Oceaneering International Inc (OII) 2006 Q4 法說會逐字稿

Good morning. My name is Courtney, and I will be your conference operator. At this time, I would like to welcome everyone to the fourth-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS)

In consideration of other participants, please limit your questions to two. Thank you. Mr. Jurkoshek, you may begin your conference.

Good morning, everybody. I'd like to thank you for joining us on our year-end and fourth-quarter earnings call. I'd like to particularly welcome those of you who may be participating in the webcast of this event, which is being made available through the Company Boardroom service of Thomson/CCBN.

Joining me this morning is Jay Collins, our President and Chief Executive Officer, who will be leading the call; Marvin Migura, our Chief Financial Officer; and Bob Mingoia, our Treasurer.

Just as a reminder before we start, remarks we make during the course of the call 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.

And I'm now going to turn the call over to Jay.

Thank you, Jack, and good morning. And thanks for joining the call. It's a pleasure to being here with you today.

Before I begin my prepared remarks about how wonderful 2006 was, I'd like to go directly to the part of our release that some of you apparently find troubling. We continue to see 2007 unfolding just as we did when we first issued our guidance range about three months ago. The only thing that has changed is our confidence level in being able to achieve the projected earnings growth is now higher. We believe that a 20% improvement over record results is quite an accomplishment.

Our view of the first quarter is also unchanged. In five out of the last five years, our first quarter represented the lowest earnings quarter of the year. And in four of the last five years, the first quarter was sequentially lower than the prior quarter. Our guidance of $0.48 to $0.54 EPS for the first quarter of 2007 is no different now than our view was three months ago when we first initiated guidance for 2007. We think the market fundamentals are intact, and 2007 will be a record year for us.

I will address our outlook by segment later on in my remarks. Now I'd like to get back to my originally prepared comments.

We did have a remarkable 2006. For the third consecutive year, we achieved record annual earnings, nearly double those of 2005 on a 28% growth in revenue. Our strategic focus on providing services and products to support deepwater and subsea completion activity is paying off handsomely.

Looking at the quarter, our fourth quarter EPS were within the guideline range we gave last quarter, even after the $0.03 charge we recorded for the amendment to John Huff's service agreement. Earnings of almost $30 million were 50% better than the fourth quarter of 2005. Five of our six business operations contributed to this year-over-year improvement, led by an increase in profit contribution from ROVs. Our ROV business had an all-time high quarterly operating income performance as our average revenue per day on hire surpassed the $7,750 level and we achieved over 14,600 days of use for our vehicle fleet. Compared to 2005, operating income more than doubled.

During the quarter, we put in service four vehicles and retired four older systems. At year-end, we had 186 vehicles in our fleet. Our fleet mix during December was 71% drill support and 29% in construction and field maintenance, the same as in the previous three quarters of 2006.

Subsea Products' operating income improved over 30% on higher OIE specialty products sales. During the quarter, our products backlog grew to $359 million, up $78 million or 28% from the end of September 2006.

Inspection operating income increased considerably, as the normal seasonality we encounter was more than offset by several large jobs for integrity management, automated ultrasonic pipeline inspections, and manpower and engineering services.

MOPS results were up on the strength of higher production throughput at Medusa Spar. As you may recall, this spar was shut down for most of the fourth quarter last year in the aftermath of hurricanes Katrina and Rita.

Subsea Projects' operating income declined during the quarter, which was primarily due to the Performer being in the shipyard for upgrades during the entire period, and the ocean intervention being in dry dock for five weeks undergoing a Coast Guard inspection.

ADTECH results were up due to increased demand by the U.S. Navy for repairs and alterations to submarines and waterfront facilities and general engineering services.

Now, 2006 -- looking back over the entire year, we see that our 2006 annual earnings growth was broad-based, with all five of our oilfield service activities contributing and each setting profit records. This superb earnings performance was attributable to increased demand within our offshore oilfield service and products markets, our business expansion strategy, and our participation in the Gulf of Mexico hurricane-damage-related projects. The market environment was such that we were able to achieve strong utilization of our assets and improve prices.

