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 March 31, 1998
( ) 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
________________________
CEANIC CORPORATION
(formerly 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 70024
(Address of Principal Executive Offices)
(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 May 13, 1998 there were 10,642,205 shares of common stock, no
par value, outstanding.
<PAGE>
CEANIC CORPORATION
INDEX
Part I. Condensed Financial Information Page
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997.....................1
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1998 and March 31, 1997.....2
Condensed Consolidated Statements of Changes
in Stockholders' Equity -
Three Months Ended March 31, 1998 and March 31, 1997.....3
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and March 31, 1997.....4
Notes to Condensed Consolidated Financial Statements.....5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...............13
Signatures..............................................14
<PAGE>
On May 15, 1998, the shareholders of American Oilfield Divers, Inc.
aproved an amendment to the Amended and Restated Articles of Incorporation
officially changing the name of American Oilfield Divers, Inc. to Ceanic
Corporation.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
Ceanic Corporation
Condensed Consolidated Balance Sheets
(in thousands)
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 1,231 $ 1,407
Accounts receivable, net of allowance for
doubtful accounts of $700 and $600 25,894 32,604
Unbilled revenue 19,084 10,870
Other receivables 2,587 3,225
Inventories 6,009 5,428
Prepaid expenses 4,832 1,752
----------- -----------
Total current assets 59,637 55,286
Property, plant and equipment, net of
accumulated Depreciation of $30,414 and $28,305 69,301 63,318
Trademarks and patents, net of accumulated
amortization 7,821 8,104
Other assets, net of accumulated amortization 7,086 7,592
___________ ___________
$143,845 $134,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 4,610 $ 8,379
Other liabilities 15,588 10,348
Borrowings under a line of credit agreement 15,914 8,808
Current portion of long-term debt 2,017 2,163
----------- ------------
Total current liabilities 38,129 29,698
Long-term debt, less current portion 7,759 8,060
Other liabilities 7,293 6,291
------------ ------------
Total liabilities 53,181 44,049
Stockholders' equity:
Common stock, no par value 1,824 1,824
Other stockholders' equity 88,840 88,427
------------ ------------
Total stockholders' equity 90,664 90,251
------------ ------------
$143,845 $134,300
============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Ceanic Corporation
Condensed Consolidated Statements of Income
(in thousands, except per share data)
Three Months Ended
March 31,
------------------
(unaudited) 1998 1997
----- ----
Diving and related revenues $36,017 $28,576
------ ------
Costs and expenses:
Diving and related expenses 24,956 20,322
Selling, general and administrative
expenses 6,518 5,335
Depreciation and amortization 2,997 2,318
------- -------
Total costs and expenses 34,471 27,975
------- -------
Operating income 1,546 601
Other expense, net (444) (205)
------- -------
Income before income taxes 1,102 396
Income tax provision 475 170
------- -------
Net income $ 627 $ 226
======= =======
Earnings per common share:
Basic $ .06 $ .03
======= =======
Diluted $ .06 $ .03
======= =======
Weighted average common shares outstanding:
Basic 10,641 8,890
======= ======
Diluted 10,739 8,936
======= ======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Ceanic Corporation
Condensed Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
--------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income(loss) Total
------ ------ ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 6,879,867 $1,373 $42,059 $2,511 $ (98) $45,845
Issuance of common stock
in a 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
under exercise of stock options 35,399 3 323 326
Comprehensive income:
Net income 226 226
Other comprehensive income, net of
tax foreign currency translation
adjustments (46) (46)
--------- ------- ------- --------- ------- ---------
Comprehensive income 226 (46) 180
---------- ------- ------- --------- ------- ----------
