Another
Record
Year
Oceaneering International, Inc.
2010 Annual Report
Overview
Corporate Profile
Oceaneering is a global oilfield provider of engineered services and
products primarily to the offshore oil and gas industry, with a focus on
deepwater applications. Through the use of its applied technology
expertise, Oceaneering also serves the defense and aerospace industries.
Oceaneering’s business offerings include remotely operated vehicles, built-to-
order specialty subsea hardware, deepwater intervention and manned diving services,
non-destructive testing and inspections, and engineering and project management.
Mission Statement
Oceaneering’s mission is to increase the net wealth of its Shareholders by providing
safe, cost-effective, and quality-based technical solutions satisfying customer needs
worldwide.
About the Cover
Pictured is our Millennium® 56 ROV, capable of operating in more than 13,000 feet of
water, being launched from a drillship. Attached to the bottom of the vehicle is one of
our ROV tooling fluid injection skids that can be used to operate subsea valves and
perform up to 15,000 psi pressure tests.
Background
Founded in 1964, Oceaneering has grown from an air and mixed gas diving business
in the Gulf of Mexico to a provider of diversified, engineered services and products
operating worldwide. We have achieved this growth by executing a plan of internal
development augmented by strategic acquisitions.
During the year ended December 31, 2010, we earned net income of over
$200 million on revenue of $1.9 billion while employing approximately 8,200 people
working out of 67 locations in 21 countries. We serve our offshore oil and gas
customers through the trade names of Oceaneering International, Oceaneering
Intervention Engineering (OIE), Oceaneering Umbilical Solutions, Oceaneering Grayloc,
Oceaneering Rotator, and Oceaneering Inspection Services. Our Advanced Technologies
Group, which includes Oceaneering Technologies and Oceaneering Space Systems,
serves our customers outside the oil and gas industry.
Table of Contents
1 Overview
2 Letter to Shareholders
4 Oceaneering at a Glance
8 Worldwide Locations
9 Financial Section
55 Directors and Key Management
Flying Lead End Assembly
Subsea Accumulator Module
ROV Accumulator Reservoir Skid
Financial Highlights
($ in thousands, except per share amounts)
2010
2009 % Increase
Revenue
Gross Margin
Operating Income
Net Income
Diluted Earnings Per Share
$1,917,045
$1,822,081
466,320
309,500
200,531
3.65
437,726
292,116
188,353
3.40
5.2%
6.5%
6.0%
6.5%
7.4%
For 2010 Oceaneering reported record
earnings and EPS. We achieved best
ever operating income from our Remotely
Operated Vehicles, Subsea Products, and
Advanced Technologies segments.
Our ability to produce outstanding results
was largely attributable to our business
focus on deepwater activity and our
successful efforts to control expenses.
Oceaneering International, Inc.
1
T. Jay Collins
Letter to Shareholders
I am pleased to report that we achieved record results in 2010, highlighted by our best annual EPS
and safety performances. These accomplishments were particularly noteworthy as most oilfield service
companies reported EPS substantially below their peaks, and industry attention to safety was elevated in
the aftermath of the Macondo well incident in the U.S. Gulf of Mexico (GOM).
2010 EPS of $3.65 was above the guidance I provided in
We excelled in working safely, and I am very pleased
last year’s letter. We achieved better than anticipated
to report that for 2010 we attained the best annual
operating income results from our Subsea Products
safety performance in Oceaneering’s history. Our total
and Subsea Projects segments. Subsea Products
recordable incidence rate (TRIR) was 0.60% and days
outperformed our expectation on the strength of higher
away from work incidence rate (DAFWIR) was 0.13%.
demand for Installation, Workover, and Control System
As a point of reference, the latest published annual
services and better cost control and manufacturing
industry averages for the oil and gas extraction industry
efficiency at our umbilical plants. Subsea Projects
were a TRIR of 1.4% and a DAFWIR of 1.1%. Our
exceeded our forecast on higher demand for deepwater
accomplishments over the past five years have met
vessel services.
general industry criteria for having world-class safety
By comparison, the aggregate 2010 EPS of the
performance.
other companies in the Oil Service Sector Index (OSX)
During 2010 we continued to fund growth
quoted on the Philadelphia Stock Exchange was down
opportunities. Our capital expenditures totaled
approximately 45% from the 2008 peak. Our ability to
$207 million, of which $109 million was spent on
continue to produce outstanding results has been
expanding and upgrading our ROV fleet. We placed 22
largely attributable to our business focus on deepwater
new vehicles into service during the year. We also
activity and our successful efforts to control expenses.
repaid $120 million of debt and repurchased 1.1 million
These enabled us to maintain the 16% operating margin
shares of our common stock at a cost of approximately
we achieved in 2009 and 2008. In recognition of our
$50 million. Funding for our investments, debt
financial performance and future business prospects,
retirement, and share repurchases came from cash
the market price of Oceaneering’s stock rose over 25%
flow provided by operating activities.
during the year.
Our balance sheet remained in great shape.
Our efforts to enhance operational execution and
At year end, we had $245 million of cash, no debt,
sustain our strong safety culture, our number one core
$300 million available under our revolving credit facility,
value, continued to produce outstanding results.
and $1.4 billion of equity.
2 Oceaneering International, Inc.
We are forecasting our 2011 EPS to be in the range
adding vehicles to our ROV fleet. About $30 million is
of $3.45 to $3.75, with the possibility of another record
for Subsea Projects, which includes the completion of
year. For our services and products, we anticipate
the Ocean Patriot renovation and the addition of a third
international demand growth may more than offset
saturation diving system.
lower demand in the GOM. Our assessment of
I’d like to thank our employees who accomplished
international demand is that deepwater drilling and
our 2010 results. Their commitment to safely provide
field development and production activity will increase,
high-quality solutions to our customers’ needs is the
particularly in West Africa and Asia. The major
foundation for our continued success.
uncertainties we face in 2011 are when, at what pace,
This is my last shareholder letter as I will be
and to what level permits for GOM deepwater drilling
retiring in 2011. It has been a pleasure to be part of the
projects will rebound in light of additional environmental
Oceaneering management team for the past 17 years
and safety regulations that have been implemented by
and to have met so many great people. Having reported
the U.S. Department of the Interior as a result of the
record EPS four of the five years I have led the company
Macondo well incident.
is an experience I will never forget.
Looking beyond 2011, our belief that the oil and gas
I plan to continue my affiliation with the company
industry will continue to invest in deepwater projects
as a member of the Board of Directors. M. Kevin McEvoy,
remains unchanged. Deepwater remains one of the
Executive Vice President and Chief Operating Officer,
best frontiers for adding large hydrocarbon reserves
whom I have worked with since I joined Oceaneering,
with high production flow rates. With our existing
has been designated to succeed me. I am confident
assets, we are well positioned to supply a wide range
that the organization will continue to prosper and grow
of the services and products required to support safe
under his leadership.
deepwater efforts of our customers.
Given our outlook, we plan to expand our ability
to participate in the deepwater market by continuing to
grow organically and making additional acquisitions.
During 2011 we anticipate generating over $435 million
T. Jay Collins
of earnings before interest, taxes, depreciation and
President and Chief Executive Officer
amortization (EBITDA). This projected cash flow and
our balance sheet provide us with ample resources to
invest in Oceaneering’s growth. Our capital expenditure
estimate for 2011 is $150 million to $175 million, of
which approximately $100 million is for upgrading and
2010 Annual Report
3
Oceaneering at a Glance
Revenue
Operating Income
34%
12%
12%
13%
29%
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Advanced Technologies
4%
6%
11%
27%
52%
2010 Review
EPS of $3.65 was the highest in Oceaneering’s history. We achieved
record operating income from our Remotely Operated Vehicles (ROV),
Subsea Products, and Advanced Technologies segments.
During the year we continued to position the company for future
growth and increased earnings. Our capital expenditures were
$207 million, of which $109 million was spent on expanding and
upgrading our ROV fleet. $44 million was invested in Subsea Projects,
including construction of a new dive support vessel to replace the
Ocean Project, acquisition and subsequent modifications of a vessel,
the Ocean Patriot, for dedicated saturation diving service, and purchase
of a new saturation diving system. $42 million was invested in Subsea
Products, including the asset acquisition of a Canadian manufacturer
of metal-to-metal seal clamps, check valves, and universal ball joints.
We also made investments in ROV tooling, Installation, Workover and
Control System (IWOCS) equipment, and modifications to our Brazil
umbilical manufacturing facility.
2011 Outlook
We forecast our EPS in 2011 to be in the range of $3.45 to $3.75, with
the possibility of another record year. Compared to 2010, the 2011
operating income from our ROV and Inspection businesses is expected
to increase. Subsea Products and Advanced Technologies are forecast
to have consistent results. Subsea Projects is expected to be lower.
We anticipate ROVs, Subsea Products, and Subsea Projects will account
for more than 85% of our total operating income, as they did in 2010.
4 Oceaneering International, Inc.
Remotely Operated Vehicles
Overview
ROVs are submersible vehicles operated by technicians from a control van, typically
onboard an ocean surface vessel or floating drilling rig. They are piloted in the water
by means of a microprocessor-based control system through a fiber-optic armored
umbilical. ROVs are used to perform a variety of offshore oilfield tasks in water
depths that ordinarily preclude the use of manned diving. These include drilling
support, subsea hardware installation and construction, pipeline inspections and
surveys, and subsea production facility operation and maintenance.
We own and operate the largest fleet of oilfield work class ROVs in the world,
with an estimated 35% of the industry’s vehicles at the end of 2010. We were the
primary provider of these vehicles to perform drill support service, with a market
share of 60%, three times that of the second largest supplier.
2010 Review
We achieved record operating income for the seventh consecutive year, despite lower
demand in the U.S. Gulf of Mexico (GOM) due to the U.S. Department of the Interior’s
(DOI) drilling moratorium. We earned more operating income by slightly increasing
our average revenue per day-on-hire while maintaining our operating margin through
good cost controls in a tough market. During 2010 we put 22 new ROVs into service
and retired 10. At year end we had 260 vehicles in our fleet.
2011 Outlook
We expect operating income to improve on an increase in days on hire, as we benefit
from an increase in international demand for drill support services and continue to
expand our fleet. We anticipate adding 15 to 20 new vehicles to our fleet in 2011 and
retiring about five.
2010 Annual Report
5
Subsea Projects
Overview
We perform subsea oilfield hardware installation
and production infrastructure inspection, repair, and
maintenance services in the GOM. We service shallow-
water projects with our manned diving operation
utilizing dive support vessels and saturation diving
systems. We service deepwater projects with dynamically-
positioned vessels that have our ROVs onboard.
2010 Review
2011 Outlook
Operating income declined due to lower
demand for our services on hurricane
damage projects and our phased exit of
the mobile offshore production system
business.
We expect operating income to be lower
due to completion of Macondo project
work in 2010 and a reduced level of
subsea activity in the GOM as a result
of additional environmental and safety
regulations that have been implemented
by the DOI.
Subsea Products
Overview
©BP p.l.c.
We manufacture a variety of built-to-order specialty
subsea oilfield products. These encompass production
control umbilicals, ROV tooling, IWOCS, clamps, valves,
and field development hardware – including umbilical
termination and distribution assemblies, flying leads,
and junction plates.
Most of our subsea products are sold to our
customers. We also rent ROV tooling and provide IWOCS
systems as a service line.
2010 Review
2011 Outlook
Operating income increased to a record
level due to manufacturing process
improvements and cost reductions, improved
umbilical plant throughput, and higher
demand for subsea field development
hardware, ROV tooling rentals, and IWOCS
services.
We anticipate operating income to be about
the same as in 2010. Increased umbilical
plant throughput is expected to be offset by
lower sales of IWOCS services.
6 Oceaneering International, Inc.
Advanced Technologies
Overview
We provide engineering services and related
manufacturing principally to the U.S. Department of
Defense (DOD), NASA and its prime subcontractors, and
the commercial theme park industry. The U.S. Navy is
our largest customer for whom we perform work
primarily on surface ships and submarines.
2010 Review
2011 Outlook
Operating income rose to a record level due
to increased work on entertainment industry
contracts, U.S. Navy engineering services,
and DOD manufacturing projects.
We are forecasting operating income to be
comparable to 2010. Increased profitability
on U.S. Navy vessel service work, due to a
change in job mix, is expected to be offset
by lower NASA and DOD manufacturing
project activities.
Inspection
Overview
We provide nondestructive testing, inspection, and
integrity management and assessment services,
principally to the oil and gas, power generation, and
petrochemical industries. These are performed onshore
and offshore, usually above the ocean surface.
2010 Review
Operating income was about the same as
in 2009.
2011 Outlook
We expect operating income to be slightly
higher on increased service sales in the
United States and abroad.
2010 Annual Report
7
Oceaneering International Locations
Corporate Headquarters
Operational Bases
International
Cabinda, Angola
Lobito, Angola
Luanda, Angola
Tingalpa, Queensland, Australia
Perth, W.A., Australia
Baku, Azerbaijan
Macaé, Brasil
Niteroi, Brasil
Rio de Janeiro, Brasil
Oakville, Ontario, Canada
St. John’s, Newfoundland, Canada
Cairo, Egypt
Malabo, Equatorial Guinea
Tbilisi, Georgia
Takoradi, Ghana
Mumbai, India
Chandigarh, India
Kakinada, India
Batam, Indonesia
Jakarta, Indonesia
Tripoli, Libya
Kuala Lumpur, Malaysia
Miri, Sarawak, Malaysia
Mexico D.F., Mexico
United States
San Diego, California
Gales Ferry, Connecticut
Orlando, Florida
Panama City, Florida
Pearl Harbor, Hawaii
Bayou Vista, Louisiana
Houma, Louisiana
Lafayette, Louisiana
Morgan City, Louisiana
New Iberia, Louisiana
Cd. del Carmen, Mexico
Ikeja, Lagos, Nigeria
Port Harcourt, Nigeria
Warri, Nigeria
Nodeland, Norway
Stavanger, Norway
Jurong, Singapore
Zug, Switzerland
Abu Dhabi, U.A.E.
Dubai, U.A.E.
Aberdeen, Scotland, U.K.
Gloucester, England, U.K.
Immingham, England, U.K.
London, England, U.K.
Mossbank, Shetland Islands, U.K.
Port Clarence, North Tees, U.K.
Rosyth, Scotland, U.K.
Southampton, England, U.K.
Stockton, England, U.K.
Swansea, Wales, U.K.
Rochester, England, U.K.
Whitley Bridge, England, U.K.
Wilton, England, U.K.
New Orleans, Louisiana
Cataumet, Massachusetts
Hanover, Maryland
Portsmouth, New Hampshire
Austin, Texas
Corpus Christi, Texas
Clear Lake, Texas
Houston, Texas
Ingleside, Texas
Chesapeake, Virginia
Oceaneering International, Inc.
11911 FM 529
Houston, Texas 77041-3000
P.O. Box 40494
Houston, Texas 77240-0494
Telephone: (713) 329-4500
Fax: (713) 329-4951
www.oceaneering.com
Regional Headquarters
Oceaneering International, Inc.
5004 Railroad Avenue
Morgan City, Louisiana 70380
Telephone: (985) 329-3900
Fax: (985) 329-3266
Oceaneering International Services Limited
Oceaneering House
Pitmedden Road, Dyce
Aberdeen AB21 0DP, Scotland
Telephone: (44-1224) 758500
Fax: (44-1224) 758519
Oceaneering International Dubai LLC
Al Moosa Tower 2, Suite 15
Sheikh Zayed Road
Dubai, United Arab Emirates
Telephone: (971-4) 311-7500
Fax: (971-4) 331-0800
Oceaneering Advanced Technologies
7001 Dorsey Road
Hanover, Maryland 21076
Telephone: (443) 459-3700
Fax: (443) 459-3980
Marine Production Systems do Brasil Ltda.
