-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D11wWzeXJhNZPqZhRK16KTJ27CVEWPvgm8hbK1Z46uzOvrdTX1A2o8Cs7mWyScPB LAHsTmWSFZwyfaX0tYosDA== 0000906280-96-000117.txt : 19961031 0000906280-96-000117.hdr.sgml : 19961031 ACCESSION NUMBER: 0000906280-96-000117 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN OILFIELD DIVERS INC CENTRAL INDEX KEY: 0000906520 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 720918249 STATE OF INCORPORATION: LA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22032 FILM NUMBER: 96650320 BUSINESS ADDRESS: STREET 1: 130 E KALISTE SALOOM RD CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: 3182344590 MAIL ADDRESS: STREET 1: 130 E KALISTE SALOOM ROAD CITY: LAFAYETTE STATE: LA ZIP: 70508 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 10-Q/A (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1996 ( ) 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 Identification Number) Incorporation or Organization) 130 East Kaliste Saloom Road 70508 Lafayette, Louisiana (Zip Code) (Address of Principal Executive Offices) 318/234-4590 (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 preceeding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ At August 14, 1996 there were 6,805,182 shares of common stock, no par value, outstanding. Introductory Statement This Form 10-Q/A is being filed to correct a typographical error appearing in the Form 10-Q for the quarterly period ended June 30, 1996 (the "Form 10-Q") filed by Registrant on August 14, 1996. The error in question appeared in the Consolidated Statement of Cash Flows under Cash Flows for Financing Activities in the line item identified as "Net Payments under Line-of-Credit Agreement." That item for the six months ended June 30, 1996 was erroneously showns as $7,525; it should have been a negative $(7,525), as shown in this Form 10-Q/A. A corresponding change was made to the name of the line item so that it now reads "Net proceeds (payments) under the Line of Credit Agreement." A small number of other errors, all of which are non-substative and typographical, are also made in this Form 10-Q/A. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. American Oilfield Divers, Inc. Consolidated Balance Sheets (in thousands) June 30, December 31, 1996 1995 ____________ _____________ (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,226 $ 788 Accounts receivable, net of allowance for doubtful accounts of $460 and $380 18,777 13,014 Unbilled revenue 7,618 13,683 Other receivables 1,451 2,025 Current deferred tax asset 647 1,700 Inventories 2,613 2,261 Prepaid expenses 1,727 1,380 _____________ _____________ Total current assets 34,059 34,851 Property, plant and equipment, net of accumulated depreciation of $20,057 and $18,053 27,649 25,550 Deferred tax asset --- 57 Other assets 2,913 3,463 _____________ _____________ $64,621 $63,921 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,852 $ 3,506 Other liabilities 7,966 6,197 Borrowings under line of credit agreement 350 7,875 Current portion of long-term debt 1,375 1,375 _____________ _____________ Total current liabilities 13,543 18,953 Long-term debt, less current portion 9,000 5,413 _____________ _____________ Total liabilities 22,543 24,366 Stockholders' equity: Common stock, no par value 1,368 1,360 Other stockholders' equity 40,710 38,195 _____________ _____________ Total stockholders' equity 42,078 39,555 _____________ _____________ $64,621 $63,921 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. American Oilfield Divers, Inc. Consolidated Statements of Income (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, ___________________ __________________ (unaudited) 1996 1995 1996 1995 _______ _______ ________ _______ Diving and related revenues $26,829 $19,713 $46,057 $31,634 _______ ________ ________ ________ Costs and expenses: Diving and related expenses 17,652 14,084 30,273 23,266 Selling, general and administrative expenses 4,781 4,675 9,501 9,155 Depreciation and amortization 1,404 1,265 3,266 2,444 _______ ________ ________ ________ Total costs and expenses 23,837 20,024 43,040 34,865 _______ ________ ________ ________ Operating income (loss) 2,992 (311) 3,017 (3,231) Other income (expense), net (7) (457) 142 (604) _______ ________ ________ ________ Income (loss) before income taxes and minority interest 2,985 (768) 3,159 (3,835) Income tax provision (benefit) 1,250 (330) 1,320 (1,580) _______ ________ ________ ________ Income (loss) before minority interest 1,735 (438) 1,839 (2,255) Minority interest in (earnings) loss of subsidiary -- (47) -- -- _______ ________ ________ ________ Net income (loss) $1,735 $(485) $1,839 $(2,255) ======= ======== ======== ======== Net income (loss) per share $ .26 $(.07) $ .27 $ (.34) ======= ======== ======== ======== Weighted average common share outstanding 6,788 6,709 6,750 6,709 ======= ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. American Oilfield Divers, Inc. Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data)
