2018
ANNUAL REPORT
OCEANEERING
AT A GLANCE
Oceaneering is a global provider of engineered services and products, primarily to
the offshore energy industry. Through the use of its applied technology expertise,
Oceaneering also serves the defense, aerospace, mobile robotics, and theme park
industries. At year end, Oceaneering employed approximately 8,600 people.
Remotely Operated Vehicles
We provide tethered submersible vehicles remotely operated from the surface (ROVs)
to customers in the offshore energy industry for drilling support, production facility
inspection, maintenance and repair, installation and construction support, pipeline
inspection, seabed surveys, decommissioning, and renewable energy field developments.
At the end of 2018, our fleet of 275 ROVs was estimated to represent approximately 25%
of the industry's work-class vehicles. We believe we were the foremost provider of
ROV services to the offshore energy industry for drilling support and vessel-based ROV
services in 2018.
Subsea Products
Our Subsea Products segment consists of two business units: manufactured products;
and service and rental. Manufactured products includes the manufacture and sale
of production control umbilicals and specialty subsea hardware. Service and rental
includes tooling, subsea work systems, and installation and workover control systems,
which we design, build, and operate as a service. Subsea works systems include
solutions for well stimulation, flowline remediation, and riserless light well intervention.
Subsea Projects
We provide project management, survey, subsea installation, inspection, maintenance,
and repair services, as well as route clearance and trenching services principally in the
U.S. Gulf of Mexico, offshore of Angola, and in the North Sea. We support: deepwater
projects with dynamically positioned vessels that have our ROVs, survey systems, and
tooling on board; and shallow water projects with our manned diving operations, utilizing
diving support vessels, traditional diving techniques, and saturation diving systems.
Asset Integrity
We provide asset integrity management, integrity engineering, corrosion
management, specialist inspection, and non-destructive testing services, principally
to customers in the oil and gas, power generation, and petrochemical industries.
We perform these services at facilities onshore and topside offshore.
Advanced Technologies
We provide engineering and related manufacturing, principally to U.S. government
agencies and their prime contractors in defense and space exploration activities.
The commercial business unit offers turnkey ride system solutions to the theme
park industry and automated guided vehicle solutions to a variety of industries.
About the cover:
Our Magnum Plus ROV, undertaking cable lay operations and construction support during installation of jacket foundations on a renewable energy project
in the North Sea.
Oceaneering International, Inc.
LETTER TO SHAREHOLDERS
In 2018 we adopted a new mission statement.
It was developed through discussions with our employees
around the globe. "We Solve the Unsolvable." I feel this
statement is especially appropriate, as we continue to find
new ways of working to make Oceaneering, our customers,
and our shareholders successful in a dynamic and
challenging energy market. A few examples of what this
can-do spirit achieved in 2018 are:
• We achieved record operating performance in our
Advanced Technologies segment, due largely to
significant growth in our entertainment business;
• We entered into our first E-ROV contract to provide a
resident, battery-powered remotely operated vehicle
to support subsea inspection, maintenance and repair
activities;
• We secured meaningful contracts in our Subsea
Products segment, allowing us to reach a book-to-bill
ratio of 1.1 for the year;
• We expanded our service offerings in Brazil by
securing a contract to supply and operate three drill
pipe riser systems for intervention and completion
operations;
• We acquired Ecosse Subsea, allowing us to leverage
our existing ROV and Survey businesses and increase
our participation in the offshore renewables market;
• We continued to develop new robotics and automation
solutions, as highlighted by our ROV advances and
enhanced entertainment offerings; and
• We refinanced our $300 million term loan, extending
our nearest debt maturity to late 2024, and extended
our revolving credit facility, with $500 million now
available until November 2021 and $450 million
available until January 2023.
As we look to 2019, a number of macro data points are
forecasting increased offshore activity. A market research
group1 is projecting that as many as 25 major projects in
water depths greater than 400 meters will reach a final
investment decision in 2019; up from fewer than 10 in 2018.
Also, many industry analysts are expecting increases in
offshore spending, the floating rig count, and tree awards
in 2019, based on expectations of stabilized Brent crude
pricing in the range of $55 to $65 per barrel.
These improving market trends support our expectation
that our 2019 financial results will improve year over year
with growing activity across all of our segments. Overall,
we anticipate our energy segments to generate improved
yearly results, led by our Subsea Products segment.
We also anticipate growth in our non-energy segment, with
improved results expected from both our government and
commercial businesses.
While we are encouraged by improving market dynamics,
it is imperative that we preserve and improve our financial
position, so that we are ready to support increased activity
as the time comes. We are committed to safely managing
our business with the expectation of generating positive
free cash flow in 2019 and strengthening our liquidity
position. We will be focused on further controlling
our costs, driving enhanced levels of efficiency and
performance, and closely scrutinizing maintenance and
growth capital expenditures. As a result, we expect to
have ample resources and flexibility to address future
opportunities to improve our returns.
I am proud to be leading Oceaneering during these exciting
times, and I am confident that our proven ability to solve
the unsolvable will allow us to remain well positioned
to prosper in the evolving markets we serve. Of course,
success along this journey is not possible without the
dedication of our employees and management, so I thank
these individuals who have worked tirelessly to adapt and
reshape our company over the last four years.
Finally, I thank our shareholders for their continued
support of Oceaneering.
Roderick A. Larson
President and Chief Executive Officer
(1) Wood Mackenzie, Q4 2018 pre-FID Upstream Project Tracker, February 26, 2019
2018 Annual Report
2018 Annual Report
on Form 10-K
Oceaneering International, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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)
erawaleD
(State or other jurisdiction of
incorporation or organization)
11911 FM 529
saxeT,notsuoH
)seciffoevitucexelapicnirpfosserddA(
7228262-59
(I.R.S. Employer
Identification No.)
14077
)edoCpiZ(
Registrant's telephone number, including area code: (713) 329-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
g
Name of each exchange on which registered
g
eulavrap52.0$,kcotSnommoC
egnahcxEkcotSkroYweN
Securities registered pursuant to Section 12(g) of the Act:
None
____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Act.
Yes
No
YY
rr
Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
Yes
No
YY
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
No
YY
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required
to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
-
months (or for such shorter period that the registrant was required to submit such files).
Yes
No
YY
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of
this chapter) 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
No
YY
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
No
Aggregate market value of the voting stock held by nonaffiliates of the registrant computed by reference to the
closing price of $25.46 of the Common Stock on the New York Stock Exchange as of June 29, 2018, the last
business day of the registrant's most recently completed second quarter: $2.5 billion
Number of shares of Common Stock outstanding at February 22, 2019: 98,838,122.
Documents Incorporated by Reference:
Portions of the proxy statement relating to the registrant's 2019 annual meeting of shareholders, to be filed on
or before April 30, 2019 pursuant to Regulation 14A of the Securities Exchange Act of 1934, are incorporated by
reference to the extent set forth in Part III, Items 10-14 of this report.
Oceaneering International, Inc.
Form 10-K
Table of Contents
Business
Cautionary Statement Concerning Forward-Looking Statements
Executive Officers of the Registrant
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Part I
Item 1.
Item 1A
..
Item 1B
..
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A
..
Item 8.
Item 9.
Item 9A
..
Item 9B
.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 13.
Item 14.
Part IV
Item 15.
Signatures
Exhibits, Financial Statement Schedules
Index to Financial Statements and Schedules
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
1
Item 1. Business.
GENERAL DEVELOPMENT OF BUSINESS
PART I
Oceaneering International, Inc. is a global provider of engineered services and products, primarily to
the offshore oil and gas industry. Oceaneering also serves the offshore renewables, defense,
aerospace and commercial theme park industries. Oceaneering was organized as a Delaware
corporation 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 to meet customer needs requiring the use of advanced technology.
We believe we are one of the world's largest underwater services contractors. The services and
products we provide to the energy industry include remotely operated vehicles, specialty subsea
hardware, engineering and project management, subsea intervention services, including manned
diving, survey and positioning services, seabed preparation and asset integrity and nondestructive
testing services. Our foreign operations, principally in the North Sea, Africa, Brazil, Australia and
Asia, accounted for approximately 50% of our revenue, or $1.0 billion, for the year ended
December 31, 2018.
Our business segments are contained within two businesses – services and products provided
primarily to the oil and gas industry, and to a lesser extent, the offshore renewables industry
("Energy Services and Products") and services and products provided to non-energy industries
("Advanced Technologies"). Our four business segments within the Energy Services and Products
business are Remotely Operated Vehicles ("ROVs"), Subsea Products, Subsea Projects and Asset
Integrity. We report our Advanced Technologies business as one segment. Unallocated Expenses
are expenses not associated with a specific business segment. These consist of expenses related to
our incentive and deferred compensation plans, including restricted stock and bonuses, as well as
other general expenses.
