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Form 10-K
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Securities and Exchange Commission
Washington, D.C. 20549
/x/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
/ / Transition Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the transition period from _______to_______
Commission File Number 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
incorporation or organization) Identification No.)
900 Town & Country Lane, Suite 400
Houston, Texas 77024
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 430-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
Aggregate market value of the voting stock held by non-affiliates
(affiliates being, for these purposes only, directors, executive
officers and the holders of more than 5% of the registrant's
Common Stock) of the registrant at March 2, 1998, based upon the closing
sale price of the Common Stock on the Nasdaq Stock
Market: $96,689,918
Number of shares of Common Stock outstanding at March 2, 1998: 10,640,760
Documents Incorporated by Reference
Portions of the proxy statement dated April 8, 1998 distributed in
connection with the Annual Meeting of Shareholders to be held on May
15, 1998, is incorporated into Part III of this Report.
<PAGE>
ITEM 1. BUSINESS
General
American Oilfield Divers, Inc. together with its subsidiaries, currently
doing business under the tradename "Ceanic" (collectively, the
"Company" or "Ceanic"), 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
Americas Region, Europe Africa Region and Asia Pacific Region.
The Company's services are provided through approximately 550
divers, tenders, diving supervisors, vessel captains and
crewmen and are supported by a Company-owned fleet of 21 diving
support vessels (DSVs), 16 of which operate in the Gulf of
Mexico. Based upon the number of divers employed, the size of its
DSV fleet and the number of customers served, the Company
believes that it is the leading provider of diving services in the
Gulf of Mexico.
Since its establishment in 1981, the Company has considerably expanded
the scope of its products and services through internal
development and selective acquisitions. In the last four
years, the Company's revenue has more than doubled as a result of
improved demand in its core Gulf of Mexico market and through
internal growth and acquisitions, both domestically and
internationally, that have expanded the Company's service and
product offerings. For the year ended December 31, 1997, the
Company's revenue increased 25% to $132.7 million.
New Corporate Name. In February 1998, the Company announced it had
adopted Ceanic as its new tradename and that it planned,
subject to shareholder approval, to change its corporate name to
Ceanic Corporation. The Company has grown beyond providing
traditional diving and vessel services to the U.S. oil and gas
industry and the Company's management believes that the name
Ceanic reflects the Company's diversification into an
international subsea contractor with a diverse client base
including not only oilfield diving and vessel services, but also
deepwater remotely operated vehicle ("ROV") services and field
development services, provided to government and non-oilfield
commercial customers spread over the entire Americas region and in
key international markets. The Company will submit for
shareholder approval at its annual shareholder meeting to be held in
May 1998, a proposal to amend the Company's Articles of
Incorporation to provide for the name change.
Corporate Realignment and Refocus.
During 1997 the Company identified certain market opportunities
appropriate to its mix of personnel and assets, including
the deepwater remote intervention market and the marginal field
development market. The Company also identified certain markets
and opportunities which did not fit into its strategic plan and
determined it to be in its best interests to discontinue its
efforts in those areas. For example, the Company closed its
Kansas City, Kansas office and Dubai, United Arab Emirates office
and sold its environmental services subsidiary in 1997 as the
operating results in these areas did not meet the Company's
expectations and these areas did not otherwise fit into the
Company's strategic plan.
To more fully exploit its assets, the Company also during 1997 added
approximately twenty middle and senior managers from a variety of
backgrounds in the subsea and topside oil and gas industries,
having over 400 years of management experience collectively.
The Company believes these new managers together with the Company's
existing core of seasoned executives will benefit the long
term interests of the Company.
Finally, the Company realigned its reporting lines and business units
into four primary service regions. The primary service regions are
the Americas Region (North, Central and South America), the
General Contracting Division (inland and coastal United
States), Europe Africa Region and Asia Pacific Region. The
Company's product lines are the Ceanic Hardsuits Product Division,
Big Inch Products Division and Ceanic Field Development Division
(includes Tarpon Guyed Monotower Products and Ceanic Concrete
Products). Each regional manager or product division manager
reports to one of two senior executives. The Company's regions
are supported by a matrix of six service lines include diving,
intervention teams, government services, vessel, field
development and general contracting which assist in
maximizing asset and personnel utilization in each region. The
Company believes this corporate realignment will enhance
communication to better focus and streamline the organization.
Growth Strategy. Key elements of the Company's growth strategy are to
continue to:
* Focus on Gulf of Mexico Market. The Company's Gulf of Mexico operations
will continue to be its core business. Since 1993, the Company has
significantly increased the number and capabilities of its DSVs and
equipment in the Gulf of Mexico. In 1997, the Company significantly
expanded its fleet of work class ROVs in the Gulf of Mexico from two to
five. By the end of fiscal 1998, the Company expects to have at least 12
work class ROVs available for use in the Gulf of Mexico and elsewhere.
The Company believes it is well-positioned to take advantage of
opportunities in the Gulf of Mexico market, particularly the expanding
deepwater market.
* Focus on Expanded Markets. Over the past four years, the Company has
expanded its operations to inland markets, the U.S. West Coast market,
and select international markets including the Europe Africa Region and
the Asia Pacific Region. Revenues from these sources have increased
substantially over the past three years, from $12.3 million, or 23% of
total revenue, for the fiscal year ended October 31, 1994 to $45.2
million or 34% in the fiscal year ended December 31, 1997. The Company
intends to focus on the development of the revenues and profitability of
these expanded operations.
* Provide Single-Source Solutions for Customers. Through expansion of its
fleet of DSVs and the broadening of its services and products, the
Company can offer total project management services including field
development services. Management believes this integrated approach
simplifies a customer's procurement process and reduces the Company's
dependence on third-party contractors.
* Expand Services and Products. By adding the Hardsuit products line and
Ceanic Field Development Division, which includes the Tarpon Guyed Monotower
and Ceanic Concrete Products, the Company has significantly broadened its
capabilities and complemented its core subsea services business. The
Company intends to continue to expand its services and products internally
and through strategic acquisitions.
Significant Events. In November 1996, the Company acquired 97% of the
outstanding capital stock of Hard Suits Inc. ("HSI") for approximately $11.8
million through an unsolicited tender offer. HSI manufactures, markets and
operates a one-atmosphere diving suit known as the "HARDSUIT (TM)". The
Company's HARDSUIT (TM) one-atmospheric diving system technology ("ADS") allows
for manned diving in deep water without saturation or decompression, which
are required by current practices for manned deep water diving. HARDSUIT (TM)
ADS technology significantly reduces operating costs associated with deep
water projects by eliminating the need for saturation and decompression and
associated personnel cost and time needed to complete such projects. The
current HARDSUIT (TM) ADS is capable of operations in water depths up to 1,200
feet. HSI has developed the technology to manufacture a suit capable of
operation at depths up to 2,000 feet. In late fiscal 1997, the HARDSUIT (TM)
ADS 2000-foot prototype began initial builder's trials with the United
States Navy. The Company expects to deliver the suit to the U.S. Navy in
fiscal 1998. The Company intends to manufacture the HARDSUIT (TM) ADS
primarily for its own use and for sale to the United States Navy and other
non-commercial applications. HSI also manufactures and markets the REMORA(R),
a subsea rescue vehicle for submarines. The Company acquired the remainder
of the outstanding capital stock of HSI in fiscal 1997 for $1.65 per share.
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 at December 31, 1996 including
approximately $12.4 million to acquire HSI. The Company used the remaining
proceeds for general corporate purposes, including working capital
requirements and to fund capital expenditures and strategic asset
acquisitions.
In May 1997, the Company sold its corporate headquarters building in
Lafayette, Louisiana and moved its corporate headquarters to Houston, Texas.
In June 1997, the Company acquired substantially all of the assets of
Contract Diving Services, Pty Ltd., and its affiliates ("CDS"), a subsea
services provider based in Perth, Western Australia. The acquisition was
accounted for using the purchase method of accounting.
In August 1997, the Company acquired the M/V American Defender, a 220-
foot class dynamically positioned vessel, capable of supporting ROV and
HARDSUIT (TM) diving suit operations and accommodates approximately 63 persons.
After a drydocking to upgrade the vessel, the M/V American Defender was
available for work in the Gulf of Mexico at the end of the fourth quarter in
fiscal 1997.
In October 1997, the Company sold all the issued and outstanding shares
of common stock in American Pollution Control Corporation, its wholly owned
environmental services subsidiary.
In December 1997, the Company announced the execution of a contract with
Perry Tritech, Inc. ("Perry Tritech Contract") to purchase up to ten new
generation work class ROVs capable of working in water depths up to 10,000
feet, with delivery expected to begin in the second quarter of 1998. The
Company believes this new generation ROV will provide it with a competitive
advantage over existing work class ROVs in the Gulf of Mexico market.
Subsea and Other Services
The Company through its regional bases provides subsea services to
support all phases of offshore oil and gas activities, including drilling,
production, abandonment, and salvage. These services include construction,
installation, maintenance, repair, inspection and support of drilling
operations; development of offshore pipelines and production platforms; and
ongoing production activities. Subsea services are provided to a diverse
group of customers, including major and independent oil and gas exploration
and production companies, offshore engineering and construction companies,
and major pipeline transmission companies. The Company's offshore
operations are performed primarily through manned surface and saturation
diving activities at depths up to 1,000 feet. With the acquisition of HSI,
the Company has used the HARDSUIT (TM) diving suit as a cost-effective
alternative for certain operations at a maximum depth of 1,200 feet. Most
of the Company's operations are subject to weather-related seasonality as
well as cyclical demand based on the capital expenditures of oil and gas
companies for offshore production and exploration activities.
On December 31, 1997, the Company employed approximately 400 divers,
tenders, and diving supervisors, supported by the Company's fleet of 21
DSVs, ranging in length from 65 to 220 feet. The Company's offshore diving
operations are coordinated through regional staging facilities in the Port
of Iberia and Fourchon, Louisiana; Houston, Texas; Oxnard, California;
Perth, Australia; Aberdeen, Scotland; and Port Harcourt, Nigeria.
Traditional Diving Techniques. The Company conducts its diving
operations using the three traditional diving techniques: air diving, mixed
gas diving and saturation diving, all of which use a surface-supplied
breathing media. With the addition of the HARDSUIT (TM) diving suit
technology, the Company has an alternative method of diving at depths up to
1,200 feet.
The choice among the three traditional techniques is determined by diver
decompression requirements, which are in turn determined by the depth at
which the diver works and the time spent at a given depth. Decompression is
the process by which the diver's depth (or the ambient pressure) is
decreased over a period of time long enough to prevent the gases absorbed by
the diver's body tissues from expanding into vapor and causing the "bends,"
a medical condition that can result in injury or death. As dive depth and
dive time increase, the diver's body tissues absorb increasing amounts of
ambient gases and require a corresponding increase in decompression time.
After a given time at a given depth, the diver's body tissues reach the
"saturation point" at which no additional gases are absorbed. As a result,
additional time spent at that depth will not require additional
decompression time when the diver ascends. As a general rule, after the
saturation point is reached, approximately one day of decompression time is
required for ascent from each 100 feet, of water depth.
The air diving technique is employed in relatively shallow water projects
(up to approximately 160 feet) of short duration and does not require divers
to reach the saturation point. In air diving, which the Company uses to
provide many of its diving services, divers are linked to the surface by a
diving umbilical containing compressed air lines and communications
equipment. The diver enters the water directly, without the use of a diving
bell, descends to the work site, accomplishes project-related activities,
and begins to decompress in the water as he ascends to the surface.
Decompression is conducted through timed stops at intervals of ten feet and
in a decompression chamber upon return to the surface. The length of time a
diver is required to remain at each interval depends upon dive length and
depth. At depths in excess of approximately 220 feet the diver is required
to enter a diving bell before surfacing.
Mixed gas diving is used for projects of relatively short duration in
water depths between 160 and 300 feet. For this type of diving, divers
breathe a mixture of helium and oxygen, which reduces nitrogen narcosis, the
harmful effect of nitrogen when breathed at relatively high pressures for
extended periods. This type of diving also requires decompression as the
diver ascends in the water and the use of a surface decompression chamber.
The decompression times required for mixed gas diving generally exceed those
required for air diving.
For subsea projects in depths of 300 to 1,000 feet or for projects of
relatively long duration at depths below approximately 180 feet, the Company
typically conducts its operations by using saturation diving techniques from
a special pressurized chamber on the surface in which the divers live at a
pressure equivalent to the depth of the work site. Saturation diving is
generally considered the safest and most efficient form of the three
traditional diving techniques. The chamber in which the divers live is
filled with a mixture of helium and oxygen that saturates the divers' body
tissues. Divers are transported from the surface to the work site by a
pressurized diving bell. After working underwater for six to eight hours,
divers are transported back to the DSV by the diving bell, and return to the
pressurized living chamber to be replaced by a new group of divers who are
lowered to the job site to continue the underwater work. The Company
currently owns and operates five saturation diving systems, each of which
can accommodate four to six divers at a time. This allows the Company to
conduct diving operations 24 hours a day. During such a project, the
pressurized chamber functions as living quarters with food, showers,
sleeping accommodations and sanitary facilities. Saturation diving systems
and their associated life-support equipment are generally built into DSVs,
but can also be located on drilling rigs, platforms, barges or other vessels
or structures. The primary advantage of saturation diving is that the
divers can remain under pressure and make repeated dives for extended
periods (generally up to a maximum of 30 days) before beginning
decompression. This method reduces the risks and delays associated with
frequent decompression and enhances overall productivity.
One-Atmosphere Diving. One-atmosphere diving, in which the diver is
maintained at normal surface atmospheric pressure, is an alternative to
saturation diving for jobs in depths up to approximately 1,200 feet. In
this method of diving, the diver wears a proprietary diving suit developed
by HSI known as the "HARDSUIT (TM)." The diver wearing a HARDSUIT(TM) ADS enters
the water and returns to the surface with the assistance of a HARDSUIT (TM)
launch and recovery diving system but without the need of a pressurized
diving bell. Atmospheric pressure is maintained at all times in the
HARDSUIT (TM) ADS, thereby eliminating the diver's need for any decompression.
This permits the diver to make repeated dives at atmospheric pressure
without the delays and costs associated with frequent decompression or
saturation diving. The HARDSUIT (TM) ADS when deployed consists of two
HARDSUIT (TM) diving suits and a launch and recovery system.
The Company does not expect to use the HARDSUIT (TM) ADS as a replacement
for traditional diving techniques, but believes that the suit will serve as
an additional diving technique in appropriate circumstances, particularly
those in which substantial decompression time is required. When using the
HARDSUIT (TM) ADS the diver performs tasks not by the direct use of his own
hands but by means of manipulators outfitted with specialized tools.
Consequently, the time spent by the diver in actually performing certain
tasks in a HARDSUIT (TM) ADS may be substantially longer than the time
required for the same tasks using other diving techniques. The Company
believes, however, that in certain applications the overall time and costs
required to complete a project may be decreased because of the elimination
of decompression time. The Company believes that refinement of the tools
used with the HARDSUIT (TM) ADS will increase the efficiency of one-atmosphere
diving and broaden its application.
Diving Support Services. In connection with its diving operations, the
Company often provides support services that minimize dependence on
third-party subcontractors and maximize safety and use of the Company's
vessels, equipment, personnel and organizational structure. In the Americas
Region, the Company operates a small fleet of leased crew cabs and vans that
transport its dive crews and small equipment items from its facilities to
the Company's DSVs. This capability minimizes the Company's reliance on
third-party truck fleets, permits project scheduling efficiency, enhances
reliability and quality control, and significantly reduces its costs. For
medium to large equipment hauls, the Company generally uses third-party
truck fleets, which for these purposes are capable of providing reliable,
quality service at greatly reduced costs. As part of the Company's DSV
operations, the Company also generally provides full-service catering to the
vessel and dive crews, which minimizes dependence on third-party caterers
and permit the Company to further control costs. The Company's diving
support services distinguish the Company from its competitors and are
consistent with the Company's business strategy.
Remote Intervention Technology Services. The Company currently owns and
operates 12 ROVs, of which 7 are observation ROVs and 5 are work class ROVs
compared to 7 ROVs in 1996. As a result of the Perry Tritech Contract, the
Company expects to have 12 work class ROVs by the end of 1998. Observation
ROVs generally support the Company's manned diving activities whereas work
class ROVs are outfitted with manipulators to perform tasks in depths up to
10,000 feet. The Company also owns and operates eleven HARDSUIT (TM) diving
suits, eight of which are deployed for operations in Australia, the North
Sea and the Gulf of Mexico, and three of which are used for training and
demonstration.
In February 1998, the Company announced that Shell had awarded the
Company a contract to design, build, test and operate a deepwater pipeline
burial system operated with the assistance of a work class ROV for the URSA
and ANGUS project pipelines. The Company believes this Shell contract
confirms its deepwater remote intervention expertise.
The Company is not attempting to compete head-to-head with more seasoned
ROV companies such as Oceaneering or Sonsub in the Americas Region and
elsewhere, but has identified a deepwater, high technology market that
offers numerous opportunities with long-term growth potential. The Remote
Intervention Technology Division's initial primary focus is the Gulf of
Mexico market, but the Company expects to deploy its remote intervention
assets on a worldwide basis in fiscal 1998.
The Company currently markets the HARDSUIT (TM) ADS, diving support
services, remote intervention technology and vessels, in the Americas
Region. While some product and service lines have been sold in each of the
other Company regions, the Company intends to add personnel and assets to
expand the offering of these services and products to the other regions.
Ceanic Americas Region. The Americas Region constitutes the Company's
traditional core Gulf of Mexico diving and vessels group. This region is
the Company's largest region, producing 51% of the Company's fiscal 1997
revenues and employing 617 of its 1070 employees. With 16 of the Company's
21 DSVs operating in the Gulf of Mexico, the Company believes it has the
largest fleet of dedicated DSVs in the Gulf of Mexico. The headquarters and
principal staging facility of the Company's Gulf of Mexico diving and vessel
operations are at the Port of Iberia, Louisiana. The Port of Iberia is a
full-service, decentralized operations center, strategically located for the
rapid deployment of personnel and equipment. Traditional industry
indicators such as capital expenditures by oil companies, rig count, OCS
lease sales, among others, indicate a strong demand for the Company's
diving, vessel and ancillary services in the Gulf of Mexico in 1998. In
late 1997, the Company leased a facility at the Port of Fourchon, Louisiana
to act as, among other things, its deepwater dock for its dynamically
positioned vessels and an operational support facility.
Ceanic Asia Pacific Region. With the acquisition of CDS in June 1997,
Ceanic established its regional headquarters in Perth, Australia. Perth
acts as Ceanic's regional staging facility and coordinates the Company's
efforts in this area. The Company offers a full range of subsea services
including traditional diving, vessel and ROV services and specialized remote
subsea coring services. The Company operates a pair of HARDSUIT (TM) diving
suits, two small vessels in Western Australia and maintains the REMORA(R)
submarine rescue system for the Australian Navy. The Company has identified
certain market niches in this region such as specialized turnkey contracts
and maintenance services based on applying an integrated approach to the
suite of Company capabilities. The Company believes that the long term
prospects for this region are solid.
Ceanic Europe Africa Region. The Company's Aberdeen, Scotland office
acts as regional headquarters to support and coordinate its subsea
operations in the North Sea and in both West and South Africa. In
July 1992, the Company established administrative offices in Lagos, Nigeria
and an operations office and shop in Port Harcourt, Nigeria to provide
diving and related services to oil and gas companies operating in Nigeria
and other West African locations. Since 1992, the Company has expanded its
activities into South Africa. In March 1995, the Company acquired certain
diving and related assets located in Dubai, United Arab Emirates, and
established an operational and sales office in Dubai to provide diving
services to oil and gas companies operating in the Middle East. In fiscal
1997, the Company reviewed its presence in the Middle East closing its Dubai
office in May 1997, due in large part to disappointing operating results.
The Company has repositioned personnel and assets elsewhere to maximize
utilization. The Company currently maintains two DSVs in Port Harcourt.
The Company believes its mix of personnel and equipment in its Europe Africa
Region offers it an attractive opportunity to take full advantage of the
available market niches. The Company is reviewing its options in the North
Sea and intends to take advantage of market niche opportunities as they
present themselves.
Ceanic General Contracting Division. The Company provides a variety of
specialized general contracting and marine construction services to
industrial and governmental customers. These services include the
maintenance, repair, and inspection of bridges, docks, piers, pipelines, and
other inland underwater structures, the inspection and maintenance of
hydroelectric and nuclear power plants and general construction projects
requiring Ceanic's underwater capabilities. The Company has changed the
focus of its General Contracting Division to larger, more complex marine
construction projects, in which the Company functions as prime contractor as
opposed to acting as subcontractor on small to medium sized projects that
the Company has primarily performed in the past. Ceanic General Contracting
Division's operations are coordinated through regional staging facilities in
Oxnard, California; Houston, Texas; and Columbus, Ohio. In addition to
general marine contracting, the California office also provides traditional
offshore diving, vessel, ROV and related ancillary services to the oil and
gas industry and other customers on the West Coast and in Latin America. To
reduce the effect of seasonality during winter months, the Company expects
its General Contracting Division to focus primarily on projects in
warm-weather states that are less likely to be adversely affected by winter
weather.
Ceanic Subsea Products
Ceanic Hardsuit Products Division. The HARDSUIT (TM) ADS is an articulated
metal suit with patented joints that allows the diver to have a relatively
wide range of motion and work at surface atmospheric pressure (one
atmosphere). The HARDSUIT (TM) diving suit and other products and related
services are manufactured and developed by Ceanic in North Vancouver,
British Columbia, Canada. The current HARDSUIT (TM) ADS is capable of
operations in water depths up to 1,200 feet. The Company intends to
manufacture the HARDSUIT (TM) ADS primarily for its own use and for sale to the
United States Navy and to the navies of other countries. Ceanic has
developed and produced a prototype suit capable of operation at depths up to
2,000 feet that is undergoing testing by the United States Navy.
Ceanic also manufactures a submarine rescue vehicle known as the
"REMORA(R)," a submersible decompression chamber that has an articulated
skirt to permit docking with a disabled submarine at angles of up to 60 degrees.
The REMORA(R) is capable of recovering, and subsequently transferring under
pressure, up to nine people at a time from a disabled submarine. One fully
operational REMORA(R) has been sold to and is in the service of the Royal
Australian Navy, and the Company is currently marketing the REMORA(R) to
the navies of other nations.
