-----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, KNPk0b3FYF+7mLGwN3zenaUOTtrxQ3qwR/Ng/yQS5T51BkJ95JGsPNGp62bSOVwq XFgp+GHj4YfyzbNxhIntAQ== 0000906520-98-000005.txt : 19980518 0000906520-98-000005.hdr.sgml : 19980518 ACCESSION NUMBER: 0000906520-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22032 FILM NUMBER: 98625588 BUSINESS ADDRESS: STREET 1: 900 TOWN & COUNTRY LANE SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7134301100 MAIL ADDRESS: STREET 1: 900 TOWN & COUNTRY LANE SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77024 10-Q 1 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 March 31, 1998 ( ) 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 ________________________ CEANIC CORPORATION (formerly 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) 900 Town & Country Lane Suite 400 Houston, Texas 70024 (Address of Principal Executive Offices) (713) 430-1100 (Registrant's 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 [x] No [] At May 13, 1998 there were 10,642,205 shares of common stock, no par value, outstanding. CEANIC CORPORATION INDEX Part I. Condensed Financial Information Page Item 1. Condensed Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997.....................1 Condensed Consolidated Statements of Income - Three Months Ended March 31, 1998 and March 31, 1997.....2 Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended March 31, 1998 and March 31, 1997.....3 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and March 31, 1997.....4 Notes to Condensed Consolidated Financial Statements.....5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K...............13 Signatures..............................................14 On May 15, 1998, the shareholders of American Oilfield Divers, Inc. aproved an amendment to the Amended and Restated Articles of Incorporation officially changing the name of American Oilfield Divers, Inc. to Ceanic Corporation. PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements. Ceanic Corporation Condensed Consolidated Balance Sheets (in thousands) March 31, 1998 December 31, 1997 -------------- ----------------- (unaudited) ASSETS ------ Current assets: Cash and cash equivalents $ 1,231 $ 1,407 Accounts receivable, net of allowance for doubtful accounts of $700 and $600 25,894 32,604 Unbilled revenue 19,084 10,870 Other receivables 2,587 3,225 Inventories 6,009 5,428 Prepaid expenses 4,832 1,752 ----------- ----------- Total current assets 59,637 55,286 Property, plant and equipment, net of accumulated Depreciation of $30,414 and $28,305 69,301 63,318 Trademarks and patents, net of accumulated amortization 7,821 8,104 Other assets, net of accumulated amortization 7,086 7,592 ___________ ___________ $143,845 $134,300 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 4,610 $ 8,379 Other liabilities 15,588 10,348 Borrowings under a line of credit agreement 15,914 8,808 Current portion of long-term debt 2,017 2,163 ----------- ------------ Total current liabilities 38,129 29,698 Long-term debt, less current portion 7,759 8,060 Other liabilities 7,293 6,291 ------------ ------------ Total liabilities 53,181 44,049 Stockholders' equity: Common stock, no par value 1,824 1,824 Other stockholders' equity 88,840 88,427 ------------ ------------ Total stockholders' equity 90,664 90,251 ------------ ------------ $143,845 $134,300 ============ ============= The accompanying notes are an integral part of these consolidated financial statements. Ceanic Corporation Condensed Consolidated Statements of Income (in thousands, except per share data) Three Months Ended March 31, ------------------ (unaudited) 1998 1997 ----- ---- Diving and related revenues $36,017 $28,576 ------ ------ Costs and expenses: Diving and related expenses 24,956 20,322 Selling, general and administrative expenses 6,518 5,335 Depreciation and amortization 2,997 2,318 ------- ------- Total costs and expenses 34,471 27,975 ------- ------- Operating income 1,546 601 Other expense, net (444) (205) ------- ------- Income before income taxes 1,102 396 Income tax provision 475 170 ------- ------- Net income $ 627 $ 226 ======= ======= Earnings per common share: Basic $ .06 $ .03 ======= ======= Diluted $ .06 $ .03 ======= ======= Weighted average common shares outstanding: Basic 10,641 8,890 ======= ====== Diluted 10,739 8,936 ======= ====== The accompanying notes are an integral part of these consolidated financial statements. Ceanic Corporation Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data)
