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    Oceaneering Reports Second Quarter 2016 Results

    July 21, 2016
    • Reported EPS of $0.23
    • Adjusted EPS of $0.27, in line with consensus
    • Ended the quarter with $393 million in cash and an undrawn $500 million revolver

    July 21, 2016 – Houston, Texas – Oceaneering International, Inc. (“Oceaneering”) (NYSE:OII) today reported net income of $22.3 million, or $0.23 per share, on revenue of $626 million for the three months ended June 30, 2016. Excluding the impacts of a total of $7.0 million of bad debt expense and foreign currency exchange losses, adjusted net income was $26.8 million, or $0.27 per share.

    During the prior quarter ended March 31, 2016, Oceaneering reported net income of $25.1 million, or $0.26 per share, on revenue of $608 million. Those results included $5.9 million of pre-tax foreign currency losses, reported in other income and expenses.

    The calculations of adjusted net income and earnings per share are shown in the table Adjusted Net Income and Diluted Earnings per Share (EPS), under the caption Reconciliation of Non-GAAP to GAAP Financial Information.

    Summary of Results
    (in thousands, except per share amounts)


    Three Months Ended Six Months Ended

    Jun 30, Mar 31, Jun 30,

    2016 2015 2016 2016 2015
    Revenue $625,539 $810,303 $608,344 $1,233,883 $1,597,075
    Gross Margin 95,233 167,545 97,480 192,713 330,994
    Income from Operations 38,380 107,940 48,099 86,479 214,590
    Net Income $22,309 $65,468 $25,103 $47,412 $134,967






    Diluted Earnings Per Share $0.23 $0.66 $0.26 0.48 $1.36

    Sequentially, operating income declined 20% on reduced profit contributions from Subsea Products and Remotely Operated Vehicles (“ROV”), with a slight increase in Subsea Projects and Advanced Technologies, and lower Unallocated Expenses. Without the impact of $5.8 million of bad debt expense, adjusted operating income was down 8%.

    M. Kevin McEvoy, Chief Executive Officer of Oceaneering, stated, “Despite the ongoing challenging offshore market environment, we are pleased that each of our operating segments remained profitable, excluding the negative impact of the bad debt expense. Relative to our peers, overall EBITDA margin of 15% is noteworthy.

    “Compared to the first quarter, ROV operating income was down, resulting primarily from a 6% decline in average revenue per day on hire due to lower pricing and a shift in geographic mix. During the quarter our ROV fleet size of 318 vehicles and utilization of 55% was unchanged from that of the prior quarter. Our drill support market share during this period was 58% of the 174 floating rigs under contract, essentially flat with the prior quarter. We remain focused on maintaining our market share of ROVs on contracted rigs and high-specification third-party vessels most likely to return to work when the market recovers, as demonstrated by our recent announcement of our long-term arrangement with Heerema Marine Contractors.

    “Subsea Products operating income declined as expected, due to a combination of lower margins realized on umbilical throughput and reduced demand for tooling and installation and workover control systems. Our Subsea Products backlog at June 30, 2016 was $503 million, compared to our March 31, 2016 backlog of $576 million. The backlog decline was primarily related to umbilicals. We continue to expect Subsea Products margins to weaken throughout the year on lower throughput and more competitive pricing for the orders currently in execution. Our book to bill ratio year-to-date was 0.61.

    “Subsea Projects operating income increased, mainly due to lower regulatory vessel inspection expenses and additional revenue, as the Ocean Alliance returned to work after a scheduled drydocking. Asset Integrity operating income declined, primarily due to a $3.3 million bad debt provision recognized during the quarter. Advanced Technologies operating income increased, due to increased engineering services and support for the U.S. Navy. Unallocated Expenses were lower due to reduced incentive compensation expense, principally related to our long-term plans.

    “With continued limited visibility, we are expecting that the second half of 2016 will be weaker than the first half. We expect lower operating income contributions from Subsea Products and ROVs, partially offset by an increase in Advanced Technologies, while other segment results should be relatively flat on an adjusted basis. We are continuing to focus our operations on proactively working with our customers to develop cost effective and efficient solutions that may enable more projects to progress despite a low commodity price.

