10-Q 1 h81644e10-q.txt OCEANEERING INTERNATIONAL, INC. - SEPT 30, 2000 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ 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 1-10945 ------- OCEANEERING INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2628227 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11911 FM 529 Houston, Texas 77041 ---------------------------------------- (Address of principal executive offices) (Zip Code) (713) 329-4500 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 1, 2000 ---------------------------- ------------------------------- Common Stock, $.25 Par Value 22,985,706 shares Page 1 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
September 30, March 31, 2000 2000 ------------- --------- ASSETS Current Assets: Cash and cash equivalents $ 5,880 $ 11,001 Accounts receivable (net of allowance for doubtful accounts of $510 and $500) 117,470 118,572 Prepaid expenses and other 23,357 18,990 -------- -------- Total current assets 146,707 148,563 -------- -------- Property and Equipment, at cost 503,455 461,285 Less: accumulated depreciation 185,586 184,918 -------- -------- Net property and equipment 317,869 276,367 -------- -------- Goodwill (net of amortization of $7,209 and $6,612) 11,805 11,611 -------- -------- Other Assets 11,850 14,435 -------- -------- TOTAL ASSETS $488,231 $450,976 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts and notes payable $ 25,912 $ 34,905 Accrued liabilities 50,791 53,645 Income taxes payable 7,561 7,238 -------- -------- Total current liabilities 84,264 95,788 -------- -------- Long-term Debt, net of current portion 172,500 128,000 -------- -------- Other Long-term Liabilities 31,152 31,488 -------- -------- Commitments and Contingencies Shareholders' Equity 200,315 195,700 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $488,231 $450,976 ======== ========
See Notes to Consolidated Financial Statements. Page 2 3 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended September 30, September 30, -------------------------- -------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- (in thousands, except per share amounts) Revenues $ 100,464 $ 100,405 $ 204,503 $ 199,265 Cost of Services 82,091 82,950 170,757 163,283 Selling, General and Administrative Expenses 10,393 9,710 20,388 19,259 --------- --------- --------- --------- Income from operations 7,980 7,745 13,358 16,723 Interest Income 96 151 245 294 Interest Expense, net of capitalized interest of $938 and $410, and $1,731 and $800 (1,950) (1,496) (3,562) (2,842) Other Income (Expense), Net 303 (79) 612 126 --------- --------- --------- --------- Income before income taxes 6,429 6,321 10,653 14,301 Provision for Income Taxes (2,317) (2,205) (3,838) (5,151) --------- --------- --------- --------- Net Income $ 4,112 $ 4,116 $ 6,815 $ 9,150 ========= ========= ========= ========= Basic Earnings per Share $ 0.18 $ 0.18 $ 0.30 $ 0.41 Diluted Earnings per Share $ 0.18 $ 0.18 $ 0.29 $ 0.40 Weighted average number of common shares 22,941 22,699 22,903 22,545 Incremental shares from stock options 280 380 300 328 Weighted average number of common shares and equivalents 23,221 23,079 23,203 22,873
See Notes to Consolidated Financial Statements. Page 3 4 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, ------------------------ 2000 1999 -------- -------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,815 $ 9,150 -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 20,926 16,345 Currency translation adjustments and other (184) 2,356 Decrease (increase) in accounts receivable 1,102 (8,471) Increase in prepaid expenses and other current assets (4,367) (4,128) Increase in other assets (740) (894) Decrease in current liabilities (11,365) (3,956) Increase (decrease) in other long-term liabilities (336) 121 -------- -------- Total adjustments to net income 5,036 1,373 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,851 10,523 -------- -------- Cash Flows from Investing Activities: Purchases of property and equipment and other (63,101) (27,074) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (63,101) (27,074) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from revolving credit and other long-term debt 44,328 11,849 Proceeds from issuance of common stock 1,801 4,512 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 46,129 16,361 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,121) (190) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 11,001 8,367 -------- -------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 5,880 $ 8,177 ======== ========
See Notes to Consolidated Financial Statements. Page 4 5 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies These Consolidated Financial Statements are unaudited and have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission and do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. Management has reflected all adjustments which it believes are necessary to present fairly Oceaneering's financial position at September 30, 2000 and its results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Oceaneering's Annual Report on Form 10-K for its fiscal year ended March 31, 2000. The results for interim periods are not necessarily indicative of annual results. In November 2000, Oceaneering changed its fiscal year from March 31 to December 31. 2. Shareholders' Equity Shareholders' Equity consisted of the following:
