2013 Annual Report
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, entertainment,
and aerospace industries. At year end, Oceaneering employed approximately 12,200
people in 28 countries.
Remotely Operated
Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technologies
We manufacture a variety
of specialty subsea oilfield
products. These encompass
production control umbilcals,
tooling and subsea work
systems, 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 subsea work
systems as a service, including
hydrate remediation, well
stimulation, dredging, and
decommissioning.
We perform subsea oilfield
hardware installation and
inspection, maintenance,
and repair services.
We service deepwater
projects with dynamically
positioned vessels that have
our ROVs onboard, principally
in the U.S. Gulf of Mexico
(GOM) and offshore Angola.
We service shallow water
projects with our manned
diving operation, utilizing
dive support vessels and
saturation diving systems,
primarily in the GOM.
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.
We provide engineering
services and related
manufacturing principally
to the U.S. Department of
Defense, NASA and its prime
contractors, and the
commercial theme park
industry. The U.S. Navy is our
largest non-oilfield customer,
for whom we perform work
predominantly on surface
ships and submarines.
ROVs are submersible vehicles
teleoperated by technicians
from a control van, typically
onboard a floating drilling rig
or vessel. They are piloted by
means of a microprocessor-
based control system through
an armored electrical fiber-
optic umbilical. ROVs are the
key technology enabling the
performance of critical oilfield
tasks in deepwater. 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 2013, we had
304 ROVs, about 35% of the
industry’s vehicles. We were
the primary provider of these
vehicles to perform drill
support service, with an
estimated market share of
57%, almost three times that
of the second largest
supplier.
About the Cover
Pictured is one of our Millennium® vehicles being used to assist in
North Sea dredging operations. This work was done to level the
seabed for installation of hardware to tie back additional
subsea wells to the production platform shown in the background.
65592_PROD_2013 Prod. 3/4/14 6:11 PM Page 1
Financial Highlights
($ in thousands, except per share amounts)
2013
2012
% Increase
Revenue
Gross Margin
Operating Income
Net Income
Diluted Earnings Per Share
$3,287,019
$2,782,604
765,536
545,116
371,500
$3.42
627,858
428,597
289,017
$2.66
18%
22%
27%
29%
29%
For 2013 Oceaneering reported record earnings and EPS. These results were achieved due to our global
focus on deepwater and subsea completion activity, the business expansion strategy we have in place,
and our solid operational execution.
15%
15%
Revenue
9%
31%
Operating Income
4%
8%
30%
Remotely Operated Vehicles
14%
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technologies
33%
41%
Oceaneering International, Inc. 2013 Annual Report
1
65592_PROD_2013 Prod. 3/4/14 6:12 PM Page 2
Letter to Shareholders
I am pleased to report that we achieved record EPS for the fourth
consecutive year. At $3.42 our EPS for 2013 was up 29% over
2012 and above the guidance range I provided in last year’s letter.
Each of our five operating business segments attained higher
income year over year, and we realized the second highest annual
operating income margin in our history.
D
uring 2013 we achieved record
years we grew our fleet size by over
scheduled to be delivered by the end
operating income from our Remotely
140%, or 179 ROVs, and increased our
of the first quarter of 2016. This vessel
Operated Vehicles (ROV), Subsea
leading ownership position from 28%
will be outfitted with two of our 13,000
Products, Asset Integrity, and Advanced
to 35% of the industry’s work class
foot-rated ROVs and a 250-ton crane
Technologies segments. Compared to
vehicles. The future long-term outlook
that is capable of handling lifts 100 tons
2012, ROV results improved on higher
for ROV service demand growth,
greater than any of the vessels we
demand to provide drill support and
albeit at a slower pace, is promising
currently operate. This will increase
vessel-based services, notably offshore
and we anticipate being able to
our capability to meet our customers’
Africa and in the U.S. Gulf of Mexico
continue achieving record results from
demand to safely handle heavier
(GOM), and on the expansion of our
this business.
subsea payloads in deeper water depths.
fleet. Subsea Products growth was
Subsea Products backlog at year
During 2013 our capital
attributable to higher demand for each
end was an all-time high of $906 million,
expenditures totaled $394 million, of
of our major product lines, led by
up 33% from $681 million at the end
which $226 million was spent on
subsea hardware. Asset Integrity
of 2012. This backlog growth was
expanding and upgrading our ROV
operating income was higher on
primarily attributable to four umbilical
fleet. We placed 26 new vehicles into
increased service sales in most of the
contracts, which added about
service during the year. We invested
major geographic areas we serve,
$170 million to our 2013 backlog.
$103 million in our Subsea Products
particularly in Africa and Australia.
These umbilicals are for use in the
business, mainly to increase the
Advanced Technologies profits were
GOM, West of Shetland, and offshore
capabilities of our umbilical plants in
up on vessel maintenance work for the
Egypt. Product manufacturing on
the U.S. and Scotland and to expand
U.S. Navy and theme park project
these contracts will ramp up during
our rental/service tooling hardware
activity. Subsea Projects operating
2014 and we anticipate completion in
offerings.
income also grew, primarily on increased
the third quarter of 2015.
In addition to our capital
deepwater vessel service activity.
To augment our ability to
expenditures, we paid $91 million of
A highlight of our 2013 performance
provide subsea intervention services
cash dividends. In the second quarter,
was achieving the tenth consecutive
in ultra-deep water in the GOM, we
we increased our regular quarterly cash
year of record operating income by our
chartered the Normand Flower, a multi-
dividend by more than 20%, to $0.22
ROV business. Over this time period
service subsea support vessel, for a
per common share. At year end, our
we increased this segment’s operating
three-year term that commenced in
balance sheet reflected $91 million of
income eightfold to $282 million.
December 2013. We also commissioned
cash, no debt, and $2.0 billion of equity.
We are proud of this remarkable
the construction of a Jones Act
Our EPS guidance range for
accomplishment. During the past ten
compliant subsea support vessel
2014 is $3.90 to $4.10. We anticipate
2
65592_PROD_2013 Prod. 3/7/14 3:59 PM Page 3
continued global demand growth for
acquisitions. With the cash generated
completion activity, and our capability
our services and products to support
by our expected 2014 earnings and our
to develop and supply a wide range
deepwater drilling, field development,
balance sheet, we anticipate having
of the services and products required
and inspection, maintenance, and repair
ample resources to invest in
to safely support the efforts of our
activities. This market outlook is
Oceaneering’s growth. Our capital
customers. We are committed to our
supported by industry observations and
expenditure estimate for 2014, excluding
customers’ success and our results
assessments that deepwater drilling is
acquisitions, is around $450 million.
reflect their recognition of our ability
increasing, subsea equipment orders
We intend to pursue acquisitions within
to provide value to them.
are growing, and backlog to perform
our market niches and would particularly
Oceaneering is flourishing.
offshore construction projects is at a
like to expand our Subsea Products
I recognize and thank our over 12,000
historically high level.
segment offerings, especially where we
employees worldwide who are making
We anticipate all of our oilfield
can add a services component.
this happen through their commitment
business segments will achieve higher
In recognition of our financial
to safety, quality, and creativity within
income in 2014 compared to 2013:
performance and future business
the framework of our core values.
ROV on greater worldwide service
prospects, the price of Oceaneering’s
2014 will mark our 50th year in
demand to support drilling and vessel-
stock rose 47% during the year. Our
business, and I look forward to leading
based projects; Subsea Products on
share price percentage increase was
Oceaneering to another record
higher demand for each of our major
greater than the Oil Service Sector
performance.
product lines; Subsea Projects on
Index (OSX), which by comparison rose
growth in deepwater service activity;
28%. At year end Oceaneering’s market
and Asset Integrity on increased
capitalization exceeded $8 billion.
demand for our services.