Praca Alcides Pereira, n° 3
Ilha da Conceicão/Niteroi
24.050-350
Rio de Janeiro, Brasil
Telephone: (55 21) 2729-8900
Fax: (55 21) 2722-1515
Oceaneering International Pte Ltd
No. 1 Kwong Min Road
Jurong, Singapore 628704
Telephone: (65) 6261 3211
Fax: (65) 6261 3230
Oceaneering AS
Jåttåvågen, Hinna
PB 8024 4068
Stavanger, Norway
Telephone: (47) 51 82 51 00
Fax: (47) 51 82 52 90
8
Oceaneering International, Inc.
38053_Fin.r1:Fin. Section 3/15/11 8:26 PM Page 1
2010 Financial Section
Oceaneering International, Inc.
©BP p.l.c.
2010 Annual Report
9
PHARG
PERFORMANCE GRAPH
PER
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shown is not necessarily indicative of future performance.
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$500
$400
$300
$200
$100
$0
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
Oceaneering International, Inc.
S&P 500 Index
Peer Group
2005
2006
2007
2008
2009
2010
December 31,
Oceaneering
100.00
159.50
270.59
117.08
235.11
295.82
S&P 500
100.00
115.79
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76.96
97.33
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Peer Group
100.00
110.21
150.83
59.96
104.74
145.29
10 Oceaneering International, Inc.
OCEANEERING COMMON STOCK
Our common stock is listed on the New York Stock Exchange under the symbol OII. We
submitted to the New York Stock Exchange during 2010 a certification of our Chief Executive
Officer regarding compliance with the Exchange's corporate governance listing standards. We
also included as exhibits to this annual report on Form 10-K, as filed with the SEC, the
certifications of our Chief Executive Officer and Chief Financial Officer required under
Section 302 of the Sarbanes-Oxley Act of 2002.
The following table sets out, for the periods indicated, the high and low sales prices for our
common stock as reported on the New York Stock Exchange (consolidated transaction reporting
system):
For the quarter ended:
March 31
June 30
September 30
December 31
2010
2009
$
High
66.12
68.60
54.92
76.86
$
Low
51.29
39.75
43.09
51.61
$
High
41.62
55.55
60.70
60.90
$
Low
27.78
35.34
39.91
50.14
On February 11, 2011, there were 357 holders of record of our common stock. On that date, the
closing sales price, as quoted on the New York Stock Exchange, was $76.27. We have not made
any common stock dividend payments since 1977. Payment of future cash dividends will be at
the discretion of our board of directors in accordance with applicable law after taking into account
various factors, including our financial condition, earnings, capital requirements, legal
requirements, regulatory constraints, industry practice and any other factors that our board of
directors believes are relevant.
In February 2010, our Board of Directors approved a plan to repurchase up to 6,000,000 shares
of our common stock. In 2010, under this plan, we repurchased 1,100,000 shares of our common
stock for $49.5 million, all during the first three quarters of the year. We did not repurchase any
shares of our common stock in 2009.
2010 Annual Report
11
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated financial data and should be
read in conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operation and our Consolidated Financial Statements and Notes included in this
report. The following information may not be indicative of our future operating results.
Results of Operations:
Year Ended December 31,
$
2010
1,917,045
1,450,725
466,320
156,820
309,500
200,531
3.65
$
$
$
2009
1,822,081
1,384,355
437,726
145,610
292,116
188,353
3.40
$
$
$
2008
1,977,421
1,512,621
464,800
147,242
317,558
199,386
3.56
$
$
$
2007
1,743,080
1,329,795
413,285
123,662
289,623
180,374
3.22
$
$
$
2006
1,280,198
984,077
296,121
101,785
194,336
124,494
2.26
$
$
153,651
122,945
115,029
93,776
80,456
207,180
175,021
252,277
233,795
193,842
2010
$
2.24
543,646
2,030,506
-
1,390,215
2009
$
2.25
485,592
1,880,287
120,000
1,224,323
As of December 31,
2008
$
2.09
390,378
1,670,020
229,000
967,654
2007
$
1.98
331,594
1,531,440
200,000
915,310
2006
$
1.87
243,939
1,242,022
194,000
696,764
(in thousands, except per share amounts)
Revenue
Cost of services and products
Gross margin
Selling, general and administrative expense
Income from operations
Net income
Diluted earnings per share
Depreciation and amortization, including
impairment charges
Capital expenditures, including business
acquisitions
Other Financial Data:
(in thousands, except ratios)
Working capital ratio
Working capital
Total assets
Long-term debt
Shareholders' equity
12 Oceaneering International, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this annual report on Form 10-K, including, without limitation, statements
regarding the following matters are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995:
our business strategy;
our plans for future operations;
industry conditions;
our expectations about 2011 earnings per share and segment operating results, and
the factors underlying those expectations, including our expectations about demand
for our deepwater oilfield services and products as a result of the factors we specify in
the "Overview" below;
projections relating to floating rigs to be placed in service and subsea tree orders;
the adequacy of our liquidity and capital resources to support our operations and
internally-generated growth initiatives;
our projected capital expenditures for 2011;
our plans to add ROVs to our fleet;
our belief that our goodwill will not be impaired during 2011;
the adequacy of our accruals for uninsured expected liabilities from workers'
compensation, maritime employer's liability and general liability claims;
our expectation that our total unrecognized tax benefits will not significantly increase
or decrease in the next 12 months;
our expectations about the cash flows from our investment in Medusa Spar LLC, and
the factors underlying those expectations;
our backlog; and
our expectations regarding the effect of inflation in the near future.
These forward-looking statements are subject to various risks, uncertainties and assumptions,
including those we refer to under the headings "Risk Factors" and "Cautionary Statement
Concerning Forward-Looking Statements" in Part I of this report. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, because of the
inherent limitations in the forecasting process, as well as the relatively volatile nature of the
industries in which we operate, we can give no assurance that those expectations will prove to
have been correct. Accordingly, evaluation of our future prospects must be made with caution
when relying on forward-looking information.
Overview
The table that follows sets out our revenue and profitability for 2010, 2009 and 2008.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Net Income
2010
Year Ended December 31,
2009
2008
$
1,917,045
466,320
24%
309,500
16%
200,531
$
1,822,081
437,726
24%
292,116
16%
188,353
$
1,977,421
464,800
24%
317,558
16%
199,386
During 2010, we generated approximately 88% of our revenue, and 96% of our operating income,
from our services and products provided to the oil and gas industry. In 2010, our revenue
increased by 5%, with the largest increase in our Subsea Products segment. Our Subsea
2010 Annual Report
13
Products segment revenue increased 13% from higher umbilical plant throughput and specialty
product sales.
The $201 million consolidated net income we earned in 2010 was the highest in our history. The
$12 million increase from 2009 net income was attributable to a higher profit contribution from our
Subsea Products segment, which had $48 million more operating income on $62 million more
revenue.
In 2010, we invested in the following major capital projects:
additions of and upgrades to our work-class ROVs;
expenditures for added capacity in our Subsea Products segment, including
$17.5 million for a business acquisition; and
purchase and outfitting of two vessels and a saturation diving system in our Subsea
Projects business.
We expect our 2011 diluted earnings per share to be in the range of $3.45 to $3.75, as compared
to $3.65 in 2010. We anticipate deepwater drilling and field development and production activity
will increase, particularly in West Africa and Asia. The major uncertainties we face in 2011 are
when, at what pace, and to what level permits for U.S. Gulf of Mexico deepwater drilling projects
will rebound in the aftermath of additional environmental and safety regulations that have been
implemented by the U.S. Department of the Interior as a result of the Macondo well incident.
Compared to 2010, in 2011 we are forecasting an increase in ROV operating income as a result
of higher average fleet size and international demand for drill support services notwithstanding a
lower profit contribution from our ROV services in the U.S. Gulf of Mexico. In the event U.S. Gulf
of Mexico permitting is significantly lower than we expect, we believe more deepwater rigs will be
moved to other geographic areas and that our ROV systems will stay onboard and work at their
new drilling locations.
We use our ROVs in the offshore oil and gas industry to perform a variety of underwater tasks,
including drill support, installation and construction support, pipeline inspection and surveys and
subsea production facility inspection, repair and maintenance. The largest percentage of our
ROVs has historically been used to provide drill support services. Therefore, the number of
floating drilling rigs on hire is a leading market indicator for this business. The following table
shows average floating rigs under contract and our ROV utilization.
Average number of floating rigs
ROV days on hire (in thousands)
ROV utilization
2010
2009
2008
220
69
75%
208
69
79%
201
65
82%
Demand for floating rigs is our primary driver of future growth prospects. According to industry
data published by ODS-Petrodata, at the end of 2010, there were 255 floating drilling rigs in the
world, with 86% of the rigs under contract and 64% of the rigs contracted through 2011. Sixty
additional floating rigs were on order and scheduled to be delivered through 2014, and 35 of
these have been contracted long-term, for an average term of approximately 7.5 years. We
estimate approximately 24 floating rigs will be placed in service during 2011, and we have ROV
contracts on five of those. Competitors have the ROV contracts on 10 rigs, leaving nine contract
opportunities.
In addition to floating rig demand, subsea tree completions are another leading indicator of the
strength of the deepwater market and the primary demand driver for our Subsea Products lines.
According to industry data published by Quest Offshore Resources, Inc., there were less than
600 subsea completions before 1990, approximately 1,100 in the decade of the 1990s,
approximately 3,100 in the decade of the 2000s, and Quest forecasts over 4,500 for the decade
14 Oceaneering International, Inc.
of the 2010s. Additionally, the projected global market for subsea tree orders is expected to
increase 40% in the 2011-2014 time period compared to the previous four years.
Critical Accounting Policies and Estimates
We have based the following discussion and analysis of our financial condition and results of
operations on our consolidated financial statements, which we have prepared in conformity with
accounting principles generally accepted in the United States. These principles require us to
make various estimates, judgments and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenue and
expense during the periods we present. We base our estimates on historical experience,
available information and other assumptions we believe to be reasonable under the
circumstances. On an ongoing basis, we evaluate our estimates; however, our actual results may
differ from these estimates under different assumptions or conditions. The following discussion
summarizes the accounting policies we believe (1) require our management's most difficult,
subjective or complex judgments and (2) are the most critical to our reporting of results of
operations and financial position.
Revenue Recognition. We recognize our revenue according to the type of contract involved. On
a daily basis, we recognize revenue under contracts that provide for specific time, material and
equipment charges, which we bill periodically, ranging from weekly to monthly.
We account for significant fixed-price contracts, which we enter into mainly in our Subsea
Products segment, and occasionally in our Subsea Projects and Advanced Technologies
segments, using the percentage-of-completion method. In 2010, we accounted for 14% of our
revenue using the percentage-of-completion method. In determining whether a contract should be
accounted for using the percentage-of-completion method, we consider whether:
the customer provides specifications for the construction of facilities or production of
goods or for the provision of related services;
we can reasonably estimate our progress towards completion and our costs;
the contract includes provisions as to the enforceable rights regarding the goods or
services to be provided, consideration to be received and the manner and terms of
payment;
the customer can be expected to satisfy its obligations under the contract; and
we can be expected to perform our contractual obligations.
Under the percentage-of-completion method, we recognize estimated contract revenue based on
costs incurred to date as a percentage of total estimated costs. Changes in the expected cost of
materials and labor, productivity, scheduling and other factors affect the total estimated costs.
Additionally, external factors, including weather or other factors outside of our control, may also
affect the progress and estimated cost of a project's completion and, therefore, the timing of
income and revenue recognition. We routinely review estimates related to our contracts and
reflect revisions to profitability in earnings immediately. If a current estimate of total contract cost
indicates an ultimate loss on a contract, we recognize the projected loss in full when we
determine it. In prior years, we have recorded adjustments to earnings as a result of revisions to
contract estimates. Although we are continually striving to accurately estimate our contract costs
and profitability, adjustments to overall contract costs could be significant in future periods.
We recognize the remainder of our revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed or determinable and
collection is reasonably assured.
Long-lived Assets. We evaluate our property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be appropriate. We base
these evaluations on a comparison of the assets' carrying values to forecasts of undiscounted
2010 Annual Report
15
cash flows associated with the assets or quoted market prices. If an impairment has occurred, we
recognize a loss for the difference between the carrying amount and the fair value of the asset.
Our expectations regarding future sales and undiscounted cash flows are highly subjective, cover
extended periods of time and depend on a number of factors outside our control, such as
changes in general economic conditions, laws and regulations. Accordingly, these expectations
could differ significantly from year to year. In 2010, we recorded a $5.2 million impairment charge
as additional depreciation to adjust the carrying value of our vessel held for sale, The Performer,
to its fair value less estimated costs to sell. We completed the sale in July 2010 for approximately
the vessel's reduced carrying value. In 2008, we recorded an impairment charge of $5.7 million
as additional depreciation to reduce our investment in the Ocean Pensador, an oil tanker we were
holding for possible conversion, to its fair value. In 2009 we sold that asset at a further loss of
$0.8 million. Both The Performer and the Ocean Pensador were assets in our Subsea Projects
segment, and their respective impairments and results of sales are included in the gross margin
and operating income in the Subsea Projects segment.
We charge the costs of repair and maintenance of property and equipment to operations as
incurred, while we capitalize the costs of improvements.
Goodwill. We account for acquisitions using the purchase method of accounting, with the
purchase price being allocated to the net assets acquired based on their fair market values at the
date of acquisition. We test the goodwill attributable to each of our reporting units for impairment
annually, or more frequently whenever events or changes in circumstances indicate that the
carrying amounts may not be appropriate. Except for ROVs and Inspection, which are tested as
single reporting units, our operating units are one level below our business segments. We
estimate fair value of the reporting units using both an income approach, which considers a
discounted cash flow model, and a market approach. Reductions in estimates of our future cash
flows or adverse changes in market comparable information may result in goodwill impairments in
the future. For reporting units with significant goodwill, we do not believe our goodwill will be
impaired during 2011.
Loss Contingencies. We self-insure for workers' compensation, maritime employer's liability and
comprehensive general liability claims to levels we consider financially prudent, and beyond the
self-insurance level of exposure, we carry insurance, which can be by occurrence or in the
aggregate. We determine the level of accruals for claims exposure by reviewing our historical
experience and current year claim activity. We do not record accruals on a present-value basis.
We review larger claims with insurance adjusters and establish specific reserves for known
liabilities. We establish an additional reserve for incidents incurred but not reported to us for each
year using our estimates and based on prior experience. We believe we have established
adequate accruals for uninsured expected liabilities arising from those obligations. However, it is
possible that future earnings could be affected by changes in our estimates relating to these
matters.
We are involved in various claims and actions against us, most of which are covered by
insurance. We believe that our ultimate liability, if any, that may result from these claims and
actions will not materially affect our financial position, cash flows or results of operations.
Income Taxes. We account for any applicable interest and penalties on uncertain tax positions
as a component of our provision for income taxes on our financial statements. We charged
$0.2 million to income tax expense in 2010 for penalties and interest for uncertain tax positions,
which brought our total liabilities for penalties and interest on uncertain tax positions to
$4.0 million on our balance sheet at December 31, 2010. Including associated foreign tax credits
and penalties and interest, we have accrued a net total of $5.6 million in the caption "other long-
term liabilities" on our balance sheet at December 31, 2010 for unrecognized tax benefits. All
additions or reductions to those liabilities affect our effective income tax rate in the periods of
change.
16 Oceaneering International, Inc.
We do not believe that the total of unrecognized tax benefits will significantly increase or
decrease in the next 12 months.
Our tax provisions are based on our expected taxable income, statutory rates and tax-planning
opportunities available to us in the various jurisdictions in which we operate. Determination of
taxable income in any jurisdiction requires the interpretation of the related tax laws. We are at risk
that a taxing authority's final determination of our tax liabilities may differ from our interpretation.