Big Inch Marine Systems Products Division. The Company manufactures and
markets a patented line of subsea pipeline connectors used in the
construction and repair of underwater pipelines. The Big Inch product line
manufactured by the Company includes Flexiforge(TM) end connectors, Ball
Flange(TM) connectors and Load Limiting(TM) connectors used in pipeline and
flowline tie-ins, emergency repairs to pipelines, flow lines and risers and
to retrofit mainline lateral tie-ins. The Company offers a standard product
line and also offers modifications of its connectors for specialized
applications. In the last two years, the Company has diversified into
land-based pipeline components with a product line of electrical isolation
joints known as Big Inch Insulating Flanges(TM), which are used to isolate
segments of pipelines from corrosion. The Company has also developed the
InnerLOCK(TM) Cutter system, a mechanical cutter that removes stubs (abandoned
in-place drillpipe) without the use of explosives, by cutting them from
inside the pipe and the BIMS-Tap(TM) Tee, a mechanical subsea "hot tap" device
that permits the joining of two subsea pipelines without requiring the
pipelines to be brought to the surface and without interrupting the flow in
the pipelines. The Company believes that the Big Inch products permit
pipeline construction, repair and removal to be performed faster and more
efficiently than conventional systems.
Components of Big Inch connectors are forged and machined to Big Inch
specifications by various unaffiliated contractors in the United States and
the United Kingdom. The Company assembles these components at its Houston
plant and the assembled products are shipped to customers or used by the
Company in its own diving operations. Assembly, quality control and
warehousing of Big Inch products are conducted at offices in Houston, Texas
and Aberdeen, Scotland. Although Big Inch sales are made primarily to users
in the Gulf of Mexico and the North Sea, Big Inch products are marketed and
sold worldwide through both the Aberdeen and Houston offices. Big Inch
products are marketed in conjunction with the Company's subsea services and
are also sold to third-party installers.
Ceanic Field Development Division. The Company designs, fabricates and
installs the Tarpon Guyed Monotower, a patented substructure primarily used
in offshore minimum facilities field development. A Tarpon Guyed Monotower
consists of underwater anchor piles and a cable guying assembly that
supports a site-specific well protector caisson, boat landing, platform and
related production equipment. Tarpon Guyed Monotowers are best suited for
minimum facilities in water depths from 80 to 300 feet and for the
production of larger fields using a satellite system of multiple Tarpon
Guyed Monotower structures tied into a central production facility. The
Company believes that the Tarpon Guyed Monotower is a cost-effective
alternative to traditional, fixed multi-leg platforms or other minimal
systems because of their relatively low construction costs and ability for
rapid installation, allowing oil and gas producers to recognize early cash
flows from production. The Company has at least seven competitors in this
market, comprised primarily of engineering firms. The Company is actively
seeking opportunities for the Tarpon Guyed Monotower both in the United
States and select international areas including Europe, Africa, the Middle
East, India and Southeast Asia. To date the Company has installed 40 of
these systems in the Gulf of Mexico and worldwide.
The Company manufactures concrete structures that act as foundation
platforms for production facilities in shallow water. These structures are
ideally suited for quick installation in remote areas with little or no
infrastructure support. The Company also markets the supply of subsea
storage facilities for use as an alternative to steel tankers for offloading
and storage of up to 500,000 barrels of oil in water depths of up to
approximately 300 feet. Concrete storage systems can be used in conjunction
with a Tarpon Guyed Monotower for storage of oil produced from marginal
fields that do not have existing pipeline infrastructure.
Ceanic markets its Field Development capabilities to provide a single
source solution to satisfy its customers' minimum facilities development
needs. Due to its low cost and flexible approach to minimal facility
development, the Company believes there is a significant market niche for
its field development services, particularly in Ceanic's Europe Africa
Region and Asia Pacific Region. Once the Field Development Division gains
significant market acceptance, the Company expects to undertake a larger
portion of its customers field development projects and be in a position to
act as a turnkey field development provider.
Government Services. Utilizing the core capabilities of Ceanic's
commercial service lines, such as diving, vessels, intervention technology
and general contracting, the Company is able to support a wide variety of
governmental needs. The Company's diving and intervention services can be
offered in support of search and salvage operations and the Hard Suit
operations can support the military's submarine rescue requirements. The
Company's General Contracting division is able to support the expansion and
maintenance of infrastructures. The REMORA(R) rescue system, built by Hard
Suits, is now operated and maintained for the Australian Navy by our Asia
Pacific Region. The REMORA(R) system employs rotary joint technology
similar to that used in the HARDSUIT (TM) ADS to assist in rescuing personnel
from distressed submarines. Like the HARDSUIT (TM) ADS, the REMORA(R) is
marketed to navies worldwide.
Marketing
The Company's marketing efforts are primarily concentrated in the
Americas Region, Europe Africa Region and Asia Pacific Region. The Company
maintains a focused marketing effort through a direct sales force consisting
of approximately 25 full-time sales personnel operating from Lafayette, and
New Orleans, Louisiana; Houston, Texas; Oxnard, California; Columbus, Ohio;
Aberdeen, Scotland; Lagos, Nigeria; Perth, Australia; and Vancouver, Canada.
The Company's senior management team also participates in the Company's
marketing efforts. The Company's diving services are often marketed in
conjunction with Big Inch and Ceanic Field Development Divisions' products
and the Company's other service and product lines.
Safety and Quality Assurance
The Company maintains a stringent safety and quality assurance program
that encompasses all areas of its operations and relies substantially on
employee experience and involvement. An offshore safety officer is assigned
to every diving project regardless of size. In connection with its safety
program, the Company maintains a rigorous in-house diver training program.
The Company's training program requires each new diver (who must be a
graduate of a certified diving school) to spend at least five days of
intensive onshore training prior to offshore deployment. In addition, each
new diver must generally spend at least two years as a diving tender,
maintaining equipment and providing other top-side support to more
experienced divers and, in the process, learning how to complete diving
assignments safely and efficiently, and approximately two years as a junior
diver on a large crew, gaining more experience with the Company's senior
divers. The Company stresses diver safety and training throughout the
diver's tenure with the Company. The Company believes that its safety
program and commitment to quality have given it a competitive advantage in
attracting and retaining customers and divers. The accomplishments of the
Company's safety program were recognized by the National Oceans Industries
Association ("NOIA"), which awarded its Safety in Seas Award jointly to the
Company and the Gulf of Mexico business unit of Chevron USA, Inc. in 1996.
In 1997, NOIA awarded its Safety in Seas Award to the Company for its
SMART(SM) program. The program emphasizes Self-Esteem, Management,
Accountability, Responsibility and Training. The Company is the only award
winner that has won the Safety in Seas Award in two consecutive years.
Customers and Competition
The Company's offshore customers include a broad base of major and
independent oil and gas companies, offshore engineering and construction
companies and major pipeline transmission firms. The Company provided
diving and related services to approximately 700 customers for the year
ended December 31, 1997. The Company's ten largest customers accounted for
33% of the Company's total revenue in the year ended December 31, 1997. No
one customer accounted for more than 10% of the Company's revenues during
the year ended December 31, 1997. In 1995 the Company entered into an
alliance agreement with Chevron U.S.A.'s Gulf of Mexico business unit under
which the Company is a preferred provider of diving services and has
received a significant portion of the Chevron unit's undersea work at
prevailing rates.
The level of activity that the Company may perform for a single offshore
customer depends on, among other things, the amount of the customer's
capital expenditure budget devoted to diving projects in any single year.
This amount may vary substantially from year to year. As a result,
customers that account for a significant portion of revenues in one fiscal
year may represent an immaterial portion of revenues in other years.
The available market for diving services in the Americas Region is
essentially divided between the call-out (or day rate) market and the
turnkey (fixed price) market. Contracts are obtained either through direct
negotiation with the customer or pursuant to bidding procedures established
by the offshore customer. The Company typically enters into "master service
agreements" or similar arrangements with most of its offshore customers,
that expedite providing call-out diving services for those customers and
enhance the Company's customer relationships. These contracts establish
daily rates and terms (such as insurance requirements) for services that the
customer may need in the future or on an emergency basis and provide for
various indemnities in favor of the customer. Master service agreements may
be long-term, may be reviewed and renewed each year, or may be of whatever
duration the parties stipulate.
In past years the Company derived approximately 80% to 90% of its
revenues from the call-out market and approximately 10% to 20% of its
revenues from the turnkey market. More recently, however, the percentage of
turnkey revenues derived by the Company has increased to approximately 20%
to 30%. The Company expects this trend to continue as its customers attempt
to use fixed price contracts as a method of reducing their costs and risks
and to predetermine their costs for budgetary purposes. The Company
attempts to minimize the financial risks associated with fixed-price
contracts by stipulating certain conditions to its performance that, if not
met by the customer, result in increased charges. The Company may not,
however, be able to anticipate all such risks and, especially in a very
competitive market, the Company may not be able to obtain such protective
terms.
The Company's customers for its General Contracting Division include
utility companies, railroad companies, state and federal governmental
agencies (such as the U.S. Army Corps of Engineers and the U.S. Bureau of
Reclamation) and political subdivisions such as city and county governments.
General Contracting Division contracts are generally obtained pursuant to
formal bidding procedures established by its customer and awarded on a
turnkey (fixed price) basis. Competition in the General Contracting
Division is based primarily on price, although type of equipment available,
location of or ability to deploy such equipment and quality of service are
other factors considered by the customer.
Because diving services contracts in the call-out market are generally
bid upon and entered into one to two weeks prior to the planned commencement
of the projects, the Company in the past has had no significant call-out
diving services backlog. However, as a result of recent increases in
turnkey projects and the increased activities of the General Contracting
Division, at February 28, 1998 the Company's backlog of projects to be
performed in 1998 was approximately $31.5 million.
The offshore diving industry in the Americas Region is highly competitive
and is influenced by events largely beyond the control of the Company. At
various times since 1986, many oil and gas companies significantly decreased
their expenditures for development projects in the Gulf of Mexico in
response to substantial declines in oil and gas prices. Also during that
period, a number of smaller diving firms have been acquired or have ceased
operations entirely. In addition, some of the Company's major competitors
have reorganized and redirected their efforts to different or more
specialized markets. While more than 50 independent diving companies
operated in the Gulf of Mexico in 1980, fewer than ten currently operate on
an on-going basis in the Gulf of Mexico. In addition, three offshore
construction companies operating in the Gulf of Mexico own diving
subsidiaries or divisions that provide substantially all of the diving
services required by their respective parent companies. The Company has
three principal competitors in its Gulf of Mexico market, Oceaneering
International, Inc., Global Industries, Ltd. and Cal Dive International,
Inc. The remaining smaller diving companies in the Gulf of Mexico also
compete with the Company for diving projects that require less sophisticated
equipment or diving techniques. Although the Company occasionally provides
diving services to offshore construction companies with in-house diving
operations, the Company does not expect to derive substantial revenues from
such services. Moreover, such in-house diving operations also provide
diving services to unaffiliated third parties and compete with the Company
and other diving companies in the Gulf of Mexico on a limited basis.
The Company has two major competitors with well developed international
sales capabilities that manufacture product lines of connectors used in the
repair and construction of underwater pipelines (Hydro Tech, Inc. and
Oceaneering International, Inc.). Both of these manufacture connectors
using elastimer seal technology as opposed to the patented Big Inch
metal-to-metal seal technology. Several smaller companies also compete in
the connector market, one of which offers metal-to-metal seal technology.
Despite the generally higher price of Big Inch products, management believes
that the Company competes effectively on the basis of the installation,
responsiveness and quality advantages associated with its metal-to-metal
seal technology.
The Company has a number of major competitors with well developed sales
capabilities (Racal, Oceaneering, Subsea International and Sonsub) in the
remote intervention market including ROVs and one-atmosphere diving suits.
Several smaller companies compete in the ROV market.
Competition for underwater services in the Americas Region historically
has been based upon the type of underwater equipment available, location of
or ability to deploy such equipment, quality of service and price. In
recent years, price has been the most important factor in obtaining
contracts, although the abilities to develop improved equipment and
techniques and to attract and retain skilled personnel are also important
competitive factors. The Company believes, however, that the awarding of
contracts on the basis of pre-existing relationships between the customer
and supplier, combined with the reliability and quality of the supplier's
services, is a trend that has benefited the Company. An example of this is
the Company's relationship with Chevron U.S.A.'s Gulf of Mexico business
unit, which has resulted in the Company's obtaining one of only two such
alliances currently existing between a diving contractor and a major oil
company in the Gulf of Mexico market. The Company competes in all of its
service and product lines with both large and small companies, and certain
of these companies are larger and have greater financial and other resources
than the Company. Should the Company's competitors develop and market
products or services that are technologically superior to any products
manufactured or services rendered by the Company, the Company's ability to
market its products and services would be significantly impaired.
Patents
The Company owns certain technology (including patents) with respect to
its Big Inch pipeline connector products line, the pressurized rotary joints
used in the HARDSUIT (TM) ADS, certain underwater Ultrascan(TM) radiography
systems, its Sonar ScourVision(TM) system, and the Tarpon Guyed Monotower.
The Company believes that its customer relationships and reputation,
together with its technical expertise, responsiveness to customers and
full-service capabilities, are of greater competitive significance to the
Company than its technology. While the Company's business is not dependent
on any one of its patents, the loss of patent protection for the Company's
entire Big Inch product line could have a material adverse effect on the
Company's competitive position. The Company's Big Inch patents generally
are scheduled to expire from 1999 to 2003. Although the patent for one of
the Big Inch products has expired, due to the high start-up costs of this
product, management does not believe that the loss of the exclusive use of
this patent will have a material adverse effect on the Company's competitive
position. The patents covering the HARDSUIT (TM) ADS joints will expire in the
years 2004 through 2009 and have an average remaining term of approximately
eight years.
Government Regulation
Many aspects of the Company's operations are subject to governmental
regulation, including regulation by the U.S. Coast Guard and the
Occupational Safety and Health Administration, as well as by private
industry organizations such as the American Bureau of Shipping and the
Association of Diving Contractors. The Coast Guard sets certain safety
standards and is authorized to investigate vessel accidents and recommend
improved safety standards relating to vessels and offshore diving. The
Occupational Safety and Health Administration performs similar functions
with respect to the Company's onshore facilities and operations. Virtually
all employees engaged in the Company's offshore diving operations are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law, which operate to exempt these employees from the
limits of liability established under worker's compensation laws and instead
permit them or their representative to maintain an action against the
Company for damages for a job related injury, with no limitations on the
Company's potential liability. Certain of the Company's employees may also
be covered by the Longshoremen and Harbor Worker's Act, which permits such
employees to seek compensation for a job related injury under that act. As
a result of the Company's expansion into Nigeria, Australia and other
foreign jurisdictions, the Company is also subject to regulation by other
governments.
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect
to its operations. The kinds of permits, licenses and certificates required
in the Company's operations depend upon a number of factors. The Company
believes that it has obtained or can obtain all permits, licenses and
certificates that are necessary to the conduct of its business.
In addition, the Company depends on the demand for its services from the
oil and gas industry and, therefore, the Company's business is affected by
laws and regulations, as well as changing taxes and governmental policies,
relating to the oil and gas industry generally. In particular, the
exploration and development of oil and gas properties located on the Outer
Continental Shelf of the United States is regulated primarily by the
Minerals Management Service.
The operations of the Company are also affected by numerous federal,
state and local laws and regulations relating to protection of the
environment including the Outer Continental Shelf Lands Act, the Federal
Water Pollution Control Act of 1972 and the Oil Pollution Act of 1990. In
addition, the Company's environmental services operations are subject to
regulation by various local, state and federal agencies including the
Louisiana Department of Environmental Quality and U.S. Environmental
Protection Agency, among others. The Company is not aware of any
non-compliance with applicable environmental laws and regulations that would
likely have a material adverse effect on the Company's business or financial
condition. The requirements of these laws and regulations are becoming
increasingly complex, stringent and expensive to comply with, and some
environmental laws provide for liability for damages to natural resources
(including damage to fish and wildlife) or threats to public health and
safety. Certain environmental laws provide for "strict liability" for
remediation of spills and releases of hazardous substances into the
environment even after such substances have been transferred to a disposal
contractor. Sanctions for non-compliance may include revocation of permits,
corrective action orders, administrative or civil penalties, and criminal
prosecution. Such laws and regulations may expose the Company to liability
for (i) its actions that may cause environmental damage such as vessel
collisions with rigs, tankers or pipelines, (ii) environmental harm caused
by defective Company-manufactured products, improper installation of
products manufactured by others or the improper handling of hazardous
materials, (iii) the conduct of or conditions caused by others, or (iv) acts
of the Company that are in compliance with all applicable laws at the time
such acts were performed. It is possible that changes in the environmental
laws and enforcement policies thereunder, or claims for damages to persons,
property, natural resources or the environment could result in substantial
costs and liabilities to the Company. The Company's insurance policies
provide liability coverage for sudden and accidental occurrences of
pollution, clean-up and containment of the foregoing in amounts that the
Company believes are comparable to policy limits carried in the offshore
diving industry.
The Company's vessel operations in the Gulf of Mexico may be considered
to be engaged in "coastwise trade" under federal maritime law and may,
therefore, be subject to special regulation by federal government agencies.
Under these laws and regulations, only vessels owned by United States
citizens that are built in and documented under the laws of the United
States may engage in "coastwise trade." Certain provisions of the Company's
Articles of Incorporation are intended to aid in compliance with the
foregoing requirements regarding ownership by persons other than United
States citizens. The determination of whether its vessel operations are
considered to be engaged in "coastwide trade" is a fact intensive inquiry
and depends on the facts and circumstances of each particular case.
Insurance
The Company's operations are subject to the inherent risks of offshore
and inland marine activity including accidents resulting in personal injury,
the loss of life or property, environmental mishaps, mechanical failures and
collisions. The Company's diving and vessel operations involve numerous
hazards to divers, vessel crew members and equipment, and can result in
greater incidence of employee injury and death and equipment loss and damage
than occurs in many other service industries. The Company's ownership and
operation of vessels gives rise to large and varied liability risks, severe
risks of collisions with other vessels or structures, sinkings, fires and
other marine casualties, which can result in significant claims for damages
against both the Company and third parties for, among other things, personal
injury, death, property damage, pollution and loss of business. The
Company's manufacturing operations involve significant risks, particularly
product liability and warranty claims. Company-manufactured products
installed in the past, as well as those installed in the future, could give
rise to such claims.
The Company maintains insurance that it believes is in accordance with
general and industry standards against normal risks of its operations. The
Company also carries workers' compensation, maritime employer's liability,
general liability, product liability and other insurance customary in its
business. All insurance is carried at levels of coverage and deductibles
that the Company considers financially prudent, although there can be no
guarantee that the amount of insurance carried by the Company is sufficient
to protect it fully in all events. Liabilities to customers and third
parties for damages caused by claimed defects in products manufactured by
the Company may be significant and are not insured to the extent that they
are in the nature of warranty claims or consequential damages. A successful
liability claim for which the Company is underinsured or uninsured could
have a material adverse effect on the Company. Moreover, no assurance can
be given that the Company will be able to maintain adequate insurance in the
future at rates that it considers reasonable or that all types of coverage
will be available.
Employees
The size of the Company's work force, other than its clerical and
administrative personnel, is variable and depends upon the Company's
workload at any particular time. Diving personnel are paid only for actual
days worked, but are available on a year-round basis and are entitled to
participate in all of the Company's employee benefit programs. At
December 31, 1997, the Company employed 206 divers, 150 tenders, 43 diving
supervisors, 157 vessel crewmen, barge crewmen and operations support
personnel, 190 technical support for the Intervention Technology, Big Inch
Field Development, and Concrete Products Divisions and 324 clerical and
administrative personnel. Of these persons, 884 are hourly employees
(divers are paid on an hourly basis) and 186 are salaried employees. The
Company also relies on diving personnel employed on a contract basis to
support its international operations. The Company believes that its
relationship with its employees is satisfactory.
UNCERTAINTY OF FORWARD-LOOKING INFORMATION; RISK FACTORS
Certain of the statements set forth in Items 1, 3 and 7 and elsewhere in
this report (such as, for example, statements as to planned capital
expenditures and market opportunities; anticipated personnel and vessel
rates and utilization; extent of future rate of pipeline installation and
repair; anticipated demand for Company services and products; anticipated
deep water development activities; international expansion opportunities;
and anticipated Company diversification) are not statements of historical
fact, are forward-looking and are based upon the Company's current belief as
to the outcome and timing of such future events. A variety of risks and
uncertainties including many beyond the control of the Company can affect
the outcome and timing of such events and can affect the financial
performance of the Company generally. These factors include, but are not
limited to, the matters described below. Should one or more of these risks
or uncertainties occur, or should underlying assumptions prove incorrect,
the Company's financial performance could be affected and actual results and
plans could differ materially from those expressed in the forward-looking
statements. Investors and prospective investors should consider the
following information, as well as the other information contained in this
report, in making any investment decision with respect to Company
securities.
Cyclical Demand; Dependence on Energy Industry
The demand for the Company's offshore diving services has traditionally
been cyclical, depending on the condition of the oil and gas industry, and
specifically on the capital expenditures of oil and gas companies for
exploration and production activities. These capital expenditures are
influenced by both short-term and long-term trends in oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the sale and expiration dates of offshore leases in
the United States and other nations, the discovery rate of new oil and gas
reserves in offshore areas, local and international political, regulatory
and economic conditions and the ability of oil and gas companies to generate
capital. The Company believes there has been a general increase in the
level of exploration and production activities in the Gulf of Mexico in
recent years resulting from, among other things, improvements in oil and gas
exploration technology such as three-dimensional seismic and directional
drilling, which have decreased the average cost of production. The extent
and duration of this condition, however, is beyond the control of the
Company and will depend ultimately upon worldwide oil and gas prices and the
capital expenditures of oil and gas companies for offshore development. Oil
prices have declined significantly over the past 15 months and further
significant declines in the future would likely depress offshore drilling
and development activity, reduce the demand for the Company's services and
could have a material adverse effect on the Company's financial condition
and results of operations.
Operating Risks and Limitation of Insurance Coverage
The Company's operations involve a high degree of operational risk,
particularly of personal injuries, fines and costs imposed by government
agencies, product liability and warranty claims, and third party
consequential damage claims. The Company's diving and vessel operations
involve numerous hazards to divers, vessel crew members and equipment, and
result in a greater incidence of employee injury and death and equipment
loss and damage than occurs in many other service industries. Virtually all
employees engaged in the Company's offshore diving operations are covered by
provisions of the Jones Act, the Death on the High Seas Act and general
maritime law, which operate to exempt these employees from the limits of
liability established under worker's compensation laws and, instead, permit
them or their representatives to maintain actions against the Company for
damages or job related injuries, with no limitations on the Company's
potential liability. The Company's ownership and operation of vessels give
rise to large and varied liability risks, such as risks of collisions with
other vessels or structures, sinkings, fires and other marine casualties,
which can result in significant claims for damages against both the Company
and third parties for, among other things, personal injury, death, property
damage, pollution and loss of business. The Company's manufacturing
operations involve significant risks, particularly product liability and
warranty claims and installation risks. Company-manufactured products
installed in the past, as well as those to be installed in the future, could
give rise to such claims. The Company maintains insurance that it believes
is in accordance with general industry standards against the normal risks of
its operations. Such insurance, however, is subject to various exclusions,
and there can be no assurance that the Company's insurance policies will be
sufficient or effective under all circumstances or against all liabilities
to which the Company may be subject. Liabilities to customers and third
parties for claimed defects in products or damages caused by defective
products manufactured by the Company may be significant and are not insured
to the extent that they are in the nature of warranty claims or other claims
based on breach of contract, nor has the Company established substantial
reserves for such claims. A successful claim for which the Company is not
fully insured could have a material adverse effect upon the Company and its
financial condition. Moreover, no assurance can be given that the Company
will be able to maintain adequate insurance in the future at rates that it
considers reasonable or that all types of coverage will be available. See
"Business--Insurance."
