Oceaneering International, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter results. Oceaneering is a global provider of offshore oilfield services and products, particularly for deepwater operations, with additional defense, aerospace and entertainment businesses. Approximately 91% of revenue came from Oilfield operations; 66% was generated outside the United States.
Financial performance
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $3.287 billion | $2.783 billion |
| Gross margin | $765.5 million; 23% | $627.9 million; 23% |
| Operating income | $545.1 million; 17% | $428.6 million; 15% |
| Net income | $371.5 million | $289.0 million |
| Diluted EPS | $3.42 | $2.66 |
| Cash from operating activities | $528.9 million | $438.9 million |
| Capital expenditures, including acquisitions | $393.6 million | $309.9 million |
| Cash and working capital at year-end | $91.4 million; $706.2 million | $120.5 million; $585.8 million |
| Long-term debt at year-end | None | $94.0 million |
Revenue increased 18%; net income rose to a record level. Annual operating cash flow exceeded investing outflows of $377.6 million and financing outflows of $180.3 million. The company paid $90.9 million in cash dividends. Its $300 million revolving credit facility was undrawn at year-end, with the facility scheduled to expire in January 2017.
Fourth-quarter 2013 revenue was $894.8 million, operating income $136.8 million, net income $93.4 million and diluted EPS $0.86, compared with $780.9 million, $118.8 million, $80.6 million and $0.74, respectively, in fourth-quarter 2012.
Business trends and changes
- All four Oilfield segments increased revenue and operating income. Subsea Projects had the largest percentage revenue gain, up 34%, primarily from higher deepwater vessel activity.
- Subsea Products revenue grew to $1.028 billion from $829.0 million; operating income rose to $231.1 million. Year-end backlog increased 33% to $906 million.
- ROV revenue increased to $981.7 million, while utilization improved to 85% from 80%. The fleet totaled 304 work-class ROVs at year-end.
- Subsea Projects revenue increased to $509.4 million from $379.6 million. Asset Integrity revenue increased to $481.9 million from $435.4 million.
- Advanced Technologies revenue was approximately flat at $286.1 million, while operating income improved to $25.0 million from $21.2 million.
- Consolidated backlog was $3.534 billion, up from $3.158 billion. Management cautions that backlog may be delayed, modified or cancelled and is not a guarantee of future revenue or profit.
Outlook, risks and notable items
- Management forecast FY 2014 diluted EPS of $3.90–$4.10, with expected improvement across Oilfield segments. It anticipated Advanced Technologies operating income to approximate 2013 levels and an effective tax rate of about 31.3%.
- Planned 2014 capital expenditures were approximately $450 million, excluding acquisitions, including $225 million for ROVs, $120 million for Subsea Products and $65 million for Subsea Projects. A new subsea support vessel was expected to be delivered in 2016.
- Key risks include oil-and-gas spending cyclicality, offshore regulation, competition and pricing pressure, contract cancellation and execution, foreign currency exposure, environmental and operational hazards, and political instability in international markets. Africa represented about 21% of revenue; management highlighted unrest in Nigeria as a concern.
- Customer concentration increased: BP and subsidiaries represented 18% of 2013 revenue, versus 13% in 2012; the five largest customers represented 40% of 2013 revenue.
- OGX and its parent entered Brazilian restructuring proceedings. Oceaneering reported approximately $4.1 million receivable from OGX and recorded a $3.3 million doubtful-account allowance; ultimate recovery was uncertain.
- Foreign-currency translation reduced equity by $71.3 million in 2013. Foreign-currency transaction effects were a $0.1 million gain, compared with a $5.4 million loss in 2012.
- The company reported no material adverse expected outcome from ordinary-course litigation and stated environmental compliance had not materially affected results to date, while noting potential future costs and liabilities. The auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective at year-end.
Investor verification priorities
- Assess the sustainability of 2013 growth, margins and management’s 2014 EPS outlook against deepwater activity, pricing and segment mix.
- Review backlog composition, cancellation terms and conversion into revenue and cash, especially the Subsea Products backlog increase.
- Monitor customer concentration, BP exposure and collection or restructuring outcomes for OGX.
- Evaluate the returns and funding needs associated with the planned $450 million capital program and vessel commitments.
- Check international, currency, tax, environmental and offshore-operational exposures, including the reported foreign-currency translation loss.