Our effective tax rate may fluctuate from year to year as our operations are conducted in different
taxing jurisdictions, the amount of pre-tax income fluctuates and our estimates regarding the
realizability of items such as foreign tax credits may change. In 2010, 2009 and 2008, we
recorded reductions of income tax expense of $1.0 million, $0.3 million and $0.6 million,
respectively, resulting from the resolution of uncertain tax positions related to certain tax liabilities
we recorded in prior years. Current income tax expense represents either nonresident withholding
taxes or the liabilities expected to be reflected on our income tax returns for the current year,
while the net deferred income tax expense or benefit represents the change in the balance of
deferred tax assets or liabilities as reported on our balance sheet.
We establish valuation allowances to reduce deferred tax assets when it is more likely than not
that some portion or all of the deferred tax assets will not be realized in the future. We currently
have no valuation allowances. While we have considered estimated future taxable income and
ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation
allowances, changes in these estimates and assumptions, as well as changes in tax laws, could
require us to adjust the valuation allowances for our deferred tax assets. These adjustments to
the valuation allowance would impact our income tax provision in the period in which such
adjustments are identified and recorded.
For a summary of our major accounting policies and a discussion of recently adopted accounting
standards, please see Note 1 to our Consolidated Financial Statements.
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our operations and internally-
generated growth initiatives. At December 31, 2010, we had working capital of $544 million,
including cash and cash equivalents of $245 million. Additionally, we had $300 million available
under our revolving credit facility, which currently extends to January 2012. We repaid our long-
term debt in 2010 and had no borrowings under our revolving credit agreement at December 31,
2010. Although there were no borrowings outstanding at December 31, 2010, we made
borrowings under our revolving credit facility at various times during the year. Our maximum
borrowings and our total interest costs under the facility during the year ended December 31,
2010 were $100 million and $4.4 million (including $2.9 million to terminate an interest rate
hedge), respectively. We plan to renew or replace our revolving credit agreement in 2011. Our
net cash provided by operating activities was $442 million, $418 million and $248 million for 2010,
2009 and 2008, respectively.
Our capital expenditures, including business acquisitions, for 2010, 2009 and 2008 were
$207 million, $175 million and $252 million, respectively. Capital expenditures for 2010 included
expenditures for: additions and upgrades to our ROV fleet; two vessels and a saturation diving
system in our Subsea Project segment; a business acquisition in our Subsea Products segment;
and modifications to our Brazil umbilical manufacturing facility. Capital expenditures in 2009
included expenditures for: additions and upgrades to our ROV fleet; the construction of our own
facility to produce control umbilicals for our ROVs; and expansion of our specialty subsea
products business in foreign markets. Capital expenditures in 2008 included expenditures for:
additions and upgrades to our ROV fleet; a Subsea Products acquisition for $40 million; vessel
upgrades; and facility expansions for our specialty subsea products.
Our capital expenditures during 2010, 2009 and 2008 included $109 million, $147 million and
$146 million, respectively, in our ROV segment, principally for additions and upgrades to our ROV
2010 Annual Report
17
fleet to expand the fleet and replace units we retired and for facilities infrastructure to support our
growing ROV fleet size. We plan to continue adding ROVs at levels we determine appropriate to
meet market opportunities as they arise. We added 22, 30 and 21 ROVs to our fleet and disposed
of 10, nine and four units during 2010, 2009 and 2008, respectively, resulting in a total of 260
work-class systems in the fleet at December 31, 2010.
In 2006, we chartered a larger deepwater vessel, the Ocean Intervention III, for three years, with
extension options for up to six additional years. The initial three-year term of the charter began in
May 2007, and the term has been extended to May 2011. We also chartered an additional larger
deepwater vessel, the Olympic Intervention IV, for an initial term of five years, which began in the
third quarter of 2008. We outfitted each of these larger deepwater vessels with two of our high-
specification work-class ROVs, and we expect to utilize these vessels to perform subsea
hardware installation and inspection, repair and maintenance projects, and to conduct well
intervention services in the ultra-deep waters of the U.S. Gulf of Mexico.
We have not guaranteed any debt not reflected on our consolidated balance sheet. In 2003, we
acquired a 50% interest in Medusa Spar LLC. At formation, Medusa Spar LLC borrowed
$84 million, or approximately 50% of its total capitalization, from a group of banks. The loan was
repaid in 2008. We expect the majority of the positive net cash flow generated in the future by
Medusa Spar LLC will be distributed to the equity holders. We received $7.7 million, $8.5 million
and $2.5 million of cash distributions from Medusa Spar LLC and recognized $2.1 million,
$3.2 million and $1.9 million of equity in the earnings of Medusa Spar LLC in 2010, 2009 and
2008, respectively. Medusa Spar LLC is a variable interest entity under accounting rules. We are
accounting for our investment in Medusa Spar LLC using the equity method of accounting. At
December 31, 2010, our investment in Medusa Spar LLC was $51.8 million.
Our principal source of cash from operating activities is our net income, adjusted for the non-cash
expenses of depreciation and amortization, deferred income taxes and noncash compensation
under our restricted stock plans. Our $442 million, $418 million and $248 million of cash provided
from operating activities in 2010, 2009 and 2008, respectively, were affected by cash
increases/(decreases) of $12 million, $12 million and ($72 million), respectively, of changes in
accounts receivable and ($22 million), $14 million and ($16 million), respectively, of changes in
inventory and other current assets. The 2008 change in accounts receivable was due to the
change in revenue in the fourth quarter of 2008 as compared to the fourth quarter of 2007. In
2010, the change in inventory and other current assets related to increases in refundable income
taxes and prepaid expenses. In 2009 and 2008, the changes in inventory and other current
assets principally related to ROV requirements and Subsea Products raw materials. The
increases in ROV inventory related to equipment waiting for assembly into ROVs to be placed in
service in subsequent years and increases in parts to be used for servicing our growing ROV
fleet.
In 2010, we used $192 million in investing activities, including $109 million to upgrade and add
additional units to our ROV fleet, $42 million to increase our Subsea Products capabilities,
including an acquisition for $17 million, and $44 million in our Subsea Projects segment, including
expenditures for an additional vessel equipped with a saturation diving system and a replacement
diving service vessel.
In 2009, we used $162 million in investing activities, including $147 million on growing and
upgrading our ROV operations.
In 2008, we used $246 million in investing activities, including $146 million to upgrade and add
additional units to our ROV fleet and $78 million to increase our Subsea Products capabilities,
including an acquisition for $40 million.
In 2010, 2009 and 2008, we received $0.7 million, $1.9 million and $1.7 million, respectively, in
cash flow from financing activities as proceeds from the sale of our common stock pursuant to the
exercise of employee stock options. At December 31, 2010, we no longer had any stock options
18 Oceaneering International, Inc.
outstanding. In addition, in 2010, 2009 and 2008, we received $1.7 million, $2.5 million and
$6.8 million, respectively, of tax benefit realized from tax deductions in excess of financial
statement expense related to our stock-based compensation plans. For a description of our
incentive plans, please see Note 8 to our Consolidated Financial Statements.
In 2002, our Board of Directors approved a plan to repurchase up to 6,000,000 shares of our
common stock, subject to a $75 million aggregate purchase price limitation. During 2008, we
completed the authorized repurchases under the plan by repurchasing 986,400 shares at a total
cost of $54.9 million, which is reflected in our cash used in financing activities. Under the 2002
stock repurchase plan, we repurchased 2,782,000 shares of common stock from 2002 through
2008 at a total cost of $75 million. In February 2010, our Board of Directors approved a plan to
repurchase up to an additional 6,000,000 shares of our common stock. The timing and amount of
any repurchases will be determined by our management. We expect that any shares repurchased
under the new plan will be held as treasury stock for future use. The 2010 plan does not obligate
us to repurchase any particular number of shares. In 2010, we repurchased 1,100,000 shares at
a cost of $49.5 million under the 2010 plan. Through December 31, 2010, we had reissued all but
1,301,662 of the shares repurchased since 2002, primarily in connection with stock-based
compensation plans.
Because of our significant foreign operations, we are exposed to currency fluctuations and
exchange rate risks. We generally minimize these risks primarily through matching, to the extent
possible, revenue and expense in the various currencies in which we operate. Cumulative
translation adjustments as of December 31, 2010 relate primarily to our net investments in,
including long-term loans to, our foreign subsidiaries. A stronger U.S. dollar against the U.K.
pound sterling and the Norwegian kroner would result in lower operating income. See Item 7A
"Quantitative and Qualitative Disclosures About Market Risk." Inflation has not had a material
effect on our revenue or income from operations in the past three years, and no such effect is
expected in the near future.
Results of Operations
Information on our business segments is shown in Note 7 of the Notes to Consolidated Financial
Statements included in this report.
2010 Annual Report
19
Oil and Gas. The table that follows sets out revenue and profitability for the business segments
within our Oil and Gas business.
(dollars in thousands)
Remotely Operated Vehicles
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Days available
Utilization %
Subsea Products
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Backlog at end of period
Subsea Projects
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Inspection
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Total Oil and Gas
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
2010
Year Ended December 31,
2009
2008
$
662,105
247,619
37%
211,725
32%
91,667
75%
$
649,228
237,023
37%
207,683
32%
86,527
79%
$
625,921
221,270
35%
190,343
30%
79,052
82%
549,233
161,081
29%
108,522
20%
384,000
247,538
56,165
23%
46,910
19%
223,469
41,698
19%
25,893
12%
487,726
115,056
24%
60,526
12%
321,000
274,607
84,657
31%
75,404
27%
216,140
41,125
19%
26,443
12%
649,857
146,747
23%
96,046
15%
298,000
295,791
89,895
30%
79,546
27%
249,109
48,518
19%
31,017
12%
$
1,682,345
506,563
30%
393,050
23%
$
1,627,701
477,861
29%
370,056
23%
$
1,820,678
506,430
28%
396,952
22%
In response to continued increasing demand to support deepwater drilling and construction and
production maintenance work, we have continued to build new ROVs. These new vehicles are
designed for use around the world in water depths of 10,000 feet or more. We added 22, 30 and
21 ROVs in 2010, 2009 and 2008, respectively, while disposing of 23 units over the three-year
period. We plan to continue adding ROVs at levels we determine appropriate to meet market
opportunities.
For 2010, our ROV revenue and operating income increased 2% over 2009 from increased
revenue per day-on-hire. Good cost controls helped us keep margin percentages flat despite
lower utilization. For 2009, our ROV revenue increased 4% over 2008 from the growth in days on
hire for our larger work-class fleet, as our revenue per day-on-hire decreased approximately 2%.
Our operating margin percentage increased as a result of cost controls and our operating income
20 Oceaneering International, Inc.
increased by 9%. We grew our ROV fleet size to 260 at December 31, 2010 from 248 at
December 31, 2009 and 227 at December 31, 2008.
We anticipate ROV operating income to increase in 2011 as a result of an increase in days on
hire, with an increase in international demand and fewer days on hire in the U.S. Gulf of Mexico.
In the U.S. Gulf of Mexico, we started 2011 onboard 26 rigs, consisting of ROVs at full rate on 11
rigs, ROVs at a lower rate on six rigs, and ROVs at zero rate on nine rigs, compared to ROVs at
full rate on 31 rigs before the Macondo well incident. Since the Macondo well incident, eight
deepwater rigs either have left, or announcements have been made they will leave, the U.S. Gulf
of Mexico. We had contracts on seven of the rigs and have retained contracts to remain on those
seven rigs. For our 2011 estimates, we have assumed that, by year end, we will be at full rate on
20 to 25 rigs working in the U.S. Gulf of Mexico. In addition to having a full year of service from
the units we added during 2010, we expect to add 15 to 20 ROVs in 2011 and retire
approximately five ROVs. We expect our operating margin percentage to decline slightly in 2011
due to a change in geographic mix.
Our Subsea Products operating income and margin percentage for 2010 increased over 2009,
due to manufacturing process improvements and cost reductions, improved umbilical plant
throughput, and higher demand for subsea field development hardware, ROV tooling rentals, and
installation and workover control system ("IWOCS") services. Our Subsea Products revenue for
2009 declined 25% from 2008 from decreased demand for our specialty subsea products and
lower umbilical plant throughput. Our operating margin percentage decreased from 15% in 2008
to 12% in 2009 due to a decrease in demand for our specialty subsea products and lower
umbilical plant throughput. Our operating income and margins were also adversely affected by
$5.5 million of unexpected costs we incurred in the third quarter of 2009 on two blowout preventer
control systems.
We anticipate our Subsea Products segment operating income in 2011 to be about the same as
2010, as we expect increased throughput in our umbilical plants and lower sales of IWOCS
services. Because of a different mix in products and services, we anticipate a lower operating
margin percentage for Subsea Products in 2011. Our Subsea Products backlog was $384 million
at December 31, 2010, 20% more than our $321 million Subsea Products backlog at
December 31, 2009.
Our 2010 Subsea Projects revenue and operating income declined from 2009 due to lower
demand for our services on hurricane damage-related repair projects and our phased exit of the
mobile offshore production systems business. Our 2009 Subsea Projects revenue and operating
income declined from 2008 due to a softer market for our diving and shallow water vessel
services and competitive pressure in our deepwater vessel market due to an increase in vessel
availability.
We anticipate our 2011 operating income for Subsea Projects to be less than in 2010, as we
completed Macondo-related project work in 2010, and we foresee a reduced level of subsea
activity in the U.S. Gulf of Mexico in 2011 as a result of additional regulations implemented by the
U.S. Department of the Interior.
Our Inspection segment operating income results in 2010 were similar to those in 2009. Our
Inspection operating income decreased in 2009 compared to 2008 due to a lower exchange rate
for the U.K. pound sterling against the U.S. dollar and decreased demand for our services.
We expect that our Inspection segment revenue and operating income will be slightly higher in
2011.
2010 Annual Report
21
Advanced Technologies. The table that follows sets out revenue and profitability for this
segment.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
2010
Year Ended December 31,
2009
2008
$
234,700
32,510
14%
16,934
7%
$
194,380
25,128
13%
12,366
6%
$
156,743
21,596
14%
9,773
6%
Our Advanced Technologies segment's 2010 revenue and operating income were higher than
2009 due to higher levels of entertainment industry contracts, U.S. Navy engineering services
and Department of Defense manufacturing projects. This segment's 2009 revenue and operating
income were higher than 2008 due to an escalation in work on entertainment industry projects
and the award of the NASA Constellation Space Suit System contract.
We anticipate our Advanced Technologies 2011 operating income will be approximately the same
as 2010.
Unallocated Expenses. Our unallocated expenses, i.e., those not associated with a specific
business segment, within gross margin consist of expenses related to our incentive and deferred
compensation plans, including restricted stock and bonuses, as well as other general expenses.
Through 2010, a portion of our restricted stock expense varied with the market price of our
common stock. Our unallocated expenses within operating income consist of those within gross
margin plus general and administrative expenses related to corporate functions.
The table that follows sets out our unallocated expenses.
(dollars in thousands)
Gross margin expenses
% of revenue
Operating expenses
% of revenue
2010
Year Ended December 31,
2009
2008
$
(72,753)
4%
(100,484)
5%
$
(65,263)
4%
(90,306)
5%
$
(63,226)
3%
(89,167)
5%
Our unallocated gross margin and operating expenses increased in each of 2010 and 2009,
primarily due to higher compensation related to incentive plans.
Other. The table that follows sets forth our significant financial statement items below the
operating income line.
(dollars in thousands)
Interest income
Interest expense, net of amounts capitalized
Equity earnings of unconsolidated affiliates:
Medusa Spar LLC
Other
Other income (expense), net
Provision for income taxes
2010
Year Ended December 31,
2009
2008
$
580
(6,010)
$
694
(7,781)
$
907
(13,485)
2,078
-
(926)
104,691
3,242
-
1,504
101,422
1,894
25
321
107,834
22 Oceaneering International, Inc.
Interest expense decreased in 2010 and 2009, primarily from lower interest rates on LIBOR-
based borrowings under our revolving credit agreement and term loan, and lower debt levels. We
capitalized $0.3 million of interest in 2010 and less than $0.1 million of interest in each of 2009
and 2008.