Balance at March 31, 1997 10,468,581 $1,807 $82,071 $ 2,737 $ (144) $86,471
========== ======= ======= ========= ======== ==========
Balance at December 31, 1997 10,640,760 $1,824 $84,065 $ 4,742 $ (380) $90,251
Issuance of common stock under
exercise of stock options 342 3 3
Comprehensive income:
Net income 627 627
Other comprehensive income, net
of tax (foreign currency
adjustments) (217) (217)
---------- ------- ------- --------- ------- ----------
Comprehensive income 627 (217) 410
---------- ------- ------- --------- ------- ----------
Balance at March 31, 1998 10,641,102 $1,824 $84,068 $ 5,369 $ (597) $90,664
========== ======= ======= ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Ceanic Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
March 31,
-------------------
1998 1997
---- ----
(unaudited)
Net cash flows from operating activities:
Net income 627 226
Non-cash items included in net income
Depreciation and amortization 2,997 2,318
Net gain on disposition of assets (84) ---
Other (2,272) (8,248)
------- --------
Net cash provided by (used by)
operating activities 1,268 (5,704)
Cash flows from investing activities:
Capital expenditures (9,041) (2,346)
Proceeds from sale of assets 558 ---
Other 377 (331)
-------- --------
Net cash used by investing activities (8,106) (2,677)
Cash flows from financing activities:
Proceeds from issuance of common stock 3 40,446
Repayments of term debt (447) (1,372)
Net payments (borrowings) under
line-of-credit agreement 7,106 (12,618)
-------- ---------
Net cash provided by financing activities 6,662 26,456
-------- ---------
Net increase (decrease) in cash (176) 18,075
Cash and cash equivalents at
beginning of period 1,407 1,322
--------- ---------
Cash and cash equivalents at end of
period $ 1,231 $19,397
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Ceanic Corporation
Notes to Condensed Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Principles
The consolidated financial statements include the accounts of Ceanic
Corporation and its wholly-owned and majority-owned subsidiaries (the
"Company" or "Ceanic"). The Company provides subsea services and products,
including field development services to the offshore oil and gas
industry, as well as industrial and governmental customers in the U.S.
Gulf of Mexico, U.S. West Coast, and certain U.S. inland markets, as
well as to customers in the Europe Africa and Asia Pacific Regions.
Operations in the U.S. Gulf of Mexico represent a significant portion of
the Company's business. The Company's primary customers include major
and independent oil and gas companies, offshore engineering and
construction companies and major pipeline transmission firms. All
material intercompany transactions and balances have been eliminated in
consolidation.
In February 1997, the Company issued 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 used the remaining proceeds for
general corporate purposes, including working capital requirements and
funding of 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, 1997, 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, 1997. The
unaudited first quarter financial statements contained herein should be
read in conjunction with the audited 1997 financial statements.
The unaudited financial statements at, and for the three months ended
March 31, 1998 and 1997 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.
A reclassification of approximately $500,000 between diving and related
expenses and selling, general and administrative expenses was made to the
results of operations for the three months ended March 31, 1997 to conform
with the 1998 presentation.
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.
Note 2 - Inventories
The major classes of inventories consist of the following (in
thousands): March 31, December 31,
1998 1997
------ ------
(Unaudited)
Fuel $ 182 $ 224
Supplies 1,393 1,197
Work in Process 3,677 2,769
Finished Goods 757 1,238
---------- ---------
$6,009 $5,428
========== =========
Note 3 - Short-term Borrowing
During the three months ended March 31, 1998, the Company's revolving line of
credit agreement with a bank was increased to $25 million with no other
changes in terms to facilitate the Company's expanded working capital
and capital requirements. The agreement expired on April 30, 1998 and was
extended to July 31, 1998.