Accumulated Common Stock Additional Other --------------- Paid-In Retained Comprehensive Shares Amount Capital Earnings Income(loss) Total ------ ------ ------- -------- ------------- ----- Balance at December 31, 1996 6,879,867 $1,373 $42,059 $2,511 $ (98) $45,845 Issuance of common stock in a stock offering 3,128,315 379 34,871 35,250 Issuance of common stock from underwriter's exercise of overallotment option 425,000 52 4,818 4,870 Issuance of common stock under exercise of stock options 35,399 3 323 326 Comprehensive income: Net income 226 226 Other comprehensive income, net of tax foreign currency translation adjustments (46) (46) --------- ------- ------- --------- ------- --------- Comprehensive income 226 (46) 180 ---------- ------- ------- --------- ------- ---------- Balance at March 31, 1997 10,468,581 $1,807 $82,071 $ 2,737 $ (144) $86,471 ========== ======= ======= ========= ======== ========== Balance at December 31, 1997 10,640,760 $1,824 $84,065 $ 4,742 $ (380) $90,251 Issuance of common stock under exercise of stock options 342 3 3 Comprehensive income: Net income 627 627 Other comprehensive income, net of tax (foreign currency adjustments) (217) (217) ---------- ------- ------- --------- ------- ---------- Comprehensive income 627 (217) 410 ---------- ------- ------- --------- ------- ---------- Balance at March 31, 1998 10,641,102 $1,824 $84,068 $ 5,369 $ (597) $90,664 ========== ======= ======= ========= ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. Ceanic Corporation Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, ------------------- 1998 1997 ---- ---- (unaudited) Net cash flows from operating activities: Net income 627 226 Non-cash items included in net income Depreciation and amortization 2,997 2,318 Net gain on disposition of assets (84) --- Other (2,272) (8,248) ------- -------- Net cash provided by (used by) operating activities 1,268 (5,704) Cash flows from investing activities: Capital expenditures (9,041) (2,346) Proceeds from sale of assets 558 --- Other 377 (331) -------- -------- Net cash used by investing activities (8,106) (2,677) Cash flows from financing activities: Proceeds from issuance of common stock 3 40,446 Repayments of term debt (447) (1,372) Net payments (borrowings) under line-of-credit agreement 7,106 (12,618) -------- --------- Net cash provided by financing activities 6,662 26,456 -------- --------- Net increase (decrease) in cash (176) 18,075 Cash and cash equivalents at beginning of period 1,407 1,322 --------- --------- Cash and cash equivalents at end of period $ 1,231 $19,397 ========== ========= The accompanying notes are an integral part of these consolidated financial statements. Ceanic Corporation Notes to Condensed Consolidated Financial Statements Note 1 - Organization and Significant Accounting Principles The consolidated financial statements include the accounts of Ceanic Corporation and its wholly-owned and majority-owned subsidiaries (the "Company" or "Ceanic"). The Company provides subsea services and products, including field development services to the offshore oil and gas industry, as well as industrial and governmental customers in the U.S. Gulf of Mexico, U.S. West Coast, and certain U.S. inland markets, as well as to customers in the Europe Africa and Asia Pacific Regions. Operations in the U.S. Gulf of Mexico represent a significant portion of the Company's business. The Company's primary customers include major and independent oil and gas companies, offshore engineering and construction companies and major pipeline transmission firms. All material intercompany transactions and balances have been eliminated in consolidation. In February 1997, the Company issued 3,553,315 shares of common stock which provided the Company with net proceeds of approximately $40 million. The Company used approximately $16 million to repay borrowings outstanding under its line of credit and used the remaining proceeds for general corporate purposes, including working capital requirements and funding of capital expenditures and strategic asset acquisitions. 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 December 31, 1997, are contained in the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 1997. The unaudited first quarter financial statements contained herein should be read in conjunction with the audited 1997 financial statements. The unaudited financial statements at, and for the three months ended March 31, 1998 and 1997 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 normally recurring accruals) considered necessary for a fair statement of the financial position and results of operations have been included. A reclassification of approximately $500,000 between diving and related expenses and selling, general and administrative expenses was made to the results of operations for the three months ended March 31, 1997 to conform with the 1998 presentation. 