2011 Annual Report
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“This is an exciting time for Oceaneering.
I recognize and thank our employees
who accomplished our record results.”
M. Kevin McEvoy
President and Chief Executive Officer
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
Telephone: (713) 329-4500
Fax: (713) 329-4951
www.oceaneering.com
General Information
Corporate Office
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
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
Hearing Impaired/TDD: (800) 952-9245
Annual Shareholders’ Meeting
Date: May 4, 2012
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 at a Glance
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. At year end, Oceaneering employed approximately 9,600 people
in 22 countries.
Operating Income
Revenue
11%
12%
8%
34%
35%
Remotely Operated Vehicles
7%
4%
7%
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technologies
50%
32%
Remotely Operated Vehicles ROVs are submersible vehicles operated by technicians from a control van,
typically onboard a floating drilling rig or surface vessel. They are piloted by means of a microprocessor-based
control system through an armored electrical fiber-optic umbilical. ROVs are used to perform a variety of offshore
oilfield tasks in water depths that ordinarily preclude the use of manned diving. These tasks include drill 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. At the end of 2011 we had 267
ROVs, about 35% of the industry’s vehicles. 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.
Subsea Products We manufacture a variety of built-to-order specialty subsea oilfield products. These encompass
production control umbilicals, tooling, Installation and Workover Control Systems (IWOCS), and subsea hardware.
While most of our subsea products are sold, we also rent tooling and provide IWOCS and some tooling as a
service line.
Subsea Projects We perform subsea oilfield hardware installation and inspection, maintenance, and repair services.
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.
In Australia, we operate and maintain offshore and onshore oil and gas production facilities, provide subsea
engineering services, and operate an offshore logistics supply base.
Asset Integrity We provide asset integrity management, corrosion management, inspection, and non-destructive
testing services principally to the oil and gas, power generation, and petrochemical industries. These services are
performed on facilities onshore and offshore, both topside and subsea.
Advanced Technologies We provide engineering services and related manufacturing principally to the U.S.
Department of Defense, NASA and its contractors, and the commercial theme park industry. The U.S. Navy is our
largest non-oilfield customer for whom we perform work primarily on surface ships and submarines.
About the Cover
Demand for ROVs continued to increase in 2011, and we added 24 new vehicles to our fleet.
Pictured in the foreground is one of our Millennium® Plus ROVs onboard a semisubmersible rig in the U.S. Gulf of Mexico.
Photo ©BP p.l.c.
Financial Highlights
($ in thousands, except per share amounts)
Revenue
Gross Margin
Operating Income
Net Income
Diluted Earnings Per Share
2011
2010 % Increase
$2,192,663
$1,917,045
508,759
334,831
235,658
$2.16
466,320
309,500
200,531
$1.82
14.4%
9.1%
8.2%
17.5%
18.7%
For 2011 Oceaneering reported record earnings and EPS. We achieved best ever operating income from our ROV and
Subsea Products segments. Our ability to produce outstanding results was largely attributable to our global focus on
deepwater and subsea completion activity.
2011 Review
Operations
We achieved record ROV operating
income for the eighth consecutive year.
We funded organic growth and
acquisition opportunities at a record-
setting pace. Our capital expenditures
were almost two-and-a-half times the
average we invested during the previous
five years.
Our investment in acquisitions was
three times what we spent in total
during the 2006 through 2010 period.
These included the largest acquisition
in the history of the company.
We secured a term field support vessel
services contract for work offshore
Angola commencing in February 2012.
This contract represents a significant
geographic expansion with considerable
backlog for our Subsea Projects business.
Share Performance
Our share price rose 25% during
the year.
Our 2011 share price percentage
increase was larger than any of the
other companies in the Oil Service
Sector Index (OSX), which by
comparison declined 12%.
Our annual year-end share price
percentage change has outperformed
the OSX in eight of the past ten years.
Over this decade our stock price has
increased on average 32% per year,
twice that of the OSX.
Our market capitalization reached
$5 billion for the first time during
the year.
We initiated a regular quarterly cash
dividend in May.
2011 Annual Report 1
This is my first Letter to Shareholders
and I am pleased to report that we achieved
record EPS in 2011. I am grateful for the
Oceaneering team that continues to excel
and make previous records history.
Letter to Shareholders
M. Kevin McEvoy
Our performance was largely attributable to our
global focus on deepwater and subsea completion
activity, and capability to supply a wide range of the
services and products required to support the safe efforts of
In fact, during the year we continued to fund these
opportunities at a record-setting pace. Our 2011 capital
expenditures of $527 million were almost two-and-a-half
times the average we invested during the previous five years.
our customers. We are committed to our customers’ success
Our investment in acquisitions of $292 million was three
and our results reflect their recognition of our ability to
times what we spent in total on acquisitions during the 2006
provide value to them.
through 2010 period.
Our results were highlighted by best ever operating
Our acquisitions included $220 million in late December
income from our Remotely
to purchase AGR Field Operations Holdings AS, a provider
Operated Vehicles (ROV) and
of asset integrity, maintenance, subsea engineering, and field
Subsea Products segments.
operations services, primarily to the oil and gas industry.
Compared to 2010, ROV
This acquisition will significantly increase our Asset Integrity
results improved on higher
business, particularly in Norway, and provides us subsea
international demand for
inspection tooling to offer in other geographic markets. Our
our services and the expansion of our fleet. Subsea Products
organic growth investments in 2011 included upgrading and
growth was broad-based, led by better umbilical plant
expanding our ROV fleet, as we placed 24 new vehicles into
throughput, higher Installation and Workover Control System
service during the year, and completing the conversion of
services, and growth in demand for our subsea hardware
the Ocean Patriot to a dynamically positioned saturation
and tooling.
diving vessel.
In May we initiated a regular quarterly dividend of
we repurchased 500,000 shares of our common stock for
In addition to our capital expenditures, during 2011
$0.15 per common share to return a portion of our earnings
$17.5 million and paid $48.7 million
to our shareholders. This underscores our confidence in
of cash dividends. Our balance sheet
Oceaneering’s financial strength and future business
remained conservatively capitalized.
prospects. We believe this will not compromise our ability
At year end, we had approximately
to pursue organic growth and acquisition opportunities to
$100 million of cash, $120 million of
expand Oceaneering’s asset base and earnings capability.
debt, $180 million available under
our revolving credit facility, and $1.6 billion of equity.
2 Oceaneering International, Inc.
In December we secured a three-year field support
excluding acquisitions, is $200 million to $225 million.
vessel services contract from BP for work offshore Angola,
We intend to look at acquisitions within our market niches
commencing in February 2012. Under the contract, project
and would particularly like to expand our Subsea Products
management, engineering, and two chartered vessels, each
segment offerings, especially where we can add a services
equipped with two Oceaneering work class ROVs and
component.
associated tooling, will be supplied. This contract
represents a significant geographic expansion with
This is an exciting time for Oceaneering. I recognize and
considerable backlog for our Subsea Projects business.
thank our employees who accomplished our record results.
For 2012 our EPS guidance range is $2.45 to $2.65,
as we expect another record earnings year. For our services
and products, we anticipate continued international
demand growth and a moderate rebound in overall
activity in the U.S. Gulf of Mexico. Compared to 2011,
Their commitment to safely provide
high-quality solutions to our
customers’ needs is the foundation
for our continued success. During
the year our workforce grew by
about 1,400 people, or 17%. We are
we anticipate all of our operating business segments
looking forward to the contribution they will make to our
will achieve higher operating income.
operations and growth.
Looking beyond 2012, our belief that the oil and
In recognition of our record financial performance,
gas industry will continue to invest in deepwater remains
actions we took to enhance shareholder value, and our
unchanged. A recent
future business prospects, the price of Oceaneering’s stock
industry report forecasts
rose by 25% during the year. Our share price percentage
total annual worldwide
increase was larger than any of the
exploration and production
other companies in the Oil Service
spending to grow nearly
Sector Index (OSX), which by
50% by 2015, while capital
comparison declined 12%. Our
expenditures on deepwater projects are projected to more
annual share price percentage change
than double.
has outperformed the OSX in eight
Deepwater remains one of the best frontiers for adding
of the past ten years. Over this decade our stock price has
large hydrocarbon reserves with high production flow
increased on average 32% per year, twice that of the OSX.
rates at relatively low finding and development costs.
During 2011 our market capitalization reached $5 billion.
Therefore, we anticipate that demand for our deepwater
services and products will continue to rise and believe our
I was appointed to my current position in May after
business prospects for the next several years are promising.
serving Oceaneering for over 30 years in various capacities.
Given our outlook, we plan to expand our ability to
I thank my predecessor, T. Jay Collins, for the great
participate in the deepwater market by continuing to grow
condition of our company at the time of my appointment.
organically and making additional acquisitions. For 2012
Jay remains on our Board of Directors and we look forward
we forecast generating over $550 million of earnings
to his continued contributions.
before interest, taxes, depreciation and amortization
I am looking forward to leading Oceaneering to
(EBITDA). Our projected cash flow and our balance sheet
another record year in 2012.
provide us with ample resources to invest in Oceaneering’s
growth. Our capital expenditure estimate for 2012,
M. Kevin McEvoy
President and Chief Executive Officer
2011 Annual Report 3
Directors and Officers
Oceaneering Locations
Directors
T. Jay Collins
Former Chief Executive Officer of
Oceaneering International, Inc.
Jerold J. DesRoche
An Owner 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
M. Kevin McEvoy
President and Chief Executive Officer of
Oceaneering International, Inc.
Harris J. Pappas
President of Pappas Restaurants, Inc. and a
Director of Luby’s, Inc.