We earn equity income from our 50% investment in Medusa Spar LLC, which we acquired in
2003. Medusa Spar LLC owns 75% of a production spar in the U.S. Gulf of Mexico and earns its
revenue from fees charged on production processed through the facility. In 2008, we experienced
a decrease in equity in earnings of unconsolidated affiliates from our investment in
Medusa Spar LLC due to lower production throughput at the spar. In 2009, Medusa Spar LLC's
net income was higher due to increased throughput from the original blocks dedicated to be
processed at the Medusa Spar, throughput from third parties and the elimination of interest
expense, as Medusa Spar LLC repaid its debt during 2008. Throughput from the original blocks
was higher in 2009 than 2008 due to less downtime from hurricanes in 2009. Throughput
decreased in 2010 due to normal production declines.
We expect Medusa Spar LLC revenue will decline in 2011 due to normal rates of well decline.
Medusa Spar LLC's revenue could be increased if the operator of the producing wells receives
regulatory approval to start producing from other zones in the existing wells, which are anticipated
to have higher flow rates than the currently-producing zones, or is able to connect more wells to
the spar.
Included in other income (expenses), net are foreign currency transaction gains/(losses) of ($2.8
million), $2.0 million and $0.7 million for 2010, 2009 and 2008, respectively. In 2010, we also
earned a fee of $2.1 million for serving as the stalking horse bidder on an asset auction
proceeding.
Our effective tax rate, including foreign, state and local taxes, was 34.3%, 35.0% and 35.1% for
2010, 2009 and 2008, respectively, which included favorable resolutions of uncertain tax
positions of $1.0 million, $0.3 million and $0.6 million, respectively, related to certain tax liabilities
we recorded in prior years. We anticipate our effective tax rate in 2011 will approximate that
of 2010.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by SEC rules.
Contractual Obligations
At December 31, 2010, we had payments due under contractual obligations as follows:
(dollars in thousands)
Long-term Debt
Operating Leases
Purchase Obligations
Other Long-term Obligations reflected
on our balance sheet under GAAP
TOTAL
Total
$ -
141,216
168,730
2011
$ -
38,269
168,730
Payments due by period
2012-2013
$ -
52,207
-
2014-2015
$ -
14,738
-
After 2015
$ -
36,002
-
53,311
$ 363,257
1,368
$ 208,367
2,867
$ 55,074
3,067
$ 17,805
46,009
$ 82,011
At December 31, 2010, we had outstanding purchase order commitments totaling $54 million,
including approximately $27 million for specialized steel tubes to be used in our manufacturing of
steel tube umbilicals by our Subsea Products segment, $17 million for ROV winches and control
umbilicals for ROV units and $10 million for vessels and a saturation diving system in our Subsea
Projects segment. We have ordered the specialized steel tubes in advance to meet expected
sales commitments. The diving vessel is being built as a replacement for another vessel. The
winches and ROV umbilicals have been ordered for new ROVs and for anticipated replacements
2010 Annual Report
23
due to normal wear and tear. Should we decide not to accept delivery of the steel tubes, we
would incur cancellation charges of at least 10% of the amount canceled.
In 2001, we entered into an agreement with our Chairman (the "Chairman") who was also then
our Chief Executive Officer. That agreement was amended in 2006 and in 2008. Pursuant to the
amended agreement, the Chairman relinquished his position as Chief Executive Officer in May
2006 and began his post-employment service period on December 31, 2006. The agreement
provides for a specific service period ending no later than August 15, 2011, during which the
Chairman, acting as an independent contractor, has agreed to serve as nonexecutive Chairman
of our Board of Directors for so long as our Board of Directors desires that he shall continue to
serve in that capacity. The agreement provides the Chairman with post-employment benefits for
ten years following the sooner to occur of August 15, 2011 or the termination of his services to us.
The amendment in 2006 included a lump-sum cash buyout, paid in 2007, of the Chairman's
entitlement to perquisites and administrative assistance during that ten-year period (expected to
run from 2011 to 2021). As a result, we recorded $2.8 million of associated expense in the fourth
quarter of 2006. The agreement also provides for medical coverage on an after-tax basis to the
Chairman, his spouse and children during his service with us and thereafter for their lives. We are
recognizing the net present value of the post-employment benefits over the expected service
period. If the service period is terminated for any reason (other than the Chairman's refusal to
continue serving) on or prior to August 11, 2011, we will recognize all the previously unaccrued
benefits in the period in which that termination occurs. Our total accrued liabilities, current and
long-term, under this post-employment benefit were $7.6 million and $6.3 million at December 31,
2010 and 2009, respectively.
Effects of Inflation and Changing Prices
Our financial statements are prepared in accordance with generally accepted accounting
principles in the United States, using historical U.S. dollar accounting, or historical cost.
Statements based on historical cost, however, do not adequately reflect the cumulative effect of
increasing costs and changes in the purchasing power of the dollar, especially during times of
significant and continued inflation.
In order to minimize the negative impact of inflation on our operations, we attempt to cover the
increased cost of anticipated changes in labor, material and service costs, either through an
estimate of those changes, which we reflect in the original price, or through price escalation
clauses in our contracts.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are currently exposed to certain market risks arising from transactions we have entered into
in the normal course of business. These risks relate to interest rate changes and fluctuations in
foreign exchange rates. We do not believe these risks are material. We have not entered into any
market risk sensitive instruments for speculative or trading purposes. We currently have no
outstanding hedges or similar instruments. We currently have no long-term debt. We typically
manage our exposure to interest rate changes through the use of a combination of fixed- and
floating-rate debt. See Note 5 of Notes to Consolidated Financial Statements included in this
report for a description of our revolving credit facility and interest rates on our borrowings. We
believe significant interest rate changes would not have a material near term impact on our future
earnings or cash flows.
Because we operate in various oil and gas exploration and production regions in the world, we
conduct a portion of our business in currencies other than the U.S. dollar. The functional currency
for several of our international operations is the applicable local currency. A stronger U.S. dollar
against the U.K. pound sterling and the Norwegian kroner would result in lower operating income.
We manage our exposure to changes in foreign exchange rates principally through arranging
compensation in U.S. dollars or freely convertible currency and, to the extent possible, by limiting
24 Oceaneering International, Inc.
compensation received in other currencies to amounts necessary to meet obligations
denominated in those currencies. We use the exchange rates in effect as of the balance sheet
date to translate assets and liabilities as to which the functional currency is the local currency,
resulting in translation adjustments that we reflect as accumulated other comprehensive income
or loss in the shareholders' equity section of our Consolidated Balance Sheets. We recorded
adjustments of $2 million, $56 million and ($106 million) to our equity accounts in 2010, 2009 and
2008, respectively. Negative adjustments reflect the net impact of the strengthening of the U.S.
dollar against various foreign currencies for locations where the functional currency is not the
U.S. dollar. Conversely, positive adjustments reflect the effect of a weakening dollar.
We recorded foreign currency transaction gains (losses) of ($2.8 million), $2.0 million and
$0.7 million which are included in Other income (expense), net in our Consolidated Income
Statements in 2010, 2009 and 2008, respectively.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), we carried out an evaluation, under the supervision and with the
participation of management, including our chief executive officer and chief financial officer, of the
effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-
15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
Based on that evaluation, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective as of December 31, 2010 to provide
reasonable assurance that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms. There has been
no change in our internal control over financial reporting that occurred during the year ended
December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
2010 Annual Report
25
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act). Our internal control over financial reporting is a process designed to provide reasonable, but
not absolute, assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with accounting principles
generally accepted in the United States of America. We developed our internal control over
financial reporting through a process in which our management applied its judgment in assessing
the costs and benefits of various controls and procedures, which, by their nature, can provide
only reasonable assurance regarding the control objectives. You should note that the design of
any system of controls is based in part on various assumptions about the likelihood of future
events, and we cannot assure you that any system of controls will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with
the policies and procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal
executive, financial and accounting officers, we have conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in "Internal
Control Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission. This evaluation included a review of the documentation surrounding our
financial reporting controls, an evaluation of the design effectiveness of these controls, testing of
the operating effectiveness of these controls and an evaluation of our overall control environment.
Based on that evaluation, our management has concluded that our internal control over financial
reporting was effective as of December 31, 2010.
Ernst & Young LLP, an independent registered public accounting firm, has audited our internal
control over financial reporting, as stated in their report which follows.
26 Oceaneering International, Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Oceaneering International, Inc.
We have audited Oceaneering International, Inc. and Subsidiaries' internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Oceaneering International, Inc. and Subsidiaries' management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Oceaneering International, Inc. and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2010, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Oceaneering International,
Inc. and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated
statements of income, cash flows, and shareholders' equity and comprehensive income for each
of the three years in the period ended December 31, 2010 and our report dated
February 25, 2011 expressed an unqualified opinion thereon.
Houston, Texas
February 25, 2011
2010 Annual Report
27
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Oceaneering International, Inc.
We have audited the accompanying consolidated balance sheets of Oceaneering International,
Inc. and Subsidiaries (the Company) as of December 31, 2010 and 2009, and the related
consolidated statements of income, cash flows, and shareholders' equity and comprehensive
income for each of the three years in the period ended December 31, 2010. These financial
statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Oceaneering International, Inc. and
Subsidiaries at December 31, 2010 and 2009, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2010, in
conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Oceaneering International Inc. and Subsidiaries' internal control
over financial reporting as of December 31, 2010, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.
Houston, Texas
February 25, 2011
28 Oceaneering International, Inc.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of
$5,655 and $274
Inventory
Other current assets
Total Current Assets
Property and Equipment, at cost
Less accumulated depreciation
Net Property and Equipment
Other Assets:
Goodwill
Investments in unconsolidated affiliates
Other
Total Other Assets
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Income taxes payable
Total Current Liabilities
Long-term Debt
Other Long-term Liabilities
Commitments and Contingencies
Shareholders' Equity:
December 31,
2010
2009
$
245,219
$
162,351
424,014
236,517
77,752
983,502
435,151
232,217
44,420
874,139
1,631,109
844,736
786,373
1,501,243
734,882
766,361
143,234
51,820
65,577
260,631
2,030,506
$
130,820
58,736
50,231
239,787
1,880,287
$
$
85,572
314,410
39,874
439,856
-
200,435
$
86,484
255,704
46,359
388,547
120,000
147,417
Common Stock, par value $0.25 per share; 180,000,000 shares
authorized; 55,417,044 shares issued
Additional paid-in capital
Treasury stock; 1,301,662 and 499,292 shares, at cost
Retained earnings
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
13,854
207,132
(61,385)
1,239,574
(8,960)
1,390,215
2,030,506
$
13,854
212,788
(27,796)
1,039,043
(13,566)
1,224,323
1,880,287
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2010 Annual Report
29
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31,
2009
2010
2008
Revenue
$
1,917,045
$
1,822,081
$
1,977,421
Cost of services and products
1,450,725
1,384,355
1,512,621
Gross Margin
466,320
437,726
464,800
Selling, general and administrative expense
156,820
145,610
147,242
Income from Operations
309,500
292,116
317,558
Interest income
580
694
907
Interest expense, net of amounts capitalized
(6,010)
(7,781)
(13,485)
Equity earnings of unconsolidated affiliates
Other income (expense), net
2,078
(926)
3,242
1,504
1,919
321
Income before Income Taxes
305,222
289,775
307,220
Provision for income taxes
104,691
101,422
107,834
Net Income
$
200,531
$
188,353
$
199,386
Basic Earnings per Share
Diluted Earnings per Share
$
$
3.66
3.65
$
$
3.42
3.40
$
$
3.59
3.56
The accompanying Notes are an integral part of these Consolidated Financial Statements.
30 Oceaneering International, Inc.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income tax provision
Net gain on sales of property and equipment
Noncash compensation
Distributions from unconsolidated affiliates greater than
earnings
Increase (decrease) in cash from:
Accounts receivable, net
Inventory and other current assets
Other assets
Currency translation effect on working capital
Accounts payable
Accrued liabilities
Income taxes payable
Other long-term liabilities
Year Ended December 31,
2009
2008
2010
$ 200,531
$ 188,353
$ 199,386
153,651
31,184
(2,758)
8,490
122,945
21,631
(305)
6,369
115,029
45,876
(5,460)
7,956
5,569
5,194
725
12,104
(21,656)
(9,245)
6,519
(912)
57,012
(6,485)
7,846
11,568
14,073
(9,506)
16,215
(6,027)
14,063
25,578
8,083
(71,903)
(15,968)
4,527
(44,224)
14,602
10,265
(7,618)
(5,279)
Total adjustments to net income
241,319
229,881
48,528
Net Cash Provided by Operating Activities
441,850
418,234
247,914
Cash Flows from Investing Activities:
Purchases of property and equipment
Business acquisitions, net of cash acquired
Dispositions of property and equipment and equity
investment
(185,262)
(21,918)
(175,021)
-
(209,301)
(42,976)
15,284
12,535
5,886
Net Cash Used in Investing Activities
(191,896)
(162,486)
(246,391)
Cash Flows from Financing Activities:
Net (payments) proceeds from revolving credit facility
Payments of 6.72% Senior Notes
Proceeds (payments) from Term Loan
Proceeds from issuance of common stock
(100,000)
(20,000)
-
693
(4,000)
(20,000)
(85,000)
1,880
(36,000)
(20,000)
85,000
1,726
Excess tax benefits from stock-based compensation
Purchases of treasury stock
1,741
(49,520)
2,523
-
6,770
(54,929)
Net Cash Used in Financing Activities
(167,086)
(104,597)
(17,433)
Net Increase (Decrease) in Cash and Cash Equivalents
82,868
151,151
(15,910)
Cash and Cash Equivalents Beginning of Period
162,351
11,200
27,110
Cash and Cash Equivalents End of Period
$ 245,219
$ 162,351
$ 11,200
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2010 Annual Report
31
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands)
Balance, December 31, 2007
Comprehensive Income:
Net Income
Change in fair value of interest rate hedge
and other, net of tax
Pension-related adjustments, net of tax
Translation adjustments
Total Comprehensive Income
Restricted stock expense
Restricted stock grant
Stock options exercised
Tax benefits from stock plans
Treasury stock purchases, 986,400 shares
Balance, December 31, 2008
Comprehensive Income:
Net Income
Change in fair value of interest rate hedge
and other, net of tax
Pension-related adjustments, net of tax
Translation adjustments
Total Comprehensive Income
Restricted stock expense
Restricted stock grant
Stock options exercised
Tax benefits from stock plans
Balance, December 31, 2009
Comprehensive Income:
Net Income
Change in fair value of interest rate hedge
and other, net of tax
Pension-related adjustments, net of tax
Translation adjustments
Total Comprehensive Income
Restricted stock expense
Restricted stock grant
Stock options exercised
Tax benefits from stock plans
Treasury stock purchases, 1,100,000 shares
Balance, December 31, 2010
Common Stock
Issued
Shares
Amounts
Additional
Paid-in Capital
Unearned
Compen-
sation
55,075
$
13,769
$
210,497
$
(109)
-
-
-
-
-
-
-
224
32
86
-
-
55,417
-
-
-
-
56
8
21
-
-
13,854
-
-
-
-
5,965
1,984
(805)
6,770
-
224,411
-
-
-
-
-
-
-
-
-
-
-
55,417
-
-
-
-
-
-
-
-
13,854
-
-
-
-
(9,066)
(787)
(4,210)
2,523
212,871
-
-
-
-
-
-
-
-
-
-
-
-
55,417
-
-
-
-
-
-
-
-
-
13,854
$
-
-
-
-
(5,845)
112
(1,589)
1,741
-
207,290
$
-
-
-
-
-
1,935
(1,992)
-
-
-
(166)
-
-
-
-
-
1,077
(994)
-
-
(83)
-
-
-
-
-
1,818
(1,893)
-
-
-
(158)