Our ability to produce exceptional
Looking beyond 2014, we remain
results is largely attributable to our
M. Kevin McEvoy
convinced that our strategy to focus on
global focus on deepwater and subsea
President and Chief Executive Officer
providing services and products that
facilitate deepwater exploration and
production remains sound. We believe
the oil and gas industry will increase its
investment in deepwater, as it remains
one of the best frontiers for adding
large hydrocarbon reserves with high
production flow rates at relatively low
finding and development costs.
Therefore, we anticipate demand for our
deepwater services and products will
continue to rise, and believe our
business prospects for the next several
years are promising.
Given our outlook, we plan to
expand our ability to participate in the
deepwater market by continuing to
grow organically and making additional
Oceaneering International, Inc. 2013 Annual Report
3
65592_PROD_2013 Prod. 3/4/14 6:12 PM Page 4
Directors and Officers
Oceaneering Locations
Directors
T. Jay Collins
Former Chief Executive Officer of Oceaneering
International, Inc. and a Director of: Murphy Oil Corporation;
Nautronix Group Limited; Pason Systems Inc.; and
Texas Institute of Science, Inc.
Jerold J. DesRoche
An Owner and Former Director of National Power
John R. Huff
Chairman of Oceaneering International, Inc. and a
Director of: Hi-Crush GP LLC, the general partner of
Hi-Crush Partners LP; 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.
Paul B. Murphy, Jr.
Chief Executive Officer and President of Cadence Bancorp, LLC
and a Director of: Cadence Bancorp, LLC; Cadence Bank, N.A.;
the Federal Reserve Bank of Dallas-Houston Branch;
and Hines Real Estate Investment Trust, 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
Roderick A. Larson
Senior Vice President and Chief Operating Officer
W. Cardon Gerner
Senior Vice President and Chief Financial Officer
David K. Lawrence
Senior Vice President, General Counsel, and Secretary
Charles W. Davison, Jr.
Senior Vice President, Subsea Products
Knut Eriksen
Senior Vice President, Business Development
Clyde W. Hewlett
Senior Vice President, Subsea Services
Kevin F. Kerins
Senior Vice President, ROVs
Corporate Headquarters
Oceaneering International, Inc.
11911 FM 529
Houston, Texas 77041-3000
Telephone: (713) 329-4500
Regional Headquarters
Oceaneering International, Inc.
5004 Railroad Avenue
Morgan City, Louisiana 70380
Telephone: (985) 329-3900
Oceaneering International Services Limited
Oceaneering House
Pitmedden Road, Dyce
Aberdeen AB21 ODP, Scotland
Telephone: (44-1224) 758500
Oceaneering International Dubai LLC
Al Moosa Tower 2, Suite 15
Sheikh Zayed Road
Dubai, United Arab Emirates
Telephone: (971-4) 311-7500
Oceaneering Advanced Technologies
7001 Dorsey Road
Hanover, Maryland 21076
Telephone: (443) 459-3700
Marine Production Systems do Brasil Ltda.
Avenida Rio Branco, 123 / 14th Floor
Centro – Rio de Janeiro, RJ
20040-005, Brazil
Telephone: (55-21) 2517-7100
Oceaneering International Pte Ltd
31 International Business Park
#04-03A
Singapore 609921
Telephone: (65) 6933 7250
Oceaneering AS
Jåttåvågen, Hinna
PB 8024
4068 Stavanger
Norway
Telephone: (47) 51 82 51 00
Oceaneering Australia Pty. Limited
Level 2, 452 Flinders Street
Melbourne, VIC 3000
Australia
Telephone: (61-3) 8625 8400
Oceaneering Angola, S.A.
Avenida Deolinda Rodrigues
Edifico No495
Terra Nova
Luanda
Angola
Telephone: (244) 222 6354000
4
Financial Section 2013
Oceaneering International, Inc.
Oceaneering International, Inc. 2013 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
PHLX Oil Service Sector Index from December 31, 2008 through December 31, 2013. The PHLX Oil Service Sector
Index is designed to track the performance of a set of companies involved in the oil services sector.
It is assumed in the graph that: (1) $100 was invested in Oceaneering Common Stock, the S&P 500 and the PHLX Oil
Service Sector Index on December 31, 2008; (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.
$600
$500
$400
$300
$200
$100
$0
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Oceaneering
S&P 500
PHLX Oil Service Sector Index
2008
2009
2010
2011
2012
2013
December 31,
Oceaneering
S&P 500
100.00
200.82
252.68
319.90
378.06
560.84
100.00
126.46
145.51
148.59
172.37
228.19
PHLX Oil Service Sector
100.00
160.57
201.93
178.17
181.37
231.51
6
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 2013 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.
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
2013
2012
High
Low
High
Low
$
67.11 $
76.60
84.64
87.64
54.27 $
58.08
72.70
75.60
57.16 $
54.94
58.53
55.98
46.08
43.22
48.15
50.87
On February 7, 2014, there were 368 holders of record of our common stock. On that date, the closing sales price, as
quoted on the New York Stock Exchange, was $69.29. In 2013, we declared quarterly cash dividends of $0.18 per share in
the first quarter and $0.22 per share in each of the second, third and fourth quarters and in 2012, we declared quarterly cash
dividends of $0.15 per share in the first quarter and $0.18 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, 2013 under this plan, we repurchased 3,100,000 shares of our common stock for $86 million. We
did not repurchase any shares in the fourth quarter of 2013.
Oceaneering International, Inc. 2013 Annual Report
7
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
Year Ended December 31,
2012
2013
2010
2011
$ 3,287,019 $ 2,782,604 $ 2,192,663 $ 1,917,045 $ 1,822,081
1,384,355
437,726
145,610
292,116
2,154,746
627,858
199,261
428,597 $
2,521,483
765,536
220,420
545,116 $
1,450,725
466,320
156,820
309,500 $
1,683,904
508,759
173,928
334,831 $
2009
$
Net income
Cash dividends declared per Share
Diluted earnings per share
Depreciation and amortization
Capital expenditures, including business
acquisitions
Other Financial Data:
$
$
$
$
$
371,500 $
0.84 $
3.42 $
202,228 $
289,017 $
0.69 $
2.66 $
176,483 $
235,658 $
0.45 $
2.16 $
151,227 $
200,531 $
$
1.82 $
153,651 $
188,353
1.70
122,945
393,590
$
309,858
$
526,645
$
207,180
$
175,021
(dollars in thousands)
Working capital ratio
Working capital
Total assets
Long-term debt
Shareholders' equity
Goodwill as a percentage of Shareholders'
equity
As of December 31,
2013
2012
2011
2010
2009
1.97
$ 706,187
$ 3,128,500
$
$ 2,043,440
1.95
$ 585,805
$ 2,768,118
94,000
$
$ 1,815,460
1.96
$ 482,747
$ 2,400,544
$ 120,000
$ 1,557,962
2.24
$ 543,646
$ 2,030,506
$
$ 1,390,215
2.25
$ 485,592
$ 1,880,287
$ 120,000
$ 1,224,323
17 %
20 %
21%
10 %
11 %
8
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:
our business strategy;
our plans for future operations;
our expectations about 2014 earnings per share and segment operating results, and the factors underlying those
industry conditions;
seasonality;
expectations, including our expectations about demand for our deepwater oilfield services and products as a result
of the factors we specify in "Overview" and "Results of Operations" 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 2014;
our plans to add ROVs to our fleet;
our intentions relating to the subsea support vessel scheduled for delivery in 2016;
our belief that our goodwill will not be impaired during 2014;
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 anticipated tax rates and underlying assumptions;
our expectations about the cash flows from our investment in Medusa Spar LLC, and the factors underlying those
expectations;
our expectations regarding shares repurchased under our share repurchase plan;
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 "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS" and "Risk
Factors" 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.
Oceaneering International, Inc. 2013 Annual Report
9
Overview
The table that follows sets out our revenue and operating results for 2013, 2012 and 2011.