Executive Officers
M. Kevin McEvoy
President and Chief Executive Officer
Marvin J. Migura
Executive Vice President
Knut Eriksen
Senior Vice President, Subsea Products
W. Cardon Gerner
Senior Vice President, Chief Financial Officer and
Chief Accounting Officer
Clyde W. Hewlett
Senior Vice President, Subsea Projects
Kevin F. Kerins
Senior Vice President, ROVs
David K. Lawrence
Vice President, General Counsel, and Secretary
4 Oceaneering International, Inc.
Corporate Headquarters
Oceaneering International, Inc.
11911 FM 529
Houston, Texas 77041-3000
Telephone: (713) 329-4500
Fax: (713) 329-4951
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.
Avenida Rio Branco, 123 / 14th Floor
Centro – Rio de Janeiro, RJ
20040-0005, Brasil
Telephone: (55-21) 2517-7100
Fax: (55-21) 2517-7102
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
Oceaneering Australia Pty. Ltd.
Level 4
190 St. Georges Terrace
Perth, WA 6000
Australia
Phone: (61-8) 9463 5200
Fax: (61-8) 9463 5299
2011 Financial Section
Oceaneering International, Inc.
2011 Annual Report
5
PERFORMANCE GRAPH
The following graph compares our total shareholder return to the Standard & Poor's 500
Stock Index ("S&P 500") and the weighted average return generated by a peer group from
December 31, 2006 through December 31, 2011. The peer group companies for this
performance graph are Global Industries, Ltd. (until its acquisition by Technip on
December 1, 2011), Halliburton Company, McDermott International, Inc., Cal Dive
International, Inc., Bristow Group Inc., Acergy S.A. (including after the combination of
Acergy S.A. and Subsea 7 Inc. to create Subsea 7 S.A. on January 7, 2011) and
Tidewater, Inc.
It is assumed in the graph that: (1) $100 was invested in Oceaneering Common Stock, the
S&P 500 and the Peer Group on December 31, 2006; (2) the peer group investment is
weighted based on the market capitalization of each individual company within the peer
group at the beginning of each period; and (3) any dividends are reinvested. The
shareholder return shown is not necessarily indicative of future performance.
$300
$200
$100
$0
12/31/2006
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
Oceaneering International, Inc.
S&P 500 Index
Peer Group
2006
2007
December 31,
2008
2009
2010
2011
Oceaneering
100.00
169.65
S&P 500
100.00
105.49
Peer Group
100.00
136.85
73.40
66.46
54.40
147.41
185.47
234.81
84.05
95.03
96.71
98.76
131.83
108.93
2011 Annual Report 7
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 2011 a certification of our Chief Executive
Officer regarding compliance with the Exchange's corporate governance listing standards. We
also included as exhibits to our annual report on Form 10-K, as filed with the SEC, the
certifications of our principal executive officer and principal financial officer required under
Section 302 of the Sarbanes-Oxley Act of 2002.
In June 2011, we effected a two-for-one stock split in the form of a stock dividend. All historical
share and per share data in this annual report reflect this stock split.
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
2011
2010
High
Low
High
Low
$
45.55 $
46.19
45.04
49.26
34.72 $
35.46
32.71
31.77
33.06 $
34.30
27.46
38.43
25.65
19.88
21.55
25.81
On February 9, 2012, there were 376 holders of record of our common stock. On that date, the
closing sales price, as quoted on the New York Stock Exchange, was $52.45. In 2011, we
declared quarterly cash dividends of $0.15 per share in each of the second, third and fourth
quarters. It is our intent to continue to pay a quarterly cash dividend; however, 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 12,000,000 shares
of our common stock. Through December 31, 2011 under this plan, we repurchased 2,700,000
shares of our common stock for $67.0 million. We did not repurchase any shares in the fourth
quarter of 2011.
8
Oceaneering International, Inc.
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:
(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
2010
2011
Year Ended December 31,
2009
$ 2,192,663 $ 1,917,045 $ 1,822,081 $ 1,977,421 $ 1,743,080
1,683,904 1,450,725 1,384,355 1,512,621 1,329,795
413,285
466,320
464,800
437,726
508,759
2007
2008
173,928
123,662
$ 334,831 $ 309,500 $ 292,116 $ 317,558 $ 289,623
156,820
145,610
147,242
$ 235,658 $ 200,531 $ 188,353 $ 199,386 $ 180,374
1.61
1.82
1.78
2.16
1.70
151,227
153,651
122,945
115,029
93,776
526,645
207,180
175,021
252,277
233,795
2011
2010
As of December 31,
2009
2008
2007
1.96
2.25
2.24
1.98
$ 482,747 $ 543,646 $ 485,592 $ 390,378 $ 331,594
2,400,544 2,030,506 1,880,287 1,670,020 1,531,440
120,000
— 120,000 229,000 200,000
1,557,962 1,390,215 1,224,323 967,654 915,310
2.09
2011 Annual Report 9
Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this annual report, 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:
business strategy;
our plans for future operations;
conditions;
• our
•
• industry
•
our expectations about 2012 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 2012;
our plans to add ROVs to our fleet;
our belief that our goodwill will not be impaired during 2012;
the adequacy of our accruals for uninsured expected liabilities from workers'
compensation, maritime employer's liability and general liability claims;
our belief 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 our annual report on Form 10-K as filed
with the SEC. 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 operating results for 2011, 2010 and 2009.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Net Income
2011
$ 2,192,663
508,759
Year Ended December 31,
2010
$ 1,917,045
466,320
2009
$ 1,822,081
437,726
23 %
24 %
24 %
334,831
309,500
292,116
15 %
16 %
16 %
235,658
200,531
188,353
During 2011, we generated approximately 89% of our revenue, and 96% of our operating
income, from services and products we provided to the oil and gas industry. In 2011, our
revenue increased by 14%, with the largest increase occurring in our Subsea Products
segment. Our Subsea Products segment revenue increased 40% from higher umbilical plant
throughput and specialty product sales.
The $236 million consolidated net income we earned in 2011 was the highest in our history.
The $35 million increase from 2010 net income was attributable to higher profit contributions
from our Subsea Products segment, which had $34 million more operating income on
10 Oceaneering International, Inc.
$221 million more revenue, and our ROV segment, which had $13 million more operating
income on $93 million more revenue.
In 2011, we invested in the following major capital projects:
•
•
•
•
business acquisitions totaling $292 million, principally in our Asset Integrity and Subsea
Products segments;
additions of and upgrades to our work-class ROVs;
expenditures for added capacity and geographic expansion in our Subsea Products
segment; and
conversion of the Ocean Patriot to a dynamically positioned saturation diving vessel
and completion of its saturation diving system in our Subsea Projects business.
We expect our 2012 diluted earnings per share to be in the range of $2.45 to $2.65, as
compared to $2.16 in 2011. We anticipate continued international demand growth and a
moderate rebound in overall activity in the U.S. Gulf of Mexico. Compared to 2011, in 2012 we
are forecasting an increase in ROV operating income as a result of a higher average fleet size
and increased demand offshore West Africa and in the U.S. Gulf of Mexico.
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 under contract
ROV days on hire (in thousands)
ROV utilization
2011
2010
2009
238
73
77 %
220
69
75 %
208
69
79 %
Demand for floating rigs is our primary driver of future growth prospects. According to industry
data published by ODS-Petrodata, at the end of 2011, there were 284 floating drilling rigs in the
world, with 260 of the rigs under contract and 69% of the rigs contracted through 2012. Sixty-
eight additional floating rigs were on order, with 45 scheduled to be delivered through 2013, and
28 of these 68 have been contracted long-term, for an average term of approximately seven
years. We estimate approximately 24 floating rigs will be placed in service during 2012, and we
have ROV contracts on eight of those. Competitors have the ROV contracts on nine rigs,
leaving seven 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 5,000 for the decade
of the 2010s. Quest also projects the global market for subsea tree orders is expected to
increase 58% in the 2011-2015 time period compared to the previous five years.
2011 Annual Report 11
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 2011, we accounted for 16% 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 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
12 Oceaneering International, Inc.
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.
The Performer was included in our Subsea Projects segment, and the impairment and result of
its sale 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 that extend asset lives or functionality.
Goodwill. We account for business combinations using the acquisition method of accounting,
with the acquisition price being allocated to the assets acquired and liabilities assumed based
on their fair market values at the date of acquisition. In September 2011, the Financial
Accounting Standards Board ("FASB") issued an update regarding goodwill impairment testing.
Under the update, an entity has the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing
the totality of events or circumstances, an entity determines it is not more likely than not that the
fair value of a reporting unit is less than its carrying amount, performing the two-step impairment
test is unnecessary. However, if an entity concludes otherwise, then it is required to perform
the first step of the two-step impairment test. This update is effective for us January 1, 2012,
and earlier adoption is permitted. We have elected to adopt this update early and apply it in
2011. The provisions of the update have not had a material effect on our financial position or
results of operations. Prior to this FASB update, we tested the goodwill attributable to each of
our reporting units for impairment annually, or more frequently whenever events or changes in
circumstances indicated that the carrying amounts may not have been appropriate. We
estimated fair value of the reporting units using both an income approach, which considers a
discounted cash flow model, and a market approach. For reporting units with significant
goodwill, we do not believe our goodwill will be impaired during 2012.
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. 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 2011,
2010 and 2009, we recorded reductions of income tax expense of $0.9 million, $1.0 million and
$0.3 million, respectively, resulting from a combination of expiring statutes of limitations and 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.
2011 Annual Report 13
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 provide for valuation allowances for our deferred tax assets. These provisions for
valuation allowances would impact our income tax provision in the period in which such
adjustments are identified and recorded.