Note 4 - Earnings per Share
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share," beginning with the year ended
December 31, 1997. All prior period earnings per share data have been
restated to conform to the provisions of this statement. Basic earnings
per common share is computed using the weighted average number of shares
outstanding for the period. Diluted earnings per common share is
computed using the weighted average number of shares outstanding per
common share adjusted for the incremental shares attributed to
outstanding options to purchase common stock. The reconciliation
between the computations is as follows (table amounts in thousands,
except per share data):
Weighted Average Shares Earnings Per Share
Net ------------------------- -------------------
Income Basic Incremental Diluted Basic Diluted
Three months ended:
March 31, 1998 $627 10,641 98 10,739 $.06 $.06
March 31, 1997 226 8,890 46 8,936 .03 .03
Note 5 - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 establishes new requirements for reporting
comprehensive income and its components. Adoption of this statement had
no impact on the Company's net income or stockholders' equity for the
periods presented. SFAS 130 requires unrealized gains or losses on the
Company's foreign currency translation adjustments, which prior to
adoption were reported separately in stockholders' equity, to be
included in other comprehensive income. Total comprehensive income
for the quarters ended March 31, 1998 and 1997 amounted to
approximately $410,000 and $180,000, respectively and is a component of
stockholders' equity.
Note 6 - Commitments and Contingencies
The Company has commitments for future purchases of capital assets totalling
approximately $22 million at March 31, 1998.
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 U.S. $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 first quarter ended March 31, 1998.
In November 1997, an oilfield service company instituted litigation
against the Company in United States Federal Court in New Orleans,
Louisiana seeking damages on the basis of allegations that the Company
had breached the terms of a time-charter contract. The plaintiff leased
to the Company a jack-up derrick barge which had been reoutfitted by the
company and which foundered and sank on April 27, 1997 while performing
a platform abandonment project. The plaintiff alleges the losses
incurred as a result of the barge's sinking to be $13 million plus
interest and costs, of which the Company had paid the plaintiff
insurance proceeds of $3 million. The plaintiff alleges the losses to
be in excess of the insured value of the barge. The plaintiff and
Company unsuccessfully attempted to mediate this matter. The Company
believes the barge's value was equal to its insured value and intends to
defend the claim vigorously, although no assurance can be given as to
the ultimate outcome of the litigation. There has been no material
developments in the first quarter ended March 31, 1998.
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 7 - Subsequent Events
Subsequent to March 31, 1998, the Company entered into commitments to
charter three dynamically positioned vessels with the first charter
beginning in July 1998. Two of the agreements provide purchase options
at the end of the charter. Each of the charters is for a three year
period with total payments under the charter agreements aggregating
$25 million.
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 the Company's annual report on Form
10-K for the year ended December 31, 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 March 31, 1998
-----------------------------------------------------------------------------------
(Unaudited) (dollars in thousands)
Americas Pacific Europe Africa General Subsea
Region<F1> Region Region Contracting<F2> Products<F3> Total
--------- -------- ------------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Diving and related revenues $19,320 $1,114 $1,700 $7,146 $6,737 $36,017
Diving and related expenes $12,200 $1,126 $1,512 $6,176 $3,942 $24,956
Gross profit (loss) $ 7,120 $ (12) $ 188 $ 970 $2,795 $11,061
Gross profit percentage 36.9% (1.1%) 11.1% 13.6% 41.5% 30.7%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
-----------------------------------------------------------------------------------
(Unaudited) (dollars in thousands)
Americas Pacific Europe Africa General Subsea
Region<F1> Region Region Contracting<F2> Products<F3> Total
--------- -------- ------------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Diving and related revenues $13,461 $ -- $ 2,841 $ 7,789 $ 4,485 $ 28,576
Diving and related expenses $10,057 $ -- $ 1,607 $ 6,122 $ 2,536 $ 20,322
Gross profit $ 3,404 $ -- $ 1,234 $ 1,667 $ 1,949 $ 8,254
Gross profit percentage 25.3% -- 43.4% 21.4% 43.5% 28.9%
<F1> Includes operations in the Company's Americas Region, which encompasses
diving, intervention technology, vessel and related services, all of which
were performed in the Gulf of Mexico.
<F2> Includes diving and related services in U.S. inland markets, off the U.S.
West Coast and in Latin America.