Foreign (Accumulated Common Stock Additional Currency Deficit) ______________ Paid-in Translation Retained Shares Amount Capital Adjustment Earnings Total ______ ______ _________ ____________ ___________ ________ Balance at December 31, 1994 6,709,497 $1,360 $40,837 $(128) $(2,144) $39,925 Net effects of translation of foreign currency 10 10 Net loss (2,255) (2,255) __________ ______ _________ _________ _________ _________ Balance at June 30, 1995 6,709,497 $1,360 $40,837 $(118) $(4,399) $37,680 ========== ====== ========== ========== ========== ========= Balance at December 31, 1995 6,709,497 $1,360 $40,837 $(132) $(2,510) $39,555 Adjustment to valuation of common stock issued in connection with an acquisition (52) (52) Issuance of common stock 95,685 8 729 737 Net effects of translation of foreign currency (1) (1) Net income 1,839 1,839 ___________ ________ _________ __________ _________ _______ Balance at June 30, 1996 6,805,182 $1,368 $41,514 $(133) $(671) $42,078 The accompanying notes are an integral part of these consolidated financial statements.
American Oilfield Divers, Inc. Consolidated Statements of Cash Flows (in thousands) Three Months Ended Six Months Ended June 30, June 30, _________________ ________________ 1996 1995 1996 1995 ______ _______ _______ _______ (unaudited) Net cash flows from operating activities: Net income (loss) $ 1,735 $(485) $ 1,839 $(2,255) Non-cash items included in net income (loss): Depreciation and amortization 1,404 1,265 3,266 2,444 Minority interest in earnings of subsidiary -- 47 -- -- Net (gain) loss on disposition (179) 139 (577) 120 of assets Other (383) (6,122) 3,400 (1,669) _________ _________ ________ ________ Net cash provided by operating activities 2,577 (5,156) 7,928 (1,360) Cash flows from investing activities: Capital expenditures (7,935) (1,833) (10,221) (5,965) Proceeds from sale of assets 207 10 5,669 1,551 Proceeds from insurance claim -- 1,565 535 1,565 Receipt of payments on notes receivable -- 249 -- 467 Proceeds from sale of notes receivable -- 2,762 -- 2,762 Other (660) (466) 329 (50) _________ _________ ________ ________ Net cash used by investing activities (8,388) 2,287 (3,688) 330 Cash flows from financing activities: Issuance of common stock -- -- 136 -- Proceeds from long-term borrowing 10,500 2,000 10,500 2,000 Repayments of long term-debt (6,413) (475) (6,913) (1,742) Net proceeds (payments) under line-of-credit agreement 350 1,445 (7,525) 630 _________ _________ ________ ________ Net cash provided by (used by) financing activities 4,437 2,970 (3,802) 888 _________ _________ ________ ________ Net increase (decrease) in cash (1,374) 101 438 (142) Cash and cash equivalents at beginning of period 2,600 277 788 520 _________ _________ ________ ________ Cash and cash equivalents at end of period $ 1,226 $ 378 $ 1,226 $ 378 ========= ========= ======== ======== The accompanying notes are an integral part of these consolidated financial statements. American Oilfield Divers, Inc. Notes to Consolidated Financial Statements Note 1 - Organization and Significant Accounting Principles The consolidated financial statements include the accounts of American Oilfield Divers, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company"). The Company provides undersea construction, installation, and repair and maintenance services to the offshore oil and gas industry, primarily in the United States Gulf of Mexico, the U.S. West Coast and select international areas, and to inland industrial and governmental customers. In addition, the Company (i) manufactures and markets subsea pipeline connectors and a patented marginal well production system to the domestic and international oilfield industry; (ii) operates the "American Intrepid," a jack-up derrick barge with a 220 ton Manitowoc crane, in the U.S. Gulf of Mexico; and (iii) provides environmental remediation and oil spill response services to the oil and gas industry and certain other commercial and governmental customers. Effective March 1, 1996, the Company sold its pipelay/bury barge, as the "American Enterprise", for proceeds of $5,400,000. The gain on the sale is included in other income in the consolidated statement of income for the six month period ended June 30, 1996. All material intercompany transactions and balances have been eliminated in consolidation. 