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 $0.4 million to
income tax expense in 2011 for penalties and interest for uncertain tax positions, which brought
our total liabilities for penalties and interest on uncertain tax positions to $4.4 million on our
balance sheet at December 31, 2011. 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, 2011 for unrecognized tax benefits. All
additions or reductions to those liabilities affect our effective income tax rate in the periods of
change.
We do not believe that the total of unrecognized tax benefits will significantly increase or
decrease in the next 12 months.
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, 2011, we had working capital of
$483 million, including cash and cash equivalents of $106 million. Additionally, we had
$180 million available through a revolving credit facility under a credit agreement (the "Credit
Agreement"), which we replaced in January 2012 with a new credit agreement (the "2012 Credit
Agreement") that extends to January 2017. Our maximum borrowings and our total interest
costs under the Credit Agreement during the year ended December 31, 2011 were $120 million
and $42,000, respectively. Our net cash provided by operating activities was $289 million,
$442 million and $418 million for 2011, 2010 and 2009, respectively.
Simultaneously with the execution of the 2012 Credit Agreement and pursuant to its terms, we
repaid all amounts outstanding under, and terminated, the Credit Agreement. The 2012 Credit
Agreement provides for a five-year, $300 million revolving credit facility. Subject to certain
conditions, the aggregate commitments under the facility may be increased by up to
$200 million by obtaining additional commitments from existing and/or new lenders. Borrowings
under the facility may be used for working capital and general corporate purposes. The facility
expires on January 6, 2017. Revolving borrowings under the facility bear interest at an adjusted
base rate or the eurodollar Rate (as defined in the agreement), at our option, plus an applicable
margin. Depending on our debt to capitalization ratio, the applicable margin varies (1) in the
case of adjusted base rate advances, from 0.125% to 0.750% and (2) in the case of eurodollar
advances, from 1.125% to 1.750%.
The 2012 Credit Agreement contains various covenants which we believe are customary for
agreements of this nature, including, but not limited to, restrictions on the ability of each of our
restricted subsidiaries to incur unsecured debt, as well as restrictions on our ability and the
ability of each of our restricted subsidiaries to incur secured debt, grant liens, make certain
investments, make distributions, merge or consolidate, sell assets, enter into transactions with
affiliates and enter into certain restrictive agreements. We are also subject to an interest
coverage ratio and a debt to capitalization ratio. The 2012 Credit Agreement includes
customary events and consequences of default.
14 Oceaneering International, Inc.
Our capital expenditures, including business acquisitions, for 2011, 2010 and 2009 were
$527 million, $207 million and $175 million, respectively. Capital expenditures in 2011 included
expenditures for: the acquisition of AGR Field Operations Holdings AS and subsidiaries
("AGR FO") for $220 million, which are in our Asset Integrity and Subsea Projects segments;
Norse Cutting and Abandonment AS ("NCA") for $50 million and Mechanica AS for $17 million,
which are in our Subsea Products segment; additions and upgrades to our ROV fleet; and
conversion of the Ocean Patriot to a dynamically positioned saturation diving vessel and
completion of its saturation diving system in our Subsea Projects segment. Capital
expenditures in 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.
Our capital expenditures during 2011, 2010 and 2009 included $136 million, $109 million and
$147 million, respectively, in our ROV segment, principally for additions and upgrades to our
ROV 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 24, 22 and 30 ROVs to our
fleet and disposed of 16, 10 and nine units during 2011, 2010 and 2009, respectively, and
transferred one to our Advanced Technologies segment in 2011, resulting in a total of 267 work-
class systems in the fleet at December 31, 2011.
In 2006, we chartered a large 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 2012, and we expect to contract for
continued use of this vessel. 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 have utilized 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. In 2012, we are mobilizing the Ocean
Intervention III to Angola and have chartered the Bourbon Oceanteam 101 to work on a three-
year field support contract. The customer for this contract has the option for us to provide a
third vessel and has options to extend the contract for two additional one-year periods.
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 $289 million, $442 million and $418 million
of cash provided from operating activities in 2011, 2010 and 2009, respectively, were affected
by cash increases/(decreases) of $(100) million, $12 million, and $12 million, respectively, of
changes in accounts receivable, $(11) million, $(1) million and $3 million, respectively, of
changes in inventory and $(0.1) million, $(30) million and $1 million, respectively, in changes in
other operating assets. In 2011, the increase in accounts receivable was largely attributable to
increased revenue in the fourth quarter of 2011 compared to the corresponding quarter of 2010,
and the mix of revenue with a higher percentage of our 2011 revenue coming from our
international operations. In 2010, the change in other operating assets related to increases in
refundable income taxes and prepaid expenses.
In 2011, we used $483 million in investing activities, with $527 million used to make the capital
expenditures and business acquisitions described above, while we received $44 million from the
sales of assets, primarily our offshore production system, the Ocean Legend.
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.
2011 Annual Report 15
In 2009, we used $162 million in investing activities, including $147 million on growing and
upgrading our ROV operations.
In 2010 and 2009, we received $0.7 million and $1.9 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
outstanding, and we have had no further stock option activity since then. In addition, in 2011,
2010 and 2009, we received $1.3 million, $1.7 million and $2.5 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, see Note 8 to our
Consolidated Financial Statements.
In February 2010, our Board of Directors approved a plan to repurchase up to 12,000,000
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 plan does not obligate us to repurchase any particular
number of shares. Through December 31, 2011, we repurchased 2,700,000 shares at a cost of
$67 million under the plan, including the 500,000 shares we repurchased for $17.5 million
during 2011. As of December 31, 2011, we retained 2,799,118 shares we had repurchased
under this and a prior plan. We expect that shares we reissue will be primarily in connection
with our 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, 2011 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."
Results of Operations
Information on our business segments is shown in Note 7 of the Notes to Consolidated
Financial Statements included in this report.
16 Oceaneering International, Inc.
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 %
Asset Integrity
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Total Oil and Gas
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Year Ended December 31,
2010
2011
2009
$ 755,033
260,287
$ 662,105
247,619
$ 649,228
237,023
34 %
37 %
37 %
224,705
211,725
207,683
30 %
32 %
32 %
94,999
91,667
86,527
77 %
75 %
79 %
770,212
207,804
549,233
161,081
487,726
115,056
27 %
29 %
24 %
142,184
108,522
60,526
18 %
20 %
12 %
382,000
384,000
321,000
167,477
42,004
247,538
56,165
274,607
84,657
25 %
23 %
31 %
32,662
46,910
75,404
20 %
19 %
27 %
266,577
46,109
223,469
41,698
216,140
41,125
17 %
19 %
19 %
30,560
25,893
26,443
11 %
12 %
12 %
$ 1,959,299
556,204
$ 1,682,345
506,563
$ 1,627,701
477,861
28 %
30 %
29 %
430,111
393,050
370,056
22 %
23 %
23 %
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 24, 22
and 30 ROVs in 2011, 2010 and 2009, respectively, while disposing of 35 units over the three-
year period and transferring one to our Advanced Technologies segment in 2011. We plan to
continue adding ROVs at levels we determine appropriate to meet market opportunities.
2011 Annual Report 17
For 2011, our ROV revenue and operating income increased over 2010 from increased days on
hire, as we had more systems available and had higher utilization due to increased international
demand. Our operating income margin decreased as a result of geographic mix, as our
aggregate international ROV operations have lower margins than our U.S. Gulf of Mexico
operations.
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. We grew our ROV fleet size to 267 at December 31, 2011 from 260 at
December 31, 2010 and 248 at December 31, 2009.
We anticipate ROV operating income to increase in 2012 as a result of an increase in days on
hire, with an increase in our fleet utilization to 80% or more, from increased demand offshore
West Africa and in the U.S. Gulf of Mexico. We anticipate adding 20 to 25 vehicles in 2012 and
retiring four to six, which should add to our days available and days on hire over 2011.
Our Subsea Products operating income for 2011 increased over 2010 on better umbilical plant
throughput, higher installation and workover control system ("IWOCS") services, and growth in
demand for our subsea hardware and tooling, partially due to our acquisition of NCA in March
2011. Our operating margin percentage was lower due to product mix, with umbilicals being a
higher percentage of Subsea Products revenue in 2011.
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 IWOCS services. Our 2009 operating income and margins were also adversely affected by
$5.5 million of unexpected costs we incurred in the third quarter on two blowout preventer
control systems.
We anticipate our Subsea Products segment operating income in 2012 to be higher than in
2011, as we expect increased tooling demand and throughput in our umbilical plants. Our
Subsea Products backlog was $382 million at December 31, 2011, about the same level it was
at December 31, 2010.
Our 2011 Subsea Projects revenue and operating income declined from 2010 due to lower
demand for our shallow water diving and deepwater vessel services in the U.S. Gulf of Mexico.
In 2011, we recorded a gain of $19.6 million on the sale of the Ocean Legend, a mobile offshore
production system.
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. In 2010, we recorded a $5.2 million impairment
charge to adjust the carrying value of our vessel, 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.
We anticipate our 2012 operating income for Subsea Projects to be higher than in 2011 on an
international expansion of our deepwater vessel capabilities to work for BP plc offshore Angola,
the addition of AGR FO's operations in Australia, and a gradual demand recovery in the U.S.
Gulf of Mexico.
Our Asset Integrity revenue and operating income were higher in 2011 than in 2010 on higher
service demand in Europe and Central Asia. Our Asset Integrity segment operating income
results in 2010 were similar to those in 2009. We expect that our Asset Integrity segment
revenue and operating income will be higher in 2012, primarily as a result of our acquisition of
AGR FO in December 2011.
18 Oceaneering International, Inc.
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 %
2011
$ 233,364
33,774
Year Ended December 31,
2010
$ 234,700
32,510
2009
$ 194,380
25,128
14 %
14 %
13 %
16,661
16,934
12,366
7 %
7 %
6 %
Our Advanced Technologies segment operating income results in 2011 were similar to those in
2010. 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.
