Oil States International, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a standalone fourth-quarter report; fourth-quarter figures are identified separately below. The company provides products and services to oil, gas and mining customers through accommodations, offshore products, well site services and tubular services.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $4.413 billion | $3.479 billion |
| Operating income | $683.8 million | $507.5 million |
| Net income attributable to Oil States | $448.6 million | $322.5 million |
| Diluted EPS | $8.10 | $5.86 |
| Operating cash flow | $637.5 million | $215.9 million |
| Capital expenditures | $487.9 million | $487.5 million |
| Cash and cash equivalents at year-end | $253.2 million | $71.7 million |
| Total debt, including capital leases | $1.310 billion | $1.177 billion |
Consolidated gross margin was 25% in both years. Defined EBITDA, a non-GAAP measure, was $923.1 million versus $698.1 million. Operating cash flow less capital expenditures was approximately $149.5 million. Year-end total stockholders’ equity was $2.466 billion.
In fourth-quarter 2012, revenue was $1.142 billion, gross profit was $278.4 million, net income was $98.5 million, and diluted EPS was $1.78. Fourth-quarter 2011 comparatives were $995.8 million, $253.6 million, $94.3 million, and $1.72, respectively.
Material changes and business drivers
- Annual revenue rose 27% and operating income rose 35%; net income attributable to the company increased about 39%.
- All four segments grew revenue year over year. Accommodations revenue rose 29%, offshore products 37%, well site services 9%, and tubular services 30%.
- Accommodations generated about 25% of revenue and 50% of segment operating income before corporate charges. Expanded Canadian and Australian room capacity and higher occupancy supported results; reported revenue also included an $18.3 million favorable U.S. contract settlement.
- Offshore products year-end backlog reached a record $561 million, up from $535 million; the company expected more than 90% to convert to revenue during 2013, while noting backlog can be canceled or adjusted.
- Tubular services shipped 862,700 tons, up 23%, but segment gross margin declined to 5.3% from 6.0% amid falling OCTG prices. Industry inventories, imports and domestic capacity were increasing.
- Well site services benefited from higher drilling-rig utilization and day rates. Drilling-rig utilization averaged 88% versus 82% in 2011.
Outlook, financing, risks and unusual items
- Management forecast 2013 capital expenditures of approximately $600–$650 million, about two-thirds expected in accommodations. No specific revenue or earnings guidance is provided.
- Management said cash, operating cash flow and available credit were expected to meet liquidity needs for the next 12 months. At year-end, $708.9 million was available under U.S. and Canadian facilities, with AUD$254 million available under the Australian facility.
- The company issued $400 million of 5⅛% senior notes due 2023 in December 2012, using approximately $334 million of net proceeds to repay U.S. revolver borrowings. It also completed the conversion of $175 million of 2⅜% notes into cash up to principal and 3.0 million common shares. Year-end covenant compliance was reported.
- Management cited volatile commodity prices, oil-sands investment and crude-price differentials, weak natural-gas prices, OCTG price and inventory pressure, project execution, weather, foreign exchange, labor availability, customer concentration, and evolving environmental and offshore regulations as important risks.
- FY 2012 earnings included a $17.9 million pretax favorable contract-settlement gain and a $2.5 million pretax insurance gain following a drilling-rig fire. A third-quarter out-of-period adjustment reduced revenue by $3.1 million and increased cost of sales by $4.4 million; management said it was immaterial to previously issued statements and full-year results.
- The company reported no material adverse effect expected from pending legal proceedings, while cautioning that outcomes cannot be assured. Ernst & Young gave unqualified opinions on the financial statements and internal controls; controls for Piper and Tempress, acquired in 2012, were excluded from management’s year-end assessment.
Most important facts for investors to verify
- Whether the $600–$650 million 2013 capital-spending plan and resulting cash needs align with subsequent operating cash flow and project returns.
- Whether offshore backlog converts as expected, including the status of cancelable orders and delivery schedules.
- Whether OCTG pricing, inventory levels and tubular margins stabilize or continue to deteriorate.
- How much of 2012 earnings growth reflects recurring operations versus the contract settlement and insurance gain, and how the third-quarter adjustment is treated in trend analysis.
- Debt maturities, borrowing availability, covenant headroom, and the impact of foreign-held cash and currency movements on usable liquidity.