Availability of Personnel
Divers require up to two years of diving school followed by two or more
years of apprenticeship and on-the-job training before they are considered
qualified to work as divers for the Company. With only six diving schools
producing diving graduates qualified to be employed by the Company (a
decrease from 12 in 1980), fewer divers are available for employment.
Moreover, it takes approximately one year for an ROV technician and/or pilot
to be considered an experienced ROV operator qualified to work on or pilot
an ROV and competition for qualified ROV technicians and pilots is
significant. As a result, there can be no assurance that the Company will
have a supply of qualified divers and ROV technicians and pilots sufficient
to conduct and expand the Company's diving and remote intervention
operations. Although none of the terms and conditions of employment of the
Company's U.S. divers are determined by collective bargaining with a union,
there can be no assurance that the Company's divers may not be subject to
union organization attempts and collective bargaining in the future. The
Company believes that its ability to employ divers and other employees not
subject to a collective bargaining agreement is important to its ability to
compete successfully for diving work.
Contract Bidding Risks
A significant percentage of the Company's total revenues is derived from
increasingly large contracts performed on a fixed-price basis. This
percentage and the relative size of such contracts are expected to increase
in the future. Fixed-priced contracts are inherently risky because of the
possibility of underbidding and the Company's assumption of substantially
all of the project's operational risks. The revenue, cost and gross profit
realized on such contracts often vary from the estimated amounts for various
reasons including, among others, changes in weather and other job
conditions, variations in labor and equipment productivity (such as
equipment failure) from original estimates, project modifications creating
unreimbursable costs overruns and supplier or subcontractor failure to
perform. These factors and the risks inherent in the diving and the inland
marine construction industry can result in reduced profitability or losses
on fixed-price contracts. When demand for the Company's diving services
decreases, the percentage of fixed-price contracts may increase.
Accordingly, the normal negative effects on the Company's operations
resulting from decreased demand can be exacerbated by an increased
percentage of fixed-price contracts. Moreover, the failure to obtain large
projects, delays in the awarding of large projects, the postponement of
previously awarded projects or delays in completion of large projects may
negatively impact the Company's results of operations and financial
condition. See "Business--Customers and Competition."
Effect of Adverse Weather Conditions; Seasonality
The Company's diving services--both offshore and inland--are often
curtailed when adverse weather conditions are present or anticipated.
During such periods of curtailed activity, the Company continues to incur
operating expenses, but revenues from operations are delayed or reduced.
Weather conditions during the winter months are generally adverse and
substantially curtail the Company's diving activities in the Gulf of Mexico
and, to a lesser but nevertheless substantial extent, in the inland waters
of the United States and elsewhere. Winter conditions typically begin in
December and continue until April in the Americas Region, although in some
years, can begin as early as late September and continue through early May.
Although adverse weather is more typical during the winter months,
operations can be curtailed by weather conditions at any time, as has
happened, for example, during extended periods when hurricanes and tropical
depressions are present or expected in the Gulf of Mexico. While pent-up
demand for diving services may increase the Company's activities at times
during the winter when adverse weather abates, the winter months are
generally periods of low demand, as a result of which Company activity
levels may remain low even during fair weather periods of the winter months.
Availability and Supply of DSVs
There has been no significant construction of vessels within the
worldwide marine support services industry since the early 1980s. As a
result, there is a shortage of both new and used DSVs and vessels
convertible into DSVs. Although the Company has been able to purchase and
convert four vessels since January 1996, and expects to acquire others in
1998 at costs that it considers favorable, the Company's ability to replace
vessels or increase the size of its DSV fleet through the purchase of new,
used or converted vessels may be significantly adversely affected by this
shortage and any acquisition may be cost prohibitive. Moreover, in 1997,
certain companies have either repositioned existing DSVs to the Gulf of
Mexico or contracted to construct new DSVs for delivery in 1998 and beyond.
These repositioned and new build DSVs will compete directly with the
Company's DSV fleet and could adversely affect the Company's revenues and
operating margins. The Company expects this trend to continue in 1998.
International Operations
The Company's international service and product offerings, which started
in West Africa in 1992, have continued to expand and play an increasingly
important role in Company operations. These international operations
including those in the Europe Africa Region and Asia Pacific Region are
subject to additional risks, including the Company's relative inexperience
in new international markets, financial and political instability, civil
unrest, asset seizures or nationalization, currency restrictions,
fluctuations and revaluations, import-export restrictions, and tax and other
regulatory requirements. There can be no assurance that the Company will
not experience material adverse developments with respect to its operations
outside the United States; such developments, if they were to occur, could
have a material adverse effect on the Company's results of operations and
financial condition. See "Business--Subsea and Other Services--
International Services."
Dependence on Key Personnel
The Company's success depends on the continued active participation of
the Company's key officers and operating personnel. The loss of the
services of any one of these persons could have a material adverse effect
upon the Company. The Company does not hold key-man life insurance policies
covering any Company officer, nor does the Company have employment
agreements or non-competition agreements with any of its executive officers
other than Rodney W. Stanley, the Company's President and Chief Executive
Officer and Kevin C. Peterson, the Company's Executive Vice President and
Chief Operating Officer. See "Executive Officers of the Registrant."
Regulatory and Environmental Matters
The Company's DSVs and operations are subject to various types of
governmental regulation, including many federal, state and local
environmental protection laws and regulations, which are becoming
increasingly complex and stringent. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, the
Company's operations are affected by laws and regulations, as well as
changing taxes and policies, relating to the oil and gas industry generally.
Significant fines and penalties may be imposed for non-compliance, and
certain environmental laws impose joint and several "strict liability" for
remediation of spills and releases of oil and hazardous substances rendering
a person liable for environmental damage, without regard to negligence or
fault on the part of such person. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or
for acts of the Company which are in compliance with all applicable laws at
the time such acts were performed. The Company does not believe that
compliance with current environmental laws or regulations is likely to have
a material adverse effect on the Company's business or financial condition
or results of operations. See "Business-Government Regulation."
Competition
The Company's business is highly competitive. Although some
consolidation has occurred in the Americas Region diving services and ROV
industry in recent years, the remaining companies aggressively compete for
available diving and ROV projects. While the Company believes that
customers continue to consider the quality of the supplier's services and
equipment, price has become an increasingly more important factor in the
selection process. In all of its operations, the Company competes with both
large and small companies, and certain of these competitors are larger and
have greater financial and other resources than the Company. It is possible
that competitors, particularly large, international companies, could
relocate vessels, ROVs, other equipment and personnel to the Gulf of Mexico
and other areas in which the Company operates with the result that
competition could increase and adversely affect the Company's revenues and
operating margins. Should the Company's competitors develop and market
services or products that are technologically superior to those of the
Company, the Company's ability to market its services and products would be
significantly impaired. In addition, it is possible for an experienced
individual in the industry who has at least minimal contacts with customers
and divers to begin a business that could compete successfully with the
Company, particularly with respect to smaller, independent customers. See
"Business--Subsea Products--Pipeline Connector Products" and "Business--
Customers and Competition."
Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and By-laws, including,
among others, provisions allowing the Company's Board of Directors to issue
preferred stock, and certain provisions of the Louisiana Business
Corporation Law under which the Company is incorporated, may tend to deter
potential unsolicited offers or other efforts to obtain control of the
Company that are not approved by the Board of Directors. Such provisions
may therefore deprive the stockholders of opportunities to sell shares of
the Common Stock at prices higher than prevailing market prices.
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and intends
for the near future to retain any earnings otherwise available for dividends
for the future operation and growth of the Company's business. In addition,
the Company's loan agreement restricts the payment of cash dividends on its
capital stock. See "Market for the Registrant's Common Equity and Related
Shareholder Matters."
Limitation on Foreign Ownership
The Company's Articles of Incorporation contain limitations on the
percentage of outstanding Common Stock and other classes of securities that
can be owned by persons who are not United States citizens within the
meaning of certain statutes relating to the ownership of United States flag
vessels. Consistent with statutory requirements, the Articles of
Incorporation prohibit the ownership of more than 23% of the outstanding
Common Stock by persons other than United States citizens. The restrictions
imposed by the Company's Articles of Incorporation may at times preclude
United States citizens from transferring their Common Stock to persons other
than United States citizens. This may restrict the available market for
resale of shares of Common Stock and for the issuance of shares of Common
Stock by the Company.
ITEM 2. PROPERTIES
Vessels. The Company's offshore diving activities are performed from
the Company's 21 DSVs, as well as from structures and vessels owned by
others. The DSVs are generally offshore utility and supply vessels that
have been converted and equipped to support diving operations for offshore
construction, inspection, maintenance, and repair work. All of the
Company's vessels are United States-flagged vessels except for the "American
Eagle" (Honduran-flagged), the "American Defender," "American Constitution"
and the "American Pioneer" (Panamanian-flagged). Eleven of the Company's
DSVs are mortgaged as collateral for the Company's bank borrowings. The
following table describes the Company's DSVs, all of which are owned by
wholly owned subsidiaries of the Company:
Vessel
Length Year
Vessel Vessel Type Home Port (feet) Acquired
- ------ ----------- --------- ------ --------
American Defender Dynamically Fourchon, La. 220 1997
positioned/ROV and
HARDSUIT (TM) ADS
support
American Constitution Four-point anchor Port of Iberia, 210 1996
system/ La.
saturation
diving/moonpool
American Pioneer Dynamically Fourchon, La. 200 1996
positioned/ ROV and
HARDSUIT (TM) ADS
support
American Pride Four-point anchor Port Harcourt, 185 1990
system Nigeria
American Victory Four-point anchor Port of Iberia, 166 1993
system La.
American Star Four-point anchor Port of Iberia, 165 1989
system/ saturation La.
diving
American Patriot Four-point anchor Long Beach, Ca. 165 1994
system/40-ton crane
American Triumph Four-point anchor Port of Iberia, 165 1996
system La.
American Independence Four-point anchor Port of Iberia, 165 1996
system La.
American Recovery Tug/diving support Port of Iberia, 150 1996
La.
American Eagle Four-point anchor Port Harcourt, 150 1986
system Nigeria
American Spirit Four-point anchor Port of Iberia, 130 1994
system La.
American Liberty Four-point anchor Port of Iberia, 125 1990
system La.
American Diver Diving support Port of Iberia, 110 1983
La.
Pipeline Surveyor Diving support Port of Iberia, 110 1985
La.
American Scout Diving support Port of Iberia, 110 1996
La.
Pipeline Inspector Diving support Port of Iberia, 105 1985
La.
Pipeline Diver Diving support Port of Iberia, 105 1985
La.
Pipeline Observer Diving support Port of Iberia, 95 1990
La.
American Progress Crewboat/survey Oxnard, Ca. 65 1994
support
American Endeavor Utility tug/ROV Oxnard, Ca. 65 1994
support
Ceanic has entered into an agreement to purchase a 240-foot dynamically
positioned special service vessel to be named the "Ceanic Legend." The
Company expects to consummate the purchase in the third quarter of 1998,
subject to the satisfaction of certain conditions precedent customary to
transactions of this type.
The Company manages its vessel fleet so as to maintain a competitive
presence in each of its targeted market areas and to pursue project
opportunities as they arise in each area. The Company frequently evaluates
the need to reposition vessels and from time to time does so. The average
age of the Company's vessels is approximately 28 years.
The Company's vessel fleet is maintained, as required by law and by its
insurers, in accordance with governmental regulations and classification
standards of either or both the American Bureau of Shipping and the
U.S. Coast Guard or, with respect to its foreign-flagged vessels, the
regulations of the respective foreign governments. The Company's United
States-flagged vessels are subject to annual inspections and to drydocking
in which compliance with applicable regulations and standards is monitored,
after which any necessary modifications or repairs are made. In addition to
complying with these regulations and standards, the Company performs
supplemental repairs and maintenance on its vessels as part of a regular
preventive maintenance schedule and on an as-needed basis.
The vessels are also equipped with various winches, cranes and other
support equipment. Several of the Company's DSVs are equipped with a
four-point anchor system that maintains the ship in proper position. The
dynamic positioning system of the "American Pioneer" and "American Defender"
can, through thrusters coordinated by the vessel's onboard computer system,
maintain the vessel on station for an extended period of time without the
use of anchors.
ROVs. The Company's ROVs are submersible, unmanned, remotely controlled
vehicles that are powered and operated from a surface platform (a DSV, barge
or other platform) by a crew of trained pilots through an umbilical
containing electric power and communications cables. At December 31, 1997,
the Company owned and operated seven observation ROVs, which are equipped
with subsea lights, sonar, video cameras and other equipment that transmit
subsea video and other information to their surface operators to support the
work of the Company's divers. Also at December 31, 1997, the Company
operated five work class ROVs, which are equipped with lights and video
equipment as well as manipulators, which permit them to perform tasks in
water depths up to 8,200 feet. The Company expects to have approximately 19
ROVs by the end of fiscal 1998. The Company entered into the Perry Tritech
Contract in December 1997 to purchase up to ten new generation, deepwater
work class ROVs capable of working in water depths up to 10,000 feet.
Delivery of six of these ROVs is expected in each quarter of 1998 beginning
with the second quarter.
Facilities. The Company typically leases office facilities to house its
administrative staff (other than the Port of Iberia operations base, which
it owns), shops equipped for fabrication, testing, repair and maintenance
activities, warehouses and yard areas for storage and mobilization of
equipment enroute to work sites, and dock facilities for the Company's DSVs.
The Company has facilities in California, Louisiana, Ohio, Texas, Canada,
Nigeria, Scotland and Australia. The following table describes the
Company's primary facilities:
Approximate
Location Square Feet Primary Use(s)
- -------- ----------- --------------
Houston, Texas 26,000 Corporate headquarters
Port of Iberia,
Louisiana 29,000<F1> Americas Region headquarters
Perth, Australia 7,400<F2> Asia Pacific Region headquarters
Aberdeen, Scotland 3,000<F3> Europe Africa Region headquarters
Houston, Texas 27,240<F4> Big Inch Marine Systems Division
Oxnard, California 23,000<F5> Ceanic General Contracting office
Columbus, Ohio 8,600<F6> Ceanic General Contracting office
Port of Fourchon,
Louisiana 22,000<F7> Americas Region operations
Port Harcourt, Nigeria 13,500<F8> West Africa diving operations
Vancouver, Canada 4,970<F9> Ceanic Hardsuits Products Division
<F1> Includes approximately 6,000 square feet of office space,
23,000 square feet of shop/warehouse space, 23 acres of yard space
and 1,800 feet of waterfront access.
<F2> Includes approximately 3,130 square feet of office space, 4,270
square feet of warehouse space and 16,860 square feet of yard
space.
<F3> Includes approximately 3,000 square feet of office space of and
approximately one acre of yard space.
<F4> Includes approximately 8,500 square feet of office space,
18,740 square feet of shop/warehouse space and 83,160 square feet
of yard space and parking.
<F5> Includes approximately 10,000 square feet of office space and
13,000 square feet of shop/warehouse space.
<F6> Includes approximately 3,000 square feet of office space,
5,600 square feet of shop/warehouse space and two acres of yard
space.
<F7> Includes 7,000 square feet of office space, 15,000 square feet of
storage space, 18 acre tract of land and approximately 1,300 feet
of dock frontage approximately 20 feet of clearance for Ceanic's
deepwater DSVs.
<F8> Includes approximately 3,500 square feet of office space,
10,000 square feet of shop/warehouse space and 16,000 square feet
of yard space.
<F9> Includes approximately 2,970 square feet of office space and 2,000
square feet of shop/warehouse space.
Equipment. The Company owns an extensive inventory of diving equipment,
including six saturation diving systems (five of which are operational),
eleven HARDSUIT (TM) diving suits (three of which are used for training and
demonstration only), compressors, decompression chambers, high pressure
water blasters, jet pumps, hydraulic power tools, welding machines, tuggers,
underwater video systems, UltrascanTM recordable non-destructive testing
systems, and TH-1000 x-ray systems. The Company performs routine maintenance
on all of its equipment and generates timely status reports to track use and
availability of the Company's equipment.
ITEM 3. LEGAL PROCEEDINGS
In November 1996, a large oil and gas company instituted litigation
against subsidiaries of the Company in Edinburgh, Scotland seeking damages
of approximately $3.0 million, 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 that the product was fully suitable for
service and intends to defend the claim vigorously, although no assurance
can be given as to the ultimate outcome of the litigation.
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. 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 $13.0 million plus interest and costs, of which the Company has paid
the plaintiff insurance proceeds of $3.0 million. Plaintiff alleges the
losses to be in excess of the insured value of the barge. 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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of the date of this
Report with respect to the directors and executive officers of the Company.
Name Age Position
- ----- --- ---------
Rodney W. Stanley 53 Director, President and Chief Executive
Officer
Kevin C. Peterson 40 Director, Executive Vice President and
Chief Operating Officer
Robert B. Suggs 50 Senior Vice President - Americas Region
Gordon J. Cowe 43 Vice President - Corporate Engineering
Cathy M. Green 32 Vice President-Finance and Chief Financial
Officer
Quinn J. Hebert 34 Corporate Counsel and Secretary
Rodney W. Stanley joined the Company on August 1, 1996 as a Director and
Senior Vice President - International Operations and became President and
Chief Executive Officer of the Company in December 1996. Mr. Stanley has
over 34 years of experience in the subsea services industry. From 1995 to
May 1996, he served as President and Chief Executive Officer of Hard Suits
Inc., which was acquired by the Company in November 1996. From 1986 to
1995, Mr. Stanley was President and Chief Executive Officer of Sonsub, Inc.,
a leading provider of specialist subsea engineering and heavy work class ROV
services, which he founded in 1986. From 1969 to 1984, he held various
management positions at Divcon, Inc. and its successor, Oceaneering
International, Inc.
Kevin C. Peterson joined the Company on May 15, 1997 as a Director and
Executive Vice President and President - Technologies Group and became
Executive Vice President and Chief Operating Officer in October 1997.
Mr. Peterson has over 25 years of experience in the subsea services
industry. In 1997, Mr. Peterson served as President and Chief Executive
Officer of Perry Tritech, Inc. From 1990 to 1997 when he joined the
Company, Mr. Peterson served as President and Chief Executive Officer of
Coflexip Stena Offshore Inc. From 1984 to 1990 he served as General Manager
for the International Group of Perry Technologies. From 1980 to 1984 Mr.
Peterson served as Vice President and General Manager of Jared/Oceaneering
in Houston, Texas.
Robert B. Suggs joined the Company in 1985 as the Company's Vice
President - Operations. He became Vice President/General Manager - Offshore
Division in 1990 and in 1997, became Senior Vice President - Americas
Region. From 1981 to 1985, Mr. Suggs served as Vice President - Diving
Services for Sea Con, Inc. In 1975, Mr. Suggs co-founded Sea Dive, Inc.,
which was sold to Sea Con, Inc. in 1981. He has over 25 years of experience
in the diving industry, including six years as a diver. He served in the
United States Navy aboard a nuclear submarine from 1966 to 1970.
Gordon J. Cowe joined the Company in May 1997 as Vice President -
Corporate Engineering. Mr. Cowe has corporate responsibility for Ceanic's
Field Development Division, Concrete Products Division and Big Inch Products
Division. Mr. Cowe has over 20 years of engineering and project management
experience. Prior to joining the Company, Mr. Cowe served as Senior Vice
President of Sonsub International Inc., a subsidiary of Saipem, from 1996
until joining the Company in 1997. From 1994 to 1996, Mr. Cowe served as
Engineering Manager/Deputy Alliance Manager for Transfield Worley Joint
Venture and as Managing Director of Granherne Ltd. Prior to that time, he
held various engineering management positions. Mr. Cowe has a BSC Honors
Degree in Mechanical Engineering from the University of Strathclyde,
Scotland.
Cathy M. Green joined the Company in 1994 as Corporate Controller. She
became Vice President - Finance and Chief Financial Officer in January 1996.
Ms. Green has over ten years of experience in the accounting profession.
From 1988 to 1994, she was employed by Price Waterhouse LLP, an independent
public accounting firm, and served as a manager at such firm from 1992 to
1994. Ms. Green holds a BS degree from the University of New Orleans. She
is a Certified Public Accountant.
Quinn J. Hebert joined the Company in 1993 as Corporate Counsel and
Secretary. Mr. Hebert has over ten years of experience in the legal
profession. From 1988 to 1993, he was an associate with the law firm of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans,
Louisiana. Mr. Hebert holds a BA degree from Louisiana State University and
a JD degree from Boston College. He is a member of the Louisiana Bar
Association.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The common stock of the Company is traded on the NASDAQ National Market
under the symbol "DIVE". The following table presents high and low bid
quotes for the Company's common stock as reported by the NASDAQ National
Market System for each quarter.
Quarter Ended:
March 31, 1996 $ 8.750 $ 6.750
June 30, 1996 11.000 8.125
September 30, 1996 11.375 8.125
December 31, 1996 14.125 9.750
Quarter Ended:
March 31, 1997 13.000 10.625
June 30, 1997 12.250 8.750
September 30, 1997 19.375 11.875
December 31, 1997 20.75 10.625
At March 2, 1998, the Company had approximately 3,200 holders of its
common stock, including record holders and individual participants in
security position listings.
The Company has not paid cash dividends on its Common Stock since its
inception. The Board of Directors does not anticipate payment of any
cash dividends in the near future and intends to continue its present
policy of retaining earnings for reinvestment in the operations of the
Company. The amended and restated loan agreement between the Company and
its lending bank restricts the Company's payment of dividends for any
fiscal quarter to 15% of the average of quarterly net income of the
Company for the immediately preceding four fiscal quarters.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial and other data set forth below should be read
in conjunction with the consolidated financial statements of the Company
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.