Year Ended December 31,
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Net Income
2013
$ 3,287,019
765,536
2012
$ 2,782,604
627,858
23%
545,116
17%
371,500
428,597
23%
15%
289,017
2011
$ 2,192,663
508,759
23%
334,831
15%
235,658
During 2013, we generated approximately 91% of our revenue, and 96% of our operating income before Unallocated
Expenses, from services and products we provided to the oil and gas industry. In 2013, our revenue increased by 18%, with
the largest percentage increase occurring in our Subsea Projects segment, which increased 34%, primarily on increased
deepwater vessel service activity.
The $372 million consolidated net income we earned in 2013 was the highest in our history. The $82 million increase from
2012 net income was attributable to higher profit contributions from all of our operating segments:
our Subsea Products segment, which had $60 million more operating income on $199 million more revenue;
our ROV segment, which had $33 million more operating income on $128 million more revenue;
our Subsea Projects segment, which had $30 million more operating income on $130 million more revenue;
our Asset Integrity segment, which had $10 million more operating income on $47 million more revenue; and
our Advanced Technologies segment, which had $4 million more operating income on $1 million more revenue.
In 2013, we invested in the following major capital projects:
additions of and upgrades to our work-class ROVs; and
expansion in our Subsea Products segment, including the addition of more umbilical plant capabilities and an
expansion of our rental and service tooling suite and work packages.
We expect our 2014 diluted earnings per share to be in the range of $3.90 to $4.10, as compared to $3.42 in 2013. We
anticipate continued global demand growth to support deepwater drilling, field development, and inspection, maintenance
and repair activities. Compared to 2013, in 2014 we are forecasting an increase in all of our oilfield operating business
segments, including:
ROVs on greater service demand to support drilling and vessel-based projects;
Subsea Products on higher demand for all our major product lines;
Subsea Projects on a growth in deepwater service activity; and
Asset Integrity on increased demand for our services.
We use our ROVs to provide drilling support, vessel-based inspection, maintenance and repair, subsea hardware
installation, construction, and pipeline inspection services to customers in the oil and gas industry. The largest percentage
of our ROVs has historically been used to provide drill support services. Therefore, the number of floating drilling rigs on
10
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
2013
275
92
85%
2012
268
82
80%
2011
238
73
77%
Demand for floating rigs is our primary driver of future growth prospects. According to industry data published by IHS
Petrodata, at the end of 2013, there were 314 floating drilling rigs in the world, with 282 of the rigs under contract. Of the
282 rigs under contract, 213 are contracted through 2014. One hundred two additional floating rigs were on order, and 60
of these 102 have been contracted long-term. We estimate approximately 29 floating rigs will be placed in service during
2014, and we have ROV contracts on 16 of those. Competitors have the ROV contracts on three rigs, leaving 10 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., the global market for subsea tree orders is expected to increase approximately 65% in the 2013-
2017 time period compared to the previous five years. Additionally, Quest projects that subsea tree installations during the
same time period will increase approximately 50% compared to the previous five-year period, and the installed subsea
completion base will have a net increase of approximately 1,400 trees, or 35%.
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
2013, we accounted for 12% 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.
Oceaneering International, Inc. 2013 Annual Report
11
Under the percentage-of-completion method, we generally 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.
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 more likely
than not that the fair value of a reporting unit exceeds 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 was effective for us January 1, 2012, and earlier adoption was permitted. We began applying
this update in 2011. The provisions of the update have not had a material effect on our financial position or results of
operations. Prior to 2011, 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 2014.
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
12
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 those 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 2013, 2012 and 2011, we recorded reductions of income
tax expense of $0.7 million, $3.0 million and $0.9 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.
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 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 increased our provision for income taxes in 2013 by $1.7 million for penalties and
interest for uncertain tax positions, which brought our total liabilities for penalties and interest on uncertain tax positions to
$3.3 million on our balance sheet at December 31, 2013. Including associated foreign tax credits and penalties and interest,
we have accrued a net total of $8.6 million in the caption "other long-term liabilities" on our balance sheet at December 31,
2013 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 growth initiatives. At
December 31, 2013, we had working capital of $706 million, including cash and cash equivalents of $91 million.
Additionally, we had $300 million available through a revolving credit facility under a credit agreement (the "Credit
Oceaneering International, Inc. 2013 Annual Report
13
Agreement"), which is scheduled to expire on January 6, 2017. Our maximum outstanding borrowings under the Credit
Agreement during 2013 were $120 million, and our total interest costs, including commitment fees, were $1.3 million.
The 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. 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 Credit Agreement contains various covenants that 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
Credit Agreement includes customary events and consequences of default.
Our capital expenditures, including business acquisitions, for 2013, 2012 and 2011 were $394 million, $310 million and
$527 million, respectively. Our capital expenditures in 2013 included $226 million for upgrading and expanding our ROV
fleet and $103 million in our Subsea Products segment, principally to increase the capabilities of our umbilical plants in the
U.S. and Scotland and to expand our rental and service tooling hardware offerings. Our capital expenditures in 2012
included $198 million for expanding and upgrading our ROV fleet. In 2012, we also invested $68 million in our Subsea
Products business, largely to increase the capabilities of our umbilical plants in Brazil and Scotland and to expand our suite
of subsea rental and service tooling. Capital expenditures in 2011 included expenditures for: the acquisition of AGR Field
Operations Holdings AS and subsidiaries for $220 million, which are in our Asset Integrity and Subsea Projects segments;
Norse Cutting and Abandonment AS for $50 million, which is 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.
For 2014, we expect our capital expenditures to be approximately $450 million, exclusive of business acquisitions. This
estimate includes $225 million in our ROV segment for the addition of new vehicles and vehicle upgrades, $120 million for
enhancing our Subsea Products capabilities, and $65 million in our Subsea Projects segment, primarily for construction
progress payments on a new subsea support vessel scheduled for delivery in 2016.
Our capital expenditures during 2013, 2012 and 2011 included $226 million, $198 million and $136 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 26, 37 and 24 ROVs to our fleet and retired
10, 15 and 16 units during 2013, 2012 and 2011, respectively, and transferred one to our Advanced Technologies segment in
each of 2013 and 2011, resulting in a total of 304 work-class systems in the fleet at December 31, 2013.
In 2012, we rechartered a deepwater vessel, the Ocean Intervention III, for two years, with extension options for up to three
additional years, and which we have extended to January 2015. We have 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, and which we
have extended to July 2016. 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, maintenance and
repair projects, and to conduct well intervention services in the ultra-deep waters of the U.S. Gulf of Mexico. In 2012, we
14
moved the Ocean Intervention III to Angola and 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. In March 2013, we commenced a five-year charter for a Jones Act-compliant
multi-service support vessel, which we have been renamed the Ocean Alliance, that we are using in the U.S. Gulf of
Mexico. We have outfitted the vessel with two of our high-specification work-class ROVs. In December 2013, we
commenced a three-year charter for the Normand Flower, a multi-service subsea marine support vessel. We have made
modifications to the vessel, including reconfiguration to accommodate two of our high-specification work-class ROVs. We
anticipate we will use the vessel in the U.S. Gulf of Mexico to perform inspection, maintenance and repair projects and
hardware installations. We have options to extend the charter for up to three additional years.
During the third quarter of 2013, we signed an agreement with a shipyard for the construction of a subsea support vessel.
We expect delivery of that vessel by the end of the first quarter of 2016. Our cash payments for the vessel will be spread
over the construction period. We intend for the vessel to be U.S.-flagged and documented with a coastwise endorsement by
the U.S. Coast Guard. It is expected to have an overall length of 353 feet, a Class 2 dynamic positioning system,
accommodations for 110 personnel, a helideck, a 250 ton active heave-compensated crane, and a working moonpool. We
expect to outfit the vessel with two of our high specification work-class ROVs. The vessel will also be equipped with a
satellite communications system capable of transmitting streaming video for real-time work observation by shore
personnel. We anticipate the vessel will be used to augment our ability to provide subsea intervention services in the ultra-
deep waters of the U.S. Gulf of Mexico. These services are required to perform inspection, maintenance, and repair
projects and hardware installations.