Energy Services and Products. The primary focus of our Energy Services and Products business
over the last several years has been toward increasing our asset base and capabilities for providing
services and products for offshore operations and subsea completions. In recent years, we have
focused on increasing our service and product offerings toward our oil and gas customers' operating
expenses and the offshore renewable energy market.
During the past ten years, we have acquired businesses to expand and complement our service and
product offerings. These include:
• a Canadian manufacturer of clamp connectors, check valves and universal ball joints;
• a Norwegian-based provider of inspection, maintenance, subsea engineering and field
operations services, principally to the oil and gas industry;
• a Norwegian rental provider of specialized subsea dredging equipment, including ROV-
deployed units, to the offshore oil and gas industry;
• a Norwegian oilfield technology company specializing in providing subsea tooling services and
plugging, abandonment and decommissioning of offshore oil and gas production platforms
and subsea wellheads;
• a Norwegian design and fabrication company specializing in subsea tools for the offshore oil
and gas industry;
• a U.S.-based international provider of survey and positioning services;
• a business that uses ROVs to perform surveys on mobile offshore drilling units and floating
production systems that satisfy the underwater inspection in lieu of drydocking (UWILD)
requirements of all major classification societies;
the assets of a provider of riserless light well intervention services;
•
• a majority interest in an Azerbaijani company that supports the provision of ROV and diving
services in the Caspian Sea region; and
• a U.K. company that builds and operates tools for seabed preparation, route clearance and
trenching for the installation of submarine cables and pipelines.
ROVs. We provide ROVs, which are tethered submersible vehicles remotely operated from the
surface, to customers in the energy industry for drilling support and vessel-based services, including
2
subsea hardware installation, construction, pipeline inspection, survey and facilities inspection,
maintenance and repair. We design and build our new ROVs at in-house facilities, the largest of
which is in Morgan City, LA. In 2018, we added six ROVs to our fleet and retired ten. Our work-
class ROV fleet size was 275 at December 31, 2018, 279 at December 31, 2017 and 280 at
December 31, 2016. We have decreased our ROV fleet size over the last four years as a result of
lower market demand.
Subsea Products. Our Subsea Products segment consists of two business units: (1) manufactured
products; and (2) service and rental. Manufactured products include production control umbilicals
and specialty subsea hardware. Service and rental includes tooling, subsea work systems and
installation and workover control systems, which we design and build but operate as a service.
We provide various types of subsea umbilicals through our Umbilical Solutions division from plants in
the United States, Scotland and Brazil. Offshore operators use umbilicals to control subsea wellhead
hydrocarbon flow rates, monitor downhole and wellhead conditions and perform chemical injection.
Subsea umbilicals are also used to provide power and fluids to other subsea processing hardware,
including pumps and gas separation equipment.
In 2016, we acquired the assets of Blue Ocean Technologies, LLC, a privately held provider of
riserless light well intervention ("RLWI") services. Subsea well intervention services are intended to
maximize production and increase the recovery rate from offshore oil and gas reservoirs or,
alternatively, prepare wells to be plugged and abandoned. These RLWI systems have the capability
to perform a wide variety of cost-effective services for well interventions, including well diagnostics,
damaged well remediation and workovers, and well plugging and abandonment.
Subsea Projects. Our Subsea Projects segment consists of our subsea installation, inspection,
diving, maintenance and repair services, principally in the U.S. Gulf of Mexico and offshore Angola
and India, utilizing a fleet consisting of two owned and one chartered dynamically positioned
deepwater vessels with integrated high-specification work-class ROVs onboard, and four owned
shallow water diving and survey vessels, other spot-chartered vessels and other assets. Our owned
vessels are Jones Act-compliant. The dynamically positioned vessels are equipped with thrusters
that allow them to maintain a constant position at a location without the use of anchors. They are
used in the inspection, maintenance and repair of subsea facilities, pipeline or flowline tie-ins,
pipeline crossings and installations. These vessels can also carry and install equipment or umbilicals
required to bring subsea well completions into production (tie-back to production facilities). With our
acquisitions of C & C Technologies, Inc. ("C&C") in 2015 and Ecosse Subsea Limited ("Ecosse") in
2018, further described below, we provide survey services and route clearance and trenching
services.
We previously had several deepwater vessels under long-term charter. The last of our long term
charters expired in March 2018. With the current market conditions, our philosophy is to attempt to
charter vessels for specific projects on a back-to-back basis with the vessel owners. This generally
minimizes our contract exposure by closely matching our obligations with our revenue. Unless
indicated otherwise, each of the chartered vessels discussed below is a deepwater multiservice
subsea support vessel outfitted with two of our high-specification work-class ROVs.
In 2012, we moved the chartered vessel Ocean Intervention III to Angola and also chartered the
Bourbon Oceanteam 101 to work on a three-year field support vessel services contract for a unit of
BP plc. We had extended the charter of the Bourbon Oceanteam 101 to January 2017. However, in
early 2016, the customer exercised its right, under the field support vessel services contract, to
terminate its use of the Bourbon Oceanteam 101 at the end of May 2016. Under the terms of the
contract, the costs incurred by us associated with the early release and demobilization of the vessel
were reimbursed by the customer. Following the release of the vessel, we redelivered it to the vessel
I
supplier. The charter for the Ocean Intervention III expired at the end of July 2017. Under the field
support vessel services contract, which was extended through January 2019 and subsequently
renewed under a new contract through January 2022, we are continuing to supply project
management and engineering services. We also provide ROV tooling and asset integrity services as
requested by the customer. Chartered vessels and barges are provided to the customer upon
request.
3
In March 2013, we commenced a five-year bareboat charter for a Jones Act-compliant multiservice
support vessel, the Ocean Alliance, we have been using in the U.S. Gulf of Mexico. In January 2015,
we commenced a two-year contract with a customer for the use of the Ocean Alliance which expired
in January 2017. We returned the Ocean Alliance to the vessel owner in the first quarter of 2018 and
continue to market the vessel, now renamed Cade Candies, for spot market work in the U.S. Gulf of
Mexico on a back-to-back basis with the owner.
In December 2013, we commenced a three-year charter for the Normand Flower, a multiservice
subsea marine support vessel. We made modifications to the vessel and used the vessel in the U.S.
Gulf of Mexico to perform inspection, maintenance and repair projects and hardware installations. In
December 2016, we declined our option to extend the charter and the vessel was released.
In November 2015, we commenced a two-year charter for the use of the Island Pride, a multiservice
subsea marine support vessel. We used the vessel under a two-year contract to provide field
support services off the coast of India for an oil and gas customer based in India. In
November 2017, that field services contract expired and we declined our option to extend the vessel
charter.
We also charter or lease vessels on a short-term basis as necessary to augment our fleet.
In 2010, we acquired a vessel, which we renamed the Ocean Patriot, and we have converted it to a
dynamically positioned saturation diving and ROV service vessel. We installed a 12-man saturation
("SAT") diving system and one work-class ROV on the vessel, and we placed the vessel into service
in December 2011.
During the third quarter of 2013, we signed an agreement with a shipyard for the construction of a
subsea support vessel, to be named the Ocean Evolution. We expect to take delivery in the first
quarter and place the vessel into service in the second quarter of 2019. We intend for the vessel to
be U.S. flagged and documented with a coastwise endorsement by the U.S. Coast Guard. The vessel
has an overall length of 353 feet, a Class 2 dynamic positioning system, accommodations for 110
personnel, a helideck, a 250-ton active heave-compensated crane, a working moonpool, and two of
our high specification 4,000 meter work-class ROVs. The vessel is also equipped with a satellite
communications system capable of transmitting streaming video for real-time work observation by
shore personnel. We anticipate the vessel will be used to augment our ability to provide subsea
intervention services in the U.S. Gulf of Mexico. These services are required to perform inspection,
maintenance and repair projects and hardware installations.
In 2015, we acquired C&C, now known as Oceaneering Survey Services, for approximately $224
million. Our survey business is a global provider of ocean-bottom mapping services, utilizing
customized autonomous underwater vehicles, and provides marine construction surveys for both
surface and subsea assets, as well as satellite-based positioning services for drilling rigs and seismic
and construction vessels. It also provides near-shore survey services along the U.S. Gulf Coast and
in Mexico, and performs shallow water conventional geophysical surveys in the U.S. Gulf of Mexico.
