Oceaneering International, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; quarterly data are also reported. The company provides engineered services and products primarily to the offshore oil and gas industry, alongside defense, aerospace and theme-park businesses. Oilfield generated approximately 93% of revenue. Foreign operations accounted for approximately 64% of revenue.
Key financial results
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $3.660 billion | $3.287 billion |
| Gross profit / margin | $859 million / 23% | $766 million / 23% |
| Operating income / margin | $628 million / 17% | $545 million / 17% |
| Net income | $428 million | $372 million |
| Diluted EPS | $4.00 | $3.42 |
| Cash from operations | $722 million | $531 million |
| Capital expenditures and acquisitions | $427 million | $394 million |
| Cash and cash equivalents at year-end | $431 million | $91 million |
| Long-term debt at year-end | $750 million | None |
| Working capital / current ratio | $1.034 billion / 2.52 | $706 million / 1.97 |
Revenue rose 11%, while net income rose 15%. Gross margin was broadly stable; operating margin increased from about 16.6% to 17.2%. Operating cash flow less property and equipment purchases was approximately $335 million. The company declared $1.03 per share in dividends, up from $0.84.
Segments and material changes
- ROVs: Revenue increased 9% to $1.069 billion; operating income increased to $321 million. Utilization was 83%, versus 85% in 2013. The fleet grew to 336 work-class vehicles.
- Subsea Products: Revenue increased 21% to $1.239 billion and operating income rose to $281 million, supported by broad product demand. Year-end backlog fell to $690 million from $906 million, primarily due to umbilicals.
- Subsea Projects: Revenue increased 16% to $589 million and operating income rose to $108 million, reflecting greater vessel activity and Angola diving work.
- Asset Integrity: Revenue increased 4% to $500 million; operating income was essentially flat at $55 million.
- Advanced Technologies: Revenue declined 8% to $263 million and operating income fell to $13 million, amid lower theme-park and Navy work and weaker project margins.
Total firm backlog was $3.167 billion at year-end, down from $3.534 billion. The fourth quarter generated $919 million in revenue and $102 million in net income, versus $973 million and $124 million in the third quarter.
Liquidity, debt and capital allocation
Year-end debt consisted of $500 million of 4.650% senior notes due 2024 and $250 million drawn under a term loan. The company had $500 million available under its revolving facility and reported $50 million remaining under the delayed-draw term loan facility. It was in compliance with its credit covenants, including a maximum 4.00-to-1.00 leverage ratio. The new notes and credit agreement replaced prior facilities and left the company with $750 million of long-term debt, compared with no year-end debt in 2013.
During 2014, Oceaneering repurchased 8.9 million shares for $590 million, completing its prior authorization. It approved a new discretionary authorization for up to 10 million shares; no shares were repurchased under the new plan in 2014. Cash dividends paid were $110 million.
Outlook, risks and notable items
- Management forecast 2015 diluted EPS of $3.10–$3.50, versus $4.00 in 2014, and anticipated an approximately 2% decrease in its overall operating-income margin percentage.
- The company expected lower 2015 demand and pricing across all Oilfield segments following the late-2014 decline in oil prices and customer capital-budget reductions. It expected significantly improved Advanced Technologies operating income as certain execution issues were resolved.
- Expected 2015 capital expenditures were $200–$250 million, excluding acquisitions; this includes $35 million for the subsea support vessel expected in 2016. A proposed acquisition of C&C Technologies for approximately $230 million was expected to close in early April 2015, subject to customary conditions.
- Oilfield exposure is concentrated: BP accounted for 18% of 2014 revenue, and Africa accounted for approximately 22%. The top five customers together represented 40% of revenue. Backlog is subject to cancellation, scope changes and timing uncertainty; many ROV contracts can be terminated on 30 days’ notice.
- Other risks include oil-price and offshore-spending cyclicality, foreign currency and political risks, including instability in Africa, operational and environmental hazards, customer collections, competition and cybersecurity. The stronger U.S. dollar contributed to a $129 million foreign-currency translation loss in other comprehensive income.
- A shareholder derivative suit concerning nonemployee director compensation was pending; the company said it did not expect a material financial effect. Other claims were described as generally insured or not expected to be material. The financial-statement and internal-control audits received unqualified opinions, and management reported effective controls.
Important facts for investors to verify
- How the oil-price downturn affected 2015 customer budgets, utilization, day rates, product orders and margins relative to the company’s forecast.
- Whether backlog converts to revenue and cash as expected, particularly the declining Subsea Products backlog, and whether cancellations or delays arise.
- Completion, financing and integration of the proposed C&C Technologies acquisition, and the effect on debt and capital allocation.
- Debt, covenant headroom, liquidity and the sustainability of dividends and any future share repurchases under weaker operating conditions.
- Potential exposure from foreign operations, contract-cost estimates, customer concentration, litigation and environmental or operational claims.