<F3> Includes manufacturing and marketing of Big Inch pipeline connectors,
Tarpon Guyed Monotower and Ceanic Concrete Storage Systems products,
and Ceanic Hard Suits Inc. products.
</TABLE>
Results of Operations
The Company experienced significant growth in its revenues in the first
quarter of 1998 with revenue increasing from $28.6 million in 1997 to
$36.0 million in the current quarter. Net income increased from
$226,000 in the first quarter of 1997 compared to $627,000 in the
current quarter.
The results of operations for the period have begun to reflect the
Company's strategy to position itself as a deepwater, high technology
provider of innovative solutions. Despite the fact that the first
quarter is typically the most weather-sensitive, the Americas Region's
revenue increased by $5.9 million or 44% over the prior year quarter.
This was primarily due to the addition in late 1997 of several new deepwater
assets which are generally less weather sensitive and include the American
Defender, a 220-foot dynamically positioned (DP) vessel, and several new
remotely operated vehicles (ROV's). At the same time, the core diving
and vessels market in the Americas Region produced strong results with
increased utilization and day rates for the existing vessel fleet.
The Company's Products Division also achieved strong results in the first
quarter of 1998. There was record demand for Big Inch's pipeline connector
and repair products. Hard Suits recorded positive operating results with
the manufacture of a HARDSUIT(TM) diving suit for the Italian Navy and the
continued progress on U.S. Navy contracts. Finally, the Company
completed the fabrication of a Tarpon Guyed Monotower in Indonesia in
the first quarter of 1998.
Although the Company experienced strong results of operations in its
Americas Region and Subsea products divisions, these results were
partially offset by project cost overruns in its General Contracting
Division and Asia Pacific region, and by lower than
anticipated activity levels and related profit margins in both of these
groups as well as the Europe Africa region. However, both the Europe
Africa Region and the General Contracting Division have begun to
experience increased activity levels in the second quarter of 1998 with
the General Contacting Division having a backlog of $24.5 million as
of April 30, 1998. Management continues to develop Ceanic's market
presence in its international regions, but is currently evaluating the
cost structure of operations in those regions in an effort to make them
more cost effective.
During the first quarter and second quarters of 1998, the Company has made
commitments to add several DP vessels to its fleet over the course of 1998.
The Company committed to purchase the Ceanic Legend, a 240-foot DP vessel in
the fourth quarter of 1998. The Company also committed to three-year
charters of the Ceanic Invincible and the Ceanic Rover, two 234-foot DP
vessels. Both charter agreements provide purchase options at the end of
the charter period. Finally, the Company entered into a three-year
charter beginning August 1998 for the Kommander 3000, a 313-foot multi-
purpose construction vessel.
As the Company has continued its long-term focus on expansion into
deepwater Gulf of Mexico markets and certain international markets, the
related selling, general and administrative expenses have increased.
The Company is now in the process of resizing its international and
administrative management infrastructure with a planned completion date
of the second quarter of 1998. The Company's targeted annual overhead
reduction is $3 million to $4 million.
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.
On April 16, 1998, the Company's Chief Financial Officer, Cathy M. Green,
resigned her position and Bradley M. Parro was appointed as the Company's
new Vice President-Finance and Chief Financial Officer. Parro has
approximately 18 years of financial management experience. Parro served
as CFO of Perry Tritech, an international subsea robotics manufacturer and
subsidiary of Coflexip-Stena for the past seven years. Prior to Perry,
Parro served in various financial management capacities with a large
telecommunications manufacturer including manager of financial planning
and analysis. Parro graduated from the University of Illinois with a
Bachelor of Science in Finance and earned an MBA from Loyola University
of Chicago.
On May 1, 1998, Rodney W. Stanley resigned as President and Chief Executive
Officer and director and Kevin C. Peterson was elected President and
Chief Executive Officer; Peterson has been with the Company for
approximately one year, serving as its Chief Operating Officer and director.