In March 2018, we acquired Ecosse for approximately $68 million. Ecosse builds and operates
seabed preparation, route clearance and trenching tools for submarine cables and pipelines on an
integrated basis that includes vessels, ROVs and survey services. Enabling technologies acquired in
the transaction include Ecosse's modular seabed system, capable of completing the entire trenching
work scope (route preparation, boulder clearance, trenching and backfill), and its newly developed
trenching system. These systems primarily serve the shallow water offshore renewables market.
Asset Integrity. Through our Asset Integrity division, we provide asset integrity management,
corrosion management, inspection, and non-destructive testing services, principally to customers in
the oil and gas, power generation, and petrochemical industries. We perform these services on both
onshore and offshore facilities, both topside and subsea.
General. During the last five years, we have also made several small acquisitions to add
complementary technology or niche markets. 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.
4
Advanced Technologies. Our Advanced Technologies segment consists of two business units: (1)
government; and (2) commercial. Government services and products include engineering and related
manufacturing in defense and space exploration activities, principally to U.S. Government agencies
and their prime contractors. Our commercial business unit offers a turnkey solution that includes
program management, engineering design, fabrication/assembly and installation to the commercial
theme park industry and mobile robotics solutions including automated guided vehicle technology to
a variety of industries.
DESCRIPTION OF BUSINESS
Energy Services and Products
Our Energy Services and Products business consists of ROVs, Subsea Products, Subsea Projects and
Asset Integrity.
ROVs. ROVs are tethered submersible vehicles remotely operated from the surface. We use our
ROVs in the offshore energy industry to perform a variety of underwater tasks, including drill
support, vessel-based inspection, maintenance and repair, installation and construction support,
pipeline inspection and surveys, and subsea production facility operation and maintenance. Work-
class ROVs are outfitted with manipulators, sonar and video cameras, and can operate specialized
tooling packages and other equipment or features to facilitate the performance of specific
underwater tasks. At December 31, 2018, we owned 275 work-class ROVs. We believe we operate
the largest fleet of ROVs in the world. We also believe we are the industry leader in providing ROV
services for drill support, with an estimated 62% market share at the end of 2018.
ROV revenue:
2018
2017
2016
Amount
(in thousands)
394,801
$
393,655
522,121
Percent of Total
Revenue
21%
21%
23%
Subsea Products. We construct a variety of specialty subsea hardware and provide related services.
These include:
• various types of subsea umbilicals utilizing steel tubes and thermoplastic hoses, along with
termination assemblies;
tooling, ROV tooling and subsea work packages;
installation and workover control systems ("IWOCS");
riserless light well intervention services
•
• production control equipment;
•
•
• clamp connectors;
• pipeline connector and repair systems;
• subsea and topside control valves; and
• subsea chemical injection valves.
.
Offshore well operators use subsea umbilicals and production control equipment to control subsea
wellhead hydrocarbon flow, monitor downhole and wellhead conditions and perform chemical
injection. They are also used to provide power and fluids to other subsea processing hardware,
including pumps and gas/oil separation equipment. ROV tooling provides an additional operational
interface between an ROV and permanently installed equipment located on the sea floor. Riserless
light well intervention services, IWOCS and subsea work packages facilitate well and associated
equipment intervention for the purposes of flow remediation and well stimulation.
5
Subsea Products revenue:
2018
2017
2016
Amount
(in thousands)
515,000
$
625,513
692,030
Percent of Total
Revenue
27%
33%
30%
Subsea Projects. We perform subsea oilfield hardware installation and inspection, maintenance and
repair services. We provide seabed preparation, route clearance and trenching services for
submarine cables in renewable energy markets. We service offshore projects with dynamically
positioned vessels that typically have Oceaneering ROVs onboard. We service shallow water projects
with our manned diving operation utilizing dive support vessels and saturation diving systems.
We perform subsea intervention and hardware installation services, principally in the U.S. Gulf of
Mexico, offshore Angola and offshore India from multiservice vessels that have Oceaneering ROVs
onboard. These services include: subsea well tie-backs; pipeline/flowline tie-ins and repairs;
pipeline crossings; umbilical and other subsea equipment installations; subsea intervention; and
inspection, maintenance and repair activities.
We service oil and gas industry shallow water projects in the U.S. Gulf of Mexico and offshore Angola
with our manned diving operation utilizing the traditional diving techniques of air, mixed gas and
saturation diving, all of which use surface-supplied breathing gas. We supply our diving services
from four owned diving support vessels and other vessels and facilities. We do not use traditional
diving techniques in water depths greater than 1,000 feet.
We also provide survey services and route clearance and trenching services.
Subsea Projects revenue:
2018
2017
2016
Amount
(in thousands)
329,163
$
291,993
472,979
Percent of Total
Revenue
17%
15%
21%
Asset Integrity. Through our Asset Integrity division, we offer a wide range of asset integrity services
to customers worldwide to help ensure the safety of their facilities onshore and offshore, while
reducing their unplanned maintenance and repair costs. We also provide third-party inspections to
satisfy contractual structural specifications, internal safety standards or regulatory requirements.
We provide these services principally to customers in the oil and gas, petrochemical and power
generation industries. In the U.K., we provide Independent Inspection Authority services for the oil
and gas industry, which include first-pass integrity evaluation and assessment and nondestructive
testing services. We use a variety of technologies to perform pipeline inspections, both onshore and
offshore.
Asset Integrity revenue:
2018
2017
2016
Advanced Technologies
Amount
(in thousands)
253,886
$
236,778
275,397
Percent of Total
Revenue
13%
12%
12%
Our Advanced Technologies segment provides engineering services and manufacturing to the U.S.
Department of Defense, NASA and major government contractors. We also provide integrated
mobile robotic system solutions to domestic and international theme parks, automotive
manufacturers and retail warehousing. We work with our customers to understand their specialized
requirements, identify and mitigate risks, and provide them value-added, maintainable, safe and
certified solutions. The segment's largest customer is the U.S. Navy, for whom we perform
6
engineering services, prototype design building services and repair and maintenance services on
submarines and surface ships.
We provide support for the U.S. Navy, including underwater operations, data analysis, the design and
development of new underwater tools and systems, and the development of the control software to
operate those systems. We also install and maintain mechanical systems for the Navy's submarines
and surface ships. We support space exploration and technology development by providing our
products and services to NASA and aerospace contractors. Our U.S. Navy and NASA-related
activities substantially depend on continued government funding.
For commercial markets, we provide engineering services and we manufacture patented motion-
based “dark ride” vehicle systems and innovative customized robotic and mechanical solutions to the
commercial theme park industry. For automotive manufacturers and retail warehousing markets, we
develop, implement and maintain innovative, turnkey logistic solutions based on automated guided
vehicle technology. Our commercial-related products and services are sold into both domestic and
international markets.
Advanced Technologies revenue:
2018
2017
2016
MARKETING
Amount
(in thousands)
416,632
$
373,568
309,076
Percent of Total
Revenue
22%
19%
14%
Energy Services and Products. 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. In
recent years, we have focused on increasing our service and product offerings toward our oil and gas
customers' operating expenses and the offshore renewable energy market.
We market our ROVs, Subsea Products, Subsea Projects and Asset Integrity services and products to
domestic, 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, although we enter into multi-year contracts from time to time.
In connection with the services we perform in our Energy Services and Products business, we
generally seek contracts that compensate us on a dayrate basis. Under dayrate contracts, the
contractor provides the ROV, vessel or equipment and the required personnel to operate the unit and
compensation 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 moving 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. Contracts for our
product sales are generally for a fixed price.
Advanced Technologies. We market our engineered products and services primarily to U.S.
Government agencies and their prime contractors in defense and space exploration activities, and to
domestic and international theme park operators, automotive manufacturers and retail warehousing.
Major Customers. Our top five customers in 2018, 2017 and 2016 accounted for 39%, 40% and
43%, respectively, of our consolidated revenue. In 2018, 2017 and 2016, four of our top five
customers were oil and gas exploration and production companies served by our Energy Services
and Products business segments, with the other one being the U.S. Navy or other parts of the U.S.
Government, which is served by our Advanced Technologies segment. During 2018, revenue from
one customer, Royal Dutch Shell, accounted for 10% of our total consolidated annual revenue and in
7
each of 2017 and 2016, revenue from another customer, BP plc and subsidiaries, accounted for 12%
and 18%, respectively, of our total consolidated annual revenue.
Although 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 and cash flows.