    “In navigating this landscape, we remain focused on maintaining our market position while working to preserve Oceaneering’s core capabilities for the long term, balanced with the imperative to tailor costs and resources to match our demand profile. These efforts combined with our liquidity and ability to generate cash leave us well-positioned for the eventual offshore and subsea market cycle recovery.”

    This release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to the expectations, beliefs and future expected business, financial performance and prospects of the Company. More specifically, the forward-looking statements in this press release include the statements concerning Oceaneering’s: characterization of certain third-party vessels as most likely to return to work when the market recovers; statements about backlog, to the extent it may be an indicator of future revenue or profitability; expectation about Subsea Products’ margins; overall outlook for the second half of 2016, and expected contributions of each segment to the operating results for the second half of 2016; and belief that its liquidity and ability to generate cash leave it well-positioned for the eventual offshore and subsea market cycle recovery. The forward-looking statements included in this release are based on our current expectations and are subject to certain risks, assumptions, trends and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. Among the factors that could cause actual results to differ materially include backlog, costs, capital expenditures, future earnings, capital allocation strategies, dividend levels, sustainability of dividend levels, liquidity, competitive position, financial flexibility, debt levels, forecasts or expectations regarding business outlook; growth for Oceaneering as a whole and for each of its segments (and for specific products or geographic areas within each segment); factors affecting the level of activity in the oil and gas industry; supply and demand of drilling rigs; oil and natural gas demand and production growth; oil and natural gas prices; fluctuations in currency markets worldwide; the loss of major contracts or alliances; future global economic conditions; and future results of operations. For a more complete discussion of these risk factors, please see Oceaneering’s latest annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

    We define “EBITDA margin” as (1) net income plus provision for income taxes, interest expense, net, and depreciation and amortization divided by (2) total revenue. EBITDA margin is a non-GAAP financial measure. We have included EBITDA margin disclosures in this press release because EBITDA margin is widely used by investors for valuation and comparing our financial performance with the performance of other companies in our industry. Our presentation of EBITDA margin may not be comparable to similarly titled measures other companies report. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP. For a reconciliation of our EBITDA margin amounts to the most directly comparable GAAP financial measures, please see the attached schedule.

    Oceaneering is a global provider of engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology expertise, Oceaneering also serves the defense, entertainment, and aerospace industries.

    For more information on Oceaneering, please visit www.oceaneering.com.

    Contact:
    Suzanne Spera
    Director, Investor Relations
    Oceaneering International, Inc.
    713-329-4707
    investorrelations@oceaneering.com

    OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS

    Jun 30, 2016 Dec 31, 2015

    (in thousands)
    ASSETS

    Current Assets (including cash and cash equivalents of $393,190 and $385,235) $ 1,415,356 $ 1,517,493
    Net Property and Equipment 1,210,020 1,266,731
    Other Assets 693,828 645,312
    TOTAL ASSETS $ 3,319,204 $ 3,429,536



    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current Liabilities $ 497,595 $ 615,956
    Long-term Debt 802,338 795,836
    Other Long-term Liabilities 427,634 439,010
    Shareholders' Equity 1,591,637 1,578,734
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,319,204 $ 3,429,536
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME

    For the Three Months Ended For the Six Months Ended

    Jun 30, 2016 Jun 30, 2015 Mar 31, 2016 Jun 30, 2016 Jun 30, 2015

    (in thousands, except per share amounts)
    Revenue $ 625,539 $ 810,303 $ 608,344 $ 1,233,883 $ 1,597,075
    Cost of services and products 530,306 642,758 510,864 1,041,170 1,266,081
    Gross Margin 95,233 167,545 97,480 192,713 330,994
    Selling, general and administrative expense 56,853 59,605 49,381 106,234 116,404
    Income from Operations 38,380 107,940 48,099 86,479 214,590
    Interest income 1,442 51 295 1,737 207
    Interest expense (6,207) (6,212) (6,392) (12,599) (12,300)
    Equity earnings (losses) of unconsolidated affiliates 263 1 526 789 (254)
    Other income (expense), net (1,405) (6,484) (5,988) (7,393) (5,784)
    Income before Income Taxes 32,473 95,296 36,540 69,013 196,459
    Provision for income taxes 10,164 29,828 11,437 21,601 61,492
    Net Income $ 22,309 $ 65,468 $ 25,103 $ 47,412 $ 134,967






