Oceaneering International, Inc. — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012. Oceaneering provides engineered services and products, primarily to the offshore oil and gas industry, with a deepwater focus. Approximately 90% of revenue came from oil and gas activities; 66% came from international operations.
Financial performance
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $2.783 billion | $2.193 billion | +27% |
| Gross margin | $628 million (23%) | $509 million (23%) | +23% |
| Operating income | $429 million (15%) | $335 million (15%) | +28% |
| Net income | $289 million | $236 million | +23% |
| Diluted EPS | $2.66 | $2.16 | +23% |
| Cash from operations | $439 million | $289 million | +$150 million |
| Capital expenditures, including acquisitions | $310 million | $527 million | -$217 million |
FY 2012 net income was a company record. Operating cash flow rose, although cash was absorbed by higher accounts receivable and inventory. Investing activities used $306 million; financing activities used $118 million, including $75 million of dividends, $26 million of net revolving-credit repayments and $19 million of share repurchases.
At year-end, cash was $121 million, working capital was $586 million and the working-capital ratio was 1.95. Long-term debt was $94 million, down from $120 million; $206 million remained available under the $300 million revolving facility. Shareholders’ equity was $1.815 billion.
Fourth-quarter revenue was $781 million versus $574 million in Q4 2011; net income was $81 million versus $58 million, and diluted EPS was $0.74 versus $0.54.
Segment performance and changes
- ROVs: Revenue increased 13% to $854 million; operating income rose to $249 million. Utilization improved to 80% from 77%, and the year-end fleet grew to 289 vehicles from 267.
- Subsea Products: Revenue increased 8% to $829 million; operating income rose to $171 million. Backlog reached $681 million, up from $382 million.
- Subsea Projects: Revenue increased 127% to $380 million, principally due to the Angola field-services contract and higher U.S. Gulf of Mexico demand. Operating income rose to $63 million.
- Asset Integrity: Revenue increased 63% to $435 million; operating income rose to $45 million, with growth reflecting broad demand and the contribution of the 2011 AGR FO acquisition.
- Advanced Technologies: Revenue increased 22% to $285 million; operating income rose to $21 million, supported by Navy maintenance and entertainment work.
Total firm backlog was $3.158 billion at year-end, compared with $2.675 billion a year earlier. The filing cautions that backlog may be delayed, changed or cancelled and is not a guarantee of revenue or profit.
Outlook, risks and unusual items
- Management forecast FY 2013 diluted EPS of $3.00–$3.25 and expected improvement across operating segments. Assumptions included stronger demand for deepwater services and products and a full year under the Angola contract.
- Management anticipated 2013 ROV utilization of 82% or higher, an operating margin of approximately 30%, and 30–35 additional vehicles. Subsea Products operating income was expected to rise, although margin could decline as umbilical sales formed a larger revenue share. Asset Integrity was expected to improve slightly; Advanced Technologies was expected to benefit from theme-park work.
- Oil-and-gas activity is cyclical and exposed to oil and gas prices, customer spending, offshore regulation and permitting, competition, and weather or operating hazards. International exposure is significant; West Africa represented approximately 17% of FY 2012 revenue, with political instability and civil unrest in Nigeria identified as concerns.
- BP and subsidiaries represented 13% of consolidated revenue in 2012. The top five customers collectively accounted for 34% of revenue.
- Other risks include foreign currency movements, contract cancellations, supply constraints, acquisition integration, environmental liabilities, and new conflict-minerals reporting requirements. Foreign-currency transaction losses were $5.4 million in 2012.
- The effective tax rate was 31.5%, versus 30.3% in 2011. Interest expense increased to $4.2 million from $1.1 million, primarily due to higher debt following the 2011 acquisition. Medusa Spar equity earnings declined, and management expected further decline in 2013 due to normal production depletion.
- A $3 million reduction to Subsea Projects revenue recorded in 2011 for a past-due Angola receivable was credited back in 2012 after collection. The 2011 sale of the Ocean Legend generated a $19.6 million gain, affecting comparison with that year.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls. Ordinary-course claims were not expected by management to materially affect results or financial position.
Most important facts to verify
- Whether the $3.00–$3.25 FY 2013 EPS outlook and the assumed segment growth were achieved.
- Whether higher backlog converted to profitable work, particularly the $681 million Subsea Products backlog and Angola contract commitments.
- ROV utilization, fleet additions and returns on the substantial ROV and subsea-product investment.
- Collection quality and working-capital trends, given the increase in receivables and inventory.
- Exposure to West Africa, major customers, offshore permitting and regulation, and potential contract cancellations.
- Debt, revolver availability, capital spending and cash returns, including dividends and share repurchases.