September 30, March 31, 2000 2000 ------------- --------- (in thousands) Common Stock, par value $0.25; 90,000,000 shares authorized; 24,017,046 shares issued $ 6,004 $ 6,004 Additional paid-in capital 78,445 77,972 Treasury stock; 1,045,511 and 1,197,705 shares, at average cost (14,010) (16,050) Retained earnings 147,308 140,493 Accumulated other elements of comprehensive income (17,432) (12,719) --------- --------- Total shareholders' equity $ 200,315 $ 195,700 ========= =========
3. Income Taxes Cash taxes paid were $3.3 million and $5.1 million for the six months ended September 30, 2000 and 1999, respectively. Oceaneering also received a cash tax refund of $4.4 million during the first half of the current fiscal year. 4. Earnings Per Share Oceaneering has computed earnings per share in accordance with Financial Accounting Standards Board Standard Number ("SFAS") 128, "Earnings Per Share." 5. Business Segment Information Oceaneering supplies a comprehensive range of technical services and specialty products to a variety of industries. Oceaneering's Offshore Oil and Gas business consists of four business segments: Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production Systems and Other Services. Oceaneering's Advanced Technologies business is a separate segment that provides project management, engineering services and equipment for applications outside the oil and gas industry. Page 5 6 There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from those used in the consolidated financial statements for the fiscal year ended March 31, 2000. The previously reported information for the quarter ended June 30, 2000 included certain Advanced Technologies activities in the Offshore Oil and Gas segments. That information is restated below. The following summarizes certain financial data by business segment:
For the Three Months Ended For the Six Months Ended ---------------------------------- ------------------------ Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, 2000 1999 2000 2000 1999 --------- --------- -------- --------- --------- (in thousands) Revenues Offshore Oil and Gas ROVs $ 27,634 $ 23,446 $ 25,362 $ 52,996 $ 46,316 Subsea Products 21,057 13,872 22,502 43,559 31,082 Mobile Offshore Production Systems 5,281 5,715 5,980 11,261 13,084 Other Services 20,851 26,449 22,535 43,386 45,779 -------- -------- -------- -------- -------- Total Offshore Oil and Gas 74,823 69,482 76,379 151,202 136,261 Advanced Technologies 25,641 30,923 27,660 53,301 63,004 -------- -------- -------- -------- -------- Total $100,464 $100,405 $104,039 $204,503 $199,265 ======== ======== ======== ======== ======== Gross Margins Offshore Oil and Gas ROVs $ 7,003 $ 5,715 $ 5,777 $ 12,780 $ 11,388 Subsea Products 2,519 1,449 2,344 4,863 4,273 Mobile Offshore Production Systems(1) 2,168 1,348 1,331 3,499 4,431 Other Services 2,249 4,622 1,235 3,484 6,531 -------- -------- -------- -------- -------- Total Offshore Oil and Gas 13,939 13,134 10,687 24,626 26,623 Advanced Technologies 4,434 4,321 4,686 9,120 9,359 -------- -------- -------- -------- -------- Total $ 18,373 $ 17,455 $ 15,373 $ 33,746 $ 35,982 ======== ======== ======== ======== ========
(1) The periods ended September 30, 2000 contain a $2.5 million impairment loss related to an out-of- service tanker held for possible conversion into production service. This tanker is not of the size prevalently in demand in the current market, and there have been few opportunities to bid this vessel. Therefore, it has been written down to its estimated market value. The impairment loss is reflected in the Cost of Services line in the Consolidated Statements of Income. 6. Comprehensive Income Effective April 1, 1998, Oceaneering adopted SFAS 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and displaying comprehensive income and its components. Comprehensive income is the total of net income and all nonowner changes in equity. The amounts of comprehensive income for each of the three- and six-month periods ended September 30, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended September 30, September 30, -------------------- -------------------- 2000 1999 2000 1999 ------- ------- ------- ------- (in thousands) Net Income per Consolidated Statements of Income $ 4,112 $ 4,116 $ 6,815 $ 9,150 Foreign Currency Translation Gains (Losses) (2,516) 1,837 (4,713) 523 ------- ------- ------- ------- Comprehensive Income $ 1,596 $ 5,953 $ 2,102 $ 9,673 ======= ======= ======= =======
Amounts comprising other elements of comprehensive income in Shareholders' Equity:
September 30, 2000 March 31, 2000 ------------------ -------------- (in thousands) Accumulated Foreign Currency Translation Adjustments $(17,432) $(12,719) ======== ========
Page 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. All statements in this Form 10-Q, other than statements of historical facts, including, without limitation, statements regarding our business strategy, plans for future operations and industry conditions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we refer to under the heading "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our Annual Report on Form 10-K for our fiscal year ended March 31, 2000. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to be correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information. Material Changes in Financial Condition We consider our liquidity and capital resources adequate to support our operations and capital commitments. At September 30, 2000, we had working capital of $62 million, including $6 million of unrestricted cash and we had $57.5 million available under committed credit facilities. Our capital expenditures were $72 million during the six months ended September 30, 2000, as compared to $27 million during the corresponding period of the prior fiscal year. Capital expenditures in the current fiscal year consisted of ongoing costs related to the conversion of a jackup drilling rig to a mobile offshore production unit, additions to our fleet of ROVs and multiservice vessel construction. Prior fiscal year expenditures consisted of additions to our fleet of ROVs, multiservice vessel construction and subsea products facilities expansion. Commitments for capital expenditures at September 30, 2000 were approximately $30 million of remaining costs for the conversion of a jackup drilling rig to a mobile offshore production unit. This unit will be used for a three-year contract in Western Australia. Operations are anticipated to begin during the second quarter of calendar year 2001. Results of Operations Effective with the fourth quarter of the year ended March 31, 2000, we increased our reporting segments from three to five to assist the investment community in better understanding our company. The segments are contained within two businesses - services and products provided to the offshore oil and gas industry ("Offshore Oil and Gas") and all other services and products ("Advanced Technologies"). Our segments within the Offshore Oil and Gas business are Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production Systems and Other Services. We report our Advanced Technologies business as one segment. The previously reported information for the quarter ended June 30, 2000 included certain Advanced Technologies activities in the Offshore Oil and Gas segments. That information is restated in the following discussion. Consolidated revenue and margin information is as follows:
For the Three Months Ended For the Six Months Ended ------------------------------------ -------------------------- Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, 2000 1999 2000 2000 1999 -------- --------- -------- --------- --------- (in thousands) Revenues $100,464 $100,405 $104,039 $204,503 $199,265 Gross margin 18,373 17,455 15,373 33,746 35,982 Gross margin % 18% 17% 15% 17% 18% Operating margin % 8% 8% 5% 7% 8%
We generate a material amount of our consolidated revenue from contracts for marine services in the Gulf of Mexico and North Sea, which are usually more active from April through November compared to the rest of the year. However, our exit from the diving sector in the North Sea in early 1998 and the substantial number of multiyear ROV contracts that we entered into since calendar year 1997 have reduced the seasonality of our ROV and Other Services operations. Revenues in our Mobile Offshore Production Systems, Subsea Products and Advanced Technologies segments are generally not seasonal. Our Offshore Oil and Gas business results are influenced by the level of capital spending by oil and gas companies in the offshore sector. While crude oil and natural gas prices were higher than those during the comparable period of the prior fiscal year, capital spending levels have not yet increased as we had anticipated at the start of our fiscal year. The fixed costs associated with our underutilized assets have impacted our profit margins, particularly our umbilical manufacturing facilities in our Subsea Products segment and our multiservice vessels in our Other Services segment. Our bidding activity is up, but projects are planned for execution in calendar year 2001. Our Subsea Page 7 8 Products segment operating income improved in the current quarter, primarily from results in Brazil. Our current year Advanced Technologies segment results are anticipated to be lower than those achieved in the prior fiscal year as our cable venture is expected to be about break-even in its first year of operation and this segment's other operations are expected to be comparable to last fiscal year. OFFSHORE OIL AND GAS. The table below sets forth our revenues and gross margins for our Offshore Oil and Gas business for the periods indicated.
For the Three Months Ended For the Six Months Ended ------------------------------------ ------------------------ Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, 2000 1999 2000 2000 1999 --------- --------- -------- --------- --------- (in thousands) ROVs Revenues $ 27,634 $ 23,446 $ 25,362 $ 52,996 $ 46,316 Gross margin 7,003 5,715 5,777 12,780 11,388 Gross margin % 25% 24% 23% 24% 25% Work class utilization % 71% 64% 63% 67% 64% Subsea Products Revenues $ 21,057 $ 13,872 $ 22,502 $ 43,559 $ 31,082 Gross margin 2,519 1,449 2,344 4,863 4,273 Gross margin % 12% 10% 10% 11% 14% Mobile Offshore Production Systems Revenues $ 5,281 $ 5,715 $ 5,980 $ 11,261 $ 13,084 Gross margin 2,168 1,348 1,331 3,499 4,431 Gross margin % 41% 24% 22% 31% 34% Other Services Revenues $ 20,851 $ 26,449 $ 22,535 $ 43,386 $ 45,779 Gross margin 2,249 4,622 1,235 3,484 6,531 Gross margin % 11% 17% 5% 8% 14% Total Offshore Oil and Gas Revenues $ 74,823 $ 69,482 $ 76,379 $151,202 $136,261 Gross margin 13,939 13,134 10,687 24,626 26,623 Gross margin % 19% 19% 14% 16% 20%
