UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission file number 1-10945
OCEANEERING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2628227
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11911 FM 529
HOUSTON, TEXAS 77041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 329-4500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, $0.25 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X , No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes X , No .
--- ---
Aggregate market value of the voting stock held by non-affiliates of
the registrant at March 15, 2002 based upon the closing sale price of the Common
Stock on the New York Stock Exchange: $637,764,000
Number of shares of Common Stock outstanding at March 15, 2002:
24,313,122
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement relating to the registrant's 2002 annual meeting
of shareholders, to be filed on or before April 30, 2002 pursuant to Regulation
14A of the Securities Exchange Act of 1934, are incorporated by reference to the
extent set forth in Part III, Items 10-13 of this report.
1
PART I
ITEM 1. BUSINESS.
General Development of Business
Oceaneering International, Inc. is an advanced applied technology company that
provides a comprehensive range of integrated technical services and hardware to
customers who operate in harsh environments such as underwater, space and other
hazardous areas. Oceaneering was organized in 1969 out of the combination of
three diving service companies founded in the early 1960s. Since our
establishment, we have concentrated on the development and marketing of
underwater services and products requiring the use of advanced deepwater
technology. We are one of the world's largest underwater services contractors.
We provide most of our services and products to the oil and gas industry. These
include drilling support, subsea construction, design, lease and operation of
production systems, facilities maintenance and repair, specialty subsea hardware
and specialized onshore and offshore engineering and inspection. We have
locations in the United States and 18 other countries. Our international
operations, principally in the North Sea, Africa, Brazil, Asia and Australia,
accounted for approximately 47% of our revenue, or $246 million, for the year
ended December 31, 2001.
We operate in five business segments. The segments are contained within two
businesses - services and products provided to the offshore oil and gas industry
("Offshore Oil and Gas") and all other services and products ("Advanced
Technologies"). Our business segments within the Offshore Oil and Gas business
are Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore
Production Systems and Other Services. We report our Advanced Technologies
business as one segment. In each of our businesses, we have been concentrating
on expanding our capabilities to provide technical solutions to our customers.
Effective November 1, 2000, our Board of Directors changed our fiscal year-end
to December 31 from March 31. Last year we reported on the nine-month transition
period from April 1, 2000 to December 31, 2000. Unless the context indicates
otherwise, references to fiscal years indicate the twelve months ended March 31
of that year. For example, fiscal 2000 refers to the twelve-month period ended
March 31, 2000.
OFFSHORE OIL AND GAS. In the last few years, the focus of our Offshore Oil and
Gas business has been toward increasing our asset base for servicing offshore
projects and subsea completions. Prior to 1996, we purchased most of our
remotely operated vehicles, often referred to as ROVs, which are submersible
vehicles operated from the surface and widely used in the offshore oil and gas
industry. However, in response to increased demand for more powerful systems
operating in deeper water, we expanded our capabilities and established an
in-house facility to design and build ROVs to meet the continued expansion of
our ROV fleet. This facility was established and became fully operational in
January 1998. We have built over 50 ROV systems and we are producing all our new
ROVs in-house. In September 2000, we exchanged our diving-related assets in
Asia, Australia and the Middle East for 11 ROVs. The diving-related assets were
part of our Other Services segment.
Through our Oceaneering Multiflex division, we are a leading provider of subsea
hydraulic and electrohydraulic umbilicals. These umbilicals are the means by
which offshore operators control subsea wellhead hydrocarbon flow rates. We
entered this market in March 1994 through our purchase of the operating
subsidiaries of Multiflex International Inc. During fiscal 1999, we constructed
a new umbilical plant in Brazil and relocated, modernized and increased the
capabilities of our umbilical manufacturing facility in Scotland. The plant in
Brazil began operations in fiscal 1999, and the plant in Scotland was
commissioned in early fiscal 2000.
We own three operating mobile offshore production systems:
o the floating production, storage and offloading system Ocean
Producer, which has been operating offshore West Africa since
December 1991;
o the production barge San Jacinto, acquired in December 1997
and currently under contract offshore Indonesia; and
o the mobile offshore production system Ocean Legend, which has
been operating offshore Western Australia since May 2001.
2
In November 1995, we contracted with a major oil company for the provision of a
floating production, storage and offloading unit. We converted a crude oil
tanker and delivered the Zafiro Producer to its first operational location off
West Africa in August 1996. In December 1996, the customer exercised an option
to purchase the unit. We continue to participate as a member of the customer's
integrated team to operate and enhance the unit's production facilities.
We own and operate two multiservice vessels, the Ocean Intervention and the
Ocean Intervention II, which went into service in the fourth quarter of calendar
1998 and the third quarter of calendar 2000, respectively. These multiservice
vessels are equipped with thrusters that allow them to be dynamically
positioned, which means the vessels can maintain a constant position at a
location without the use of anchors. They are used in pipeline or flowline
tie-ins, pipeline crossings and subsea hardware interventions and installations.
Both vessels can carry and install significant lengths of coiled tubing or
umbilicals required to bring subsea well completions into production (tie-back
to production facilities). These vessels are part of our Other Services segment.
ADVANCED TECHNOLOGIES. In August 1992 and May 1993, we purchased two businesses
that formed the basis of our Advanced Technologies segment. The first business
designed, developed and operated robotic systems and ROVs specializing in
non-oilfield markets and provided the basis for our expansion into commercial
and government subsea cable field support, maintenance and repair, civil works
projects and commercial theme park animation in 1993. The second business
designed, developed and fabricated spacecraft hardware and high temperature
insulation products.
We intend to continue our strategy of acquiring, as opportunities arise,
additional assets or businesses, to improve our market position or expand into
related service and product lines, either directly through merger, consolidation
or purchase, or indirectly through joint ventures. We are also applying our
skills and technology in further developing business unrelated to the oil and
gas industry and performing services for government agencies and firms in the
telecommunications, aerospace and civil engineering and construction industries.
Financial Information about Segments
For financial information about our business segments, please see the table in
Note 6 of the Notes to Consolidated Financial Statements in this report, which
presents revenue, income (loss) from operations, depreciation and amortization
expense, identifiable assets and capital expenditures by business segment for
the year ended December 31, 2001, the nine-month period ended December 31, 2000
and the fiscal year ended March 31, 2000.
Description of Business
OFFSHORE OIL AND GAS
Our Offshore Oil and Gas business consists of ROVs, Subsea Products, Mobile
Offshore Production Systems and Other Services.
ROVS. ROVs are submersible vehicles operated from the surface. They are widely
used in the offshore oil and gas industry for a variety of underwater tasks
including drill support, installation and construction support, pipeline
inspection and surveys and subsea production facility operation and maintenance.
ROVs may be outfitted with manipulators, sonar, video cameras, specialized
tooling packages and other equipment or features to facilitate the performance
of specific underwater tasks. We use ROVs at water depths or in situations where
the use of divers would be uneconomical or infeasible. We own 125 work class
ROVs and are the industry leader in providing ROV services on deepwater wells,
which are the most technically demanding. We believe we operate the largest and
most technically advanced fleet of ROVs in the world.
3
ROV revenue:
Percent of
Amount Total Revenue
------------ -------------
Year ended December 31, 2001 $153,929,000 29%
Nine-month period ended December 31, 2000 78,953,000 26%
Fiscal year ended March 31, 2000 94,617,000 23%
SUBSEA PRODUCTS. We manufacture a variety of built-to-order specialty subsea
hardware to ISO 9001 quality requirements. These products include:
o hydraulic, electrohydraulic, chemical injection, thermoplastic and
steel tube umbilicals;
o production control equipment;
o pipeline repair systems; and
o ROV tooling and work packages.
We market these products under the trade names Oceaneering Multiflex and
Oceaneering Intervention Engineering.
Subsea umbilicals and production control equipment are the means by which
offshore well operators control subsea wellhead hydrocarbon flow, monitor
downhole and wellhead conditions and perform chemical injection. Pipeline repair
systems make the effective repair of pipelines and risers possible without
requiring underwater welding. ROV tooling and work packages provide the
operational link between an ROV and permanently installed equipment located on
the sea floor.
Subsea Products revenue:
Percent of
Amount Total Revenue
------------ -------------
Year ended December 31, 2001 $125,608,000 24%
Nine-month period ended December 31, 2000 65,771,000 21%
Fiscal year ended March 31, 2000 69,744,000 17%
MOBILE OFFSHORE PRODUCTION SYSTEMS. We presently own three operating mobile
offshore production systems, the Ocean Legend, the Ocean Producer and the San
Jacinto. In addition, we provide operational support to the Zafiro Producer on
behalf of a major oil company.
We also undertake engineering and project management of projects related to
mobile offshore production systems. We have managed the conversion of a jackup
to a production unit and in-field life extension and modifications to the Zafiro
Producer. We also perform engineering studies for customers evaluating field
development projects.
Mobile Offshore Production Systems revenue:
Percent of
Amount Total Revenue
------------ -------------
Year ended December 31, 2001 $39,154,000 7%
Nine-month period ended December 31, 2000 15,788,000 5%
Fiscal year ended March 31, 2000 23,983,000 6%
OTHER SERVICES. We perform subsea intervention and hardware installation
services from our multiservice vessels. These services include: subsea well
tie-backs; pipeline/flowline tie-ins and repairs; pipeline crossings; umbilical
and other subsea equipment installations; and subsea intervention. We also
provide oilfield diving, nondestructive inspection and testing services and
supporting vessel operations, which are utilized principally in inspection,
repair and maintenance activities.
We supply commercial diving services to the oil and gas industry in the United
States using the traditional techniques of air, mixed gas and saturation diving,
all of which use surface-supplied breathing gas. We do not use divers in water
depths greater
4
than 1,000 feet. We also use atmospheric diving systems, which enclose the
operator in a surface pressure diving suit, in water depths up to 2,300 feet. In
September 2000, we exchanged our diving-related assets in Asia, Australia and
the Middle East for 11 ROVs.
Through our Solus Schall division, we offer a wide range of inspection services
to customers required to obtain third-party inspections to satisfy contractual
structural specifications, internal safety standards or regulatory requirements.
We focus on the inspection of pipelines and onshore fabrication of offshore
facilities for the oil and gas industry. Certain of Solus Schall's pipeline
inspection activities are performed through the use of specialized x-ray
crawlers, which travel inside pipelines, stopping to perform radiographic
inspection of welds.
Other Services revenue:
Percent of
Amount Total Revenue
------------ -------------
Year ended December 31, 2001 $102,250,000 20%
Nine-month period ended December 31, 2000 65,206,000 21%
Fiscal year ended March 31, 2000 105,505,000 25%
ADVANCED TECHNOLOGIES
Our Advanced Technologies segment provides underwater intervention, engineering
services and related manufacturing to meet a variety of industrial requirements,
including ship and submarine husbandry, search and recovery, commercial and
government subsea cable field support, maintenance and repair, civil works
projects and commercial theme park animation. We do this in part by extending
the use of existing assets and technology developed in oilfield operations to
new applications.
We work for customers having specialized requirements in underwater or other
environments outside the oil and gas industry. We provide various engineering
and underwater services for the U.S. Navy, including undersea operations,
development of new underwater systems and inspection and maintenance of the
Navy's fleet of surface ships and submarines. Through a joint venture we formed
with a subsidiary of Smit Internationale, N.V., we also maintain and operate
commercial cable lay and maintenance equipment. The current term of the joint
venture agreement expires in March 2006. It automatically extends for five-year
periods unless one of the participants gives cancellation notice at least one
year before the end of the then current term.
We design and operate ROVs that are capable of being worked in water depths to
25,000 feet. Our other specialized equipment includes ROV cable lay and
maintenance equipment rated to 10,000 feet and deep tow, side scan sonar systems
designed for use in depths to 20,000 feet. In 2001, we located and filmed two
sunken World War II warships, the British battle cruiser H.M.S. Hood and the
German battleship Bismarck, in water depths over 9,000 and 15,000 feet,
respectively. In fiscal 2000, we located and recovered the Mercury space capsule
Liberty Bell 7 from a water depth over 16,000 feet.
We also design and develop specialized tools and build ROV systems to customer
specifications for use in deepwater and hazardous environments. In addition to
commercial applications, we also develop systems for the U.S. Navy and the
Department of Energy.
We entered the commercial theme park animation market in 1993. We believe we are
the industry leader in large animated figures and we have provided more than 30
large figures for theme parks in the U.S. and overseas.
As part of our Advanced Technologies segment, Oceaneering Space and Thermal
Systems directs our efforts towards applying undersea technology and experience
in the space industry. We provide products and services to NASA and NASA prime
contractors in the engineering, design and fabrication of space flight hardware,
including systems engineering and integration. Our product lines include
extravehicular activity tools, logistics carriers, space refrigerators, robotic
devices, life support systems, habitability hardware and high temperature
thermal protection systems for launch vehicles. These activities substantially
depend on continued government funding for space programs.
5
Advanced Technologies revenue:
Percent of
Amount Total Revenue
------------ -------------
Year ended December 31, 2001 $102,879,000 20%
Nine-month period ended December 31, 2000 82,012,000 27%
Fiscal year ended March 31, 2000 122,971,000 29%
MARKETING
OFFSHORE OIL AND GAS. Oil and gas exploration and development expenditures
fluctuate from year to year. In particular, budgetary approval for more
expensive drilling and production in deepwater, an area in which we have a high
degree of focus, may be postponed or suspended during periods when exploration
and production companies reduce their offshore capital spending.