Selected Consolidated Financial and Other Data
(In thousands, except per share and operating data)
<TABLE>
<CAPTION>
Fiscal Year Two Months
Ended Ended
December 31, December 31, Fiscal Year Ended October
------------ ------------ -------------------------
1997 1996 1995<F1> 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Diving and related revenues $132,728 $105,772 $15,486 $88,660 $52,755 $51,023
Diving and related expenses 89,204 70,066 10,346 63,180 35,338 30,635
Selling, general and administrative expenses 27,424 19,486 3,055 19,318 14,222 10,808
Depreciation and amortization 11,663 6,815 889 5,064 3,415 2,153
Operating income (loss) 4,437 9,405 1,196 1,098 (220) 7,427
Non-recurring charge<F2> --- --- --- --- --- (27,301)
Interest expense 1,056 1,246 220 1,377 297 341
Income (loss) from continuing operations before
income taxes and minority interest 5,006 8,971 994 (151) (264) (20,030)
Income (loss) from continuing operations 2,231 5,021 574 (329) (257) (13,199)
Loss from discontinued operations --- --- --- --- (1,696) (638)
Net income (loss) 2,231 5,021 574 (329) (1,953) (13,837)
Earning (loss) per common share:<F3>
Basic .22 .74 .09 (.05) (.29) (2.52)
Diluted .22 .73 .09 (.05) (.29) (2.52)
Weighted average common shares outstanding<F3>:
Basic 10,166 6,787 6,709 6,709 6,706 5,484
Diluted 10,267 6,836 6,713 6,709 6,706 5,484
Other Data:
EBITDA<F4> $16,100 $16,220 $2,085 $6,162 $3,195 $9,580
EBITDA Margin<F4> 12% 15% 13% 7% 6% 19%
Cash flow from operations (7,234) 19,642 (297) 1,375 4,423 3,968
Balance Sheet Data
Working capital $25,588 $12,222 $15,898 $14,067 $14,087 $26,362
Property, plant and equipment, net 63,318 43,041 25,550 26,079 24,424 14,659
Total assets 134,300 92,907 63,921 69,408 61,607 47,601
Current portion of long-term debt 2,163 1,702 1,375 2,000 2,488 121
Long-term debt, less current portion 8,060 8,459 5,413 5,121 5,443 ---
Total stockholders' equity 90,251 45,845 39,555 38,989 39,327 41,099
Operating Data
Average number of dive crews employed<F5> 249 248 230 239 221 163
Dive crew days<F6> 51,419 40,131 5,922 35,869 22,455 25,149
Number of diving support vessels
(DSVs) at end of period 21 20 14 14 15 11
DSV days <F7> 3,895 3,565 443 2,831 2,376 2,227
DSV utilization<F8> 53% 51% 52% 47% 49% 59%
<FN>
<F1> In June 1996 the Board of Directors of the Company changed the Company's fiscal year end from
October 31 to December 31.
<F2> Non-recurring, non-cash incentive compensation charge incurred at the time of the Company's
initial public offering, at which time forfeiture restrictions
applicable to stock previously awarded to Company employees were eliminated.
<F3> The Company has adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share."
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.
<F4> The Company calculates EBITDA (earnings before interest, taxes, depreciation and amortization)
as operating income plus depreciation and amortization. EBITDA should not be considered as an
alternative to net income as an indication of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity. EBITDA margin represents EBITDA divided
by the Company's total revenues in that period.
<F5> A dive crew generally consists of (i) a diver and a tender (diver trainee/assistant) or (ii) one diving
supervisor.
<F6> A dive crew day is one calendar day during which one Company dive crew was engaged in an active project,
was in transit or was waiting on inclement weather while under contract.
<F7> A DSV day is one calendar day in which one Company DSV is offshore performing services, in transit or
waiting on inclement weather while under contract.
<F8> DSV utilization is DSV days expressed as a percentage of DSV capacity. DSV capacity is the average number
of DSVs available for operation in a given period multiplied by the number of days in that period.
The Company's maximum DSV utilization is limited by the seasonality of offshore
operations. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
</FN>
</TABLE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results of
operations, historical financial resources and working capital, and income
taxes should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto included in this Annual
Report. For a description of the Company's accounting policies, see Note 1
to the Company's consolidated financial statements.
In June 1996, the Board of Directors of the Company changed the Company's
fiscal year end from October 31 to December 31 so as to report its quarterly
and annual results of operations on a comparable basis with other companies
in the oil and gas industry. As a result of this change in year end, the
following discussion includes the two fiscal years ended December 31, 1997
and December 31, 1996; the fiscal year ended October 31, 1995 and the
two-month transition period ended December 31, 1995.
Overview
The Company's operations are affected by a number of factors, the most
significant of which is the activity of the offshore oil and gas industry in
the Gulf of Mexico, especially the timing of capital expenditures by oil and
gas companies. These capital expenditures are influenced by oil and gas
prices, expectations about future prices, the cost of exploring for,
producing and delivering oil and gas, the sale and expiration dates of
offshore leases in the United States and international markets, the
discovery rate of new oil and gas reserves in offshore areas, local, state,
federal and international political, regulatory and economic conditions, and
the ability of oil and gas companies to generate capital, all of which are
beyond the control of the Company. Natural gas factors have a greater
effect on the operation of the Company than oil factors because a majority
of the production in the Gulf of Mexico is natural gas.
The Company's results of operations will generally vary from reporting
period to reporting period depending in large part on the location and type
of work being performed, the mix of the marine services being performed, the
season of the year and the job conditions encountered. The diving industry
is highly seasonal as a result of the weather conditions that affect the
timing of platform and pipeline construction and other diving related
activities of oil and gas companies in the Gulf of Mexico, and the
activities of the Company's General Contracting Division customers. The
winter conditions that are generally present from December through
April substantially reduce the work that could otherwise be performed by the
Company's dive crews and limit the use of the Company's DSVs stationed in
the Gulf of Mexico. Winter weather conditions also adversely affect the
inland operations of the Company's General Contracting Division. Although
adverse weather conditions occurring from time to time from May through
November may also adversely affect vessel use and diving operations,
historically a disproportionate amount of the Company's diving services have
been performed during this period. The Company expects a higher
concentration of its total revenues and net income to be earned during the
third (July through September) and fourth (October through December)
quarters of its fiscal year compared to the first (January through March)
and second (April through June) quarters. The Company expects the winter
weather patterns to continue to have an adverse effect on the Company's Gulf
of Mexico and General Contracting Division operations.
In general, large, complex general contracting projects performed by the
General Contracting Division and turnkey projects in the Gulf of Mexico are
awarded on a fixed price basis. With such projects, contract revenues are
recognized on a percentage of completion basis for individual contracts
based on the ratio of costs incurred to total estimated costs at completion.
Contract price and cost estimates are reviewed periodically as work
progresses and adjustments proportionate to the percentage of completion are
reflected in contract revenues and gross profit in the reporting period when
such estimates are revised. All known or anticipated losses on contracts
are fully provided for currently. At December 31, 1997, the Company
accounted for 22 contracts (aggregating $4,116,000, or approximately 38%, of
unbilled revenue at December 31, 1997) using the percentage of completion
method. If the Company continues to expand its operations in the general
contracting market and the number of turnkey projects in the Gulf of Mexico
awarded to the Company increases, the Company believes that a greater
proportion of its general contracting and Gulf of Mexico contracts will be
accounted for using the percentage of completion accounting method.
Results of Operations
The Company analyzes the results of its operations by separating them
into five geographic and product markets: (i) Gulf of Mexico diving, vessel
and remote intervention technology services ("Americas Region"); (ii)
diving and related services performed in Australia and Southeast Asia ("Asia
Pacific Region"); (iii) diving and related services performed in Europe and
Africa ("Europe Africa Region"); (iv) general contracting and marine
construction services off the United States West Coast, inland within the
United States and in the coastal waters off Latin America ("General
Contracting Division"); and (v) sales and installations of Big Inch Marine
Systems products, Hard Suit products and Field Development Division products
which include the Tarpon Guyed Monotower and concrete storage barges
("Subsea Products"). The following table sets forth, for the periods
indicated, additional information on the operating results of the Company in
each of those five markets:
<TABLE>
<CAPTION
Year Ended Two Months Ended
Year Ended December 31, October December 31,
------------------------------ ---------- ----------------
1997 1996 1995(1) 1995 1995 1994
---- ---- ---- ---- ----- ----
(Unaudited) (Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Americas Region
Diving and related revenues $ 68,339 $ 53,220 $ 49,987 $49,522 $ 9,929 $ 9,463
Diving and related expenses 44,690 36,037 38,118 37,362 6,888 6,087
Gross profit 23,649 17,183 11,869 12,160 3,041 3,376
Gross profit percentage 34.6% 32.3% 23.7% 24.6% 30.6% 35.7%
Asia Pacific Region
Diving and related revenues $ 2,798 -- -- -- -- --
Diving and related expenses 1,766 -- -- -- -- --
Gross profit 1,032 -- -- -- -- --
Gross profit percentage 36.9% -- -- -- -- --
Europe Africa Region
Diving and related revenues $11,798 $ 7,837 $ 16,653 $17,079 $ 924 $ 1,350
Diving and related expenses 7,845 5,490 10,837 11,318 595 1,077
Gross profit 3,953 2,347 5,816 5,761 329 273
Gross profit percentage 33.5% 29.9% 34.9% 33.7% 35.6% 20.2%
General Contracting Division
Diving and related revenues $30,583 $ 34,097 $ 15,180 $14,539 $ 3,909 $ 3,268
Diving and related expenses 21,955 22,025 10,074 10,114 2,488 2,528
Gross profit 8,628 12,072 5,106 4,425 1,421 740
Gross profit percentage 28.2% 35.4% 33.6% 30.4% 36.4% 22.6%
Subsea Products
Diving and related revenues $19,210 $ 10,618 $ 7,066 $ 7,520 $ 724 $ 1,178
Diving and related expenses 12,948 6,514 4,095 4,386 375 667
Gross profit 6,262 4,104 2,971 3,134 349 511
Gross profit percentage 32.6% 38.7% 42.0% 41.7% 48.2% 43.4%
Total
Diving and related revenues $132,728 $ 105,772 $ 88,886 $88,660 $15,486 $15,259
Diving and related expenses 89,204 70,066 63,124 63,180 10,346 10,359
Gross profit 43,524 35,706 25,762 25,480 5,140 4,900
Gross profit percentage 32.8% 33.8% 29.0% 28.7% 33.2% 32.1%
<F1> Information for the year ended December 31, 1995 is presented for comparative purposes only.
For additional information concerning the operations of the Company in geographic areas, see
note 12 to the financial statements of the Company included in this Annual Report.
The following table sets forth for the periods indicated certain consolidated income
statement data expressed as a percentage of consolidated revenues.
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Two Months Ended
December 31, Ended October 31, December 31,
------------ ----------------- ------------------
1997 1996 1995<F1> 1995 1995 1994
----- ---- ---- ---- ----- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Percentage of consolidated
revenues:
Selling, general and
administrative expenses 20.7% 18.4% 22.0% 21.8% 19.7% 18.8%
Depreciation and 8.8 6.4 5.8 5.7 5.7 5.2
amortization
Operating income 3.3 8.9 1.2 1.2 7.7 8.0
Income (loss) from continuing
operations before income
taxes and minority interest 3.8 8.5 (.3) (.2) 6.4 7.2
Net income (loss) 1.7 4.7 (.4) (.4) 3.7 4.0
<F1> Information for the year ended December 31, 1995 is presented for comparative purposes only.
</TABLE>
In the year ended December 31, 1997, the Company continued to experience
significant growth in its operations and related revenues. Factors contributing
to the increased activity include the following:
First, oil and gas industry activities in the Gulf of Mexico have
remained strong and have resulted in continued increases in both
the demand and the day rates charged for the Company's divers and DSVs.
The Company anticipates that this trend will continue as long
as supply and demand fundamentals for oil and gas and demand for
infrastructure-related projects remain strong in the Gulf of Mexico.
Second, as a result of its new subsidiaries, the Company
experienced revenue growth in its manufacturing of Hardsuit products
and Field Development Division concrete storage barges, and its
subsea services provided in the Asia Pacific region.
Although the General Contracting Division continued to have strong
activity in 1997, there was a decrease in revenue from 1996 primarily due to
the nonrecurring nature of the Chevron platform abandonment project
performed off the coast of California in 1996. However, the Company
believes it has positioned itself to bid on competitive projects of similar
size and scope going forward.
Finally, the Company experienced a reduction in its revenue from those
operations in markets which did not fit into the Company's strategic plan
and that were discontinued during 1997. These include diving operations in
Kansas City, Kansas and Dubai, United Arab Emirates, and derrick barge
services provided by American Marine Construction, Inc.
During 1997, the Company continued its long-term focus on expansion into
deepwater Gulf of Mexico markets and certain international markets by adding
strategic assets and key management infrastructure. As a result, both
selling, general and administrative expenses and depreciation expense have
increased during 1997 adversely affecting short-term profitability but
positioning the Company for long-term growth.
Acquisitions and Dispositions
In November 1996, the Company acquired 97% of the outstanding common
stock of HSI, a manufacturer and marketer of one-atmosphere diving suits,
through an unsolicited tender offer for a cash purchase price of $11.8
million. The purchase was funded through borrowings on the Company's line
of credit, which were repaid subsequent to December 31, 1996 with the
proceeds from the secondary offering of the Company's common stock. The
transaction was accounted for under the purchase method of accounting. In
June 1997 the Company acquired the remaining 3% of the outstanding common
stock of HSI at $1.65 per share as a result of which HSI became a wholly
owned subsidiary of the Company. The results of operations of HSI are
included in the consolidated statement of operations from the acquisition
date.
The following table sets forth certain pro forma combined statement of
operations data for the year ended December 31, 1996 and the fiscal year
ended October 31, 1995 assuming the HSI acquisition occurred on January 1,
1996 and November 1, 1994, respectively.
For the Years Ended
December 31, October 31,
1996 1995
----------- -----------
(Unaudited)
(in thousands)
Diving and related revenues $ 110,005 $ 102,061
Gross profit 36,096 28,426
Selling, general and administrative expense 22,078 23,340
Depreciation and amortization 9,302 8,433
Operating income (loss) 4,716 (3,347)
Interest expense 2,278 2,533
Net loss (431) (5,630)
Net loss per share (.06) (.84)
These pro forma combined statements of operations reflect both the
historical operating losses of HSI and certain pro forma expense adjustments
related to the purchase of HSI, including additional interest expense on the
borrowings under the Company's line of credit, and additional depreciation
and amortization related to tangible and intangible assets acquired.
However, as stated above, the Company repaid the debt incurred to purchase
HSI with a portion of the proceeds of its secondary offering of common stock
and therefore does not anticipate incurring ongoing interest expense
directly related to the HSI acquisition.
During 1997, the Company acquired one vessel, suitable for operations in
deeper waters, and certain diving assets to be used in its Gulf of Mexico
diving operations. The vessel acquired during 1997 is the "American
Defender," a 220-foot class dynamically positioned vessel dedicated to
supporting work-class ROVs.
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.
In October 1997, the Company sold all the issued and outstanding shares
of common stock in American Pollution Control Corporation.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Diving and related revenues. The Company's consolidated revenues
increased 25%, from $105.8 million for the year ended December 31, 1996 to
$132.7 million for the year ended December 31, 1997. The $27.0 million
increase is due primarily to (i) the Americas Region's increased Gulf of
Mexico diving and vessel activity; (ii) revenue attributable to sales of
the Company's new Hardsuit products and Field Development Division concrete
storage barges, and operations in its new Asia-Pacific region and (iii)
increased activity in West Africa. The increase in revenue was offset by
lower overall revenue for the General Contracting Division, primarily as a
result of the nonrecurring nature of the Chevron platform abandonment
project off the coast of California in 1996, and a reduction in revenue from
the American Intrepid, the Company's jack-up derrick barge, which sank in
April 1997.
Diving and related expenses. Diving and related expenses increased 27%,
from $70.1 million for the year ended December 31, 1996 to $89.2 million for
the year ended December 31, 1997. The $19.1 million increase is due
primarily to (i) the Americas Region's increased Gulf of Mexico diving and
vessel activity; (ii) sales of the Company's new Hardsuit products and
Field Development Division concrete storage barges, and operations in its
new Asia Pacific Region and (iii) increased activity in West Africa.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 41%, from $19.5 million for the year ended
December 31, 1996 to $27.4 million for the year ended December 31, 1997. The
increase was primarily attributable to supporting the operations of the
newly acquired Hardsuit Products Division and the Field Development Concrete
Storage Division and the Asia Pacific region; supporting increased diving
and vessel activity in the Gulf of Mexico; and supporting the Company's long
term investment in its new international and deepwater management
infrastructure. Selling, general and administrative expenses as a
percentage of revenues increased from 18% for the year ended December 31,
1996 to 21% for the year ended December 31, 1997.
Depreciation and amortization. Depreciation and amortization increased
72%, from $6.8 million for the year ended December 31, 1996 to $11.7 million
for the year ended December 31, 1997. The increase includes pretax charges
of $1,500,000 related to the reduction in the carrying value of certain HSI
identifiable assets and associated goodwill to their expected net realizable
value, and approximately $400,000 for the write off goodwill associated with
the closure of the Company's Kansas office, both charges being recorded in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived
Assets to be Disposed Of," (SFAS 121). The remaining increase in
depreciation and amortization is attributable to the acquisition of HSI and
Contract Diving Services, as well as other additions and improvements to the
Company's operational and administrative assets.
Operating income. Although the Company's revenues increased by $27.0
million, the gross profit percentage was slightly lower at 33% compared to
34% in 1996. The most significant factor which resulted in the Company's
overall reduced gross profit in 1997 is the nonrecurrence of the General
Contracting Division's platform abandonment project for Chevron off the
coast of California which was performed in 1996. This division's 1997 gross
profit decreased by $3.4 million and resulted in a reduction in the
companywide gross profit percentage. In addition to the lower gross profit
percentage, both selling, general and administrative expenses and
depreciation and amortization expenses increased, as discussed above, such
that operating income decreased to $4.4 million as compared to operating
income of $9.4 million for the year ended December 31, 1996.
Other income (expense). For the year ended December 31, 1997, other
income (net) of $569,000 was comprised of interest income of $444,000, other
income of $587,000, and a gain on the disposal of assets of $594,000, offset
by interest expense of $1,056,000. The gain on the disposal of assets was
primarily due to the sale of the Company's Lafayette, Louisiana headquarters
building. This compares to other expense (net) of $434,000 for the year
ended December 31, 1996 which was comprised of interest expense of
$1,246,000, which was offset by a net gain on disposal of assets of
$708,000, interest income of $57,000 and other income of $47,000.
Income tax expense. The $1,500,000 charge related to the write-off of
HSI's goodwill was a nondeductible charge for income tax purposes and
resulted in an overall increase in the Company's effective tax rate to
approximately 55% in 1997 as compared to 44% in 1996.
Net income. As a result of the factors discussed above, the Company
recorded net income of $2.2 million or $.22 per share, in the year ended
December 31,1997, compared to net income of $5.0 million, or $.74 per
share, in the year ended December 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended October 31, 1995
Factors affecting the results of operations in the year ended December
31, 1996 as compared to the year ended December 31, 1995 would be
substantially the same as those discussed below in the comparison between
the year ended December 31, 1996 and the year ended October 31, 1995.
Diving and related revenues. The Company's consolidated revenues
increased 19%, from $88.7 million for the year ended October 31, 1995 to
$105.8 million for the year ended December 31, 1996. The $17.1 million
increase was due primarily to: (i) increased activity by the General
Contracting Division, most of which resulted from the Chevron platform
abandonment project off the coast of California; (ii) increased diving and
vessel activity in the Gulf of Mexico; (iii) operations of the Company's
jack-up derrick barge, which was operational for only a portion of the year
ended October 31, 1995; (iv) increased sales of the Company's Big Inch
subsea pipeline connector products and (v) revenue from sales of the
Company's new Field Development Division concrete storage barge products and
Hardsuit products. The increase in revenue was offset by certain revenue
decreases attributable to (i) the Company's pipelay/bury barge that was sold
on March 1, 1996, (ii) the Europe Africa region, primarily as a result of
the non-recurrence of work associated with the installation of a Tarpon
Guyed Monotower off the Ivory Coast in 1995, and (iii) decreased demand for
the Company's Tarpon Guyed Monotower products.
Diving and related expenses. The Company's diving and related expenses
increased 11%, from $63.1 million for the year ended October 31, 1995 to
$70.0 million for the year ended December 31, 1996. The increase of $6.9
million is due primarily to: (i) increased activity by the General
Contracting Division, most of which resulted from the Chevron platform
abandonment project off the coast of California; (ii) increased diving and
vessel activity in the Gulf of Mexico; (iii) operations of the Company's
jack-up derrick barge, which was operational for only a portion of the year
ended October 31, 1995; (iv) increased sales of the Company's Big Inch
subsea pipeline connector products and (v) sales of the Company's new Field
Development Division concrete storage barge products and Hardsuit products.
The increase in expense was offset by certain expense decreases attributable
to (i) the Company's pipelay/bury barge that was sold on March 1, 1996,
(ii) the Europe Africa region, primarily as a result of non-recurring work
associated with the installation of a Tarpon Guyed Monotower off the Ivory
Coast in 1995, and (iii) decreased demand for the Company's Tarpon Guyed
Monotower products.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 1%, from $19.3 million for the year ended
October 31, 1995 to $19.5 million for the year ended December 31, 1996. The
increase was primarily attributable to (i) a $143,000 increase in the
selling, general and administrative expenses of the Europe Africa Region
primarily as a result of supporting the activities of the operations and
sales office in Dubai, which did not have full operations for the entire
year of fiscal 1995, (ii) $125,000 in severance paid in connection with
companywide personnel layoffs during January 1996 and (iii) other increases
necessary to support the increased operations of the Company in 1996. These
increases were offset by the effect of cost cutting measures which were put
into place in 1995. Selling, general and administrative expenses as a
percentage of revenues decreased from 22% for the year ended October 31,
1995 to 18% for the year ended December 31, 1996.
Depreciation and amortization. Depreciation and amortization increased
35%, from $5.1 million for the year ended October 31, 1995 to $6.8 million
for the year ended December 31, 1996. The increase includes a pretax charge
of $500,000, $290,000 after tax, attributable to the implementation of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," (SFAS 121) effective January 1, 1996. The charge is included in
depreciation and amortization in the consolidated statement of operations
for the year ended December 31, 1996. The remaining increase was
attributable to additions and improvements to the Company's operational and
administrative assets. Depreciation expense for the Americas Region
increased approximately $774,000 due primarily to the addition of new dive
support vessels and diving equipment, and depreciation expense for products
increased $451,000 due to the acquisition of HSI. Depreciation expense for
the other operating groups increased by approximately $519,000 as a result
of various improvements and additions to fixed assets. These increases were
offset by a reduction in depreciation expense of $493,000 attributable to
the sale of the Company's pipelay barge.
Operating income. For the year ended December 31, 1996, operating income
was $9.4 million compared to operating income of $1.1 million for the year
ended October 31, 1995. The significant change in operating income was due
primarily to an overall increase in the Company's gross profit margin for
reasons described above from $25.5 million, or 28.7%, in the year ended
October 31, 1995 to $35.7 million, or 33.8%, in the year ended December 31,
1996. This increase in operating income for the year ended December 31,
1996 was offset by increases in both selling, general and administrative
expenses and depreciation and amortization.
Other income (expense). For the year ended December 31, 1996, other
expense (net) of $434,000 was comprised of interest expense of $1,246,000,
which was offset by a net gain on disposal of assets of $708,000, interest
income of $57,000 and other income of $47,000. The net gain on the disposal
of assets includes the non-recurring gain on the sale of the pipelay barge
offset by losses on the disposal of other fixed assets. This compares to
other expense (net) of $1,249,000 in the comparable period of fiscal 1995,
which was comprised of interest expense of $1,377,000, and a loss on the
disposal of assets of $130,000, offset by other income of $222,000 and
interest income of $36,000.