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 $529 million,
$439 million and $289 million of cash provided from operating activities in 2013, 2012 and 2011, respectively, were
affected by cash increases/(decreases) of $(102) million, $(94) million and $(100) million, respectively, of changes in
accounts receivable, $(111) million, $(76) million and $(11) million , respectively, of changes in inventory and
$128 million, $87 million and $9 million, respectively, in changes in accounts payable and accrued liabilities. In 2013, the
increases in accounts receivable and accounts payable and accrued liabilities reflect the increase in our revenue in 2013.
The increase in inventory in 2013 is consistent with the increase in our backlog over 2012. In 2012, the increase in
accounts receivable was largely attributable to increased revenue in the fourth quarter of 2012 compared to the fourth
quarter of 2011. The increase in inventory in 2012 was principally in our Subsea Products and ROV segments: Subsea
Products in preparation for production related to the higher backlog levels at December 31, 2012 as compared to those at
December 31, 2011; and ROV in anticipation of adding additional units. In 2012, the changes in accounts payable and
accrued expenses related to higher accruals for payroll and project costs and an increase in progress payments received
from customers. 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 2013, we used a net of $378 million in investing activities, with $394 million used to make the capital expenditures and
business acquisitions described above. In 2012, we used $306 million in investing activities, with $310 million used to
make the capital expenditures and business acquisitions described above. 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 2013, we used $180 million in financing activities, principally for repayment against our revolving credit facility of
$94 million and the payment of cash dividends of $91 million. In 2012, we used $118 million in financing activities,
principally for the payment of cash dividends of $75 million, repayment against our revolving credit facility of $26 million
and common stock share repurchases of $19 million. In 2011, we generated $55 million in financing activities. We
Oceaneering International, Inc. 2013 Annual Report
15
borrowed $120 million under our revolving credit facility, and we used $49 million for the payment of cash dividends and
$17 million for common stock share repurchases.
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 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, 2013, we repurchased 3,100,000 shares at a cost of $86 million under the plan.
As of December 31, 2013, we retained 2,636,644 shares we had repurchased. 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, 2013 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 "Quantitative and Qualitative Disclosures
About Market Risk" below.
Results of Operations
Additional information on our business segments is shown in Note 7 of the Notes to Consolidated Financial Statements
included in this report.
Oilfield. The table that follows sets out revenue and profitability for the business segments within our Oilfield business. In
the ROV section of the table that follows, "Days available" includes all days from the first day that an ROV is placed in
service until the ROV is retired. All days in this period are considered available days, including periods when an ROV is
undergoing maintenance or repairs. Our ROVs do not have scheduled maintenance or repair that requires significant time
when the ROVs are not available for utilization.
16
(dollars in thousands)
Remotely Operated Vehicles
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Days available
Days utilized
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 Oilfield
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Year Ended December 31,
2013
2012
2011
$
981,728
328,031
$
853,520
289,929
$
33%
281,973
29%
108,201
91,618
85%
1,027,792
311,206
30%
231,050
22%
906,000
509,440
108,758
21%
93,865
18%
481,919
81,856
17%
55,243
11%
34%
248,972
29%
102,225
82,126
80%
829,034
241,240
29%
170,959
21%
681,000
379,571
80,944
21%
63,461
17%
435,381
71,100
16%
45,196
10%
755,033
260,287
34%
224,705
30%
94,999
72,920
77%
770,212
207,804
27%
142,184
18%
382,000
167,477
42,004
25%
32,662
20%
266,577
46,109
17%
30,560
11%
$ 3,000,879
829,851
$ 2,497,506
683,213
28%
662,131
22%
528,588
27%
21%
$ 1,959,299
556,204
28%
430,111
22%
Oceaneering International, Inc. 2013 Annual Report
17
In response to continued increasing demand to support deepwater drilling and vessel-based inspection, maintenance and
repair ("IMR") and installation 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 26, 37 and 24 ROVs in 2013, 2012 and 2011,
respectively, while retiring 41 units over the three-year period and transferring two to our Advanced Technologies segment
over that period. We have grown our ROV fleet size to 304 at December 31, 2013 from 289 at December 31, 2012 and 267
at December 31, 2011. We plan to continue adding ROVs at levels we determine appropriate to meet market opportunities.
For 2013, our ROV revenue and operating income improved over 2012 from:
higher demand:
in the U.S. Gulf of Mexico;
(cid:2)(cid:1)
(cid:2)(cid:1) offshore Africa;
(cid:2)(cid:1) offshore India;
(cid:2)(cid:1) offshore Canada; and
(cid:2)(cid:1) offshore Australia; and
expansion of our fleet to meet the increased demand.
In 2013, our ROV general and administrative expenses included a charge of $3.3 million to record an allowance for
doubtful accounts related to a customer in Brazil that filed for restructuring under Brazilian bankruptcy law.
For 2012, our ROV revenue and operating income improved over 2011 from (1) higher demand, particularly offshore
Africa and in the U.S. Gulf of Mexico for the provision of drill support and vessel-based services, and (2) the expansion of
our fleet to meet the increased demand.
We anticipate ROV operating income to increase in 2014 as a result of an increase in days on hire, with an operating margin
in the range of 29% to 30%. We anticipate adding 30 to 35 vehicles in 2014, which should add to our days available and
days on hire over 2013. We currently expect to retire, on average, 4% to 5% of our fleet on an annual basis.
Subsea Products revenue, operating income and margin were higher in 2013 than in 2012 from increased demand across
our major product lines, principally for subsea hardware used in offshore field developments and for clamp connector
systems. Subsea Products revenue and operating income for 2012 increased over 2011 from higher demand for tooling to
support deepwater drilling operations and IMR projects. Tooling to support drilling includes ROV accumulator skids to
perform tests on blowout preventers ("BOPs"), BOP panels and well-containment spill-response hardware. Tooling to
support IMR projects featured use of our flowline remediation system to eliminate hydrates in large diameter or long offset
flowlines, and our acid injection system to perform well stimulations. Our margin was higher as umbilical sales, which
typically have a lower margin than the rest of our Subsea Products sales, represented a smaller percentage of total segment
revenue.
We anticipate our Subsea Products segment operating income in 2014 to be higher than in 2013, as we expect higher
demand for all our major product lines. We expect our margin to be in the range of 19% to 21%, which would be lower
than that of 2013, due to product mix. Our Subsea Products backlog was $906 million at December 31, 2013,
approximately 33% higher than it was at December 31, 2012.
Our 2013 revenue and operating income for Subsea Projects was higher than in 2012 on increased deepwater vessel service
activity. Our 2012 revenue and operating income for Subsea Projects was higher than in 2011 on an international expansion
of our field service work and higher demand 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.
18
We anticipate our 2014 operating income for Subsea Projects to be higher than in 2013 on growth in deepwater service
activity. We expect our 2014 Subsea Projects operating margin to improve slightly over 2013.
Our Asset Integrity segment revenue and operating income were higher in 2013 over 2012 due to high demand in most of
our geographic areas, particularly Africa and Australia. Our Asset Integrity segment revenue and operating income were
higher in 2012 as compared to 2011 on higher service sales in most of the geographic areas we serve, and particularly in
Norway due to our acquisition in December 2011. We anticipate our 2014 operating income for Asset Integrity to be higher
than in 2013 on increased service sales and a slight improvement in operating margin.
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 %
$
Year Ended December 31,
2013
286,140
44,576
$
2012
285,098
38,681
$
16%
24,954
9%
14%
21,182
7%
2011
233,364
33,774
14%
16,661
7%
Our Advanced Technologies operating income in 2013 was higher than that of 2012 due to increases in work and
operational efficiency on theme park projects and an increase in vessel maintenance and repair work for the U.S. Navy.
Our Advanced Technologies operating income in 2012 was higher than that of 2011 on higher engineering and vessel
maintenance work for the U.S. Navy and higher levels of theme park projects. We anticipate our Advanced Technologies
2014 operating income to approximate that of 2013.