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. As a result of the change in fiscal year end, this quarterly report on Form 10-Q includes results of operations as of and for the three and six months ended June 30, 1996 and 1995. These unaudited financial statements at June 30, 1996 and for the three and six months ended June 30, 1996 and 1995 and the notes thereto have been prepared in accordance with generally accepted accounting principles for interim financial information and Rule 10-01 for Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. A description of the organization and operations of the Company, the significant accounting policies followed, and the financial condition and results of operations as of October 31, 1995, are contained in the audited consolidated financial statements included in the Company's annual report on Form 10- K, for the fiscal year ended October 31, 1995. These unaudited second quarter financial statements should be read in conjunction with the audited 1995 financial statements and the transition report on Form 10-Q as of and for the two months ended December 31, 1995 and 1994. During the six months ended June 30, 1996, the Company purchased certain diving equipment and four dive support vessels in several separate transactions for cash and shares of the Company's common stock. Operating results for interim periods are not necessarily indicative of the results that can be expected for full fiscal years. The offshore oilfield services industry in the Gulf of Mexico is highly seasonal as a result of weather conditions and the timing of capital expenditures by the oil and gas industry. Utilization of the Company's dive crews and diving support vessels ("DSV") and therefore the related scope and extent of the Company's offshore diving operations are limited by winter weather conditions generally prevailing in the Gulf of Mexico and in certain of the Company's inland markets from December to April. Although adverse weather conditions occurring from time to time from May through November may also adversely affect vessel utilization and diving operations, historically, a dispropotionate amount of the Company's diving services have been performed during the period from May through November. 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. As a result of the change in fiscal year-end, the Company is required to implement 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) for the fiscal year ended December 31, 1996. This pronouncement requires a review for impairment whenever circumstances indicate that the carrying amount of long-lived assets, certain identifiable intangibles and goodwill may not be recoverable through future cash flows. In accordance with SFAS 121, the Company recognized a pre-tax charge of $500,000 ($290,000 after tax, or $.04 per share), effective January 1, 1996. The charge is included in depreciation and amortization in the consolidated statement of income for the six months ended June 30, 1996. Management has not made a final determination as to the election of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and therefore no impact of its implementation is reflected in these financial statements. Note 2 - Discontinued Operation During the six month period ended June 30, 1995, the Company completed the sale of certain operating assets of its subsidiary, American Corrosion Services, Inc. ("ACS"), a manufacturer and marketer of corrosion protection devices, to a wholly-owned subsidiary of Corrpro Companies, Inc. ("Corrpro"). The purchase price of $1,500,000 of cash and $3,386,890 of promissory notes was delivered to the Company on January 6, 1995 and is reflected in the consolidated statement of cash flows for the six months ended June 30, 1995. On April 28, 1995, the Company sold the promissory notes, which were obtained in connection with the sale of ACS' assets, with recourse to a financial institution for total proceeds of $2,761,510. The difference between the proceeds received and the $2,920,294 principal balance of the notes is reported as other expense in the consolidated statement of income for the three and six months ended June 30, 1995. Note 3 - Inventories The major classes of inventories consist of the following (in thousands): June 30, December 31, 1996 1995 ________ ____________ (Unaudited) (Unaudited) Fuel $ 87 $ 101 Supplies 850 1,026 Work-in- 1,676 444 process Finished goods --- 690 _______ ________ $2,613 $2,261 ======= ======== Note 4 - Earnings (Loss) Per Share Primary earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Note 5 - Commitments and Contingencies In the normal course of business the Company becomes involved as a defendant or plaintiff in various lawsuits. While the outcome of these lawsuits cannot be predicted with certainty, based upon the evaluation by the Company's legal counsel of the merits of pending or threatened litigation, the Company does not expect that the outcome of such litigation will have a material effect on the accompanying financial statements. Although the Company's operations involve a higher degree of risk than found in some other service industries, management is of the opinion that it maintains insurance at levels generally at or above industry standards to insure itself against the normal risks of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following tables set forth, for the periods indicated, additional information on the operating results of the Company in its geographic and product markets:
Three Months Ended June 30, 1996 __________________________________________________________________________ International Inland and West Subsea (Unaudited) Gulf Services Services Coast Services Products Total ________________ ______________ _________________ _____________ ________ Diving and related revenues $ 11,453 $ 3,132 $ 9,811 $ 2,433 $ 26,829 Diving and related expenses $ 7,772 $ 2,000 $ 6,526 $ 1,354 $ 17,652 Gross profit $ 3,681 $ 1,132 $ 3,285 $ 1,079 $ 9,177 Gross profit percentage 32.1% 36.1% 33.5% 44.3% 34.2% Three Months Ended June 30, 1995 __________________________________________________________________________ International Inland and West Subsea (Unaudited) Gulf Services Services Coast Services Products Total ________________ ______________ _________________ _____________ ________ Diving and related revenues $ 9,946 $ 4,424 $ 2,931 $ 2,412 $ 19,713 Diving and related expenses $ 7,953 $ 2,695 $ 2,293 $ 1,143 $ 14,084 Gross profit $ 1,993 $ 1,729 $ 638 $ 1,269 $ 5,629 Gross profit percentage 20.0% 39.1% 21.8% 52.6% 28.6% Includes diving and related services, pipelay/bury and derrick barge services provided by American Marine Construction, Inc. and environmental remediation and oil spill response services provided by American Pollution Control, Inc., all of which were performed in the Gulf of Mexico. The pipelay/bury barge was sold effective March 1, 1996. Includes all diving and related services performed outside of the United States and its coastal waters except for Latin America, which is included in Inland and West Coast Services. Includes diving and related services off the U.S. West Coast provided by American Pacific Marine, Inc. and diving and related services provided by American Inland Divers, Inc. Includes manufacturing and marketing of Big Inch pipeline connectors and Tarpon marginal well production systems.
Six Months Ended June 30, 1996 __________________________________________________________________________ International Inland and West Subsea (Unaudited) Gulf Services Services Coast Services Products Total ________________ ______________ _________________ _____________ ________ Diving and related revenues $22,257 $5,432 $14,776 $ 3,592 $46,057 Diving and related expenses $15,460 $3,022 $ 9,871 $ 1,920 $30,273 Gross profit $ 6,797 $2,410 $ 4,905 $ 1,672 $15,784 Gross profit percentage 30.5% 44.4% 33.2% 46.5% 34.3% Six Months Ended June 30, 1995 __________________________________________________________________________ International Inland and West Subsea (Unaudited) Gulf Services Services Coast Services Products Total ________________ ______________ _________________ _____________ ________ Diving and related revenues $18,019 $6,357 $ 4,093 $ 3,165 $31,634 Diving and related expenses $14,380 $3,748 $ 3,427 $ 1,711 $23,266 Gross profit $ 3,639 $2,609 $ 666 $ 1,454 $ 8,368 Gross profit percentage 20.2% 41.0% 16.3% 45.9% 26.5% Includes diving and related services, pipelay/bury and derrick barge services provided by American Marine Construction, Inc. and environmental remediation and oil spill response services provided by American Pollution Control, Inc., all of which were performed in the Gulf of Mexico. The pipelay/bury barge was sold effective March 1, 1996. Includes all diving and related services performed outside of the United States and its coastal waters except for Latin America, which is included in Inland and West Coast Services. Includes diving and related services off the U.S. West Coast provided by American Pacific Marine, Inc. and diving and related services provided by American Inland Divers, Inc. Includes manufacturing and marketing of Big Inch pipeline connectors and Tarpon marginal well production systems.
The following discussion of the Company's financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the Company's consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Results of Operations As a result of the change in the Company's fiscal year end from October 31 to December 31, which was approved by the Company's Board of Directors on June 26, 1996, this quarterly report on Form 10-Q includes results of operations as of and for the three and six months ended June 30, 1996 and 1995. In the second quarter ended June 30, 1996, the Company experienced strong results of operations in spite of the fact that this period is not traditionally associated with uniformly high activity, particularly in the Gulf of Mexico. For the three months ended June 30, 1996, the Company recorded net income of $1.7 million on revenue of $26.8 million, compared to a net loss of $485,000 on revenue of $19.7 million for the same period in fiscal 1995. The positive second quarter results were accomplished as a result of (i) increased activity in the Inland and West