RAW MATERIALS
Most of the raw materials we use in our manufacturing operations, such as steel in various forms,
copper, electronic components and plastics, are available from many sources. However, some
components we use to manufacture subsea umbilicals are available from limited sources. With the
exception of certain kinds of steel tube, where we are limited in the number of available suppliers,
we can offer alternative materials or technologies in many cases, which depends on the requisite
approval of our customers. Currently, we are experiencing limited steel tube availability, due to
several large project requirements, coupled with suppliers having reduced capacity during the
industry downturn. We believe we have secured sufficient steel tubes to satisfy existing backlog and
anticipated orders to be produced in 2019. We believe the situation is temporary and will resolve
itself as the industry returns to a more normal run rate.
COMPETITION
Our businesses operate in highly competitive industry segments.
Energy Services and Products
We are one of several companies that provide underwater services and specialty subsea hardware 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 and products on a worldwide basis enables us to compete
effectively in all phases of the offshore oilfield life cycle. In some cases involving projects that
require less sophisticated equipment, small companies have been able to bid for contracts at prices
uneconomical to us. 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.
ROVs. We believe we are the world's largest owner/operator of work-class ROVs employed in energy
related operations. At December 31, 2018, we owned 275 work-class ROVs, and we estimate that
this represented approximately 25% of the work-class ROVs utilized in the oilfield service industry.
We compete with several major companies on a worldwide basis and with numerous others operating
locally in various areas.
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 over time based on market conditions. The ability to develop improved equipment and
techniques and to train and retain skilled personnel is also an important competitive factor in our
markets. Demand for ROVs has been decreasing since mid 2014 due to the oil price environment,
and our margins have decreased in recent periods due to lower utilization and pricing pressure, as
price has become a more important factor in the current market environment.
Subsea Products. There are many competitors offering specialized products and services. We are
one of several companies that compete on a worldwide basis for the provision of steel tube and
thermoplastic control umbilicals, and compared to current and forecasted market demand, we are
faced with overcapacity in the umbilical manufacturing market.
Subsea Projects. We perform subsea intervention and hardware installation services, principally in
the U.S. Gulf of Mexico, offshore Angola and the North Sea, from multiservice deepwater vessels.
We are one of many companies that offer these services. In general, our competitors can move their
vessels to where we operate from other locations with relative ease. Our survey and positioning
services, along with our seabed preparation, route clearance and trenching services, operate in a
8
similar competitive environment. We also have many competitors that supply commercial diving
services to the oil and gas industry in the U.S. Gulf of Mexico.
Asset Integrity. The worldwide asset integrity and inspection markets consist of a wide range of
inspection and certification requirements in many industries. We compete 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 various pipeline inspection technologies and
accreditation to international quality standards enable us to compete effectively in our selected asset
integrity and inspection services market segments.
Advanced Technologies
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 custom equipment for customers.
SEASONALITY AND BACKLOG
We generate a material amount of our consolidated revenue from contracts for services in the U.S.
Gulf of Mexico in our Subsea Projects segment, which is usually more active in the second and third
quarters, as compared to the rest of the year. The European operations of our Asset Integrity
segment are also seasonally more active in the second and third quarters. Revenue in our ROV
segment is subject to seasonal variations in demand, with our first quarter generally being the low
quarter of the year. The level of our ROV seasonality depends on the number of ROVs we have
engaged in vessel-based subsea infrastructure inspection, maintenance, repair and installation,
which is more seasonal than drilling support. Revenue in each of our Subsea Products and Advanced
Technologies segments generally has not been seasonal.
The amounts of backlog orders we believed to be firm as of December 31, 2018 and 2017 were as
follows (in millions):
Energy Services and Products
ROVs
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Total
As of December 31, 2018
As of December 31, 2017
Total
1+ yr*
Total
1+ yr*
$
$
497 $
332
76
248
1,153
312
1,465 $
219 $
96
7
87
409
51
432 $
276
153
301
1,162
218
460 $
1,380 $
198
50
38
111
397
47
444
*
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 U.S. government.
PATENTS AND LICENSES
We currently hold numerous U.S. and foreign patents and pending patent applications. We have
acquired patents and licenses and granted licenses to others when we have considered it
advantageous for us to do so. Although in the aggregate our patents and licenses are important to
us, we do not regard any single patent or license or group of related patents or licenses as critical or
essential to our business as a whole. In general, we depend on our technological capabilities and the
application of know-how rather than patents and licenses in the conduct of our operations.
9
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, including those relating
to:
• operating from and around offshore drilling, production and marine facilities;
• national preference for local equipment and personnel;
• marine vessel safety;
• protection of the environment;
• workplace health and safety;
• data privacy;
taxation;
•
•
license requirements for exportation of our equipment and technology; and
• currency conversion and repatriation.
In addition, our Energy Services and Products business primarily depends on the demand for our
services and products from the oil and gas industry and, therefore, is affected by changing taxes,
price controls and other laws and regulations relating to the oil and gas industry generally. The
adoption of laws and regulations curtailing offshore exploration and development drilling for oil and
gas for economic and other policy reasons would adversely affect our operations by limiting demand
for our services. We cannot determine the extent to which new legislation, new regulations or
changes in existing laws or regulations may affect our future operations.
Our operations and properties are subject to a wide variety of increasingly complex and stringent
foreign, federal, state and local environmental laws and regulations, including those governing
discharges into the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and the health and
safety of employees. Sanctions for noncompliance may include revocation of permits, corrective
action orders, administrative or civil penalties and criminal prosecution. Some environmental laws
provide for strict, joint and several liability for remediation of spills and other releases of hazardous
substances, as well as damage to natural resources. In addition, companies may be subject to
claims alleging personal injury or property damage as a result of alleged exposure to hazardous
substances. These laws and regulations may also expose us to liability for the conduct of or
conditions caused by others, or for our acts that were in compliance with all applicable laws at the
time such acts were performed.
Environmental laws and regulations that apply to our operations include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Clean Air Act, the Clean Water
Act, the Resource Conservation and Recovery Act (each, as amended) and similar laws that provide
for responses to, and liability for, releases of hazardous substances into the environment.
Environmental laws and regulations also include similar foreign, state or local counterparts to the
above-mentioned federal laws, which regulate air emissions, water discharges, hazardous substances
and waste, and require public disclosure related to the use of various hazardous substances. Our
operations are also governed by laws and regulations relating to workplace safety and worker health,
primarily, in the United States, the Occupational Safety and Health Act and regulations promulgated
thereunder.
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. We cannot predict all of the environmental
requirements or circumstances that will exist in the future but anticipate that environmental control
and protection standards will become increasingly stringent and costly. Based on our experience to
date, we do not currently anticipate any material adverse effect on our business or consolidated
financial position, results of operations or cash flows as a result of future compliance with existing
environmental laws and regulations. However, future events, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or
stricter or different interpretations of existing laws and regulations, may require additional
expenditures by us, which may be material. Accordingly, there can be no assurance that we will not
incur significant environmental compliance costs in the future.
10
Our quality management systems are registered as being in conformance with ISO 9001:2015 and
cover:
• all our Energy Services and Products services and products in the United Kingdom (the
"U.K.") and Norway;
• our Remotely Operated Vehicle operations in the U.S. Gulf of Mexico, the U.K., Norway, Brazil,
Canada, the Middle East, Australia and Asia;
• our Asset Integrity operations in the Western Hemisphere, the Middle East, Australia, the
United States and Indonesia;
• our Subsea Projects operations;
• our Subsea Products segment; and
•
the Oceaneering Space Systems, Oceaneering Technologies, Entertainment and Marine
Services units of our Advanced Technologies segment.
ISO 9001 is an internationally recognized system for quality management established by the
International Standards Organization, and the 2015 edition emphasizes customer satisfaction, risk
assessment and continual improvement.
EMPLOYEES
As of December 31, 2018, we had approximately 8,600 employees. Our workforce varies seasonally
and peaks during the second and third quarters. We consider our relations with our employees to be
satisfactory.
