1997 THIRD QUARTER REPORT |
November 4, 1997 |
To Our Shareholders:
We are not particularly proud of third quarter
performance. Disappointing financial results on a large job for McDermott/Bridgeline were
mitigated somewhat by accomplishing a first of its kind subsea task tieing in initial
production from Texaco's Deepwater Discovery prospect. Two unusual events - a lightning
strike on the Witch Queen and an electrical fire onboard the Cal Diver II - put those two
vessels out of service a combined six weeks during the quarter. On a more positive note,
the November 3 issue of Forbes magazine includes an article (New Issues Review) that
discusses the 375 companies new to the market which raised $17.8 billion in equity during
the first nine months of the year. Cal Dive International was determined to be the second
best performing new issue during the third quarter.
Financial Highlights
Third quarter gross profit margins of 29%, after
absorbing the unusual events and sub-par financial performance on the Bridgeline job, are
an indication of the market strength and the versatility of the CDI fleet.
|
Third
Quarter |
Nine
Months |
|
1997 |
1996 |
Increase
<Decrease> |
1997 |
1996 |
Increase
<Decrease> |
Revenues |
$28,859,000 |
$23,906,000 |
21% |
$75,931,000 |
$52,689,000 |
44% |
Net Income |
3,983,000 |
3,412,000 |
17% |
10,473,000 |
6,971,000 |
50% |
Earnings Per Share |
0.27 |
0.31 |
<13%> |
0.82 |
0.63 |
30% |
- Revenues: On a net basis the entire increase in third quarter revenues was due to
the DPMSV Uncle John (the vessel commenced 1996 operations in the month of October). Nine
month revenues of $76 million equal the revenue reported for the entire year 1996.
- Gross Profit: The McDermott/Bridgeline job, which commenced in May and which was
substantially completed by the end of the third quarter, includes work performed by five
of our vessels with only the Uncle John turning in a lack luster performance. Overall
gross profit margins on this project are estimated at roughly one third of what we
normally expect, not good but not the end of the world.
- SG&A: Selling, General and Administrative expenses were $2.5 million, an
increase of 19% over the third quarter of 1996, as we have added a number of high-priced
technical people to support the Deepwater Technical Services Group. This expansion of
personnel has been accomplished with no impact upon operating margins; i.e., SG&A was
slightly below 9% of revenues in both quarters.
- EPS: Decreased by $0.04 per share due to the additional shares issued in
conjunction with the IPO in July, funds which have yet to be converted to revenue
generating assets.
- Liquidity: CDI had no debt and $13 million of cash on hand at September 30, 1997
after the acquisition of the Sea Sorceress and an unused $40 million credit facility .
Shareholder Equity stood at $85 million in contrast to $31 million at the beginning of
1997.
Operational Highlights
- MSV Uncle John: The vessel was 100% utilized during the third quarter performing
mainly CDI construction projects. Participation in the Bridgeline job involved installing
30" diameter risers and setting 12 riser clamps, each weighing three tons, in 980
feet of water. To put this task in perspective, the work was equivalent to hanging risers
at the base of the Transco Tower assuming that the vessel was on top of the building.
While not the financial success we had hoped for, this project was quite a technical
accomplishment and one which resulted in a very satisfied customer. At month end, the
vessel was wowing everyone on a British Petroleum job at Troika setting 170 foot pipespool
pieces in 1500 to 2700 feet of water.
- CSO: We are pleased with the manner in which our relationship with alliance
partner Coflexip Stena Offshore is developing. During the quarter, CSO made a dynamically
positioned vessel (the Marianos) available to augment our fleet; the CSO construction
group agreed to assist in the design plans for the conversion of our newly acquired
vessel, the Sea Sorceress; and CDI will have access to the new M J Lay system being
designed by the Coflexip engineering group. The joint venture between our two companies to
pursue EPIC contracts in the Gulf of Mexico now has a name: Quantum Offshore Contractors.
- Deepwater Market: We have completed and/or been awarded thirteen Deepwater
projects requiring dynamically positioned construction vessels while losing only three, a
statistic which confirms the embryonic stage of this market. Historically the construction
segment has tended to kick in six to eighteen months after the discovery of a productive
well. This lag time is lengthening considerably given the logistic and engineering support
required for Deepwater projects; a trend which highlights the niche CDI fills. Our DP
vessels are able to be deployed profitably in the Gulf spot market in the interim between
all of the current Deepwater drilling and commencement of completion/construction work.
- Alliances: Schlumberger featured our alliance in the Summer 1997 issue of Sonde
Off, the NAM Wireline & Testing Newsletter. All time high exploration and completion
activity in the Deepwater Gulf has driven rates to a range of $130,000 to $250,000 per day
for anchored semis and drill ships, respectively. These dayrates, coupled with steep
mobilization fees, created the need for a lower cost solution to intervene on existing
subsea wells needing remedial through tube repairs. Under the alliance, CDI provides
vessels, ROV and diving support, subsea construction, pipeline installation and removal,
well intervention and project management. Schlumberger (Modular Equipment & Services)
provides wireline, testing, pumping and coiled tubing services, stimulation services and
project management. The Sonde Off article also describes in detail the outstanding success
of the alliance's first subsea well intervention at Tahoe #4, the first ever live well
intervention in the Gulf of Mexico from a DP vessel.
- Salvage Operations: The CDI Barge I was also fully utilized during the quarter
working on 12 decommissioning projects. The November 1997 issue of Offshore Magazine
confirms the dominance of Cal Dive in the shallow water salvage market. Specifically, CDI
had a 32% share of the market of all structures removed in water depths of up to 150 feet
from January 1, 1996 through June 30, 1997; two other companies are in second place, each
with 13% of the market.
- Shallow Water: Demand for diving and construction services in water depths of up
to 300 feet has resulted in an industry wide increase in rates for utility boats and
diver/tender teams. Revenues from general diving and the three CDI vessels serving this
market represented 23% of consolidated third quarter sales and for the nine months have
increased 74% over 1996 levels.
Respectfully Submitted,
Gerald G. Reuhl
Chairman |
Owen E. Kratz
Chief Executive Officer |
S. James Nelson, Jr.
Executive Vice President |
|