Our ROV revenues and gross margin were higher than those achieved during the corresponding periods of the prior fiscal year due to a higher number of ROVs available. The gross margin percentages were fairly consistent for the periods presented. Our Subsea Products revenues were higher than those in the corresponding periods of the prior year due to increased umbilical sales from our plant in Brazil and from increased sales of subsea specialty hardware. Profitability was down in the six months ended September 30, 2000 compared to the six months ended September 30, 1999 as a result of competitive pricing and a large steel tube umbilical order in our U.K. plant which had a lower-than-average profit margin due to higher subcontractor content. Recurring Mobile Offshore Production Systems revenues and profits were lower than the prior year as we completed a major modification project for the floating production and offloading system Zafiro Producer during the last fiscal year. During the quarter, we determined that the near-term outlook for the use of semisubmersibles in mobile offshore production systems service was going to remain weak, and that we could realize greater value for our two semisubmersible rigs through sales to those who would use them in exploration operations. The results of the quarter include a gain of $3.7 million on the sale of the semisubmersible Ocean Zephyr II. In addition, we wrote down the carrying value of our out-of-service tanker, the Ocean Venture, by $2.5 million as our assessment of the market it was targeted for, conversion into production service, had changed. This tanker is not of the size prevalently in demand in the current market and there have been few opportunities to bid this vessel. Therefore, we wrote this vessel down to its estimated market value. Page 8 9 Other Services revenues were lower than the corresponding periods of the prior year due to lower activity levels in all areas. At the end of the quarter, we exchanged our diving-related assets in Asia, Australia and the Middle East for ROVs. There was no material effect on the current quarter's results from the transaction. ADVANCED TECHNOLOGIES. Revenue and gross margin information is as follows:
For the Three Months Ended For the Six Months Ended ---------------------------------- ------------------------ Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, 2000 1999 2000 2000 1999 --------- --------- -------- --------- --------- (in thousands) Revenues $25,641 $30,923 $27,660 $53,301 $63,004 Gross margin 4,434 4,321 4,686 9,120 9,359 Gross margin % 17% 14% 17% 17% 15%
Our Advanced Technologies segment revenues were lower as our telecommunications activities were put into an unconsolidated joint venture. The results of this venture are reported as other income. During the September 1999 quarter, our telecommunications operations reported a loss due to difficulties encountered during a cable burial job. The job loss reduced gross margin and gross margin percentage for the prior fiscal year. Results from other activities in this segment were at comparable levels to the prior fiscal year. OTHER. Our telecommunications joint venture started its first revenue-producing activities during the first quarter of the current fiscal year and operated at approximately a break-even level. Interest expense for the three- and six-month periods ended September 30, 2000 increased compared to the corresponding periods of the prior year as we had higher debt levels and higher interest rates. This debt had been incurred to fund the acquisition of additional equipment and expansion of our subsea products production capacity. Interest expense of $1,950,000 and $3,562,000 for the three- and six-month periods ended September 30, 2000 was net of capitalized interest of $938,000 and $1,731,000 in those periods. The provisions for income taxes were related to U.S. income taxes which we provided at estimated annual effective rates using assumptions as to earnings and other factors which would affect the tax calculation for the remainder of the fiscal year, and to the operations of foreign branches and subsidiaries which were subject to local income and withholding taxes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There are no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2000. Page 9 10 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Oceaneering International, Inc. held its Annual Meeting of Shareholders on August 20, 2000. The following matters were voted upon at the Annual Meeting:
Election of Director Nominee Shares Voted For Votes Withheld -------------------- ---------------- -------------- Charles B. Evans 18,328,536 354,364 John R. Huff 18,329,029 353,871
Ratification of the appointment of Arthur Andersen LLP as independent auditors for the Company.
Shares Voted For Shares Voted Against Shares Abstaining ---------------- -------------------- ----------------- 18,674,387 5,449 3,064
ITEM 5. OTHER INFORMATION. Effective November 1, 2000, the Board of Directors of Oceaneering International, Inc. determined to change the fiscal year-end of the Company from March 31 to December 31. A report on Form 10-K, covering the nine-month transition period ending December 31, 2000, will be filed with the Securities and Exchange Commission in accordance with its applicable rules and regulations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 3.01 Restated Certificate of Incorporation of Oceaneering International, Inc. 3.02 Amended and Restated Bylaws of Oceaneering International, Inc. 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter for which this report is filed. Page 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OCEANEERING INTERNATIONAL, INC. (Registrant) Date: November 10, 2000 By: /s/ JOHN R. HUFF ------------------------------------------------- John R. Huff Chairman and Chief Executive Officer Date: November 10, 2000 By: /s/ MARVIN J. MIGURA ------------------------------------------------- Marvin J. Migura Senior Vice President and Chief Financial Officer Date: November 10, 2000 By: /s/ JOHN L. ZACHARY ------------------------------------------------- John L. Zachary Controller and Chief Accounting Officer 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.01 Restated Certificate of Incorporation of Oceaneering International, Inc. 3.02 Amended and Restated Bylaws of Oceaneering International, Inc. 27 Financial Data Schedule