Coast Services group primarily as a result of the Chevron platform abandonment project off the coast of Califonia; (ii) increased diving and vessel activity in the Gulf of Mexico attributable to a large number of projects involving pipeline maintenance and repair and increased demand for the Company's subsea pipeline connector products; (iii) the addition of the jack-up derrick barge, the "American Intrepid", which began operations in June 1995 and (iv) the Company's continued focus on cost control. The first six months of fiscal 1996 were just as positive for the Company as revenues increased to $46.1 million, a 46% increase, as compared to $31.6 million for the comparable period in the prior year. Several factors combined to produce a significant increase in revenues for the Company during the six month period ended June 30, 1996. First, the Inland and West Coast Services group experienced record activity levels with revenues increasing from $4.1 million in the first six months of fiscal 1995 to $15.0 million in the current six month period. This is primarily due to the activity level associated with the Chevron platform abandonment project off the coast of California discussed above and the Inland Group's increased market penetration. Second, Gulf of Mexico activity was significantly higher as a result of increased dive crew and vessel activity in the Gulf of Mexico and the operations of the American Intrepid. As a result of these positive revenue factors, increased gross profit margins and the lack of second quarter operating losses associated with the American Enterprise which was sold on March 1, 1996, the Company recorded net income of $1.8 million for the six months ended June 30, 1996 compared to net loss of $2.2 million for the six months ended June 30, 1995. 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. Also, weather conditions in the Gulf of Mexico and in certain of the Company's inland markets, particularly the winter weather conditions that are generally present from December through April, substantially reduce the work that could otherwise be performed by the Company's dive crews and limit the utilization of the Company's support vessels in the Gulf of Mexico. The Company expects winter weather patterns and other adverse weather conditions to continue to have an adverse effect on the Company's diving operations, both in the Gulf of Mexico and elsewhere. On March 1, 1996, the Company sold the American Enterprise for $5,400,000 resulting in a non-recurring gain in the first quarter of fiscal 1996. During the second quarter of fiscal 1996, the Company acquired four dive support vessels and certain diving equipment to be used in its Gulf of Mexico diving operations. Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Total revenues. Compared to the second quarter of 1995, the Company's consolidated revenues increased $7.1 million or 36%, from $19.7 million in the second quarter of 1995 to $26.8 million in the current quarter. Of the $7.1 million increase, (i) approximately $6.9 million was attributable to increased diving activity in the Inland and West Coast Services markets, $6.6 million of which resulted from the Chevron platform abandonment project off the coast of California; (ii) approximately $1.3 million was attributable to the operations of the American Intrepid, the Company's jack-up derrick barge which was not operational for the entire fiscal 1995 second quarter; and (iii) approximately $1.8 million was attributable to increased diving and vessel activity in the Gulf of Mexico. These revenue increases were offset by certain revenue decreases including (i) approximately $1.7 million attributable to the American Enterprise, the Company's pipelay/bury barge that was sold on March 1, 1996, and (ii) approximately $1.3 million attributable to the operations of the International Services group. Selling, general and administrative expenses. Selling, general and administrative expenses increased 2%, or $106,000 to $4.8 million during the second quarter of 1996 compared to $4.7 million for the second quarter of 1995. The increase was primarily attributable to a $214,000 increase in the selling, general and administrative expenses of the International Service group as a result of supporting the activities of the operations and sales office in Dubai, UAE which did not have full operations for the entire second quarter of fiscal 1995. This increase was offset by an overall decrease in selling, general and administrative expenses of the Company's other groups as a result of ongoing focused cost-cutting efforts. Although there was an overall increase in the level of selling, general and administrative expenses during the second quarter of fiscal 1996, selling, general and administrative expenses, as a percentage of revenues, decreased to 18% compared to 24% for the second quarter in fiscal 1995. Depreciation and