We anticipate our Advanced Technologies 2012 operating income will be higher than that of
2011 due to higher levels of entertainment industry contracts and improved execution on U.S.
Navy vessel service work.
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
2011
Year Ended December 31,
2010
$ (81,219 ) $ (72,753 ) $ (65,263 )
4 %
(90,306 )
5 %
4 %
(111,941 ) (100,484 )
5 %
2009
5 %
4 %
Our unallocated gross margin and operating expenses increased in each of 2011 and 2010,
primarily due to higher compensation related to incentive plans. In 2011, we also incurred
additional expenses associated with acquisition-related activities and international tax
restructuring.
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
Other income (expense), net
Provision for income taxes
Year Ended December 31,
2010
2011
2009
$
888 $
580 $
(1,096 )
3,801
(539 )
102,227
(6,010 )
2,078
(926 )
104,691
694
(7,781 )
3,242
1,504
101,422
Interest expense decreased in 2011 and 2010, primarily from lower interest rates on LIBOR-
based borrowings under our revolving credit agreement and term loan, and lower debt levels.
We did not capitalize any interest in 2011. We capitalized $0.3 million of interest in 2010 and
less than $0.1 million of interest in 2009. Interest expense in 2010 included $2.9 million to
terminate an interest rate hedge.
2011 Annual Report 19
We earn equity income from our 50% investment in Medusa Spar LLC. 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. Throughput increased in 2011 over 2010
due to additional wells added to the spar. Throughput decreased in 2010 due to normal
production declines.
We expect Medusa Spar LLC revenue will decline in 2012 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
$(0.4) million, $(2.8) million and $2.0 million for 2011, 2010 and 2009, respectively. In 2010, we
also earned a fee of $2.1 million for serving as the stalking horse bidder in an asset auction
proceeding.
Our effective tax rate, including foreign, state and local taxes, was 30.3%, 34.3%, and 35.0% for
2011, 2010 and 2009, respectively, which included a combination of expiring statutes of
limitations and the resolution of uncertain tax positions of $0.9 million, $1.0 million and
$0.3 million, respectively, related to certain tax liabilities we recorded in prior years. The
primary difference between our 2011 effective tax rate of 30.3% and the federal statutory rate of
35% reflects our intent to indefinitely reinvest in certain of our international operations.
Therefore, we are no longer providing for U.S. taxes on a portion of our foreign earnings. The
effective tax rate of 30.3% in our financial statements for 2011 is a result of our effective rate of
31.5% adjusted by $4.9 million of additional tax benefits, primarily attributable to amending prior
years' U.S. federal income tax returns to reflect a broader interpretation of our pre-tax income
eligible for certain deductions allowable for oil and gas construction activities, and tax effecting
the $19.6 million gain on the sale of the Ocean Legend at the U.S. federal statutory rate of 35%.
We anticipate our effective tax rate in 2012 will be approximately 31.5%.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by SEC rules.
Contractual Obligations
At December 31, 2011, 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
Payments due by period
2012
Total
$ 120,000 $
2013-2014 2015-2016 After 2016
— $ — $ — $ 120,000
31,652
—
137,468 48,662 40,308 16,846
—
208,858 208,858
—
54,427
47,131
$ 520,753 $ 258,896 $ 43,191 $ 19,883 $ 198,783
1,376 2,883 3,037
In 2012, we chartered a vessel and crew for three years with two one-year options for our field
operations contract in Angola. Total charter hire will be $94 million for the first three years.
At December 31, 2011, we had outstanding purchase order commitments totaling $209 million,
including approximately $22 million for specialized steel tubes to be used in our manufacturing
of steel tube umbilicals by our Subsea Products segment and $7 million for ROV winches. We
have ordered the specialized steel tubes in advance to meet expected sales commitments. The
winches have been ordered for new ROVs and for anticipated replacements 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.
20 Oceaneering International, Inc.
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, which
continued through August 15, 2011, during which service period the Chairman, acting as an
independent contractor, agreed to serve as nonexecutive Chairman of our Board of Directors.
The agreement provides the Chairman with post-employment benefits for ten years following
August 15, 2011. The agreement also provides for medical coverage on an after-tax basis to
the Chairman, his spouse and children for their lives. We recognized the net present value of
the post-employment benefits over the expected service period. Our total accrued liabilities,
current and long-term, under this post-employment benefit were $7.3 million and $7.6 million at
December 31, 2011 and 2010, 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. 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.
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 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 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 $(18.4) million, $1.9 million and $56.3 million to our equity
accounts in 2011, 2010 and 2009, 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 $(0.4) million, $(2.8) million and
$2.0 million that are included in Other income (expense), net in our Consolidated Income
Statements in 2011, 2010 and 2009, respectively.
2011 Annual Report 21
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 principal executive officer and principal 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 principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were effective as of
December 31, 2011 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 quarter ended December 31, 2011 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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. We have excluded from this evaluation the internal controls of AGR Field
Operations Holdings AS and subsidiaries, which were acquired in December 2011 and,
excluding goodwill, accounted for approximately 2% of our total consolidated total assets at
December 31, 2011 and less than 1% of our consolidated operating income for the year ended
December 31, 2011. Based on that evaluation, our management has concluded that our
internal control over financial reporting was effective as of December 31, 2011.
Ernst & Young LLP, the independent registered public accounting firm that audited our financial
statements, has audited our internal control over financial reporting, as stated in their report
which follows.
22 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, 2011, based on criteria established in Internal Control-Integrated
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.
As indicated in the accompanying Management's Report on Internal Control Over Financial
Reporting, management's assessment of and conclusion on the effectiveness of internal control
over financial reporting did not include the internal controls of AGR Field Operations Holdings
AS and subsidiaries, which are included in the 2011 consolidated financial statements of
Oceaneering International, Inc. and, excluding goodwill, constituted approximately 2% of
consolidated total assets as of December 31, 2011 and less than 1% of consolidated operating
income for the year then ended. Our audit of internal control over financial reporting of
Oceaneering International, Inc. and Subsidiaries also did not include an evaluation of the
internal control over financial reporting of AGR Field Operations Holdings AS and subsidiaries.
2011 Annual Report 23
In our opinion, Oceaneering International, Inc. and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2011, 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, 2011 and 2010, and the related consolidated
statements of income, comprehensive income, cash flows, and shareholders' equity for each of
the three years in the period ended December 31, 2011 of Oceaneering International, Inc. and
Subsidiaries and our report dated February 24, 2012 expressed an unqualified opinion thereon.
Houston, Texas
February 24, 2012
24 Oceaneering International, Inc.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
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, 2011 and 2010,
and the related consolidated statements of income, comprehensive income, cash flows,
and shareholders’ equity for each of the three years in the period ended
December 31, 2011. 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, 2011 and 2010, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2011, 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, 2011, 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 24, 2012 expressed an unqualified opinion thereon.
Houston, Texas
February 24, 2012
2011 Annual Report 25
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 $594 and $5,655
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 non-current assets
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:
Common Stock, par value $0.25 per share; 180,000,000
shares authorized; 110,834,088 shares issued
Additional paid-in capital
Treasury stock; 2,799,118 and 2,603,324 shares, at cost
Retained earnings
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31,
2011
2010
$ 106,142 $ 245,219
549,812
255,095
73,073
984,122
424,014
236,517
77,752
983,502
1,772,017 1,631,109
844,736
786,373
878,709
893,308
333,471
49,607
140,036
523,114
143,234
51,820
65,577
260,631
$ 2,400,544 $ 2,030,506
$ 111,381 $
335,161
54,833
501,375
120,000
221,207
85,572
314,410
39,874
439,856
—
200,435
27,709
202,619
(71,700 )
27,709
193,277
(61,385 )
1,426,525 1,239,574
(8,960 )
1,557,962 1,390,215
$ 2,400,544 $ 2,030,506
(27,191 )
