UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
for the quarterly period ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ____________
----------------------------------
Commission File Number: 0-22739
----------------------------------
Cal Dive International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 95-3409686
(State of Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
400 N. Sam Houston Parkway E.
Suite 400
Houston, Texas 77060
(Address of Principal Executive Offices)
(281) 618-0400
(Registrants telephone number,
Including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13(b) or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
At November 7, 1997 there were 14,524,831 shares of common stock, no par
value outstanding.
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Sept. 30, Dec. 31,
1997 1996
--------- --------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 12,984 $ 204
Accounts receivable --
Trade, net of revenue allowance
on gross amounts billed of
$1,590 (unaudited) and $1,021 ....................................... 19,910 18,849
Unbilled ................................................................. 9,585 7,364
Other current assets .......................................................... 5,886 2,755
--------- --------
Total current assets ................................................ 48,365 29,172
--------- --------
PROPERTY AND EQUIPMENT .............................................................. 77,996 61,466
Less - Accumulated depreciation ............................................... (17,990) (13,260)
--------- --------
60,006 48,206
--------- --------
OTHER ASSETS:
Cash deposits restricted for salvage
operations ............................................................... 5,447 5,234
Loan acquisition costs and other
assets, net .............................................................. 586 444
--------- --------
$ 114,404 $ 83,056
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................................. $ 10,093 $ 9,909
Accrued liabilities ........................................................... 5,094 5,758
Income taxes payable .......................................................... 461 94
--------- --------
Total current liabilities ................................................ 15,648 15,761
LONG-TERM DEBT ...................................................................... 0 25,000
DEFERRED INCOME TAXES ............................................................... 8,525 5,417
DECOMMISSIONING LIABILITIES ......................................................... 5,100 6,034
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par, 20,000 shares
authorized, 21,345 and 18,448 shares issued
and outstanding .......................................................... 52,603 9,093
Retained earnings ............................................................. 36,279 25,806
Treasury stock, 6,820 and 7,349 shares, at cost ............................... (3,751) (4,055)
--------- --------
Total shareholders' equity ............................................... 85,131 30,844
--------- --------
$ 114,404 $ 83,056
========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
- 1 -
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
---------------------------------
1997 1996
-------- --------
(unaudited)
NET REVENUES:
Subsea and salvage ........................................................... $ 25,480 $ 20,747
Natural gas and oil production ............................................... 3,379 3,159
-------- --------
28,859 23,906
COST OF SALES:
Subsea and salvage ........................................................... 18,639 14,393
Natural gas and oil production ............................................... 1,801 2,005
-------- --------
Gross profit ............................................................ 8,419 7,508
-------- --------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling expenses ............................................................. 319 320
Administrative expenses ...................................................... 2,189 1,792
-------- --------
Total selling and administrative expenses ............................... 2,508 2,112
-------- --------
INCOME FROM OPERATIONS ............................................................. 5,911 5,396
OTHER INCOME AND EXPENSE:
Interest (income) expense, net ............................................... (242) 223
Other (income) expense, net .................................................. 13 (6)
-------- --------
INCOME BEFORE INCOME TAXES ......................................................... 6,140 5,179
Provision for income taxes ................................................... 2,157 1,767
-------- --------
NET INCOME ......................................................................... $ 3,983 $ 3,412
======== ========
EARNINGS PER SHARE ................................................................. $ 0.27 $ 0.31
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ......................................... 14,812 11,099
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
- 2 -
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30,
------------------------------
1997 1996
------- -------
(unaudited)
NET REVENUES:
Subsea and salvage ............................................................. $64,326 $44,540
Natural gas and oil production ................................................. 11,605 8,149
------- -------
75,931 52,689
COST OF SALES:
Subsea and salvage ............................................................. 46,741 31,690
Natural gas and oil production ................................................. 6,066 4,847
------- -------