We market our ROVs, Subsea Products and Other Services to international and
foreign national oil and gas companies engaged in offshore exploration,
development and production. We also provide services and products as a
subcontractor to other oilfield service companies operating as prime
contractors. Customers for these services typically award contracts on a
competitive bid basis. These contracts are typically less than one year in
duration.
We market our Mobile Offshore Production Systems primarily to international and
foreign national oil and gas companies. We offer systems for extended well
testing, early production and development of marginal fields and prospects in
areas lacking pipelines and processing infrastructure. Contracts are typically
awarded on a competitive basis, generally for periods of one or more years.
In connection with the services we perform in our Offshore Oil and Gas business,
we generally seek contracts that compensate us on a dayrate basis. Under dayrate
contracts, the contractor provides the ROV or vessel and the required personnel
to operate the unit. Compensation under a dayrate contract is based on a rate
per day for each day the unit is used. The typical dayrate depends on market
conditions, the nature of the operations to be performed, the duration of the
work, the equipment and services to be provided, the geographical areas involved
and other variables. Dayrate contracts may also contain an alternate, lower
dayrate that applies when a unit is in route to a new site or when operations
are interrupted or restricted by equipment breakdowns, adverse weather or water
conditions or other conditions beyond the contractor's control. Some dayrate
contracts provide for revision of the specified dayrates in the event of
material changes in certain items of cost being incurred by the contractor.
Contracts for our products are generally for a fixed price.
ADVANCED TECHNOLOGIES. We market our marine services and related engineering
services to government agencies, major defense contractors, NASA and NASA prime
contractors and telecommunications, construction and other industrial customers
outside the energy sector. We also market to insurance companies, salvage
associations and other customers who have requirements for specialized
operations in deep water.
MAJOR CUSTOMERS. Our top five customers in the year ended December 31, 2001 and
in the nine-month period ended December 31, 2000 accounted for 30% and 29%,
respectively, of our consolidated revenue. Our top five customers in fiscal 2000
accounted for approximately 25% of our consolidated revenue. In the year ended
December 31, 2001, our top five customers were all oil and gas exploration and
production companies served by our Offshore Oil and Gas business segments. For
the nine-month period ended December 31, 2000 and for fiscal 2000, four of our
top five customers were oil and gas exploration and production companies served
by our Offshore Oil and Gas business segments. The other top five customer was
the U.S. Navy, which was served by our Advanced Technologies segment. No single
customer accounted for more than 10% of our consolidated revenue in any of those
three periods. While we do not depend on any one customer, the loss of one of
our significant customers could, at least on a short-term basis, have an adverse
effect on our results of operations.
RAW MATERIALS
Most of the raw materials we use in our manufacturing operations, such as steel
in various forms, electronic components and plastics, are available from many
sources, and we are not dependent on any single supplier or source for any of
our raw
6
materials. However, some components we use to manufacture subsea umbilicals are
available from limited sources. While we have not experienced any difficulties
in obtaining those materials in the past and do not anticipate any such
difficulties in the foreseeable future, it is possible that a shortage of supply
could develop. Any significant, prolonged shortage of these materials could
result in increased costs for these materials and delays in our subsea
umbilicals manufacturing operations.
COMPETITION
Our businesses are highly competitive.
OFFSHORE OIL AND GAS
We are one of several companies that provide underwater services on a worldwide
basis. We compete for contracts with companies that have worldwide operations,
as well as numerous others operating locally in various areas. We believe that
our ability to provide a wide range of underwater services, including
technological applications in deeper water (greater than 1,000 feet) on a
worldwide basis, should enable us to compete effectively in the oilfield
exploration and development market. In some cases involving projects that
require less sophisticated equipment, small companies have been able to bid for
contracts at prices uneconomical to us.
ROVS. We believe we are the world's largest owner/operator of work class ROVs
employed in oil and gas related operations. We estimate we have a market share
in excess of 30%. At December 31, 2001, we had 125 work class ROVs in service.
We compete with several major companies on a worldwide basis and with numerous
others operating locally in various areas. We have fewer competitors in deeper
water depths, as more sophisticated equipment and technology is needed in deeper
water. We estimate that, during calendar 2001, we provided ROV drilling support
on approximately 68% of the wells drilled worldwide in water depths of 1,000
feet or more and approximately 77% of the wells drilled worldwide in water
depths of 3,000 feet or more.
Competition for ROV services historically has been based on equipment
availability, location of or ability to deploy the equipment, quality of service
and price. The relative importance of these factors can vary from year to year
based on market conditions. The ability to develop improved equipment and
techniques and to attract and retain skilled personnel is also an important
competitive factor in our markets.
SUBSEA PRODUCTS. Although there are many competitors offering either specialized
products or operating in limited geographic areas, we believe we are one of a
small number of companies that compete on a worldwide basis for the provision of
thermoplastic subsea control umbilical cables.
MOBILE OFFSHORE PRODUCTION SYSTEMS. We believe we are well positioned to compete
in this market through our ability to identify and offer optimum solutions,
supply equipment and utilize our expertise in associated subsea technology and
offshore construction and operations gained through our extensive operational
experience worldwide. We are one of many companies that offer leased mobile
offshore production systems.
OTHER SERVICES. We perform subsea intervention and hardware installation
services from our multiservice vessels in the Gulf of Mexico. These services
include: subsea well tie-backs; pipeline/flowline tie-ins and repairs; pipeline
crossings; umbilical and other subsea equipment installations; and subsea
intervention. We are one of many companies that offer these services. In
addition, other companies can move their vessels to the Gulf of Mexico from
other areas with relative ease.
The worldwide inspection market consists of a wide range of inspection and
certification requirements in many industries. Solus Schall competes in only
selected portions of this market. We believe that our broad geographic sales and
operational coverage, long history of operations, technical reputation,
application of x-ray pipeline inspection technology and accreditation to
international quality standards enable us to compete effectively in our selected
inspection services market segments.
Frequently, oil and gas companies use prequalification procedures that reduce
the number of prospective bidders for their projects. In some countries,
political considerations tend to favor local contractors. While these
considerations have not materially impacted this segment's results in recent
periods, our view of the increasing trend to favor local contractors in West
Africa was a factor in our decisions to sell our diving operations in West
Africa in fiscal 2000 and to exchange our diving-
7
related assets in Asia, Australia and the Middle East for ROVs in September
2000. We no longer provide oilfield diving services outside of the United
States.
ADVANCED TECHNOLOGIES. We believe our specialized ROV assets and experience in
deepwater operations give us an advantage in obtaining contracts in water depths
greater than 5,000 feet. We have fewer competitors in deeper water depths due to
the advanced technical knowledge and sophisticated equipment required for
deepwater operations.
Engineering services is a very broad market with a large number of competitors.
We compete in specialized areas in which we can combine our extensive program
management experience, mechanical engineering expertise and the capability to
continue the development of conceptual project designs into the manufacture of
prototype equipment.
We also use the administrative and operational support structures of our
Offshore Oil and Gas business to provide additional local support for services
provided to this segment's customers.
SEASONALITY, BACKLOG AND RESEARCH AND DEVELOPMENT
A material amount of our consolidated revenue is generated from contracts for
marine services in the Gulf of Mexico and the North Sea, which are usually more
active from April through November compared to the rest of the year. However,
our exit from the diving sector in the North Sea in early 1998 and the
substantial number of multiyear ROV contracts we entered into since 1997 have
reduced the seasonality of our ROV and Other Services operations. Revenues in
our Mobile Offshore Production Systems, Subsea Products and Advanced
Technologies segments are generally not seasonal.
The amounts of backlog orders we believe to be firm as of December 31, 2001
and 2000 were as follows:
As of December 31, 2001 As of December 31, 2000
----------------------- -----------------------
(in millions) (in millions)
Offshore Oil and Gas Total 1 + yr* Total 1 + yr*
-------- -------- -------- --------
ROVs $ 182 $ 95 $ 229 $ 133
Subsea Products 61 -- 50 5
Mobile Offshore Production Systems 166 119 100 71
Other Services 51 9 45 2
-------- -------- -------- --------
Total Offshore Oil and Gas 460 223 424 211
Advanced Technologies 74 30 38 5
-------- -------- -------- --------
Total $ 534 $ 253 $ 462 $ 216
======== ======== ======== ========
* Represents amounts that were not expected to be performed within one
year.
No material portion of our business is subject to renegotiation of profits or
termination of contracts by the United States government.
Our research and development expenditures were approximately $5 million, $5
million and $4 million during the year ended December 31, 2001, the nine-month
period ended December 31, 2000 and fiscal 2000, respectively. These amounts do
not include the expenditures by others in connection with joint research
activities in which we participated or expenditures we incurred in connection
with research conducted during the course of performing our operations.
REGULATION
Our operations are affected from time to time and in varying degrees by foreign
and domestic political developments and foreign, federal and local laws and
regulations. In particular, oil and gas production operations and economics are
affected by tax, environmental and other laws relating to the petroleum
industry, by changes in such laws and by constantly changing administrative
regulations. Those developments may directly or indirectly affect our operations
and those of our customers.
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment or relating to the protection of the environment
has not had a material impact on our capital expenditures, earnings or
competitive position.
8
While not a legal requirement, within our Offshore Oil and Gas business we
maintain various quality management systems. Our quality management systems in
the United Kingdom and Norway are certified to the substantial equivalent of ISO
9001 and cover all our Offshore Oil and Gas products and services. The quality
management systems of our Subsea Products segment are certified to ISO 9001 for
its products and services. The quality management systems of both the
Oceaneering Space and Thermal Systems and Oceaneering Technologies units of our
Advanced Technologies segment are also certified to ISO 9001. ISO 9001 is an
internationally recognized verification system for quality management
established by the International Standards Organization.
RISKS AND INSURANCE
WE DERIVE MOST OF OUR REVENUE FROM COMPANIES IN THE OFFSHORE OIL AND GAS
INDUSTRY, A HISTORICALLY CYCLICAL INDUSTRY WITH LEVELS OF ACTIVITY THAT ARE
SIGNIFICANTLY AFFECTED BY THE LEVELS AND VOLATILITY OF OIL AND GAS PRICES.
We derive most of our revenue from customers in the offshore oil and gas
exploration, development and production industry. The offshore oil and gas
industry is a historically cyclical industry characterized by significant
changes in the levels of exploration and development activities. Oil and gas
prices, and market expectations of potential changes in those prices,
significantly affect the levels of those activities. Worldwide political,
economic and military events have contributed to oil and gas price volatility
and are likely to continue to do so in the future. Any prolonged reduction in
the overall level of offshore oil and gas exploration and development
activities, whether resulting from changes in oil and gas prices or otherwise,
could materially and adversely affect our financial condition and results of
operations in our segments within our offshore oil and gas business. Some
factors that have affected and are likely to continue affecting oil and gas
prices and the level of demand for our services and products include the
following:
o worldwide demand for oil and gas;
o the ability of the Organization of Petroleum Exporting Countries, or
OPEC, to set and maintain production levels and pricing;
o the level of production by non-OPEC countries;
o the cost of exploring for, producing and delivering oil and gas;
o domestic and foreign tax policy;
o laws and governmental regulations that restrict exploration and
development of oil and gas in various offshore jurisdictions;
o advances in exploration and development technology;
o political instability or armed conflict in oil-producing regions;
o the price and availability of alternative fuels; and o overall
economic conditions.
The recent terrorists' attacks on the United States may directly and indirectly
negatively affect our operating results. The national and global responses to
those attacks, many of which are still being formulated, including recent
military, diplomatic and financial responses, and any possible reprisals as a
consequence of unilateral U.S. actions and/or allied actions, may materially
adversely affect us in ways we cannot predict at this time.
OUR INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT ASSOCIATED WITH
DOMESTIC OPERATIONS.
A significant portion of our revenue is attributable to operations in foreign
countries. These activities accounted for approximately 47% of our consolidated
revenue in the year ended December 31, 2001. Risks associated with our
operations in foreign areas include risks of:
o war and civil disturbances or other risks that may limit or disrupt
markets;
o expropriation, confiscation or nationalization of assets;
o renegotiation or nullification of existing contracts;
o foreign exchange restrictions;
o foreign currency fluctuations;
o foreign taxation;
9
o the inability to repatriate earnings or capital;
o changing political conditions;
o changing foreign and domestic monetary policies; and
o regional economic downturns.
Additionally, in some jurisdictions we are subject to foreign governmental
regulations favoring or requiring the awarding of contracts to local contractors
or requiring foreign contractors to employ citizens of, or purchase supplies
from, a particular jurisdiction. These regulations may adversely affect our
ability to compete.
Our exposure to the risks we described above varies from country to country. In
recent periods, political instability and civil unrest in Indonesia and West
Africa and general economic downturns in Asia and Brazil have been our greatest
concerns. There is a risk that a continuation or worsening of these conditions
could materially and adversely impact our future business, operations, financial
condition and results of operations. Of our total consolidated revenue for the
year ended December 31, 2001, we generated approximately 2% from our operations
in Indonesia, 11% from our operations in West Africa, 4% from our operations in
Asia, excluding Indonesia, and 8% from our operations in Brazil.
OUR OFFSHORE OILFIELD OPERATIONS INVOLVE A VARIETY OF OPERATING HAZARDS AND
RISKS THAT COULD CAUSE LOSSES.