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
26 Oceaneering International, Inc.
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Revenue
Cost of services and products
Gross Margin
Selling, general and administrative expense
Income from Operations
Interest income
Interest expense, net of amounts capitalized
Equity earnings of unconsolidated affiliates
Other income (expense), net
Income before Income Taxes
Provision for income taxes
Net Income
Cash Dividends declared per Share
Basic Earnings per Share
Diluted Earnings per Share
2011
2009
Year Ended December 31,
2010
$ 2,192,663 $ 1,917,045 $ 1,822,081
1,683,904 1,450,725 1,384,355
437,726
145,610
292,116
694
(7,781 )
3,242
1,504
289,775
101,422
$ 235,658 $ 200,531 $ 188,353
466,320
156,820
309,500
580
(6,010 )
2,078
(926 )
305,222
104,691
508,759
173,928
334,831
888
(1,096 )
3,801
(539 )
337,885
102,227
$
$
$
0.45 $
2.18 $
2.16 $
— $
1.83 $
1.82 $
—
1.71
1.70
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
2011 Annual Report 27
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
2010
2009
2011
Net Income
Other comprehensive income, net of tax:
Foreign currency translation adjustments
Pension-related adjustments
$ 235,658 $ 200,531 $ 188,353
(18,374 )
143
1,893
285
56,333
(1,812 )
Change in fair value of interest rate hedge and
other
Other comprehensive income
Comprehensive Income
—
(18,231 )
629
55,150
$ 217,427 $ 205,137 $ 243,503
2,428
4,606
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
28 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
Excluding the effects of acquisitions, increase
(decrease) in cash from:
Accounts receivable
Inventory
Other operating assets
Currency translation effect on working capital
Accounts payable and accrued liabilities
Income taxes payable
Other operating liabilities
Total adjustments to net income
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of property and equipment
Business acquisitions, net of cash acquired
Dispositions of property and equipment and equity
investment
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds (payments) from revolving credit
facility
Payments of 6.72% Senior Notes
Payments of Term Loan
Proceeds from issuance of common stock
Excess tax benefits from stock-based compensation
Cash dividends
Purchases of treasury stock
Net Cash Provided by (Used in) Financing
Activities
Net Increase (Decrease) in Cash and Cash
Equivalents
Cash and Cash Equivalents—Beginning of
Period
Cash and Cash Equivalents—End of Period
Year Ended December 31,
2010
2009
2011
$ 235,658 $ 200,531 $ 188,353
151,227 153,651 122,945
21,631
(305 )
6,369
7,502
(24,188 )
12,529
31,184
(2,758 )
8,490
2,262
5,569
5,194
11,568
12,104
(99,537 )
3,365
(827 )
(11,492 )
1,202
(30,074 )
(62 )
16,215
6,519
(10,589 )
8,036
56,100
8,968
25,578
(6,485 )
14,484
8,083
7,846
1,810
52,914 241,319 229,881
288,572 441,850 418,234
(235,028 )
(291,617 )
(185,262 )
(21,918 )
(175,021 )
—
43,874
(482,771 )
15,284
(191,896 )
12,535
(162,486 )
120,000
—
—
—
1,320
(48,707 )
(17,491 )
(100,000 )
(20,000 )
—
693
1,741
—
(49,520 )
(4,000 )
(20,000 )
(85,000 )
1,880
2,523
—
—
55,122
(167,086 )
(104,597 )
(139,077 )
82,868 151,151
11,200
245,219 162,351
$ 106,142 $ 245,219 $ 162,351
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
2011 Annual Report 29
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Stock
Issued
Shares Amount
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,781
2,523
6,090
(1,781 )
(4,210 )
188,353
(7,989 ) 16,752
(in thousands)
Balance,
December 31, 2008 110,834 $ 27,709 $ 210,390 $ (52,419 ) $ 850,690 $
Net Income
—
Other
Comprehensive
Income
Restricted stock unit
activity
Restricted stock
activity
Stock options
exercised
Tax benefits from
stock plans
Balance,
December 31, 2009 110,834 27,709 198,933 (27,796 ) 1,039,043
Net Income
200,531
—
Other
Comprehensive
Income
Restricted stock unit
activity
Restricted stock
activity
Stock options
exercised
Tax benefits from
stock plans
Treasury stock
purchases,
2,200,000 shares
Balance,
December 31, 2010 110,834 27,709 193,277 (61,385 ) 1,239,574
Net Income
235,658
—
Other
Comprehensive
Income
Restricted stock unit
activity
Restricted stock
activity
Tax benefits from
stock plans
Cash dividends
Treasury stock
purchases, 500,000
shares
Balance,
December 31, 2011 110,834 $ 27,709 $ 202,619 $ (71,700 ) $ 1,426,525 $
—
(48,707 )
(4,027 ) 11,868
1,319
—
— (17,491 )
— (49,520 )
—
—
(1,509 )
(1,781 )
(1,589 )
9,532
1,741
1,509
5,667
1,781
2,282
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Accumulated Other
Comprehensive Income (Loss)
Currency
Translation
Adjustments
Fair Value
of Hedging
Instruments
Pension
Total
(3,057 ) $ (63,489 ) $ (2,170 ) $ 967,654
188,353
—
—
—
629
56,333 (1,812 )
55,150
—
—
—
—
—
—
—
—
—
—
—
—
8,763
—
1,880
2,523
(2,428 )
—
(7,156 ) (3,982 ) 1,224,323
200,531
—
—
2,428
1,893
285
—
—
—
—
—
—
—
—
4,606
7,841
—
693
1,741
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(49,520 )
(5,263 ) (3,697 ) 1,390,215
235,658
—
—
(18,374 )
143
(18,231 )
—
—
—
—
—
—
—
—
15,199
—
1,319
(48,707 )
—
—
(17,491 )
— $ (23,637 ) $ (3,554 ) $ 1,557,962
The accompanying Notes are an integral part of these Consolidated Financial Statements.
30 Oceaneering International, Inc.
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.
Stock Split. On May 6, 2011, our Board of Directors declared a two-for-one stock split,
which was effected in the form of a stock dividend of our common stock to our
shareholders of record at the close of business on May 19, 2011. The stock dividend
was distributed on June 10, 2011. All historical share and per share data in these
financial statements reflect this stock split. The total number of authorized shares of our
common stock and its par value per share were unchanged by this stock split. We have
restated shareholders' equity to give retroactive recognition of the stock split for all
periods presented by reclassifying an amount equal to the par value of the additional
shares issued through the stock dividend from additional paid-in capital to common stock.
Repurchase Plan. In February 2010, our Board of Directors approved a plan to
repurchase up to 12,000,000 shares of our common stock. Through December 31, 2011
under this plan, we repurchased 2,700,000 shares of our common stock for $67 million.
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
2011 Annual Report 31
for marine services equipment (such as vessels and diving 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 that extend asset lives or
functionality.
We capitalize interest on assets where the construction period is anticipated to be more
than three months. We did not capitalize any interest in 2011. We capitalized
$0.3 million of interest in 2010 and less than $0.1 million of interest in 2009. 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 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 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 2010 for approximately
the vessel’s reduced carrying value. This impairment charge was recorded in our cost of
services and products in our Subsea Projects segment.
Business Acquisitions. We account for business combinations using the acquisition
method of accounting, with the acquisition price being allocated to the assets acquired
and liabilities assumed based on their fair market values at the date of acquisition.
32 Oceaneering International, Inc.
The following table presents the cost (net of cash acquired) and the amounts of
associated goodwill, other intangible assets, and other assets net of liabilities assumed
for the business acquisitions we made in 2011:
(in thousands)
Norse Cutting and Abandonment AS
AGR Field Operations Holdings AS
Mechanica AS
Other
Total Business Acquisitions
Cost
Goodwill
Other
Intangible
Assets
Other,
net
$ 50,296 $ 17,777 $ 15,945 $ 16,574
220,011 165,201
32,067 22,743
2,977
5,360
8,877
2,137
—
1,959
$ 291,617 $ 193,814 $ 53,372 $ 44,431
17,214
4,096
On March 31, 2011, we purchased Norse Cutting and Abandonment AS ("NCA"), a
Norwegian oilfield technology company that specializes in providing subsea tooling
services used in the plugging, abandonment and decommissioning of offshore oil and
gas production platforms and subsea wellheads. In addition, NCA performs specialized
maintenance and repair services on production platforms in the North Sea. NCA's
business is split approximately evenly between the North Sea and the U.S. Gulf of
Mexico. The acquisition included a small, non-strategic business operation we intended
to sell when we purchased NCA. During 2011, we sold that operation, making the net
acquisition price of the retained NCA operations $50 million. We have accounted for this
net acquisition by allocating the purchase price to the assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. Our goodwill, all
nondeductible for income tax purposes, associated with the acquisition was $18 million,
and other intangible assets were $16 million. This purchase price allocation is
preliminary and based on information currently available to us, and is subject to change
when we obtain final asset and liability valuations. The results of operations of NCA are
included in our consolidated statements of income from the date of acquisition.
On December 20, 2011, we purchased AGR Field Operations Holdings AS and
subsidiaries (collectively, "AGR FO"), which we believe is Norway's largest asset integrity
management service provider on offshore production platforms, onshore facilities, and
pipelines. AGR FO employs subsea technology to perform internal and external
inspections of subsea hardware. AGR FO also has a substantial operating presence in
Australia where it operates and maintains offshore and onshore oil and gas production
facilities for customers and provides subsea engineering services and operates an
offshore logistics supply base. We incurred, and charged to expense, approximately
$2 million of transaction costs associated with this acquisition.
We have accounted for this acquisition by allocating the purchase price to the assets
acquired and liabilities assumed based on their estimated fair values at the date of
acquisition. Our goodwill, all nondeductible for income tax purposes, associated with the
acquisition was $165 million, and other intangible assets were $32 million. This purchase
price allocation is preliminary and based on information currently available to us, and is
subject to change when we obtain final asset and liability valuations. As we acquired
AGR FO late in December 2011, its results of operations are included in our consolidated
statements of income from the date of acquisition, but the 2011 results were not material.
Generally, AGR FO's Norwegian assets and operations are in our Asset Integrity
2011 Annual Report 33
segment and its Australian assets and operations are in our Subsea Projects segment.
Our consolidated results of operations on an unaudited pro forma basis, as though
AGR FO had been acquired on January 1, 2010, are as follows:
(in millions, except per share figures)
Pro forma revenue
Pro forma net income
Pro forma diluted earnings per share
$
2011
2010
2,385.6 $
239.5
2.20
2,094.0
200.8
1.83
The above amounts are based on certain assumptions and estimates that we believe are
reasonable. The pro forma results reflect events occurring as a direct result of the
purchase and do not necessarily represent results which would have occurred if the
acquisition had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
On December 27, 2011, we purchased Mechanica AS, a design and fabrication company
specializing in remotely operated subsea tools for the offshore oil and gas industry, for
$17 million. We have accounted for this acquisition by allocating the purchase price to
the assets acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. Our goodwill, all nondeductible for income tax purposes, associated
with the acquisition was $9 million, and other intangible assets were $5 million. This
purchase price allocation is preliminary and based on information currently available to
us, and is subject to change when we obtain final asset and liability valuations. As we
acquired Mechanica AS late in December 2011, its results of operations are included in
our consolidated statements of income from the date of acquisition, but the 2011 results
were not material.
We also made several smaller acquisitions during the periods presented.