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 greater proportion of the Company's diving services has been performed during the period from May through November. In a typical year, 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. Note 2 - Inventories The major classes of inventories consist of the following (in thousands): March 31, December 31, 1998 1997 ------ ------ (Unaudited) Fuel $ 182 $ 224 Supplies 1,393 1,197 Work in Process 3,677 2,769 Finished Goods 757 1,238 ---------- --------- $6,009 $5,428 ========== ========= Note 3 - Short-term Borrowing During the three months ended March 31, 1998, the Company's revolving line of credit agreement with a bank was increased to $25 million with no other changes in terms to facilitate the Company's expanded working capital and capital requirements. The agreement expired on April 30, 1998 and was extended to July 31, 1998. Note 4 - Earnings per Share The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," beginning with the year ended December 31, 1997. All prior period earnings per share data have been restated to conform to the provisions of this statement. Basic earnings per common share is computed using the weighted average number of shares outstanding for the period. Diluted earnings per common share is computed using the weighted average number of shares outstanding per common share adjusted for the incremental shares attributed to outstanding options to purchase common stock. The reconciliation between the computations is as follows (table amounts in thousands, except per share data): Weighted Average Shares Earnings Per Share Net ------------------------- ------------------- Income Basic Incremental Diluted Basic Diluted Three months ended: March 31, 1998 $627 10,641 98 10,739 $.06 $.06 March 31, 1997 226 8,890 46 8,936 .03 .03 Note 5 - Comprehensive Income As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes new requirements for reporting comprehensive income and its components. Adoption of this statement had no impact on the Company's net income or stockholders' equity for the periods presented. SFAS 130 requires unrealized gains or losses on the Company's foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Total comprehensive income for the quarters ended March 31, 1998 and 1997 amounted to approximately $410,000 and $180,000, respectively and is a component of stockholders' equity. Note 6 - Commitments and Contingencies The Company has commitments for future purchases of capital assets totalling approximately $22 million at March 31, 1998. Legal Matters In November 1996, a large oil and gas company instituted litigation against subsidiaries of the Company in Edinburgh, Scotland seeking damages of approximately U.S. $3,000,000, plus interest and costs, on the basis of allegations that a product supplied by the subsidiaries exhibited design faults upon installation in a North Sea pipeline. Prior to installation, the product was hydrostatically tested onshore and during the test it did not leak or otherwise malfunction. After installation but before oil or gas flowed through the pipeline under pressure, the product was removed and replaced by the customer against the recommendations of the Company's subsidiaries. The product did not leak and no environmental damage is alleged. The Company believes, at this time, that the product was fully suitable for service and intends to defend itself vigorously against the claim, although no assurance can be given as to the ultimate outcome of the litigation. There has been no material developments in the first quarter ended March 31, 1998. In November 1997, an oilfield service company instituted litigation against the Company in United States Federal Court in New Orleans, Louisiana seeking damages on the basis of allegations that the Company had breached the terms of a time-charter contract. The plaintiff leased to the Company a jack-up derrick barge which had been reoutfitted by the company and which foundered and sank on April 27, 1997 while performing a platform abandonment project. The plaintiff alleges the losses incurred as a result of the barge's sinking to be $13 million plus interest and costs, of which the Company had paid the plaintiff insurance proceeds of $3 million. The plaintiff alleges the losses to be in excess of the insured value of the barge. The plaintiff and Company unsuccessfully attempted to mediate this matter. The Company believes the barge's value was equal to its insured value and intends to defend the claim vigorously, although no assurance can be given as to the ultimate outcome of the litigation. There has been no material developments in the first quarter ended March 31, 1998. The Company and certain of its subsidiaries are also parties to various routine legal proceedings primarily involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act as a result of alleged negligence or alleged "unseaworthiness" of the Company's vessels. While the outcome of these lawsuits cannot be predicted with certainty, the Company believes that its insurance coverage with respect to such claims is adequate and that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on its business or financial condition or results of operations. Note 7 - Subsequent Events Subsequent to March 31, 1998, the Company entered into commitments to charter three dynamically positioned vessels with the first charter beginning in July 1998. Two of the agreements provide purchase options at the end of the charter. Each of the charters is for a three year period with total payments under the charter agreements aggregating $25 million. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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, and in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1997. 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 March 31, 1998 ----------------------------------------------------------------------------------- (Unaudited) (dollars in thousands) Americas Pacific Europe Africa General Subsea Region Region Region Contracting Products Total --------- -------- ------------- ----------- -------------- -------- Diving and related revenues $19,320 $1,114 $1,700 $7,146 $6,737 $36,017 Diving and related expenes $12,200 $1,126 $1,512 $6,176 $3,942 $24,956 Gross profit (loss) $ 7,120 $ (12) $ 188 $ 970 $2,795 $11,061 Gross profit percentage 36.9% (1.1%) 11.1% 13.6% 41.5% 30.7%