Our operations are subject to the hazards inherent in the offshore oilfield
business. These include blowouts, explosions, fires, collisions, capsizings and
severe weather conditions. These hazards could result in personal injury and
loss of life, severe damage to or destruction of property and equipment,
pollution or environmental damage and suspension of operations. We may incur
substantial liabilities or losses as a result of these hazards. While we
maintain insurance protection against some of these risks, and seek to obtain
indemnity agreements from our customers requiring the customers to hold us
harmless from some of these risks, our insurance and contractual indemnity
protection may not be sufficient or effective to protect us under all
circumstances or against all risks. Some of the risks inherent in our operations
are either not insurable or insurance is available only at rates that we
consider uneconomical, particularly after the impact on the insurance markets of
the September 11, 2001 terrorists' attacks in the United States. The occurrence
of a significant event not fully insured or indemnified against or the failure
of a customer to meet its indemnification obligations to us could materially and
adversely affect our results of operations and financial condition.
LAWS AND GOVERNMENTAL REGULATIONS MAY ADD TO OUR COSTS OR ADVERSELY AFFECT OUR
OPERATIONS.
Our business is affected by changes in public policy and by federal, state,
local and foreign laws and regulations relating to the energy industry. Oil and
gas exploration and production operations are affected by tax, environmental and
other laws relating to the petroleum industry, by changes in those laws and
changes in related administrative regulations. It is also possible that these
laws and regulations may in the future add significantly to our operating costs
or those of our customers or otherwise directly or indirectly affect our
operations.
ENVIRONMENTAL LAWS AND REGULATIONS CAN INCREASE OUR COSTS, AND OUR FAILURE TO
COMPLY WITH THOSE LAWS AND REGULATIONS CAN EXPOSE US TO SIGNIFICANT LIABILITIES.
Risks of substantial costs and liabilities related to environmental compliance
issues are inherent in our operations. Our operations are subject to extensive
federal, state, local and foreign laws and regulations relating to the
generation, storage, handling, emission, transportation and discharge of
materials into the environment. Permits are required for the operation of
various facilities, and those permits are subject to revocation, modification
and renewal. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines, injunctions or both. In
some cases, those governmental requirements can impose liability for the entire
cost of cleanup on any responsible party without regard to negligence or fault
and impose liability on us for the conduct of or conditions others have caused,
or for our acts that complied with all applicable requirements when we performed
them. It is possible that other developments, such as stricter environmental
laws and regulations, and claims for damages to property or persons resulting
from our operations, would result in substantial costs and liabilities. Our
insurance policies and the contractual indemnity protection we seek to obtain
from our customers may not be sufficient or effective to protect us under all
circumstances or against all risks involving compliance with environmental laws
and regulations.
10
EMPLOYEES
As of December 31, 2001, we had approximately 3,500 employees. Our workforce
varies seasonally and peaks during the summer months. Approximately 10% of our
employees are represented by unions. We consider our relations with our
employees to be satisfactory.
Financial Information about Geographic Areas
For financial information about our geographic areas of operation, please see
the table in Note 6 of the Notes to Consolidated Financial Statements in this
report, which presents revenue and assets attributable to each of our geographic
areas for the year ended December 31, 2001, the nine-month period ended December
31, 2000 and the fiscal year ended March 31, 2000.
ITEM 2. PROPERTIES.
See Item 1 - "Business - Description of Business - Offshore Oil and Gas" and
"Business - Description of Business - Advanced Technologies" for a description
of equipment and manufacturing facilities used in providing our services and
products.
We maintain office, shop and yard facilities in various parts of the world to
support our operations. We consider these facilities, which we describe below,
to be suitable for their intended use. In these locations, we typically lease or
own office facilities for our administrative and engineering staff, shops
equipped for fabrication, testing, repair and maintenance activities and
warehouses and yard areas for storage and mobilization of equipment to work
sites. All sites are available to support any of our business segments as the
need arises. The groupings which follow associate our significant offices with
the primary business segment they serve.
OFFSHORE OIL AND GAS. In general, our ROV and Other Services segments share
facilities. The largest location is in Morgan City, Louisiana and consists of
ROV manufacturing and training facilities, open and covered storage space and
offices. The Morgan City facilities primarily support operations in the United
States. We have regional support offices for our North Sea and Southeast Asia
operations in Aberdeen, Scotland and Indonesia. We also have operational bases
in various other locations, the most significant of which are in Norway,
Australia and Nigeria.
We use workshop and office space in Houston, Texas in both our Mobile Offshore
Production Systems and Subsea Products business segments. Our manufacturing
facilities for our Subsea Products segment are located in or near Houston,
Texas, Edinburgh, Scotland and Rio de Janeiro, Brazil. Each of these
manufacturing facilities is suitable for its intended purpose and has sufficient
excess capacity to respond to increases in demand for our subsea products that
may be reasonably anticipated in the foreseeable future. Operations of the
mobile offshore production unit Ocean Producer are supported through our
regional office in Aberdeen. Operations of the San Jacinto and the Ocean Legend
are supported from our office in Perth, Australia.
Our principal manufacturing facilities are located on properties we own or hold
under a long-term lease, expiring in 2014. The other facilities we use in our
Offshore Oil and Gas business segments are on properties we lease.
ADVANCED TECHNOLOGIES. Our primary facilities for our Advanced Technologies
segment are leased offices and workshops in Upper Marlboro, Maryland, which
support our services for the U.S. Navy and our commercial theme park animation
activities. We also lease facilities in Houston, Texas, which primarily support
our space industry activities and our subsea telecommunications installation
joint venture.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, we are subject to actions for damages
alleging personal injury under the general maritime laws of the United States,
including the Jones Act, for alleged negligence. We report actions for personal
injury to our insurance carriers and believe that the settlement or disposition
of those suits will not have a material effect on our financial position or
results of operations. For additional information, see "Commitments and
Contingencies - Litigation" in Note 5 of the Notes to Consolidated Financial
Statements included in this report.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of our security holders, through the
solicitation of proxies or otherwise, during the last three months of the year
December 31, 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS. The following information relates to our executive officers
as of March 15, 2002:
NAME AGE POSITION OFFICER SINCE EMPLOYEE SINCE
---- --- -------- ------------- --------------
John R. Huff 56 Chairman of the Board and 1986 1986
Chief Executive Officer
T. Jay Collins 55 President and Chief Operating 1993 1993
Officer and Director
Marvin J. Migura 51 Senior Vice President and 1995 1995
Chief Financial Officer
M. Kevin McEvoy 51 Senior Vice President 1990 1979
George R. Haubenreich, Jr. 54 Senior Vice President, General 1988 1988
Counsel and Secretary
John L. Zachary 48 Controller and Chief 1998 1988
Accounting Officer
Each executive officer serves at the discretion of our Chief Executive Officer
and our Board of Directors and is subject to reelection or reappointment each
year after the annual meeting of our shareholders. We do not know of any
arrangement or understanding between any of the above persons and any other
person or persons pursuant to which he was selected or appointed as an officer.
BUSINESS EXPERIENCE. John R. Huff, Chairman and Chief Executive Officer, joined
Oceaneering as a director, President and Chief Executive Officer in 1986. He was
elected Chairman of the Board in August 1990. He is a director of BJ Services
Company and Suncor Energy Inc.
T. Jay Collins, President and Chief Operating Officer, joined Oceaneering in
October 1993 as Senior Vice President and Chief Financial Officer. In May 1995,
he was appointed Executive Vice President - Oilfield Marine Services and held
that position until becoming President and Chief Operating Officer in November
1998. He was elected a director of Oceaneering in March 2002. He is a director
of Friede Goldman Halter, Inc.
Marvin J. Migura, Senior Vice President and Chief Financial Officer, joined
Oceaneering in May 1995. From 1975 to 1994, he held various financial positions
with Zapata Corporation, then a diversified energy services company, most
recently as Senior Vice President and Chief Financial Officer from 1987 to 1994.
M. Kevin McEvoy, Senior Vice President, joined Oceaneering in 1984 when we
acquired Solus Ocean Systems, Inc. Since 1984, he has held various senior
management positions in each of our operating groups and geographic areas. He
was appointed a Vice President in 1990 and Senior Vice President in November
1998.
George R. Haubenreich, Jr., Senior Vice President, General Counsel and
Secretary, joined Oceaneering in 1988.
John L. Zachary, Controller and Chief Accounting Officer, joined Oceaneering in
1988 as Controller for the Advanced Technologies and Mobile Offshore Production
Systems divisions. From 1993 until 1998, he was Controller for the Americas
Region and was appointed to his present position in October 1998.
12
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.
We are including the following discussion to inform our existing and potential
security holders generally of some of the risks and uncertainties that can
affect our company and to take advantage of the "safe harbor" protection for
forward-looking statements that applicable federal securities law affords.
From time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our company. These statements may include projections and estimates
concerning the timing and success of specific projects and our future backlog,
revenue, income and capital spending. Forward-looking statements are generally
accompanied by words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "plan," "forecast," "budget," "goal" or other words that
convey the uncertainty of future events or outcomes. In addition, sometimes we
will specifically describe a statement as being a forward-looking statement and
refer to this cautionary statement.
In addition, various statements this report contains, including those that
express a belief, expectation or intention, as well as those that are not
statements of historical fact, are forward-looking statements. Those
forward-looking statements appear in Item 1 - "Business," Item 2 - "Properties"
and Item 3 - "Legal Proceedings" in Part I of this report and in Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A - "Quantitative and Qualitative Disclosures About Market
Risk" and in the Notes to Consolidated Financial Statements incorporated into
Item 8 of Part II of this report and elsewhere in this report. These
forward-looking statements speak only as of the date of this report, we disclaim
any obligation to update these statements, and we caution you not to rely unduly
on them. We have based these forward-looking statements on our current
expectations and assumptions about future events. While our management considers
these expectations and assumptions to be reasonable, they are inherently subject
to significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and uncertainties
relate to, among other matters, the following:
o worldwide demand for oil and gas;
o general economic and business conditions and industry trends;
o the continued strength of the industry segments in which we are
involved;
o decisions about offshore developments to be made by oil and gas
companies;
o the highly competitive nature of our businesses;
o our future financial performance, including availability, terms and
deployment of capital;
o the continued availability of qualified personnel;
o operating risks normally incident to offshore exploration, development
and production operations;
o changes in, or our ability to comply with, government regulations,
including those relating to the environment;
o rapid technological changes; and
o social, political, military and economic situations in foreign
countries where we do business.
We believe the items we have outlined above are important factors that could
cause our actual results to differ materially from those expressed in a
forward-looking statement made in this report or elsewhere by us or on our
behalf. We have discussed most of these factors in more detail elsewhere in this
report. These factors are not necessarily all the important factors that could
affect us. Unpredictable or unknown factors we have not discussed in this report
could also have material adverse effects on actual results of matters that are
the subject of our forward-looking statements. We do not intend to update our
description of important factors each time a potential important factor arises.
We advise our security holders that they should (1) be aware that important
factors we do not refer to above could affect the accuracy of our
forward-looking statements and (2) use caution and common sense when considering
our forward-looking statements.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Oceaneering's common stock is listed on the New York Stock Exchange under the
symbol OII. 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):
Year Ended Nine-month Period Ended
December 31, 2001 December 31, 2000
---------------------------- ----------------------------
For the quarter ended: High Low High Low
----------- ------------ ------------- ----------
March 31 $23.75 $16.81 N/A N/A
June 30 27.20 18.64 $21.50 $15.25
September 30 22.27 13.96 19.94 13.56
December 31 23.30 14.90 20.38 13.25
On March 15, 2002, there were 454 holders of record of our common stock. On that
date, the closing sales price, as quoted on the New York Stock Exchange, was
$27.39. We have not made any common stock dividend payments since 1977 and we
currently have no plans to pay cash dividends. Our credit agreements contain
restrictions on the payment of dividends. See Note 3 of Notes to Consolidated
Financial Statements included in this report.
ITEM 6. SELECTED FINANCIAL DATA.
Results of Operations:
Nine-month Fiscal Years Ended March 31,
Year Ended Period Ended ----------------------------------------
(in thousands, except per share amounts) Dec. 31, 2001 Dec. 31, 2000 2000 1999 1998
---------------------------------------- ------------- ------------- ---------- ---------- ----------
Revenue $ 523,820 $ 307,730 $ 416,820 $ 400,322 $ 358,121
Cost of services and products 420,679 254,659 345,178 314,638 282,830
---------- ---------- ---------- ---------- ----------
Gross margin 103,141 53,071 71,642 85,684 75,291
Selling, general and administrative
expense 43,733 30,860 39,343 41,328 39,009
---------- ---------- ---------- ---------- ----------
Income from operations $ 59,408 $ 22,211 $ 32,299 $ 44,356 $ 36,282
========== ========== ========== ========== ==========
Net income $ 33,109 $ 11,313 $ 16,784 $ 25,707 $ 22,001
Diluted earnings per share 1.38 0.49 0.73 1.12 0.93
Depreciation and amortization 47,906 30,664 33,948 29,961 23,176
Capital expenditures 57,661 101,641 80,758 102,014 94,413
Other Financial Data:
As of Dec. 31, As of March 31,
------------------------- ----------------------------------------
(in thousands, except ratios) 2001 2000 2000 1999 1998
----------------------------- ---------- ---------- ---------- ---------- ----------
Working capital ratio 1.80 1.62 1.55 1.47 1.52
Working capital $ 91,384 $ 58,380 $ 52,775 $ 41,398 $ 44,890
Total assets 579,611 515,517 450,976 387,343 316,543
Long-term debt 170,000 180,000 128,000 100,312 54,626
Shareholders' equity 251,433 206,894 195,700 179,439 160,322
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
All statements in this Form 10-K, other than statements of historical facts,
including, without limitation, statements regarding our business strategy, plans
for future operations and industry conditions, 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 subject to various
risks, uncertainties and assumptions, including those we refer to under the
heading "Cautionary Statement Concerning Forward-Looking Statements" in Part I
of this report. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, because of the inherent limitations
in the forecasting process, as well as the relatively volatile nature of the
industries in which we operate, we can give no assurance that those expectations
will prove to have been correct. Accordingly, evaluation of our future prospects
must be made with caution when relying on forward-looking information.