Except for AGR FO, the above acquisitions were not material. As a result, we have not
included pro forma information related to those acquisitions in this report.
Goodwill and Intangible Assets. In September 2011, the FASB issued an update
regarding goodwill impairment testing. Under the update, an entity has the option to first
assess qualitative factors to determine whether the existence of events or circumstances
leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. Our reporting units are the operating units one level
below our business segments, except for ROVs and Asset Integrity, which are tested as
single reporting units. If, after assessing the totality of events or circumstances, an entity
determines it is not more likely than not that the fair value of a reporting unit is less than
its carrying amount, performing the two-step impairment test is unnecessary. However, if
an entity concludes otherwise, then it is required to perform the first step of the two-step
impairment test. This update is effective for us January 1, 2012, and earlier adoption is
permitted. We have elected to adopt this update early and we applied it in 2011. The
provisions of the update have not had a material effect on our financial position or results
of operations. We tested the goodwill attributable to each of our reporting units for
impairment as of December 31, 2010 and 2009 and concluded that there was no
impairment. We estimated fair value using discounted cash flow methodologies and
34 Oceaneering International, Inc.
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.
Intangible assets, primarily acquired in connection with business combinations, include
trade names, intellectual property and customer relationships and are being amortized
with a weighted average remaining life of approximately 12 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 2011, we
accounted for 16% 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, 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.
2011 Annual Report 35
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,
2011
2010
$ 271,233 $ 262,602
(238,473 )
$ 18,488 $ 24,129
(252,745 )
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,
2011
2010
$ 78,876 $ 90,315
(45,144 )
$ 35,924 $ 45,171
(42,952 )
Stock-Based Compensation. We recognize all share-based payments to directors,
officers and employees 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 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 indefinitely reinvested in foreign entities. 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.
36 Oceaneering International, Inc.
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 recognized in
accumulated other comprehensive income as a component of shareholders' equity. All
foreign currency transaction gains and losses are recognized currently in the
Consolidated Statements of Income. We recorded $(0.4) million, $(2.8) million and
$2.0 million of foreign currency transaction gains (losses) in 2011, 2010 and 2009,
respectively, and those amounts are included as a component of Other income
(expense), net.
Based on changes in the economic facts and circumstances of our operations in Brazil,
we have changed the functional currency of our Brazilian subsidiary from the U.S. dollar
to the Brazilian real effective January 1, 2011. This change had no material effect on our
financial statements.
Earnings Per Share. The table that follows presents our earnings per share calculations.
Year Ended December 31,
2011
2009
2010
(in thousands, except per share data)
—
(709 )
Basic earnings per share:
Net income per consolidated statements of income $ 235,658 $ 200,531 $ 188,353
Income allocable to participating securities
(1,324 )
Earnings allocable to common shareholders
$ 235,658 $ 199,822 $ 187,029
Basic shares outstanding
108,308 109,119 109,532
Basic earnings per share
1.71
Diluted earnings per share:
Net income per consolidated statements of income $ 235,658 $ 200,531 $ 188,353
Income allocable to participating securities
(1,318 )
Earnings allocable to diluted common shareholders $ 235,658 $ 199,825 $ 187,035
Diluted shares outstanding
109,001 109,535 110,053
Diluted earnings per share
1.70
1.82 $
1.83 $
2.18 $
2.16 $
(706 )
—
$
$
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
2011 Annual Report 37
relationship and, if it is, the type of hedge relationship. As of December 31, 2011, we had
no derivative instruments in effect.
New Accounting Standards. In October 2009, the Financial Accounting Standards Board
("FASB") issued an update regarding accounting for revenue involving multiple-
deliverable arrangements that will, in certain circumstances, require sellers to account for
more products or services ("deliverables") separately rather than as a combined unit.
This update establishes a selling price hierarchy for determining the selling price of a
deliverable. The update 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 update
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 update requires that a seller determine its best estimated
selling price in a manner that is consistent with that used to determine the price to sell the
deliverable on a stand-alone basis. The update does not prescribe any specific methods
that sellers must use to accomplish this objective, but provides guidance.
For us, the update was effective prospectively for revenue arrangements entered into or
materially modified on or after January 1, 2011. The provisions of the update have not
had a material effect on our financial position or results of operations.
In June 2011, the FASB issued an update to allow an entity the option to present the total
of comprehensive income, the components of net income, and the components of other
comprehensive income in either a single continuous statement of comprehensive income
or two separate but consecutive statements. Under either option, an entity is required to
present each component of net income along with total net income, each component of
other comprehensive income along with a total for other comprehensive income, and a
total amount for comprehensive income. This update eliminates the option to present the
components of other comprehensive income as part of the statement of changes in
stockholders' equity. This update does not change the items that are required to be
reported in other comprehensive income or when an item of other comprehensive income
must be reclassified to net income and is required to be applied retrospectively. This
update is effective for us January 1, 2012. Early adoption is permitted. We have elected
to adopt this update and we are reporting the total of comprehensive income, the
components of net income, and the components of other comprehensive income in two
separate consecutive statements.
In September 2011, the FASB issued an update regarding an employer's participation in
a multiemployer pension plan. For employers that participate in multiemployer pension
plans, the update requires an employer to provide additional quantitative and qualitative
disclosures. The amended disclosures provide users with more detailed information
about an employer's involvement in multiemployer pension plans, including:
•
•
the significant multiemployer plans in which an employer participates, including
the plan names and identifying numbers;
the level of an employer's participation in the significant multiemployer plans,
including the employer's contributions made to the plans and an indication of
whether the employer's contributions represent more than 5 percent of the total
contributions made to the plans by all contributing employers;
38 Oceaneering International, Inc.
•
•
the financial health of the significant multiemployer plans, including an indication
of the funded status, whether funding improvement plans are pending or
implemented, and whether any plan has imposed surcharges on the
contributions to the plan; and
the nature of the employer commitments to the plans, including when the
collective-bargaining agreements that require contributions to the significant
plans are set to expire and whether those agreements require minimum
contributions be made to the plans.
This update was effective for us December 31, 2011. We have no material
multiemployer pension plans.
2.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Our investments in unconsolidated affiliates consisted of the following:
(in thousands)
Medusa Spar LLC
Other
2011
December 31,
2010
$ 49,480 $ 51,820 $ 57,388
1,348
$ 49,607 $ 51,820 $ 58,736
127
2009
—
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. 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 $49.5 million investment. Medusa Spar LLC is a variable
interest entity. We are not the primary beneficiary of Medusa Spar LLC, since we do not
own a controlling interest, nor do we manage the operations of the asset it owns. 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.
2011 Annual Report 39
(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
Net Income
December 31,
2010
2009
2011
$
217 $
949
2,904 $
5,302
4,116
3,189
91,073 100,551 110,028
$ 99,279 $ 103,957 $ 115,093
$
18 $
17
99,261 103,939 115,076
$ 99,279 $ 103,957 $ 115,093
18 $
$ 17,536 $ 13,816 $ 16,143
(9,478 )
(70 )
6,595
(9,478 )
(71 )
4,267 $
(9,478 )
(72 )
7,986 $
$
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 $7.8 million and $10.2 million at December 31, 2011
and 2010, respectively. We received cash distributions of $6.3 million, $7.7 million and
$8.5 million from Medusa Spar LLC in 2011, 2010 and 2009, respectively.
3. INCOME TAXES
Our provisions for income taxes and our cash taxes paid are as follows:
Year Ended December 31,
2010
2011
2009
$ 14,027 $ 16,501 $ 10,659
69,132
79,791
80,698
94,725
57,006
73,507
8,934
(1,432 )
7,502
19,730
11,454
31,184
12,029
9,602
21,631
$ 102,227 $ 104,691 $ 101,422
$ 72,825 $ 121,440 $ 54,504
(in thousands)
Current:
Domestic
Foreign
Total current
Deferred:
Domestic
Foreign
Total deferred
Total provision for income taxes
Cash taxes paid
40 Oceaneering International, Inc.
The components of income before income taxes are as follows:
(in thousands)
Domestic
Foreign
Income before income taxes
2011
Year Ended December 31,
2010
$ 41,831 $ 87,776 $ 65,174
296,054 217,446 224,601
$ 337,885 $ 305,222 $ 289,775
2009
As of December 31, 2011 and 2010, 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
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
Net deferred income tax liability
December 31,
2011
2010
$ 26,923 $ 24,791
19,808
11,588
6,675
8,647
5,360
4,875
56,634
52,033
—
—
$ 52,033 $ 56,634
58,195
15,518
26,477
$ 88,657 $ 74,832
62,373
17,177
13,580
$ 188,847 $ 167,962
$ 136,814 $ 111,328
Our net deferred tax liability is reflected within our balance sheet as follows:
(in thousands)
Deferred tax liabilities
Current deferred tax assets
Net deferred income tax liability
December 31,
2011
2010
$ 157,532 $ 139,822
(28,494 )
$ 136,814 $ 111,328
(20,718 )
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
2011 Annual Report 41
in entities or jurisdictions that have net operating loss carryforwards available. The
primary difference between our 2011 effective tax rate of 30.3% and the federal statutory
rate of 35% reflects our intent to indefinitely reinvest in certain of our international
operations. Therefore, we are no longer providing for U.S. taxes on a portion of our
foreign earnings. The effective tax rate of 30.3% in our financial statements for 2011 is a
result of our effective rate of 31.5% adjusted by $4.9 million of additional tax benefits,
primarily attributable to amending prior years' U.S. federal income tax returns to reflect a
broader interpretation of our pre-tax income eligible for certain deductions allowable for
oil and gas construction activities, and tax effecting the $19.6 million gain on the sale of
the Ocean Legend at the U.S. federal statutory rate of 35%. 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.