Our average ROV revenue per day on hire improved in 2006 to over $7,250, almost 20% more than 2005. We also increased our ROV days on hire 10% to about 56,500 days, as we increased our average number of vehicles available by 10, and our fleet utilization rate to 85%.

Operating income rose by $42 million or 61%. And of the $42 million, $35 million was attributable to improvement in average pricing, and $7 million as a result of the increase in days on hire.

During the year, we grew our fleet size to 186 vehicles at year-end, up from 175 at the beginning of the year. We added 17 new vehicles and retired six older systems as we maintained a strategy of operating a modern work-class ROV fleet.

About half of the new vehicles initially went to work in drill support service, and the other half were used for construction and production maintenance in the growing number of deepwater field developments.

At year-end, we estimate that we continue to be the largest ROV owner, with 36% of the industry's work-class vehicles, twice the size of the next-largest ROV fleet. We also remain the primary provider of ROV drill support service, with an estimated market share of 57% -- three times that of the second-largest supplier.

During 2006, Subsea Products' operating income increased nearly fourfold on the strength of increased sales and improved profit contributions from OIE specialty products, particularly ROV tooling and Grayloc plants and multiplex umbilicals. The increased in clamp sales and profit contribution was primarily attributable to the fact that we had a full year of contribution from our Grayloc division, which we acquired at the end of June 2005.

Our year-end Subsea Products backlog of $359 million rose more than 80% from the end of 2005, as backlog at both multiplex and OIE grew. Of this amount, approximately 290 million is expected to be booked as revenue in 2007.

Based on data from Quest Offshore, 2006 market demand for umbilicals was about 1,480 kilometers or 900 miles. We ranked number one, with 43% of the market. This translates into about 640 kilometers or 400 miles of product orders we secured. We obtained the largest share of the thermoplastic tube orders at 75% and the second-largest share of steel tube orders at 30%.

Subsea Projects' operating income more than doubled, as we continued to benefit from excellent prices and high utilization for our seven vessels and diving assets. This was attributable to increased demand for hurricane damage work and Deepwater infrastructure installation and inspection, repair and maintenance projects. Our inspection business succeeded in selling more value-added services, securing new contracts, and controlling operating expenses. 2006 operating income for inspection increased over 85%.

Our MOPS business earned a record high pretax profit contribution as a result of increased production throughput at the Medusa Spar. ADTECH operating income for the year was down slightly as we transferred the use of our vessel, The Performer, in April to our Subsea Projects group to take advantage of market demand for hurricane damage work.

Cash flow and balance sheet -- if you add depreciation back to our net income, we generated a record $205 million in cash flow for the year, $63 million or 40 percent more than in 2005. And our balance sheet remains in excellent condition.

At the year-end, we had debt of $194 million and equity of 697. Our debt-to-cap percentage was 22%.

During the year, we invested $194 million or about 95% of our cash flow. This included $113 million to modernize and increase the size of our ROV fleet and $38 million to expand our Subsea Products manufacturing and rental service capability. These capital investments should position Oceaneering for increased profitability in the years ahead.

Our investment in ROVs included adding 17 new vehicles, fleet modernization and upgrades, construction progress of several vehicles for delivery in 2007, and facility infrastructure to support our growing fleet size. Our investment in Subsea Products included completing the installation of our steel tube umbilical manufacturing line in Panama City, Florida plant, doubling our thermoplastic tube umbilical manufacturing capability in our Scotland plant, and increasing our subsea valve manufacturing capacity in Norway.

In summary, we believe our record annual 2006 earnings performance was exemplary. We achieved increased profit contributions from all five of our oilfield business operations, and set records in each of them. Our focus on providing service and products for Deepwater and subsea completions positions us to participate in a major secular growth trend currently underway in the oilfield service and product industry.