Selected Major Accounting Policies
Our revenues are primarily derived from billings under contracts that provide
for specific time, material and equipment charges, which are accrued daily and
billed periodically, ranging from weekly to monthly. We account for significant
lump-sum contracts, particularly in our Subsea Products segment, using the
percentage of completion method, based on physical progress.
Periodically, and upon the occurrence of a triggering event, we review the
realizability of goodwill and other long-term assets and we make any appropriate
impairment adjustments and disclosures.
For a more detailed description of our major accounting policies, please read
Note 1 to our Consolidated Financial Statements.
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our
operations and internally generated growth initiatives. At December 31, 2001, we
had working capital of $91 million. Additionally, we had $57 million available
under our revolving credit facility, which is scheduled to expire in October
2003.
We expect operating cash flow to meet our ongoing annual cash requirements,
including debt service, for the foreseeable future. Net cash provided by
operating activities was $60 million for the year ended December 31, 2001, $41
million for the nine-month period ended December 31, 2000 and $53 million for
fiscal 2000.
Our capital expenditures for the year ended December 31, 2001, the nine-month
period ended December 31, 2000 and the fiscal year ended March 31, 2000 were $58
million, $102 million and $81 million, respectively. Capital expenditures during
the year ended December 31, 2001 consisted of expenditures for additional ROVs,
completion of the Ocean Legend and upgrades and life extension of the Ocean
Producer necessary for its new seven-year contract which began in the fourth
quarter of 2001. Capital expenditures during the nine-month period ended
December 31, 2000 consisted of expenditures for the conversion of a jackup
drilling rig to a mobile offshore production unit, the Ocean Legend, for initial
use offshore Western Australia under a three-year contract, ROV additions and
construction costs to complete our second multiservice vessel. Capital
expenditures in fiscal 2000 consisted of construction costs for the second
multiservice vessel, additions to our ROV fleet and the start of the conversion
of the Ocean Legend.
We had no major commitments for capital expenditures at December 31, 2001.
In April 1997, we approved a plan to purchase up to a maximum of 3 million
shares of our common stock, and we repurchased 2.9 million shares under this
plan through December 31, 2001, at a total cost of $40 million. We have reissued
approximately 2.65 million of these shares through incentive plans, as
restricted stock, contributions to our 401(k) plan, or for exercised stock
options. For a description of our incentive plans, please read Note 4 to our
Consolidated Financial Statements. We repurchased 10,000 shares of common stock
during the year ended December 31, 2001 at a cost of $141,000.
At December 31, 2001, we had long-term debt of $170 million and a 40%
debt-to-total capitalization ratio. We have $100 million of 6.72% Senior Notes
to be repaid from 2006 through 2010. We have an $80 million revolving credit
facility, under which we had $23 million in outstanding borrowings and $57
million available for future borrowings at December 31, 2001. This facility
expires in October 2003. In March 2000, we added a $50 million term loan
facility, which is to be repaid through
15
April 2004. At December 31, 2001, we had $47 million in outstanding borrowings
under the term loan facility. Both the revolving credit and term loan facilities
have short-term interest rates that float with market rates, plus applicable
spreads. We have effectively fixed the interest rate on the term loan at
approximately 4% through an interest rate swap. We have no off balance sheet
debt and have not guaranteed any debt not reflected on our consolidated balance
sheet.
Because of our significant foreign operations, we are exposed to currency
fluctuations and exchange risks. We generally minimize these risks primarily
through matching, to the extent possible, revenues and expenses in the various
currencies in which we operate. Cumulative translation adjustments as of
December 31, 2001 relate primarily to our permanent investments in and loans to
our foreign subsidiaries. Inflation has not had a material effect on us in the
past two years and no such effect is expected in the near future.
See Item 1 - "Business - Description of Business - Risks and Insurance."
Results of Operations
The table below sets out revenue and profitability for the
years ended December 31, 2001 and 2000, the nine-month periods ended December
31, 2000 and 1999 and the fiscal year ended March 31, 2000.
Year Ended Nine-Month Period Fiscal Year
December 31, Ended December 31, Ended March 31,
(dollars in thousands) 2001 2000 2000 1999 2000
---------------------- ---------- ---------- ---------- ---------- ---------------
(unaudited) (unaudited)
Revenue $ 523,820 $ 418,773 $ 307,730 $ 305,777 $ 416,820
Gross Margin 103,141 70,548 53,071 54,165 71,642
Gross Margin % 20% 17% 17% 18% 17%
Net Income 33,109 14,952 11,313 13,145 16,784
Information on our business segments is shown in Note 6 of the Notes to
Consolidated Financial Statements included in this report.
OFFSHORE OIL AND GAS. The table below sets out revenue and profitability for our
Offshore Oil and Gas business for the years ended December 31, 2001 and 2000,
the nine-month periods ended December 31, 2000 and 1999 and the fiscal year
ended March 31, 2000.
Year Ended Nine-Month Period Fiscal Year
December 31, Ended December 31, Ended March 31,
(dollars in thousands) 2001 2000 2000 1999 2000
---------------------- ---------- ---------- ---------- ---------- ---------------
(unaudited) (unaudited)
Remotely Operated Vehicles
Revenue $ 153,929 $ 100,985 $ 78,953 $ 72,585 $ 94,617
Gross Margin 43,690 25,905 19,879 16,806 22,832
Gross Margin % 28% 26% 25% 23% 24%
Operating Income 32,784 16,525 12,316 9,855 14,064
Operating Income % 21% 16% 16% 14% 15%
Subsea Products
Revenue 125,608 92,165 65,771 43,350 69,744
Gross Margin 18,330 10,741 7,647 5,690 8,784
Gross Margin % 15% 12% 12% 13% 13%
Operating Income 7,243 2,334 1,225 390 1,499
Operating Income % 6% 3% 2% 1% 2%
16
Mobile Offshore Production Systems
Revenue 39,154 21,653 15,788 18,118 23,983
Gross Margin 11,357 7,962 5,774 6,048 8,236
Gross Margin % 29% 37% 37% 33% 34%
Operating Income 8,552 6,303 4,271 5,597 7,629
Operating Income % 22% 29% 27% 31% 32%
Other Services
Revenue 102,250 93,291 65,206 77,420 105,505
Gross Margin 12,472 7,892 7,732 11,231 11,391
Gross Margin % 12% 8% 12% 15% 11%
Operating Income (Loss) 3,543 (4,668) (636) 863 (3,169)
Operating Income (Loss) % 3% (5)% (1)% 1% (3)%
Total Offshore Oil and Gas
Revenue $ 420,941 $ 308,094 $ 225,718 $ 211,473 $ 293,849
Gross Margin 85,849 52,500 41,032 39,775 51,243
Gross Margin % 20% 17% 18% 19% 17%
Operating Income 52,122 20,494 17,176 16,705 20,023
Operating Income % 12% 7% 8% 8% 7%
In response to (1) continued increasing demand to support deepwater drilling and
(2) identified future construction and production maintenance work, we extended
our ROV fleet expansion program in 1997 by announcing plans for additional new
ROVs. These new vehicles are designed for use around the world in water depths
to 10,000 feet and in severe weather conditions. We have added over 50 ROVs to
our fleet during the last several years and we plan to add additional vehicles
at a rate dependent on market demand.
In the past few years, we have sold or exchanged our foreign diving-related
assets, which were part of our Other Services segment, to concentrate on our
other deepwater services and products which have potential for higher margins:
o In April 1997, we sold our North Sea diving assets, including a diving
support vessel;
o In fiscal 2000, we sold our West Africa diving and related vessel
assets; and
o In September 2000, we exchanged our Asia, Australia and Middle East
diving assets, including a diving support vessel, for 11 ROVs.
For the year ended December 31, 2001, ROV revenue was 52% higher than the prior
year. Gross margin rose 69% and gross margin percentage rose 2%. These
improvements were the result of an increase in average fleet size of 20% and an
increase in utilization from 66% to 76%. In the nine-month period ended December
31, 2000, ROV revenue was 9% higher than the comparable nine-month period of the
prior year. Gross margin percentage rose 2%. These increases were the result of
more ROVs available for service and an increase in ROV utilization from 63% to
67%. We anticipate ROV utilization and margins to slightly decrease in 2002,
particularly in the Gulf of Mexico during the first half of the year, due to an
expected reduction in drill support service demand onboard floating drilling
rigs.
Subsea Products revenue was 36% higher for the year ended December 31, 2001 than
the prior year. Gross margin was 71% higher and gross margin percentage rose 3%.
The increased revenue was attributable to the production of orders which had
been delayed in Brazil and to increased production from our U.K. plant, which in
2000 had difficulties in completing its initial steel-tube umbilical order.
Margins and margin percentage were higher as a result of improved pricing.
Subsea Products revenue was 52% higher for the nine-month period ended December
31, 2000 than the comparable period of the prior year. This increase was
primarily due to (1) increased demand in Brazil and the U.S., as oil and gas
companies proceeded with offshore capital projects which had been delayed, and
(2) a large steel tube umbilical order in the U.K. While total gross margin was
$2.0 million higher, margin percentages were relatively flat, as increased
profitability in Brazil and the U.S. was offset by the large steel tube
umbilical order in our U.K. plant, which earned a low margin. We anticipate
improved Subsea Product results in 2002 from higher margins on existing backlog
supplemented by additional orders for international markets.
17
Mobile Offshore Production Systems revenue was up 81% for the year ended
December 31, 2001 as compared to the prior year, primarily from placement of the
Ocean Legend into service in May 2001. At December 31, 2001, we had not
recorded $2.3 million of billed revenue questioned by our customer under the
Ocean Legend contract. While we feel that we are entitled to the revenue under
the terms of the contract, we have not recorded it pending the outcome of
negotiations with our customer. Gross margin was up 43%, but gross margin
percentage was down 8%. Gross margin in 2001 included an additional $1.5 million
writedown of the out-of-service tanker Ocean Venture, which we are holding for
disposition or for possible conversion. We recorded the additional writedown as
a result of lower scrap steel prices than in 2000, when we had previously
written down the vessel by $2.5 million as explained below. Mobile Offshore
Production Systems revenue was down 13% for the nine-month period ended December
31, 2000 from the comparable period of the prior year, as production-based
revenue from the Ocean Producer was lower due to declining production levels and
we had lower project management and engineering service revenue from lower
demand. In the fourth quarter of 2001, the Ocean Producer began operations under
a seven-year contract to produce from another property in the area and we expect
to earn higher margins on the new contract than those attained during the last
two years of the prior contract. Gross margin percentage in the nine-month
period ended December 31, 2000 was higher than in the corresponding period of
the prior year due to $4.3 million of gains on the sales of two out-of-service
semisubmersible rigs. In addition, we wrote down the carrying value of the Ocean
Venture by $2.5 million in the nine-month period ended December 31, 2000, as our
assessment of the market it was targeted for, conversion into production
service, had changed. This tanker is not of the size prevalently in demand in
the current market and there have been few opportunities to bid the vessel. We
anticipate improved Mobile Offshore Production Systems results in 2002 with a
full year of Ocean Legend and Ocean Producer operations under their long-term
contracts.
Other Services revenue increased 10% for the year ended December 31, 2001 over
the prior year. Gross margin was 58% higher and gross margin percentage was 4%
higher. Revenue was higher in 2001 from a full year of service from the
multiservice vessel Ocean Intervention II, which was placed into service in the
third quarter of 2000. As a result, we had more subsea tie-back contracts in the
Gulf of Mexico in 2001. Margin percentage was higher as 2000 included losses
from two large fixed-price jobs in India. Other Services revenue was 16% lower
in the nine-month period ended December 31, 2000 than the comparable period of
the prior year. The lower revenue reflects our dispositions of (1) our West
Africa diving operations in fiscal 2000 and (2) our Asia, Australia and Middle
East diving operations in September 2000, along with more competitive conditions
resulting from lower capital expenditures by our oilfield customers. Gross
margin was lower due to lower vessel utilization and related services in the
Gulf of Mexico. The net operating loss was attributed to the two large
fixed-price jobs in India mentioned above. We anticipate lower Other Services
results in 2002 from further market deterioration due to announced reductions in
capital spending plans by oil and gas companies operating in the Gulf of Mexico.
We are hopeful that, by the second half of 2002, demand for these services will
recover.
ADVANCED TECHNOLOGIES. The table below sets out revenue and profitability for
this segment for the years ended December 31, 2001 and 2000, the nine-month
periods ended December 31, 2000 and 1999 and the fiscal year ended March 31,
2000.