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 orders, revenue, income and capital spending. Forward-looking statements are generally
accompanied by words such as "estimate," "plan," "project," "predict," "believe," "expect,"
"anticipate," "plan," "forecast," "budget," "goal," "may," "should," 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 are forward-looking statements. Those forward-looking statements appear
in Part I of this report in Item 1 – "Business," Item 2 – "Properties" and Item 3 – "Legal Proceedings"
and in Part II of this report 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 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:
•
factors affecting the level of activity in the energy industry, including worldwide demand for
and prices of oil and natural gas, oil and natural gas production growth and the supply and
demand of offshore drilling rigs;
11
• decisions about offshore developments to be made by oil and gas exploration, development
and production companies;
• decisions about offshore developments to be made by offshore renewables companies;
•
the use of subsea completions and our ability to capture associated market share;
• general economic and business conditions and industry trends;
•
• cancellations of contracts, change orders and other contractual modifications and the
the strength of the industry segments in which we are involved;
resulting adjustments to our backlog;
• collections from our customers;
•
the levels of oil and gas production to be processed by the Medusa field production spar
platform;
• our future financial performance, including as a result of the availability, terms and
deployment of capital;
the consequences of significant changes in currency exchange rates;
the volatility and uncertainties of credit markets;
•
•
• changes in tax laws, regulations and interpretation by taxing authorities;
• changes in, or our ability to comply with, other laws and governmental regulations, including
those relating to the environment;
the continued availability of qualified personnel;
•
• our ability to obtain raw materials and parts on a timely basis and, in some cases, from
limited sources;
• operating risks normally incident to offshore exploration, development and production
operations;
the highly competitive nature of our businesses;
• hurricanes and other adverse weather and sea conditions;
• cost and time associated with drydocking of our vessels;
•
• adverse outcomes from legal or regulatory proceedings;
•
•
the risks associated with integrating businesses we acquire;
the risks associated with the use of complex information technology systems, including
cybersecurity risks and the risks associated with failures to protect data privacy in accordance
with applicable legal requirements and contractual provisions binding upon us;
rapid technological changes; and
•
• social, political, military and economic situations in foreign countries where we do business
and the possibilities of civil disturbances, war, other armed conflicts or terrorist attacks.
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 factors that could affect us.
Unpredictable or unanticipated 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.
AVAILABLE INFORMATION
g
Our Web site address is www.oceaneering.com. We make available through this Web site under
"Investor Relations — SEC Financial Reports," free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and
Section 16 filings by our directors and executive officers as soon as reasonably practicable after we,
or our executive officers or directors, as the case may be, electronically file those materials with, or
furnish those materials to, the SEC. In addition, the SEC maintains a Web site, www.sec.gov, which
contains reports, proxy and other information statements, and other information regarding issuers
that file electronically with the SEC.
12
We have adopted, and posted on our Web site: our corporate governance guidelines; a code of ethics
for our Chief Executive Officer and Senior Financial Officers; and charters for the Audit, Nominating
and Corporate Governance and Compensation Committees of our Board of Directors.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers. The following information relates to our executive officers as of February 22,
2019:
NAME
AGE
POSITION
EXECUTIVE
OFFICER
SINCE
EMPLOYEE
SINCE
Roderick A. Larson
Clyde W. Hewlett
Alan R. Curtis
David K. Lawrence
Stephen P. Barrett
W. Cardon Gerner
William J. Boyle
Philip G. Beierl
Martin J. McDonald
Eric A. Silva
52
64
53
59
61
64
58
60
55
59
President and Chief Executive Officer and Director
Chief Operating Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Business Development
Senior Vice President and Chief Accounting Officer
Senior Vice President, Asset Integrity
Senior Vice President, Advanced Technologies
Senior Vice President, Remotely Operated Vehicles
Senior Vice President, Operations Support
2012
2011
2015
2012
2015
2006
2016
2018
2015
2017
2012
1988
1995
2005
2015
2006
2016
2005
1989
2014
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. The following summarizes the business experience of our executive officers.
Except where we otherwise indicate, each of these persons has held his current position with
Oceaneering for at least the past five years.
Roderick A. Larson joined Oceaneering in May 2012 as Senior Vice President and Chief Operating
Officer, became President in February 2015 and became President and Chief Executive Officer and
Director in May 2017. Mr. Larson previously held positions with Baker Hughes Incorporated from
1990 until he joined Oceaneering, serving most recently as President, Latin America Region from
January 2011. Previously, he served as Vice President of Operations, Gulf of Mexico Region from
2009 to 2011, Gulf Coast Area Manager from 2007 to 2009, and Special Projects Leader Technical
Training Task from 2006 to 2007.
Clyde W. Hewlett, Chief Operating Officer, has extensive experience in the offshore and subsea
oilfield markets. He joined Oceaneering in 1988 and has held increasingly responsible positions. He
has served as our Vice President of Mobile Offshore Production Systems, Vice President of Subsea
Projects, Senior Vice President of Subsea Projects and Senior Vice President, Subsea Services. He
was promoted to his current position in August 2015.
Alan R. Curtis, Senior Vice President and Chief Financial Officer, joined Oceaneering in 1995 as the
Financial and Operations Controller for our Subsea Products segment, and became Vice President
and Controller of Subsea Products in 2013 and Senior Vice President, Operations Support in 2014.
He was appointed to his current position in August 2015.
David K. Lawrence, Senior Vice President, General Counsel and Secretary, joined Oceaneering in
2005 as Assistant General Counsel. He was appointed Associate General Counsel effective
January 2011, Vice President, General Counsel and Secretary in January 2012 and to his current
13
position in February 2014. He has over 25 years of experience as in-house counsel in the oilfield
services and products industry and manufacturing.
Stephen P. Barrett, Senior Vice President, Business Development, joined Oceaneering in July 2015 as
Senior Vice President, Subsea Products. He was appointed to his current position in November 2016.
Prior to joining Oceaneering, he served at FMC Technologies beginning in 1982, progressing through
a variety of engineering, sales and marketing, and general management roles, most recently as
Global Subsea Services Director from 2013 to 2015.
W. Cardon Gerner, Senior Vice President and Chief Accounting Officer, joined Oceaneering in 2006 as
Vice President and Chief Accounting Officer, and became a Senior Vice President in August 2011 and
served as our Chief Financial Officer from that date until August 2015. From 1999 to 2006, he held
various financial positions with Service Corporation International, a global provider of death-care
services, serving as Vice President Accounting from 2002 to 2006. He also served as Senior Vice
President and Chief Financial Officer of Equity Corporation International from 1995 to 1999. He is a
Certified Public Accountant.
William J. Boyle, Senior Vice President, Asset Integrity, joined Oceaneering in March 2016. Prior to
joining Oceaneering, Mr. Boyle held the position of Chief Executive Officer with Underwater Integrity
Solutions from November 2014 until December 2015. Previously, Mr. Boyle held senior leadership
positions at Forum Energy Technologies, Inc. from 2013 to 2014, Clough Limited from 2008 to 2012,
Subsea 7 S.A. from 2005 to 2008, John Wood Group PLC from 2003 to 2005 and Technip S.A. from
1991 to 2003.
Philip G. Beierl, Senior Vice President, Advanced Technologies joined Oceaneering in 2005. Before
joining Oceaneering in 2005, he served as a U.S. Navy diving and salvage officer for over 25 years.
He served and held leadership positions in the Oceaneering Technologies unit, most recently as its
Vice President and General Manager from August 2014. He was appointed as Vice President,
Advanced Technologies in January 2018 and then to his current position in May 2018.
Martin J. McDonald, Senior Vice President, Remotely Operated Vehicles, joined Oceaneering in 1989.
He has held a variety of domestic and international positions of increasing responsibility in our ROV
segment and most recently served as Vice President and General Manager for our ROV operations in
the Eastern Hemisphere from 2006 until being appointed to his current position effective
January 2016.
Eric A. Silva, Senior Vice President, Operations Support joined Oceaneering in February 2014 as
Chief Information Officer and Vice President. He was appointed to his current position in August
2015 and was appointed an executive officer in 2017. Prior to joining Oceaneering, Mr. Silva was a
consultant from May 2012 to February 2014 and served as the Chief Information Officer at El Paso
Corporation from 2010 to May 2012. Prior to such time, he was Vice President of Information
Technology of LyondellBasell Industries N.V. (formerly LyondellBasell Industries AF S.C.A.) from
December 2007 to 2010, and was Vice President of Information Technology of Lyondell Chemical
Company from 2002 to 2007.
14
Item 1A. Risk Factors.
We are subject to various risks and uncertainties in the course of our business. The following
summarizes significant risks and uncertainties that may materially and adversely affect our business,
financial condition, results of operations or cash flows and the market value of our securities.
Investors in our company should consider these matters, in addition to the other information we
have provided in this report and the documents we incorporate by reference.
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. Since the general decline in
the price of oil from mid 2014, many oil and gas companies made significant reductions in their
capital and operating expenditures, which are adversely impacting demand for the services and
products provided by our Energy Services and Products business. 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 Energy Services and Products
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:
• worldwide demand for oil and gas;
• general economic and business conditions and industry trends;
•
the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain
production levels;
the level of production by non-OPEC countries, including U.S. shale oil;
the ability of oil and gas companies to generate funds for capital expenditures;
•
•
• domestic and foreign tax policy;
•
laws and governmental regulations that restrict exploration and development of oil and gas in
various offshore jurisdictions;
technological changes;
the political environment of oil-producing regions;
the price and availability of alternative energy; and
•
•
•
• overall economic conditions.