Net income (loss). As a result of the factors discussed above, the
Company recorded net income of $5.0 million, or $.74 per share, in the year
ended December 31, 1996, compared to a net loss of $329,000, or ($.05) per
share, in the year ended October 31, 1995.
Two Months Ended December 31, 1995 Compared to Two Months Ended
December 31, 1994
Diving and related revenues. The Company's consolidated revenues
increased 1%, from $15.3 million in the two months ended December 31, 1994
to $15.5 million in the two months ended December 31, 1995. The $227,000
increase in revenues was comprised of (i) an increase attributable to
increased diving activity by the General Contracting Division; (ii) an
increase attributable to the operations of the Company's jack-up derrick
barge; (iii) a decrease attributable to the operations of the Company's
pipelay/bury barge, which was sold on March 1, 1996; (iv) a decrease
attributable to the diving activity in West Africa; and (v) a decrease
attributable to decreased subsea products sales.
Diving and related expenses. The Company's diving and related expenses
decreased 1%, from $10.4 million in the two months ended December 31, 1994
to $10.3 million in the two months ended December 31, 1995. The $14,000
decrease in expenses was comprised of (i) an increase attributable to
increased diving activity the General Contracting Division; (ii) an
increase attributable to the operations of the Company's jack-up derrick
barge; (iii) a decrease attributable to the operations of the Company's
pipelay/bury barge, which was sold on March 1, 1996; (iv) a decrease
attributable to diving activity in West Africa; and (v) a decrease
attributable to decreased subsea products sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 6%, from $2.9 million for the two months
ended December 31, 1994 to $3.1 million for the two months ended
December 31, 1995. This increase was primarily due to a $127,000 increase
in expenses attributable to supporting the activities of the operations and
sales office in Dubai for the two months ended December 31, 1995. This
office did not have full operations in the same period of 1994. Although
there was an overall increase in the level of selling, general and
administrative expenses during the two months ended December 31, 1995, these
expenses, as a percentage of revenues, increased less than 1%, from 19% for
the two months ended December 31, 1994 to 20% for the two months ended
December 31, 1995.
Depreciation and amortization. Depreciation and amortization increased
11%, from $799,000 in the two months ended December 31, 1994 to $889,000 for
the two months ended December 31, 1995. The increase was attributable to
additions and improvements to the Company's operational and administrative
assets primarily in the Americas Region and in West Africa.
Operating income. Operating income decreased from $1,228,000 for the two
months ended December 31, 1995 to $1,196,000 for the two months ended
December 31, 1994. The slight decrease was due to the increase in selling,
general and administrative expenses and depreciation and amortization
expenses for the two months ended December 31, 1995 as described above.
Other income (expense). For the two months ended December 31, 1995,
other expense (net) of $202,000 was comprised of interest expense of
$220,000, offset by miscellaneous other income items totaling $18,000. This
compares to other expense (net) of $137,000 in the comparable two-month
period ended December 31, 1994, which was comprised of interest expense of
$183,000, offset by miscellaneous other income items of $46,000.
Net income. As a result of the factors discussed above, the Company
recorded net income of $574,000, or $.09 per share, in the two months ended
December 31, 1995, compared to net income of $611,000, or $.09 per share, in
the two months ended December 31, 1994.
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. The Company also incurs expenses for mobilization and project
execution throughout the term of its contracts, while collections from
customers typically do not occur until approximately 90 to 120 days after
completion of 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. The Company believes that cash
flows from operations and borrowings available under its bank credit
facility and other sources will provide sufficient funds to meet its working
capital and capital expenditure requirements for 1998.
The Company's subsidiary, HSI, continued to experience operating losses
during fiscal 1997, resulting in increased working capital requirements.
Although the Company expects this trend to continue into early 1998,
management believes it should eventually be reversed and HSI should generate
operating profits through its strategy to (i) utilize HSI technology to
support the Company's intervention technologies group, (ii) develop the
substantial opportunities the Company believes exist in the military market
and (iii) review ways to reduce costs.
Cash flow from operations. Net cash flows from the Company's operating
activities are attributable primarily to cash received from customers, cash
paid to suppliers and employees, and income taxes paid. During 1997, net
cash used by operating activities was $7.3 million and was due primarily to
timing differences in the receipt of cash from its customers and payments to
suppliers. The Company generated positive net cash flow from operations for
each of the previous two fiscal years with $19.6 million in 1996 and $1.4
million in 1995. The primary factors affecting amounts and timing of cash
flows from operating activities are the same as those affecting results of
operations discussed above.
Investing activities. Cash flows from investing activities are primarily
related to capital expenditures and acquisitions of businesses. For the
year ended December 31, 1997, capital expenditures were $27.3 million which
included the purchase of (i) one dynamically positioned vessel, two work-
class ROVs, the assets of Contract Diving Services, Pty Ltd., and one
HARDSUITTM diving system; (ii) upgrades to existing DSVs and diving
equipment; and (iii) acquisition of certain other diving equipment. These
expenditures were funded by a combination of borrowings under the line of
credit and proceeds of $24 million received from the Company's February 1997
secondary offering of common stock. Management expects that the Company
will continue to make capital expenditures for improvements to its existing
assets and for acquisitions of assets in support of its growth strategy.
Financing activities. During 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, of which $16
million was used to repay borrowings outstanding under the line of credit
agreement. Other cash flows from financing activities are primarily
attributable to borrowings and repayments on both the Company's long-term
indebtedness and credit facilities. The Company has a $15 million revolving
line of credit with a bank at the prime rate (8.50% at December 31, 1997).
The line is secured by and limited to certain qualifying accounts receivable
and is cross-collateralized by certain of the Company's vessels and
equipment. At December 31, 1997, $8.8 million was outstanding under the line
of credit agreement. Subsequent to December 31, 1997, the Company received
a $10.0 million increase in the line of credit bringing the line of credit
to $25 million to facilitate its increased working capital needs. At March
12, 1998, the balance outstanding under the line of credit agreement was
approximately $14.0 million.
The Company also has a long-term note payable to a bank in the amount of
$8.1 million at December 31, 1997 at a fixed interest rate of 7.9%. The
terms of the note require monthly principal payments of $125,000, plus
interest, with a balloon payment of $3.1 million due on May 31, 2001. This
debt is secured by eleven DSVs and certain diving equipment.
In connection with its purchase of certain assets in 1997, the Company
entered into a note payable for $1,743,000. The note is non-interest
bearing and unsecured. The terms of the note require three annual
installments beginning June 21, 1998.
Income Taxes
The Company conducts operations in various foreign tax jurisdictions
including Canada, the United Kingdom, Nigeria, and Australia and anticipates
that it will expand its operations into other foreign tax jurisdictions. It
is possible that a number of these foreign tax jurisdictions may have
corporate income tax rates that exceed the Company's current maximum
U.S. corporate income tax rate of 34%. As a result, the Company's
operations in these jurisdictions could result in the Company experiencing
an overall effective tax rate in excess of the current U.S. tax rate
applicable to corporations. See Note 9 to the consolidated financial
statements included in this Annual Report for the reconciliation of the
statutory federal income tax rate to the Company's effective tax rate.
Impact of the Year 2000
The Company has assessed and continues to assess the impact of the Year
2000 issue on its reporting systems and operations. The year 2000 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 resolved. 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 Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive
Income," which is effective for fiscal years beginning after December 15,
1997. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, foreign
currency gains and losses) in a full set of general purpose financial
statements. The Company will implement the statement in 1998 and will,
as required, reclassify financial statements for earlier periods
presented for comparative purposes. Adoption of the statement is not
anticipated to have a material effect on the Company's financial
statement presentation.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information,"
which is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards for the way that public companies report
information about operating segments in both annual and interim financial
statements, as well as establishes standards for disclosures about
products and services, geographic areas and major customers. The Company
will adopt SFAS 131 in 1998. The Company is currently evaluating the
impact of this statement on its financial reporting.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In this report, the consolidated financial statements and
supplementary data of the Company appear on pages K-35 through pages K-53
and are incorporated in this Item 8 by reference. See Index to Financial
Schedules on page K-33.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 will be included in the Company's
definitive proxy statement for its 1997 annual meeting of shareholders
and is incorporated herein by reference. For information regarding
executive officers of the Company, see "Executive Officers of the
Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be included in the Company's
definitive proxy statement for its 1997 annual meeting of shareholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 will be included in the Company's
definitive proxy statement for its 1997 annual meeting of shareholders
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be included in the Company's
definitive proxy statement for its 1997 annual meeting of shareholders
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)Documents filed as part of this report.
1. Financial Statements.
(i) Report of Independent Accountants
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations
(iv) Consolidated Statements of Changes in Stockholders'
Equity
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
All schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or notes thereto.
3. Exhibits: Those exhibits marked with an asterisk ("*") refer to
exhibits (or portions thereof in the case of Exhibit 13.1) filed
herewith and listed in the Exhibit Index which appears immediately
before the first such exhibit; the other exhibits are incorporated
herein by reference, as indicated in the following list.
Exhibit No.
- ------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Company<F1>.
3.2 By-laws of the Company.<F1>
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and
Restated Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen of Common Stock certificate.<F1>
10.1 American Oilfield Divers, Inc. Amended and Restated Compensation
Plan.<F2>
10.2 American Oilfield Divers, Inc. Non-Employee Director Stock Option
Plan.<F1>
10.3 American Oilfield Divers, Inc. Profit Sharing and Retirement Plan.<F1>
10.4 American Oilfield Divers, Inc. Employee Stock Option Plan.<F3>
10.5 Second Amended and Restated Loan Agreement, dated April 3, 1996 among
American Oilfield Divers, Inc., certain of its subsidiaries and First
National Bank of Commerce.<F4>
10.6 Employment Agreement dated August 1, 1996 between American Oilfield
Divers, Inc. and Rodney W. Stanley.<F5>
10.7 *Employment Agreement dated May 15, 1997 between American Oilfield
Divers, Inc. and Kevin C. Peterson.
10.8 Form of Indemnity Agreement by and between American Oilfield Divers,
Inc. and each of Messrs. Yax, Stanley, Peterson, Cowe, Suggs, Green,
Hebert, O'Malley and Lasher.<F1>
13.1 *The Company's 1997 Annual Report to Shareholders.
21. *List of Subsidiaries of the Company.
23.1 *Consent of Price Waterhouse.
24. *Powers of Attorney.
- ------------------------------------------------------------------------------
<F1> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Registration Statement on Form S-1,
(Registration No 33-63920), on June 4, 1993, as amended.
<F2> Indicates exhibit previously field with the Securities and Exchange
Commission in the Company's Proxy Statement dated April 1, 1997.
<F3> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1993.
<F4> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company Annual Report on Form 10-K for the year ended
December 31, 1996.
<F5> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Form 8-K dated July 16, 1996.
(b) Reports on Form 8-K
During the last quarter of the year ended December 31, 1997, the
Company filed the following reports on Form 8-K:
Date of Report Item Reported:
November 5, 1997 (Form 8-K) Item 5, "Other Events," announcing the fiscal
1997 third quarter earnings and other matters
and the award of approximately $10 million in
projects.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on March
24, 1998
American Oilfield Divers, Inc.
By: /s/ Rodney W. Stanley
Rodney W. Stanley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
*
-------------
George C. Yax Chairman of the Board March 24, 1998
/s/ Rodney W. Stanley
-----------------
Rodney W. Stanley President and Chief March 24, 1998
Executive Officer and
Director
(Principal Executive Officer)
/s/ Kevin C. Peterson
-----------------
Kevin C. Peterson Executive Vice President March 24, 1998
Chief Operating Officer
and Director
*
-----------------
William C. O'Malley Director March 24, 1998
*
------------------
Stephen A. Lasher Director March 24, 1998
/s/ Cathy M. Green
-------------------
Cathy M. Green Vice President - Finance and March 24, 1998
Chief Financial Officer
(Principal Financial and
Accounting Officer)
*By:/s/ Cathy M. Green
---------------------
Cathy M. Green
Attorney-in-fact
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Index to Financial Statements Page
Report of Independent Accountants K-38
Consolidated Balance Sheets K-39
Consolidated Statements of Operations K-40
Consolidated Statements of Changes in
Stockholders' Equity K-41
Consolidated Statements of Cash Flows K-42
Notes to Consolidated Financial Statements K-44
Selected Quarterly Financial Data K-62
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
American Oilfield Divers, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in
stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of American Oilfield
Divers, Inc. and its subsidiaries at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, the two months ended
December 31, 1995 and the year ended October 31, 1995, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 19, 1998
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
(in thousands) 1997 1996
Assets
Current assets:
Cash and cash equivalents $ 1,407 $ 1,322
Accounts receivable, net of allowance for doubtful
accounts of $600 and $500 32,604 20,095
Unbilled revenue 10,870 5,929
Other receivables 3,225 2,171
Inventories 5,428 4,651
Prepaid expenses 1,752 1,566
--------- ---------
Total current assets 55,286 35,734
Property, plant and equipment, net 63,318 43,041
Intangible and other assets 15,696 14,132
--------- ---------
$ 134,300 $ 92,907
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 8,379 $ 9,609
Income taxes payable 160 1,756
Short-term borrowings 8,808 1,306
Current portion of long-term debt 2,163 1,702
Other liabilities 10,188 9,139
--------- ---------
Total current liabilities 29,698 23,512
Deferred tax liability 3,115 2,601
Borrowings under a line of credit agreement,
long-term portion 12,450
Long-term debt, less current portion 8,060 8,459
Other liabilities 3,176 40
--------- ---------
Total liabilities 44,049 47,062
--------- ---------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none issued
Common stock, no par value; 30,000,000 shares authorized,
10,640,760 and 6,879,867 issued and outstanding
at stated value at December 31, 1997 and 1996 1,824 1,373
Additional paid-in capital 84,065 42,059
Foreign currency translation adjustments (380) (98)
Retained earnings 4,742 2,511
--------- ---------
Total stockholders' equity 90,251 45,845
--------- ---------
$ 134,300 $ 92,907
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year
Year ended Ended Two months ended
December 31, October 31, December 31,
----------------- ---------- ---------------
1997 1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C>
Diving and related revenues $ 132,728 $ 105,772 $ 88,660 $ 15,486 $ 15,259
Costs and expenses:
Diving and related expenses 89,204 70,066 63,180 10,346 10,359
Selling, general and administrative
expenses 27,424 19,486 19,318 3,055 2,873
Depreciation and amortization 11,663 6,815 5,064 889 799
------- ------- ------- ------- -------
Total costs and expenses 128,291 96,367 87,562 14,290 14,031
------- ------- ------- ------- -------
Operating income 4,437 9,405 1,098 1,196 1,228
------- ------- ------- ------- -------
Other income (expense):
Interest expense (1,056) (1,246) (1,377) (220) (183)
Gain (loss) on sale or abandonment
of property and equipment
and other assets 594 708 (130) 5 1
Interest income 444 57 36 5
Other, net 587 47 222 8 45
------- ------- ------- ------- -------
Total other income (expense) 569 (434) (1,249) (202) (137)
------- ------- ------- ------- -------
Income (loss) before income taxes and
minority interest 5,006 8,971 (151) 994 1,091
Income tax expense 2,775 3,950 62 420 480
------- ------- ------- ------- -------
Income (loss) before minority interest 2,231 5,021 (213) 574 611
------- ------- ------- ------- -------
Minority interest in earnings
of subsidiary (116)
-------- ------- -------- ------- -------
Net income (loss) $ 2,231 $ 5,021 $ (329) $ 574 $ 611
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic $ .22 $ .74 $ (.05) $ .09 $ .09
======= ======= ======= ======= =======
Diluted $ .22 $ .73 $ (.05) $ .09 $ .09
======= ======= ======= ======= =======
Weighted average common shares
outstanding:
Basic 10,166 6,787 6,709 6,709 6,709
======= ======= ======= ======= =======
Diluted 10,267 6,836 6,709 6,713 6,709
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Consolidated Statement of Changes in Stockholders' Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except share data) Foreign (Accumulated)
Common stock Additional currency deficit)
---------------- paid-in translation retained
Shares Amount Capital adjustments earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 6,709,497 $ 1,360 $ 40,837 $ (115) $ (2,755) $ 39,327
Net effects of translation of
foreign currency (9) (9)
Net loss (329) (329)
---------- --------- -------- --------- ----------- ----------
Balance at October 31, 1995 6,709,497 1,360 40,837 (124) (3,084) 38,989
Net effects of translation of
foreign currency (8) (8)
Net income 574 574
---------- -------- --------- --------- ----------- ---------
Balance at December 31, 1995 6,709,497 1,360 40,837 (132) (2,510) 39,555
Issuance of common stock
to purchase certain assets 71,685 6 594 600
Issuance of common stock under
exercise of stock options 98,685 7 680 687
Net effects of translation of
foreign currency 34 34
Other (52) (52)
Net income 5,021 5,021
---------- --------- --------- --------- ----------- ----------
Balance at December 31, 1996 6,879,867 1,373 42,059 (98) 2,511 45,845
Issuance of common stock,
net of issuance costs 3,553,315 431 39,689 40,120
Issuance of common stock
for asset purchases 48,193 5 495 500
Issuance of common stock under
exercise of stock options 159,385 15 1,304 1,319
Tax benefit related to employee
stock option exercises 455 455
Net effects of translation of
foreign currency (282) (282)
Other 63 63
Net income 2,231 2,231
---------- -------- --------- --------- ----------- ----------
Balance at December 31, 1997 10,640,760 $1,824 $84,065 $ (380) $ 4,742 $90,251
=========== ======= ========= ========== ============ =========
The accompanying notes are an integral part of these financial statements.
AMERICAN OILFIELD DIVERS, INC.
Consolidated Statement of Cash Flows
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year
Year ended Ended Two months ended
December 31, October 31, December 31,
----------------- ---------- ---------------
1997 1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 114,580 $ 106,620 $ 80,070 $ 19,657 $ 13,125
Cash paid to suppliers and employees (116,446) (85,548) (77,285) (19,137) (13,527)
Interest paid (1,056) (1,246) (1,217) (220) (182)
Income taxes (paid) refunded (4,402) (147) (167) (21) 12
Other cash paid, net (22) (37) (26) (576) (356)
----------- --------- ---------- ---------- --------
Net cash provided by (used by)
operating activities (7,346) 19,642 1,375 (297) (928)
----------- --------- ---------- ---------- --------
Cash flows from investing activities:
Decrease (increase) in other assets (3,131) 781 (1,551) (44) (37)
Capital expenditures (27,298) (22,128) (7,884) (322) (315)
Acquisition of business, net of
cash received (12,597)
Net proceeds from sales of assets 2,050 6,131 1,541 35
Proceeds from insurance claims 1,000 535 1,565
Proceeds from sale of notes receivable 2,762
Receipt of payments on notes receivable 480
----------- --------- ---------- ---------- --------
Net cash used by investing activities (27,379) (27,278) (3,087) (331) (352)
----------- --------- ---------- ---------- --------
Cash flows from financing activities:
Repayments of long-term debt and
short-term borrowings (2,819) (7,708) (2,810) (333) (401)
Proceeds from long-term borrowings 10,500 2,000
Net proceeds (payments) under line of
credit agreement (3,810) 4,743 2,470 575 950
Proceeds from issuance of common
stock, net of issuance costs 40,120
Issuance of common stock under
exercise of options 1,319 687
Other (52)
----------- --------- ---------- ---------- --------
Net cash provided by financing
activities 34,810 8,170 1,660 242 549
----------- --------- ---------- ---------- --------
Net increase (decrease) in cash 85 534 (52) (386) (731)
Cash and cash equivalents at beginning
of period 1,322 788 1,226 1,174 1,226
----------- --------- ---------- ---------- --------
Cash and cash equivalents at end of period $ 1,407 $ 1,322 $ 1,174 $ 788 $ 495
=========== ========= ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Consolidated Statement of Cash Flows (Continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Year ended Ended Two months ended
December 31, October 31, December 31,
----------------- ---------- ---------------
1997 1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of net income to cash provided
by operating activities:
Net income (loss) $ 2,231 $ 5,021 $ (329) $ 574 $ 611
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on sale or abandonment of
property and equipment and other assets (594) (708) 130 (5)
Discount on sale of note receivable 159
Minority interest in earnings
of subsidiary 26 116
Depreciation and amortization 11,663 6,815 5,064 889 799
Provision for loss on receivables 658 398 237 80 70
Receivables written off (558) (278) (345) (20)
Compensation expense on stock options 63
Decrease in deferred tax asset 1,777 930
Increase in other liabilities 1,116
Increase (decrease) in deferred tax liability (32) 301
(Increase) decrease in current assets, net
of effect of business acquired (Note 2):-
Accounts receivable (12,609) (6,905) (6,465) 10,775 (1,876)
Unbilled receivables (4,941) 7,754 (1,790) (6,604) (151)
Tax refund receivable 125 (102)
Other receivables (1,054) 167 (409) (590) (400)
Current deferred tax asset (950) 400 492
Inventories (777) (1,845) (549) (70) 120
Prepaid expenses (186) (47) (912) 555 (83)
Increase (decrease) in current liabilities,
net of the effect of businesses acquired:
Accounts payable and other liabilities (730) 5,441 6,363 (6,301) (388)
Income taxes payable (1,596) 1,725
------- ------ ------- ------- -------
Total adjustments (9,577) 14,621 1,704 (871) (1,539)
------- ------ ------- ------- -------
Net cash provided by (used by)
operating activities $ (7,346) $19,642 $1,375 $ (297) $ (928)
====== ====== ====== ======= =======
</TABLE>
Supplemental disclosure of noncash activities:-
The Company issued common stock valued at $500,000 in connection with its
purchase of certain equipment in 1997. The Company entered into a note
payable for $1,743,000 to finance its purchase of certain equipment and
related goodwill during 1997. The Company entered into a capital lease
obligation of $2,289,427 for the lease of certain equipment in 1997. In two
separate transactions, the Company issued common stock valued at
approximately $600,000 and entered into a note payable for $1,138,368 in
connection with its acquisition of certain diving support vessels and
equipment in 1996.
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statments
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
The Company
American Oilfield Divers, Inc. (the Company), currently doing
business under the tradename "Ceanic", 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.
On June 26, 1996, the Company's Board of Directors resolved to change
the Company's fiscal year-end from October 31 to December 31 to
enable the Company to report its quarterly and annual results of
operations on a comparable basis with other companies in the oil and
gas industry.
In February 1997, the Company issued 3,553,315 shares of common stock
which provided the Company with net proceeds of $40,120,000 (net of
issuance costs of approximately $600,000). The Company used
approximately $16 million to repay borrowings outstanding under its
line of credit agreement and used the remaining proceeds for general
corporate purposes, including working capital requirements and
funding of capital expenditures and strategic asset acquisitions.