Year Ended Nine-Month Period Fiscal Year
December 31, Ended December 31, Ended March 31,
(dollars in thousands) 2001 2000 2000 1999 2000
---------------------- ---------- ---------- ------------ ---------- ---------------
(unaudited) (unaudited)
Revenue $ 102,879 $ 110,679 $ 82,012 $ 94,304 $ 122,971
Gross Margin 17,292 18,048 12,039 14,390 20,399
Gross Margin % 17% 16% 15% 15% 17%
Operating Income 7,286 8,965 5,035 8,346 12,276
Operating Income % 7% 8% 6% 9% 10%
Advanced Technologies revenue and gross margin were slightly lower in 2001 as
compared to 2000 as a result of lower telecommunications subsea cable field
support operations. Revenue was 13% lower in the nine-month period ended
December 31, 2000 than the comparable period of the prior year as the prior
period included a large outfall job in Southeast Asia, which was performed using
resources associated with our Other Services segment. These resources were part
of those we exchanged in September 2000 for ROVs. Gross margin was lower as the
December 2000 period included provisions totaling $1.8 million relating to
operations of a division we no longer own. We anticipate similar results from
Advanced Technologies in the next year, contingent on (1) the level of
government funding for NASA and U.S. Navy
18
programs in which we currently participate or are pursuing and (2) our ability
to obtain contracts for the design and manufacture of animated figures for theme
parks.
OTHER. General and administrative expenses were relatively flat over the periods
presented. Interest expense increased over the three-year period as a result of
our increased borrowings to fund capital expenditures and repurchases of common
stock. Interest expense is net of capitalized interest of $2.0 million for the
year ended December 31, 2001, $3.0 million for the nine-month period ended
December 31, 2000 and $1.8 million for fiscal 2000.
Our effective tax rate, determined after consideration of valuation allowances
and foreign, state and local taxes, was 35%, 36% and 36% for the year ended
December 31, 2001, the nine-month period ended December 31, 2000 and for fiscal
2000, respectively.
ITEM 7A. 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 trading purposes. We manage our exposure to interest
rate changes through the use of a combination of fixed and floating rate debt
and an interest rate hedge. See Note 3 of Notes to Consolidated Financial
Statements included in this report for a description of our long-term debt
agreements, interest rates and maturities. We believe that significant interest
rate changes will not have a material near-term impact on our future earnings or
cash flows. We manage our exposure to changes in foreign exchange rates
primarily 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 will sometimes hedge foreign currency receivables with short-term
hedges. We believe that a significant fluctuation in the foreign exchange rates
would not have a material near-term effect on our future earnings or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In this report, our consolidated financial statements and supplementary data
appear following the signature page to this report and are hereby incorporated
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to the directors and nominees for election to our
Board of Directors is incorporated by reference from the section "Election of
Directors" in our definitive proxy statement to be filed on or before April 30,
2002, relating to our 2002 Annual Meeting of Shareholders.
The information with respect to our executive officers is provided under the
heading "Executive Officers of the Registrant" following Item 4 of Part I of
this report. There are no family relationships between any director or executive
officer.
19
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from the
section "Executive Compensation" in the proxy statement described in Item 10
above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from the
section "Election of Directors - Security Ownership of Management and Certain
Beneficial Owners" in the proxy statement described in Item 10 above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from the
section "Certain Relationships and Related Transactions" in the proxy statement
described in Item 10 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements.
(i) Report of Independent Public Accountants
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Income
(iv) Consolidated Statements of Cash Flows
(v) Consolidated Statements of Shareholders'
Equity and Comprehensive Income
(vi) Notes to Consolidated Financial Statements
2. Exhibits:
Registration
or File Form or Report Exhibit
Number Report Date Number
------------ ------- ------ -------
*3.01 Restated Certificate of Incorporation 1-10945 10-K Dec. 2000 3.01
3.02 Amended and Restated By-Laws
*4.01 Specimen of Common Stock Certificate 1-10945 10-K March 1993 4(a)
*4.02 Amended and Restated Shareholder Rights Agreement dated
as of November 16, 2001 1-10945 8-K Nov. 2001 4.1
*4.03 Note Purchase Agreement dated as of September 8, 1998 relating to
$100,000,000 6.72% Senior Notes due September 8, 2010 1-10945 10-Q Sept. 1998 4.01
*4.04 Loan Agreement ($80,000,000 Revolving Credit Facility)
dated as of October 23, 1998 1-10945 10-Q Sept. 1998 4.02
*4.05 Loan Agreement ($50,000,000 Term Loan) dated as of
March 30, 2000 1-10945 10-K/A March 2000 4.05
We and certain of our consolidated subsidiaries are parties to debt instruments
under which the total amount of securities authorized does not exceed 10 percent
of our total consolidated assets. Pursuant to paragraph 4(ii)(A) of Item 601(b)
of Regulation S-K, we agree to furnish a copy of those instruments to the
Securities and Exchange Commission on request.
20
10.01+ Defined Contribution Master Plan and Trust Agreement and
Adoption Agreement for the Oceaneering International, Inc.
Retirement Investment Plan
10.02+ Service Agreement dated as of November 16, 2001 between
Oceaneering and John R. Huff
*10.03+ 2000 Non-Executive Incentive Plan 333-50400 S-8 Nov. 2000 4.6
*10.04+ Amended and Restated Supplemental Executive Retirement Plan 1-10945 10-Q Dec. 1999 10.1
*10.05+ 1999 Restricted Stock Award Incentive Agreements
dated August 19, 1999 1-10945 10-Q Sept. 1999 10.1
10.06+ Change of Control Agreements dated as of November 16, 2001
between Oceaneering and John R. Huff, T. Jay Collins, Marvin J. Migura,
M. Kevin McEvoy and George R. Haubenreich, Jr., respectively
*10.07+ 1999 Bonus Restricted Stock Award Agreements 1-10945 10-K/A March 2000 10.20
*10.08+ 1999 Incentive Plan 1-10945 10-K March 2000 10.08
10.09+ 2001 Bonus Award Plan
*10.10+ 1990 Long-Term Incentive Plan 33-36872 S-8 Sept. 1990 4(f)
*10.11+ 1990 Nonemployee Directors Stock Option Plan 33-36872 S-8 Sept. 1990 4(g)
10.12+ Form of Indemnification Agreement dated November 16, 2001 between
Oceaneering and each of its Directors, T. Jay Collins, Marvin J. Migura,
M. Kevin McEvoy and George R. Haubenreich, Jr
*10.14+ 1996 Incentive Plan of Oceaneering International, Inc. 1-10945 10-Q Sept. 1996 10.02
*10.15+ 1996 Restricted Stock Award Incentive Agreements
dated August 23, 1996 1-10945 10-Q Sept. 1996 10.03
*10.16+ 1997 Bonus Restricted Stock Award Agreements
dated April 22, 1997 1-10945 10-K March 1997 10.20
*10.17+ Amendment No. 1 to 1990 Nonemployee Director Stock
Option Plan 1-10945 10-K March 1999 10.19
*10.18+ 1998 Bonus Restricted Stock Award Agreements 1-10945 10-K March 1999 10.20
12.01 Statement showing Computation of Ratio of Earnings to Fixed Charges
21.01 Subsidiaries of Oceaneering
23.01 Consent of Independent Public Accountants
24.01 Powers of Attorney
99.01 Letter to the Securities and Exchange Commission re Arthur Andersen LLP
* Indicates exhibit previously filed with the Securities and Exchange
Commission as indicated and incorporated herein by reference.
+ Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
We filed the following reports on Form 8-K during the last quarter of the
period covered by this report:
Date Description
---- -----------
November 14, 2001 Information furnished under Item 9, Regulation FD Disclosure, regarding the posting of a
presentation on our Web site.
November 16, 2001 Information filed under Item 5, Other Events, regarding the extension of the expiration date of
the Shareholder Rights Agreement dated as of November 20, 1992 to November 16, 2011 and other
changes to that agreement.
December 10, 2001 Information furnished under Item 9, Regulation FD Disclosure, regarding the posting of a
presentation on our Web site.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCEANEERING INTERNATIONAL, INC.
Date: March 27, 2002 By: /s/ JOHN R. HUFF
----------------------------
John R. Huff
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ JOHN R. HUFF Chairman of the Board and March 27, 2002
------------------------------- Chief Executive Officer
John R. Huff (Principal Executive Officer)
/s/ MARVIN J. MIGURA Senior Vice President and March 27, 2002
------------------------------- Chief Financial Officer
Marvin J. Migura (Principal Financial Officer)
/s/ JOHN L. ZACHARY Controller March 27, 2002
------------------------------- (Principal Accounting Officer)
John L. Zachary
/s/ T. JAY COLLINS President, Chief Operating Officer March 27, 2002
------------------------------- and Director
T. Jay Collins
/s/ CHARLES B. EVANS* Director March 27, 2002
-------------------------------
Charles B. Evans
/s/ DAVID S. HOOKER* Director March 27, 2002
-------------------------------
David S. Hooker
/s/ D. MICHAEL HUGHES* Director March 27, 2002
-------------------------------
D. Michael Hughes
/s/ HARRIS J. PAPPAS* Director March 27, 2002
-------------------------------
Harris J. Pappas
*By: /s/ GEORGE R. HAUBENREICH, JR.
-------------------------------
George R. Haubenreich, Jr.
Attorney-in-Fact
22
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Index to Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
Index to Schedules
All schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because they are not
required under the relevant instructions or because the required information is
included in the financial statements included herein or in the related footnotes
thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oceaneering International, Inc.:
We have audited the accompanying consolidated balance sheets of Oceaneering
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2001 and 2000 and the related consolidated statements of income, cash flows and
shareholders' equity and comprehensive income for the year ended December 31,
2001, the nine-month period ended December 31, 2000 and for the fiscal year
ended March 31, 2000. These consolidated 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 auditing standards generally accepted
in the 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 financial position of Oceaneering
International, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for the year ended December 31,
2001, the nine-month period ended December 31, 2000 and the fiscal year ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 2002
23
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands, except share data) 2001 2000
--------------------------------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,474 $ 9,911
Accounts receivable, net of allowances for doubtful accounts
of $1,349 and $510 128,559 80,857
Revenue in excess of amounts billed 25,805 26,560
Prepaid expenses and other 40,380 35,076
---------- ----------
Total current assets 205,218 152,404
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Marine services equipment 340,114 313,853
Mobile offshore production equipment, including construction
in progress of $83,321 in 2000 142,186 124,785
Manufacturing facilities 45,335 41,024
Other 46,103 43,723
---------- ----------
573,738 523,385
Less accumulated depreciation 231,402 187,025
---------- ----------
Net property and equipment 342,336 336,360
---------- ----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $9,221 and $7,526 13,884 11,493
Other 18,173 15,260
---------- ----------
TOTAL ASSETS $ 579,611 $ 515,517
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,902 $ 25,076
Accrued liabilities 74,193 60,139
Income taxes payable 10,739 8,736
Current portion of long-term debt -- 73
---------- ----------
Total current liabilities 113,834 94,024
---------- ----------
LONG-TERM DEBT, NET OF CURRENT PORTION 170,000 180,000
---------- ----------
OTHER LONG-TERM LIABILITIES 44,344 34,599
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, par value $0.25 per share; 90,000,000 shares
authorized; 24,017,046 shares issued 6,004 6,004
Additional paid-in capital 84,105 78,945
Treasury stock; 249,872 and 979,285 shares at cost (3,353) (13,123)
Retained earnings 184,915 151,806
Other comprehensive income (20,238) (16,738)
---------- ----------
Total shareholders' equity 251,433 206,894
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 579,611 $ 515,517
========== ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
24
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands, except per share data) 2001 2000 2000 2000
------------------------------------- ---------- ---------- ------------ ----------
(unaudited)
REVENUE $ 523,820 $ 418,773 $ 307,730 $ 416,820
COST OF SERVICES AND PRODUCTS 420,679 348,225 254,659 345,178
---------- ---------- ---------- ----------
GROSS MARGIN 103,141 70,548 53,071 71,642
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 43,733 41,089 30,860 39,343
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 59,408 29,459 22,211 32,299
INTEREST INCOME 491 497 386 533
INTEREST EXPENSE, NET OF AMOUNTS CAPITALIZED (9,928) (7,104) (5,629) (5,936)
OTHER INCOME (EXPENSE), NET 614 (207) 122 (330)
MINORITY INTERESTS 352 717 586 (341)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 50,937 23,362 17,676 26,225
PROVISION FOR INCOME TAXES (17,828) (8,410) (6,363) (9,441)
---------- ---------- ---------- ----------
NET INCOME $ 33,109 $ 14,952 $ 11,313 $ 16,784
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 1.41 $ 0.65 $ 0.49 $ 0.74
DILUTED EARNINGS PER SHARE $ 1.38 $ 0.64 $ 0.49 $ 0.73
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 23,473 22,895 22,935 22,757
INCREMENTAL SHARES FROM STOCK OPTIONS 442 293 291 279
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS
23,915 23,188 23,226 23,036
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
25
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000 2000
-------------- ---------- ---------- ------------ ----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,109 $ 14,952 $ 11,313 $ 16,784
---------- ---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 47,906 39,748 30,664 33,948
Currency translation adjustments and other 1,767 (720) (46) 1,582
Increase (decrease) in cash from:
Accounts receivable and revenue in excess of
amounts billed, net (46,947) 3,073 11,155 (14,734)
Prepaid expenses and other current assets (9,876) (6,192) (8,029) (2,131)
Other assets 4,809 (5,012) (3,036) (2,922)
Accounts payable 3,826 1,579 (9,517) 11,112
Accrued liabilities 14,054 (1,352) 6,494 (962)
Income taxes payable 7,639 (1,534) 1,595 (2,801)
Other long-term liabilities 3,553 11,190 278 13,192
---------- ---------- ---------- ----------
Total adjustments to net income 26,731 40,780 29,558 36,284
---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,840 55,732 40,871 53,068
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (57,661) (138,662) (101,641) (80,758)
Dispositions of property and equipment 116 12,188 8,122 5,309
Increase in other assets (2,415) (2,827) (2,884) (593)
---------- ---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (59,960) (129,301) (96,403) (76,042)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) on revolving credit, term loan
and other long-term debt (10,073) 69,395 51,748 27,419
Proceeds from issuance of common stock 10,897 3,735 2,694 6,246
Purchases of treasury stock (141) (754) -- (8,057)
---------- ---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 683 72,376 54,442 25,608
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 563 (1,193) (1,090) 2,634
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 9,911 11,104 11,001 8,367
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 10,474 $ 9,911 $ 9,911 $ 11,001
========== ========== ========== ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
26
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Stock Additional Other
Issued Paid-in Treasury Retained Comprehensive
(in thousands) Shares Amounts Capital Stock Earnings Income Total
-------------- ---------- --------- ---------- ---------- ---------- ------------- ----------
BALANCE, MARCH 31, 1999 24,017 $ 6,004 $ 82,421 $ (22,803) $ 123,709 $ (9,892) $ 179,439
Comprehensive Income:
Net Income -- -- -- -- 16,784 -- 16,784
Translation adjustments -- -- -- -- -- (2,827) (2,827)
---------- --------- ---------- ---------- ---------- ------------ ----------
Total Comprehensive Income -- -- -- -- 16,784 (2,827) 13,957
Restricted stock issued -- -- (8,165) 8,165 -- -- --
Stock options exercised -- -- 461 4,233 -- -- 4,694
Restricted stock plan compensation expense -- -- 3,255 -- -- -- 3,255
Treasury stock purchases -- -- -- (8,057) -- -- (8,057)
Treasury stock issued to company benefit
plan, at average cost -- -- -- 2,412 -- -- 2,412
---------- --------- ---------- ---------- ---------- ------------ ----------
BALANCE, MARCH 31, 2000 24,017 6,004 77,972 (16,050) 140,493 (12,719) 195,700
Comprehensive Income:
Net Income -- -- -- -- 11,313 -- 11,313
Translation adjustments -- -- -- -- -- (4,019) (4,019)
---------- --------- ---------- ---------- ---------- ------------ ----------
Total Comprehensive Income -- -- -- -- 11,313 (4,019) 7,294
Restricted stock issued -- -- (175) 175 -- -- --
Stock options exercised -- -- 39 880 -- -- 919
Restricted stock plan compensation expense -- -- 1,109 -- -- -- 1,109
Treasury stock issued to company benefit
plan, at average cost -- -- -- 1,872 -- -- 1,872
---------- --------- ---------- ---------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 2000 24,017 6,004 78,945 (13,123) 151,806 (16,738) 206,894
Comprehensive Income:
Net Income -- -- -- -- 33,109 -- 33,109
Change in fair value of interest
rate hedge -- -- -- -- -- 64 64
Translation adjustments -- -- -- -- -- (3,564) (3,564)
---------- --------- ---------- ---------- ---------- ------------ ----------
Total Comprehensive Income -- -- -- -- 33,109 (3,500) 29,609
Restricted stock issued -- -- 786 (786) -- -- --
Stock options exercised -- -- 1,945 8,271 -- -- 10,216
Restricted stock plan compensation expense -- -- 2,429 -- -- -- 2,429
Treasury stock purchases -- -- -- (141) -- -- (141)
Treasury stock issued to company benefit
plan, at average cost -- -- -- 2,426 -- -- 2,426
---------- --------- ---------- ---------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 2001 24,017 $ 6,004 $ 84,105 $ (3,353) $ 184,915 $ (20,238) $ 251,433
========== ========= ========== ========== ========== ============ ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
27
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
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 its 50% or more owned and controlled subsidiaries.