Looking forward, we expect worldwide demand for oil will continue to escalate, production from existing fields will deplete, and the price of oil will remain at high levels. In this environment, oil and gas companies -- our customers -- are projected to increase their capital spending, a rising percentage of which is expected to be spent on deepwater fields. Deepwater is one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development costs.

Specific signs of a healthy deepwater market that will drive demand for our service and products were evident at the end of 2006. About 75% of the deepwater field discoveries around the world were not even in production. Over 95% of the existing 203 floating rigs in the world were under contract, and over half of these were contracted through 2008. 45 new floating rigs were scheduled to be added to the worldwide fleet through 2011, and 28 of those already secured term contracts with an average length of almost five years.

Based on Quest Offshore's latest forecast, over the next five years, subsea production tree orders are forecast to exceed 5,500 per year, and demand for umbilicals is forecast to surpass 3,000 kilometers per year. These forecasts compare to an average annual demand for approximately 353 orders and 1,500 kilometers of umbilicals of the past five years. That's a doubling of umbilical demand.

With our existing assets we are well positioned to supply oilfield services and products required to support the growing deepwater exploration, development and production efforts of our customers. Furthermore, we plan on making additional organic growth and acquisition investments to expand our ability to participate in this market.

We were successful in reinvesting our 2006 cash flow and are looking for opportunities to do the same in 2007. As I previously mentioned at year-end, our debt-to-cap was 22%, and we remain committed to using our resources to continue to grow the Company. We believe Oceaneering's business prospects over the next three to five years are excellent.

Looking forward to the first quarter of 2007, we are projecting EPS in the range of $0.48 to $0.54. This is better than the first quarter of last year, and flat to slightly down from the fourth quarter.

The following is a segment-by-segment review of our first-quarter outlook.

For ROVs, we expect the quarterly profit contribution from this business to be meaningfully higher year-over-year due to an increase in days on hire as a result of larger fleet size and improved pricing. Sequentially, we expect a slightly lower profit contribution due to the normal demand seasonality in the construction market and the fact that several rigs we are on will be in shipyards during at least part of the quarter for a variety of reasons.

Subsea Products -- as you might expect, given our large backlog, we're forecasting significant profit improvement, both year-over-year and sequentially based on the increased sales of multiplex umbilicals and OIE specialty hardware.

We are expecting a profit contribution from our Subsea Products operation will be about the same as in the fourth quarter, as this is the slow period of the year in the Gulf of Mexico for installation and IRM projects. Furthermore, we are not expecting any new hurricane damage debris removal project to start up until the second quarter.

In the inspection business, we expect to see a sequential quarterly decline in the financial contributions due to the seasonality of demand for these services in Europe, where half of our activities are located, and the fourth quarter completion of some large jobs I mentioned earlier. Year-over-year, we anticipate inspections operating income to be flat to up.

For our MOPS business we are anticipating a sequential reduction in operating income, primarily due to a drop in contribution from engineering projects. And the equity income from our investment in Medusa Spar is expected to be lower on a reduction in production throughput.

Our ADTECH business for the first quarter is expected to be about the same as last quarter.

Looking at 2007, as I noted, we're forecasting an EPS record for the year in the range of $2.60 to $2.90, with an estimated average of 56 million shares outstanding. As our guidance range midpoint of $2.75, this equates to EPS growth of nearly $0.50 a share or up over 20%. We anticipate this growth in EPS to be led by operating income improvements from Subsea Products, particularly our umbilical manufacturing operation and ROVs.

The big picture of the annual 2007 versus 2006 changes we envision can be recapped as follows -- our Subsea Products operating income growth of 30 to $45 million as we increase throughput in our umbilical manufacturing plants and exploit continued demand growth for our other specialty Subsea Products; ROVs operating income growth of 20 to $30 million, as we continue to grow our fleet and pursue price increases. Subsea Projects operating income is expected to be about the same as in 2006, and this is based on our anticipation of continued favorable demand for hurricane damage work and deepwater installation, inspection maintenance, and repair projects. I will point out that our 2007 estimate for Subsea Projects includes the presumption that we will secure a considerable amount work not presently contracted. However, we are adding capacity to this segment, and the outlook is very promising.