amortization. Depreciation and amortization increased $139,000, or 11%, to $1,404,000 in the second quarter of fiscal 1996 compared to $1,265,000 in the second quarter of fiscal 1995. The increase was attributable to additions and improvements to the Company's operational and administrative assets primarily in the Gulf Services and International Services groups, offset by a reduction in depreciation expense of the American Enterprise which was sold in March 1996. Operating income (loss). During the three months ended June 30, 1996, operating income was $3.0 million compared to an operating loss of $311,000 for the comparable period in fiscal 1995. The positive change in operating income was due primarily to an overall increase in the Company's gross profit margin from $5.6 million, or 28.6%, in the second quarter of fiscal 1995 to $9.2 million, or 34.2%, in the second quarter of fiscal 1996. Other income/expense. During the current quarter, other expense (net) of $7,000 was comprised of interest expense of $245,000, offset by a net gain on disposal of assets of $179,000 and other income of $60,000. This compares to other expense (net) of $457,000 in the comparable quarter of fiscal 1995, which was comprised of interest expense of $406,000 and a net loss on the disposal of assets of $139,000, offset by other income of $88,000. Interest expense decreased from fiscal 1995 to fiscal 1996 primarily as a result of the Company's reduced debt levels in the second quarter of fiscal 1996 compared to the comparable period of fiscal 1995. Net income (loss). As a result of the conditions discussed above, the Company recorded net income of $1.7 million, or $.26 per share, in the three months ended June 30, 1996 compared to net loss of $485,000, or ($.07) per share, in the comparable period of the prior fiscal year. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Total revenues. The Company's consolidated revenues increased 46%, from $31.6 million for the six months ended June 30, 1995 to $46.1 million in the current period. Of the $14.5 million increase, (i) approximately $10.7 million was attributable to increased activity in the Inland and West Coast diving markets, $6.6 million off which resulted from the Chevron platform abandonment project; (ii) approximately $2.3 million was attributable to the operations of the American Intrepid, the Company's jack-up derrick barge which was not operational for the entire six months ended June 30, 1996; and (iii) approximately $2.9 million was attributable to increased diving and vessel activity in the Gulf of Mexico. These revenue increases were offset by certain revenue decreases including (i) approximately $1.3 million attributable to the American Enterprise, the Company's pipelay/bury barge that was sold on March 1, 1996, and (ii) approximately $925,000 attributable to the operations of the International Services group. Selling, general and administrative expenses. Selling, general and administrative expenses increased 4%, or $346,000, to $9.5 million during the six months ended June 30, 1996 compared to $9.2 million for the six months ended June 30, 1995. The increase was attributable to a $459,000 increase in the selling, general and administrative expenses of the International Service group as a result of supporting the activities of the operations and sales office in Dubai, UAE which did not have full operations for the entire first six months of fiscal 1995. An additional $125,000 of the increase was attributable to severance paid in connection with personnel layoffs during the three months ended March 31, 1996. These increases were offset by an overall decrease in selling, general and administrative expenses of the Company's other groups as a result of ongoing focused cost-cutting efforts. Although there was an overall increase in the level of selling, general and administrative expenses during the six months ended June 30, 1996, selling, general and administrative expenses as a percentage of revenues decreased from 29% for the six months ended June 30, 1995 to 21% in the comparable period of 1996. Depreciation and amortization. Compared to the six months ended June 30, 1995, depreciation and amortization increased $822,000, or 34%, to $3.3 million for the six months ended June 30, 1996. Of the $822,000 increase, the Company recognized 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 income for the six months ended June 30, 1996. The remaining increase of $322,000 was attributable to additions and improvements to the Company's operational and administrative assets primarily in the Gulf Services and International Services groups, offset by a reduction in depreciation expense of the American Enterprise which was sold in March 1996. Operating income (loss). During the six months ended June 30, 1996, operating income was $3.0 million compared to operating loss of $3.2 million for the comparable