Oceaneering accounts for its investments in unconsolidated affiliated companies
under the equity method. All significant intercompany accounts and transactions
have been eliminated. As used in these notes, references to "Oceaneering" mean
Oceaneering International, Inc. and its 50% or more owned and controlled
subsidiaries.
Effective November 1, 2000, Oceaneering's Board of Directors approved the change
of its year end to December 31 from March 31. The accompanying financial
statements for the year ended December 31, 2000 are presented for comparative
purposes and are unaudited. Management has reflected all adjustments that it
believes are necessary to present fairly Oceaneering's results of operations and
cash flows for that unaudited period. All such adjustments are of a normal
recurring nature.
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.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
Spare parts for remotely operated vehicles $ 14,316 $ 10,568
Inventories, primarily raw materials 9,385 8,848
Deferred taxes 10,359 8,057
Other 6,320 7,603
---------- ----------
Total $ 40,380 $ 35,076
========== ==========
Inventory is priced at lower of cost or market. Oceaneering determines cost
using the weighted-average method.
Property and Equipment and Goodwill
Oceaneering provides for depreciation of property and equipment primarily on the
straight-line method over estimated useful lives of three to 20 years for marine
services equipment, up to 12 years for mobile offshore production equipment and
three to 25 years for buildings, improvements and other equipment. Goodwill
arising from business acquisitions made before June 30, 2001 was amortized on
the straight-line method over 15 years.
The costs of repair and maintenance of property and equipment are charged to
operations as incurred, while the costs of improvements are capitalized.
Oceaneering accrues in advance for anticipated drydocking expenses of its larger
vessels. Accrued drydock costs, which are included in accrued liabilities on the
balance sheets, were $3.6 million and $3.2 million at December 31, 2001 and
2000, respectively. Interest is capitalized on assets where the construction
period is anticipated to be more than three months. Oceaneering does 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 the resulting gain or loss is included as an
adjustment to cost of services and products.
28
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
During the nine-month period ended December 31, 2000, Oceaneering exchanged its
diving-related assets, including a vessel, in Asia, Australia and the Middle
East for 11 remotely operated vehicles. The assets acquired were recorded at
their fair market value and the transaction did not result in a material gain or
loss to Oceaneering.
Management periodically, and upon the occurrence of a triggering event, reviews
the realizability of goodwill and other long-term assets and makes any
appropriate impairment adjustments and disclosures. During the year ended
December 31, 2001 and the nine-month period ended December 31, 2000, Oceaneering
recorded impairment adjustments of $1.5 million and $2.5 million, respectively,
in the form of additional depreciation included in Cost of Services and Products
within the Mobile Offshore Production Systems business segment. These
adjustments decreased the carrying value of an out-of-service tanker to its
estimated scrap value. During the year ended December 31, 2001, Oceaneering also
recorded an impairment adjustment of $600,000 in the form of additional
depreciation included in the Cost of Services and Products within the Other
Services business segment. This adjustment decreased the carrying value of a
crane barge held for sale to its estimated market value. No other impairment
adjustments were made during the periods presented.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business combinations be accounted for under the purchase method. SFAS No.
141 also establishes criteria for the separate recognition of intangible assets
acquired in a business combination. The adoption of SFAS No. 141 will have no
effect on our consolidated financial position or results of operations. SFAS No.
142 requires for 2002 that goodwill no longer be amortized to earnings, but
instead be subject to periodic testing for impairment. In addition, goodwill for
acquisitions after June 30, 2001 is not amortized. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001 and the non-amortization
provisions are effective for acquisitions taking place after June 30, 2001. For
the year ended December 31, 2001, Oceaneering amortized $1,696,000 of goodwill.
Oceaneering also made an acquisition in the third quarter of 2001 which
generated $3,259,000 of goodwill which, in accordance with the provisions of
SFAS No. 142, was not amortized. We are reviewing the effect SFAS No. 142 will
have on our consolidated financial position and results of operations and, other
than ceasing goodwill amortization effective January 1, 2002, we do not
presently anticipate that SFAS No. 142 will have a significant impact on our
consolidated financial position or results of operations.
Revenue Recognition
Oceaneering's revenue is primarily derived from billings under contracts that
provide for specific time, material and equipment charges, which are accrued
daily and billed periodically, ranging from weekly to monthly. Significant
lump-sum contracts, particularly in the Subsea Products segment, are accounted
for using the percentage-of-completion method. Under this method, we measure the
extent of progress toward completion based on physical progress. Revenue in
Excess of Amounts Billed relates to recoverable costs and accrued profits on
contracts in process. Billings in Excess of Revenue Recognized on uncompleted
contracts are classified in accrued liabilities. Revenue on contracts with a
substantial element of research and development is recognized to the extent of
cost until such time as the probable final profitability can be determined.
Anticipated losses on contracts, if any, are recorded in the period that such
losses are first determinable. Oceaneering believes its revenue recognition
accounting policies comply with SEC Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements."
Revenue in Excess of Amounts Billed are summarized as follows:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
Revenues recognized on uncompleted contracts $ 157,858 $ 117,177
Less: Billings of customers (132,053) (90,617)
---------- ----------
Revenue in excess of amounts billed $ 25,805 $ 26,560
========== ==========
29
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Billings in Excess of Revenues Recognized are summarized as follows:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
Amounts billed to customers $ 26,745 $ 8,269
Less: Revenues recognized (23,752) (5,356)
---------- ----------
Billings in excess of revenue recognized $ 2,993 $ 2,913
========== ==========
Income Taxes
Oceaneering provides income taxes at appropriate tax rates in accordance with
its interpretation of the respective tax laws and regulations after review and
consultation with its internal tax department, tax advisors and, in some cases,
legal counsel in the various jurisdictions. Deferred income taxes are provided
for temporary differences in the recognition of income and expense for financial
and tax reporting purposes. Oceaneering's policy is to provide for deferred U.S.
income taxes on repatriated foreign income only to the extent such income is not
to be invested indefinitely in the related foreign entity.
Foreign Currency Translation
The functional currency for several of Oceaneering's foreign subsidiaries is the
applicable local currency. Results of operations for foreign subsidiaries with
functional currencies other than the U.S. dollar are translated into U.S.
dollars using average exchange rates during the period. Assets and liabilities
of these foreign subsidiaries are translated into U.S. dollars using the
exchange rates in effect at the balance sheet date and the resulting translation
adjustments are accumulated as a component of shareholders' equity. All foreign
currency transaction gains and losses are recognized currently in the
Consolidated Statements of Income.
Earnings Per Share
Basic and diluted earnings per share are computed by dividing net income by the
weighted average number of common shares and the weighted average number of
common shares plus common share equivalents, respectively. The weighted average
number of common shares and equivalents for 2001 exclude an average of 667,000
stock options which were antidilutive.
Other Long-term Liabilities
At December 31, 2001 and 2000, other long-term liabilities include $10.0 million
and $9.1 million, respectively, for self-insurance reserves not expected to be
paid out in the following year and $28.5 million and $22.0 million,
respectively, for deferred income taxes.
Financial Instruments
Oceaneering recognizes all derivative instruments as either assets or
liabilities in the balance sheet and measures 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.
Reclassifications
Certain amounts from prior periods have been reclassified to conform with the
current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and
30
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
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.
2. INCOME TAXES
Oceaneering and its domestic subsidiaries, including acquired companies from
their respective dates of acquisition, file a consolidated U.S. federal income
tax return. Oceaneering conducts its 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. Management believes that
adequate provisions have been made for all taxes that will ultimately be
payable. On a geographic basis, income before minority interests and income
taxes attributable to the United States was $5.4 million, $6.7 million and $10.5
million for the year ended December 31, 2001, the nine-month period ended
December 31, 2000 and the fiscal year ended March 31, 2000, respectively.
The provisions for income taxes were as follows:
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000
-------------- ------------ ------------ -----------
U.S. federal and state $ 9,764 $ 1,671 $ 4,988
Foreign 8,064 4,692 4,453
---------- ---------- ----------
Total provision $ 17,828 $ 6,363 $ 9,441
========== ========== ==========
Current $ 13,623 $ 6,375 $ 2,135
Deferred 4,205 (12) 7,306
---------- ---------- ----------
Total provision $ 17,828 $ 6,363 $ 9,441
========== ========== ==========
Cash taxes paid $ 10,320 $ 4,538 $ 7,906
========== ========== ==========
During the nine-month period ended December 31, 2000, Oceaneering also received
a cash tax refund of $4,353,000.
As of December 31, 2001, Oceaneering's Brazil subsidiary had net operating loss
carryforwards ("NOLs") of approximately $9 million, which are available to
reduce future Brazil income taxes that would otherwise be payable.
As of December 31, 2001 and 2000, Oceaneering's worldwide deferred tax assets
and liabilities were as follows:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
Current deferred tax assets $ 10,359 $ 8,057
========== ==========
Gross deferred tax assets - long-term $ 3,216 $ 5,612
Valuation allowance (3,150) (5,600)
---------- ----------
Net deferred tax assets - long-term $ 66 $ 12
========== ==========
Deferred tax liabilities $ 28,517 $ 21,956
========== ==========
Oceaneering's gross deferred tax assets consist primarily of NOLs in its
Brazilian subsidiary, which have no expiration date, and insurance claim
reserves for which a tax deduction has not yet been allowed. Deferred tax
liabilities consist primarily of depreciation and amortization book/tax
differences and provisions for income of foreign subsidiaries expected to be
repatriated.