    Weighted average diluted shares outstanding 98,424 98,893 98,286 98,355 99,401
    Diluted Earnings per Share $ 0.23 $ 0.66 $ 0.26 $ 0.48 $ 1.36
    The above Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income should be read in conjunction with the Company's latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
    SEGMENT INFORMATION


    For the Three Months Ended For the Six Months Ended


    Jun 30, 2016 Jun 30, 2015 Mar 31, 2016 Jun 30, 2016 Jun 30, 2015

    ($ in thousands)
    Remotely Operated Vehicles Revenue $ 139,641 $ 216,426 $ 147,621 $ 287,262 $ 435,873

    Gross Margin $ 26,925 $ 70,132 $ 35,322 $ 62,247 $ 141,443

    Operating Income $ 18,020 $ 61,294 $ 26,987 $ 45,007 $ 123,476

    Operating Income % 13 % 28 % 18 % 16 % 28 %

    Days available 28,959 30,465 28,819 57,778 60,596

    Days utilized 16,057 21,710 16,005 32,062 43,849

    Utilization % 55 % 71 % 56 % 55 % 72 %

    Subsea Products Revenue $ 190,897 $ 240,057 $ 194,812 $ 385,709 $ 480,786

    Gross Margin $ 42,728 $ 62,465 $ 56,136 $ 98,864 $ 132,232

    Operating Income $ 25,121 $ 42,286 $ 40,640 $ 65,761 $ 92,300

    Operating Income % 13 % 18 % 21 % 17 % 19 %

    Backlog at end of period $ 503,000 $ 703,000 $ 576,000 $ 503,000 $ 703,000

    Subsea Projects Revenue $ 138,662 $ 172,324 $ 129,422 $ 268,084 $ 325,896

    Gross Margin $ 14,317 $ 36,989 $ 11,509 $ 25,826 $ 63,889

    Operating Income $ 10,237 $ 30,607 $ 6,789 $ 17,026 $ 52,883

    Operating Income % 7 % 18 % 5 % 6 % 16 %

    Asset Integrity Revenue $ 73,864 $ 95,509 $ 69,600 $ 143,464 $ 194,002

    Gross Margin $ 10,096 $ 11,750 $ 7,343 $ 17,439 $ 24,549

    Operating Income $ (805) $ 4,576 $ 434 $ (371) $ 9,601

    Operating Income % (1) % 5 % 1 % — % 5 %

    Advanced Technologies Revenue $ 82,475 $ 85,987 $ 66,889 $ 149,364 $ 160,518

    Gross Margin $ 10,600 $ 10,945 $ 5,827 $ 16,427 $ 20,345

    Operating Income $ 5,528 $ 6,267 $ 593 $ 6,121 $ 11,287

    Operating Income % 7 % 7 % 1 % 4 % 7 %

    Unallocated Expenses

    Gross Margin $ (9,433) $ (24,736) $ (18,657) $ (28,090) $ (51,464)

    Operating Income $ (19,721) $ (37,090) $ (27,344) $ (47,065) $ (74,957)

    TOTAL Revenue $ 625,539 $ 810,303 $ 608,344 $ 1,233,883 $ 1,597,075

    Gross Margin $ 95,233 $ 167,545 $ 97,480 $ 192,713 $ 330,994

    Operating Income $ 38,380 $ 107,940 $ 48,099 $ 86,479 $ 214,590

    Operating Income % 6 % 13 % 8 % 7 % 13 %
    SELECTED CASH FLOW INFORMATION


    For the Three Months Ended For the Six Months Ended


    Jun 30, 2016 Jun 30, 2015 Mar 31, 2016 Jun 30, 2016 Jun 30, 2015

    ($ in thousands)
    Capital expenditures, including acquisitions $ 31,738 $ 275,347 $ 21,206 $ 52,944 $ 324,759