period in fiscal 1995. The significant change in operating income was due primarily to an overall increase in the Company's gross profit margin from $8.4 million, or 26.5%, in the first six months of 1995 to $15.8 million, or 34.3%, in the first six months of fiscal 1996. Other income/expense. During the first six months of fiscal 1996, other income (net) of $142,000 was comprised of interest expense of $528,000, which was offset by a net gain on disposal of assets of $578,000 and other income of $92,000. The net gain on the disposal of assets includes the non- recurring gain on the sale of the American Enterprise offset by losses on the disposal of other fixed assets. This compares to other expense (net) of $604,000 in the comparable period of fiscal 1995, which was comprised of interest expense of $674,000, offset by other income of $195,000 and a loss on the disposal of assets of $126,000. Net income (loss). As a result of the conditions discussed above, the Company recorded net income of $1.8 million, or $.27 per share, in the six months ended June 30, 1996 compared to a net loss of $2.3 million, or ($.34) per share, in the comparable period of the prior fiscal year. 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 and to its DSVs and diving and related equipment. The Company also incurs expenses for mobilization and project execution on an ongoing basis throughout the course of its contracts, while collections from customers typically do not occur until approximately ninety days after invoicing. The Company has traditionally supported these working capital requirements by using a combination of internally generated funds and short-term and long-term debt, as was the case in the second quarter of 1996. The Company has a bank line of credit in the principal amount of $15 million against which $350,000 was drawn at June 30, 1996. Also at June 30, 1996, the Company has a long-term note payable with a bank in the amount of $10.5 million at a fixed interest rate of 7.9%. The Company believes that cash flows from operations and borrowings available under its bank credit facility will provide sufficient funds for the next twelve to eighteen months to meet its working capital and capital expenditure requirements and to fund any further expansion into new geographic markets or development of new product lines. Net cash provided by operations was $7.9 million for the six months ended June 30, 1996 compared to $1.4 million used by operations in the comparable prior year period. Cash flows from operating activities are primarily cash received from customers and cash paid to employees and suppliers. During the six months ended June 30, 1996, cash received from customers was $46.2 million and cash paid to employees and suppliers was $38.2 million. During the six months ended June 30, 1995, cash received from customers was $33.6 million and cash paid to employees and suppliers was $34.0 million. The factors affecting amounts and timing of cash flows from operating activities are the same as those affecting results of operations discussed above. In the most recent six month period, net cash used by investing activities was approximately $3.7 million which consisted of $10.2 million expended for the acquisition of and improvements to operating assets to be used in the Company's operations. This amount was funded primarily by proceeds of $5.7 million received from the sale of certain operating assets including the American Enterprise and the receipt of $535,000 of proceeds from an insurance claim. In the prior six month period, net cash provided by investing activities was approximately $330,000 which consisted of $6.0 million expended for the acquisition of and improvements to operating assets to be used in the Company's operations. This amount was funded primarily by proceeds of $1,500,000 received from the sale of the operating assets of its subsidiary, American Corrosion Services, Inc. ("ACS"), the receipt of $1.6 million related to the insurance claim on the sinking of the M/V American Heritage. the receipt of $467,000 of payments on notes receivable acquired in connection with the sale of ACS' assets and the receipt of proceeds of $2.8 million from the sale of those notes receivable to a financial institution. Cash flows used by financing activities of $3.8 million in the six months ended June 30, 1996 were primarily attributable to payments of short-term and long-term debt totalling $14.4 million funded by proceeds from long-term borrowings of $10.5_ million and proceeds from the issuance of common stock upon exercise of stock options totalling $136,000. In the comparable period of fiscal 1995, cash provided by financing activities of approximately $888,000 was primarily attributable to payments of short-term and long-term debt totalling $1.1 million, offset by proceeds from long- term borrowings of $2.0 million. Cautionary Statement