31
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Oceaneering has established a valuation allowance for deferred tax assets after
taking into account factors that are likely to affect Oceaneering's ability to
utilize the tax assets. In particular, Oceaneering conducts its business through
several foreign subsidiaries and, although Oceaneering expects its consolidated
operations to be profitable, there is no assurance that profits will be earned
in entities or jurisdictions that have NOLs available. Changes in the valuation
allowance primarily relate to the expected utilization of foreign NOLs and
realization of foreign tax credits. Income taxes, computed by applying the
federal statutory income tax rate of 35% to income before income taxes and
minority interests, are reconciled to the actual provisions for income taxes as
follows:
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000
-------------- ------------ ----------- ----------
Computed U.S. statutory expense $ 17,705 $ 5,981 $ 9,298
Change in valuation allowances (2,450) 1,224 (6,008)
Withholding taxes and foreign earnings taxed
at rates different from U.S. statutory rates 2,319 1,066 3,375
State and local taxes and other, net 254 (1,908) 2,776
---------- ---------- ----------
Total provision for income taxes $ 17,828 $ 6,363 $ 9,441
========== ========== ==========
3. DEBT
Long-term Debt consisted of the following:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
6.72% Senior Notes $ 100,000 $ 100,000
Revolving credit facility 23,000 65,000
Term loan agreement 47,000 15,000
Capital lease -- 73
---------- ----------
Long-term Debt 170,000 180,073
Current portion -- (73)
---------- ----------
Long-term Debt, net of current portion $ 170,000 $ 180,000
========== ==========
Oceaneering has $100 million aggregate principal amount of 6.72% Senior Notes
outstanding and scheduled to be paid in five equal annual installments beginning
September 2006.
Oceaneering has an $80 million revolving credit facility (the "Credit
Agreement"). There is a commitment fee ranging from .20% to .25% per annum,
depending on Oceaneering's debt-to-capitalization ratio, on the unused portion
of the banks' commitments. Principal maturity is in October 2003. Under the
Credit Agreement, Oceaneering has the option to borrow dollars at the London
Interbank Offered Rate ("LIBOR") plus a margin ranging from .50% to 1.00%,
depending on Oceaneering's debt-to-capitalization ratio, or at the agent bank's
prime rate. The weighted average interest rate for borrowings under the Credit
Agreement was 2.56% at December 31, 2001.
In March 2000, Oceaneering entered into a four-year, $50 million term loan
agreement (the "Term Loan"). Borrowings under the Term Loan were made until
March 2001 and principal repayments commenced in October 2001 with final
maturity in April 2004. There are no further borrowings available and no
commitment fees on the Term Loan. Under the Term Loan, Oceaneering pays interest
at LIBOR plus a margin ranging from .75% to 1.25%, depending on Oceaneering's
debt-to-capitalization ratio. The weighted average interest rate for borrowings
under the Term Loan was 3.21% at December 31, 2001. At December 31, 2001,
Oceaneering had an interest rate hedge in place that effectively fixed LIBOR at
3.24% for the remainder of the Term Loan.
32
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Scheduled maturities of Long-term Debt outstanding as of December 31, 2001 were
as follows:
6.72% Credit Term
(in thousands) Notes Agreement Loan Total
-------------- ---------- ---------- ---------- ----------
2002 $ -- $ -- $ 12,000 $ 12,000
2003 -- 23,000 12,000 35,000
2004 -- -- 23,000 23,000
2005 -- -- -- --
2006 20,000 -- -- 20,000
Thereafter 80,000 -- -- 80,000
---------- ---------- ---------- ----------
Total $ 100,000 $ 23,000 $ 47,000 $ 170,000
========== ========== ========== ==========
Maturities in 2002 are not classified as current as of December 31, 2001 since
Oceaneering can extend the maturity by re-borrowing under the Credit Agreement
with a maturity date after one year.
All of these credit arrangements contain similar restrictive covenants as to
minimum net worth, debt-to-capitalization ratio, fixed charge coverage, interest
coverage and restricted payments. Restricted payments, which include dividends
and treasury stock purchases, are limited from April 1, 1998, on a net basis, to
the sum of $25 million plus 50% of Oceaneering's consolidated net income after
April 1, 1998, plus cash proceeds from any sales of common stock.
Cash interest payments of $12.0 million, $6.7 million and $7.7 million were made
in the year ended December 31, 2001, the nine-month period ended December 31,
2000 and the fiscal year ended March 31, 2000, respectively. Interest charges of
$2.0 million, $3.0 million and $1.8 million were capitalized as part of
construction in progress in the year ended December 31, 2001, the nine-month
period ended December 31, 2000 and the fiscal year ended March 31, 2000,
respectively.
4. EMPLOYEE BENEFIT PLANS AND SHAREHOLDER RIGHTS PLAN
Retirement Investment Plans
Oceaneering has three separate employee retirement investment plans which, taken
together, cover most of its full-time employees. The Oceaneering Retirement
Investment Plan is a 401(k) plan in which domestic employees may participate by
deferring a portion of their gross monthly salary and directing Oceaneering to
contribute the deferred amount to the plan. Oceaneering matches a portion of the
employees' deferred compensation. Oceaneering's contributions to the plan were
$3,679,000, $3,220,000 and $2,867,000 for the plan years ended December 31,
2001, 2000 and 1999, respectively.
The second plan is the Oceaneering International Services Pension Scheme for
employees in the United Kingdom. Under this plan, employees may contribute a
portion of their gross monthly salary. Oceaneering also contributes an amount
equal to a portion of the participant's gross monthly salary. The plan assets
exceed vested benefits and are not material to the assets of Oceaneering.
Company contributions to this plan for the year ended December 31, 2001, the
nine-month period ended December 31, 2000 and the fiscal year ended March 31,
2000 were $207,000, $41,000 and $32,000, respectively.
The third plan is the Oceaneering International, Inc. Supplemental Executive
Retirement Plan, which covers selected key management employees and executives
of Oceaneering as approved by the Compensation Committee of Oceaneering's Board
of Directors (the "Compensation Committee"). Under the plan, Oceaneering accrues
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
the year ended December 31, 2001, the nine-month period ended December 31, 2000
and the fiscal year ended March 31, 2000 were $2,134,000, $921,000 and $972,000,
respectively.
Incentive and Stock Option Plans
Under the 1996 and 1999 Incentive Plans and the 2000 Non-Executive Incentive
Plan (the "Incentive Plans"), totals of 1,165,000, 1,450,000 and 1,000,000
shares of common stock of Oceaneering, respectively, were made available for
awards to employees and other persons (excluding nonemployee directors except
with respect to automatic grants as described
33
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
below and, with respect to the 2000 Non-Executive Incentive Plan, excluding
executive officers) having an important business relationship or affiliation
with Oceaneering. Under the 1999 Incentive Plan, each director of Oceaneering is
automatically granted an option to purchase 10,000 shares of common stock on the
date the director becomes a nonemployee director and each year thereafter at an
exercise price per share equal to the fair market value of a share of common
stock on the date the option was granted. These options granted to nonemployee
directors become fully exercisable six months following the date of grant.
The Incentive Plans are administered by the Compensation Committee, which
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. The Compensation Committee may grant stock options,
stock appreciation rights and stock and cash awards. The exercise price for each
option is not less than the fair market value of the optioned shares at the date
of grant. Options outstanding vest over a three- or four-year period and are
exercisable over a period of four, five or ten years after the date of grant or
five years after the date of vesting.
Oceaneering recognizes no compensation cost for stock options it issues unless
options are granted at an option price below the fair market value of the stock
at the date of the grant. Had compensation cost for these stock options been
determined based on fair value, Oceaneering's pro forma net income for the year
ended December 31, 2001, the nine-month period ended December 31, 2000 and for
fiscal 2000 would have been $29,302,000, $9,137,000 and $15,442,000,
respectively, and its diluted earnings per share for those periods would have
been $1.23, $0.39 and $0.67, respectively.
34
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Information regarding these option plans is as follows:
Shares under Weighted Average
Option Exercise Price
------------ ----------------
Balance at March 31, 1999 1,685,170 $ 13.37
Granted 384,000 16.88
Exercised (319,760) 12.48
Forfeited (45,280) 14.12
------------ ------------
Balance at March 31, 2000 1,704,130 14.31
Granted 803,800 14.57
Exercised (66,035) 12.51
Forfeited (93,620) 15.47
------------ ------------
Balance at December 31, 2000 2,348,275 14.40
Granted 748,400 23.57
Exercised (620,685) 13.74
Forfeited (141,330) 17.19
------------ ------------
Balance at December 31, 2001 2,334,660 $ 17.35
============ ============
The weighted average fair value of options granted in the year ended December
31, 2001, the nine-month period ended December 31, 2000 and the fiscal year
ended March 31, 2000 was $9.98, $7.18 and $8.90, respectively. The fair value of
the stock options granted was estimated on the date of grant using the
Black-Scholes option pricing model, with the following assumptions:
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000
-------------- ------------ ------------ ------------
Risk-free interest rate 4.69% 6.13% 5.87%
Expected dividend yield 0% 0% 0%
Expected life 3.0 years 4.5 years 6.0 years
Expected volatility 57.09% 51.24% 46.14%
The following table provides information about the options outstanding at
December 31, 2001.
Outstanding Exercisable
---------------------------------------------- -----------------------------
Weighted
Number of Average Weighted Number of Weighted
Range of Shares at Remaining Average Shares at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 2001 Life (years) Price 2001 Price
-------- ------------ ------------ ------------ ------------ ------------
$4.72 - 14.36 403,300 2.07 $ 10.65 317,525 $ 10.73
$14.37 - 16.56 988,360 3.37 $ 15.03 507,160 $ 15.05
$16.57 - 23.82 943,000 3.71 $ 22.65 434,250 $ 21.62
At December 31, 2001, there were 277,450 shares of Oceaneering common stock
under these plans available for grant, in the form of stock options, stock
appreciation rights or stock awards, subject to no more than 144,150 shares
being used for awards other than stock options or stock appreciation rights to
employees.
During the nine-month period ended December 31, 2000 and the fiscal year ended
March 31, 2000, the Compensation Committee granted restricted common stock of
Oceaneering to certain of its key executives. No restricted common stock of
Oceaneering was granted in 2001. These grants are subject to earning
requirements on the basis of a percentage change between the price of the common
stock of Oceaneering versus the average of the common stock price of a peer
group of companies over two- and three- year periods, respectively. Up to
one-half of the grant made in the nine-month period ended December 31, 2000 and
up to one-third of the grants made in the fiscal year ended March 31, 2000 may
be earned each year depending on Oceaneering's cumulative common stock
performance, with any amount earned subject to vesting in four equal
installments over a four-year period, conditional upon continued employment. At
the time of each vesting, a participant receives a tax assistance payment for
which the participant must reimburse Oceaneering if the vested common stock is
sold by the participant within three years after the vesting date. As of
December 31, 2001, one-half of the grant made in the nine-month period ended
December 31, 2000 had been earned and two-thirds of the grants made in the
fiscal year ended March 31, 2000 had been earned. As of December 31, 2001, a
total of 533,000 shares of restricted stock was outstanding and unvested under
these and former, similar grants, of which 360,000 shares were earned, subject
to vesting requirements. The numbers and weighted average grant date fair values
of restricted stock granted were 16,000 and $19.87, respectively, during the
nine-month period ended December 31, 2000 and 549,000 and $17.06, respectively,
during the fiscal year ended March 31, 2000. In June 1999, certain key
executives also elected to receive restricted common stock of Oceaneering
totaling 42,812 shares with grant date fair values of $16.56 per share, subject
to similar vesting requirements and tax assistance payments, in lieu of cash for
all or part of their fiscal 1999 bonus awards. Each grantee of shares of
restricted stock mentioned in this paragraph 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.
Shareholder Rights Plan
Oceaneering has a Shareholder Rights Plan dated as of November 20, 1992, as
amended and restated as of November 16, 2001. One preferred share purchase right
exists for each outstanding share of Oceaneering's common stock. The plan will
cause substantial dilution to a party that attempts to acquire Oceaneering in a
manner or on terms not approved by
35
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Oceaneering's Board of Directors. The rights, which do not have voting rights
and are not entitled to dividends until such time as they become exercisable,
are scheduled to expire in November 2011.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2001, Oceaneering occupied several facilities under
noncancellable operating leases expiring at various dates through 2023. Future
minimum rentals under these leases are as follows:
(in thousands)
2002 $ 4,617
2003 3,893
2004 3,543
2005 2,794
2006 2,532
Thereafter 8,497
-------
Total Lease Commitments $25,876
=======
Rental expense, which includes hire of vessels, specialized equipment and real
estate rental, was approximately $14 million, $13 million and $22 million for
the year ended December 31, 2001, the nine-month period ended December 31, 2000
and the fiscal year ended March 31, 2000, respectively.
Insurance
Oceaneering self-insures for workers' compensation, maritime employer's
liability and comprehensive general liability claims to levels it considers
financially prudent and carries insurance after it reaches the initial claim
levels, which can be by occurrence or in the aggregate. Oceaneering determines
the level of accruals by reviewing its historical experience and current year
claim activity. It does not record accruals on a present-value basis.
Oceaneering reviews each claim with insurance adjusters and establishes specific
reserves for all known liabilities. It establishes an additional reserve for
incidents incurred but not reported to Oceaneering for each year using
management estimates and based on prior experience. Oceaneering's management
believes that Oceaneering has established adequate accruals for uninsured
expected liabilities arising from those obligations.
Litigation
Various actions and claims are pending against Oceaneering, most of which are
covered by insurance. In the opinion of Oceaneering's management, the ultimate
liability, if any, that may result from these actions and claims will not
materially affect Oceaneering's financial position or results of operations.
Letters of Credit
Oceaneering had $23 million and $17 million in letters of credit outstanding as
of December 31, 2001 and 2000, respectively, as guarantees in force for
self-insurance requirements and various performance and bid bonds, which are
usually for a period of approximately one year or the duration of the applicable
contract.
Financial Instruments and Risk Concentration
In the normal course of business, Oceaneering manages 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, Oceaneering
does not use derivative instruments unless there is an underlying exposure. We
do not use derivative instruments for trading or speculative purposes.