Our operations could be adversely impacted by the effects of new regulations.
During 2010, the U.S. government established new regulations relating to the design of wells and
testing of the integrity of wellbores, the use of drilling fluids, the functionality and testing of well
control equipment, including blowout preventers, and other safety and environmental regulations.
The U.S. government requires that operators demonstrate their compliance with those regulations
before commencing deepwater drilling operations. Changes in laws or regulations regarding offshore
oil and gas exploration and development activities, the cost or availability of insurance and the
impacts of these factors on decisions by customers or other industry participants could further
reduce demand for our services, which would have a negative impact on our operations.
15
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 50% of our consolidated revenue in 2018. Risks associated with our
operations in foreign areas include risks of:
regional and global economic downturns;
•
• disturbances or other risks that may limit or disrupt markets;
• expropriation, confiscation or nationalization of assets;
renegotiation or nullification of existing contracts;
•
foreign exchange restrictions;
•
foreign currency fluctuations, particularly in countries highly dependent on oil revenue;
•
foreign taxation, including the application and interpretation of tax laws;
•
•
the inability to repatriate earnings or capital;
• changing political conditions;
• changing foreign and domestic monetary policies; and
• social, political, military and economic situations in foreign areas where we do business and
the possibilities of civil disturbances, war, other armed conflict, terrorist attacks or acts of
piracy.
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,
economic conditions, political instability and civil unrest in Africa 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 2018, we generated approximately 13% from our operations in Africa,
primarily in Angola.
Foreign exchange risks and fluctuations may affect our profitability on certain projects.
We operate on a worldwide basis with substantial operations outside the U.S. that subject us to U.S.
dollar translation and economic risks. In order to manage some of the risks associated with foreign
currency exchange rates, we may enter into foreign currency derivative (hedging) instruments,
especially when there is currency risk exposure that is not naturally mitigated via our contracts.
However, these actions may not always eliminate all currency risk exposure, in particular for our
long-term contracts. A disruption in the foreign currency markets, including the markets with
respect to any particular currencies, could adversely affect our hedging instruments and subject us
to additional currency risk exposure. Based on fluctuations in currency, the U.S. dollar value of our
backlog may from time to time increase or decrease significantly. We do not enter into derivative
instruments for trading or other speculative purposes. Our operational cash flows and cash
balances, though predominately held in U.S. dollars, may consist of different currencies at various
points in time in order to execute our contracts globally. Non-U.S. asset and liability balances are
subject to currency fluctuations when measured period to period for financial reporting purposes in
U.S. dollars.
Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an
uncertain indicator of our future revenue and earnings.
There can be no assurance that the revenue included in our backlog will be realized or, if realized,
will result in profits. Because of project cancellations or potential changes in the scope or schedule
of our customers' projects, we cannot predict with certainty when or if backlog will be realized.
Material delays, suspensions, cancellations or payment defaults could materially affect our financial
condition, results of operations and cash flows. We may be at risk of delays, suspensions and
cancellations in the current market environment.
16
Reductions in our backlog due to cancellation by a customer or for other reasons would adversely
affect, potentially to a material extent, the revenue and earnings we actually receive from contracts
included in our backlog. Many of our ROV contracts have 30-day notice termination clauses. Some
of the contracts in our backlog provide for cancellation fees in the event customers cancel projects.
These cancellation fees usually provide for reimbursement of our out-of-pocket costs, revenue for
work performed prior to cancellation and a varying percentage of the profits we would have realized
had the contract been completed. We typically have no contractual right upon cancellation to the
total contract revenue as reflected in our backlog. If we experience significant project terminations,
suspensions or scope adjustments to contracts reflected in our backlog, our financial condition,
results of operations and cash flows may be adversely impacted.
A global financial crisis could impact our business and financial condition in ways that we
currently cannot predict.
A recurrence of the credit crisis and related turmoil in the global financial system that occurred in
2008 and 2009 could have an impact on our business and our financial condition. In particular, the
cost of capital increased substantially while the availability of funds from the capital markets
diminished significantly. Although the capital markets have recovered, in a recurrence, our ability to
access the capital markets in the future could be restricted or be available only on terms we do not
consider favorable. Limited access to the capital markets could adversely impact our ability to take
advantage of business opportunities or react to changing economic and business conditions and
could adversely impact our ability to continue our growth strategy. Ultimately, we could be required
to reduce our future capital expenditures substantially. Such a reduction could have a material
adverse effect on our business and our consolidated financial condition, results of operations and
cash flows. A recurrence of such a global financial crisis could have further impacts on our business
that we currently cannot predict or anticipate.
A global financial crisis or economic recession could have an impact on our suppliers and our
customers, causing them to fail to meet their obligations to us, which could have a material adverse
effect on our revenue, income from operations and cash flows.
If one or more of the lenders under our revolving credit facility were to become unable or unwilling
to perform their obligations under that facility, our borrowing capacity could be reduced. Our
inability to borrow under our revolving credit facility could limit our ability to fund our future
operations and growth.
In addition, we maintain our cash balances and short-term investments in accounts held by major
banks and financial institutions located principally in North America, Europe, Africa and Asia, and
some of those accounts hold deposits that exceed available insurance. It is possible that one or
more of the financial institutions in which we hold our cash and investments could become subject to
bankruptcy, receivership or similar proceedings. As a result, we could be at risk of not being able to
access material amounts of our cash, which could result in a temporary liquidity crisis that could
impede our ability to fund operations.
Employee, agent or partner misconduct or our overall failure to comply with laws or
regulations could weaken our ability to win contracts, which could result in reduced revenue
and profits.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities
by one or more of our employees, agents or partners could have a significant negative impact on our
business and reputation. Such misconduct could include the failure to comply with the U.S. Foreign
Corrupt Practices Act ("FCPA"), which prohibits companies and their intermediaries from making
improper payments to non-U.S. officials, as well as the failure to comply with government
procurement regulations, regulations on lobbying or similar activities, regulations pertaining to the
internal controls over financial reporting and various other applicable laws or regulations, including
the U.K. Bribery Act. We operate in some countries that international corruption monitoring groups
have identified as having high levels of corruption. Our activities create the risk of unauthorized
payments or offers of payments by one of our employees or agents that could be in violation of the
FCPA or other applicable anti-corruption laws. The precautions we take to prevent and detect
misconduct, fraud or non-compliance with applicable laws and regulations may not be effective, and
17
we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or
acts of misconduct could subject us to fines, penalties or other sanctions, which could have a
material adverse effect on our business and our consolidated financial condition, results of operations
and cash flows.
Our business strategy contemplates future acquisitions. Acquisitions of other businesses
or assets present various risks and uncertainties.
We may pursue growth through the acquisition of businesses or assets that will enable us to broaden
our service and product offerings and expand into new markets. We may be unable to implement
this element of our growth strategy if we cannot identify suitable businesses or assets, reach
agreement on potential strategic acquisitions on acceptable terms or for other reasons. Moreover,
acquisitions involve various risks, including:
• difficulties relating to the assimilation of personnel, services and systems of an acquired
business and the assimilation of marketing and other operational capabilities;
• challenges resulting from unanticipated changes in customer and other third-party
relationships subsequent to acquisition;
• additional financial and accounting challenges and complexities in areas such as tax planning,
treasury management, financial reporting and internal controls;
• assumption of liabilities of an acquired business, including liabilities that were unknown at the
time the acquisition transaction was negotiated;
• possible liabilities under the FCPA and other anti-corruption laws;
• diversion of management's attention from day-to-day operations;
•
• potentially substantial transaction costs associated with acquisitions; and
• potential impairment resulting from the overpayment for an acquisition.
failure to realize anticipated benefits, such as cost savings and revenue enhancements;
Future acquisitions may require us to obtain additional equity or debt financing, which may not be
available on attractive terms. Moreover, to the extent an acquisition transaction financed by non-
equity consideration results in goodwill, it will reduce our tangible net worth, which might have an
adverse effect on credit availability.
Additionally, an acquisition may bring us into businesses we have not previously conducted and
expose us to additional business risks that are different from those we have previously experienced.
Our business strategy also includes development and commercialization of new
technologies to support our growth. The development and commercialization of new
technologies require capital investment and involve various risks and uncertainties.