Prior to joining Ceanic, Peterson served in various capacities with the
Coflexip-Stena Offshore group, most recently as President and Chief
Executive Officer of Coflexip-Stena Offshore USA and Perry Tritech.
During the first quarter of 1998, 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
generally stong 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 1998.
Three Months Ended March 31, 1998 Compared to Three Months Ended March
31, 1997
Total revenues. The Company's consolidated revenues increased $7.4
million, or 26%, from $28.6 million for the three months ended March 31,
1997 to $36.0 million for the current quarter. The increase was
primarily attributable to increased demand for services in the Americas
Region as a result of the 1997 addition of certain deepwater assets, and
increased utilization and day rates for the Company's existing Gulf of
Mexico vessel fleet. The Company also experienced increased demand for
its subsea products in the first quarter of 1998. These revenue
increases were offset by a reduction in activity levels in both the West
Africa Region and General Contracting Division for the three months
ended March 31, 1998.
Diving and related expenses. The Company's consolidated diving and
related expenses increased $4.7 million, or 23%, from $20.3 million for
the three months ended March 31, 1997 to $25.0 million for the current
three-month period. The increase was primarily attributable to the
increased activity levels of the Americas Region and Subsea Products
divisions, as discussed above, and the addition of operations in
Southeast Asia for the first quarter of 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.2 million or 22%, to $6.5 million
during the first quarter of 1998, compared to $5.3 million for the same
period of 1997. The increase was primarily attributable to the costs of
supporting the Company's new international and deepwater management
infrastructure. During the first quarter ended March 31, 1998, the
Company began classifying certain costs that had previously been presented
in selling, general and administrative expenses into direct expenses to
better report the nature of the costs. Amounts totalling approximately
$500,000 presented in the statement of operations for the three months
ended March 31, 1997 have been reclassified to conform with this
presentation. During the first quarter of 1998, selling, general and
administrative expenses as a percentage of revenues was 18%, slightly lower
than the 19% rate for the first quarter of 1997. The Company intends
to make targeted reductions in its annual selling, general and administrative
expenses beginning in the second quarter of 1998.
Depreciation and amortization. Depreciation and amortization increased
$679,000 or 29%, to $3.0 million for the first quarter of 1998, compared
to $2.3 million for the first quarter of 1997 primarily due to capital
expenditures made in 1997 for ROV's, diving equipment, a dynamically
positioned vessel and upgrades to other vessels in the Gulf of Mexico.
Depreciation and amortization also increased as a result of assets
acquired for the Company's new operation in Southeast Asia and expansion
of its Europe Africa region.
Other expense. During the current quarter, other expense (net)
of $444,000 was comprised of interest expense of $554,000, partially
offset by a gain on the disposal of assets of $84,000 and other income
of $26,000. This compares to other expense (net) of $205,000 for the
comparable period of 1997, which was comprised of interest expense of
$311,000, partially offset by interest income of $14,000 and other
income of $92,000.
Net income. As a result of the factors discussed above, the Company
recorded net income of $627,000, or $.06 per share (basic) on 10.6
million weighted average common shares for the three months ended March
31, 1998, compared to net income of $226,000, or $.03 per share (basic)
on 8.9 million weighted average common shares for the same period of
1997.
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, diving and related
equipment, and other capital equipment. 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 including the approximately 30 days required to invoice completed
projects. 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 has a revolving line of credit agreement with a bank at the
prime rate that is limited and secured by eligible accounts receivable
up to a maximum borrowing of $25 million. The agreement expired on
April 30, 1998 and was extended until July 31, 1998. At May 8, 1998,
the balance outstanding under the line was $17.6 million and, based on
eligible accounts receivable at that time, the remaining balance
available to borrow was $2.8 million.