Concerning Forward-Looking Information Statements made in this report and in oral statements made from time to time by management of the Company that are not statements of historical fact, are forward-looking statements and are subject to factors that could cause actual results to differ materially from the results predicted in those statements. Such factors include, among others, the following: Cyclical Demand; Dependence on Oil and Gas Industry. The demand for the Company's diving services is cyclical. It depends on the condition of the oil and gas industry and on the expenditures of oil and gas companies for activities related to production and exploration. These expenditure are influenced by, among other things, oil and gas prices, expectations about future prices, the cost of exploring for, producing and delivering oil and gas, the sale and exploration dates of offshore leases in the United States and overseas, the discovery rate of new oil and gas reserves and offshore areas, local and international political, regulatory and economic conditions and the ability of oil and gas companies to generate capital. Competition. The Company's business is highly competitive. Although some consolidation has occurred in the Gulf of Mexico diving services industry in recent years, the remaining companies aggressively compete for available diving projects. While the Company believes that customers continue to consider the availability and capabilities of equipment and the reputation and experience of the diving service supplier, price has become increasingly the primary determinant of customer selection. While the Company competes primarily with a limited number of substantial competitors in the Gulf of Mexico (primarily Oceaneering International, Inc. and Cal-Dive International, Inc.), it also competes with in-house diving divisions of offshore construction companies (primarily Global Industries, Ltd., Subsea International, Inc. and J. Ray McDermott S.A.; J. Ray McDermott, S.A. has recently announced the proposed sale of its diving assets to Cal-Dive International, Inc.). Contract Bidding Risks. Approximately 30% of the Company's total revenues in fiscal 1995 were derived from contracts performed on a fixed-price basis (turnkey contracts) and this percentage is expected to increase in the future. Fixed-price 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 and variation in labor and equipment productivity (such as equipment failure) from original estimates. These variations and the risks inherent in the diving and the inland marine construction industry can result in reduced profitability or losses on fixed-price contracts. Moreover, 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. Effect of Adverse Weather Conditions. 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. Winter conditions typically begin in December and continue until April, 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. International Operations. The international diving activities of the Company, which started in West Africa in 1992, have continued to expand and play an increasingly important role in Company operations. The Company's international operations 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. Operating Risks. 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 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 Company and third parties for, among other things, personal injury, death, property damage, pollution and loss of business. The Company's manufacturing operations with respect to Big Inch Marine Systems (subsea pipeline connector products) and Tarpon Systems, Inc. (a cable-guyed, single caisson marginal well production system), 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. Limitation of Insurance Coverage. While the Company maintains insurance that it believes is in accordance with general industry standards against the normal risks of its operations, such insurance 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 generally insured to the extent that they are in the nature of warranty claims or other claims based on breach of contract. A successful claim for which the Company is not insured could have a material adverse effect on 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. Regulatory and Environmental Matters. The Company's diving service vessels and operations are subject to various types of governmental regulation, 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. The Company assumes no obligation to update the forward- looking statements made in this report or in the oral statements made from time to time by its management. 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. AMERICAN OILFIELD DIVERS, INC. Date: October 30, 1996 /s/ Cathy M. Green _________________________________ Cathy M. Green Vice President - Finance, Chief Financial Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----