We expect our MOPS segment operating income to decline by approximately 25% to a lower day rate for the Ocean Legend and reduced engineering project work. Equity income from our ownership in Medusa Spar is also anticipated to decline by about $10 million as a result of lower production.

Our inspection profit contribution is expected to be down somewhat due to lower major pipeline project demand during 2007 and a reduced emphasis on providing manpower services.

ADTECH's operating income contribution is expected to show some improvement, especially from the U.S. Navy work pertaining to general engineering services, submarine repair, maintenance and engineering projects.

Our SG&A expense is anticipated to increase about 10% as we continue to grow the Company. On a relative basis, we expect SG&A to decline as a percent of revenue, as our top line growth is expected to grow at a faster rate, in the 20% range.

Depreciation and amortization expense is expected to be 15 to $20 million higher, and we anticipate our tax rate to be about 36%.

In short, we are expecting excellent financial results for 2007, and record annual earnings for the fourth consecutive year. The outlook for our services and products has never been better.

In summary, our record results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well over both the long-term and short-term. Our technology gives us operating leverage to take advantage of the high level of deepwater and subsea completion activity currently underway. The market outlook for our deepwater and subsea servers and product offerings is excellent. We continue to believe we are in one of the sweet spots of the up cycle.

2006 was our best year ever, and with capacity additions in ROVs, products and projects, 2007 is projected to be even better. We appreciate everyone's interest in Oceaneering, and will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Jim Crandell.

Jay, ROV utilization for the quarter was 86%. What do you consider to be full utilization in that business, and how much ability to you have in 2007 as you see it to improve pricing there?

We have historically believed that about 90% is the highest that we can possibly get. And it's difficult to maintain that ratio. So you know, 85 to 88% is probably the realistic range.

We tend to get higher utilization on the drill support work, but on the construction jobs, there tend to be gaps between these major jobs. And when you average that along with rigs and shipyards, it's hard to get above the high 80s.

With regard to the second part of your question, (multiple speakers) pricing, we continue to be able to raise prices somewhat. But we also have costs going up. But I anticipate that we will be able to continue to push pricing up and maintain our margins in this business. And we think that there's high demand for our product. And we are the preferred supplier, so we believe we will continue to push prices up in this business.

Okay and as a follow-up, Jay, in that area, what would be -- what's your thinking now on overall CapEx for 2007, and what does that encompass in terms of additional ROVs being built?

Sure. We anticipate overall spending about $150 million in 2007, which is more than we had in our last conference call. The ROVs business will be the main beneficiary of this, with continued fleet expansion, modernization and upgrades. We will have additional maintenance CapEx, of course. And we're making a large facility expansion in our Morgan City operation, where we operate our Gulf of Mexico business.

We're building ROVs. We continue to build ROVs. And although we are not projecting the number that we will have, I think we've indicated in the past that we're building ROVs at the rate of about 2 per month.

Okay, good.

[Jill Scott].

Actually, this is Scott Gill. Let me just follow up on Jim's question with respect to ROVs. You're constructing them at a rate of about two per month. Yet, it looks like in the fourth quarter versus the third quarter the number of ROVs were flat. So if you did two per month, how many are you retiring? So I guess we are trying to figure out what the net additions to ROVs might be --

(multiple speakers) Right, I think in that quarter, we built 4 and retired 4. So we were net zero there. We have been retiring old systems. But I think we will see a larger increase net flow in 2007 than we did in 2006 (multiple speakers) -- net increases in our fleet.

You can't give us some sort of indication how many you're going to retire this year?

No, we really don't know. If we knew, we would have already retired them.

Okay. And my second question would be, as we look at the backlog in Subsea Products, can you give us some flavor for how the margins compare for that work versus kind of what has already been realized in 2006? In other words, what type of margin improvement can we anticipate in 2007 and 2008?