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
32 Oceaneering International, Inc.
Accumulated Other
Comprehensive Income (Loss)
Treasury Stock
Retained
Earnings
Fair Value of
Hedging
Instruments
Currency
Translation
Adjustments
Pension
Total
$
-
$
651,304
$
76
$
42,584
$
(2,811)
$
915,310
-
199,386
-
-
-
199,386
-
-
-
-
-
-
2,510
-
(54,929)
(52,419)
-
-
-
199,386
-
-
-
-
-
850,690
(3,133)
-
-
(3,133)
-
-
-
-
-
(3,057)
-
-
(106,073)
(106,073)
-
-
-
-
-
(63,489)
-
641
-
641
-
-
-
-
-
(2,170)
(3,133)
641
(106,073)
90,821
7,956
-
1,726
6,770
(54,929)
967,654
-
188,353
-
-
-
188,353
-
-
-
-
16,752
1,781
6,090
-
(27,796)
-
-
-
188,353
-
-
-
-
1,039,043
629
-
-
629
-
-
-
-
(2,428)
-
-
56,333
56,333
-
-
-
-
(7,156)
-
(1,812)
-
(1,812)
-
-
-
-
(3,982)
629
(1,812)
56,333
243,503
8,763
-
1,880
2,523
1,224,323
-
200,531
-
-
-
200,531
-
-
-
-
11,868
1,781
2,282
-
(49,520)
(61,385)
$
-
-
-
200,531
-
-
-
-
-
1,239,574
$
2,428
-
-
2,428
-
-
-
-
-
$
-
-
-
1,893
1,893
-
-
-
-
-
(5,263)
$
-
285
-
285
-
-
-
-
-
(3,697)
$
2,428
285
1,893
205,137
7,841
-
693
1,741
(49,520)
1,390,215
$
2010 Annual Report
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF MAJOR ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the accounts of
Oceaneering International, Inc. and our 50% or more owned and controlled subsidiaries. We also
consolidate entities that are determined to be variable interest entities if we determine that we are
the primary beneficiary; otherwise, we account for these entities using the equity method of
accounting. We use the equity method to account for our investments in unconsolidated affiliated
companies of which we own an equity interest of between 20% and 50% and as to which we
have significant influence, but not control, over operations. All significant intercompany accounts
and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires that our management make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from those estimates.
Reclassifications. Certain amounts from prior periods have been reclassified to conform with the
current year presentation.
Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and highly
liquid investments with original maturities of three months or less from the date of the investment.
Accounts Receivable Allowances for Doubtful Accounts. We determine the need for allowances
for doubtful accounts using the specific identification method. We do not generally require
collateral from our customers.
Inventory. Inventory is valued at lower of cost or market. We determine cost using the weighted-
average method.
Property and Equipment. We provide for depreciation of property and equipment on the straight-
line method over estimated useful lives of eight years for ROVs, three to 20 years for marine
services equipment (such as vessels and diving equipment), up to 12 years for mobile offshore
production equipment and three to 25 years for buildings, improvements and other equipment.
We charge the costs of repair and maintenance of property and equipment to operations as
incurred, while we capitalize the costs of improvements.
We capitalize interest on assets where the construction period is anticipated to be more than
three months. We capitalized $0.3 million of interest in 2010 and less than $0.1 million of interest
in each of 2009 and 2008. We do not allocate general administrative costs to capital projects.
Upon the disposition of property and equipment, the related cost and accumulated depreciation
accounts are relieved and any resulting gain or loss is included as an adjustment to cost of
services and products.
Our management periodically, and upon the occurrence of a triggering event, reviews the
realizability of long-lived assets, excluding goodwill and indefinite-lived intangibles, which are held
and used by us, to determine whether any events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. For long-lived assets to be held and used,
we base our evaluation on impairment indicators such as the nature of the assets, the future
economic benefit of the assets, any historical or future profitability measurements and other
external market conditions or factors that may be present. If such impairment indicators are
present or other factors exist that indicate that the carrying amount of the asset may not be
recoverable, we determine whether an impairment has occurred through the use of an
undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows
exist. If an impairment has occurred, we recognize a loss for the difference between the carrying
34 Oceaneering International, Inc.
amount and the fair value of the asset. For assets held for sale or disposal, the fair value of the
asset is measured using fair market value less cost to sell. Assets are classified as held-for-sale
when we have a plan for disposal of certain assets and those assets meet the held for sale
criteria. In 2010, we recorded a $5.2 million impairment charge to adjust the carrying value of our
vessel held for sale, The Performer, to its fair value less estimated costs to sell. We completed
the sale in 2010 for approximately the vessel's reduced carrying value. In 2008, we recorded an
impairment charge of $5.7 million to reduce our investment in the Ocean Pensador, an oil tanker
we were holding for possible conversion, to its fair value, based on quoted steel commodity
prices. These impairment charges were recorded in our cost of services and products in our
Subsea Projects segment.
Business Acquisitions. In March 2008, we purchased GTO Subsea AS ("GTO"), a Norwegian
rental provider of specialized subsea dredging equipment, including ROV-deployed units, to the
offshore oil and gas industry for $40 million. We accounted for this acquisition using the purchase
method of accounting, with the purchase price being allocated to the net assets acquired based
on their fair market values at the date of acquisition. Our goodwill, all nondeductible for income
tax purposes, associated with the acquisition was $23.2 million, and other intangible assets were
$8.1 million. The results of operations of GTO are included in our consolidated statements of
income from the date of acquisition.
We also made several smaller acquisitions during the periods presented.
The above acquisitions were not material. As a result, we have not included pro forma information
related to the acquisitions in this report.
Goodwill and Intangible Assets. We tested the goodwill attributable to each of our reporting units
for impairment as of December 31, 2010, 2009 and 2008 and concluded that there was no
impairment. Our reporting units are the operating units one level below our business segments,
except for ROVs and Inspection, which are tested as single reporting units. We estimated fair
value using discounted cash flow methodologies and market comparable information. The only
changes in our reporting units' goodwill during the periods presented are from business
acquisitions, as discussed above, and currency exchange rate changes. For more information
regarding goodwill by business segment, see Note 7.
Within our balance sheet caption Other Assets: Other, at December 31, 2010 and 2009, we had
$22.2 million and $20.1 million, respectively, of intangible assets, primarily acquired in connection
with business combinations. These intangible assets include trade names, intellectual property
and customer relationships, and are being amortized with a weighted average remaining life of
approximately 10 years.
Revenue Recognition. We recognize our revenue according to the type of contract involved. On a
daily basis, we recognize revenue under contracts that provide for specific time, material and
equipment charges, which we bill periodically, ranging from weekly to monthly.
We account for significant fixed-price contracts, which we enter into mainly in our Subsea
Products segment, and to a lesser extent in our Subsea Projects and Advanced Technologies
segments, using the percentage-of-completion method. In 2010, we accounted for 14% of our
2010 Annual Report
35
revenue using the percentage-of-completion method. In determining whether a contract should be
accounted for using the percentage-of-completion method, we consider whether:
the customer provides specifications for the construction of facilities or production of
goods or for the provision of related services;
we can reasonably estimate our progress towards completion and our costs;
the contract includes provisions as to the enforceable rights regarding the goods or
services to be provided, consideration to be received and the manner and terms of
payment;
the customer can be expected to satisfy its obligations under the contract; and
we can be expected to perform our contractual obligations.
Under the percentage-of-completion method, we recognize estimated contract revenue based on
costs incurred to date as a percentage of total estimated costs. Changes in the expected cost of
materials and labor, productivity, scheduling and other factors affect the total estimated costs.
Additionally, external factors, including weather or other factors outside of our control, also affect
the progress and estimated cost of a project's completion and, therefore, the timing of income
and revenue recognition. We routinely review estimates related to our contracts and reflect
revisions to profitability in earnings immediately. If a current estimate of total contract cost
indicates an ultimate loss on a contract, we recognize the projected loss in full when we
determine it. Although we are continually striving to accurately estimate our contract costs and
profitability, adjustments to overall contract costs could be significant in future periods.
We recognize the remainder of our revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed or determinable and
collection is reasonably assured.
Revenue in Excess of Amounts Billed is classified as accounts receivable and relates to
recoverable costs and accrued profits on contracts in progress. Billings in Excess of Revenue
Recognized on uncompleted contracts are classified in accrued liabilities.
Revenue in Excess of Amounts Billed on uncompleted fixed-price contracts accounted for using
the percentage-of-completion method is summarized as follows:
(in thousands)
Revenue recognized
Less: Billings to customers
Revenue in excess of amounts billed
December 31,
2010
2009
$
262,602
(238,473)
24,129
$
$
164,296
(146,241)
18,055
$
Billings in Excess of Revenue Recognized on uncompleted fixed-price contracts accounted for
using the percentage-of-completion method are summarized as follows:
(in thousands)
Amounts billed to customers
Less: Revenue recognized
Billings in excess of revenue recognized
December 31,
2010
2009
$
90,315
(45,144)
45,171
$
$
28,361
(15,371)
12,990
$
Stock-Based Compensation. We recognize all share-based payments to directors, officers and
employees, including grants of stock options, over their vesting periods in the income statement
based on their estimated fair values.
The Compensation Committee of our Board of Directors has expressed its intention to refrain
from using stock options as a component of compensation for our executive officers and other
36 Oceaneering International, Inc.
employees for the foreseeable future. Additionally, our Board of Directors has expressed its
intention to refrain from using stock options as a component of nonemployee director
compensation for the foreseeable future. No stock options have been granted since 2005, and we
no longer have any stock options outstanding. For more information on our employee benefit
plans, see Note 8.
Income Taxes. We provide income taxes at appropriate tax rates in accordance with our
interpretation of the respective tax laws and regulations after review and consultation with our
internal tax department, tax advisors and, in some cases, legal counsel in various jurisdictions.
We provide for deferred income taxes for differences between carrying amounts of assets and
liabilities for financial and tax reporting purposes. Our policy is to provide for deferred U.S.
income taxes on foreign income only to the extent such income is not to be invested indefinitely in
the related foreign entity. We provide a valuation allowance against deferred tax assets when it is
more likely than not that the asset will not be realized.
We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable
upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then
measured and recognized at the largest amount that is greater than 50 percent likely of being
realized upon ultimate settlement. We account for any applicable interest and penalties on
uncertain tax positions as a component of our provision for income taxes on our financial
statements.
Foreign Currency Translation. The functional currency for several of our foreign subsidiaries is
the applicable local currency. Results of operations for foreign subsidiaries with functional
currencies other than the U.S. dollar are translated into U.S. dollars using average exchange
rates during the period. Assets and liabilities of these foreign subsidiaries are translated into U.S.
dollars using the exchange rates in effect at the balance sheet date, and the resulting translation
adjustments are accumulated as a component of shareholders' equity. All foreign currency
transaction gains and losses are recognized currently in the Consolidated Statements of Income.
We recorded ($2.8 million), $2.0 million and $0.7 million of foreign currency gains (losses) in
2010, 2009 and 2008, respectively, and those amounts are included as a component of Other
income (expense), net.
Earnings Per Share. In 2008, the Financial Accounting Standards Board (the "FASB") issued a
staff position on determining whether instruments granted in share-based payment transactions
are participating securities, stating that unvested share-based payment awards that contain non-
forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and, therefore, need to be included in the earnings allocation in computing earnings per
share. Certain of our share-based payments contain such rights to dividends or dividend
equivalents and are considered participating securities under this staff position. We adopted the
staff position as of January 1, 2009, as required. The table that follows presents our earnings per
share calculations in accordance with this staff position.
2010 Annual Report
37
Basic earnings per share:
Net income per consolidated statements of income
Income allocable to participating securities
Earnings allocable to common shareholders
2010
Year Ended December 31,
2009
2008
(in thousands, except per share data)
$
$
200,531
(709)
199,822
$
$
188,353
(1,324)
187,029
$
$
199,386
(2,118)
197,268
Basic shares outstanding
54,560
54,766
54,949
Basic earnings per share
$
3.66
$
3.42
$
3.59
Basic earnings per share, as previously reported
N/A
N/A
$
3.63
Diluted earnings per share:
Net income per consolidated statements of income
Income allocable to participating securities
Earnings allocable to diluted common shareholders
$
$
200,531
(706)
199,825
$
$
188,353
(1,318)
187,035
$
$
199,386
(2,102)
197,284
Diluted shares outstanding
54,767
55,026
55,374
Diluted earnings per share
$
3.65
$
3.40
$
3.56
Diluted earnings per share, as previously reported
N/A
N/A
$
3.58
Financial Instruments. We recognize all derivative instruments as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Subsequent changes in fair value are
reflected in current earnings or other comprehensive income, depending on whether a derivative
instrument is designated as part of a hedge relationship and, if it is, the type of hedge
relationship. As of December 31, 2010, we had no derivative instruments in effect.
Pension and Postretirement Benefits. We recognize the funded status of the pension and
postretirement plans in our balance sheet, along with a corresponding noncash, after-tax
adjustment to shareholders' equity. Funded status is determined as the difference between the
fair value of plan assets and the projected benefit obligation. We determine the fair value of our
pension plan assets using Level 2 inputs, primarily the quoted market prices of the underlying
securities of the Plan investments. Changes in the funded status will be recognized in other
comprehensive income (loss).
Subsequent Events. We have evaluated events and transactions through the issuance of these
financial statements for possible recognition or disclosure.
New Accounting Standards. The following is a summary of recent accounting pronouncements
that are applicable to us.
38 Oceaneering International, Inc.
In June 2009, the FASB issued an updated accounting principle regarding accounting for variable
interest entities, specifically to:
require ongoing reassessments of whether an enterprise is the primary beneficiary of
a variable interest entity;
eliminate the quantitative approach previously required for determining the primary
beneficiary of a variable interest entity, which was based on determining which
enterprise absorbs the majority of the entity's expected losses, receives a majority of
the entity's expected residual returns, or both;
change certain guidance for determining whether an entity is a variable interest entity;
add an additional reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that the
holders of the equity investment at risk, as a group, lose the power from voting rights
or similar rights of those investments to direct the activities of the entity that most
significantly impact the entity's economic performance; and
require enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise's involvement in a variable interest entity.
We adopted these principles and requirements as of January 1, 2010, as required.
In October 2009, the FASB issued a release regarding accounting for revenue involving multiple-
deliverable arrangements to enable sellers to account for products or services ("deliverables")
separately rather than as a combined unit.
This release establishes a selling price hierarchy for determining the selling price of a deliverable.
The selling price used for each deliverable will be based on vendor-specific objective evidence if
available, third-party evidence if vendor-specific objective evidence is not available, or estimated
selling price if neither vendor-specific objective evidence nor third-party evidence is available. The
release also replaces the term fair value in the revenue allocation guidance with selling price to
clarify that the allocation of revenue is based on entity-specific assumptions rather than
assumptions of a marketplace participant.
The release eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all deliverables using the
relative selling price method. The relative selling price method allocates any discount in the
arrangement proportionally to each deliverable on the basis of each deliverable's selling price.
The release requires that a seller determine its best estimate selling price in a manner that is
consistent with that used to determine the price to sell the deliverable on a standalone basis. The
release does not prescribe any specific methods that sellers must use to accomplish this
objective, but provides guidance.
For us, the release will be effective prospectively for revenue arrangements entered into or
materially modified on or after January 1, 2011.
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Our investments in unconsolidated affiliates consisted of the following:
(in thousands)
Medusa Spar LLC
Other
2010
December 31,
2009
2008
$ 51,820
-
$ 51,820
$ 57,388
1,348
$ 58,736
$ 62,583
1,347
$ 63,930
In 2003, we purchased a 50% equity interest in Medusa Spar LLC for $43.7 million.
