure
requirements and to fund any further expansion into new
geographic markets or development of new product lines.
Net cash used by operating activities was $4.1 million for
the three months ended September 30, 1997 compared to $2.5
million provided by operating activities for the comparable
prior year period. Changes in cash flows from operating
activities are primarily due to timing differences in cash
received from customers and cash paid to employees and suppliers.
For the most recent three month period, net cash used by
investing activities was approximately $7.2 million, which
consisted mainly of $6.0 million expended for the acquisition
of and improvements to operating assets to be used in the
Company's operations, and $1.2 million for other assets. For
the same three month period of the prior year, net cash used
by investing activities was approximately $5.4 million, which
consisted primarily of $5.5 million expended for the
acquisition of and improvements to operating assets to be
used in the Company's operations.
Cash flows provided by financing activities of approximately
$411,000 for the three months ended September 30, 1997, were
primarily attributable to proceeds of $809,000 from the
exercise of stock options, partially offset by payments on
term debt totaling $398,000. For the third quarter of 1996,
cash provided by financing activities of approximately $3.3
million was primarily attributable to proceeds from short-
term borrowings totaling $3.7 million, partially offset by
payments on short-term debt of $375,000.
Net cash used by operating activities was $5.9 million for
the nine months ended September 30, 1997 compared to $10.4
million provided by operating activities for the comparable
prior year period. Changes in cash flows from operating
activities are primarily due to timing differences in cash
received from customers and cash paid to employees and
suppliers.
For the most recent nine month period, net cash used by
investing activities was approximately $19.7 million, which
consisted mainly of $19.7 million expended for the
acquisition of and improvements to operating assets to be
used in the Company's operations and $2.3 million for other
assets, partially offset by $2.4 million received from the
disposal of assets. For the same nine month period of the
prior year, net cash used by investing activities was
approximately $9.1 million, which consisted primarily of
$15.8 million expended for the acquisition of and
improvements to operating assets to be used in the Company's
operations, partially offset by $6.7 million received from
the disposal of assets.
Cash flows provided by financing activities were
approximately $26.5 million for the nine months ended
September 30, 1997, primarily attributable to proceeds of
$41.3 million from the Company's secondary stock offering and
exercises of stock options, partially offset by payments of
$12.6 million on the line of credit agreement and $2.3
million on term debt. For the same nine months of 1996, cash
used by financing activities of approximately $460,000 was
attributable to payments on term debt totaling $7.3 million
and on the line of credit agreement of $3.8 million,
partially offset by $10.5 million in proceeds from new long-
term borrowings.
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K.
(a)Exhibits
27.1 Financial Data Schedule
(b)Reports on Form 8-K
The Company filed a current report on Form 8-K, dated
July 31, 1997, with respect to its earnings release for
the three months ended June 30, 1997.
The Company filed a current report on Form 8-K, dated
September 8, 1997, with respect to its preliminary
earnings outlook for the third quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AMERICAN OILFIELD DIVERS, INC.
Date: November 14, 1997 /s/ Cathy M. Green
______________________________
Cathy M. Green
Vice President - Finance, and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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