Our future growth will depend on our ability to continue to innovate by developing and
commercializing new service and product offerings. Investments in new technologies involve varying
degrees of uncertainties and risk. Commercial success depends on many factors, including the levels
of innovation, the development costs and the availability of capital resources to fund those costs, the
levels of competition from others developing similar or other competing technologies, our ability to
obtain or maintain government permits or certifications, the effectiveness of production, distribution
and marketing efforts, and the costs to customers to deploy and provide support for the new
technologies. We may not achieve significant revenue from new service and product investments for
a number of years, if at all. Moreover, new services and products may not be profitable, and, even if
they are profitable, our operating margins from new services and products may not be as high as the
margins we have experienced historically.
The loss of the services of one or more of our key personnel, or our failure to attract,
assimilate and retain trained personnel in the future, could disrupt our operations and
result in loss of revenue.
Our success depends on the continued active participation of our executive officers and key
operating personnel. The unexpected loss of the services of any one of these persons could
adversely affect our operations.
Our operations require the services of employees having the technical training and experience
necessary to obtain the proper operational results. As a result, if we should suffer any material loss
18
of personnel to competitors or be unable to employ additional or replacement personnel with the
requisite level of training and experience to adequately operate our equipment, our operations could
be adversely affected. A significant increase in the wages paid by other employers could result in a
reduction in our workforce, increases in wage rates, or both.
We may not be able to compete successfully against current and future competitors.
Our businesses operate in highly competitive industry segments. Some of our competitors or
potential competitors have greater financial or other resources than we have. Our operations may
be adversely affected if our current competitors or new market entrants introduce new products or
services with better features, performance, prices or other characteristics than those of our services
and products. This factor is significant to our segments' operations, particularly in the segments
within our Energy Services and Products business, where capital investment is critical to our ability
to compete.
We rely on intellectual property law and confidentiality agreements to protect our
intellectual property. We also rely on intellectual property we license from third parties.
Our failure to protect our intellectual property rights, or our inability to obtain or renew
licenses to use intellectual property of third parties, could adversely affect our business.
We rely on a variety of intellectual property rights that we use in our services and products, and our
success depends, in part, on our ability to protect our proprietary information and other intellectual
property. Our intellectual property could be challenged, invalidated, circumvented or rendered
unenforceable. In addition, effective intellectual property protection may be limited or unavailable in
some foreign countries where we operate.
Our failure to protect our intellectual property rights may result in the loss of valuable technologies
or adversely affect our competitive business position. We rely significantly on proprietary
technology, information, processes and know-how that are not subject to patent or copyright
protection. We seek to protect this information through trade secret or confidentiality agreements
with our employees, consultants, subcontractors or other parties, as well as through other security
measures. These agreements and security measures may be inadequate to deter or prevent
misappropriation of our confidential information. In the event of an infringement of our intellectual
property rights, a breach of a confidentiality agreement or divulgence of proprietary information, we
may not have adequate legal remedies to protect our intellectual property.
In some instances, we have augmented our technology base by licensing the proprietary intellectual
property of third parties. However, it is possible that the tools, techniques, methodologies, programs
and components we use to provide our services or products may infringe on the intellectual property
rights of others. In the future, we may not be able to obtain necessary licenses on commercially
reasonable terms. Royalty payments under licenses from third parties, if available, or developing
non-infringing technologies could materially increase our costs. Additionally, if a license or non-
infringing technology were not available, we might not be able to continue providing a particular
service or product, which could materially and adversely affect our financial condition, results of
operations and cash flows.
Litigation to determine the scope of intellectual property rights, even if ultimately successful, could
be costly and could divert management's attention away from other aspects of our business. In
addition, our trade secrets may otherwise become known or be independently developed by
competitors.
Our information technology systems are subject to interruption and cybersecurity risks
that could adversely impact our operations.
We continue to evaluate potential replacements or upgrades of existing key information technology
systems. The implementation of new information technology systems or upgrades to existing
systems subjects us to inherent costs and risks associated with replacing or changing these systems,
including potential disruption of our internal control structure, substantial capital expenditures,
demands on management time and other risks. Our possible new information technology systems
implementations or upgrades may not result in productivity improvements at the levels anticipated,
or at all. In addition, the implementation of new or upgraded information technology systems may
cause disruptions in our business operations. Any such disruption, and any other information
19
technology system disruptions, if not anticipated and appropriately mitigated, could have a material
adverse effect on our operations.
Our operations (both onshore and offshore) are highly dependent on information technology
systems, including systems that collect, organize, store or use personal data. Threats to information
technology systems associated with cybersecurity risks and cyber incidents or attacks continue to
grow. In addition, breaches to our systems or third-party systems utilized by us could go unnoticed
for some period of time. Risks associated with these threats include disruptions of certain systems
on our vessels or utilized to operate our ROVs; other impairments of our ability to conduct our
operations; loss of or damage to intellectual property, proprietary information or employee or
customer data; disruption of our customers’ operations; loss or damage to our customer data
delivery systems; and increased costs to prevent, respond to or mitigate cybersecurity incidents. If
such a cyber-incident were to occur, it could have a material adverse effect on our business and our
consolidated financial condition, results of operations and cash flows.
In addition, the regulatory environment surrounding data privacy and protection is evolving and can
be subject to significant change. New laws and regulations relating to data privacy and the
unauthorized disclosure of confidential information, including the European Union General Data
Protection Regulation and recent legislation and regulations adopted in various U.S. jurisdictions,
pose complex compliance challenges and may result in increased costs, and any failure to comply
with those laws and regulations (or contractual provisions requiring similar compliance), including as
a result of security and privacy breaches, could result in negative publicity and significant penalties
or other liabilities. Additionally, if we acquire an entity that has violated or is not in compliance with
applicable data privacy and protection laws or regulations (or contractual provisions), we may
experience similar adverse consequences.
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. 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 offshore oil and gas industry. Offshore oil and gas exploration and
production operations are affected by tax, environmental, safety and other laws, by changes in those
laws, application or interpretation of existing 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
20
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.
Our internal controls may not be sufficient to achieve all stated goals and objectives.
Our internal controls and procedures were developed through a process in which our management
applied its judgment in assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding the control objectives. The design of
any system of internal controls and procedures is based, in part, on various assumptions about the
likelihood of future events. We cannot assure that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
The use of estimates could result in future adjustments to our assets, liabilities and
results of operations.
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires that our management make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Uncertainties in the future interpretation and application of the 2017 U.S. tax reform
legislation could materially affect our tax obligations and effective tax rate.
U.S. tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") was
enacted on December 22, 2017, and significantly affected U.S. tax law by changing how the United
States imposes income tax on multinational corporations. The U.S. Department of the Treasury has
broad authority to issue regulations and interpretative guidance that may significantly impact how
we will apply the law and could impact our results of operations beginning in the period issued.
Although we have reflected the effects of the Tax Act in our financial statements, regulatory guidance
continues to be issued by the U.S. tax authorities. Any changes in the interpretation of the Tax Act
as a result of such future regulatory guidance, which could materially affect our tax obligations and
effective tax rate, will be recorded in the period that current or future proposed regulations become
law.
We may issue preferred stock whose terms could adversely affect the voting power or
value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our shareholders, one
or more classes or series of preferred stock having such preferences, powers and relative,
participating, optional and other rights, including preferences over our common stock respecting
dividends and distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or value of our common
stock. For example, we might grant holders of preferred stock the right to elect some number of our
directors in all events or on the happening of specified events or the right to veto specified
transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might
assign to holders of preferred stock could affect the residual value of the common stock.
Provisions in our corporate documents and Delaware law could delay or prevent a change
in control of our company, even if that change would be beneficial to our shareholders.
The existence of some provisions in our corporate documents and Delaware law could delay or
prevent a change in control of our company, even if that change would be beneficial to our
shareholders. Our certificate of incorporation and bylaws contain provisions that may make
acquiring control of our company difficult, including:
• provisions relating to the classification, nomination and removal of our directors;
• provisions regulating the ability of our shareholders to bring matters for action at annual
meetings of our shareholders;
21
• provisions requiring the approval of the holders of at least 80% of our voting stock for a
broad range of business combination transactions with related persons; and
the authorization given to our board of directors to issue and set the terms of preferred stock.
•
In addition, the Delaware General Corporation Law imposes restrictions on mergers and other
business combinations between us and any holder of 15% or more of our outstanding common
stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
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 and
adequate for our current operations. In these locations, we typically own or lease 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 that follow associate our significant offices with the primary business segment they serve.