    Depreciation and Amortization:
    Oilfield

    Remotely Operated Vehicles $ 34,026 $ 35,661 $ 33,684 $ 67,710 $ 72,142

    Subsea Products 12,952 13,498 12,807 25,759 25,566

    Subsea Projects 8,353 9,707 8,519 16,872 14,358

    Asset Integrity 2,843 2,696 2,913 5,756 5,559
    Total Oilfield
    58,174 61,562 57,923 116,097 117,625
    Advanced Technologies 806 619 734 1,540 1,261
    Unallocated Expenses 999 1,302 1,124 2,123 2,600


    $ 59,979 $ 63,483 $ 59,781 $ 119,760 $ 121,486
    RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL INFORMATION

    In addition to financial results determined in accordance with US generally accepted accounting principles (GAAP), this Press Release also includes non-GAAP financial measures (as defined under SEC Regulation G). We believe the adjusted amounts are more representative of our ongoing performance. The following is a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures:

    Adjusted Operating Income

    For the Three Months Ended

    Jun 30, 2016 Jun 30, 2015 Mar 31, 2016

    ($ in thousands)
    Operating income as reported in accordance with GAAP $ 38,380 $ 107,940 $ 48,099
    Adjustments for the effects of:
    Inventory write-down 9,025
    Bad debt expense 5,757
    Adjusted operating income $ 44,137 $ 116,965 $ 48,099
    Adjusted Net Income and Diluted Earnings per Share (EPS)


    For the Three Months Ended

    Jun 30, 2016 Jun 30, 2015

    Net Income Diluted EPS Net Income Diluted EPS

    (in thousands, except per share amounts)

    Net Income and Diluted EPS as reported in accordance with GAAP $ 22,309 $ 0.23 $ 65,468 $ 0.66
    Adjustments for the effects of:
    Inventory write down
    9,025
    Bad debt expense 5,757
    $
    Foreign currency losses 1,218
    5,978
    Total pre tax adjustments 6,975
    15,003
    Tax effect 2,441
    5,251
    Total adjustments after tax 4,534
    $ 59,781 9,752
    Adjusted amounts $ 26,843 $ 0.27 $ 75,220 $ 0.76
    Notes:
    Incremental applicable income tax rate used for each period presented is 35%.
    Weighted average number of diluted shares in each period presented is the same for each adjusting item as used in accordance with GAAP for that period.
    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and EBITDA Margin


    For the Three Months Ended For the Six Months Ended For the Year Ended

    Jun 30, 2016 Jun 30, 2015 Mar 31, 2016 Jun 30, 2016 Jun 30, 2015 Dec 31, 2015

    ($ in thousands)
    Net Income $ 22,309 $ 65,468 $ 25,103 $ 47,412 $ 134,967 $ 231,011
    Depreciation and Amortization 59,979 63,483 59,781 119,760 121,486 241,235

    Subtotal 82,288 128,951 84,884 167,172 256,453 472,246
    Net Income $ 22,309 $ 65,468 $ 25,103 $ 47,412 $ 134,967 $ 231,011
    Interest Expense, net of Interest Income 4,765 6,161 6,097 10,862 12,093 24,443
    Amortization included in Interest Expense (286) (265) (287) (573) (531) (1,077)
    Provision for Income Taxes 10,164 29,828 $11,437 21,601 61,492 105,250

    EBITDA $ 96,931 $ 164,675 $ 102,131 $ 199,062 $ 329,507 $ 600,862
    Revenue $ 625,539 $ 810,303 $ 608,344 $ 1,233,883 $ 1,597,075 $ 3,062,754
    EBITDA margin % 15 % 20 % 17 % 16 % 21 % 20 %
    We define EBITDA as net income plus provision for income taxes, interest expense, net, and depreciation and amortization. EBITDA is a non-GAAP financial measure. We have included EBITDA disclosures in this press release because EBITDA is widely used by investors for valuation and comparing our financial performance with the performance of other companies in our industry. Our presentation of EBITDA may not be comparable to similarly titled measures other companies report. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP.
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