Medusa Spar LLC owns a 75% interest in a production spar platform in the U.S. Gulf of Mexico.
2010 Annual Report
39
Medusa Spar LLC's revenue is derived from processing oil and gas production for a fee based on
the volumes processed through the platform (throughput). Medusa Spar LLC financed its
acquisition of its 75% interest in the production spar platform using approximately 50% debt and
50% equity from its equity holders. The debt was repaid in 2008. We believe our maximum
exposure to loss from our investment in Medusa Spar LLC is our $52 million investment.
Medusa Spar LLC is a variable interest entity. We are not the primary beneficiary under of
Medusa Spar LLC, since we own 50%, do not manage the operations of the asset it owns and
another owner guaranteed the revenue stream necessary for it to repay its debt. As we are not
the primary beneficiary, we are accounting for our investment in Medusa Spar LLC under the
equity method of accounting. Summarized 100% financial information relative to
Medusa Spar LLC follows.
(in thousands)
Medusa Spar LLC
Condensed Balance Sheets
ASSETS
Cash and cash equivalents
Other current assets
Property and Equipment, net
Total Assets
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Members' Equity
Total Liabilities and Members' Equity
Condensed Statements of Operations
Revenue
Depreciation
General and Administrative
Interest
Net Income
2010
December 31,
2009
2008
$ 217
3,189
100,551
$ 103,957
$ 949
4,116
110,028
$ 115,093
$ 3,520
2,456
119,506
$ 125,482
$ 18
103,939
$ 103,957
$ 17
115,076
$ 115,093
$ 17
125,465
$ 125,482
$ 13,816
(9,478)
(71)
-
$ 4,267
$ 16,143
(9,478)
(70)
-
$ 6,595
$ 14,455
(9,478)
(118)
(832)
$ 4,027
Our 50% share of the underlying equity of the net assets of Medusa Spar LLC is approximately
equal to its carrying value. Our 50% share of the cumulative undistributed earnings of
Medusa Spar LLC was $10.2 million and $15.7 million at December 31, 2010 and 2009,
respectively. We received cash distributions of $7.7 million, $8.5 million and $2.5 million from
Medusa Spar LLC in 2010, 2009 and 2008, respectively.
3. INCOME TAXES
We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable
upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then
measured and recognized at the largest amount that is greater than 50 percent likely of being
realized upon ultimate settlement.
We account for any applicable interest and penalties on uncertain tax positions as a component
of our provision for income taxes on our financial statements. We charged $0.2 million,
$0.5 million and $0.4 million to income tax expense in 2010, 2009 and 2008, respectively, for
penalties and interest taken on our financial statements on uncertain tax positions, which brought
our total liabilities for penalties and interest on uncertain tax positions to $4.0 million and
$3.8 million on our balance sheet at December 31, 2010 and 2009, respectively. Including
associated foreign tax credits and penalties and interest, we have accrued a net total of
$5.6 million in the caption "other long-term liabilities" on our balance sheet for unrecognized tax
40 Oceaneering International, Inc.
benefits at December 31, 2010. All additions or reductions to those liabilities affect our effective
income tax rate in the periods of change.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, not
including associated foreign tax credits and penalties and interest, is as follows:
(in thousands)
Beginning of year
Additions based on tax positions
related to the current year
Reductions for expiration of statutes of limitations
Settlements
Balance at end of year
Year Ended December 31,
2009
2008
2010
$
9,488
$
8,402
$
7,450
1,296
(793)
-
9,991
$
1,361
(81)
(194)
9,488
$
1,354
(402)
-
8,402
$
We do not believe that the total of unrecognized tax benefits will significantly increase or
decrease in the next 12 months.
We file a consolidated U.S. federal income tax return for Oceaneering International, Inc. and our
domestic subsidiaries, including acquired companies from their respective dates of acquisition.
We conduct our international operations in a number of locations that have varying laws and
regulations with regard to income and other taxes, some of which are subject to interpretation.
Our management believes that adequate provisions have been made for all taxes that will
ultimately be payable, although final determination of tax liabilities may differ from our estimates.
Income before income taxes is as follows:
(in thousands)
Domestic
Foreign
Income before income taxes
Year Ended December 31,
2009
2008
2010
$
87,776
217,446
305,222
$
$
65,174
224,601
289,775
$
$
$
105,591
201,629
307,220
Our provisions for income taxes and our cash taxes paid are as follows:
(in thousands)
Current:
Domestic
Foreign
Total current
Deferred:
Domestic
Foreign
Total deferred
2010
2009
2008
$ 16,501
57,006
73,507
$ 10,659
69,132
79,791
$ 11,190
50,768
61,958
19,730
11,454
31,184
12,029
9,602
21,631
42,219
3,657
45,876
Total provision for income taxes
$ 104,691
$ 101,422
$ 107,834
Cash taxes paid
$ 101,304
$ 42,520
$ 66,594
2010 Annual Report
41
As of December 31, 2010 and 2009, our worldwide deferred tax assets, liabilities and net
deferred tax liabilities were as follows:
(in thousands)
Deferred tax assets:
Deferred compensation
Deferred income
Accrued expenses
Other
Foreign tax credit carryforwards
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Unremitted foreign earnings
Basis difference in equity investments
Other
Total deferred tax liabilities
December 31,
2010
2009
$
$
24,791
19,808
6,675
5,360
-
56,634
-
56,634
22,185
7,271
6,512
7,389
3,773
47,130
-
47,130
$
$
$
74,832
62,373
17,177
13,580
167,962
$
$
67,409
35,291
16,599
5,958
125,257
$
Net deferred income tax liability
$
111,328
$
78,127
Our net deferred tax liability is reflected within our balance sheet as
follows:
(in thousands)
Deferred tax liabilities
Current deferred assets
Net deferred income tax liability
December 31,
2010
2009
$
$
139,822
(28,494)
111,328
$
94,219
(16,092)
78,127
$
We have $17 million of earnings of our Swiss subsidiary, Oceaneering International AG, that we
consider indefinitely reinvested outside the United States and that we do not expect to repatriate.
None of our foreign tax credits are scheduled to expire before December 31, 2020.
We believe it is more likely than not that all our deferred tax assets are realizable. We conduct
business through several foreign subsidiaries and, although we expect our consolidated
operations to be profitable, there is no assurance that profits will be earned in entities or
jurisdictions that have NOLs available. The primary difference between our 2010 effective tax rate
of 34.3% and the federal statutory rate of 35% is the lesser federal tax rate applied to our U.S.
manufacturing profits. Income taxes, computed by applying the federal statutory income tax rate
to income before income taxes, are not materially different than our actual provisions for income
taxes for 2009 and 2008.
We conduct our operations in a number of locations that have varying laws and regulations with
regard to income and other taxes, some of which are subject to interpretation. Our tax returns are
subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to
complete and settle. The following lists the earliest tax years open to examination by tax
authorities where we have significant operations:
42 Oceaneering International, Inc.
Jurisdiction
United States
United Kingdom
Norway
Angola
Nigeria
Brazil
Australia
Canada
4. SELECTED BALANCE SHEET ACCOUNTS
The following is information regarding selected balance sheet accounts:
(in thousands)
Inventory:
Inventory for remotely operated vehicles
Other inventory, primarily raw materials
Total
Other Current Assets:
Deferred income taxes
Prepaids and other
Total
Accrued Liabilities:
Payroll and related costs
Accrued job costs
Deferred revenue, including billings in excess of revenue recognized
Other
Total
Other Long-Term Liabilities:
Deferred income taxes
Supplemental Executive Retirement Plan
Accrued post-employment benefit obligations
Other
Total
5. DEBT
Long-term Debt consisted of the following:
(in thousands)
6.72% Senior Notes, maturing September 2010
Revolving credit facility, maturing January 2012
Long-term Debt
Periods
2007
2008
2000
2005
2004
2005
2007
2007
December 31,
2010
2009
$
$
119,106
117,411
236,517
$
$
110,043
122,174
232,217
$
$
28,494
49,258
77,752
$
$
16,092
28,328
44,420
$ 168,476
50,323
68,131
27,480
$ 314,410
$ 153,256
48,541
28,311
25,596
$ 255,704
$ 139,822
32,341
14,245
14,027
$ 200,435
$ 94,219
25,547
14,176
13,475
$ 147,417
December 31,
2010
2009
$
-
-
$ -
20,000
$
100,000
$ 120,000
As of December 31, 2010, we had a $300 million revolving credit facility under an agreement (the
"Credit Agreement") that currently extends to January 2012. We have to pay a commitment fee
ranging from 0.125% to 0.175% on the unused portion of the facility, depending on our debt-to-
capitalization ratio. The commitment fees are included as interest expense in our consolidated
2010 Annual Report
43
financial statements. Under the Credit Agreement, we have the option to borrow at LIBOR plus a
margin ranging from 0.50% to 1.25%, depending on our debt-to-capitalization ratio, or at the
agent bank's prime rate. At December 31, 2010, we had no borrowings outstanding under the
Credit Agreement and $300 million available for borrowing. The weighted average interest rate on
all our outstanding borrowings was 4.3% at December 31, 2009.
We made cash interest payments of $7.2 million, $8.9 million and $13.6 million in 2010, 2009 and
2008, respectively. Cash interest payments, and interest expense, in 2010 include $2.9 million to
terminate an interest rate hedge.
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2010, we occupied several facilities under noncancellable operating leases
expiring at various dates through 2025. Future minimum rentals under all of our operating leases,
including vessel rentals, are as follows:
(in thousands)
2011
2012
2013
2014
2015
Thereafter
Total Lease Commitments
$ 38,269
31,510
20,697
8,526
6,212
36,002
$
141,216
The above table includes $40 million related to the remainder of a five-year time charter of a
vessel and crew, which began in the third quarter of 2008. Rental expense, which includes hire of
vessels, specialized equipment and real estate rental, was approximately $69 million, $74 million
and $79 million 2010, 2009 and 2008, respectively.
Insurance
We self-insure for workers' compensation, maritime employer's liability and comprehensive
general liability claims to levels we consider financially prudent, and beyond the self-insurance
level of exposure, we carry insurance, which can be by occurrence or in the aggregate. We
determine the level of accruals for claims exposure by reviewing our historical experience and
current year claim activity. We do not record accruals on a present-value basis. We review larger
claims with insurance adjusters and establish specific reserves for known liabilities. We establish
an additional reserve for incidents incurred but not reported to us for each year using our
estimates and based on prior experience. We believe we have established adequate accruals for
uninsured expected liabilities arising from those obligations. However, it is possible that future
earnings could be affected by changes in our estimates relating to these matters.
Litigation
Various actions and claims are pending against us, most of which are covered by insurance.
Although we cannot predict the ultimate outcome of these matters, we believe the ultimate
liability, if any, that may result from these actions and claims will not materially affect our results
of operations, cash flow or financial position.
Letters of Credit
We had $30 million and $36 million in letters of credit outstanding as of December 31, 2010 and
2009, respectively, as guarantees in force for self-insurance requirements and various
performance and bid bonds, which are usually for the duration of the applicable contract.
44 Oceaneering International, Inc.
Financial Instruments and Risk Concentration
In the normal course of business, we manage risks associated with foreign exchange rates and
interest rates through a variety of strategies, including the use of hedging transactions. As a
matter of policy, we do not use derivative instruments unless there is an underlying exposure.
Other financial instruments that potentially subject us to concentrations of credit risk are
principally cash and cash equivalents and accounts receivable. The carrying values of cash and
cash equivalents and bank borrowings approximate their fair values due to the short maturity of
those instruments or the short-term duration of the associated interest rate periods. Accounts
receivable are generated from a broad group of customers, primarily from within the energy
industry, which is our major source of revenue. Due to their short-term nature, carrying values of
our accounts receivable and accounts payable approximate fair market value.
One customer in Angola owed us $56 million at December 31, 2010 and $50 million at
December 31, 2009, all of which is overdue. We completed the work on the contracts related to
this receivable in the first quarter of 2010. Based on our past history with this customer, we
believe this receivable ultimately will be collected.
7. OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Business Segment Information
We are a global oilfield provider of engineered services and products, primarily to the offshore oil
and gas industry, with a focus on deepwater applications. Through the use of our applied
technology expertise, we also serve the defense and aerospace industries. Our Oil and Gas
business consists of Remotely Operated Vehicles ("ROVs"), Subsea Products, Subsea Projects
and Inspection. Our ROV segment provides submersible vehicles operated from the surface to
support offshore oil and gas exploration, production and construction activities. Our Subsea
Products segment supplies a variety of built-to-order specialty subsea hardware. Our Subsea
Projects segment provides multiservice vessels, oilfield diving and support vessel operations,
which are used primarily in inspection, repair and maintenance and installation activities, and
mobile offshore production systems, one of which we own and through a 50% interest in an entity
which holds a 75% interest in a system. Our Inspection segment provides customers with a wide
range of third-party inspection services to satisfy contractual structural specifications, internal
safety standards and regulatory requirements. Our Advanced Technologies business provides
project management, engineering services and equipment for applications in non-oilfield markets.
Unallocated Expenses are those not associated with a specific business segment. These consist
of expenses related to our incentive and deferred compensation plans, including restricted stock
and bonuses, as well as other general expenses, including corporate administrative expenses.
With the sale of the Ocean Producer in late 2009, our Mobile Offshore Production Systems
("MOPS") business is no longer significant to our overall performance. Consequently, our MOPS
results are now being reported in our Subsea Projects segment, and our historical segment
results have been conformed to the current year presentation.
There are no differences in the basis of segmentation or in the basis of measurement of segment
profit or loss in the year ended December 31, 2010 from those used in our consolidated financial
statements for the years ended December 31, 2009 and 2008, except for the above-mentioned
combination of our MOPS business into our Subsea Projects segment.
2010 Annual Report
45
The table that follows presents Revenue, Income from Operations, Depreciation and Amortization
Expense and Equity Earnings of Unconsolidated Affiliates by business segment:
(in thousands)
Revenue
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Total
Income from Operations
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Unallocated Expenses
Total
Depreciation and Amortization Expense
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Unallocated Expenses
Total
Equity Earnings of Unconsolidated Affiliates
Subsea Projects
Advanced Technologies
Total
Year Ended December 31,
2009
2010
2008
$
662,105
549,233
247,538
223,469
1,682,345
234,700
1,917,045
$
$
649,228
487,726
274,607
216,140
1,627,701
194,380
1,822,081
$
$
625,921
649,857
295,791
249,109
1,820,678
156,743
1,977,421
$
$
$
$
$
$
$
$
$
$
211,725
108,522
46,910
25,893
393,050
16,934
(100,484)
309,500
86,232
27,956
25,826
4,098
144,112
4,588
4,951
153,651
207,683
60,526
75,404
26,443
370,056
12,366
(90,306)
292,116
68,022
24,133
19,011
3,794
114,960
2,526
5,459
122,945
190,343
96,046
79,546
31,017
396,952
9,773
(89,167)
317,558
55,948
22,016
27,819
3,691
109,474
1,425
4,130
115,029
$
$
$
$
$
2,078
-
2,078
$
$
3,242
-
3,242
$
$
1,894
25
1,919
We determine income from operations for each business segment before interest income or
expense, other income (expense) and provision for income taxes. We do not consider an
allocation of these items to be practical.
Depreciation and amortization expense for Subsea Projects in 2010 includes an impairment
charge of $5.2 million in the first quarter to reduce the carrying value of our vessel held for sale,
The Performer, to its fair value, less estimated costs to sell. In the third quarter of 2010, we sold
the vessel for approximately its reduced carrying value. Depreciation and amortization expense
for Subsea Projects in 2008 includes an impairment charge of $5.7 million to reduce our
investment in the Ocean Pensador to fair value.
46 Oceaneering International, Inc.
During 2010, revenue from one customer, BP plc and subsidiaries in our oil and gas business
segments, accounted for 12% of our total consolidated revenue. No individual customer
accounted for more than 10% of our consolidated revenue during 2009 or 2008.