Three Months Ended March 31, 1997 ----------------------------------------------------------------------------------- (Unaudited) (dollars in thousands) Americas Pacific Europe Africa General Subsea Region Region Region Contracting Products Total --------- -------- ------------- ----------- -------------- -------- Diving and related revenues $13,461 $ -- $ 2,841 $ 7,789 $ 4,485 $ 28,576 Diving and related expenses $10,057 $ -- $ 1,607 $ 6,122 $ 2,536 $ 20,322 Gross profit $ 3,404 $ -- $ 1,234 $ 1,667 $ 1,949 $ 8,254 Gross profit percentage 25.3% -- 43.4% 21.4% 43.5% 28.9% Includes operations in the Company's Americas Region, which encompasses diving, intervention technology, vessel and related services, all of which were performed in the Gulf of Mexico. Includes diving and related services in U.S. inland markets, off the U.S. West Coast and in Latin America. Includes manufacturing and marketing of Big Inch pipeline connectors, Tarpon Guyed Monotower and Ceanic Concrete Storage Systems products, and Ceanic Hard Suits Inc. products.
Results of Operations The Company experienced significant growth in its revenues in the first quarter of 1998 with revenue increasing from $28.6 million in 1997 to $36.0 million in the current quarter. Net income increased from $226,000 in the first quarter of 1997 compared to $627,000 in the current quarter. The results of operations for the period have begun to reflect the Company's strategy to position itself as a deepwater, high technology provider of innovative solutions. Despite the fact that the first quarter is typically the most weather-sensitive, the Americas Region's revenue increased by $5.9 million or 44% over the prior year quarter. This was primarily due to the addition in late 1997 of several new deepwater assets which are generally less weather sensitive and include the American Defender, a 220-foot dynamically positioned (DP) vessel, and several new remotely operated vehicles (ROV's). At the same time, the core diving and vessels market in the Americas Region produced strong results with increased utilization and day rates for the existing vessel fleet. The Company's Products Division also achieved strong results in the first quarter of 1998. There was record demand for Big Inch's pipeline connector and repair products. Hard Suits recorded positive operating results with the manufacture of a HARDSUIT(TM) diving suit for the Italian Navy and the continued progress on U.S. Navy contracts. Finally, the Company completed the fabrication of a Tarpon Guyed Monotower in Indonesia in the first quarter of 1998. Although the Company experienced strong results of operations in its Americas Region and Subsea products divisions, these results were partially offset by project cost overruns in its General Contracting Division and Asia Pacific region, and by lower than anticipated activity levels and related profit margins in both of these groups as well as the Europe Africa region. However, both the Europe Africa Region and the General Contracting Division have begun to experience increased activity levels in the second quarter of 1998 with the General Contacting Division having a backlog of $24.5 million as of April 30, 1998. Management continues to develop Ceanic's market presence in its international regions, but is currently evaluating the cost structure of operations in those regions in an effort to make them more cost effective. During the first quarter and second quarters of 1998, the Company has made commitments to add several DP vessels to its fleet over the course of 1998. The Company committed to purchase the Ceanic Legend, a 240-foot DP vessel in the fourth quarter of 1998. The Company also committed to three-year charters of the Ceanic Invincible and the Ceanic Rover, two 234-foot DP vessels. Both charter agreements provide purchase options at the end of the charter period. Finally, the Company entered into a three-year charter beginning August 1998 for the Kommander 3000, a 313-foot multi- purpose construction vessel. As the Company has continued its long-term focus on expansion into deepwater Gulf of Mexico markets and certain international markets, the related selling, general and administrative expenses have increased. The Company is now in the process of resizing its international and administrative management infrastructure with a planned completion date of the second quarter of 1998. The Company's targeted annual overhead reduction is $3 million to $4 million. 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. 