Gross profit .............................................................. 23,124 16,152
------- -------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling expenses ............................................................... 1,028 893
Administrative expenses ........................................................ 5,657 4,315
------- -------
Total selling and administrative expenses ................................. 6,685 5,208
------- -------
INCOME FROM OPERATIONS ............................................................... 16,439 10,944
OTHER INCOME AND EXPENSE:
Interest expense, net .......................................................... 374 316
Other (income) expense, net .................................................... 45 20
------- -------
INCOME BEFORE INCOME TAXES ........................................................... 16,020 10,608
Provision for income taxes ..................................................... 5,547 3,637
------- -------
NET INCOME ........................................................................... $10,473 $ 6,971
======= =======
EARNINGS PER SHARE ................................................................... $ 0.82 $ 0.63
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ........................................... 12,831 11,099
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
- 3 -
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
------------------------------
1997 1996
-------- --------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 10,473 $ 6,971
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization ............................................... 5,424 3,367
Deferred income taxes ....................................................... 3,108 403
Gain on sale of property .................................................... (464) --
Changes in operating assets and liabilities:
Accounts receivable, net .................................................... (3,282) (9,934)
Other current assets ........................................................ (3,131) (658)
Accounts payable and accrued liabilities .................................... (480) 4,070
Income taxes payable/receivable ............................................. 367 1,434
Other non-current, net ...................................................... 489 224
-------- --------
Net cash provided by operating activities .............................. 12,504 5,877
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................. (18,214) (21,666)
Purchase of deposits restricted for salvage operations ........................... (213) (235)
Restricted cash .................................................................. (1,196) --
Proceeds from sale of property ................................................... 1,084 6
-------- --------
Net cash used in investing activities .................................. (18,539) (21,895)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of transaction costs ................................... 39,456 --
Sale of treasury stock, net of transaction costs ................................. 4,359 --
Borrowings under term loan facility .............................................. 6,700 21,600
Repayments of long-term debt ..................................................... (31,700) (4,900)
-------- --------
Net cash used in financing activities .................................. 18,815 16,700
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... 12,780 682
CASH AND CASH EQUIVALENTS:
Balance, beginning of period ..................................................... 204 159
-------- --------
Balance, end of period ........................................................... $ 12,984 $ 841
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Cal Dive
International, Inc. (Cal Dive or the Company) and its wholly owned subsidiaries,
Energy Resource Technology, Inc. and Cal Dive Offshore, Ltd. All significant
intercompany accounts and transactions have been eliminated. These 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 were normal recurring
adjustments) which it believes are necessary for a fair presentation of the
consolidated balance sheets, results of operations, and cash flows, as
applicable. Operating results for the periods ended September 30, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Prospectus filed on Form S-1 on July 1, 1997.
NOTE 2 - EARNINGS PER SHARE
Net income per share is calculated by dividing net income by the weighted
average number of common shares outstanding for the applicable period, adjusted
to give effect to the assumed exercise of dilutive stock options, less the
number of treasury shares assumed to be purchased from the proceeds. Fully
diluted earnings per share is not presented as the dilutive effect is not
material.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share". This statement
replaces APB Opinion No. 15 and establishes standards for computing and
presenting earnings per share. The Company is required to adopt this standard
for the year ended December 31, 1997. Management believes adoption of this
standard will not have a material effect on the Company's reported earnings per
share amounts.
NOTE 3 - SHAREHOLDERS' EQUITY
The Company completed an initial public offering of common stock on July 7,
1997, with the sale of 4.1 million shares at $15 per share. Of the 4.1 million
shares, 2,875,000 shares were sold by the Company and 1,265,000 shares were sold
by First Reserve Funds. Net proceeds to the Company from the offering were
approximately $39.5 million, net of underwriting discounts and issuance costs.
The Company utilized $20.0 million of the proceeds to retire all of its then
outstanding long-term indebtedness.