The Company has a long-term note with a bank at a fixed interest rate of
7.9%. At March 31, 1998 the outstanding principal balance of the note
was $7,750,000. 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 March 31, 1998, the Company has
various government assistance notes which are non-interest bearing,
unsecured and are payable in various installments through July 1999.
During 1998, the Company has made certain commitments, both in terms of
capital expenditures as well as long-term charters agreements, for the
addition of remotely operated vehicles and four DP vessels that will
require significant amounts of liquidity and capital resources. The
charter agreements call for aggregate payments of $25 million over a three
year period and the purchase commitments approximate $22 million at
March 31, 1998. Although the Company does not have firm arrangements
in place at this time for its long-term financing needs, and the existing
line of credit facility is in the process of being renewed, the Company
believes that it will be able to finalize its overall financing
arrangements in the near term and that such financing, coupled with cash
flows from operations and other sources, will provide sufficient funds to
meets its working capital and capital expenditure requirements for 1998.
Net cash provided by operating activities was $1,268,000 for the three
months ended March 31, 1998 compared to $5.7 million used 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 $8.1 million, which consisted mainly of
$9.0 million expended for the acquisition of and improvements to
operating assets, partially offset by proceeds of $558,000 received from
the disposal of assets and a decrease of $377,000 in other assets. For
the same three month period of the prior year, net cash used by investing
activities was approximately $2.7 million, which consisted primarily
of $2.3 million expended for the acquisition of and improvements
to operating assets and $331,000 for other assets.
Cash flows provided by financing activities were approximately $6.7
million for the three months ended March 31, 1998, primarily
attributable to net borrowings of $7.1 million on the line of credit
agreement offset by repayments of $447,000 on term debt. For the same
three months of 1997, cash provided by financing activities of
approximately $26.5 million was attributable to proceeds of $40.4
million from issuance of the Company's common stock, offset by payments
on term debt of $1.4 million and on the line of credit agreement of
$12.7 million.
Impact of the Year 2000
The Company has assessed and continues to assess the impact of the
Year 2000 on its reporting systems and operations. The year 2000 issue
is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could potentially
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in other similar normal
business activities.
The Company had already planned to implement new computer accounting
and management information software to increase operational efficiencies
and information analysis and, to that end, purchased software and
committed to implement the software over the course of early 1998 to mid
1999. The Company believes that, with the implementation of this new
software, the Year 2000 issue should be generally resolved for the
Company's accounting and management systems. The Company believes, at
this time, that the cost of the implementation of the new software will
not have a material adverse effect on the Company's consolidated financial
position or results of operations. Although the Company is still assessing
the impact of the Year 2000 issue on its other operating systems, at this
time the Company believes it will not have a material impact on the
Company's financial position or results of operations.
The Company has not yet initiated formal communications with all of
its significant suppliers and vendors to ensure that those parties have
appropriate plans to address year 2000 issues where they may otherwise
impact the operations of the Company; however, the Company does not have
any significant suppliers or vendors that directly interface with the
Company's information technology systems. There is no guarantee that
the systems of other companies on which the Company relies will be
converted timely and will not have an adverse effect on the Company.
New Accounting Pronouncement
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up
Activities," which requires that start-up costs, including organization
costs, be expensed as incurred. The Company plans to adopt SOP 98-5
for the year ended December 31, 1999. The Company is currently evaluating
the impact of this statement on its financial position and results of
operations.
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K.
(a)Exhibits
10.1 Third Amended and Restated loan agreement, dated February 11,
1998 among American Oilfield Divers, Inc., certain of its
subsidiaries and First National Bank of Commerce.
27.1 Financial Data Schedule
(b)Reports on Form 8-K
Date of Report Item Reported:
February 24, 1998 Item 5 "Other Events" announcing the
fourth quarter and 1997 year end
results.
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.
