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, 1996 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.) 16001 Park Ten Place, Suite 600 Houston, Texas 77084 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 578-8868 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 October 25, 1996 Common Stock, $.25 Par Value 23,825,359 shares PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) Sept. 30, March 31, 1996 1996 (unaudited) (audited) ASSETS Current Assets: Cash and cash equivalents $ 27,610 $ 9,351 Accounts receivable (net of allowance for doubtful accounts of $989 at September 30 and $1,201 at March 31) 85,585 96,391 Prepaid expenses and other 6,877 4,733 ----------------------- Total Current Assets 120,072 110,475 ----------------------- Property and Equipment, at cost: Marine services equipment 200,719 187,337 Mobile offshore production equipment 95,245 56,607 Buildings, improvements and other 30,828 29,438 ----------------------- 326,792 273,382 Less: Accumulated Depreciation 153,983 145,105 ----------------------- Net Property and Equipment 172,809 128,277 ----------------------- Goodwill (net of amortization of $3,007 and $2,515) 11,897 12,082 Investments and Other Assets 6,143 5,262 ----------------------- TOTAL ASSETS $310,921 $256,096 ======================= LIABILITIES and SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 29,293 $ 25,607 Accrued liabilities 41,441 35,823 Income taxes payable 7,305 6,618 ----------------------- Total Current Liabilities 78,039 68,048 ----------------------- Long-Term Debt 81,000 48,000 ----------------------- Other Long-Term Liabilities 11,892 12,950 ----------------------- Shareholders' Equity 139,990 127,098 ----------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $310,921 $256,096 ======================= See Notes to Consolidated Financial Statements.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) For the Three Months Ended September 30, 1996 1995 (in thousands, except per share amounts) Revenues $ 96,764 $ 77,088 Cost of services 79,940 61,124 Selling, general and administrative expenses 8,316 8,652 ----------------------- Income from operations 8,508 7,312 Interest income 146 514 Interest expense, net (568) (535) Other income (expense), net 193 (40) ----------------------- Income before income taxes 8,279 7,251 Provision for income taxes (3,199) (2,678) ----------------------- Net income $ 5,080 $ 4,573 ======================= Earnings per common share equivalent $0.21 $0.20 Weighted average number of common share equivalents outstanding 23,863 23,224 See Notes to Consolidated Financial Statements. OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) For the Six Months Ended September 30, 1996 1995 (in thousands, except per share amounts) Revenues $177,299 $148,629 Cost of services 145,625 119,356 Selling, general and administrative expenses 17,224 16,961 ----------------------- Income from operations 14,450 12,312 Interest income 649 652 Interest expense, net (998) (932) Other income (expense), net 273 23 ----------------------- Income before income taxes 14,374 12,055 Provision for income taxes (5,547) (4,695) -----------------------
Net income $ 8,827 $ 7,360 ======================= Earnings per common share equivalent $0.37 $0.32 Weighted average number of common share equivalents outstanding 23,727 23,191 See Notes to Consolidated Financial Statements. OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Six Months Ended September 30, 1996 1995 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $8,827 $ 7,360 Adjustments to reconcile net income to net cash provided by/(used in)operating activities: Depreciation and amortization 11,460 10,039 Currency translation adjustments and other 1,574 695 (Increase)/decrease in accounts receivable 10,806 (27,324) Increase in prepaid expenses and other current assets (2,139) (3,089) Increase in other assets (882) (270) Increase in current liabilities 10,136 124 Increase/(decrease) in other long-term liabilities (1,058) 736 ---------------------- Total adjustments to net income 29,897 (19,089) ---------------------- NET CASH PROVIDED BY/(USED BY) OPERATING ACTIVITIES 38,724 (11,729) ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment and other assets (55,960) (13,242) ---------------------- NET CASH USED IN INVESTING ACTIVITIES (55,960) (13,242) ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings, net of payments 33,000 23,528 Proceeds from issuance of common stock 2,495 1,099 ---------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 35,495 24,627 ---------------------- NET INCREASE/(DECREASE) IN CASH 18,259 (344)