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 April 16, 1998, the Company's Chief Financial Officer, Cathy M. Green, resigned her position and Bradley M. Parro was appointed as the Company's new Vice President-Finance and Chief Financial Officer. Parro has approximately 18 years of financial management experience. Parro served as CFO of Perry Tritech, an international subsea robotics manufacturer and subsidiary of Coflexip-Stena for the past seven years. Prior to Perry, Parro served in various financial management capacities with a large telecommunications manufacturer including manager of financial planning and analysis. Parro graduated from the University of Illinois with a Bachelor of Science in Finance and earned an MBA from Loyola University of Chicago. On May 1, 1998, Rodney W. Stanley resigned as President and Chief Executive Officer and director and Kevin C. Peterson was elected President and Chief Executive Officer; Peterson has been with the Company for approximately one year, serving as its Chief Operating Officer and director. Prior to joining Ceanic, Peterson served in various capacities with the Coflexip-Stena Offshore group, most recently as President and Chief Executive Officer of Coflexip-Stena Offshore USA and Perry Tritech. During the first quarter of 1998, the Company has benefited from the continued strength of the oil and gas industry, particularly in the Gulf of Mexico, and experienced strong demand for its subsea services and related products in the Gulf of Mexico. Based on a variety of traditional industry indicators that are currently positive such as generally stong Gulf of Mexico drilling rig count, large number of pipeline construction projects, lease sales and other similar indices, the Company believes that this trend will continue for the remainder of fiscal 1998. Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Total revenues. The Company's consolidated revenues increased $7.4 million, or 26%, from $28.6 million for the three months ended March 31, 1997 to $36.0 million for the current quarter. The increase was primarily attributable to increased demand for services in the Americas Region as a result of the 1997 addition of certain deepwater assets, and increased utilization and day rates for the Company's existing Gulf of Mexico vessel fleet. The Company also experienced increased demand for its subsea products in the first quarter of 1998. These revenue increases were offset by a reduction in activity levels in both the West Africa Region and General Contracting Division for the three months ended March 31, 1998. Diving and related expenses. The Company's consolidated diving and related expenses increased $4.7 million, or 23%, from $20.3 million for the three months ended March 31, 1997 to $25.0 million for the current three-month period. The increase was primarily attributable to the increased activity levels of the Americas Region and Subsea Products divisions, as discussed above, and the addition of operations in Southeast Asia for the first quarter of 1998. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.2 million or 22%, to $6.5 million during the first quarter of 1998, compared to $5.3 million for the same period of 1997. The increase was primarily attributable to the costs of supporting the Company's new international and deepwater management infrastructure. During the first quarter ended March 31, 1998, the Company began classifying certain costs that had previously been presented in selling, general and administrative expenses into direct expenses to better report the nature of the costs. Amounts totalling approximately $500,000 presented in the statement of operations for the three months ended March 31, 1997 have been reclassified to conform with this presentation. During the first quarter of 1998, selling, general and administrative expenses as a percentage of revenues was 18%, slightly lower than the 19% rate for the first quarter of 1997. The Company intends to make targeted reductions in its annual selling, general and administrative expenses beginning in the second quarter of 1998. Depreciation and amortization. Depreciation and amortization increased $679,000 or 29%, to $3.0 million for the first quarter of 1998, compared to $2.3 million for the first quarter of 1997 primarily due to capital expenditures made in 1997 for ROV's, diving equipment, a dynamically positioned vessel and upgrades to other vessels in the Gulf of Mexico. Depreciation and amortization also increased as a result of assets acquired for the Company's new operation in Southeast Asia and expansion of its Europe Africa region. Other expense. During the current quarter, other expense (net) of $444,000 was comprised of interest expense of $554,000, partially offset by a gain on the disposal of assets of $84,000 and other income of $26,000. This compares to other expense (net) of $205,000 for the comparable period of 1997, which was comprised of interest expense of $311,000, partially offset by interest income of $14,000 and other income of $92,000. Net income. As