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. 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
Year Ended December 31,
2013
(108,891) $
2012
(94,036) $
$
3%
(141,969)
4%
3%
(121,173)
4%
2011
(81,219)
4%
(111,941)
5%
Our unallocated gross margin and operating expenses increased in each of 2013 and 2012, primarily due to higher
compensation related to incentive plans.
Oceaneering International, Inc. 2013 Annual Report
19
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,
2013
2012
2011
$
554 $
(2,194)
133
(1,273)
170,836
1,935 $
(4,218)
1,673
(6,065)
132,905
888
(1,096)
3,801
(539)
102,227
Interest expense decreased in 2013 compared to 2012 on decreasing debt levels as we paid down our debt to zero during
2013. Interest expense increased in 2012 compared to 2011 from higher debt levels after we increased our borrowings to
fund an acquisition in December 2011. We did not capitalize any interest in 2013, 2012 or 2011.
We record results from our 50% investment in Medusa Spar LLC using the equity method. 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 declined in each of 2013 and 2012 from the immediately preceding year due to normal well
production decline.
We expect Medusa Spar LLC revenue and our equity share of its earnings will decline in 2014 due to normal well
production 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 $0.1 million, $(5.4) million and
$(0.4) million for 2013, 2012 and 2011, respectively.
Our effective tax rate, including foreign, state and local taxes, was 31.5%, 31.5%, and 30.3% for 2013, 2012 and 2011,
respectively, which included a combination of expiring statutes of limitations and the resolution of uncertain tax positions
of $0.7 million, $3.0 million and $0.9 million, respectively, related to certain liabilities for uncertain tax positions we
recorded in prior years. The primary difference between our 2012 and 2011 effective tax rates and the U.S. 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 2014 will be
approximately 31.3%.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by SEC rules.
20
Contractual Obligations
At December 31, 2013, we had payments due under contractual obligations as follows:
(dollars in thousands)
Payments due by period
Long-term Debt
Vessel Charters
Other Operating Leases
Purchase Obligations
Other Long-term Obligations reflected on our
balance sheet under GAAP
TOTAL
Total
2014
2015-2016
2017-2018
After 2018
$
$
$
$
$
262,796
108,950
478,872
83,535
22,939
407,332
159,598
31,631
71,103
19,663
21,691
437
64,765
915,383 $
1,535
515,341 $
3,187
265,519 $
$
3,406
45,197 $
32,689
56,637
89,326
At December 31, 2013, we had outstanding purchase order commitments totaling $479 million, including approximately
$100 million for the construction of a new subsea support vessel scheduled for delivery in 2016, $49 million for ROV
launch and recovery system equipment and $29 million for specialized steel tubes to be used in our manufacturing of steel
tube umbilicals. 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.
In 2001, we entered into an agreement with our Chairman of the Board of Directors (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 $6.3 million and $6.8 million at December 31, 2013 and 2012,
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.
Oceaneering International, Inc. 2013 Annual Report
21
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 $(71.3) million, $44.8 million and
$(18.4) million to our equity accounts in 2013, 2012 and 2011, 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 $0.1 million, $(5.4) million and $(0.4) million that are included
in Other income (expense), net in our Consolidated Income Statements in 2013, 2012 and 2011, respectively.
Controls and Procedures
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
we carried out an evaluation, under the supervision and with the participation of management, including our 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, 2013 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.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended
December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
22
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 (1992)" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. This evaluation included a review of the documentation surrounding our
financial reporting controls, an evaluation of the design effectiveness of these controls, testing of the operating effectiveness
of these controls and an evaluation of our overall control environment. Based on that evaluation, our management has
concluded that our internal control over financial reporting was effective as of December 31, 2013.
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 that follows.
Oceaneering International, Inc. 2013 Annual Report
23
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Oceaneering International, Inc.
We have audited the internal control over financial reporting of Oceaneering International, Inc. and Subsidiaries (the
"Company") as of December 31, 2013, based on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the "COSO criteria"). The
Company's management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, 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 the Company as of December 31, 2013 and 2012, 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, 2013, and our report dated February 20, 2014 expressed an unqualified opinion thereon.
Houston, Texas
February 20, 2014
24
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 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, 2013 and 2012, 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, 2013. 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 the Company as of December 31, 2013 and 2012, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) and our report dated February 20, 2014 expressed an unqualified opinion thereon.
Houston, Texas
February 20, 2014
Oceaneering International, Inc. 2013 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 $4,168 and $2,298
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; 2,636,644 and 2,926,514 shares, at cost
Retained earnings
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
The accompanying Notes are an integral part of these Consolidated Financial Statements.
26
$
$
$
December 31,
2013
2012
91,430 $
768,842
441,789
131,214
1,433,275
2,380,888
1,191,789
1,189,099
344,018
37,462
124,646
506,126
3,128,500 $
120,549
666,930
331,280
84,231
1,202,990
2,069,119
1,043,987
1,025,132
363,193
42,619
134,184
539,996
2,768,118
129,632 $
516,628
80,828
727,088
357,972
130,489
408,303
78,393
617,185
94,000
241,473
27,709
222,402
(75,736)
1,921,642
(52,577)
2,043,440
3,128,500 $
27,709
212,940
(84,062)
1,641,027
17,846
1,815,460
2,768,118
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
Weighted average basic shares outstanding
Diluted Earnings per Share
Weighted average diluted shares outstanding
Year Ended December 31,
2013
3,287,019 $
2,521,483
765,536
220,420
545,116
554
(2,194 )
133
(1,273 )
542,336
170,836
371,500 $
0.84 $
3.43 $
108,158
3.42 $
2012
2,782,604 $
2,154,746
627,858
199,261
428,597
1,935
(4,218 )
1,673
(6,065 )
421,922
132,905
289,017 $
0.69 $
2.68 $
108,015
2.66 $
108,731
108,617
$
$
$
$
$
2011
2,192,663
1,683,904
508,759
173,928
334,831
888
(1,096 )
3,801
(539 )
337,885
102,227
235,658
0.45
2.18
108,308
2.16
109,001
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Oceaneering International, Inc. 2013 Annual Report
27
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net Income
Other comprehensive income, net of tax:
Foreign currency translation
Pension-related adjustments
Other comprehensive income
Comprehensive Income
Year Ended December 31,
2013
2012
2011
$
371,500 $
289,017 $
235,658
(71,282 )
859
(70,423 )
301,077 $
44,775
262
45,037
334,054 $
(18,374 )
143
(18,231 )
217,427
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
28
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
Noncash compensation
Net loss (gain) on sales of property and equipment
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
Distributions of capital from unconsolidated affiliates
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, including new
loan costs
Excess tax benefits from employee benefit plans
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 EquivalentsBeginning of Period
Cash and Cash EquivalentsEnd of Period
Year Ended December 31,
2013
2012
2011
$
371,500 $
289,017 $
235,658
202,228
51,800
19,380
450
878
(101,912)
(110,508)
(22,380)
(14,667)
128,297
2,435
1,370
157,371
528,871
(382,531)
(11,059)
4,279
11,666
(377,645)
176,483
20,654
16,442
(584 )
6,988
(94,237 )
(76,186 )
(20,278 )
11,318
87,453
23,559
(1,735 )
149,877
438,894
(300,598 )
(9,260 )
3,814
(306,044 )
(93,739)
4,279
(90,885)
(180,345)
(29,119)
120,549
91,430 $
(27,045 )
2,475
(74,515 )
(19,358 )
(118,443 )
14,407
106,142
120,549 $
$
151,227
7,502
12,529
(24,188)
2,262
(99,537)
(11,492)
(62)
(10,589)
8,968
14,484
1,810
52,914
288,572
(235,028)
(291,617)
43,874
(482,771)
120,000
1,320
(48,707)
(17,491)
55,122
(139,077)
245,219
106,142
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Oceaneering International, Inc. 2013 Annual Report
29
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Other
Comprehensive Income
(Loss)
(in thousands)
Balance, December 31, 2010
Net Income
Other Comprehensive Income
Restricted stock unit activity
Restricted stock activity
Tax benefits from employee benefit plans
Cash dividends
Treasury stock purchases, 500,000 shares
Balance, December 31, 2011
Net Income
Other Comprehensive Income
Restricted stock unit activity
Restricted stock activity
Tax benefits from employee benefit plans
Cash dividends
Treasury stock purchases, 400,000 shares
Balance, December 31, 2012
Net Income
Other Comprehensive Income
Restricted stock unit activity
Restricted stock activity
Tax benefits from employee benefit plans
Cash dividends
Balance, December 31, 2013
Common Stock Issued
Amount
Shares
110,834 $
Additional
Paid-in
Capital
193,277 $
9,532
(1,509)
1,319
27,709 $
110,834
110,834
110,834 $
27,709
27,709
27,709 $
202,619
8,985
(1,139)
2,475
212,940
6,447
(1,264)
4,279
222,402 $
Treasury
Stock
(61,385) $ 1,239,574 $
Retained
Earnings
Currency
Translation
Adjustments
5,667
1,509
(17,491)
(71,700)
5,857
1,139
(19,358)
(84,062)
7,062
1,264
235,658
(48,707)
1,426,525
289,017
(74,515)
1,641,027
371,500
(90,885)
(75,736) $ 1,921,642 $
Pension
Total
(3,697) $ 1,390,215
235,658
(18,231)
15,199
1,319
(48,707)
143
(3,554)
262
(17,491)
1,557,962
289,017
45,037
14,842
2,475
(74,515)
(3,292)
859
(19,358)
1,815,460
371,500
(70,423)
13,509
4,279
(90,885)
(2,433) $ 2,043,440
(5,263) $
(18,374)
(23,637)
44,775
21,138
(71,282)
(50,144) $
The accompanying Notes are an integral part of these Consolidated Financial Statements.