Principles of Consolidation
The consolidated financial statements include the accounts of
American Oilfield Divers, Inc. and its wholly-owned and majority-
owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
Revenue is recognized on projects of short duration in the period
services are rendered at estimated collectible amounts. Revenue is
recognized on fixed price (turnkey) contracts on the percentage of
completion method based on the ratio of costs incurred to total
estimated costs at completion. Contract price and cost estimates are
reviewed periodically as work progresses and adjustments are
reflected in the period in which such estimates are revised.
Provisions for estimated losses on fixed price contracts are made in
the period such losses are determined. Unbilled revenue represents
revenue attributable to work completed prior to the balance sheet
date which has not been billed and work in progress at the balance
sheet date which will be billed at the completion of the related
contract. All amounts included in unbilled revenue at December 31,
1997 and 1996 are expected to be billed and collected within the
current year.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Diving and related expenses include all the direct labor and
benefits, materials unique to or installed in the project, and vessel
related expenses, and are charged to operations as incurred. General
and administrative expenses are charged to expense as incurred.
Concentrations of Credit Risk
Trade accounts receivable are due from companies of varying size
engaged principally in oil and gas activities. The Company reviews
the financial condition of customers prior to extending credit and
generally does not require collateral.
Inventories
Inventories are valued at the lower of cost or market determined on
the first-in, first-out basis.
Intangible and Other Assets
Intangible and other assets include intangible assets, goodwill,
patents and trademarks, organization costs and noncompete agreements,
which are amortized using the straight-line method over their
estimated useful lives, ranging from five to fifteen years. Also
included are deferred drydock costs which represent costs incurred
for government required recertification of vessels; the costs of
which are generally amortized over the recertification period,
ranging from three to five years. Amortization expense totaled
$4,310,100, $388,110, $369,653 and $138,915 for the years ended
December 31, 1997 and 1996, the year ended October 31, 1995 and the
two months ended December 31, 1995.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, reduced by
provisions to recognize economic impairment when management
determines such impairment has occurred. Depreciation of assets is
computed using the straight-line method over the estimated useful
lives of the related assets. Amortization of leasehold improvements
is computed using the straight-line method over the shorter of the
useful life of the asset or the life of the lease. Useful lives
range from 5 to 10 years for vessels and surveying equipment; 3 to 10
years for diving and other equipment; 3 to 5 years for transportation
equipment; 3 to 10 years for leasehold improvements; 5 years for
furniture and fixtures and 30 years for buildings. As the Company
has not had any construction projects of significant duration, no
interest costs have been capitalized in connection with these
projects; however, certain labor and other direct construction costs
have been capitalized as part of the assets.
Assets retired or otherwise disposed of are removed from the accounts
along with any related depreciation and amortization and the
resultant gain or loss is reflected in income. Maintenance and
repairs are charged to expense as incurred. Depreciation expense
totaled $7,353,214, $6,427,079, $4,694,586 and $749,656 for the years
December 31, 1997 and 1996, the year ended October 31, 1995 and the
two months ended December 31, 1995.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statments
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Long Lived Assets
In accordance with Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for Long Lived Assets," the Company
reviews long lived assets for impairment whenever circumstances
indicate that the carrying amount of long lived assets, certain
identifiable intangible assets and goodwill may not be recoverable
through future cash flows.
Effective January 1, 1996, the Company recognized a pre-tax charge of
$500,000 ($290,000 after tax, or $.04 per share) on certain of the
Company's diving assets which are not expected to be fully utilized
in operations. This charge is included in depreciation and
amortization for the year ended December 31, 1996.
Foreign Currency Translation
The financial statements of subsidiaries outside the U.S., except the
Company's Canadian subsidiary, are measured using the local currency
as the functional currency. Income statement accounts are translated
at average exchange rates during the year and the balance sheet is
converted as of the last day of the fiscal year at the current rate
of exchange. The resulting translation adjustment is recorded as a
separate component of stockholders' equity.
Income Taxes
The Company accounts for income taxes using a liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
Earnings (Loss) Per Common 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):
Net Weighted Average Shares Earnings Per Share
income --------------------------- ------------------
(loss) Basic Incremental Diluted Basic Diluted
Year ended:
December 31, 1997 $ 2,231 10,166 101 10,267 $ .22 $ .22
December 31, 1996 5,021 6,787 49 6,836 .74 .73
October 31, 1995 (329) 6,709 4 6,709 (.05) (.05)
Two months ended
December 31, 1995 574 6,709 4 6,713 .09 .09
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Incremental shares attributable to assumed exercise of stock options
for the year ended October 31, 1995 were excluded from the
computation of diluted earnings per share as the effect would be
antidilutive.
Stock Compensation
In accordance with the provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation", the Company has elected to apply the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations in accounting for its stock option plans.
Cash and Cash Equivalents
Cash and cash equivalents include short-term highly liquid
investments with maturities at date of purchase of three months or
less.
Fair Value of Financial Instruments
The carrying amount of financial instruments, which include cash,
receivables, accounts payable and notes payable, approximates fair
values at December 31, 1997 and 1996.
Reclassifications
Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Interim Financial Information
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. As a result, a
disproportionate amount of the Company's total revenues and net
income is earned during the third (July through September) and fourth
(October through December) quarters. Results for interim periods are
not necessarily indicative of the results that may be expected for
the complete fiscal year.
2. Business Acquisitions and Dispositions
During 1997, the Company closed its Kansas City, Kansas office,
resulting in a write-off of goodwill of approximately $400,000 which
is included in depreciation and amortization expense in the
consolidated statement of operations for the year ended December 31,
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. (HSI), a publicly traded company on the Toronto and
Vancouver Stock Exchanges, for a cash purchase price of approximately
$12.6 million, including transaction costs. The purchase was funded
through borrowings on the Company's line of credit, which were repaid
subsequent to December 31, 1996 with the proceeds from an offering of
the Company's common stock (see Notes 1 and 7). The transaction was
accounted for under the purchase method of accounting. The results
of operations of HSI are included in the consolidated statement of
operations from the acquisition date.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
The purchase price was allocated to the assets of HSI based on
estimated fair values as follows (in thousands):
Current assets $ 1,362
Property, plant and equipment 6,000
Patents and other intangible assets 8,900
Goodwill 3,888
Liabilities assumed (4,190)
Deferred tax liability (3,300)
-------
$12,660
=======
During the third quarter of 1997, adjustments were made to deferred
taxes and property and equipment upon completion of the Company's
valuation study (Note 9). The net impact of such adjustments
increased goodwill by $1,000,000 and represents the final revision to
the purchase price allocation.
In June 1997, the Company acquired the remaining 3% of the
outstanding common shares of HSI for $1.65 per share and delisted all
shares from both the Toronto and Vancouver Stock Exchanges.
The following unaudited pro forma information presents a summary of
the consolidated results of operations of the Company and HSI as if
the acquisition occurred on January 1, 1996 and November 1, 1994,
respectively. Pro forma adjustments include depreciation and
amortization, interest charges on borrowings on the line of credit
and tax benefit related to additional interest charges (unaudited, in
thousands).
For the years ended
------------------------
December 31, October 31,
1996 1995
Diving and related revenues $ 110,005 $ 102,061
Net loss (431) (5,630)
Net loss per share - diluted (.06) (.84)
In addition, the Company had other asset acquisitions and
dispositions during 1997, including transactions with related parties
(Note 14), that were not individually significant.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statments
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
3. Inventories
Inventories consist of the following (in thousands):
December 31,
------------
1997 1996
Fuel $ 224 $ 152
Supplies 1,197 659
Work in process 2,769 2,491
Finished goods 1,238 1,349
------ ------
$5,428 $4,651
====== ======
4. Intangible and Other Assets
Intangible and other assets consist of the following (in thousands):
December 31,
----------------
1997 1996
Trademarks and patents $ 9,827 $ 9,991
Goodwill 5,328 3,791
Deferred drydock expenses 3,592 1,791
Other 2,265 1,371
------- --------
21,012 16,944
Less - accumulated amortization (5,316) (2,812)
------ --------
$ 15,696 $ 14,132
======= =======
In connection with a delay in the Company's ability to produce and
deliver a HARDSUIT(TM) diving suit 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 $1,500,000 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 determined using a risk
adjusted cash flow model. The charge is included in depreciation and
amortization expense in the consolidated statement of operations for
the year ended December 31, 1997.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
5. Property, Plant and Equipment
Property, plant and equipment consist of the following (in
thousands):
December 31,
-----------------
1997 1996
Diving and related equipment $ 39,384 $ 25,786
Vessels and surveying equipment 35,799 24,295
Construction in progress 5,200 4,427
Furniture and fixtures 4,804 3,978
Building 1,967 2,498
Manufacturing and related equipment 1,426 1,310
Land 1,085 1,347
Transportation equipment 705 657
Leasehold improvements 634 546
Construction equipment 619 625
------ ------
91,623 65,469
Less - accumulated depreciation and
amortization (28,305) (22,428)
------- -------
$ 63,318 $ 43,041
======= ======
Construction in progress at December 31, 1997 primarily consists of
construction of various items of equipment. The total costs to
complete the projects have been estimated by management to
approximate $25,650,000 and are estimated to be completed at various
times through 1999. The estimate to complete includes purchase
commitments totaling $8,100,000 at December 31, 1997 (Note 13).
The net book value of assets pledged as collateral to secure the
Company's debt (Note 8) was $14,252,471 and $13,645,587 at December
31, 1997 and 1996. Assets under capital leases totaling $2,456,890
were included in property, plant and equipment at December 31, 1997.
6. Other Liabilities
Other liabilities, current portion, consist of the following (in
thousands):
December 31,
--------------
1997 1996
Accrued compensation $ 2,085 $ 993
Workers' compensation liability 1,044 817
Contract related accruals and other 7,059 7,329
-------- --------
$ 10,188 $ 9,139
======== ========
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Included in long-term portion of other liabilities are capital lease
obligations totaling $2,019,867. The leases have terms ranging from
six months to two years, monthly lease payments ranging from $7,625
per month to $36,330 per month, and have purchase options at the end
of the lease terms. As it is the Company's intention to purchase
these assets during 1998 with funds obtained through long-term
borrowings, and the Company has the ability to obtain the financing,
these capital lease obligations have been classified as long-term
liabilities as of December 31, 1997.
7. Short-Term Borrowings
Short-term borrowings consist of the following (in thousands):
December 31,
------------
1997 1996
Revolving line of credit agreement with a bank; interest
at a prime rate (8.50% at December 31, 1997) and due
in monthly installments $ 8,808 $12,618
Note payable to a company for purchase of certain
assets; interest at 6%; unsecured; due on January 3, 1997 1,138
------- -------
8,808 13,756
Less - amount classified as long-term (12,450)
------- ------
$ 8,808 $ 1,306
======= ======
At December 31, 1996, $12,450,000 of the balance outstanding under
the line of credit is classified as long-term as it related to the
acquisition of HSI and, at the date of the borrowing, the Company
intended to refinance the debt to arrange for a long-term payment
schedule. Subsequent to December 31, 1996, the Company repaid all
amounts outstanding under the line of credit agreement at that time
using the proceeds of an offering of common stock (Note 1). The line
is secured by and limited to certain qualifying accounts receivable,
is collateralized by certain of the Company's vessels and certain
other assets and is subject to certain covenants (Note 8).
Subsequent to December 31, 1997, the revolving line of credit
agreement was increased to $25 million with no other change in terms
to facilitate the Company's expanded working capital needs. As of
March 12, 1998, the balance outstanding under the line of credit
agreement was $13,972,311.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
8. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
--------------
1997 1996
Note payable to a bank, interest
at 7.90%, monthly principal installments
of $125 plus interest with a balloon
payment of $3,125 on May 31, 2001; secured
by 11 vessels and certain diving equipment $ 8,125 $ 9,625
Note payable to shareholders for purchase of
certain assets; noninterest bearing and
unsecured; payable in three annual installments
beginning June 21, 1998, net of
imputed discount 1,743
Various government assistance notes, noninterest
bearing and unsecured; payable in various
installments through July 1999 355 458
Other long-term debt 78
--------- ---------
10,223 10,161
Less - current portion (2,163) (1,702)
-------- ----------
$ 8,060 $ 8,459
-------- ----------
Aggregate maturities of long-term debt in the fiscal years subsequent
to December 31, 1997 are as follows (in thousands):
1998 $ 2,163
1999 2,389
2000 2,046
2001 1,500
2002 and thereafter 2,125
--------
$10,223
--------
The Company's long-term debt and line of credit agreements require
the Company to maintain certain financial ratios and a specified
amount of equity, include restrictions on capital expenditures and
also limit payment or declaration of dividends to an amount not to
exceed 15% of average net income for the four previous quarters.
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
9. Income Taxes
The components of income (loss) before income taxes were as follows
(in thousands):
Two months
Year ended Year ended ended
December 31, October 31, December 31,
------------- ---------- ----------
1997 1996 1995 1995
Domestic $ 6,040 $10,052 $ (315) $ 994
Foreign (1,034) (1,081) 164
---------- -------- --------- ---------
$ 5,006 $ 8,971 $ (151) $ 994
---------- -------- --------- ---------
The provision (benefit) for income taxes attributable to continuing
operations is comprised of the following (in thousands):
Two months
Year ended Year ended ended
December 31, October 31, December 31,
------------- ---------- ----------
1997 1996 1995 1995
Current tax expense:
Federal $ 2,552 $ 1,120
State 235 770 $ 13
Foreign 69
------ ------- -------
Total current tax expense 2,787 1,890 82
Deferred tax (benefit) provision:
Domestic 308 2,450 (20) $ 420
Foreign (320) (390)
------- ------- ------- ------
Total deferred tax (benefit)
provision (12) 2,060 (20) 420
------- ------- ------- ------
Total provision for income
taxes $ 2,775 $ 3,950 $ 62 $ 420
======= ======= ======= ======
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
A summary of the components of the provision (benefit) for deferred
income taxes follows (in thousands):
Two months
Year ended Year ended ended
December 31, October 31, December 31,
------------- ---------- ----------
1997 1996 1995 1995
Basis difference in depreciable
assets $ 798 $ (80) $ (111) $ 80
Minimum tax credit (1,075) (703)
Recognition of foreign tax loss
carryforwards 343
Deferred drydock expenses (227) (42)
Impact of tax loss carryforwards (150) 2,896 338
Accrued insurance 177
Other, net 122 (11) 91 2
-------- -------- ------- -------
Total provision (benefit) for
deferred income taxes $ (12) $2,060 $ (20) $ 420
======== ======== ======== =======
The difference between the taxes provided for continuing operations
at the United States statutory rate and the Company's actual tax
provision is reconciled below (in thousands):
Two months
Year ended Year ended ended
December 31, October 31, December 31,
------------- ---------- ----------
1997 1996 1995 1995
Tax provided at United States
statutory rate $ 1,708 $ 3,050 $ (51) $ 338
Nondeductible goodwill 646 42
State tax expense, net of federal
benefit 385 508 13 33
Nondeductible meals and entertainment 89 71 118 20
Foreign tax expense (benefit) (31) 200
Other, net (22) 79 (18) 29
------- -------- -------- --------
Total provision for income
taxes $ 2,775 $ 3,950 $ 62 $ 420
======= ======== ======== =========
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
The approximate effect of temporary differences and carryforwards
that give rise to deferred tax balances were as follows (in
thousands):
December 31,
1997 1996
Deferred drydock expense $ (664) $ (437)
Allowance for doubtful accounts 204 150
Accrued insurance 359 182
Other, net 105 105
---------- ---------
Current deferred tax asset $ 4
========== =========
Depreciable asset basis differences $ (5,582) $(6,380)
Federal, state and foreign net operating loss
carryforwards 1,694 2,600
Foreign tax credit carryforwards 160 163
Minimum tax credit carryforwards 1,075
Other, net 613 (59)
---------- ---------
Noncurrent deferred tax liability $ (3,115) $(2,601)
========== =========
At December 31, 1997 the Company had state and foreign net operating
loss carryforwards (NOLs) of approximately $11,500,000 and
$2,800,000, respectively, which can be used to offset future taxable
income. Approximately $1,700,000 of the NOLs relate to the Company's
Canadian subsidiary, HSI. Such carryforwards, which may provide
future tax benefits, expire in 1998 through 2002. Based on the
Company's forecast for future earnings, management has determined
that future taxable income will more likely than not be sufficient to
utilize the NOLs prior to their expiration.
As discussed in Note 2, a reduction of approximately $1,000,000 was
made to the deferred tax asset associated with the acquisition of HSI
based on the completion of an assessment of the NOL's generated prior
to the acquisition.
10. Stockholders' Equity
Incentive Compensation Plan
Under the 1993 Incentive Compensation Plan, officers and other
employees of the Company may be granted stock options, stock awards,
restricted stock, performance share awards or cash awards. A total
of 500,000 shares of common stock were reserved for issuance under
the Plan. In May 1997 the 1993 Incentive Compensation Plan was
amended to become the Amended and Restated Incentive Compensation
Plan. The amendments, approved by shareholders of the Company in May
1997, included an increase in total shares available for issuance
under the Plan and an increase in the minimum exercise price of a
stock option granted under the Plan from 85% of fair market value on
date of grant to 100% of fair market value on the date of grant along
with amendments in several other miscellaneous provisions. Under the
current Amended and Restated Compensation Plan, 1,200,000 shares of
common stock have been reserved for issuance to officers of the
Company and a total of 500,000 shares have been reserved for issuance
to nonofficers of the Company. As of December 31, 1997, a total of
1,424,331 options had been granted under the Plan at fair market
value prices ranging from $5.67 to $15.56 per share with vesting
schedules ranging from three to five years with a ten year term. No
compensation expense was recognized in connection with the issuance
of these options.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Included in total options granted under the Plan are 200,000 options
which were granted in 1997 to an officer at an exercise price of $9
per share with a fair market value of $11.50 per share on the date of
grant. The options vest over a five year period. Compensation
expense of $62,500 was recognized during 1997.
Pursuant to an employment agreement dated July 16, 1996, an officer
of the Company was granted 375,000 options to purchase common stock
at an exercise price of $8.75 per share which equaled fair market
value on the date of grant. The options vested in one-fifth
increments over a five year period, contingent upon meeting certain
performance goals which were to be established by the Compensation
Committee. In April 1997, the Compensation Committee decided to
eliminate the performance milestone provision as a vesting
requirement and canceled the original grant of 375,000 options
granted to the officer to make his salary package consistent with
that of other senior executives of the Company. The officer was
issued 300,000 options to purchase common stock at an exercise price
of $9 per share which equaled fair market value on the date of grant.
The shares vest in increments of one-fifth per year beginning
August 1, 1997. No compensation expense was recognized in connection
with the issuance of these options.
Director Plan
Under the Director Plan, nonemployee directors automatically receive
options to purchase 1,500 shares of common stock upon first becoming
a director and annually thereafter on the day following the date of
the Company's annual meeting of stockholders. The option exercise
price is equal to the fair market value of the common stock on the
date of grant. A maximum of 50,000 shares are reserved for issuance
under the Plan. As of December 31, 1997, options to purchase 15,000
shares of common stock at prices ranging from $6.625 to $11.625 per
share have been granted and are outstanding. The options are
immediately exercisable over five years from date of grant. No
compensation expense was recognized in connection with the issuance
of these options.
Employee Stock Option Plan
The Employee Plan provides for the one-time grant of nonqualified
stock options to purchase shares of common stock for employees
meeting certain eligibility requirements. A total of 160,000 shares
of common stock were reserved for issuance under the Employee Plan
and, in September 1993, options for 149,952 shares were granted to
certain employees. The fair market value of the common stock on the
date of grant was $10.00 per share. The options with respect to one-
third of the shares became exercisable on September 21, 1995 at a
price of $9.00 per share and have expired as of December 31, 1996.
The options with respect to a second one-third of the shares became
exercisable on March 21, 1997 at a price of $10.00 per share and must
be exercised no later than September 21, 1998 or automatically
expire. The options with respect to the final one-third of the
shares become exercisable on March 21, 1998 at a price of $10.00 per
share and must be exercised no later than September 21, 1998 or
automatically expire. No compensation expense was recognized in
connection with the issuance of these options.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Total Average
Stock Exercise
Incentive Directors Employee Options Price of Options
Plan Plan Plan Outstanding Outstanding
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1994 326,500 6,000 139,341 471,841 $ 8.23
Granted 6,000 3,000 9,000 6.54
Forfeited (6,667) (18,931) (25,598) 9.10
-------- ------ ------- -------
Balance at October 31, 1995 325,833 9,000 120,410 455,243 8.15
Expired (35,515) (35,515) 9.67
Forfeited (3,437) (3,437) 9.67
-------- ------ -------- --------
Balance at December 31, 1995 325,833 9,000 81,458 416,291 8.01
Granted 4,000 3,000 7,000 8.06
Exercised (98,685) (98,685) 6.95
Forfeited (23,335) (13,263) (36,598) 8.29
-------- ------ -------- --------
Balance at December 31, 1996 207,813 12,000 68,195 288,008 8.41
Granted:
Noncompensatory 928,500 3,000 931,500 13.00
Compensatory 200,000 200,000 9.00
---------- ------ -------- ---------
1,128,500 3,000 1,131,500 12.25
Exercised (145,980) (13,405) (159,385) 8.88
Forfeited (10,667) (6,096) (16,763) 8.79
----------- ------ -------- ---------- -----
Balance at December 31,1997 1,179,666 15,000 48,694 1,243,360 $12.84
========== ======== ======== ========== ======
</TABLE>
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
The following table summarizes information concerning currently
outstanding and exercisable stock options:
Options outstanding Options exercisable
--------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
$6.50-$9.00 626,166 8.42 $ 8.87 124,500 $ 8.34
$9.01-$15.56 617,194 9.40 15.21 50,621 10.11
---------- -------
1,243,360 175,121
========== =======
The weighted average fair value of options where the exercise price of
common stock equals the market price on the date of grant was $6.88
and $3.93 per option during 1997 and 1996. The weighted average fair
value of options where the exercise price does not equal the market
price of the stock on the date of grant was $6.89 per option during
1997. The fair value of the options was estimated at the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions:
Year ended
December 31,
-------------------
1997 1996
Expected Life 5 years 5 years
Interest rate 6.16%-6.64% 5.6%
Volatility 53% 37%
Dividend 0 0
Stock-based compensation costs computed in accordance with SFAS 123
would have reduced pretax and net income by $649,000 and
$402,000 in 1997 if the fair value of the options granted in
the year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The
pro forma impact during 1997 would have reduced basic and
diluted earnings per share by $0.04 in 1997.
The pro forma effect on 1996 was not significant. Pro forma
compensation expense based on stock options grants during 1997
and 1996 may not be indicative of the effects on net income and
income per share in future years because it does not take into
consideration pro forma compensation expense related to grants
made prior to the year ended December 31, 1996. There were no
stock option grants during the year ended October 31, 1995.