---------------------- CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,351 12,865 ---------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $27,610 $12,521 ====================== See Notes to Consolidated Financial Statements. OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 the Company's financial position at September 30, 1996 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 the Registrant's Annual Report on Form 10-K for its fiscal year ended March 31, 1996. The results for interim periods are not necessarily indicative of annual results. 2. Cash and Cash Equivalents Cash and cash equivalents include demand deposits and highly liquid interest-bearing investment grade securities. Approximately $1.4 million of the Company's cash as of September 30 and March 31, 1996 was restricted and is posted as security in interest-bearing accounts related to litigation involving the Company's United Kingdom subsidiary. The Company believes it has adequate defenses to the claims and that the outcome will not have a material adverse effect on the financial position or results of operations of the Company. 3. Shareholders' Equity Shareholders' Equity consisted of the following: September 30, March 31, 1996 1996 (unaudited) (audited) (in thousands, except share data)
Shareholders' Equity: Common Stock, par value $0.25; 90,000,000 shares authorized; 24,017,046 shares issued $ 6,004 $ 6,004 Additional paid-in capital 80,162 81,921 Treasury stock, 208,737 and 793,170 shares, at cost (1,871) (6,976) Retained earnings 65,383 56,556 Cumulative translation adjustments (9,688) (10,407) ----------------------- Total Shareholders' Equity $139,990 $127,098 ======================= 4. Income Taxes Cash taxes paid were $5.3 million and $4.2 million for the six months ended September 30, 1996 and 1995, respectively. 5. Accounting for impairment of long-lived assets In March 1995, Statement of Financial Accounting Standards Board standard number ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was issued. SFAS 121, effective for fiscal years beginning after December 15, 1995, requires that certain long-lived assets be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable and that an impairment loss be recognized under certain circumstances in the amount by which the carrying value exceeds the fair value of the asset. The Company adopted SFAS 121 on April 1, 1996, as required. There has been no material effect on the Company's results of operations or financial position as a result of the adoption of SFAS 121. 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 the Company's 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. The Company utilizes a variety of internal and external data and management judgment in order to develop such forward-looking information. Although the Company believes 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 primary industry in which the Company operates, it can give no assurance that such expectations will prove to have been correct. Accordingly, evaluation of future prospects of the Company must be made with caution when relying on forward-looking information. Material Changes in Financial Condition The Company considers its liquidity and capital resources adequate to
support continuing operations and capital commitments. At September 30, 1996, the Company had working capital of $42 million, including $26 million of unrestricted cash. Additionally, the Company had $39 million available for borrowings under a $120 million credit facility and $13 million was unused under its $20 million uncommitted line of credit. None of the $81 million of long-term bank debt is required to be repaid prior to fiscal 1999. In November 1995, the Company announced that it had been awarded a contract by a major oil company to provide a Floating Production, Storage and Offloading system ("FPSO"). The contract is a dayrate lease arrangement with an initial term of three years which commenced in August 1996. The Company purchased and converted an existing 268,000 dwt crude oil tanker into the FPSO ZAFIRO PRODUCER at a capital cost of approximately $70 million. To facilitate the funding of the capital expenditures required for this project, the Company expanded its committed credit facility from $75 million to $120 million during the first quarter of fiscal 1997. The contract also provides the customer with the options to either extend the contract at reduced rates or purchase the vessel and terminate the lease at any time during the initial three-year period. Exercise of the purchase option would increase the Company's expected earnings for that year and substantially increase the Company's liquidity. Total debt increased from $48 million as of the end of fiscal 1996 to $81 million as of September 30, 1996 primarily as a result of continued expenditures on the FPSO ZAFIRO PRODUCER conversion project. FPSO construction was completed during the second quarter and no further increase in debt is expected as a result of this project. As a percentage of total capitalization, long-term debt increased from 27% at March 31, 1996 to 37% at September 30, 1996. Capital expenditures were $56 million during the first six months of fiscal 1997, as compared to $13 million during the corresponding period of the prior fiscal year. Fiscal 1997 expenditures included construction costs of $38 million for the FPSO and additions to the Company's fleet of remotely operated vehicles ("ROV"). Fiscal 1996 expenditures consisted of costs to complete the upgrade of two offshore support vessels and upgrades to the Company's ROV fleet. There were no material commitments for capital expenditures at September 30, 1996. Results of Operations Consolidated revenue and margin information is as follows: Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) Revenues $ 96,764 $ 77,088 $177,299 $148,629 Gross Margin 16,824 15,964 31,674 29,273 Gross margin % 17% 21% 18% 20% Operating Margin % 9% 9% 8% 8%