30
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 those 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.
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, 2013 under this plan, we repurchased 3,100,000 shares of our common stock for
$86 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 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 2013, 2012 or 2011. 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, 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
Oceaneering International, Inc. 2013 Annual Report
31
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.
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 values at the date of
acquisition.
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
Other
Total Business Acquisitions
Cost
Goodwill
Other Intangible
Assets
Other, net
$
$
50,296 $
220,011
21,310
291,617 $
20,283 $
165,218
10,836
196,337 $
13,802 $
41,387
5,360
60,549 $
16,211
13,406
5,114
34,731
In March 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, and the business is in our Subsea Products segment. 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 $20 million, and
other intangible assets were $14 million. The results of operations of NCA are included in our consolidated statements of
income from the date of acquisition.
In December 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 $41 million. The results of operations of
AGR FO are included in our consolidated statements of income from the date of acquisition. Generally, AGR FO's
Norwegian assets and operations are in our Asset Integrity segment and its Australian assets and operations are in our
Subsea Projects segment.
We also made several smaller acquisitions during the periods presented, none of which were material.
Goodwill and Intangible Assets. 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
32
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 more likely than not that the fair value of a reporting unit exceeds 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. We began applying this update in 2011. We qualitatively tested the goodwill
attributable to each of our reporting units for impairment as of December 31, 2013 and 2012 and concluded that there was
no impairment. 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
2013, we accounted for 12% 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 generally 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.
Oceaneering International, Inc. 2013 Annual Report
33
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,
2013
199,654 $
(168,215)
31,439 $
2012
181,286
(156,852)
24,434
$
$
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,
2013
200,909 $
(86,264)
114,645 $
2012
108,244
(55,803)
52,441
$
$
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. 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. We 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 we believe is greater than 50 percent likely of being realized upon ultimate settlement. We account for any applicable
interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial
statements.
Foreign Currency Translation. The functional currency for several of our foreign subsidiaries is the applicable local
currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated
into U.S. dollars using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are
translated into U.S. dollars using the exchange rates in effect at the balance sheet date, and the resulting translation
adjustments are 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 $0.1 million, $(5.4) million and $(0.4) million of foreign currency transaction gains (losses) in 2013, 2012 and
2011, respectively, and those amounts are included as a component of Other income (expense), net.
Earnings Per Share. For each of the years 2013, 2012 and 2011, the only difference between our annual calculated
weighted average basic and diluted number of shares outstanding is the effect of outstanding restricted stock units.
34
Financial Instruments. We recognize all derivative instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other
comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it
is, the type of hedge relationship. During the three-year period ended December 31, 2013, we had no derivative
instruments in effect.
New Accounting Standard. In February 2013, the Financial Accounting Standards Board (FASB) issued an update to
improve the reporting of amounts reclassified out of accumulated other comprehensive income. The update amends the
presentation of changes in accumulated other comprehensive income and requires an entity to report the change of each
component of other comprehensive income, including amounts reclassified out of accumulated comprehensive income into
operating income, either on the face of the income statement or as a separate disclosure in the notes. We adopted this update
on January 1, 2013, as required. The provisions of this update have not had a material effect on our financial position or
results of operations.
Oceaneering International, Inc. 2013 Annual Report
35
2. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
(in thousands)
Inventory:
Remotely operated vehicle parts and components
Other inventory, primarily raw materials
Total
Other Current Assets:
Deferred income taxes
Prepaid expenses
Total
Other Non-Current Assets:
Intangible assets, net
Cash surrender value of life insurance policies
Other
Total
Investments in unconsolidated affiliates:
Medusa Spar LLC
Other
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,
2013
2012
190,403 $
251,386
441,789 $
174,612
156,668
331,280
61,589 $
69,625
131,214 $
22,604
61,627
84,231
68,522 $
52,862
3,262
124,646 $
78,252
42,841
13,091
134,184
37,376 $
86
37,462 $
42,540
79
42,619
218,766 $
72,117
150,246
75,499
516,628 $
218,609
75,037
73,465
41,192
408,303
260,807 $
45,144
10,528
41,493
357,972 $
178,100
35,772
12,942
14,659
241,473
$
$
$
$
$
$
$
$
$
$
$
$
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). We account for our
investment in Medusa Spar LLC under the equity method of accounting. Our 50% share of the underlying equity of the net
assets of Medusa Spar LLC is approximately equal to its carrying value.
36
3. INCOME TAXES
Our provisions for income taxes and our cash taxes paid are as follows:
(in thousands)
Current:
Domestic
Foreign
Total current
Deferred:
Domestic
Foreign
Total deferred
Total provision for income taxes
Cash taxes paid
The components of income before income taxes are as follows:
(in thousands)
Domestic
Foreign
Income before income taxes
Year Ended December 31,
2013
2012
2011
45,468 $
73,568
119,036
56,115
(4,315)
51,800
170,836 $
113,760 $
4,039 $
108,212
112,251
26,170
(5,516)
20,654
132,905 $
92,422 $
13,169
81,556
94,725
12,144
(4,642)
7,502
102,227
72,825
Year Ended December 31,
2013
2012
2011
68,066 $
474,270
542,336 $
53,240 $
368,682
421,922 $
41,831
296,054
337,885
$
$
$
$
$
Oceaneering International, Inc. 2013 Annual Report
37
As of December 31, 2013 and 2012, 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
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,
2013
2012
48,401 $
30,101
8,441
11,921
98,864
98,864 $
129,441 $
157,091
10,843
707
298,082 $
199,218 $
42,296
10,251
7,676
12,613
72,836
72,836
106,237
91,164
13,860
17,071
228,332
155,496
December 31,
2013
260,807 $
(61,589)
199,218 $
2012
178,100
(22,604)
155,496
$
$
$
$
$
$
$
We believe it is more likely than not that all our deferred tax assets are realizable. Reconciliations between the actual
provision for income taxes on continuing operations and that computed by applying the United States statutory rate to
income before income taxes were as follows:
United States statutory rate
State and local taxes
Foreign tax rate differential
Amended returns filed
Other items, net
Total effective tax rate
Year Ended December 31,
2013
2012
2011
35.0%
0.2
(3.7)
31.5%
35.0%
0.1
(2.9)
(0.7)
31.5%
35.0%
0.2
(3.3)
(1.4)
(0.2)
30.3%
We consider $431 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.