11. Employee Benefits
Effective January 1, 1989, the Company established a qualified 401(k)
profit sharing plan (the Plan) for employees. The Plan provides for a
30% match of employee contributions directed toward the purchase of
the Company's common stock and a 10% match for all other
contributions up to 15% of gross pay. Such employer contributions
vest over a period of 5 years and totaled $271,081 and $116,909 for
the years ended December 31, 1997 and 1996, $17,038 for the two
months ended December 31, 1995 and $89,795 for the year ended October
31, 1995. Under the terms of the Plan, participants may elect to
purchase shares of the Company's common stock on the open market
through a broker.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
12. Business Segment, Geographic Area and Major Customer Information
The Company classifies its operations under one business segment,
diving and related revenues. A summary of operations by geographical
area follows (in thousands):
<TABLE>
<CAPTION>
Europe United States Consolidated
Africa<F1> Canada and other Corporate Elimination Total
Year Ended October 31, 1995
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Diving and related revenues $ 18,974 $ 69,686 $ 88,660
Operating income (loss) 2,883 (1,785) 1,098
Identifiable assets<F2> 10,354 56,877 2,177 69,408
Two Months Ended December 31, 1995
- ----------------------------------
Diving and related revenues $ 924 $14,562 $ 15,486
Operating income (loss) (150) 1,346 1,196
Identifiable assets<F2> 7,046 55,118 1,757 63,921
Year Ended December 31, 1996
- ----------------------------
Diving and related revenues $ 7,838 $ 532 $97,402 $105,772
Operating income (loss) (1,082) (593) 11,080 9,405
Identifiable assets<F2> 8,664 18,367 65,876 92,907
Year Ended December 31, 1997
- ----------------------------
Diving and related revenues $ 11,798 $ 3,338 $117,592 $132,728
Transfer between geographic areas 1,570 $(1,570)
--------- -------- --------- --------- ---------
Total revenues 11,798 4,908 117,592 $(1,570) $132,728
Operating income (loss) 565 (5,224) 9,096 4,437
Transfer between geographic areas 706 (706)
--------- -------- --------- --------- ---------
Total operating income (loss) 565 (4,518) 9,096 (706) 4,437
Identifiable assets<F2> 9,549 20,169 104,582 134,300
<FN>
<F1> Includes the Company's diving and related services provided
off the coast of Europe, West Africa, and Dubai, United Arab
Emirates.
<F2> Identifiable assets are those assets used in the Company's
operations in each area. Corporate assets consist of the
Company's net deferred tax asset.
</FN>
</TABLE>
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
The Company's ten largest customers accounted for $43,193,331 or 33%
of the Company's total revenues during the year ended December
31, 1997; $50,559,682 or 44% during the year ended December 31,
1996, $5,591,707 or 65% during the two months ended December 31,
1995 and $40,451,000 or 46% during the year ended October 31,
1995. Of the ten customers, there was one that accounted for
more than 10% of the Company's revenues during each of the
following periods: $27,343,026 or 24% for the year ended
December 31, 1996; $2,445,311 or 16% for the two months ended
December 31, 1995, $12,782,000 or 14% during the year ended
October 31, 1995. No one customer accounted for more than 10%
of the Company's revenues during the year ended December 31, 1997.
13. Commitments and Contingencies
Legal Matters
In November 1996, a large oil and gas company initiated 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 this claim,
although no assurance can be given as to the ultimate outcome of the
litigation.
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 $13.0 million plus interest and costs, of which the
Company had paid the plaintiff insurance proceeds of $3.0 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.
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.
Insurance
The Company's business involves a higher degree of operational risk,
product liability and warranty claims than that found in other
industries. Management is of the opinion that it maintains adequate
insurance, in line with industry standards, to insure itself against
the normal risks of operations.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Operating Leases
Leases are primarily for buildings and vehicles used in operations
and are classified as operating leases. The amount of future minimum
rentals for these noncancellable leases with terms in excess of one
year are as follows at December 31, 1997 (in thousands):
1998 $1,290
1999 968
2000 827
2001 338
2002 214
-------
$3,637
=======
Total rental expense under operating leases was $1,007,000 and
$937,919 for the years ended December 31, 1997 and 1996, $1,249,196
for the year ended October 31, 1995 and $153,316 for the two months
ended December 31, 1995.
Letters of Credit
In the ordinary course of business, the Company issues letters of
credit which may be drawn down upon certain events including the
Company's failure to perform under certain contracts. At
December 31, 1997, the Company had letters of credit outstanding
totaling $427,689 which expire at various times through 1999.
Purchase Commitments
As of December 31, 1997, the Company had entered into purchase
commitments totaling $8,100,000 for various operating equipment.
Subsequent to year end, the Company entered into additional purchase
commitments totaling $14,000,000.
14. Related Party Transactions
During 1997, the Company purchased a dynamically positioned vessel
for $2,250,000 from a company whose Chairman of the Board, President
and Chief Executive Officer also serves as a member of the Board of
Directors of American Oilfield Divers, Inc. Also in 1997, the
Company sold its environmental services subsidiary, American
Pollution Control, Inc., for $275,000 in cash to a company owned by
the Company's Chairman of the Board. The Company believes that the
prices involved in these transactions, which were negotiated at arm's
length, are favorable to the Company.
<PAGE>
AMERICAN OILFIELD DIVERS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
The following table sets forth selected unaudited quarterly financial
information:
Quarter ended
---------------------------------------------
March 31, June 30, September 30 December 31,
1996 1996 1996 1996
Diving and related revenues $ 19,228 $ 26,829 $ 33,409 $ 26,306
Operating income 25 2,992 5,296 1,092
Net income 104 1,735 2,851 331
Earnings per share - basic .02 .26 .42 .05
Earnings per share - diluted .02 .25 .42 .05
Quarter ended
---------------------------------------------------
March 31, June 30, September 30 December 31,
1997 1997 1997 1997
Diving and related revenues $ 28,576 $ 28,177 $ 37,154 $ 38,821
Operating income 601 2,340 177 1,319
Net income (loss) 226 1,642 (622) 985
Earnings (loss) per share - basic .03 .16 (.06) .09
Earnings (loss) per share -
diluted .03 .16 (.06) .09
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Articles of Incorporation of the Company<F1>.
3.2 By-laws of the Company.<F1>
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and
Restated Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen of Common Stock certificate.<F1>
10.1 American Oilfield Divers, Inc. Amended and Restated Compensation
Plan.<F2>
10.2 American Oilfield Divers, Inc. Non-Employee Director Stock Option
Plan.<F1>
10.3 American Oilfield Divers, Inc. Profit Sharing and Retirement Plan.<F1>
10.4 American Oilfield Divers, Inc. Employee Stock Option Plan.<F3>
10.5 Second Amended and Restated Loan Agreement, dated April 3, 1996 among
American Oilfield Divers, Inc., certain of its subsidiaries and First
National Bank of Commerce.<F4>
10.6 Employment Agreement dated August 1, 1996 between American Oilfield
Divers, Inc. and Rodney W. Stanley.<F5>
10.7 *Employment Agreement dated May 15, 1997 between American Oilfield
Divers, Inc. and Kevin C. Peterson.
10.8 Form of Indemnity Agreement by and between American Oilfield Divers,
Inc. and each of Messrs. Yax, Stanley, Peterson, Cowe, Suggs, Green,
Hebert, O'Malley and Lasher.<F1>
13.1 *The Company's 1997 Annual Report to Shareholders.
21. *List of Subsidiaries of the Company.
23.1 *Consent of Price Waterhouse.
24. *Powers of Attorney.
- ------------------------------------------------------------------------------
<F1> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Registration Statement on Form S-1,
(Registration No 33-63920), on June 4, 1993, as amended.
<F2> Indicates exhibit previously field with the Securities and Exchange
Commission in the Company's Proxy Statement dated April 1, 1997.
<F3> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1993.
<F4> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company Annual Report on Form 10-K for the year ended
December 31, 1996.
<F5> Indicates exhibit previously filed with the Securities and Exchange
Commission in the Company's Form 8-K dated July 16, 1996.
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated
effective as of May 15, 1997, is by and between American
Oilfield Divers, Inc., a Louisiana corporation (the "Company"),
and Kevin Peterson (the "Employee").
WITNESSETH:
WHEREAS, the Company wishes to assure itself of the
services of Employee for the period provided in this Agreement,
and Employee desires to serve in the employ of the Company on a
full-time basis for such period, and upon the terms and
conditions hereinafter provided;
NOW, THEREFORE, in consideration of the premises and of
the respective representations and warranties hereinafter set
forth and of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
I. Employment and Capacity. (a). Subject to the terms
and conditions of this Agreement and applicable law, the
Company hereby agrees to employ Employee, and Employee agrees
to serve for an initial period, as Executive Vice President and
President - Technology Group of the Company during the term of
this Agreement. In such capacity, Employee's primary duties
and responsibilities shall be those assigned from time to time
by the Company's President and Chief Executive Officer, to whom
Employee shall report directly, or by the Company's Board of
Directors including, without limitation, those duties and
responsibilities set forth in Appendix A attached hereto and
made a part hereof.
(b). In performing his duties as Executive Vice
President and President - Technology Group of the Company or
other position hereunder, Employee shall devote his entire full
time, attention, energies and business efforts to the Company
and shall not, without the consent of the Company's Board of
Directors, during the term of this Agreement, engage in any
other business activity, whether or not such business activity
is pursued for profit; provided, however, this Section 1(b)
shall not prohibit Employee from (i) being a passive investor
in a business enterprise (other than an enterprise engaged in
the Company Business, as defined in Section 8), provided such
investment will not unduly interfere or materially conflict
with his obligations hereunder and will not require any active
services whatsoever on his part in the management or operation
of the affairs of such enterprise, or (ii) serving as a
director or trustee of any civic, charitable or other
eleemosynary organization, provided that such service does not
unduly interfere with Employee's performance of his duties and
responsibilities hereunder. Notwithstanding anything to the
contrary herein, Employee shall be entitled to remain as an
owner or director of or otherwise be involved in the business
enterprises set forth in Appendix B attached hereto and made a
part hereof.
(c). In connection with Employee's employment by the
Company, except for reasonable travel necessary to the conduct
of the business of the Company or its subsidiaries, Employee
shall be based at the Houston, Texas headquarters office of the
Company or such other location as may be determined by the
President and Chief Executive Officer or Board of Directors of
the Company. Subject to the execution of this Agreement,
Company shall pay a lump sum of $35,0000 to cover the
reasonable and necessary cost of travel (economy class or
equivalent) and transportation of household goods and
furnishings and vehicles of the Employee, his spouse and
dependent children (if any) from Jupiter, Florida, to Houston,
Texas, subject to the terms and conditions of the Company's
corporate moving policy. In the event of termination of this
Agreement by Employee for Good Reason or by the Company for a
reason other than Cause, as defined herein, on or before the
second anniversary of this Agreement the Company shall
immediately pay the reasonable and necessary cost of travel
(economy class or equivalent) and cost of transportation of
household goods, furnishings and vehicles of the Employee, his
spouse and dependent children from the location where the
Employee is employed at the time that employment ceases to
Jupiter, Florida.
(d). For purposes of this Agreement, Employee's
employment shall begin on, and be effective as of the date
hereof and, notwithstanding anything to the contrary herein,
the date hereof shall be considered as the Employee's
anniversary date of employment hereunder.
II. Term of Employment. Subject to the terms and
conditions hereof, Employee's employment under this Agreement
shall commence on the date hereof and shall end at the close of
business on the fifth anniversary of the date hereof, unless
sooner terminated pursuant to Section 4. The term of
Employee's employment under this Agreement is referred to
herein as the "Employment Term" and the date of termination of
such employment as the "Termination Date." All provisions
herein governing the parties' rights and obligations upon the
termination of Employee's employment shall survive the
termination of this Agreement.
III.Compensation and Other Benefits. (a). In
consideration of all services to be rendered by Employee in any
capacity to the Company and any of its subsidiaries or
affiliates under this Agreement, the Company shall pay Employee
the compensation and benefits described below:
(i). An annual salary ("Annual Salary") in the
amount of not less than $220,000, or in such greater amount as
may from time to time be fixed by the Company's Board of
Directors. The Annual Salary shall be reviewed by the Board's
Compensation Committee at the end of each of the Company's
fiscal years.
(ii).Employee shall be eligible for an annual
bonus of up to 60% of his Annual Salary upon (A) the
attainment of such Company-wide performance goals, in
accordance with such terms and conditions, as shall be
established by the Company's Board of Directors or the
Compensation Committee thereof and (B) any annual
evaluation of Employee's individual performance/merit.
Employee shall have the right to provide input and make
recommendations with respect to the establishment of
reasonable Company-wide performance goals prior to their
finalization and adoption by the Compensation Committee.
Notwithstanding anything to the contrary herein, the
payment of such bonus shall be in the sole discretion of
the Company's Board of Directors or the Compensation
Committee thereof.
(iii).Promptly after the first meeting of the
Board of Directors of the Company or the Compensation
Committee thereof following execution of this Agreement,
pursuant to the Company's 1993 Incentive Compensation Plan
(the "Plan"), the Company will grant to Employee options
to purchase 200,000 shares of its common stock at a
purchase price equal to "fair market value," as defined in
the Plan, on the date of issuance of such options; the
grant of the option to purchase 200,000 shares shall be
subject to approval by the Company's shareholders, which
matter shall be placed on the next annual Company
shareholder's meeting in calendar year 1997. Such options
(A) will vest and become exercisable in increments of
40,000 per year of the Employment Term, and (B) will be
subject to such other reasonable restrictions and
limitations as may be determined by the Compensation
Committee. In the event of a change in control
transaction involving the Company such as the acquisition
of 50% of the Company's outstanding Common Stock or the
change in a majority of the Company's Board of Directors
after within one calendar year, all outstanding options
will vest and become immediately exercisable. If the
Company does not obtain shareholder approval for the
Employee's options granted hereunder, the Company agrees
to place the Employee in the same or substantially similar
economic position as if the options had been approved
(i.e., in the form of a cash payment, etc.)
(iv).During each year of Employee's employment
hereunder, Employee shall be entitled to three weeks' paid
vacation and six paid days sick leave, which shall not
cumulate from year to year; no vacation/sick pay shall be
payable with respect to vacation/sick leave not taken.
Notwithstanding the foregoing, if Employee delays or
disrupts a previously scheduled vacation at the request of
the Company to handle Company business, then the Company
shall accommodate the Employee to make up for such
delayed/disrupted vacation.
(v). Employee shall be entitled to participate
in and receive benefits ("Other Benefits") under each
employee benefit plan and incentive compensation plan
maintained by the Company on the same basis and subject to
the same eligibility and other requirements and
limitations as other Company employees similarly situated.
(vi).Employee shall entitled to an automobile
allowance of $600 per month and to reimbursement of the
cost of fuel, fluids, batteries and tires used in the
operation of such automobile.
(vii).Employee shall be entitled to the use of a
cellular telephone in connection with the performance of
his duties hereunder and all cellular telephone charges
associated with Company business shall be reimbursed to
the Employee by the Company.
(b). Payment to Employee of all compensation
hereunder shall be at such times and in accordance with
such payroll and reimbursement practices as are followed
by the Company for employees occupying positions similar
to that of Employee.
(c). Employee will be entitled to reimbursement for
ordinary and necessary business expenses incurred from
time to time on behalf of the Company in accordance with
the Company's policies in the performance of his duties
hereunder, provided no such expense will be reimbursed
unless Employee will have properly accounted for expenses
to the extent necessary to substantiate the Company's
federal income tax deductions for such expenses under the
Internal Revenue Code of 1986 and the regulations
promulgated thereunder and consistent with the Company's
expense reimbursement policy. Subject to the Company's
air travel policy, as amended from time to time, air
travel on trans-Atlantic flights, flights over any portion
of the Pacific Ocean and flights which exceed a total of 6
hours of flight time shall be in business class or
equivalent thereof.
(d). Any and all of Employee's service as an
employee, officer or director of any subsidiary or other
affiliate of the Company shall be performed without
additional compensation.
(e). Company shall use its best efforts to provide
directors and officers liability insurance coverages of
the Employee as an officer and director of the Company
with a minimum limit of liability of $5 million in the
aggregate and shall obtain the broadest possible coverage
terms using its commercially reasonable best efforts and
shall provide indemnification of the Employee as an
officer and director of the Company to the maximum extent
permitted by applicable law and the applicable provisions
of the Company's By-laws, as amended from time to time.
Simultaneous with the execution of this Agreement,
Employee and Company shall execute and deliver the
Company's standard indemnification agreement entered into
between the Company and its executive officers.
IV. Termination. (a). Death. This Agreement will
terminate upon Employee's death, in which event the
Company shall pay to Employee's spouse or, if Employee
leaves no spouse, to Employee's estate, in a lump sum in
cash within 30 days the sum of the pro rata amount of
Employee's Annual Salary earned through the date of death
to the extent due but not previously paid (the "Accrued
Salary"). The Company shall also timely pay or provide to
such person any Other Benefits required to be furnished to
such person under any employee benefit plan.
(b). Disability. If Employee becomes unable to
discharge the essential functions of his job for a period
of more than 30 consecutive days or for more than 60 days
in the aggregate during any 12-month period because of
physical or mental impairment, the Company may, at its
option, terminate Employee's employment under this
Agreement upon not less than 30 days' written notice.
Employee shall continue to receive his full Annual Salary
at the rate then in effect until his employment is
terminated pursuant to this Section, provided that
payments so made to Employee shall be reduced by the sum
of the amounts, if any, payable to Employee under
disability benefit plans of the Company. Upon termination
of Employee's employment under this Section, the Company
shall pay to Employee in a lump sum in cash within 30 days
of the date of termination all Accrued Salary and shall
timely furnish to Employee all Other Benefits.
(c). Cause. The Company shall have the right to
terminate Employee's employment for Cause. For purposes
of this Agreement, the Company shall have "Cause" if: (i)
Employee commits an illegal act (other than traffic
violations or misdemeanors punishable solely by the
payment of monetary fines) or engages in dishonest or
unethical conduct that has an adverse effect on the
Company or its business reputation; (ii) Employee is found
guilty of fraud, theft, embezzlement or the
misappropriation of funds or a crime involving moral
turpitude; or (iii) Employee fails to perform the duties
required to be performed by him hereunder or breaches any
covenant or agreement hereunder and such failure or breach
is not waived by the Company or cured by Employee within
15 business days after the Company notifies Employee of
the basis for the Company's claim that Employee has failed
to perform his obligations hereunder, unless and to the
extent that such failure is a result of the Company's
breach of this Agreement or such failure occurs at a time
during which Employee has Good Reason (as defined below)
to terminate his employment, or such failure is excused
under the Company's sick leave or vacation policies. If
Employee's employment shall be terminated for Cause by the
Company, this Agreement shall terminate without further
obligation to Employee whatsoever other than for Accrued
Salary, which shall be paid in a lump sum in cash within
30 days of the date of termination, and for Other
Benefits, which the Company shall timely furnish to
Employee.
(d). Notwithstanding anything to the contrary herein,
the Employee's employment may not be terminated for Cause
under Section 4(c)(iii) hereof (A) unless the Employee
shall have failed to have corrected the failure or
misconduct constituting such Cause within 15 business days
after having received written notice from the Company's
Chief Executive Officer specifying such failure or
misconduct and the action that the Company requests the
Employee take to remedy such failure or misconduct, and
(B) unless and until there shall have been delivered to
the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called
on behalf for the purpose (after 10 day's notice to the
Employee and an opportunity for the Employee together with
his counsel, to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was
guilty of the conduct set forth in clause 4(c)(iii)
hereof, specifying the particulars thereof in detail, that
the Employee was given written notice to correct such
failure or misconduct as provided above, and the Employee
failed to have corrected such failure or misconduct within
the 15 business day period provided above. It is
expressly agreed and understood that this Section 4(d)
shall not apply to the term "Cause" as defined in Section
4(c)(i) and (ii) hereof. It is also expressly understood
that the Employee's attention to the business set forth in
Appendix B attached hereto shall not provide a basis for
termination for Cause; provided such attention does not
unduly interfere or materially conflict with his
obligations hereunder, as determined by the affirmative
vote of not less than a majority of the entire membership
of the Board at a meeting of the Board called on behalf
and for the purpose of making such determination (after 10
day's notice to the Employee and an opportunity for the
Employee, together with his counsel, to be heard before
the Board).
(e). Good Reason. Employee may terminate his
employment at any time and for any reason, including for
Good Reason (as defined below). For purposes of this
Agreement, "Good Reason" shall mean any action by the
Company in relation to Employee's salary, duties or
position as an officer of the Company (other than any
action contemplated under this Agreement, any action that
is voluntary on the part of Employee, and any isolated,
insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Company after receipt
of notice thereof given by Employee) that results in any
of the following: (i) a reduction in Employee's Annual
Salary or other compensation provided for under this
Agreement or a failure by the Company to pay to the
Employee any installment of the Annual Salary or incentive
bonus, if any, which failure continues for a period of 20
days after written notice thereof is given by Employee to
the Company; (ii) a change in the Employee's status, title
or position (as an officer of the Company) which does not
represent a promotion from or enhancement of his status,
title, position as an executive officer, or the assignment
by the Company's Board of Directors to the Employee of any
duties or responsibilities which are inconsistent with
such status, title or position or any removal of the
Employee from or any failure to reappoint or re-elect to
such position, except in connection with a justifiable
termination by the Company of the Employee's employment
for Cause or, the disability, retirement or death of
Employee or termination by Employee of his employment
other than for Good Reason; (iii) the failure of the
Company to review the Employee's Annual Salary as provided
in Section 3 hereof; and (iv) Company's requiring the
Employee, without the Employee's consent, to be based
anywhere other than in Houston, Texas, except for required
travel on the Company's business to an extent
substantially consistent with the business and travel
obligations which the Employee undertook on behalf of the
Company prior to such required change. If Employee
voluntarily terminates his employment other than for Good
Reason, this Agreement shall terminate without further
obligation to Employee whatsoever other than for the
Accrued Salary, which shall be paid in a lump sum in cash
within 30 days of the date of termination, and for Other
Benefits and fully vested stock options hereunder, if any,
which the Company shall timely furnish to Employee.
(f). If on or prior to the second anniversary hereof,
the Company shall terminate Employee's employment other
than for death, disability or Cause or if Employee shall
terminate his employment for Good Reason, ("Severance
Payment Event") then Employee shall be entitled to receive
in a lump sum in cash within 30 days of the date of
termination equal to the product of (A) two times (B) his
then Annual Salary. If the Severance Payment Event occurs
after the second anniversary thereof, Employee shall be
entitled to receive a lump sum in cash within 30 days of
the date of termination equal to his then Annual Salary
In the event of such termination, the Company shall also
timely pay or provide Other Benefits, if any, to Employee.
Earnings of Employee from other sources before or after
the date of termination shall not be taken into account
and shall not reduce the amount payable to Employee
hereunder.
V. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee
is under no contractual or other obligation compliance
with which is inconsistent with the execution of this
Agreement, the performance of his obligations hereunder,
or the other rights of the Company hereunder and (b)
Employee agrees faithfully and consistently to comply in
all material respects with all of the Company's policies,
procedures, regulations and workplace rules, as amended
from time to time.