The quarters ending June 30 and September 30 have generally been the Company's peak in both revenues and net income for its Oilfield Marine business. Revenues and net income in the Offshore Field Development and Advanced Technologies businesses are generally not seasonal. Oilfield Marine Services Revenue and gross margin information is as follows: Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) Revenues $ 43,560 $ 36,464 $ 85,199 $68,045 Gross Margin 8,605 7,986 15,949 13,544 Gross margin % 20% 22% 19% 20% Revenues and gross margins for the three-month and six-month periods ended September 30, 1996 increased over the corresponding periods of the prior year as a result of higher activity in ROV and diving and related vessel service lines. Gross margin percentage declined over the corresponding periods of the prior year. Gross margin for the three-month and six-month periods ended September 30, 1996 included a gain of $1.1 million arising from the settlement of a dispute relating to a contract executed in West Africa in fiscal 1992 which increased gross margin percentage by 3% and 2% respectively. Offshore Field Development Revenue and gross margin information is as follows: Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) Revenues $ 22,970 $ 20,889 $ 39,534 $44,510 Gross Margin 4,610 4,511 7,956 9,318 Gross margin % 20% 22% 20% 21% Revenues and gross margins for offshore field development were higher in the three-month period ended September 30, 1996 compared to the corresponding period of the prior year as a result of increases in the Company's mobile offshore production systems business and subsea product sales. Revenues and gross margins include results from the Company's second FPSO, the ZAFIRO PRODUCER, which commenced operations in late August 1996 and the OCEAN PRODUCER which continued to work offshore West Africa under a contract which expires in January 2000. Revenues and gross margins for offshore production systems were lower in the six-month period ended September 30, 1996 compared to the corresponding period of the prior year. Results for the prior year included a project to convert a rig to a production system; the Company did not have a similar project underway during the second
quarter of fiscal 1997. Advanced Technologies Revenue and gross margin information is as follows: Three Months Ended Six Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) Revenues $ 30,234 $ 19,735 $ 52,566 $36,074 Gross Margin 3,609 3,467 7,769 6,411 Gross margin % 12% 18% 15% 18% Revenues for the three-month and six-month periods ended September 30, 1996 increased over the corresponding periods of the prior year as a result of higher activity in all business areas. Gross margin increases in search and recovery and in space-related activities were offset by losses in a fixed price deep water cable burial contract offshore Australia which required more time to complete than had been originally planned. In addition, higher revenues on certain government work, which include reimbursable costs at low margins, contributed to a lower gross margin percentage compared to the prior year. Other Interest expense for the three-month and six-month periods ended September 30, 1996 was net of capitalized interest relating to the FPSO conversion project of $500,000 and $1,100,000, respectively. Interest income for the three-month period ended September 30, 1996 decreased compared to that of the prior year primarily as a result of interest earned by financing the conversion costs of a MOPS unit for an oilfield customer during the prior year. The total amount of principal and interest outstanding under this financing arrangement was paid in full by the customer in June 1996. The provision for income taxes was provided at an estimated annual effective rate using assumptions as to earnings and other factors which would affect the tax calculation for the remainder of the fiscal year. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The Company held its Annual Meeting of Shareholders on August 23, 1996. (c) The following matters were voted upon at the Annual Meeting: Election of Directors.
Nominee Shares For Shares Withheld D. Michael Hughes 19,759,419 1,360,746 Adoption of the 1996 Incentive Plan. Shares For Shares Against Shares Abstained 16,407,199 4,667,467 45,499 Ratification of the appointment of Arthur Andersen LLP as independent auditors of the Company. Shares For Shares Against Shares Abstained 21,075,592 36,556 8,016 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10-01 Amendment No. 1 to the Oceaneering Retirement Investment Plan. 10-02 1996 Incentive Plan of Oceaneering International, Inc. 10-03 1996 Restricted Stock Award Incentive Agreements between Registrant and Executive Officers dated August 23, 1996. 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. 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 05, 1996 By: //s// JOHN R. HUFF John R. Huff, President and Chief Executive Officer
Date: November 05, 1996 By: //s// MARVIN J. MIGURA Marvin J. Migura, Senior Vice President and Chief Financial Officer Date: November 05, 1996 By: //s// RICHARD V. CHIDLOW Richard V. Chidlow, Controller and Chief Accounting Officer