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q may contain or incorporate by
reference certain forward-looking statements, including by way of illustration
and not of limitation, statements relating to liquidity, margins, the Company's
business strategy, plans for future operations, and the industry conditions. The
Company strongly encourages readers to note that some or all of the assumptions,
upon which such forward-looking statements are based, are beyond the Company's
ability to control or estimate precisely, and may in some cases be subject to
rapid and material changes. Accordingly, evaluation of future prospects of the
Company must be made with caution when relying on forward-looking information.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES. During the three months ended September 30, 1997, the
Company's revenues increased 21% to $28.9 million compared to $23.9 million for
the three months ended September 30, 1996 with the Subsea and Salvage segment
contributing virtually all of the increase. The addition of the DPMSV UNCLE JOHN
provided $5.0 million of revenue for the three months ended September 30, 1997
(the vessel was placed into service in October, 1996). Two unusual events - a
lightning strike on the WITCH QUEEN and an electrical fire onboard the CAL DIVER
II - put these two vessels out of service a combined six weeks during the
quarter, reducing revenue by approximately $2.0 million. This reduction was
offset by higher rates experienced from high demand for shallow water diving
services.
Natural gas and oil production revenue for the three months ended
September 30, 1997 was $3.4 million as compared to $3.2 million for the three
months ended September 30, 1996. Production increased from 1.2 Bcf to 1.4 Bcf
due to five blocks acquired during the second half of 1996. Average gas prices
increased slightly for the third quarter 1997 as compared to the comparable
prior year period.
GROSS PROFIT. Gross profit increased approximately $900,000, or 12%,
from $7.5 million for the three months ended September 30, 1996, to $8.4 million
for the three months ended September 30, 1997. The addition of the UNCLE JOHN
contributed approximately $500,000 of the increase although at relatively low
margins due to difficulties encountered on a large construction project. Overall
Subsea and Salvage margins were down 1% from the third quarter of 1996 due to
the difficulties experienced by the UNCLE JOHN and the aforementioned unusual
events (lightning strike and electrical fire).
Natural gas and oil production gross profit was $1.6 million for the
three months ended September 30, 1997, as compared to $1.2 million during the
same period in the prior year due mainly to the increase in average gas prices
and successful well work at two of the properties.
- 6 -
SELLING & ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $400,000, or 19%, to $2.5 million for the three months ended September
30, 1997, as compared to $2.1 million during the same period in the prior year.
The majority of the increase is due to the addition of a number of experienced
technical personnel to support the newly formed Deepwater Technical Services
group.
NET INTEREST. The Company reported net interest income of $242,000 for
the three months ended September 30, 1997 in contrast to net interest expense of
$223,000 for the three months ended September 30, 1996. This improvement was due
to the Company paying off all outstanding debt with proceeds from its initial
public offering of common stock in July 1997. Borrowings under the Revolving
Credit Agreement averaged $1.3 million during the third quarter of 1997 as
compared to $16.5 million during the third quarter of 1996.
INCOME TAXES. Income taxes increased to $2.2 million for the three
months ended September 30, 1997, compared to $1.8 million in the prior year
period due to increased profitability.
NET INCOME. Net income of $4.0 million for the three months ended
September 30, 1997 was $600,000, or 17%, more than the comparable period in 1996
as a result of factors described above. Earnings per share decreased by $0.04
due to the additional shares issued in conjunction with the Company's initial
public offering of common stock (IPO) funds which have yet to be converted to
revenue generating assets.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES. Consolidated revenues of $75.9 million for the first three
quarters of 1997 were 44% more than the $52.7 million reported during the first
three quarters of 1996 due primarily to the addition of DP vessels, improved
demand for traditional subsea services and increased natural gas and oil
production. Revenues from DP vessels increased 89% to $30.8 million for the nine
months ended September 30, 1997 as compared to the comparable prior year period
due to the full year operations of the Balmoral Sea and Uncle John (vessels
placed in service in April and October, 1996, respectively. This increase,
combined with stronger market conditions for surface diving and supply boats
offset the fact that seven vessels were out of service for a combined 40 weeks
during the first two quarters of 1997 for regulatory inspections, preventative
maintenance and/or vessel upgrades in addition to the six weeks of downtime
experienced during the third quarter from the lightning strike and electrical
fire. During the first three quarters of 1996 only one such vessel was out of
service for any significant length of time.