36
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
As of December 31, 2001, Oceaneering had an interest rate hedge in place, which
fixed three-month LIBOR at 3.24%, effective January 2, 2002. This applies to the
scheduled balance of the Term Loan, and the amount is reduced by the scheduled
amortization of the Term Loan.
Other financial instruments that potentially subject Oceaneering to
concentrations of credit risk are primarily cash and cash equivalents, long-term
bank and other borrowings and accounts receivable. The carrying values of cash
and cash equivalents and bank borrowings approximate their fair values due to
the short maturity of those instruments or the short-term duration of the
associated interest rate periods. Accounts receivable are generated from a broad
and diverse group of customers, primarily from within the energy industry, which
is Oceaneering's major source of revenue. Oceaneering maintains an allowance for
doubtful accounts based on expected collectibility.
Oceaneering estimated the fair value of its $100 million of 6.72% Senior Notes
(see Note 3) to be $101 million as of December 31, 2001. This estimate was
arrived at by computing the present value of the future principal and interest
payments using a yield-to-maturity interest rate for securities of similar
quality and term.
Post-Employment Benefit
In November 2001, Oceaneering entered into an agreement with its Chairman and
Chief Executive Officer (the "Chairman"). The agreement provides for a specific
employment period with Oceaneering through August 15, 2006, followed by a
specific service period ending no later than August 15, 2011, during which the
Chairman, acting as an independent contractor, has agreed to serve as
non-executive Chairman of the Board of Directors of Oceaneering if requested to
serve in such capacity by the Board of Directors of Oceaneering. The agreement
provides the Chairman with a post-employment benefit of ten years following his
services to Oceaneering. The agreement also provides for medical coverage on an
after-tax basis to the Chairman, his spouse and children during his employment
with Oceaneering, and, under certain circumstances, thereafter for their lives.
Oceaneering is recognizing the net present value of the post-employment benefits
over the expected service period. If the service period is reduced or
terminated, Oceaneering will recognize the previously unaccrued benefits.
6. OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Business Segment Information
Oceaneering supplies a comprehensive range of integrated technical services to a
variety of industries and is one of the world's largest underwater services
contractors. Oceaneering's Offshore Oil and Gas business consists of remotely
operated vehicles ("ROVs"), Subsea Products, Mobile Offshore Production Systems
and Other Services. Oceaneering's Subsea Products segment supplies umbilicals,
production control equipment, pipeline repair systems and ROV tooling and work
packages. Oceaneering's Other Services segment provides multiservice vessels,
oilfield diving, nondestructive inspection and testing and support vessel
operations, which are used primarily in inspection, repair and maintenance
activities. Oceaneering's Advanced Technologies business provides project
management, engineering services and equipment for applications in non-oilfield
markets.
37
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
The following table presents Revenues, Income (Loss) from Operations and
Depreciation and Amortization Expense for the years ended December 31, 2001 and
2000, for the nine-month period ended December 31, 2000 and the fiscal year
ended March 31, 2000 by business segment:
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000 2000
-------------- ---------- ---------- ------------ -----------
(unaudited)
REVENUE
Offshore Oil and Gas
Remotely Operated Vehicles $ 153,929 $ 100,985 $ 78,953 $ 94,617
Subsea Products 125,608 92,165 65,771 69,744
Mobile Offshore Production Systems 39,154 21,653 15,788 23,983
Other Services 102,250 93,291 65,206 105,505
---------- ---------- ---------- ----------
Total Offshore Oil and Gas 420,941 308,094 225,718 293,849
Advanced Technologies 102,879 110,679 82,012 122,971
---------- ---------- ---------- ----------
Total $ 523,820 $ 418,773 $ 307,730 $ 416,820
========== ========== ========== ==========
INCOME (LOSS) FROM OPERATIONS
Offshore Oil and Gas
Remotely Operated Vehicles $ 32,784 $ 16,525 $ 12,316 $ 14,064
Subsea Products 7,243 2,334 1,225 1,499
Mobile Offshore Production Systems 8,552 6,303 4,271 7,629
Other Services 3,543 (4,668) (636) (3,169)
---------- ---------- ---------- ----------
Total Offshore Oil and Gas 52,122 20,494 17,176 20,023
Advanced Technologies 7,286 8,965 5,035 12,276
---------- ---------- ---------- ----------
Total $ 59,408 $ 29,459 $ 22,211 $ 32,299
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION EXPENSE
Offshore Oil and Gas
Remotely Operated Vehicles $ 22,611 $ 17,649 $ 13,719 $ 13,827
Subsea Products 5,449 4,525 3,401 4,212
Mobile Offshore Production Systems 8,800 6,534 5,497 4,239
Other Services 8,225 7,965 5,791 7,906
---------- ---------- ---------- ----------
Total Offshore Oil and Gas 45,085 36,673 28,408 30,184
Advanced Technologies 2,821 3,075 2,256 3,764
---------- ---------- ---------- ----------
Total $ 47,906 $ 39,748 $ 30,664 $ 33,948
========== ========== ========== ==========
38
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
The following tables present Assets and Capital Expenditures by business segment
as of and for the periods indicated:
As of December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
ASSETS
Offshore Oil and Gas
Remotely Operated Vehicles $ 169,410 $ 161,355
Subsea Products 109,522 85,401
Mobile Offshore Production Systems 115,186 107,677
Other Services 93,500 84,110
---------- ----------
Total Offshore Oil and Gas 487,618 438,543
Advanced Technologies 50,729 49,555
Other 41,264 27,419
---------- ----------
Total $ 579,611 $ 515,517
========== ==========
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000
-------------- ------------ ------------ ------------
CAPITAL EXPENDITURES
Offshore Oil and Gas
Remotely Operated Vehicles $ 23,242 $ 25,293 $ 29,614
Subsea Products 8,506 6,299 4,700
Mobile Offshore Production Systems 19,225 61,972 16,590
Other Services 5,078 7,480 20,320
------------ ------------ ------------
Total Offshore Oil and Gas 56,051 101,044 71,224
Advanced Technologies 1,610 597 9,534
------------ ------------ ------------
Total $ 57,661 $ 101,641 $ 80,758
============ ============ ============
Income (loss) from operations for each business segment is determined before
interest income or expense, other income (expense), minority interests and
provision for income taxes. An allocation of these items is not considered
practical. All assets specifically identified with a particular business segment
have been segregated. Cash and cash equivalents, certain prepaid expenses and
other current assets, certain investments and other assets have not been
allocated to particular business segments.
No individual customer accounted for more than 10% of Oceaneering's consolidated
revenue in the year ended December 31, 2001, the nine-month period ended
December 31, 2000 or the fiscal year ended March 31, 2000.
39
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
Geographic Operating Areas
The following table summarizes certain financial data by geographic area:
Nine-Month Fiscal Year
Year Ended Period Ended Ended
December 31, December 31, March 31,
(in thousands) 2001 2000 2000
-------------- ------------ ------------ ------------
REVENUE
United States $ 277,550 $ 165,858 $ 207,415
Norway 27,671 18,484 26,934
United Kingdom 43,173 20,127 26,504
Australia 23,665 2,325 3,942
Indonesia 8,116 6,389 25,983
Other Asia 23,376 22,585 37,439
Africa 60,200 35,798 49,673
Brazil 40,349 21,061 16,515
Other 19,720 15,103 22,415
------------ ------------ ------------
Total $ 523,820 $ 307,730 $ 416,820
============ ============ ============
LONG-LIVED ASSETS December 31, 2001 December 31, 2000 March 31, 2000
----------------- ----------------- --------------
United States $ 184,375 $ 182,881 $ 205,861
Europe 39,738 50,614 46,614
Africa 26,012 8,736 10,088
Asia 23,225 18,456 22,494
Australia 86,968 83,321 --
Brazil 8,792 14,814 14,738
------------ ------------ ------------
Total $ 369,110 $ 358,822 $ 299,795
============ ============ ============
Revenue is based on location for services and facility location for products.
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
December 31,
(in thousands) 2001 2000
-------------- ---------- ----------
Payroll and related costs $ 25,230 $ 18,130
Accrued job costs 28,172 22,415
Self insurance reserves for claims expected to be paid within one year 6,323 5,422
Billings in excess of revenue recognized 2,993 2,913
Other 11,475 11,259
---------- ----------
Total Accrued Liabilities $ 74,193 $ 60,139
========== ==========
40
OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
Year Ended December 31, 2001
QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
------------- ---------- ---------- ---------- ---------- ----------
Revenue $ 104,254 $ 132,223 $ 141,681 $ 145,662 $ 523,820
Gross profit 20,804 24,741 29,045 28,551 103,141
Income from operations 10,288 14,122 18,169 16,829 59,408
Net income 5,204 7,717 10,342 9,846 33,109
Diluted earnings per share $ 0.22 $ 0.32 $ 0.43 $ 0.41 $ 1.38
Weighted average number of
common shares and equivalents 23,650 24,022 23,973 24,013 23,915
Year Ended December 31, 2000
QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
------------- ---------- ---------- ---------- ---------- ----------
Revenue $ 111,043 $ 104,039 $ 100,464 $ 103,227 $ 418,773
Gross profit 17,477 15,373 18,373 19,325 70,548
Income from operations 7,248 5,378 7,980 8,853 29,459
Net income 3,639 2,703 4,112 4,498 14,952
Diluted earnings per share $ 0.16 $ 0.12 $ 0.18 $ 0.19 $ 0.64
Weighted average number of
common shares and equivalents 23,074 23,186 23,221 23,271 23,188
41
INDEX TO EXHIBITS
Registration
or File Form or Report Exhibit
Number Report Date Number
------------ ------- ------ -------
*3.01 Restated Certificate of Incorporation 1-10945 10-K Dec. 2000 3.01
3.02 Amended and Restated By-Laws
*4.01 Specimen of Common Stock Certificate 1-10945 10-K March 1993 4(a)
*4.02 Amended and Restated Shareholder Rights Agreement dated
as of November 16, 2001 1-10945 8-K Nov. 2001 4.1
*4.03 Note Purchase Agreement dated as of September 8, 1998 relating to
$100,000,000 6.72% Senior Notes due September 8, 2010 1-10945 10-Q Sept. 1998 4.01
*4.04 Loan Agreement ($80,000,000 Revolving Credit Facility)
dated as of October 23, 1998 1-10945 10-Q Sept. 1998 4.02
*4.05 Loan Agreement ($50,000,000 Term Loan) dated as of
March 30, 2000 1-10945 10-K/A March 2000 4.05
We and certain of our consolidated subsidiaries are parties to debt instruments
under which the total amount of securities authorized does not exceed 10 percent
of our total consolidated assets. Pursuant to paragraph 4(ii)(A) of Item 601(b)
of Regulation S-K, we agree to furnish a copy of those instruments to the
Securities and Exchange Commission on request.
10.01+ Defined Contribution Master Plan and Trust Agreement and
Adoption Agreement for the Oceaneering International, Inc.
Retirement Investment Plan
10.02+ Service Agreement dated as of November 16, 2001 between
Oceaneering and John R. Huff
*10.03+ 2000 Non-Executive Incentive Plan 333-50400 S-8 Nov. 2000 4.6
*10.04+ Amended and Restated Supplemental Executive Retirement Plan 1-10945 10-Q Dec. 1999 10.1
*10.05+ 1999 Restricted Stock Award Incentive Agreements
dated August 19, 1999 1-10945 10-Q Sept. 1999 10.1
10.06+ Change of Control Agreements dated as of November 16, 2001
between Oceaneering and John R. Huff, T. Jay Collins, Marvin J. Migura,
M. Kevin McEvoy and George R. Haubenreich, Jr., respectively
*10.07+ 1999 Bonus Restricted Stock Award Agreements 1-10945 10-K/A March 2000 10.20
*10.08+ 1999 Incentive Plan 1-10945 10-K March 2000 10.08
10.09+ 2001 Bonus Award Plan
*10.10+ 1990 Long-Term Incentive Plan 33-36872 S-8 Sept. 1990 4(f)
*10.11+ 1990 Nonemployee Directors Stock Option Plan 33-36872 S-8 Sept. 1990 4(g)
10.12+ Form of Indemnification Agreement dated November 16, 2001 between
Oceaneering and each of its Directors, T. Jay Collins, Marvin J. Migura,
M. Kevin McEvoy and George R. Haubenreich, Jr
*10.14+ 1996 Incentive Plan of Oceaneering International, Inc. 1-10945 10-Q Sept. 1996 10.02
*10.15+ 1996 Restricted Stock Award Incentive Agreements
dated August 23, 1996 1-10945 10-Q Sept. 1996 10.03
*10.16+ 1997 Bonus Restricted Stock Award Agreements
dated April 22, 1997 1-10945 10-K March 1997 10.20
*10.17+ Amendment No. 1 to 1990 Nonemployee Director Stock
Option Plan 1-10945 10-K March 1999 10.19
*10.18+ 1998 Bonus Restricted Stock Award Agreements 1-10945 10-K March 1999 10.20
12.01 Statement showing Computation of Ratio of Earnings to Fixed Charges
21.01 Subsidiaries of Oceaneering
23.01 Consent of Independent Public Accountants
24.01 Powers of Attorney
99.01 Letter to the Securities and Exchange Commission re Arthur Andersen LLP
* Indicates exhibit previously filed with the Securities and Exchange
Commission as indicated and incorporated herein by reference.
+ Indicates management contract or compensatory plan or arrangement.