We consider $132 million of unremitted earnings of our foreign subsidiaries to be
indefinitely reinvested. It is not practical for us to compute the amount of additional U.S.
tax that would be due on this amount. We have provided deferred income taxes on the
foreign earnings we expect to repatriate.
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%
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
$0.4 million, $0.2 million and $0.5 million to income tax expense in 2011, 2010 and 2009,
respectively, for penalties and interest on uncertain tax positions, which brought our total
liabilities for penalties and interest on uncertain tax positions to $4.4 million and
$4.0 million on our balance sheets at December 31, 2011 and 2010, 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 benefits at December 31, 2011. 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,
2010
9,488 $
2011
9,991 $
2009
8,402
$
947
(834 )
—
$ 10,104 $
1,296
(793 )
—
9,991 $
1,361
(81 )
(194 )
9,488
We do not believe that the total of unrecognized tax benefits will significantly increase or
decrease in the next 12 months.
42 Oceaneering International, Inc.
We file a consolidated U.S. federal income tax return for Oceaneering International, Inc.
and our domestic subsidiaries. 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.
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:
Jurisdiction
United States
United Kingdom
Norway
Angola
Nigeria
Brazil
Australia
Canada
Periods
2007
2009
2001
2006
2005
2006
2008
2008
2011 Annual Report 43
4.
SELECTED BALANCE SHEET AND INCOME STATEMENT INFORMATION
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
Prepaid expenses
Total
Other Non-Current Assets:
Intangible assets
Cash surrender value of life insurance policies
Long-term portion of accounts receivable, net
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
December 31,
2011
2010
$ 135,297 $ 119,106
119,798 117,411
$ 255,095 $ 236,517
$ 20,718 $ 28,494
49,258
$ 73,073 $ 77,752
52,355
$ 70,611 $ 22,208
36,339
—
7,030
$ 140,036 $ 65,577
38,318
21,658
9,449
$ 191,430 $ 168,476
50,323
51,296
52,132
40,303
68,131
27,480
$ 335,161 $ 314,410
$ 157,532 $ 139,822
32,341
14,245
14,027
$ 221,207 $ 200,435
34,768
13,935
14,972
44 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,
2010
2011
2009
$ 1,369,614 $ 1,277,795 $ 1,275,263
546,818
2,192,663 1,917,045 1,822,081
639,250
823,049
999,396
603,289
81,219
897,654
421,438
65,263
1,683,904 1,450,725 1,384,355
916,495
461,477
72,753
370,218
219,760
(81,219 )
377,609
125,380
(65,263 )
$ 508,759 $ 466,320 $ 437,726
361,300
177,773
(72,753 )
5. DEBT
Long-term Debt consisted of the following:
(in thousands)
Revolving credit facility
Long-term Debt
December 31,
2011
$ 120,000 $
$ 120,000 $
2010
—
—
As of December 31, 2011, we had a $300 million revolving credit facility under an
agreement (the "Credit Agreement") that extended to January 2012. We had 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 financial statements. Under the Credit Agreement,
we had 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, 2011, we had $120 million of borrowings outstanding under the Credit
Agreement and $180 million available for borrowing. The weighted average interest rate
on all our outstanding borrowings was 0.8% at December 31, 2011.
2011 Annual Report 45
On January 6, 2012, we entered into a credit agreement with a group of banks (the "2012
Credit Agreement") and terminated the Credit Agreement. Simultaneously with the
execution of the 2012 Credit Agreement and pursuant to its terms, we repaid all amounts
outstanding under, and terminated, the Credit Agreement. The 2012 Credit Agreement
provides for a five-year, $300 million revolving credit facility. Subject to certain
conditions, the aggregate commitments under the facility may be increased by to up to
$200 million by obtaining additional commitments from existing and/or new lenders.
Borrowings under the facility may be used for working capital and general corporate
purposes. The facility expires on January 6, 2017. Revolving borrowings under the
facility bear interest at an adjusted base rate or the Eurodollar Rate (as defined in the
agreement), at our option, plus an applicable margin. Depending on our debt to
capitalization ratio, the applicable margin varies (1) in the case of adjusted base rate
advances, from 0.125% to 0.750% and (2) in the case of eurodollar advances, from
1.125% to 1.750%. The adjusted base rate is the greater of (1) the per annum rate
established by administrative agent as its prime rate, (2) the federal funds rate plus
0.50% and (3) the one-month Eurodollar Rate plus 1%.
The 2012 Credit Agreement contains various covenants which we believe are customary
for agreements of this nature, including, but not limited to, restrictions on the ability of
each of our restricted subsidiaries to incur unsecured debt, as well as restrictions on our
ability and the ability of each of our restricted subsidiaries to incur secured debt, grant
liens, make certain investments, make distributions, merge or consolidate, sell assets,
enter into transactions with affiliates and enter into certain restrictive agreements. We are
also subject to an interest coverage ratio and a debt to capitalization ratio. The 2012
Credit Agreement includes customary events and consequences of default.
We made cash interest payments of $1.1 million, $7.2 million and $8.9 million in 2011,
2010 and 2009, 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, 2011, 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)
2012
2013
2014
2015
2016
Thereafter
Total Lease Commitments
46 Oceaneering International, Inc.
$ 48,662
26,539
13,769
9,930
6,916
31,652
$ 137,468
Rental expense, which includes hire of vessels, specialized equipment and real estate
rental, was approximately $73 million, $69 million and $74 million in 2011, 2010 and
2009, respectively.
In 2012, we chartered a vessel and crew for three years with two one-year options for our
field operations contract in Angola. Total charter hire will be $94 million for the first three
years.
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 $38 million and $30 million in letters of credit outstanding as of
December 31, 2011 and 2010, 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.
2011 Annual Report 47
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 $40 million at December 31, 2011 and $56 million at
December 31, 2010, 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. During 2011, based on
our current estimate of when the receivable will be collected, we reduced the net carrying
value of the receivable by $3 million to reflect a present value estimate and reclassified
$22 million to Other non-current assets on our balance sheet at December 31, 2011,
which represents the amount we believe will be collected more than one year from the
balance sheet date. The $3 million adjustment was charged against our earnings as a
reduction of revenue in our Subsea Projects segment.
48 Oceaneering International, Inc.
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 Asset Integrity. 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 a mobile offshore
production system, through a 50% interest in an entity which holds a 75% interest in the
system. With the acquisition of AGR FO in December 2011, we also operate and
maintain offshore and onshore oil and gas production facilities, provide subsea
engineering services, and operate an offshore logistics supply base in Australia. Our
Asset Integrity segment, which was previously named Inspection, provides asset integrity
management and assessment services and nondestructive testing and inspection. We
renamed Inspection to Asset Integrity to more appropriately describe the services we are
providing after our acquisition of AGR FO. 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.
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, 2011 from those used in our
consolidated financial statements for the years ended December 31, 2010 and 2009,
except for the change in the name of Inspection to Asset Integrity.
2011 Annual Report 49
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
Asset Integrity
Total Oil and Gas
Advanced Technologies
Total
Income from Operations
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oil and Gas
Advanced Technologies
Unallocated Expenses
Total
Depreciation and Amortization Expense
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oil and Gas
Advanced Technologies
Unallocated Expenses
Total
Year Ended December 31,
2010
2009
2011
770,212
167,477
266,577
549,233
247,538
223,469
$ 755,033 $ 662,105 $ 649,228
487,726
274,607
216,140
1,959,299 1,682,345 1,627,701
194,380
$ 2,192,663 $ 1,917,045 $ 1,822,081
233,364
234,700
$ 224,705 $ 211,725 $ 207,683
60,526
75,404
26,443
370,056
12,366
(90,306 )
$ 334,831 $ 309,500 $ 292,116
108,522
46,910
25,893
393,050
16,934
(100,484 )
142,184
32,662
30,560
430,111
16,661
(111,941 )
$ 100,089 $
68,022
24,133
19,011
3,794
114,960
2,526
5,459
$ 151,227 $ 153,651 $ 122,945
86,232 $
27,956
25,826
4,098
144,112
4,588
4,951
31,299
8,024
5,689
145,101
3,134
2,992
Equity Earnings of Unconsolidated Affiliates
Subsea Projects
Subsea Products
Total
$
$
3,937 $
(136 )
3,801 $
2,078 $
—
2,078 $
3,242
—
3,242
50 Oceaneering International, Inc.
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.
During 2011, we sold the Ocean Legend, a mobile offshore production system. The sale
resulted in a gain of $19.6 million, which we recognized as a reduction of the costs of
services and products in our Subsea Projects segment.
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.
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 2011 or
2009.
2011 Annual Report 51
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
Asset Integrity
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
Property and Equipment, net
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
Goodwill
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Asset Integrity
Total Oil and Gas
Advanced Technologies
Total
December 31,
2011
2010
659,211
338,205
284,159
$ 861,059 $ 774,011
511,406
249,259
90,357
2,142,634 1,625,033
54,378
351,095
$ 2,400,544 $ 2,030,506
62,627
195,283
$ 517,098 $ 488,581
159,505
109,761
15,238
773,085
6,143
7,145
$ 893,308 $ 786,373
184,911
141,178
30,327
873,514
9,272
10,522
$
26,908 $
27,125
87,492
18,163
132,780
10,454
$ 333,471 $ 143,234
112,817
183,292
323,017
10,454
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.