Natural gas and oil production was $11.6 million for the first three
quarters of 1997 from 12 properties as compared to $8.1 million for the
comparable period in 1996 from nine properties. The 1997 revenue benefited from
prior year well enhancement efforts and also includes a book gain from the sale
of two properties during the second quarter of 1997. Average gas sales prices
improved slightly in the first three quarters of 1997 compared to the comparable
period in 1996.
GROSS PROFIT. Gross profit increased by $7.0 million, or 43%, from $16.2
million in the first three quarters of 1996 to $23.1 million in the first three
quarters of 1997. The addition of the UNCLE JOHN and BALMORAL SEA into the
Company's fleet made up approximately half of the increase with the remainder
due to improved demand for traditional subsea services and increased natural gas
and oil production. Subsea and Salvage margins were down slightly (1%) despite
encountering difficulties on a large construction project in the third quarter
and a 1997 regulatory inspection and maintenance program which took Subsea and
Salvage repair costs to $4.8 million compared to $2.1 million in the first three
quarters of 1996.
- 7 -
Natural gas and oil production gross profit was $5.5 million for the
nine months ended September 30, 1997 as compared to $3.3 million for the
comparable prior period. The increase was due to the acquisition of five blocks
during the second half of 1996 and the gain recorded on the sale of two
properties during the second quarter of 1997.
SELLING & ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 28% to $6.7 million in the nine months ended September 30, 1997 as
compared to the first three quarters of 1996. The increase is due to the
addition of new personnel to support the Company's deepwater strategy and growth
in its base business. The remainder of the increase is due to the ERT incentive
compensation program whereby key management personnel share in the improved
earnings of the natural gas and oil production segment. Selling and
administrative expenses were 9% of 1997 third quarter revenues, an improvement
from 10% in the same period of 1996.
NET INTEREST. Net interest expense was roughly the same: $316,000 for
the nine months ended September 30, 1996, compared to $374,000 for the nine
months ended September 30, 1997. Borrowings related to vessel and property
acquisitions during the second half of 1996 were offset by the reduction of debt
resulting from proceeds received from the IPO. Borrowings under the Revolving
Credit Agreement averaged $13.8 million during the first three quarters of 1997
as compared to $9.4 million during the first three quarters of 1996.
INCOME TAXES. Income taxes were $5.5 million for the first three
quarters of 1997 as compared to $3.6 million for the comparable prior year
period. The increase was due to the Company's increased profitability. Higher
depreciation related to the newly acquired DP vessels has resulted in a
reduction of the amount of cash taxes paid in the period and also a
corresponding increase in the deferred tax liability.
NET INCOME. Net income increased 50% to $10.5 million in the nine months
ended September 30, 1997 as compared to $7.0 million in the first three quarters
of 1996 as a result of factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operating activities principally
from internally generated cash flow. As of September 30, 1997, the Company had
$32.7 million of working capital and $13 million of cash on hand after the
purchase of the SEA SORCERESS. The Company completed an initial public offering
of common stock on July 7, 1997, with the sale of 2,875,000 shares generating
net proceeds to the Company of approximately $39.5 million, net of underwriting
discounts and issuance costs. The proceeds were used to fund capital
expenditures of $18.5 million during the nine months ended September 30, 1997,
and to repay all outstanding long-term indebtedness. Additionally the Company
has available all of a $40.0 million Revolving Credit Agreement. On October 27,
1997, the Company closed on the acquisition of interests in two offshore natural
gas and oil properties and assumption of the responsibility to decommission the
properties in full compliance with all governmental regulations. The Company has
had, and anticipates having additional discussions with third parties regarding
possible asset acquisitions (including natural gas and oil properties and
vessels). However, the Company can give no assurance that any such transaction
can be completed.