VI. Confidential Information. (a). Employee agrees that
he will not either during the period of his employment
hereunder or at any time within five years thereafter
disclose to any unauthorized person or entity, or use for
his own benefit or the benefit of any unauthorized person
or entity, any Confidential Information relating to the
Company, its subsidiaries or affiliates, or to any of the
businesses operated by them, and Employee confirms that
all such information constitutes the exclusive property of
the Company. For the purposes of this Agreement, the term
"Confidential Information" shall mean information of any
nature and in any form that at the time or times concerned
is not generally known to those persons engaged in
business similar to that conducted or contemplated by the
Company or its subsidiaries (other than by the act or acts
of an employee not authorized by the Company to disclose
such information), and shall be deemed to include all
lists or other compilations of data regarding the names,
addresses or other information concerning existing or
potential customers of the Company and its subsidiaries
("Customers"), trade secrets, new ideas, pricing policies,
operational methods, marketing plans or strategies,
business expansion plans or strategies, and financial
data, irrespective of whether such information or material
is marked "Confidential." Employee shall return to the
Company all Confidential Information reduced to a tangible
or electronic medium and all other Company property in
Employee's possession or within Employee's control prior
to or at the termination of his employment.
(b). The confidential obligations, restrictions of
use and ownership provisions set forth herein shall not
extend to any device, process, technology, idea, design,
hardware or other Confidential Information that: (i) is
currently in the public domain; (ii) subsequently becomes
a part of the public domain through no fault or breach by
Employee; (iii) is disclosed by others to Employee without
any breach of any obligation to the Company or its
subsidiary or affiliated companies; or (iv) which Employee
can show (A) was already in his possession at the time of
disclosure to him or (B) was independently developed by
Employee during a period of time not including the
Employment Term.
VII.Obligation of Loyalty to the Company. (a). During
the term of Employee's employment under this Agreement,
Employee agrees that he will not:
(i). Make any statement or perform any act
intended to advance an interest of any existing competitor of
the Company or its subsidiaries in any way that will or may
injure the Company or its subsidiaries in their relationship
and dealings with any existing or potential customer, supplier
or creditor, or solicit or encourage any other employee of the
Company and its subsidiaries to do any act that is disloyal to
the Company or its subsidiaries or inconsistent with the inte-
rests of the Company or its subsidiaries or in violation of any
material provision of this Agreement;
(ii).Solicit any other employee to participate
in or assist with the formation or operations of any busi-
ness intended to compete with the Company and its
subsidiaries or with respect to the possible future
employment of such other employee by any such business; or
(iii).Inform any existing or potential customer,
supplier or creditor of the Company and its subsidiaries
that Employee intends to resign, or make any statement or
do any act intended to cause any existing or potential
customer, supplier or creditor of the Company and its
subsidiaries to learn of Employee's intention to resign.
(b). During the term of Employee's employment under
this Agreement, if Employee has or expects to acquire a
proprietary interest in, or is or expects to be made an
agent, consultant, employee, officer or director of, any
existing or future business that provides or will provide
services or products in competition with the Company and
its subsidiaries, Employee agrees that he will immediately
furnish to a corporate officer of the Company all in-
formation that may reasonably be of assistance to the
Company in acting promptly to protect its relationships
with any existing or potential customer, supplier or
creditor with whom Employee has had any dealings as a re-
sult of his employment by the Company and its
subsidiaries.
VIII.Covenant Not to Compete. (a). During the
Employment Term and for a period of up to two years
commencing on the Termination Date in the event the
Company elects pursuant to Section 8(c) hereof, Employee
agrees that, with respect to each State of the United
States or other jurisdiction, or specified portions
thereof, in which the Employee regularly (i) makes contact
with customers of the Company or any of its subsidiaries,
(ii) conducts the business of the Company or any of its
subsidiaries or (iii) supervises the activities of other
employees of the Company or any of its subsidiaries, as
identified in Appendix C attached hereto and forming a
part of this Agreement, and in which the Company or any of
its subsidiaries engages in the Company Business on the
Termination Date (collectively, the "Subject Areas"),
Employee will restrict his activities within the Subject
Areas in accordance with the following provisions of this
Section 8. For purposes of this Section 8, the term
"Company Business" means the business of directly
providing diving, remotely operated vehicles, vessels and
related marine construction and other ancillary services
and products including, without limitation, the sale,
manufacture and installation of subsea pipeline connector
products and marginal well protection systems and the
provision of environmental remediation and oil spill
response services and derrick barge and related ancillary
services.
(i). Employee will not, directly or indirectly,
for himself or others, own, manage, operate, control, be
employed in an executive, managerial or supervisory
capacity by, or otherwise engage or participate in or
allow his skill, knowledge, experience or reputation to be
used in connection with, the ownership, management,
operation or control of, any company or other business
enterprise, or any part thereof or interest therein,
engaged in the Company Business within any of the Subject
Areas; except Employee may engage in the business
enterprises set forth in Appendix B attached hereto and
made a part hereof.
(ii).Employee will not call upon any customer of
the Company or its subsidiaries for the purpose of
soliciting, diverting or enticing away the business of
such person or entity, or otherwise disrupting any
previously established relationship existing between such
person or entity and the Company or its subsidiaries;
(iii).Employee will not solicit, induce,
influence or attempt to influence any supplier, lessor,
licensor, potential acquiree or any other person who has a
business relationship with the Company or its
subsidiaries, or who on the Termination Date is engaged in
discussions or negotiations to enter into a business
relationship with the Company or its subsidiaries, to
discontinue or reduce the extent of such relationship with
the Company or its subsidiaries; and
(iv).For a period of one year from and after the
Termination Date, Employee will not make contact with any
of the employees of the Company or its subsidiaries with
whom he had contact during the course of his employment
with the Company for the purpose of soliciting such
employee, for hire, whether as an employee or independent
contractor, or otherwise disrupting such employee's
relationship with the Company or its subsidiaries except
Employee's new employer, if any, may make contact with and
solicit Company or its subsidiary employees provided
Employee has not breached Section 6 hereof with respect to
such new employer's action.
(b). Employee agrees that he will from time to time
upon the Company's request promptly execute any
supplement, amendment, restatement or other modification
of Appendix C as may be necessary or appropriate to
correctly reflect the jurisdictions which, at the time of
such modification, should be covered by Appendix C and
this Section 8. Furthermore, Employee agrees that all
references to Appendix C in this Agreement shall be deemed
to refer to Appendix C as so supplemented, amended,
restated or otherwise modified from time to time.
(c). In the event of the termination of Employee's
employment hereunder for any reason or no reason, whether
by the Company or the Employee, Company shall have the
option at the time of such termination, upon payment to
Employee of an amount in cash equivalent to $220,000 to
extend Employee's foregoing covenant not to compete for a
period of one (1) year or two (2) years from the date of
termination (at the Company's option) and Employee agrees
to such extension of such covenant upon receipt of payment
of such above amount in immediately available good funds;
the $220,000 payment shall be due and payable on the first
day of each of the two years if two years is elected by
Company ($440,000 in total).
(d). Employee acknowledges that a breach by Employee
of Section 6 or 8 would cause immediate and irreparable
harm to the Company for which an adequate monetary remedy
does not exist; hence, Employee agrees that, in the event
of a breach or threatened breach by Employee of the
provisions of Section 6 or 8 during or after the
Employment Term, the Company shall be entitled to
injunctive relief restraining Employee from such violation
without the necessity of proof of actual damage or the
posting of any bond, except as required by non-waivable,
applicable law. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any
other remedy at law or in equity to which the Company may
be entitled under applicable law in the event of a breach
or threatened breach of this Agreement by Employee,
including without limitation the recovery of damages and
costs and expenses, such as reasonable attorneys' fees,
incurred by the Company as a result of any such breach.
Employee acknowledges that the payments provided under
Section 8(c) are conditioned upon, among other things,
Employee's fulfilling his agreements contained in this
Section 8. In the event Employee shall at any time
materially breach any noncompetition or nondisclosure
agreements contained in Section 6 or this Section 8, the
Company may suspend or eliminate such payments during the
period of such breach. Employee acknowledges that any
such suspension or elimination of payments would be an
exercise of the Company's right to suspend or terminate
its performance hereunder upon Employee's breach of this
Agreement; such suspension or elimination of payments
would not constitute, and should not be characterized as,
the imposition of liquidated damages.
(e). Any dispute regarding the reasonableness of the
covenants and agreements set forth in this Section 8, or
the territorial scope or duration thereof, or the remedies
available to the Company upon any breach of such covenants
and agreements, shall be governed by and interpreted in
accordance with the laws of the State of the United States
or other jurisdiction in which the alleged prohibited
competing activity or disclosure occurs, and, with respect
to each such dispute, the Company and Employee each hereby
irrevocably consent to the exclusive jurisdiction of the
state and federal courts sitting in the relevant State
(or, in the case of any jurisdiction outside the United
States, the relevant courts of such jurisdiction) for
resolution of such dispute, and agree to be irrevocably
bound by any judgment rendered thereby in connection with
such dispute, and further agree that service of process
may be made upon him or it in any legal proceeding
relating to this Section 8 by any means allowed under the
laws of such jurisdiction.
(f). Employee hereby represents to the Company that
he has read and understands, and agrees to be bound by,
the terms of this Section 8. Employee acknowledges that
the geographic scope and duration of the covenants
contained in Section 8 are the result of arm's length
bargaining and are fair and reasonable in light of (i) the
importance of the functions performed by Employee and the
length of time it would take the Company to find and train
a suitable replacement, (ii) the nature and wide
geographic scope of the operations of the Company and its
subsidiaries, (iii) Employee's level of control over and
contact with the business and operations of the Company
and its subsidiaries in all jurisdictions where same are
conducted and (iv) the fact that all facets of the Company
Business are conducted by the Company and its subsidiaries
throughout the geographic area where competition is
restricted by this Agreement.
IX. Binding Effect.
(a). This Agreement shall be binding upon and inure
to the benefit of the Company and any of its successors or
assigns.
(b). This Agreement is personal to the Employee and
shall not be assignable by the Employee without the
consent of the Company (there being no obligation to give
such consent) other than such rights or benefits as are
transferred by will or the laws of descent and
distribution.
(c). The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase,
merger, consolidation or otherwise) all or substantially
all of the assets or businesses of the Company (i) to
assume unconditionally and expressly this Agreement and
(ii) to agree to perform all of the obligations under this
Agreement in the same manner and to the same extent as
would have been required of the Company had no assignment
or succession occurred, such assumption to be set forth in
a writing reasonably satisfactory to the Employee. In the
event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to
such successor or assign.
X. Notices. All notices hereunder must be in writing
and shall be deemed to have given upon receipt of delivery
by: (a) hand (against a receipt therefor), (b) certified
or registered mail, postage prepaid, return receipt
requested, (c) a nationally recognized overnight courier
service (against a receipt therefor) or (d) telecopy
transmission with confirmation of receipt. All such
notices must be addressed as follows:
If to the Company, to:
American Oilfield Divers, Inc.
130 East Kaliste Saloom Road
Lafayette, Louisiana 70508
Telecopy No. 318-232-7306
Attn: Quinn J. Hebert
If to the Employee, to:
Kevin Peterson
Jupiter, Florida 33458-8946
Fax No.: (561) 221-7267
or such other address as to which any party hereto may
have notified the other in writing.
XI. Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the internal
laws of the State of [Texas] without regard to principles
of conflict of laws, except as expressly provided in
Section 8 above with respect to the resolution of disputes
arising under, or the Company's enforcement of, Section 8
of this Agreement.
XII.Withholding. The Employee agrees that the Company
has the right to withhold, from the amounts payable
pursuant to this Agreement, all amounts required to be
withheld under applicable income and/or employment tax
laws, or as otherwise stated in documents granting rights
that are affected by this Agreement.
XIII.Severability. If any term or provision of this
Agreement (including without limitation those contained in
Appendix A, B or C), or the application thereof to any
person or circumstance, shall at any time or to any extent
be invalid, illegal or unenforceable in any respect as
written, Employee and the Company intend for any court
construing this Agreement to modify or limit such
provision temporally, spatially or otherwise so as to
render it valid and enforceable to the fullest extent
allowed by law. Any such provision that is not
susceptible of such reformation shall be ignored so as to
not affect any other term or provision hereof, and the
remainder of this Agreement, or the application of such
term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and each term
and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
XIV.Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent
breach thereof.
XV. Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all
other rights and remedies provided to them by applicable
law, rule or regulation.
XVI.Company's Reservation of Rights. Employee
acknowledges and understands that the Employee serves at
the pleasure of the Company's Board of Directors and that
the Company has the right at any time to terminate
Employee's status as an employee of the Company, or to
change or diminish his status during the Employment Term,
subject to the rights of the Employee to claim the
benefits conferred by this Agreement.
17. Survival. The rights and obligations of the Company
and Employee contained in Section 8 of this Agreement
shall survive the termination of the Agreement. Following
the Termination Date, each party shall have the right to
enforce all rights, and shall be bound by all obligations,
of such party that are continuing rights and obligations
under this Agreement.
18. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have
caused this Agreement to be executed as of the date first
above written.
AMERICAN OILFIELD DIVERS, INC.
By: /s/ Rod W. Stanley
-------------------
Rod W. Stanley
President and Chief Executive
Officer
EMPLOYEE:
By: /s/ Kevin Peterson
----------------------
Kevin Peterson
APPENDIX A
AMERICAN OILFIELD DIVERS, INC.
POSITION SPECIFICATION
EXECUTIVE VICE PRESIDENT AND
PRESIDENT - TECHNOLOGY GROUP
SUMMARY
Reporting to the Chief Executive Officer and President,
the Executive Vice President and President - Technology Group
will be the key executive responsible for the overall
management of the Technical Services Group, Hard Suits Inc. and
certain other special projects. This position will focus on
overseeing day-to-day activities of these profit centers,
providing leadership for increasing sales, undertaking safe and
profitable projects and creating an effective and positive
growth and profitability-focused working environment. He will
provide hands-on profit and loss management to a company facing
significant international growth opportunities in highly
competitive market conditions.
RELATIONSHIPS
Reports to: President & Chief Executive Officer
Direct reports: General Manager, Hard Suits Inc.
Vice President Technical Services Group
Key Board of Directors
relationships:
President & Chief Executive Officer
Corporate Counsel and Secretary
VP-Finance and Chief Financial Officer
MAJOR RESPONSIBILITIES
* Plan, develop, establish and enforce long-term and short-
term policies, directives and business strategies of his
area of responsibility in accordance with the Board of
Directors' and the CEO's policies and directives.
* Oversee the day-to-day operations and resolve the material
and significant issues that arise during the ordinary course
of business. Confer with his managers and other Company
executives on a regular basis to coordinate functions and
operations among all Company subsidiaries, divisions and
departments to maximize profit and eliminate unnecessary
duplication. Establish, maintain and enforce internal
responsibilities and procedures to maximize growth and
profitability and eliminate inefficiencies. Establish,
maintain and enforce internal controls and checks and
balances to ensure the Company's manufacturing subsidiaries
accurately track products, costs, stay on schedule and
otherwise comply in all material respects with government
contracting standards.
* Review management information systems and analyze
organization's financial and other reports to determine
results of operations compared to the plan. Timely revise
and adjust business plans and strategies in accordance with
current and expected market conditions. Stay fully abreast
of all market conditions.
* Evaluate performance of appropriate managers on a semi-
annual basis for compliance with established policies,
profitability and performance objectives.
* Review and recommend potential acquisition candidates
(whether a separate company, products or new service lines)
and other business opportunities with the President and
other appropriate executives.
* Act as a facilitator among the various subsidiaries for
future business growth and profitability.
* Create an atmosphere of cohesive teamwork for appropriate
internal performance analysis and action.
* Confer with members of senior management regarding sales and
marketing activities for unified and thorough presentations.
* Member of Executive Committee comprised of CEO, VP-Finance
and CFO and Corporate Counsel/Secretary and to, among other
things, review strategic issues and handle various other
companywide matters.
* Participate in and help lead Company meetings and functions,
investor conference calls, sales calls and other similar
meetings and functions, as required by the above duties and
responsibilities or as requested by the President.
* Ensure the effective function and integrity of the Company's
capital budgetary process.
<PAGE>
Appendix B to Employment Agreement
between American Oilfield Divers, Inc.
and
Kevin Peterson
* Capitalized terms used herein unless otherwise defined shall
have the same meanings ascribed to them in the Employment
Agreement.
<PAGE>
Appendix C to Employment Agreement
between American Oilfield Divers, Inc.
and
Kevin Peterson
Revision No. O of Appendix A,
Effective as of May 15, 1997;
Jurisdictions In Which Competition
Is Restricted As Provided
In Section 8
A. States and Territories of the United States:
1. Louisiana-- The following parishes in the State of
Louisiana:
Cameron, Vermilion, St. Mary, Terrebonne, Lafourche,
Jefferson, Plaquemines, Orleans, St. Bernard, Lafayette
and Iberia.
2. Texas-- All counties.
3. Kansas-- All counties.
4. Ohio-- All counties.
5. California-- All counties.
B. Other Jurisdictions: Nigeria, Ivory Coast, Australia and
the United Arab Emirates, including without limitation,
all of the land area within their respective
jurisdictional boundaries or otherwise under the control
of or claimed by their respective governments, their
respective territorial offshore waters, other offshore
waters otherwise under the control of or claimed by their
respective governments.
American Oilfield Divers, Inc.
Schedule of Named Insureds
American Oilfield Divers, Inc. (a Louisiana Corporation)
American Inland Divers, Inc. (a Louisiana Corporation)
American Inland Divers, Inc. (a Kansas Corporation)
American Inland Marine, Inc. (an Ohio Corporation)
American Pacific Marine, Inc. (a Delaware Corporation)
American International Diving, Ltd. (a Cayman Islands
Corporation)
American Marine Construction, Inc. (a Delaware Corporation)
Big Inch Marine Systems, Inc. (a Delaware Corporation)
Big Inch Marine Systems, Ltd. (a U.K. Corporation)
Tarpon Systems, Inc. (a Louisiana Corporation)
Tarpon Concrete Structural Systems, Inc. (a Louisiana
Corporation)
American Oilfield Divers (Nigeria), Ltd. (a Nigerian
Corporation)
S&H Diving, L.L.C. (a Louisiana limited liability Company)
AOD Holdings, Inc. (a Delaware Corporation)
AOD Acquisition Corp. (A Yukon Territories Corporation)
Hard Suits Inc. (a British Columbia Corporation)
International Hard Suits, Ltd. (a British Columbia Corporation)
Sea Urchin Submersibles Ltd. (a British Columbia Corporation)
CDC Can-Dive, Ltd. (50%-owned joint venture British Columbia
Corporation)
Can Dive Marine Services, Inc. (a Washington Corporation)
Hard Suits Marine, Inc. (a Delaware Corporation)
Hard Suits Gulf, Inc. (a Delaware Corporation)
Can Dive Marine Services Ltd. (a U.K. Corporation)
Can Dive Marine Services, Ltd. (a British Columbia Corporation)
BMD-Can-Dive Ltd. (a 50% owned joint venture Ontario
Corporation)
485836 British Columbia Ltd. (a British Columbia Corporation)
Contract Diving Services, Pty. Ltd. (an Australian Corporation)
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-66702 and 33-
83594) of American Oilfield Divers, Inc. of our report dated
February 19, 1998 appearing on page K-38 of the Annual Report
to Shareholders which is incorporated in this Annual Report on
Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Houston, Texas
March 24, 1998
POWER OF ATTORNEY
BE IT KNOWN that the undersigned, in his or her capacity
or capacities as an officer or a member of the Board of
Directors of American Oilfield Divers, Inc. d/b/a Ceanic, a
Louisiana corporation (the "Company"), does hereby make,
constitute and appoint QUINN J. HEBERT and CATHY M. GREEN, and
each of them acting individually, his or her true and lawful
attorney-in-fact with power to act without the other and with
full power of substitution to execute, deliver and file, for
and on behalf of the undersigned, in his or her name and in his
or her capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1997,
and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary
or advisable to carry out fully the intent of the foregoing as
the undersigned might or could do personally or in the capacity
or capacities as aforesaid, hereby ratifying and confirming all
acts and things that said attorney or attorneys may do or cause
to be done by virtue of this Power of Attorney.
EXECUTED this 28th day of February, 1998.
/s/ Stephen A. Lasher
____________________________
Stephen A. Lasher
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN that the undersigned, in his or her capacity
or capacities as an officer or a member of the Board of
Directors of American Oilfield Divers, Inc. d/b/a Ceanic, a
Louisiana corporation (the "Company"), does hereby make,
constitute and appoint QUINN J. HEBERT and CATHY M. GREEN, and
each of them acting individually, his or her true and lawful
attorney-in-fact with power to act without the other and with
full power of substitution to execute, deliver and file, for
and on behalf of the undersigned, in his or her name and in his
or her capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1997,
and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary
or advisable to carry out fully the intent of the foregoing as
the undersigned might or could do personally or in the capacity
or capacities as aforesaid, hereby ratifying and confirming all
acts and things that said attorney or attorneys may do or cause
to be done by virtue of this Power of Attorney.
EXECUTED this 28th day of February, 1998.
/s/ William C. O'Malley
____________________________
William C. O'Malley
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN that the undersigned, in his or her capacity
or capacities as an officer or a member of the Board of
Directors of American Oilfield Divers, Inc. d/b/a Ceanic, a
Louisiana corporation (the "Company"), does hereby make,
constitute and appoint QUINN J. HEBERT and CATHY M. GREEN, and
each of them acting individually, his or her true and lawful
attorney-in-fact with power to act without the other and with
full power of substitution to execute, deliver and file, for
and on behalf of the undersigned, in his or her name and in his
or her capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1997,
and any amendment or amendments thereto and any other document
in support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power
and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary
or advisable to carry out fully the intent of the foregoing as
the undersigned might or could do personally or in the capacity
or capacities as aforesaid, hereby ratifying and confirming all
acts and things that said attorney or attorneys may do or cause
to be done by virtue of this Power of Attorney.
EXECUTED this 28th day of February, 1998.
/s/ George C. Yax
____________________________
George C. Yax
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,407
<SECURITIES> 0
<RECEIVABLES> 35,829
<ALLOWANCES> 600
<INVENTORY> 5,428
<CURRENT-ASSETS> 55,286
<PP&E> 91,623
<DEPRECIATION> 28,305
<TOTAL-ASSETS> 134,300
<CURRENT-LIABILITIES> 29,698
<BONDS> 0
0
0
<COMMON> 1,824
<OTHER-SE> 88,427
<TOTAL-LIABILITY-AND-EQUITY> 134,300
<SALES> 132,728
<TOTAL-REVENUES> 132,728
<CGS> 89,204
<TOTAL-COSTS> 128,291
<OTHER-EXPENSES> 569
<LOSS-PROVISION> 658
<INTEREST-EXPENSE> 1,056
<INCOME-PRETAX> 5,006
<INCOME-TAX> 2,775
<INCOME-CONTINUING> 2,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,231
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