CEANIC CORPORATION
Date: May 15, 1998 /s/ Bradley M. Parro
-----------------------
Bradley M. Parro
Vice President - Finance,
and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 10
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN
AGREEMENT, dated as of February 11, 1998 (this "Amendment"),
between AMERICAN OILFIELD DIVERS, INC., a Louisiana corporation
("Borrower") and FIRST NATIONAL BANK OF COMMERCE, a national
banking association ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have heretofore entered into
a Second Amended and Restated Loan Agreement dated as of April
3, 1996, as heretofore amended by that certain First Amendment
thereto between Borrower and Lender dated as of March 28, 1997,
and by that certain Second Amendment thereto between Borrower
and Lender dated as of June 12, 1997 (as so amended, the "Loan
Agreement"), pursuant to which Lender agreed to provide
Borrower with certain credit facilities consisting of a
revolving line of credit, a commitment for the issuance of
letters of credit, and a term loan under the terms and
conditions more fully described therein; and,
WHEREAS, Borrower has requested that Lender increase its
commitment to make Revolving Loans and to issue Credits
pursuant to the terms of the Loan Agreement to an aggregate
amount not to exceed $25,000,000.00 at any time, and Lender has
agreed to so increase its commitment subject to the terms and
conditions of the Amendment.
NOW, THEREFORE, the parties hereto, in consideration of
the mutual covenants hereinafter set forth and intending to be
legally bound hereby, agree as follows:
1. Defined Terms. Capitalized terms used herein which
are defined in the Loan Agreement are used herein with such
defined meanings unless otherwise defined herein.
2. Amendments to Loan Agreement.
(a) Contemporaneously herewith, Borrower has executed
and delivered to Lender that certain promissory note made
by Borrower dated February 11, 1998, payable to the order
of Lender in the principal sum of Twenty-Five Million and
No/100 ($25,000,000.00) Dollars, which note has been given
in renewal and extension, but not as a novation, of that
certain promissory note made by Borrower dated April 3,
1996, payable to the order of Lender in the principal sum
of $15,000,000.00, as said promissory note was heretofore
amended by the First and Second Amendments to the Loan
Agreement dated as of March 28, 1997, and June 12, 1997,
respectively. Accordingly, the definition of the term
"Revolving Note" in Article I of the Loan Agreement is
hereby amended to read as follows:
(49) "Revolving Note" shall mean that certain
promissory note made by Borrower dated February 11,
1998, payable to the order of Lender in the principal
sum of $25,000,000.00, which evidences the Revolving
Loans made pursuant to the terms hereof, together
with any and all promissory notes given in renewal,
extension and modification thereof.
All references in the Loan Agreement to the term "Revolving
Note" shall henceforth refer to such note as defined in this
Amendment.
(b) The definition of the term "Ship Mortgages" in
Article I of the Loan Agreement is hereby amended to read as
follows:
(52) "Ship Mortgages" shall mean, collectively,
collectively, (i) that certain Preferred Mortgage by
S & H Diving Corporation (predecessor to S & H) in
favor of Lender dated August 9, 1994, (ii) that
certain Fleet Preferred Mortgage by APM in favor of
Lender dated September 22, 1994, (iii) that certain
Preferred Mortgage by Borrower in favor of Lender
dated September 22, 1994, (iv) that certain Preferred
Mortgage by S & H Diving Corporation (predecessor to
S & H) in favor of Lender dated April 3, 1995, and
(v) that certain Preferred Mortgage by S & H in favor
of Lender dated May 13, 1996, as each of said
instruments have been amended or may be amended from
time to time. The term "Ship Mortgages" shall also
include any additional preferred ship mortgages now
existing or hereafter from time to time granted by
any Grantor affecting any and all Coast Guard
documented vessels as security for any indebtedness
of Borrower to Lender.
(c) All references in Articles II and VI of the Loan
Agreement to the dollar amount of "$15,000,000.00" are hereby
deleted and replaced with references to the dollar amount of
"$25,000,000.00".