OPERATING ACTIVITIES. Net cash provided by operating activities was
$12.5 million in the nine months ended September 30, 1997, as compared to $5.9
million provided in the nine months ended September 30, 1996. This increase was
primarily the result of increased profitability and depreciation and
amortization as a result of vessel and natural gas and oil properties
acquisitions.
- 8 -
The Company experienced improved collections of its billed accounts
receivable during the first three quarters of 1997 as compared to the comparable
prior year period. Total accounts receivable increased $3.3 million at September
30, 1997 as compared to December 31, 1996 due to seasonality in the Company's
business. Weather conditions in the Gulf of Mexico are typically better in the
second and third quarters versus the fourth quarter which directly impacts the
Company's utilization and revenue, causing a corresponding increase in accounts
receivable.
INVESTING ACTIVITIES. The Company incurred $18.5 million of capital
expenditures during the first three quarters of 1997. During the third quarter,
the Company acquired a 374 foot by 104 foot ice-strengthened vessel (the DSV SEA
SORCERESS). The Company plans an extensive upgrade program during 1998 to add
power, dynamic positioning and a 200 ton crane so that the vessel can be used
for J-lay, reeled product lay and similar deepwater heavy construction tasks.
The conversion will be a joint effort between the Company and its strategic
partner, Coflexip Stena offshore, with funding of the Company's 50% portion
expected to come from cash flow from operations. Nearly half of the remaining
capital expenditures were for the acquisition of two ROVs from Coflexip with the
remaining balance representing principally the costs associated with
installation of a derrick on the UNCLE JOHN.
During the second quarter of 1997, the Company sold two offshore natural
gas and oil properties for approximately $1.0 million. These transactions were
structured as a Section 1031 "Like Kind" exchange for tax purposes.
Accordingly, the cash received was restricted as of September 30, 1997, to be
used for the acquisition of additional natural gas and oil properties. The
amount is included in other current assets on the accompanying consolidated
balance sheet.
FINANCING ACTIVITIES. During the first two quarters of 1997, the Company
repaid $5.0 million, net of its borrowings under its Revolving Credit Agreement
with Fleet Capital Corporation and in the third quarter repaid the remaining
$20.0 million outstanding with proceeds from the initial public offering of
common stock.
CAPITAL COMMITMENTS. The Company's share of the SEA SORCERESS conversion
cost is expected to approximate $15.0 million, subject to any additional
expenditures that might be incurred in conjumction with final design plans. In
addition, and as discussed previously, in connection with its business strategy,
management expects the Company to acquire or build additional vessels such as
the SEA SORCERESS as well as buy additional natural gas and oil properties.
- 9 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings primarily
involving claims for personal injury under the General Maritime Laws of the
United States and Jones Act as a result of alleged negligence. The Company
believes that the outcome of all such proceedings would not have a material
adverse effect on its consolidated financial position, results of operations or
net cash flows.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule. (Exhibit 27 is being submitted
as an exhibit only in the electronic format of this Quarterly Report
on Form 10-Q being submitted to the Securities and Exchange
Commission.)
(b) Reports on Form 8-K - None.
- 10 -
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.
CAL DIVE INTERNATIONAL, INC.
Date: November 7, 1997 By: /s/ S. JAMES NELSON
S. James Nelson,
Executive Vice President
and Chief Financial Officer
Date: November 7, 1997 By: /s/ A. WADE PURSELL
A. Wade Pursell,
Vice President-Finance and
Chief Accounting Officer
- 11 -
5
9-MOS
DEC-31-1997
SEP-30-1997
12,984
0
31,085
1,590
0
48,365
77,996
17,990
114,404
15,648
0
0
0
52,603
32,528
114,404
75,931
75,931
52,807
59,492
45
0
374
16,020
5,547
10,473
0
0
0
10,473
.82
0