a result of the factors discussed above, the Company recorded net income of $627,000, or $.06 per share (basic) on 10.6 million weighted average common shares for the three months ended March 31, 1998, compared to net income of $226,000, or $.03 per share (basic) on 8.9 million weighted average common shares for the same period of 1997. Liquidity and Capital Resources The Company's primary liquidity needs are, generally, to fund working capital requirements and to make capital expenditures for acquisitions of, and improvements to, its facilities, its DSVs, diving and related equipment, and other capital 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 90 to 120 days after completing the project including the approximately 30 days required to invoice completed projects. The Company has traditionally supported these working capital requirements by using a combination of internally generated funds and short-term and long-term debt. The Company has a revolving line of credit agreement with a bank at the prime rate that is limited and secured by eligible accounts receivable up to a maximum borrowing of $25 million. The agreement expired on April 30, 1998 and was extended until July 31, 1998. At May 8, 1998, the balance outstanding under the line was $17.6 million and, based on eligible accounts receivable at that time, the remaining balance available to borrow was $2.8 million. The Company has a long-term note with a bank at a fixed interest rate of 7.9%. At March 31, 1998 the outstanding principal balance of the note was $7,750,000. The terms of the note require monthly principal payments of $125,000, plus interest, with a balloon payment of $3.1 million due on May 31, 2001. This debt is secured by eleven DSVs and certain diving equipment. Also at March 31, 1998, the Company has various government assistance notes which are non-interest bearing, unsecured and are payable in various installments through July 1999. During 1998, the Company has made certain commitments, both in terms of capital expenditures as well as long-term charters agreements, for the addition of remotely operated vehicles and four DP vessels that will require significant amounts of liquidity and capital resources. The charter agreements call for aggregate payments of $25 million over a three year period and the purchase commitments approximate $22 million at March 31, 1998. Although the Company does not have firm arrangements in place at this time for its long-term financing needs, and the existing line of credit facility is in the process of being renewed, the Company believes that it will be able to finalize its overall financing arrangements in the near term and that such financing, coupled with cash flows from operations and other sources, will provide sufficient funds to meets its working capital and capital expenditure requirements for 1998. Net cash provided by operating activities was $1,268,000 for the three months ended March 31, 1998 compared to $5.7 million used by operating activities for the comparable prior year period. Changes in cash flows from operating activities are primarily due to timing differences in cash received from customers and cash paid to employees and suppliers. For the most recent three month period, net cash used by investing activities was approximately $8.1 million, which consisted mainly of $9.0 million expended for the acquisition of and improvements to operating assets, partially offset by proceeds of $558,000 received from the disposal of assets and a decrease of $377,000 in other assets. For the same three month period of the prior year, net cash used by investing activities was approximately $2.7 million, which consisted primarily of $2.3 million expended for the acquisition of and improvements to operating assets and $331,000 for other assets. Cash flows provided by financing activities were approximately $6.7 million for the three months ended March 31, 1998, primarily attributable to net borrowings of $7.1 million on the line of credit agreement offset by repayments of $447,000 on term debt. For the same three months of 1997, cash provided by financing activities of approximately $26.5 million was attributable to proceeds of $40.4 million from issuance of the Company's common stock, offset by payments on term debt of $1.4 million and on the line of credit agreement of $12.7 million. Impact of the Year 2000 The Company has assessed and continues to assess the impact of the Year 2000 on its reporting systems and operations. The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could potentially result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in other similar normal business activities. The Company had already planned to implement new computer accounting and management information software to increase operational efficiencies and information analysis and, to that end, purchased software and committed to implement the software over the course of early 1998 to mid 1999. The Company believes that, with the implementation of this new software, the Year 2000 issue should be generally