38
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 increased/(decreased) income tax expense by $1.7 million, $(2.7) million and
$0.4 million in 2013, 2012 and 2011, respectively, for penalties and interest on uncertain tax positions, which brought our
total liabilities for penalties and interest on uncertain tax positions to $3.3 million and $1.7 million on our balance sheets at
December 31, 2013 and 2012, respectively. Including associated foreign tax credits and penalties and interest, we have
accrued a net total of $8.6 million in the caption "other long-term liabilities" on our balance sheet for unrecognized tax
benefits at December 31, 2013. 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
Additions based on tax positions related to prior years
Reductions based on tax positions related to prior years
Settlements
Balance at end of year
Year Ended December 31,
2013
2012
2011
5,140 $
100
(1,225)
3,490
(337)
7,168 $
10,104 $
244
(225)
3,335
(8,193)
(125)
5,140 $
9,991
947
(834)
10,104
$
$
We do not believe that the total of unrecognized tax benefits will significantly increase or decrease in the next 12 months.
We file a consolidated U.S. federal income tax return for Oceaneering International, Inc. and our domestic subsidiaries. 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
2010
2010
2003
2008
2007
2008
2009
2009
Oceaneering International, Inc. 2013 Annual Report
39
4. SELECTED INCOME STATEMENT INFORMATION
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
5. DEBT
Long-term Debt consisted of the following:
(in thousands)
Revolving credit facility
Long-term Debt
Year Ended December 31,
2013
2012
2011
$
2,174,739 $
1,112,280
3,287,019
1,887,957 $
894,647
2,782,604
1,369,614
823,049
2,192,663
1,624,483
788,109
108,891
2,521,483
1,418,511
642,199
94,036
2,154,746
550,256
324,171
(108,891 )
765,536 $
469,446
252,448
(94,036 )
627,858 $
$
999,396
603,289
81,219
1,683,904
370,218
219,760
(81,219 )
508,759
December 31,
2013
2012
$
$
$
$
94,000
94,000
As of December 31, 2013, we had a $300 million revolving credit facility with a group of banks under an agreement (the
"Credit Agreement") that is scheduled to expire on January 6, 2017. 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. We
pay a commitment fee ranging from 0.175% to 0.35% 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.
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 the administrative
agent as its prime rate, (2) the federal funds rate plus 0.50% and (3) the one-month Eurodollar Rate plus 1%. At
December 31, 2013, we had no borrowings outstanding under the Credit Agreement and $300 million available for
borrowing.
40
The Credit Agreement contains various covenants that 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
Credit Agreement includes customary events and consequences of default.
We made cash interest payments of $2.1 million, $4.3 million and $1.1 million in 2013, 2012 and 2011, respectively.
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2013, 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)
2014
2015
2016
2017
2018
Thereafter
Total Lease Commitments
$
$
106,474
101,543
89,686
29,255
12,099
32,689
371,746
Rental expense, which includes hire of vessels, specialized equipment and real estate rental, was approximately
$191 million, $107 million and $73 million in 2013, 2012 and 2011, respectively.
Insurance
We self-insure for workers' compensation, maritime employer's liability and comprehensive general liability claims to
levels we consider financially prudent, and beyond the self-insurance level of exposure, we carry insurance, which can be
by occurrence or in the aggregate. We determine the level of accruals for claims exposure by reviewing our historical
experience and current year claim activity. We do not record accruals on a present-value basis. We review larger claims
with insurance adjusters and establish specific reserves for known liabilities. We establish an additional reserve for
incidents incurred but not reported to us for each year using our estimates and based on prior experience. We believe we
have established adequate accruals for uninsured expected liabilities arising from those obligations. However, it is possible
that future earnings could be affected by changes in our estimates relating to these matters.
Litigation
Various actions and claims are pending against us, most of which are covered by insurance. Although we cannot predict the
ultimate outcome of these matters, we believe the ultimate liability, if any, that may result from these actions and claims
will not materially affect our results of operations, cash flow or financial position.
Oceaneering International, Inc. 2013 Annual Report
41
Letters of Credit
We had $45 million and $42 million in letters of credit outstanding as of December 31, 2013 and 2012, 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.
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 value of cash and cash equivalents approximates its fair value due to the
short maturity of those instruments. 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. The carrying values of borrowings under the
Credit Agreement approximate their fair value because the short-term durations of the associated interest rate periods reflect
market changes to interest rates. Our borrowings under the Credit Agreement are classified as Level 2 in the fair value
hierarchy (inputs other than quoted prices in active markets for similar assets and liabilities that are observable or can be
corroborated by observable market data for substantially the full term for the assets or liabilities).
In 2013, we experienced delays in payment from OGX Petróleo e Gás S.A. ("OGX"), which is a customer in Brazil. The
parent company of OGX missed making an interest payment on its bonds and, on October 30, 2013, OGX and its parent
filed for a restructuring process under Brazilian bankruptcy law, which grants the filer judicial protection from creditors
while a restructuring plan is developed for approval. As of December 31, 2013, we had accounts receivable due from OGX
of approximately $4.1 million, and in the fourth quarter of 2013 we recorded an allowance for doubtful accounts of
$3.3 million, which was charged as a selling, general and administrative expense in our ROV segment. At this time, we
cannot predict the ultimate outcome of this situation and whether or to what extent we will collect our accounts receivable
from OGX.
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 Oilfield 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, development and production activities. Our Subsea Products segment supplies a variety of
specialty subsea hardware. Our Subsea Projects segment provides multiservice vessels, oilfield diving and support vessel
operations, which are used principally in inspection, maintenance and repair and installation activities, and a mobile
offshore production system, through a 50% interest in an entity that holds a 75% interest in the system. With the
acquisition we made 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 provides asset integrity management and assessment services and nondestructive testing and inspection.
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
42
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, 2013 from those used in our consolidated financial statements for the years ended December 31, 2012
and 2011.
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
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Total
Income from Operations
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Unallocated Expenses
Total
Depreciation and Amortization Expense
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Unallocated Expenses
Total
Equity Earnings of Unconsolidated Affiliates
Subsea Projects
Total
Year Ended December 31,
2013
2012
2011
981,728 $
1,027,792
509,440
481,919
3,000,879
286,140
3,287,019 $
853,520 $
829,034
379,571
435,381
2,497,506
285,098
2,782,604 $
755,033
770,212
167,477
266,577
1,959,299
233,364
2,192,663
281,973 $
231,050
93,865
55,243
662,131
24,954
(141,969 )
545,116 $
128,310 $
39,964
15,331
12,401
196,006
2,682
3,540
202,228 $
248,972 $
170,959
63,461
45,196
528,588
21,182
(121,173 )
428,597 $
108,933 $
36,638
13,340
11,808
170,719
2,677
3,087
176,483 $
133 $
133 $
1,673 $
1,673 $
224,705
142,184
32,662
30,560
430,111
16,661
(111,941 )
334,831
100,089
31,299
8,024
5,689
145,101
3,134
2,992
151,227
3,801
3,801
$
$
$
$
$
$
$
$
Oceaneering International, Inc. 2013 Annual Report
43
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.
During 2013 and 2012, revenue from one customer, BP plc and subsidiaries in our oilfield business segments, accounted for
18% and 13% of our total consolidated revenue, respectively. No individual customer accounted for more than 10% of our
consolidated revenue during 2011.
