Business context and reporting period
Oceaneering International, Inc. filed this Form 10-K for the fiscal year ended December 31, 2015. The company provides offshore oilfield services and products, especially for deepwater operations, and also serves defense, aerospace and commercial theme-park markets. Oilfield generated about 90% of 2015 revenue; foreign operations generated about 57%.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $3,062.8 million | $3,659.6 million |
| Gross margin | $605.4 million; 20% of revenue | $859.2 million; 23% |
| Operating income | $373.8 million; 12% | $628.3 million; 17% |
| Net income | $231.0 million | $428.3 million |
| Diluted EPS | $2.34 | $4.00 |
| Cash provided by operations | $560.4 million | $721.8 million |
| Capital expenditures, including acquisitions | $424.0 million | $426.7 million |
| Cash and cash equivalents | $385.2 million | $430.7 million |
| Working capital | $901.5 million | $1,034.4 million |
| Long-term debt, reported | $795.8 million | $743.5 million |
The company had $500 million available under its revolving credit facility at year-end and reported compliance with its debt covenants, including a maximum total capitalization ratio of 55%. Total principal debt was $800 million: $500 million of 4.65% senior notes due 2024 and a $300 million term loan. Cash dividends declared were $1.08 per share.
2015 fourth-quarter revenue was $722.1 million, operating income $45.8 million, net income $27.5 million and diluted EPS $0.28; comparable 2014 fourth-quarter figures were $918.9 million, $152.2 million, $102.5 million and $0.99.
Material changes versus the prior comparable period
- Annual revenue fell 16% and net income fell 46% from 2014, as lower oil prices and customer spending cuts reduced oilfield demand and pricing.
- ROV revenue declined to $807.7 million from $1,069.0 million; utilization dropped to 69% from 83%, with both days on hire and revenue per day lower.
- Subsea Products revenue declined to $959.7 million from $1,238.7 million. Subsea Projects revenue rose modestly to $604.5 million from $588.6 million, while Asset Integrity revenue fell to $373.0 million from $500.2 million.
- Advanced Technologies revenue increased to $317.9 million from $263.0 million, but operating income declined to $9.7 million from $13.2 million, partly due to theme-park project execution issues.
- Operating cash flow decreased by $161.4 million. The company acquired C&C Technologies for approximately $224 million, increasing Subsea Projects capabilities and goodwill.
- Backlog declined to $2.515 billion from $3.167 billion; Oilfield backlog was $2.345 billion versus $3.000 billion.
Outlook, management commentary, risks and unusual items
- Management expected 2016 diluted EPS to be below 2015’s $2.34 and did not issue specific EPS guidance. It forecast lower operating income in each Oilfield segment, while expecting Advanced Technologies to improve.
- Management projected 2016 capital expenditures of $150–$200 million, excluding acquisitions, including $42 million to complete the Ocean Evolution subsea support vessel. New ROV additions were planned only to meet contractual commitments.
- The filing cited industry forecasts of a 15%–20% decline in floating-rig demand in 2016, with a further decline possible in 2017; subsea tree installations were also forecast to fall.
- 2015 included $25.4 million of restructuring expense and $26 million of inventory write-downs, including charges related to exiting subsea BOP control-system manufacturing. The company also recorded a $15.4 million foreign-currency transaction loss, primarily associated with Angola.
- A BP unit exercised a right to terminate use of the Bourbon Oceanteam 101 at the end of May 2016. The company expected reimbursement of early-release and demobilization costs. BP and subsidiaries represented 18% of annual revenue in each of 2013–2015.
- Principal risks include prolonged weak oil prices and offshore spending, backlog cancellations or delays, customer concentration, international political and currency risks, project execution, vessel and offshore operating hazards, environmental regulation, and cybersecurity. Management estimated an additional approximately $6 million currency loss in first-quarter 2016 from an Angola devaluation and warned further devaluations could cause additional losses.
- A shareholder derivative suit concerning director compensation remained pending; the company did not expect a material financial effect. The independent auditor issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Whether offshore customer spending, rig utilization, pricing and subsea project demand develop in line with management’s cautious 2016 outlook.
- How much of the $2.515 billion backlog converts to revenue and profit, and the effects of cancellations, delays or customer modifications.
- The sustainability of cash generation and liquidity amid debt service, vessel commitments and planned capital spending.
- Whether C&C integration and the Ocean Evolution investment deliver expected commercial returns; also review goodwill and asset impairment assumptions.
- The realized impact of Angola currency movements, BP-related contract termination and customer concentration.
- The effect of restructuring and inventory charges, and whether further workforce, facility or asset actions are required.