resolved for the Company's accounting and management systems. The Company believes, at this time, that the cost of the implementation of the new software will not have a material adverse effect on the Company's consolidated financial position or results of operations. Although the Company is still assessing the impact of the Year 2000 issue on its other operating systems, at this time the Company believes it will not have a material impact on the Company's financial position or results of operations. The Company has not yet initiated formal communications with all of its significant suppliers and vendors to ensure that those parties have appropriate plans to address year 2000 issues where they may otherwise impact the operations of the Company; however, the Company does not have any significant suppliers or vendors that directly interface with the Company's information technology systems. There is no guarantee that the systems of other companies on which the Company relies will be converted timely and will not have an adverse effect on the Company. New Accounting Pronouncement In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities," which requires that start-up costs, including organization costs, be expensed as incurred. The Company plans to adopt SOP 98-5 for the year ended December 31, 1999. The Company is currently evaluating the impact of this statement on its financial position and results of operations. PART II. OTHER INFORMATION Item 6.Exhibits and Reports on Form 8-K. (a)Exhibits 10.1 Third Amended and Restated loan agreement, dated February 11, 1998 among American Oilfield Divers, Inc., certain of its subsidiaries and First National Bank of Commerce. 27.1 Financial Data Schedule (b)Reports on Form 8-K Date of Report Item Reported: February 24, 1998 Item 5 "Other Events" announcing the fourth quarter and 1997 year end results. 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. CEANIC CORPORATION Date: May 15, 1998 /s/ Bradley M. Parro ----------------------- Bradley M. Parro Vice President - Finance, and Chief Financial Officer (Principal Financial and Accounting Officer) EX-10 2 EXHIBIT 10 THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated as of February 11, 1998 (this "Amendment"), between AMERICAN OILFIELD DIVERS, INC., a Louisiana corporation ("Borrower") and FIRST NATIONAL BANK OF COMMERCE, a national banking association ("Lender"). W I T N E S S E T H: WHEREAS, Borrower and Lender have heretofore entered into a Second Amended and Restated Loan Agreement dated as of April 3, 1996, as heretofore amended by that certain First Amendment thereto between Borrower and Lender dated as of March 28, 1997, and by that certain Second Amendment thereto between Borrower and Lender dated as of June 12, 1997 (as so amended, the "Loan Agreement"), pursuant to which Lender agreed to provide Borrower with certain credit facilities consisting of a revolving line of credit, a commitment for the issuance of letters of credit, and a term loan under the terms and conditions more fully described therein; and, WHEREAS, Borrower has requested that Lender increase its commitment to make Revolving Loans and to issue Credits pursuant to the terms of the Loan Agreement to an aggregate amount not to exceed $25,000,000.00 at any time, and Lender has agreed to so increase its commitment subject to the terms and conditions of the Amendment. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants hereinafter set forth and intending to be legally bound hereby, agree as follows: 1. Defined Terms. Capitalized terms used herein which are defined in the Loan Agreement are used herein with such defined meanings unless otherwise defined herein. 2. Amendments to Loan Agreement. (a) Contemporaneously herewith, Borrower has executed and delivered to Lender that certain promissory note made by Borrower dated February 11, 1998, payable to the order of Lender in the principal sum of Twenty-Five Million and No/100 ($25,000,000.00) Dollars, which note has been given in renewal and extension, but not as a novation, of that certain promissory note made by Borrower dated April 3, 1996, payable to the order of Lender in the principal sum of $15,000,000.00, as said promissory note was heretofore amended by the First and Second Amendments to the Loan Agreement dated as of March 28, 1997, and June 12, 1997, respectively. Accordingly, the definition of the term "Revolving Note" in Article I of the Loan Agreement is hereby amended to read as follows: (49) "Revolving Note" shall mean that certain promissory note made by Borrower dated February 11, 1998, payable to the order of Lender in the principal sum of $25,000,000.00, which evidences the Revolving Loans made pursuant to the terms hereof, together with any and all promissory notes given in renewal, extension and modification thereof. All references in the Loan Agreement to the term "Revolving Note" shall henceforth refer to such note as defined in this Amendment. (b) The definition of the term "Ship Mortgages" in Article I of the Loan Agreement is hereby amended to read as follows: (52) "Ship