I think the margins are very consistent with what we've been doing, with the one exception that in the umbilical business, the most rapid growth is the steel tube business -- margins tend to be a little lower there because we buy the tubes on the steel tube business rather than make tubes, as we do in the thermoplastic business. So I think overall, we would view that business as a relatively flat-margin business with significant increase in volume coming in 2007.

Okay, care to quantify what that top line growth will be -- on the order of 40%, maybe?

No, I'm sorry; I think we've given you what we think are the range of the net results. So I will leave the top line to you.

Thomas Escott.

A couple of things here. One, given your guidance for the first quarter, obviously, you were down sequentially in December, and then down another sequentially again here in the first quarter. To maintain guidance for the full year, do you have a visibility that the Subsea Products shipments or ROV job utilization, etc., are going to be lumpy enough? And maybe including projects, lumpy enough through the second half of the year that the revenue was back-end loaded? Is it some visibility on delivery that gives you that confidence that it will be up sharply after a relatively softer first quarter?

Tom, let me address that, and Jay can add some color to it. I don't think we are talking about any lumpiness. I think we're talking about a quarterly earnings profile very similar to what we have experienced in the past. And I think if you go back and take a look at the first quarter -- and I've got some notes year that if I could find them I would address it -- that over the past five years, our first-quarter EPS has averaged 18% of the year's total, and the range has been 13 to 21%.

So, using the average of 18% and the midpoint of our Q1 guidance of 51%, that would get you to a $2.83 year, which is right within our guidance range for 2007.

So I don't expect lumpiness and back-end loaded into the second half of the year. I would think you should forecast and model an earnings profile very similar to what we have historically been earning at. And that is that the second and third quarter for our most profitable years, and the first quarter -- or the second and third quarter are our most profitable quarters; our first is the lowest, and our fourth falls in there. (multiple speakers)

That's very helpful; thank you.

Okay. (multiple speakers) we view this as a very normal pattern, even though we may have gotten away from it in 2006. So but historically, this is a very normal pattern for our earnings. Go ahead.

Well, maybe what are might have troubled people is I guess in the first quarter of '06 you did have a big sequential gain over the fourth quarter of '05. And I guess what you're saying is that that was really kind of unusual last year to see that.

Very much so. The fourth quarter of '05 had some additional -- it had like an ROV asset write-down in it. And then we also had a significant level of activity related to hurricane work in products in the first quarter of '06. So that was the anomaly that Jay referred to in his opening remarks about four out of five, and the fifth one I think is really an anomaly. So we think this is going to be a very traditional year for Oceaneering.

Okay, although I guess running through your segment contributions for the year, it looks like really the bulk of all the growth this year really comes in Subsea Products and ROVs. And the balance of the rest of the Company looks pretty much kind of mixed for the year.

Right, and I think when you look at visibility, we have good visibility on ROVs, if you just look at rig utilization. And if you look at backlog, we've got it there. Jay mentioned the projects work -- we are expecting to get a lot of contracts that we don't have right now. Inspection and MOPS are going to be relative -- MOPS is going to be lower, inspection is going to be a little lower, and then the shortfall at Medusa that we've talked about.

Okay, well, that covers it. I appreciate it; thank you.

[Victor Barsho].

The first question -- Jay, I'm sorry, I just missed the number -- what was the number on the backlog that's going to be worked off in '07 for products?

We will look that up for you. Just a second.

I will just go to the second question as you guys dig that up. On the margin for products as you guys look out into '07, is the way to read it that any decline in margins due to the mix shift from thermoplastic to steel is going to be offset by better margins in the OIE business to keep a relatively flat margin profile for '07?

I would say that's true. Also keep in -- remember, multiplex, we are increasing volume. So we are benefiting from sort of the fixed cost elements there in multiplex as well. So I think maybe that's the bigger thing that's offsetting at OIE, or continuing to do well with maybe similar margins. And in multiplex, we've got the volume going up and we're benefiting from fixed and variable relationships. But at the same time, the thing that's growing the fastest is one of the lower-margin products.