The following table presents Assets, Property and Equipment and Goodwill by business segment
as of the dates indicated:
(in thousands)
Assets
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
Property and Equipment, net
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
Goodwill
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Inspection
Total Oil and Gas
Advanced Technologies
Total
December 31,
2010
2009
$
774,011
511,406
249,259
90,357
1,625,033
54,378
351,095
2,030,506
$
$
755,612
516,239
233,866
76,513
1,582,230
62,193
235,864
1,880,287
$
$
$
488,581
159,505
109,761
15,238
773,085
6,143
7,145
786,373
27,125
87,492
18,163
132,780
10,454
143,234
$
$
$
$
$
$
470,975
160,214
102,455
14,574
748,218
7,546
10,597
766,361
27,083
78,481
14,802
120,366
10,454
130,820
All assets specifically identified with a particular business segment have been segregated. Cash
and cash equivalents, certain other current assets, certain investments and other assets have not
been allocated to particular business segments and are included in Corporate and Other.
2010 Annual Report
47
The following table presents Capital Expenditures, including business acquisitions, by business
segment for the periods indicated:
(in thousands)
Capital Expenditures
Oil and Gas
Year Ended December 31,
2009
2008
2010
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Inspection
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
$ 109,377
41,802
43,506
9,551
204,236
2,351
593
$ 207,180
$ 146,707
13,694
2,817
6,611
169,829
3,234
1,958
$ 175,021
$ 146,363
78,424
12,938
6,558
244,283
2,806
5,188
$ 252,277
Capital expenditures in the table include the costs of business acquisitions.
Geographic Operating Areas
The following table summarizes certain financial data by geographic area:
(in thousands)
Revenue
Foreign:
West Africa
Norway
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Long-Lived Assets
Foreign:
West Africa
Norway
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Year Ended December 31,
2009
2008
2010
$
$
$
$
$
$
$
$
$
260,377
212,854
156,114
136,518
135,510
72,157
973,530
943,515
1,917,045
106,028
165,942
70,730
76,835
79,484
28,569
527,588
483,078
1,010,666
280,707
230,874
156,748
135,721
97,401
60,610
962,061
860,020
1,822,081
95,326
170,617
63,334
76,622
63,653
20,490
490,042
487,453
977,495
284,523
231,632
251,660
129,315
116,919
48,530
1,062,579
914,842
1,977,421
88,895
141,123
58,371
78,082
32,745
17,406
416,622
486,264
902,886
$
$
$
Revenue is based on location where services are performed and products are manufactured.
48 Oceaneering International, Inc.
Additional Income Statement Detail
The following schedule shows our revenue, costs and gross margins by services and products:
(in thousands)
Revenue:
Services
Products
Total revenue
Cost of Services and Products:
Services
Products
Unallocated expenses
Total cost of services and products
Gross margin:
Services
Products
Unallocated expenses
Total gross margin
Year Ended December 31,
2009
2010
2008
$
1,277,795
639,250
1,917,045
$
1,275,263
546,818
1,822,081
$
1,311,149
666,272
1,977,421
916,495
461,477
72,753
1,450,725
897,654
421,438
65,263
1,384,355
935,752
513,643
63,226
1,512,621
361,300
177,773
(72,753)
466,320
$
377,609
125,380
(65,263)
437,726
$
375,397
152,629
(63,226)
464,800
$
8. EMPLOYEE BENEFIT PLANS AND SHAREHOLDER RIGHTS PLAN
Retirement Investment Plans
We have several employee retirement investment plans that, taken together, cover most of our
full time employees. The Oceaneering Retirement Investment Plan is a 401(k) plan in which U.S.
employees may participate by deferring a portion of their gross monthly salary and directing us to
contribute the deferred amount to the plan. We match a portion of the employees' deferred
compensation. Our contributions to the 401(k) plan were $13.9 million, $13.2 million and
$12.9 million for the plan years ended December 31, 2010, 2009 and 2008, respectively.
We also make matching contributions to other foreign employee savings plans similar in nature to
a 401(k) plan. In 2010, 2009 and 2008, these contributions, principally related to plans associated
with U.K. and Norwegian subsidiaries, were $5.6 million, $5.2 million and $5.1 million,
respectively.
The Oceaneering International, Inc. Supplemental Executive Retirement Plan covers selected key
management employees and executives, as approved by the Compensation Committee of our
Board of Directors (the "Compensation Committee"). Under this plan, we accrue an amount
determined as a percentage of the participant's gross monthly salary and the amounts accrued
are treated as if they are invested in one or more investment vehicles pursuant to this plan.
Expenses related to this plan during 2010, 2009 and 2008 were $3.3 million, $3.5 million and
$2.6 million, respectively.
We have defined benefit plans covering some of our employees in the U.K. and Norway. There
are no further benefits accruing under the U.K. plan, and the Norway plan is closed to new
participants. The projected benefit obligations for both plans were $24 million and $21 million, at
December 31, 2010 and 2009, respectively, and the fair values of the plan assets (using Level 2
inputs) for both plans were $17 million and $15 million at December 31, 2010 and 2009,
respectively.
2010 Annual Report
49
Incentive and Stock Option Plans
Under our 2010 Incentive Plan (the "Incentive Plan"), shares of our common stock are made
available for awards to employees and nonemployee members of our Board of Directors.
The Incentive Plan is administered by the Compensation Committee; however, the full Board of
Directors makes determinations regarding awards to nonemployee directors under the Incentive
Plan. The Compensation Committee or our Board of Directors, as applicable, determines the type
or types of award(s) to be made to each participant and sets forth in the related award agreement
the terms, conditions and limitations applicable to each award. Stock options, stock appreciation
rights and stock and cash awards may be made under the Incentive Plan. There are no options
outstanding under the Incentive Plan. Under the Incentive Plan, a stock option must have a term
not exceeding seven years from the date of grant and must have an exercise price of not less
than the fair market value of a share of our common stock on the date of grant. The
Compensation Committee may not: (1) grant, in exchange for a stock option, a new stock option
having a lower exercise price; or (2) reduce the exercise price of a stock option. The
Compensation Committee has expressed its intention to refrain from using stock options as a
component of employee compensation for our executive officers and other employees for the
foreseeable future. Additionally, the Board of Directors has expressed its intention to refrain from
using stock options as a component of nonemployee director compensation for the foreseeable
future.
In 2010, 2009 and 2008, the Compensation Committee granted awards of performance units
under the Incentive Plan and a prior plan to certain of our key executives and employees, and our
Board of Directors granted performance units under a prior plan to our Chairman of the Board of
Directors. The performance units awarded are scheduled to vest in full on the third anniversary of
the award date, or pro rata over three years if the participant meets certain age and years of
service requirements. The Compensation Committee and the Board of Directors have approved
specific financial goals and measures based on our cumulative cash flow from operations, and a
comparison of return on invested capital and cost of capital for each of the three-year periods
ending December 31, 2012, 2011 and 2010 to be used as the basis for the final value of the
performance units. The final value of each performance unit granted in 2010 may range from $0
to $150 and the final value of each performance unit granted in 2009 and 2008 may range from
$0 to $125. Upon vesting and determination of value, the value of the performance units will be
payable in cash. As of December 31, 2010, there were 374,675 performance units outstanding.
The following is a summary of our stock option activity for the three years ended December 31,
2010:
Balance at December 31, 2007
Granted
Exercised
Forfeited
Balance at December 31, 2008
Granted
Exercised
Forfeited
Balance at December 31, 2009
Granted
Exercised
Forfeited
Balance at December 31, 2010
50 Oceaneering International, Inc.
Shares
under Option
286,000
-
(130,100)
(3,000)
152,900
-
(109,400)
(2,500)
41,000
-
(41,000)
-
-
Weighted
Average
Exercise
Price
$
15.32
-
13.27
13.51
17.11
-
17.19
17.14
16.90
-
16.90
-
$
-
Aggregate
Intrinsic
Value
$
7,125,000
$
3,257,000
$
1,858,000
There were no options outstanding at December 31, 2010.
We received $0.7 million, $1.9 million and $1.7 million from the exercise of stock options in 2010,
2009 and 2008, respectively. The excess tax benefit realized from tax deductions from stock
options for 2010, 2009 and 2008 was $0.9 million, $0.9 million and $2.0 million, respectively.
Excess tax benefits from share-based compensation are classified as a cash outflow in cash
flows from operating activities and an inflow in cash flows from financing activities in the
statement of cash flows.
Restricted Stock Plan Information
During 2010, 2009 and 2008, the Compensation Committee granted restricted units of our
common stock to certain of our key executives and employees. During 2010, 2009 and 2008, our
Board of Directors granted restricted units of our common stock to our Chairman of the Board of
Directors and restricted common stock to our other nonemployee directors. Over 60% of the
grants made in 2010 to our employees and 65% of the grants made in 2009 and 2008 to our
employees vest in full on the third anniversary of the award date, conditional upon continued
employment. The remainder of the grants made to employees and all the grants made to our
Chairman of the Board of Directors vest pro rata over three years, as these participants meet
certain age and years-of-service requirements. For the grants to each of the participant
employees and the Chairman of our Board of Directors, the participant will be issued a share of
our common stock for the participant's vested common stock units at the earlier of three years or,
if the participant vested earlier after meeting the age and service requirements, at termination of
employment or service. The grants to our nonemployee directors vest in full on the first
anniversary of the award date conditional upon continued service as a director. Pursuant to
grants of restricted common stock units to our employees made prior to 2005, at the time of each
vesting, a participant receives a tax-assistance payment. Our tax assistance payments were
$1.8 million in 2010, $3.7 million in 2009 and $8.9 million in 2008. In April 2009, the
Compensation Committee adopted a policy that Oceaneering will not provide U.S. federal income
tax gross-up payments to any of its directors or executive officers in connection with future
awards of restricted stock or stock units. This policy had no effect on existing change-in-control
agreements with several of our executive officers and our Chairman of the Board, as well as our
existing service agreement with our Chairman of the Board, which provide for tax gross-up
payments that could become applicable to such future awards in limited circumstances, such as
following a change in control of our company. This policy also had no effect on previously
outstanding awards granted in 2002 and 2004 that provided for tax gross-up payments. Since
August 2010, there have been no outstanding awards that provide for tax gross-up payments.
The tax benefit realized from tax deductions in excess of financial statement expense was
$0.8 million, $1.6 million and $4.8 million in 2010, 2009 and 2008, respectively.
2010 Annual Report
51
The following is a summary of our restricted stock and restricted stock unit activity for 2010, 2009
and 2008:
Balance at December 31, 2007
Granted
Issued
Forfeited
Balance at December 31, 2008
Granted
Issued
Forfeited
Balance at December 31, 2009
Granted
Issued
Forfeited
Balance at December 31, 2010
Weighted
Average
Fair Value
22.35
$
62.24
13.62
46.83
34.75
31.06
23.94
41.42
39.71
59.15
32.45
49.45
51.48
$
Number
885,450
206,875
(256,600)
(10,975)
824,750
205,925
(376,250)
(32,900)
621,525
210,925
(297,895)
(12,480)
522,075
Aggregate
Intrinsic
Value
$
17,880,000
$
14,239,000
$
16,673,000
The restricted stock units granted in 2010, 2009 and 2008 carry no voting rights and, with respect
to the 2008 grants, carry a dividend right should we pay dividends on our common stock. Each
grantee of shares of restricted common stock is deemed to be the record owner of those shares
during the restriction period, with the right to vote and receive any dividends on those shares.
Effective January 1, 2006, the unvested portions of our grants of restricted stock units were
valued at their estimated fair values as of their respective grant dates. For grants made prior to
2006, we used a Black-Scholes methodology to produce a Monte Carlo simulation model, which
allows for the incorporation of the performance criteria that had to be met before the awards were
earned by the holders. The valuations allowed for variables, such as volatility, the risk-free
interest rate, dividends and performance hurdles. The assumptions used for the grants prior to
2006 were: expected volatility of 50% (based on historic analysis), risk-free interest rate of 2%
and no dividends. The grants in 2010, 2009 and 2008 were subject only to vesting conditioned on
continued employment or service as a nonemployee director; therefore, these grants were valued
at the grant date fair market value using the closing price of our stock on the New York Stock
Exchange.
Compensation expense under the restricted stock plans was $25.5 million, $23.8 million and
$23.0 million for 2010, 2009 and 2008, respectively. As of December 31, 2010, we had
$7.4 million of future expense to be recognized related to our restricted stock unit plans over a
weighted average remaining life of 1.8 years.
Stockholder Rights Plan
We adopted a Stockholder Rights Plan on November 20, 1992, which was amended and restated
as of November 16, 2001. Each Right initially entitles the holder to purchase from us a fractional
share consisting of one two-hundredth of a share of Series B Junior Participating Preferred Stock,
at a purchase price of $30 per fractional share, subject to adjustment. The Rights generally will
not become exercisable until ten days after a public announcement that a person or group has
acquired 15% or more of our common stock (thereby becoming an "Acquiring Person") or the
commencement of a tender or exchange offer that would result in a person or group becoming an
Acquiring Person (the earlier of such dates being called the "Distribution Date"). Rights were
issued and will continue to be issued with all shares of our common stock that are issued until the
Distribution Date. Until the Distribution Date, the Rights will be evidenced by the certificates
representing our common stock and will be transferable only with our common stock. Generally, if
any person or group becomes an Acquiring Person, each Right, other than Rights beneficially
52 Oceaneering International, Inc.
owned by the Acquiring Person (which will thereupon become void), will thereafter entitle its
holder to purchase, at the Rights' then-current exercise price, shares of our common stock having
a market value of two times the exercise price of the Right. At any time until ten days after a
public announcement that the Rights have been triggered, we will generally be entitled to redeem
the Rights for $0.01 and to amend the Rights in any manner other than certain specified
exceptions. Certain subsequent amendments are also permitted. The Stockholder Rights Plan is
scheduled to expire on November 20, 2011.
Post-Employment Benefit
In 2001, we entered into an agreement with our Chairman (the "Chairman") who was also then
our Chief Executive Officer. That agreement was amended in 2006 and in 2008. Pursuant to the
amended agreement, the Chairman relinquished his position as Chief Executive Officer in May
2006 and began his post-employment service period on December 31, 2006. The agreement
provides for a specific service period ending no later than August 15, 2011, during which the
Chairman, acting as an independent contractor, has agreed to serve as nonexecutive Chairman
of our Board of Directors for so long as our Board of Directors desires that he shall continue to
serve in that capacity. The agreement provides the Chairman with post-employment benefits for
ten years following the sooner to occur of August 15, 2011 or the termination of his services to us.
The amendment in 2006 included a lump-sum cash buyout, paid in 2007, of the Chairman's
entitlement to perquisites and administrative assistance during that ten-year period (expected to
run from 2011 to 2021). As a result, we recorded $2.8 million of associated expense in the fourth
quarter of 2006. The agreement also provides for medical coverage on an after-tax basis to the
Chairman, his spouse and children during his service with us and thereafter for their lives. We are
recognizing the net present value of the post-employment benefits over the expected service
period. If the service period is terminated for any reason (other than the Chairman's refusal to
continue serving), we will recognize all the previously unaccrued benefits in the period in which
that termination occurs. Our total accrued liabilities, current and long-term, under this post-
employment benefit were $7.6 million and $6.3 million at December 31, 2010 and 2009,
respectively.
As part of the arrangements relating to the Chairman's post-employment benefits, we established
an irrevocable grantor trust, commonly known as a "rabbi trust," to provide the Chairman greater
assurance that we will set aside an adequate source of funds to fund payment of the post-
retirement benefits under this agreement, including the medical coverage benefits payable to the
Chairman, his spouse and their children for their lives. In connection with establishment of the
rabbi trust, we contributed to the trust a life insurance policy on the life of the Chairman, which we
had previously obtained, and we agreed to continue to pay the premiums due on that policy.