Mortgages" shall mean, collectively, collectively, (i) that certain Preferred Mortgage by S & H Diving Corporation (predecessor to S & H) in favor of Lender dated August 9, 1994, (ii) that certain Fleet Preferred Mortgage by APM in favor of Lender dated September 22, 1994, (iii) that certain Preferred Mortgage by Borrower in favor of Lender dated September 22, 1994, (iv) that certain Preferred Mortgage by S & H Diving Corporation (predecessor to S & H) in favor of Lender dated April 3, 1995, and (v) that certain Preferred Mortgage by S & H in favor of Lender dated May 13, 1996, as each of said instruments have been amended or may be amended from time to time. The term "Ship Mortgages" shall also include any additional preferred ship mortgages now existing or hereafter from time to time granted by any Grantor affecting any and all Coast Guard documented vessels as security for any indebtedness of Borrower to Lender. (c) All references in Articles II and VI of the Loan Agreement to the dollar amount of "$15,000,000.00" are hereby deleted and replaced with references to the dollar amount of "$25,000,000.00". (d) The last sentence of Article VI, Section (a) of the Loan Agreement is hereby amended to read as follows: In no event shall a Credit be issued by Lender if the sum of the face amount thereof, when added to the aggregate unfunded amounts of Credits then outstanding, would exceed $7,500,000.00, nor shall a Credit be issued by Lender if the sum of the face amount thereof, when added to the sum of the aggregate unfunded amounts of Credits then outstanding plus the aggregate amount of the Revolving Loans at such time outstanding, would exceed the lesser of (i) $25,000,000.00, or (ii) the Net Collateral Value in effect at such time. 3. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not be effective unless and until Lender receives, on or prior to February 13, 1998, an executed copy of the Revolving Note (as herein defined), an executed counterpart of this Amendment, resolutions of the Board of Directors of Borrower authorizing the transactions contemplated hereby, and a letter from each of the Grantors other than Borrower consenting to the transactions contemplated hereby, confirming their respective Security Instruments, and agreeing that such Security Instruments shall secure payment of all obligations of Borrower to Lender, including without limitation the increased amount of the Revolving Loans made available hereunder. 4. Representations; No Default. On and as of the date hereof, and after giving effect to this Amendment, Borrower (a) confirms, reaffirms and restates the representations and warranties set forth in the Loan Agreement and in the Security Instruments to which it is a party; provided, that each reference to the Loan Agreement therein shall be deemed included the Loan Agreement as amended by this Amendment; and (b) represents that no Default or Event of Default has occurred and is continuing. 5. Security Instruments. All of the liens, privileges, priorities and equities existing and to exist under and in accordance with the terms of the Security Instruments are hereby renewed, extended and carried forward as security for all of the Loans and all other debts, obligations and liabilities of Borrower to Lender, including without limitation the increased amount of Revolving Loans and Credit Obligations made available hereunder. 6. Payment of Expenses. Borrower agrees to pay or reimburse Lender for all reasonable legal fees and expenses of counsel to Lender in connection with the transactions contemplated by this Amendment. 7. Governing Law: Counterparts. The Amendment shall be governed by and construed in accordance with the laws of the State of Louisiana. This Amendment may be executed in any number of counterparts, all of which counterparts, when taken together, shall constitute one and the same instrument. 8. Continued Effect. Except as expressly modified herein, the Loan Agreement shall continue in full force and effect. The Loan Agreement as amended herein is hereby ratified and confirmed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date hereinabove provided by their undersigned authorized officers, each hereunto duly authorized. AMERICAN OILFIELD DIVERS, INC. /s/ Cathy M. Green By:_____________________________________ Cathy M. Green, Chief Financial Officer FIRST NATIONAL BANK OF COMMERCE Nemesio Viso By:______________________________________ Vice President Title:_____________________________________ EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONSOLIDATED FINANCIAL STATMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS. 1,000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 MAR-31-1998 MAR-31-1997 1,231 19,397 0 0 25,894 18,832 700 480 6,009 4,592 59,637 57,745 69,301 43,305 30,414 24,286 143,845 115,267 38,129 18,032 0 0 0 0 0 0 1,824 1,807 88,840 84,664 143,845 115,267 36,017 28,576 36,017 28,576 24,956 19,822 34,471 27,975 444 205 141 7 554 311 1,102 396 475 170 627 226 0 0 0 0 0 0 627 226 .06 .03 .06 .03
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