During the fourth quarter of 2004, on revenue of $226.0 million, Oceaneering generated net income of $11.7 million, or $0.45 per share. During the corresponding period in 2003, Oceaneering reported revenue of $162.1 million and net income of $6.1 million, or $0.25 per share. For the year 2004, Oceaneering reported net income of $40.3 million, or $1.57 per share, on revenue of $780.2 million. Net income for 2003 was $29.3 million, or $1.20 per share, on revenue of $639.2 million.
Summary of Results (in thousands, except per share amounts) Three months ended Year ended Dec. 31, Sept. 30, Dec. 31, 2004 2003 2004 2004 2003 Revenue $226,038 $162,065 $192,862 $780,181 $639,249 Gross Margin $39,095 $28,023 $34,205 $131,803 $110,784 Operating Income $19,357 $11,747 $18,719 $63,864 $53,997 Net Income $11,712 $6,142 $12,846 $40,300 $29,301 Diluted Earnings Per Share $0.45 $0.25 $0.50 $1.57 $1.20 Weighted Average Number of Diluted Shares 25,903 24,539 25,871 25,685 24,453
Fourth quarter net income improved $5.6 million as the result of higher operating income from five of six business segments and an increase in equity income contribution from the Medusa Spar. The quarter also included $1.9 million of pre-tax write-downs related to Oceaneering's investment in a subsea telecommunication cable service joint venture reported in equity income of unconsolidated affiliates. The effective income tax rate for 2004 was approximately 34%, as compared to the 35% rate previously estimated. Using the actual determined tax rate resulted in a 31% tax rate for the fourth quarter's tax provision.
Annual net income improved $11.0 million due to higher operating income from four of Oceaneering's six business segments and equity income from the Medusa Spar. Oceaneering achieved record Remotely Operated Vehicle (ROV) and Advanced Technologies (ADTECH) segment operating income. Record Mobile Offshore Production Systems (MOPS) pre-tax income contribution, including equity income from the Medusa Spar, was also realized. While not a record, Subsea Products' operating income in 2004 was more than double the amount reported for 2003.
John Huff, Chairman and Chief Executive Officer, stated, "Results for the fourth quarter and the year were exemplary. In 2004 we achieved the highest Net Income in Oceaneering's history. This was accomplished in spite of $3.7 million of specific non-recurring pre-tax charges: $1.8 million for a terminated acquisition effort in the first quarter and $1.9 million of write- downs related to our investment in a cable-related joint venture in the fourth quarter.
"Annual ROV operating income was the best ever. The Stolt and Fugro ROV fleet acquisitions we completed in February and September propelled this segment to record profits, significantly increased our international market presence, and enhanced our leadership position as a worldwide ROV service provider. In our MOPS business we added a new dimension through our investment in the Medusa Spar, and achieved a record level of pre-tax income contribution. Equity income from this investment was $8.2 million.
"Subsea Products operating income increased by nearly 150%, largely due to higher profit contribution from specialty product sales. During the year we added steel tube umbilical manufacturing capability in our Brazil plant and we placed in service during December a new, world-class U.S. facility in Panama City, Florida. At year-end our backlog was $78 million, up 65% from $47 million at the beginning of the year.
"ADTECH achieved record operating income performance culminating from our efforts over the past few years to secure additional U.S. Navy and NASA work.
"During the year we invested over $150 million, including $88 million to modernize and increase the size of our ROV fleet and $38 million to expand our umbilical manufacturing capabilities. These capital investments position Oceaneering for increased profitability in the years ahead. At year-end our debt-to-capitalization was 24% and we remain committed to using our resources to make accretive investments.
"Looking forward, our 2005 outlook is to achieve record EPS of $1.85 to $2.15 by increasing the earnings contribution from each of our oilfield business activities, led by an improvement in ROV profitability. For the first quarter we are forecasting EPS of $0.30 to $0.40 due to seasonality issues and lower margins in our current umbilical backlog. We are projecting a substantial earnings improvement in the second half of 2005."
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