The following table presents Assets, Property and Equipment and Goodwill by business segment as of the dates indicated:
(in thousands)
Assets
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Corporate and Other
Total
Property and Equipment, net
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Corporate and Other
Total
Goodwill
Oilfield
Remotely Operated Vehicles
Subsea Products
Asset Integrity
Total Oilfield
Advanced Technologies
Total
December 31,
2013
2012
1,117,920 $
942,607
382,782
381,392
2,824,701
67,328
236,471
3,128,500 $
681,027 $
289,015
163,210
34,223
1,167,475
12,332
9,292
1,189,099 $
1,017,772
727,703
316,353
404,137
2,465,965
73,908
228,245
2,768,118
597,770
213,536
157,755
33,503
1,002,564
9,194
13,374
1,025,132
26,761 $
113,066
183,777
323,604
20,414
344,018 $
27,428
120,332
204,979
352,739
10,454
363,193
$
$
$
$
$
$
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.
44
The following table presents Capital Expenditures, including business acquisitions, by business segment for the periods
indicated:
(in thousands)
Capital Expenditures
Oilfield
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Oilfield
Advanced Technologies
Corporate and Other
Total
Geographic Operating Areas
The following table summarizes certain financial data by geographic area:
(in thousands)
Revenue
Foreign:
Africa
Norway
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Long-Lived Assets
Foreign:
Norway
Africa
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Year Ended December 31,
2013
2012
2011
225,885 $
102,653
40,833
8,327
377,698
13,175
2,717
393,590 $
198,323 $
68,052
15,890
18,560
300,825
2,953
6,080
309,858 $
135,770
100,824
64,803
212,951
514,348
5,757
6,540
526,645
Year Ended December 31,
2013
2012
2011
696,202 $
461,915
383,397
335,129
213,282
90,456
2,180,381
1,106,638
3,287,019 $
429,603 $
186,865
99,250
83,885
112,840
38,516
950,959
691,404
1,642,363 $
505,541 $
461,863
334,319
290,821
164,660
70,172
1,827,376
955,228
2,782,604 $
474,408 $
141,927
85,434
65,012
113,829
34,105
914,715
607,572
1,522,287 $
316,051
310,891
256,565
217,094
155,532
61,916
1,318,049
874,614
2,192,663
436,043
120,732
65,830
72,518
99,709
30,633
825,465
552,639
1,378,104
$
$
$
$
$
$
Revenue is based on location where services are performed and products are manufactured.
Oceaneering International, Inc. 2013 Annual Report
45
8. EMPLOYEE BENEFIT PLANS
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 $18.4 million, $16.0 million and
$14.5 million for the plan years ended December 31, 2013, 2012 and 2011, respectively. In 2013, we amended the plan to
give plan participants the option to be paid directly, or through the plan within 90 days of the close of the plan year, for
dividends of Oceaneering International, Inc. stock that the plan participants held within the plan. This change allowed us to
realize a tax benefit from tax deductions in excess of financial statement expense of $0.9 million in 2013.
We also make matching contributions to other foreign employee savings plans similar in nature to a 401(k) plan. In 2013,
2012 and 2011, these contributions, principally related to plans associated with U.K. and Norwegian subsidiaries, were
$17.4 million, $11.6 million and $9.6 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 2013, 2012 and 2011 were $3.4 million, $2.8 million and $3.4 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 $30 million and $29 million, at December 31, 2013 and 2012, respectively, and the fair values of the plan assets
(using Level 2 inputs) for both plans were $26 million and $24 million at December 31, 2013 and 2012, respectively.
Incentive 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. 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 2013, 2012 and 2011, 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 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, 2015, 2014 and 2013 to be used as the basis for the final value of the performance units. The final value of
46
each performance unit granted in 2013, 2012 and 2011 may range from $0 to $150. Upon vesting and determination of
value, the value of the performance units will be payable in cash. Compensation expense related to the performance units
was $22.9 million, $19.9 million and $18.8 million in 2013, 2012 and 2010, respectively. As of December 31, 2013, there
were 434,375 performance units outstanding.
There has been no stock option activity after December 31, 2010.
During 2013, 2012 and 2011, the Compensation Committee granted restricted units of our common stock to certain of our
key executives and employees. During 2013, 2012 and 2011, 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 60%, 50% and 50% of the grants made to our employees in 2013, 2012 and 2011,
respectively, 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
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, with one exception. In February 2013, we granted shares of restricted
common stock to a director who had given written notice of his intention to retire from our board of directors. Those shares
were to vest if his service continued until the election of directors at our annual meeting of shareholders in April 2013. The
director fulfilled that requirement by resigning concurrent with that election and the shares of restricted stock became
vested. 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 two 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 Oceaneering. 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 the financial statement expense of our restricted stock grants was $3.4 million, $2.5 million and
$1.3 million in 2013, 2012 and 2011, respectively.
Oceaneering International, Inc. 2013 Annual Report
47
The following is a summary of our restricted stock and restricted stock unit activity for 2013, 2012 and 2011:
Balance at December 31, 2010
Granted
Issued
Forfeited
Balance at December 31, 2011
Granted
Issued
Forfeited
Balance at December 31, 2012
Granted
Issued
Forfeited
Balance at December 31, 2013
Number
1,044,150
463,400
(379,952)
(36,748)
1,090,850
337,575
(369,050)
(27,803)
1,031,572
330,705
(376,078)
(25,909)
960,290 $
Weighted
Average
Fair Value
Aggregate
Intrinsic Value
25.74
41.26
30.81 $ 15,563,000
27.77
30.49
55.98
20.03 $ 20,325,000
42.02
42.27
62.55
33.18 $ 23,904,000
52.72
52.53
The restricted stock units granted in 2013, 2012 and 2011 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 in 2013, 2012 and 2011 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 $16.7 million, $14.6 million and $11.1 million for 2013, 2012
and 2011, respectively. As of December 31, 2013, we had $14.4 million of future expense to be recognized related to our
restricted stock unit plans over a weighted average remaining life of 1.7 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 $6.3 million and $6.8 million at December 31, 2013 and 2012, 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
48
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).
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
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
$
$
$
$
Year Ended December 31, 2013
March 31
June 30
Sept. 30
Dec. 31
718,552 $
160,375
108,290
74,849
0.69 $
820,372 $
201,864
146,337
98,811
0.91 $
853,297 $
205,492
153,736
104,407
0.96 $
894,798 $
197,805
136,753
93,433
0.86 $
Total
3,287,019
765,536
545,116
371,500
3.42
108,612
108,713
108,783
108,840
108,731
Year Ended December 31, 2012
March 31
June 30
Sept. 30
Dec. 31
594,893 $
123,303
75,987
51,455
0.47 $
672,545 $
161,158
110,047
72,554
0.67 $
734,217 $
170,869
123,813
84,406
0.78 $
780,949 $
172,528
118,750
80,602
0.74 $
Total
2,782,604
627,858
428,597
289,017
2.66
108,761
108,663
108,500
108,558
108,617
Oceaneering International, Inc. 2013 Annual Report
49
Form 10-K
The entire Form 10-K, as filed with the Securities and Exchange Commission, is
incorporated herein by reference and 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
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, 2013 and other
periodic filings with the Securities and Exchange Commission.
The use in this report of such terms as Oceaneering, company, group, organization, we, us,
our, and its, or references to specific entities, is not intended to be a precise description of
corporate relationships.
50
General Information
Corporate Office
Annual Shareholders’ Meeting
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
Telephone: (713) 329-4500
www.oceaneering.com
Date: May 16, 2014
Time: 8:30 a.m. CDT
Location: Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041
Stock Symbol: OII
Independent Public Accountants
Ernst & Young LLP
5 Houston Center
1401 McKinney
Houston, TX 77010-4034
Counsel
Baker Botts L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002-4995
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 30170
College Station, TX 77842-3170
Overnight Deliveries:
211 Quality Circle
Suite 210
College Station, TX 77845
OII Account Information
www.computershare.com/investor
Telephone: (781) 575-2879
Fax: (781) 575-3605
Hearing Impaired/TDD: (800) 952-9245
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
(713) 329-4500
www.oceaneering.com