When the life insurance policy matures, the proceeds of the policy will become assets of the trust.
If the value of the trust exceeds $4 million, as adjusted by the consumer price index, at any time
after January 1, 2012, the excess may be paid to us. However, because the trust is irrevocable,
the assets of the trust are generally not available to fund our future operations until the trust
terminates, which is not expected to be during the lives of the Chairman, his spouse or their
children. Furthermore, no tax deduction will be available for our contributions to the trust;
however, we may benefit from future tax deductions for benefits actually paid from the trust
(although benefit payments from the trust are not expected to occur in the near term, because we
expect to make direct payments of those benefits for the foreseeable future).
2010 Annual Report
53
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
March 31
435,170
$
99,705
62,329
39,243
0.71
$
Year Ended December 31, 2010
Dec. 31
501,298
$
117,493
73,742
47,794
0.88
Sept. 30
516,274
$
125,619
88,055
59,177
1.09
June 30
464,303
$
123,503
85,374
54,317
0.98
$
$
$
$
Total
1,917,045
466,320
309,500
200,531
3.65
$
55,224
55,185
54,332
54,331
54,767
March 31
435,100
$
105,802
69,380
44,345
0.80
$
Year Ended December 31, 2009
Dec. 31
452,262
$
107,734
72,132
46,058
0.83
Sept. 30
484,036
$
114,045
76,306
49,839
0.90
June 30
450,683
$
110,145
74,298
48,111
0.87
$
$
$
$
Total
1,822,081
437,726
292,116
188,353
3.40
$
54,863
55,041
55,058
55,095
55,026
Quarter Ended
Revenue
Gross profit
Income from operations
Net income
Diluted earnings per share
Weighted average number of
diluted shares outstanding
Quarter Ended
Revenue
Gross profit
Income from operations
Net income
Diluted earnings per share
Weighted average number of
diluted shares outstanding
54 Oceaneering International, Inc.
2010 Directors & Key Management
Oceaneering International, Inc.
2010 Annual Report
55
2010 Directors & Key Management
Directors
T. Jay Collins
President and Chief Executive Officer of
Oceaneering International, Inc.
Jerold J. DesRoche
Partner and a Director of National Power Company
David S. Hooker
Chairman of Houlder Limited, Ocean Hover Limited,
and Avoco Secure Ltd., and a Director of Aminex plc
and Helium Enterprises Ltd.
John R. Huff
Chairman of Oceaneering International, Inc.,
and a Director of KBR, Inc. and Suncor Energy Inc.
D. Michael Hughes
Owner of The Broken Arrow Ranch and Affiliated Businesses
Harris J. Pappas
President of Pappas Restaurants, Inc.
and a Director of Luby’s, Inc.
Corporate Management
T. Jay Collins
President and Chief Executive Officer
M. Kevin McEvoy
Executive Vice President and Chief Operating Officer
Marvin J. Migura
Senior Vice President and Chief Financial Officer
George R. Haubenreich, Jr.
Senior Vice President, General Counsel and Secretary
Knut Eriksen
Senior Vice President, Subsea Products
F. Richard Frisbie
Senior Vice President Deepwater Technologies
Kevin Kerins
Senior Vice President, ROV
Stephen E. Bradshaw
Vice President Corporate Development
Janet G. Charles
Vice President Human Resources
Gregg K. Farris
Vice President and Chief Information Officer
W. Cardon Gerner
Vice President and Chief Accounting Officer
Todd Hoefler
Vice President Supply Chain Management
Witland LeBlanc
Vice President Tax
Robert P. Mingoia
Vice President and Treasurer
Robert P. Moschetta
Vice President Health Safety Environment
Jack Jurkoshek
Director Investor Relations
David K. Lawrence
Associate General Counsel
David M. Leung
Manager Insurance
Matthew R. Sterner
Corporate Health Safety Environment Director
Reuben Tamez
Director Internal Audit
John L. Zachary
Director Financial Business Systems
Administrative Management
Americas
Clyde Hewlett
Senior Vice President
Jerry A. Gauthier
Vice President & General Manager
Charles A. Royce
Vice President, Sales & Marketing
Scott A. Wagner
Vice President & General Manager
Duane Landry
Regional Controller
Duane Lodrigue
Regional Human Resources Manager
Ernesto Marcos
Country Manager, Mexico
Peg Newman
Manager, Marketing
Joshua Oldag
HSE Manager
Eastern Hemisphere
Alex Westwood
Senior Vice President
Bernt Aage Lie
Vice President, Norway
Andrew Atkinson
Vice President & General Manager, Asia
Tony Connell
General Manager, Australia
Alan Davidson
Materials Manager
Colin Forbes
Legal Counsel
Fiona Inkster
Director, Human Resources
Bill Kirton
Manager, IT
Chandru Lalwani
Controller
Andrew Mackie
Manager, Europe & Africa Tax
Andrew Onley
Legal Counsel
Abigail Silk
Contracts Manager
Amir Thuraisingham
Controller and Manager, Tax, Asia
ROV
Kevin Kerins
Senior Vice President
David Kelsall
Business Manager
Mark Philip
Technical Manager
Shil Srivastava
Robotic Software Development Manager
Tom Halligan
Manager, WW ROV Equipment Maintenance
John Petrie
Director, WW ROV Materials
Americas
Robert “Pat” Mannina
Vice President & General Manager
Anthony Harwin
ROV Manager, GOM
Wayne Betts
ROV Manager, Brazil
Tim Lawrence
ROV Manager, Canada
Jeff Harris
Commercial Manager
David Laporte
Senior Operations Manager, Brazil
Jody Naquin
Senior ROV Operations Manager, GOM
Chris Nicholson
General Manager, Deep Sea Systems International
Darryl Rundquist
Senior ROV Operations Manager, GOM
U.K.
Espen Ingebretsen
ROV Manager
Steven Cowie
Senior ROV Operations Manager
Norway
Erik H. Saestad
Vice President & General Manager
Egil Egeland
ROV Manager
Harald Øverland
Senior ROV Operations Manager
Africa, Middle East, and Asia
Martin McDonald
Vice President & General Manager
Peter MacCallum
Senior ROV Operations Manager, Asia
Wayne Morgan
ROV Manager, AME
Alistair Parley
Technical Manager
Jonathon E. Playford
Commercial Manager
Harold Roberts
Country Manager, Angola
Andrew Sunley
ROV Manager, Asia
Neil Wellam
Manager, Business Development, Nigeria
Subsea Products
Knut Eriksen
Senior Vice President
Group Management
Robert C. Burnett
Contracts Group Manager
Alan R. Curtis
Financial and Operations Controller
Stacey Greene
Manager, HSE
Michael Palitsch
Director, Quality Assurance
Oceaneering Umbilical Solutions
Charles W. Davison, Jr.
Vice President
G. Scott Reynolds
Vice President & Country Manager, Brazil
Shaun Roedel
General Manager, U.S.
Mike Smith
General Manager, U.K.
Howard Bland
Manager, Sales U.S. and U.K.
Anthony Franklin
Director, Project Management
George Holliday
Manager, Operations Support
Todd Newell
Director, Business Development
Carlos Niemeyer
Manager, Commerical, Brazil
Craig Quenstedt
Controller
Greg Scott
General Manager, Central Engineering
Matt Smith
Global Product Manager
Alan Stevenson
Director, Strategic Accounts, U.K.
56 Oceaneering International, Inc.
Oceaneering Intervention Engineering
Mark M. Gittleman
Vice President
Chad Blanchard
General Manager, IWOCS Services
John Charalambides
General Manager, Pipeline Connection and Repair Systems
Michael T. Cunningham
General Manager, Subsea Field Development
Paul A. Frikstad
Managing Director, Rotator
Bruce T. Garthwaite
Operations Manager, Subsea Field Development
Michael Hessel, Jr.
General Manager, High Performance Cables
Patrick Hill
Controller
Jack Ostermaier
General Manager, BOP Controls
Graeme E. Reynolds
Vce President, BOP Controls
Mike Robbins
General Manager, Grayloc Products
Deepwater Technical Solutions
Drew Trent
Vice President
Richard J. Thompson
Vice President, Deepwater Processing Technologies
Alf-Kristian Aadland
Manager, Subsea All Electric
Jan L. Bjorge
Manager, DTS Norway
Justin Branner
Manager, DTS AustralAsia
John Davis
Manager, BOP Intervention Solutions
Mike Gilliam
Manager, DTS Western Region
Charles B. Hansen
Manager, DTS Tooling Norway
Curtis Hensley
Manager, DTS Manufacturing
Hans Kros
Manager, Dredging & Decommissioning
Dave McKechnie
Manager, DTS Eastern Region
Projects and Engineering
Eric Adams
Vice President, Business Development
Bill Merchant
Business Manager
Andy Henderson
Manager, Projects & Engineering
Max Kattner
Senior Staff Engineer
Ed Liles
Project Manager
James McAllister
Project Manager
Rick Spottswood
Construction Manager
Don Thorne
Project Manager
Marcus Waddington
Operations Manager, Australia
Subsea Projects/Diving
Norb D. Gorman
Vice President & General Manager
Projects
Mike Ellis
Manager, Installation Projects
Randall G. Kille
Manager, IMR Projects
Brett “Gonzo” Eychner
Senior Projects Manager
Dean Kinkel
Commercial Manager
Blaine LeCompte
Manager, Business Development
Tommy Lord
Manager, Shore Base Logistics
Patrick Matthews
Manager, Survey
Dave Medeiros
Senior Projects Manager
Steve Olmos
Projects Group Manager
Kirk Schumacher
Manager, Engineering
Mike Todd
Manager, Operations
Diving
Steven Hall
Manager, Diving
Jack Couch
Technical Manager
Gerald Klein
Manager, Operations
Warren Klingler
Manager, Dive/Marine
Marine
Darrin McGuire
Manager, Marine
Jim McGurk
Manager, Diving Vessels
Tim White
Manager, DP Vessels
Inspection
Eric Johnston
Vice President
Neil Riddle
Vice President, Africa, Middle East, FSU, and Asia
John Watkinson
Vice President, Europe
Haroon Cajee
Area Manager, Asia
John Deighan
CQI Manager
Ian Forsyth
Principal Operations Manager
Malcolm Gray
Africas and Pipelines Manager
Graham Hayward
General Manager, Aberdeen
Trent Loney
General Manager, Houma
John McMenemy
International Commercial Manager
James McNab
Global Technology Manager
Frances Milne
Business Manager
C. Andre Olivier
Inspection Manager, Americas
Nigel Smith
ACET Software Development Manager
Roger Thorne
Manager, Middle East & Caspian
Advanced Technologies
John R. Kreider
Senior Vice President
Albert Konetzni
Vice President, Strategic Business Programs
Charles B. Young
Vice President, Strategic Business Planning
Robert Brown
Controller
Jim Martin
Manager, Manufacturing
Noreen O’Neill
Director, Contracts
Clifton Schindel
Manager, HSE
David Van Valkenburgh
Materials Manager
Marine Services
Larry Ingels
Director, Submarine & Manufacturing Programs
Kurt Irgens
Director, Deep Submergence Systems
Wally Finn
Acting Director, Surface and LCAC Programs, WC
Martin Merzwa, Sr.
Director, Business Development
Phil Miller
Acting Director, Surface and LCAC Programs, EC
Jeff Schmidt
Director, Operations Support
Tom Van Petten
Director, Quality Program
Oceaneering Space Systems
Mike Bloomfield
Vice President & General Manager
Jeff Lasater
Manager, Business Development
Frank Sager
Manager, Operations & Services / NBL
David Spangler
Manager, Robotics and Automation Programs
Dave Wallace
General Manager & Program Manager,
Constellation Space Suit System
Michael Withey
Manager, Human Space Flight Programs
Oceaneering Technologies
Duncan McLean
Vice President & General Manager
Phil Beierl
Manager of Programs, Marine Projects
John Hammond
Manager, OTECH San Diego
Larry Karl
Manager, Marine Systems
Jim Kelly
Manager of Programs, Marine Systems
George Kotula
Manager, Operations
Craig McLaughlin
Manager, OTECH Nauticos
Dave Weaver
Manager, Marine Projects
Entertainment Systems
Dave Mauck
Vice President & General Manager, Entertainment Systems
Mike Boshears
Manager, Business Development
Ron Garber
Manager of Programs
Nick Miller
Manager, Engineering Services
Nick Thomareas
Manager, Business Administration Services
2010 Annual Report
57
Form 10-K
Forward-Looking Statements
The entire Form 10-K, as filed with the Securities
and Exchange Commission, may be accessed
through the Oceaneering website,
www.oceaneering.com, by selecting
"Investor Relations," then "SEC Financial Reports,"
then selecting the desired report, or may be
obtained by writing to:
George R. Haubenreich, Jr.
Secretary
Oceaneering International, Inc.
P.O. Box 40494
Houston, TX 77240-0494
All statements in this report that express a belief, expectation,
or intention are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are
based on current information at the time this report was written
and expectations that involve a number of risks, uncertainties,
and assumptions. Among the factors that could cause the
actual results to differ materially from those indicated in the
forward-looking statements are: industry conditions; prices of
crude oil and natural gas; the timing, pace, and level of floating
drilling rig activity in the U.S. Gulf of Mexico during 2011;
Oceaneering’s ability to obtain and the timing of new projects;
operating risks; changes in government regulations;
technological changes; and changes in competitive factors.
Should one or more of these risks or uncertainties materialize,
or should the assumptions underlying the forward-looking
statements prove incorrect, actual outcomes could vary
materially from those indicated. These and other risks are fully
described in Oceaneering’s annual report on Form 10-K for the
year ended December 31, 2010 and other periodic filings with
the Securities and Exchange Commission.
The use in this report of such terms as Oceaneering, company, group,
organization, we, us, our, and its, or references to specific entities, is not
intended to be a precise description of corporate relationships.
58 Oceaneering International, Inc.
Photo Credits
Cover
Millennium ®56 - Kent Elmore
Inside Front Cover
Flying Lead End Assembly - Jamie Westhaver
ROV Accumulator Reservoir Skid - Van VanDeCapelle
Subsea Accumulator Module - Misty Brown
Letter to Shareholders
IWOCS - David Shoreack
ROV Recovery - Alexandr Konstantinov
At A Glance
Subsea Tree Hydrate Remediation - Millennium ®67 ROV Team
Saturation Diving Platform Repair - Roger Smith
Production Platform Inspection - Ivor A’Lee
Landing Craft Air Cushion - Courtesy of U.S. Navy
Locations
Olympic Intervention IV - Elhoussian El Moutia
Inside Back Cover
Platform Riser Inspection - Ivor A’lee
Ocean Project and Ocean Inspector - Charles Watson
General Information
Corporate Office
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
P.O. Box 40494
Houston, TX 77240-0494
Telephone: (713) 329-4500
Fax: (713) 329-4951
www.oceaneering.com
Stock Symbol: OII
Stock traded on NYSE
CUSIP Number: 675232102
Please direct communications concerning stock
transfer requirements or lost certificates to our
transfer agent.
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Overnight Deliveries:
250 Royall Street
Canton, MA 02021-1011
OII Account Information
www.computershare.com
Telephone: (781) 575-2879
Fax: (781) 575-3605
Hearing Impaired/TDD: (800) 952-9245
Annual Shareholders’ Meeting
Date: May 6, 2011
Time: 8:30 a.m. CDT
Location: Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041
Independent Public Accountants
Ernst & Young LLP
5 Houston Center
1401 McKinney, Suite 1200
Houston, TX 77010-4035
Counsel
Baker Botts L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002-4995
Oceaneering International, Inc.
11911 FM 529
Houston, Texas 77041-3000
P.O. Box 40494
Houston, Texas 77240-0494
Telephone: (713) 329-4500
Fax: (713) 329-4951
www.oceaneering.com