1998 SECOND QUARTER REPORT |
August 10, 1998 |
To Our Shareholders:
In May CDI accomplished a key corporate objective -
that of doubling our public ownership to 50% of the shares outstanding - in one of only a
handful of energy offerings successfully completed this year. We welcome our new
stakeholders, particularly those in Europe where 12% of the shares of the secondary
offering were placed. That welcome is of course tempered by the subsequent across the
board decline in the valuation of all oilfield service stocks, including CDIS. Unlike the
platitudes of politicians in Washington, this is a situation where we do in fact
"feel your pain" as management and key employees own 20% of the company. We will
leave to market analysts explanation of the "disconnect" between the investor
pessimism hammering our stock in contrast to the robust earnings and business outlook
detailed in this report. We take pride in what CDI offers investors - a technology driven,
asset intensive business delivering income which is 16% of 1998 sales.
Financial Highlights
Strong demand across the markets we serve produced
record net income of $6.0 million in what historically has been a quarter "on the
bubble" between the difficult weather of the winter months and the kickoff of the
Gulf construction season.
|
First
Quarter |
Six
Months Quarter |
|
1998 |
1997 |
Increase |
1998 |
1997 |
Increase |
Revenues |
$38,526,000 |
$28,628,000 |
35% |
$71,683,000 |
$47,072,000 |
52% |
Net Income |
5,954,000 |
4,604,000 |
29% |
11,197,000 |
6,489,000 |
73% |
Diluted Earnings Per
Share |
0.40 |
0.39 |
03% |
0.75 |
0.56 |
34% |
- Revenues: The entire $10.0 million increase is a result of exceptional project
management and offshore performance by our DP fleet and the opportunity to demonstrate
that capability on several challenging deepwater projects. The Uncle John and Witch Queen
collectively doubled their performance in the second quarter compared to last year given
strong rates and full utilization.
- Gross Profit: Margins of 32% were in line with the market conditions experienced
during the first quarter of this year and Q2 of 1997, a period where profitability was
positively impacted by a large, complex construction project in shallow water.
- SG&A: $3.7 million includes a $1.0 million provision principally for 1998
Incentive Compensation. In prior years, roughly 65% of our business came in the second
half of the year and thus incentive targets were not achieved (and bonuses were not
recorded) until late in the third and into the fourth quarter. The exceptional bottom line
results generated in the first half of this year suggests that a number of 1998 financial
and performance targets will be achieved.
- Liquidity: In the 12 months following the IPO last July internally generated cash
flow has funded $29 million of capital expenditures for two new vessels, upgrades to our
current fleet, the Aquatica investment and ERT's acquisition of eight offshore blocks.
From an investor viewpoint, liquidity was positively impacted as the average trading
volume of CDIS has increased 43% since completion of the secondary offering.
Operational Highlights
- Baldpate: The company deployed five vessels in support of the deepwater
installation of the compliant tower in Garden Banks 260. At more than 1,900', the tower is
the tallest free standing structure in the world, higher than even the world's tallest
building. Cal Dive was responsible for all subsea tie-in, pigging, testing and
commissioning of the pipelines as well as installing a 16" oil riser and a 12"
gas riser in 1,650' of water. This was the first time that risers of this size were
installed at such a depth in the Gulf of Mexico while utilizing a dynamically positioned
vessel as the work station.
- Quantum: In late April, Coflexip mobilized the CSO Constructor, a 370' deepwater
construction vessel, to the Gulf. The business cooperation agreement between CDI and
Coflexip identifies the type of work which is the primary responsibility of each company.
Since there were no EPIC projects available to Quantum, Cal Dive chartered the vessel
during the six week period that the Balmoral Sea was out of service for regulatory
inspection, adding $4.0 million to Q2 revenues.
- Well Intervention: In June, the Uncle John marked another unique milestone in
subsea wireline well intervention while working in East Cameron block 378. CDI, SONAT and
several oilfield service companies developed a plan involving the adaptation of
conventional subsea tools, control systems and wireline components for a riserless subsea
intervention system. The assembly was successfully installed on a subsea tree in 486' of
water to repair a down-hole safety valve. The second quarter also marked an unprecedented
operation utilizing the combined attributes of the Uncle John and the Constructor as the
company was responsible for the abandonment of the Seattle Slew subsea well and associated
pipelines in Ewing Banks block 914. The well in 945' of water was plugged, the subsea tree
recovered for salvage, and two sets of tandem flowlines abandoned by spooling each pair
onto a reel on the deck of the Constructor.
- Salvage Operations: Our derrick barge was busy on a number of projects including
a month long job in Mexican waters. The vessel is essentially "booked" for the
balance of the year so we are actively pursuing the purchase and/or charter of additional
salvage asset capacity. At this juncture, however, CDI is patiently waiting for the
significant decline in commodity prices to begin to be reflected in the asking price of
equipment available on the market. Revenues of Energy Resource Technology were flat with
the second quarter last year. Production declined slightly as a significant well was
off-line for scheduled maintenance and a couple of other wells required workover
operations. Natural gas prices, which averaged $2.24 in the quarter, continue to be a
pleasant surprise given the El Nīno impacted winter of 1997-98. The flip side of the coin
is that there are "slim pickings" in terms of mature properties available to
purchase.
- Aquatica: The new shallow water diving company formed by Sonny Freeman really hit
the ground running as Sonny and his management team's reputation has attracted experienced
divers and customers with whom relationships had been developed over many years in the
business. The second quarter even witnessed Sonny and several of Aquatica's managers going
offshore to assist with projects and work with dive crews, emphasizing Aquatica's focus
upon customer needs and a "hands on" management style not often found today.
With CDI committed to assist Aquatica's growth via vessel and related asset acquisitions,
Sonny is also waiting for DSV prices to adjust to current market conditions. The shortage
of qualified divers was also apparent in the CDI product lines that serve the shallow
water diving market (i.e., General Diving and our two utility boats) as the first half
revenues of these profit centers increased 41% and gross profit 63% over 1997.
Respectfully Submitted,
Owen E. Kratz
Chief Executive Officer |
S. James Nelson, Jr.
Executive Vice President |
Forward looking statements and assumptions in
this report and press release that are not statements of historical fact involve risks and
assumptions that could cause actual results to vary materially from those predicted,
including among other things, unexpected delays and operational issues associated with
turnkey projects, the price of crude oil and natural gas, weather conditions in offshore
markets, change in site conditions, and capital expenditures by customers. The Company
strongly encourages readers to note that some or all of the assumptions upon which such
forward looking statements are based are beyond the Company's ability to control or
estimate precisely and may in some cases be subject to rapid and material change. |