And on your first question, we have backlog of $359 million, and we expect $290 million to flow through as revenue in 2007.

The second question I just had on a ROVs -- just wanted to see if you can give an update or a sense on -- you had mentioned the number of floaters that are on order and how many are contracted. Can you give an indication as to jobs you guys have been awarded for those rigs that have been contracted?

Jack, why don't you take that one? You're the expert on this.

On the existing fleet, we have secured contracts to provide ROVs on eight of those rigs that we're not currently on to provide nine systems. And on the 45 rigs that were under construction at year-end, 28 of those had already secured contract commitments, as Jay mentioned. Of those, there have been eight ROV contracts cut. And to the best of our knowledge, we've got them all -- well, we've got all of them; we've got eight, okay? And on that eight, we're going to provide 12 systems. So we've got contract commitments now in total for 21 ROVs, on both existing fleet and on new construction.

Now is that a trend that you guys are seeing where you're needing a little bit more than 1 ROV for some of these deepwater assets?

We are seeing that for these large floaters (multiple speakers) large new builds, but I certainly wouldn't start putting 2 ROVs on every flutter out there. I think you might overstate it. But we are certainly seeing on the very largest new builds.

I mean, your math is right; if we've got 12 on the first eight -- but we don't know if that's a trend that's going to continue, but it sure is looking that way for these large new builds.

Martin Malloy.

In terms of the Panama City plant, can you give us an update on roughly where you are with capacity utilization and when you think you'll be able to get the full utilization?

First, let me tell you that the Panama City plant is up and running and is going to be a good contributor to our products' profitability in 2007.

At the end of 2006, we completed five major projects that was about 95 miles in length, and we're working on another 55-mile project right now. I think on the utilization, we are out booking work now for late 2007 and for 2008, and we really -- I think we will expect to see that utilization increase throughout this year and into 2008. I really don't have any specific numbers to give you, but I think overall, you'll see significant growth in our utilization business, and particularly in the UK and Brazil as well. So they are equally very strong markets in both the UK and Brazil, as well as internationally.

(multiple speakers) I guess I would add in the U.S. we do have capacity to take additional orders. So we are not at capacity in Panama City, and probably the same in Brazil. The UK is probably going to run at capacity this year.

Right, good comment.

Okay, and then on the ROV side with respect to putting escalators in the contracts to account for the higher labor costs, can you give us a rough estimate of what percentage of your fleet now has those escalators in them, or some type of escalation in the contract for that?

I really don't have a percentage to give you. Our contracts either tend to be relatively shorter-term, where we can give annual increases, or they roll over. Longer-term contracts -- we have escalators in almost all of those contracts for longer terms. But generally, our contracts are on a year-to-year basis, where we have the ability to increase our prices as our costs go up.

Joe Agular.

I guess on the last -- after last quarter, you made some comments that you had a dry dock schedule and maybe vessel upgrades in the Subsea Projects segments, a vessel or two there. Could you give us an update on how that's going? Did everything go on schedule and so forth?

Sure. The [intervention one] that's been in dry dock has just come out of dry dock. It went in I think in November, so that's pretty much completed on schedule. The Performer will be coming out of dry dock in the early part of March and should be working in the month of March. That did take a little longer than we thought. So those are our 2 vessels that were in dry dock (multiple speakers).

The Performer was a BP upgrade. And any time you get into an upgrade at the shipyard, it does take longer. But I think as Jay said, it's on schedule. We didn't think it was going to have much work in the first quarter, so we don't think the extension into the shipyard costs as much.

And the outlook for that vessel, I would say, is excellent. So our outlook for that vessel -- for all of our vessels in the Gulf of Mexico is terrific. We do feel like we are in a real sweet spot in the deepwater market in the Gulf of Mexico, and the hurricane debris removal business certainly seems to be there for the rest of the year. So we're quite encouraged by the vessel opportunities we have in the Gulf of Mexico for the rest of 2007.