(d) The last sentence of Article VI, Section (a) of
the Loan Agreement is hereby amended to read as follows:
In no event shall a Credit be issued by Lender if the
sum of the face amount thereof, when added to the
aggregate unfunded amounts of Credits then
outstanding, would exceed $7,500,000.00, nor shall a
Credit be issued by Lender if the sum of the face
amount thereof, when added to the sum of the
aggregate unfunded amounts of Credits then
outstanding plus the aggregate amount of the
Revolving Loans at such time outstanding, would
exceed the lesser of (i) $25,000,000.00, or (ii) the
Net Collateral Value in effect at such time.
3. Conditions Precedent to Effectiveness of this
Amendment. This Amendment shall not be effective unless and
until Lender receives, on or prior to February 13, 1998, an
executed copy of the Revolving Note (as herein defined), an
executed counterpart of this Amendment, resolutions of the
Board of Directors of Borrower authorizing the transactions
contemplated hereby, and a letter from each of the Grantors
other than Borrower consenting to the transactions contemplated
hereby, confirming their respective Security Instruments, and
agreeing that such Security Instruments shall secure payment of
all obligations of Borrower to Lender, including without
limitation the increased amount of the Revolving Loans made
available hereunder.
4. Representations; No Default. On and as of the date
hereof, and after giving effect to this Amendment, Borrower
(a) confirms, reaffirms and restates the representations and
warranties set forth in the Loan Agreement and in the Security
Instruments to which it is a party; provided, that each
reference to the Loan Agreement therein shall be deemed
included the Loan Agreement as amended by this Amendment; and
(b) represents that no Default or Event of Default has occurred
and is continuing.
5. Security Instruments. All of the liens, privileges,
priorities and equities existing and to exist under and in
accordance with the terms of the Security Instruments are
hereby renewed, extended and carried forward as security for
all of the Loans and all other debts, obligations and
liabilities of Borrower to Lender, including without limitation
the increased amount of Revolving Loans and Credit Obligations
made available hereunder.
6. Payment of Expenses. Borrower agrees to pay or
reimburse Lender for all reasonable legal fees and expenses of
counsel to Lender in connection with the transactions
contemplated by this Amendment.
7. Governing Law: Counterparts. The Amendment shall be
governed by and construed in accordance with the laws of the
State of Louisiana. This Amendment may be executed in any
number of counterparts, all of which counterparts, when taken
together, shall constitute one and the same instrument.
8. Continued Effect. Except as expressly modified
herein, the Loan Agreement shall continue in full force and
effect. The Loan Agreement as amended herein is hereby
ratified and confirmed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date
hereinabove provided by their undersigned authorized officers,
each hereunto duly authorized.
AMERICAN OILFIELD DIVERS, INC.
/s/ Cathy M. Green
By:_____________________________________
Cathy M. Green,
Chief Financial Officer
FIRST NATIONAL BANK OF COMMERCE
Nemesio Viso
By:______________________________________
Vice President
Title:_____________________________________
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONSOLIDATED FINANCIAL
STATMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATMENTS.
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
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<RECEIVABLES> 25,894 18,832
<ALLOWANCES> 700 480
<INVENTORY> 6,009 4,592
<CURRENT-ASSETS> 59,637 57,745
<PP&E> 69,301 43,305
<DEPRECIATION> 30,414 24,286
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0 0
0 0
<COMMON> 1,824 1,807
<OTHER-SE> 88,840 84,664
<TOTAL-LIABILITY-AND-EQUITY> 143,845 115,267
<SALES> 36,017 28,576
<TOTAL-REVENUES> 36,017 28,576
<CGS> 24,956 19,822
<TOTAL-COSTS> 34,471 27,975
<OTHER-EXPENSES> 444 205
<LOSS-PROVISION> 141 7
<INTEREST-EXPENSE> 554 311
<INCOME-PRETAX> 1,102 396
<INCOME-TAX> 475 170
<INCOME-CONTINUING> 627 226
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<NET-INCOME> 627 226
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