52 Oceaneering International, Inc.
The following table presents Capital Expenditures, including business acquisitions, by
business segment for the periods indicated:
(in thousands)
Capital Expenditures
Oil and Gas
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oil and Gas
Advanced Technologies
Corporate and Other
Total
Year Ended December 31,
2010
2009
2011
41,802
43,506
9,551
$ 135,770 $ 109,377 $ 146,707
13,694
100,824
2,817
64,803
212,951
6,611
514,348 204,236 169,829
3,234
1,958
$ 526,645 $ 207,180 $ 175,021
2,351
593
5,757
6,540
2011 Annual Report 53
Geographic Operating Areas
The following table summarizes certain financial data by geographic area:
(in thousands)
Revenue
Foreign:
Norway
West Africa
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Long-Lived Assets
Foreign:
Norway
West Africa
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Year Ended December 31,
2010
2009
2011
284,642
256,565
217,094
155,532
93,325
1,318,049
874,614
$ 310,891 $ 212,854 $ 230,874
280,707
156,748
135,721
97,401
60,610
962,061
860,020
$ 2,192,663 $ 1,917,045 $ 1,822,081
260,377
156,114
136,518
135,510
72,157
973,530
943,515
$ 436,043 $ 165,942 $ 170,617
95,326
63,334
76,622
63,653
20,490
490,042
487,453
$ 1,378,104 $ 1,010,666 $ 977,495
120,732
65,830
72,518
99,709
30,633
825,465
552,639
106,028
70,730
76,835
79,484
28,569
527,588
483,078
Revenue is based on location where services are performed and products are
manufactured.
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 $14.5 million, $13.9 million and $13.2 million for the plan years ended
December 31, 2011, 2010 and 2009, respectively.
54 Oceaneering International, Inc.
We also make matching contributions to other foreign employee savings plans similar in
nature to a 401(k) plan. In 2011, 2010 and 2009, these contributions, principally related
to plans associated with U.K. and Norwegian subsidiaries, were $9.6 million, $7.1 million
and $6.3 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 2011,
2010 and 2009 were $3.4 million, $3.3 million and $3.5 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 $25 million and
$24 million, at December 31, 2011 and 2010, respectively, and the fair values of the plan
assets (using Level 2 inputs) for both plans were $19 million and $17 million at
December 31, 2011 and 2010, respectively.
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. We have not
granted any stock options since 2005 and 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 2011, 2010 and 2009, 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 the Incentive
Plan and 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
2011 Annual Report 55
requirements. The Compensation Committee and the Board of Directors have approved
specific financial goals and measures (as defined in the Performance Award 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, 2013, 2012 and 2011 to be used as the basis for the final value of the
performance units. The final value of each performance unit granted in 2011 and 2010
may range from $0 to $150 and the final value of each performance unit granted in 2009
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, 2011, there were
393,025 performance units outstanding.
There was no stock option activity during the year ended December 31, 2011. The
following is a summary of our stock option activity for the two years ended
December 31, 2010:
Balance at December 31, 2008
Granted
Exercised
Forfeited
Balance at December 31, 2009
Granted
Exercised
Forfeited
Balance at December 31, 2010
Shares under
Option
305,800 $
—
(218,800 )
(5,000 )
82,000
—
(82,000 )
—
— $
Aggregate
Intrinsic Value
Weighted
Average
Exercise Price
8.55
—
8.60 $ 3,257,000
8.57
8.44
—
8.44 $ 1,858,000
—
—
We received $0.7 million and $1.9 million from the exercise of stock options in 2010 and
2009, respectively. The excess tax benefit realized from tax deductions from stock
options for 2010 and 2009 was $0.9 million and $0.9 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 2011, 2010 and 2009, the Compensation Committee granted restricted units of
our common stock to certain of our key executives and employees. During 2011, 2010
and 2009, our Board of Directors granted restricted units of our common stock to our
Chairman of the Board of Directors (our "Chairman") and restricted common stock to our
other nonemployee directors. Over 50% of the grants made in 2011 to our employees
and over 60% of the grants made in 2010 and 2009 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
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
56 Oceaneering International, Inc.
Chairman, the participant will be issued a share of our common stock for the participant's
vested restricted 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 received a tax-assistance payment. Our tax assistance payments
were $1.8 million in 2010 and $3.7 million in 2009. There were no tax assistance
payments in 2011. 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 or the existing service agreement with our Chairman, 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. 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 $1.3 million, $0.8 million and $1.6 million in 2011, 2010 and 2009, respectively.
The following is a summary of our restricted stock and restricted stock unit activity for
2011, 2010 and 2009:
Balance at December 31, 2008
Granted
Issued
Forfeited
Balance at December 31, 2009
Granted
Issued
Forfeited
Balance at December 31, 2010
Granted
Issued
Forfeited
Balance at December 31, 2011
Number
1,649,500 $
411,850
(752,500 )
(65,800 )
1,243,050
421,850
(595,790 )
(24,960 )
1,044,150
463,400
(379,952 )
(36,748 )
1,090,850 $
Aggregate
Intrinsic Value
Weighted
Average
Fair Value
17.37
15.53
11.97 $ 14,239,000
20.71
19.86
29.58
16.23 $ 16,673,000
24.73
25.74
41.26
30.81 $ 15,563,000
27.77
30.49
The restricted stock units granted in 2011, 2010 and 2009 carry no voting rights and no
dividend rights. 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. The grants
2011 Annual Report 57
in 2011, 2010 and 2009 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 $29.9 million, $25.5 million
and $23.8 million for 2011, 2010 and 2009, respectively. As of December 31, 2011, we
had $11.5 million of future expense to be recognized related to our restricted stock unit
plans over a weighted average remaining life of 1.8 years.
Post-Employment Benefit
In 2001, we entered into an agreement with our 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, which
continued through August 15, 2011, during which service period the Chairman, acting as
an independent contractor, agreed to serve as nonexecutive Chairman of our Board of
Directors. The agreement provides the Chairman with post-employment benefits for ten
years following August 15, 2011. The agreement also provides for medical coverage on
an after-tax basis to the Chairman, his spouse and children for their lives. We recognized
the net present value of the post-employment benefits over the expected service period.
Our total accrued liabilities, current and long-term, under this post-employment benefit
were $7.3 million and $7.6 million at December 31, 2011 and 2010, 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).
Stockholder Rights Plan
We adopted a Stockholder Rights Plan on November 20, 1992, which was amended and
restated as of November 16, 2001. The Stockholder Rights Plan expired on
November 16, 2011.
58 Oceaneering International, Inc.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
Year Ended December 31, 2011
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
June 30
Dec. 31
Sept. 30
March 31
$ 470,420 $ 545,838 $ 602,208 $ 574,197 $ 2,192,663
508,759
334,831
235,658
2.16
98,801 126,116 153,096 130,746
82,468
81,674 109,622
61,067
58,317
78,578
56,693
42,070
0.72 $
0.54 $
0.52 $
0.39 $
Total
109,002 109,147 108,928 108,671
109,001
Year Ended December 31, 2010
June 30
Dec. 31
Sept. 30
March 31
$ 435,170 $ 464,303 $ 516,274 $ 501,298 $ 1,917,045
466,320
309,500
200,531
1.82
99,705 123,503 125,619 117,493
73,742
62,329
47,794
39,243
88,055
59,177
85,374
54,317
0.44 $
0.54 $
0.35 $
0.49 $
Total
110,449 110,371 108,665 108,663
109,535
2011 Annual Report 59
Forward-Looking Statements
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; 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, 2011 and other periodic filings with the Securities and Exchange
Commission.
Form 10-K
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:
David K. Lawrence
Secretary
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
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.
60 Oceaneering International, Inc.
General Information
Corporate Office
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
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
Hearing Impaired/TDD: (800) 952-9245
Annual Shareholders’ Meeting
Date: May 4, 2012
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 at a Glance
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. At year end, Oceaneering employed approximately 9,600 people
in 22 countries.
Operating Income
Revenue
11%
12%
8%
34%
35%
Remotely Operated Vehicles
7%
4%
7%
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technologies
50%
32%
Remotely Operated Vehicles ROVs are submersible vehicles operated by technicians from a control van,
typically onboard a floating drilling rig or surface vessel. They are piloted by means of a microprocessor-based
control system through an armored electrical fiber-optic umbilical. ROVs are used to perform a variety of offshore
oilfield tasks in water depths that ordinarily preclude the use of manned diving. These tasks include drill 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. At the end of 2011 we had 267
ROVs, about 35% of the industry’s vehicles. 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.
Subsea Products We manufacture a variety of built-to-order specialty subsea oilfield products. These encompass
production control umbilicals, tooling, Installation and Workover Control Systems (IWOCS), and subsea hardware.
While most of our subsea products are sold, we also rent tooling and provide IWOCS and some tooling as a
service line.
Subsea Projects We perform subsea oilfield hardware installation and inspection, maintenance, and repair services.
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.
In Australia, we operate and maintain offshore and onshore oil and gas production facilities, provide subsea
engineering services, and operate an offshore logistics supply base.
Asset Integrity We provide asset integrity management, corrosion management, inspection, and non-destructive
testing services principally to the oil and gas, power generation, and petrochemical industries. These services are
performed on facilities onshore and offshore, both topside and subsea.
Advanced Technologies We provide engineering services and related manufacturing principally to the U.S.
Department of Defense, NASA and its contractors, and the commercial theme park industry. The U.S. Navy is our
largest non-oilfield customer for whom we perform work primarily on surface ships and submarines.
About the Cover
Demand for ROVs continued to increase in 2011, and we added 24 new vehicles to our fleet.
Pictured in the foreground is one of our Millennium® Plus ROVs onboard a semisubmersible rig in the U.S. Gulf of Mexico.
Photo ©BP p.l.c.
2011 Annual Report
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“This is an exciting time for Oceaneering.
I recognize and thank our employees
who accomplished our record results.”
M. Kevin McEvoy
President and Chief Executive Officer
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
Telephone: (713) 329-4500
Fax: (713) 329-4951
www.oceaneering.com