As a follow-on to that, Jay, you'd mentioned adding capacity that segments. I don't ever recall exactly if you ever told us what you were adding.

Right; we have a vessel called the Island Ranger that we have on a three-year charter that should arrive here at the end of March, in addition to the Performer -- moving the Performer into the business, as well as a new saturation diving system which is now going to work. So all of those items add to our capacity for this business in 2007. So the North Sea vessel would be the largest vessel that we have.

If I could ask my second question on the ROV side, on one of your -- I guess, a competitor, if you would, a manufacturer [technique] just sold their ROV manufacturing business. Is that any significant change to you guys, or do you think it does anything for the competitive landscape?

No, I don't think that has any effect on us or anyone, really.

I mean, I just didn't know if in terms of marketing anything like that (multiple speakers) but that's all.

(multiple speakers) no effect on us.

Waqar Syed.

I joined the call a little bit late, so you may have already answered this question. The income on the Subsea Products business in the fourth quarter was a little lighter than what I was expecting. Anything unusual there, or --?

No, it's pretty much right exactly what we were expecting. We think it's proceeding just as we planned.

Okay. And then just one last final question -- you previously said that a major operator plans to start major remedial work, hurricane-related repair work or cleanup work in '07. How is the bidding for that proceeding? When do you expect that work to start up?

Well, I'll just say that we mentioned two projects that we knew of. And we are certainly talking to those customers, and we will just have to let you know as things go along in that business. That work is still here in '07 and we think it will start up. We don't have anything to report to you now, but we certainly are in contact with these major customers.

And there is no schedule for that work in the first quarter. So this has always been a second-quarter issue. So there's really no development to report. And it's not going to impact the first quarter.

Right.

Okay, but has the bidding process already started there, or it's just still just conversations going on?

I guess really, I'm not really going to comment on our bids and what we have bid and what we haven't bid and so forth in that particular market. When we have something to announce we will certainly let you know.

That sounds great; thank you very much.

[Matt Gehry].

I'm pretty new to you guys, so this might a dumb question, but over the last several years you guys have done a very nice job generating net operating cash flow, but your businesses look to be pretty capital-intensive from the CapEx side of things. Is there any visibility on free cash flow generation, or is that something that you guys aren't thinking about this point, given the strength of your end markets, etc.?

Well, our goal is to invest all of our cash flow. As I mentioned earlier, we will generate $250 million of cash and we see needs now internally for about $150 million. So our goal is to continue to find ways to invest that other $100 million in our business. We've been successful in the past several years, including a mix of acquisitions and organic investments, of staying fully invested. And it's certainly our intention to continue that process and stay fully invested. And we are looking hard for acquisitions to add into our business and any investments that help our organic business as well.

So we view that cash as a way to grow the business in the future.

And I guess, I don't take exception to being capital-intensive, but I do want to say that the capital intensity that we've been investing, is for strategic growth in a secular-trend area. So when this business stops growing, we don't have a lot of maintenance CapEx for our ROVs or Subsea Products business. But right now, we do see the expansion opportunities and we are taking advantage of it.

And what was the full year '06 CapEx number? Where did you end the year?

194, I think? (multiple speakers) $194 million.

It was like 95% of the (multiple speakers)

Just to kind of make sure, since you said that you are new -- this is Jack Jurkoshek speaking, by the way -- over the last 4 years, around 75% of the money that we've invested has been in ROVs and Subsea Products or expansion.

Great. Do you guys disclose any return on capital sort of targets or goals on the capital you're investing?

No, we do not. (multiple speakers) much as we can -- as high a rate of return as we can get.

That's a good answer.

At this time, there are no further questions.

Okay. Thank you very much. We appreciate your interest and look forward to talking to you next quarter. Bye.

This concludes today's fourth-quarter 2006 earnings conference call. You may now disconnect.