Oceaneering International, Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also provides unaudited fourth-quarter data. Oceaneering supplies engineered services and products primarily to the offshore oil and gas industry; international operations generated about 51% of annual revenue.
Financial results and liquidity
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Revenue | $1.917 billion | $1.822 billion | +5% |
| Gross margin | $466.3 million (24%) | $437.7 million (24%) | +7% |
| Operating income | $309.5 million (16%) | $292.1 million (16%) | +6% |
| Net income | $200.5 million | $188.4 million | +6% |
| Diluted EPS | $3.65 | $3.40 | +7% |
| Cash from operations | $441.9 million | $418.2 million | +6% |
| Capital expenditures, including acquisitions | $207.2 million | $175.0 million | +18% |
At year-end, cash was $245.2 million, working capital was $543.6 million and the current ratio was 2.24. Long-term debt was zero; the company had $300 million available under its revolving credit facility, which was scheduled to mature in January 2012. Shareholders’ equity was $1.39 billion.
Fourth-quarter revenue was $501.3 million versus $452.3 million a year earlier; operating income was $73.7 million versus $72.1 million, net income was $47.8 million versus $46.1 million, and diluted EPS was $0.88 versus $0.83.
Material changes and segment performance
- Subsea Products was the main earnings growth driver: revenue rose 13% to $549.2 million and operating income increased to $108.5 million from $60.5 million, supported by higher plant throughput, specialty product demand and cost improvements.
- ROV revenue increased 2% to $662.1 million and operating income rose to $211.7 million. Utilization declined to 75% from 79%, despite a larger fleet; 260 work-class ROVs were in service at year-end.
- Subsea Projects revenue fell 10% to $247.5 million and operating income fell to $46.9 million from $75.4 million, reflecting fewer hurricane-repair projects and the phase-out of mobile production systems.
- Inspection revenue increased 3% to $223.5 million, while operating income was slightly lower at $25.9 million. Advanced Technologies revenue grew 21% to $234.7 million and operating income rose to $16.9 million.
- Year-end backlog was $1.875 billion, up from $1.691 billion. Oil and Gas backlog was $1.782 billion. Management cautions that backlog may be adjusted or canceled and is not a reliable guarantee of future revenue or profit.
Outlook, risks and unusual items
- Management forecast 2011 diluted EPS of $3.45–$3.75. It expected higher ROV operating income, approximately flat Subsea Products and Advanced Technologies operating income, lower Subsea Projects income, and slightly higher Inspection results.
- The key near-term uncertainty was the timing and pace of U.S. Gulf of Mexico deepwater drilling permits after the Macondo incident and resulting safety and environmental rules. Reduced permitting could depress Gulf activity, although management expected some rigs and ROVs to relocate internationally.
- Other significant risks include oil-and-gas spending cyclicality, customer and project cancellations, foreign political and currency exposure, competition, offshore operating hazards, environmental liabilities, and reliance on skilled personnel. West Africa generated approximately 14% of 2010 revenue; political instability, particularly in Nigeria, was highlighted.
- BP and subsidiaries accounted for 12% of 2010 revenue. A customer in Angola owed $56 million at year-end, all overdue; management believed it would ultimately be collected based on prior experience.
- Unusual items included a $5.2 million impairment on the vessel The Performer, sold in 2010; $2.9 million of interest cost to terminate an interest-rate hedge; a $2.1 million fee for serving as stalking-horse bidder in an asset auction; and $2.8 million of foreign-currency transaction losses. The filing states no derivative instruments or long-term debt remained at year-end.
- The company repurchased 1.1 million shares for $49.5 million in 2010. It paid no common dividends and had no outstanding stock options at year-end.
Important facts for investors to verify
- Whether Gulf of Mexico permitting and offshore rig utilization recover in line with management’s 2011 assumptions, including its year-end estimate of 20–25 full-rate ROV rigs in the Gulf.
- Collection status and credit-loss allowance for the $56 million overdue Angola receivable.
- Backlog conversion, cancellations and profitability, especially the $384 million Subsea Products backlog.
- Delivery, utilization and returns on the ROV fleet, new vessels and saturation-diving investment, alongside planned capital spending.
- Renewal or replacement of the $300 million revolving facility before its January 2012 maturity, and any changes to liquidity or debt.