Energy Services and Products. In general, our Energy Services and Products business segments
share facilities. Our location in Morgan City, Louisiana consists of ROV manufacturing and training
facilities, vessel docking facilities, open and covered warehouse space and offices. The Morgan City
facilities primarily support operations in the United States. We have regional support offices for our
North Sea, Africa, Brazil and Southeast Asia operations in: Aberdeen, Scotland; Stavanger and
Bergen, Norway; Dubai, U.A.E.; Rio de Janeiro and Macaé, Brazil; Luanda, Angola; Chandigarh,
India; Perth, Australia; Kuala Lumpur, Malaysia; Baku, Azerbaijan; and Singapore. We also have
operational bases in various other locations.
We use workshop and office space in Houston, Texas in our Subsea Products, Subsea Projects and
Asset Integrity business segments. Our principal manufacturing facilities for our Subsea Products
segment are located in or near: Houston, Texas; Panama City, Florida; Aberdeen and Rosyth,
Scotland; Nodeland and Stavanger, Norway; Perth, Australia; Luanda, Angola; and Niterói and
Macaé, Brazil. Each of these manufacturing facilities is suitable for its intended purpose and has
sufficient capacity to respond to increases in demand for our subsea products that may be
reasonably anticipated in the foreseeable future.
For a description of the vessels we use in our Subsea Projects operations, see the discussion in Item
1. "Business" under the heading "GENERAL DEVELOPMENT OF BUSINESS –S
Products – Subsea Projects."
Energy Services and
Advanced Technologies. Our primary facilities for our Advanced Technologies segment are leased
offices and workshops in Hanover, Maryland. We have regional offices in Chesapeake, Virginia;
Bremerton, Washington; Pearl Harbor, Hawaii; and San Diego, California, which support our services
for the U.S. Navy. We also have an office in Orlando, Florida, which supports our commercial theme
park animation activities, facilities in Utrecht, Netherlands, to support robotic activities, and facilities
in Houston, Texas, to support our space industry activities.
Item 3.
Legal Proceedings.
For information regarding legal proceedings, see the discussion under the caption "Litigation" in Note
7, "Commitments and Contingencies," of our Notes to Consolidated Financial Statements included in
this report, which discussion we incorporate by reference into this Item.
Item 4. Mine Safety Disclosures.
Not applicable.
22
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Our common stock is listed on the New York Stock Exchange under the symbol OII. Our company
Web site address is www.oceaneering.com
On February 22, 2019, there were 577 holders of record of our common stock. On that date, the
closing sales price, as quoted on the New York Stock Exchange, was $15.80. In 2017, we declared
quarterly dividends of $0.15 per share in the first three quarters. With an outlook for diminishing
cash flow from operations for 2018, we felt it prudent to focus our resources on growth and
positioning the company for the future. Consequently, our Board did not declare quarterly dividends
to be paid in the fourth quarter of 2017 or during 2018. Although we will continue to review our
dividend position on a quarterly basis, we do not anticipate our Board reinstating a quarterly cash
dividend until we see a significant improvement in our market outlook and projected free cash flow.
In December 2014, our Board of Directors approved a share repurchase program under which we
may repurchase up to 10 million shares of our common stock on a discretionary basis. The program
calls for the repurchases to be made in the open market, or in privately negotiated transactions from
time to time, in compliance with applicable laws, rules and regulations, including Rule 10b-18 under
the Securities Exchange Act of 1934, as amended, subject to market and business conditions, levels
of available liquidity, cash requirements for other purposes, applicable legal requirements and other
relevant factors. The timing and amount of any repurchases will be determined by management
based on its evaluation of these factors. We expect that any shares repurchased under the program
will be held as treasury stock for future use. The new program does not obligate us to repurchase
any particular number of shares. Under the program, we had repurchased 2.0 million shares of our
common stock for $100 million through December 31, 2015. We have not repurchased any shares
under the program since December 31, 2015.
EQUITY COMPENSATION PLAN INFORMATION
The following presents equity compensation plan information as of December 31, 2018:
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected
in the first column)
1,443,897
—
1,443,897
N/A
N/A
N/A
2,178,923
—
2,178,923
In the table above, the number of securities to be issued upon exercise of outstanding options,
warrants and rights shown as of December 31, 2018 are restricted stock units and shares of
restricted stock granted under our 2010 incentive plan, as amended.
At December 31, 2018, there were: (1) no shares of Oceaneering common stock under equity
compensation plans not approved by security holders available for grant; and (2) 2,178,923 shares
of Oceaneering common stock under equity compensation plans approved by security holders
available for grant in the form of stock options, stock appreciation rights or stock awards. We have
not granted any stock options since 2005 and the Compensation Committee of our Board of Directors
has expressed its intention to refrain from using stock options as a component of employee
compensation for our executive officers and other employees for the foreseeable future.
23
Additionally, our Board of Directors has expressed its intention to refrain from using stock options as
a component of nonemployee director compensation for the foreseeable future. For a description of
the material features of our equity compensation arrangements, see the discussion under the
heading "Incentive Plan" in Note 9 of Notes to Consolidated Financial Statements included in this
report.
24
PERFORMANCE GRAPH
The following graph compares our total shareholder return to the Standard & Poor's 500 Stock Index
("S&P 500") and the PHLX Oil Service Sector Index from December 31, 2013 through December 31,
2018. The PHLX Oil Service Sector Index is designed to track the performance of a set of companies
involved in the oil services sector.
It is assumed in the graph that: (1) $100 was invested in Oceaneering Common Stock, the S&P 500
and the PHLX Oil Service Sector Index on December 31, 2013; and (2) any Oceaneering dividends
are reinvested. The shareholder return shown is not necessarily indicative of future performance.
Comparison of Cumulative Shareholder Return
$200
$150
$100
$50
$0
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Oceaneering International, Inc.
S&P 500 Index
PHLX Oil Service Sector Index
2013
2014
2015
2016
2017
2018
December 31,
Oceaneering
100.00
75.68
49.38
38.40
29.30
16.77
S&P 500
100.00
113.69
115.26
129.05
157.22
150.33
PHLX Oil Service Sector
100.00
76.23
58.40
69.49
57.54
31.52
25
Item 6.
Selected Financial Data.
The following table sets forth certain selected historical consolidated financial data and should be
read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of
Operation and our Consolidated Financial Statements and Notes included in this report. The
following information may not be indicative of our future operating results.
Results of Operations:
(in thousands, except per share amounts)
2018
2017
2016
2015
2014
Revenue
$ 1,909,482
$ 1,921,507
$ 2,271,603
$ 3,062,754
$ 3,659,624
Cost of services and products
1,780,256
1,726,897
1,992,376
2,457,325
2,800,423
Year Ended December 31,
Gross margin
129,226
194,610
279,227
605,429
Selling, general and administrative expense
198,259
183,954
208,463
231,619
Goodwill impairment
76,449
—
Income (loss) from operations
$ (145,482) $
10,656
Net income (loss)
$ (212,327) $
166,398
Cash dividends declared per Share
Diluted earnings (loss) per share
Depreciation and amortization
Capital expenditures, including business
acquisitions
$
$
$
$
— $
(2.16) $
0.45
1.68
293,590
$
213,519
—
70,764
24,586
0.96
0.25
250,247
$
$
$
$
$
—
373,810
231,011
1.08
2.34
241,235
$
$
$
$
$
$
$
$
$
$
178,038
$
104,958
$
142,513
$
423,988
$
426,671
859,201
230,871
—
628,330
428,329
1.03
4.00
229,779
Other Financial Data:
(dollars in thousands)
Working capital ratio
Working capital
Total assets
Long-term debt
As of December 31,
2018
2017
2016
2015
2014
2.52
2.72
2.48
2.46
2.52
$ 750,148
$ 751,605
$ 754,231
$ 901,537
$ 1,034,413
$ 2,824,998
$ 3,023,950
$ 3,130,315
$ 3,429,536
$ 3,504,940
$ 786,580
$ 792,312
$ 793,058
$ 795,836
$ 743,469
Shareholders' equity
$1,409,235
$ 1,659,164
$ 1,516,643
$ 1,578,734
$ 1,657,471
Goodwill as a percentage of Shareholders'
equity
29%
27%
29%
27%
20%
26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Certain statements in this annual report on Form 10-K, including, without limitation, statements
regarding the following matters, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995:
• our business strategy;
•
industry conditions;
• seasonality;
• our expectations about 2019 results of operations, items below the operating income line and
segment operating results, and the factors underlying those expectations, including our
expectations about demand and pricing for our energy services and products as a result of
the factors we specify in "Overview" and "Results of Operations" below;
• our backlog;
• projections relating to floating rig demand and subsea tree installations;
•
the adequacy of our liquidity, cash flows and capital resources to support our operations and
internally generated growth initiatives;
• our projected capital expenditures for 2019;
• our plans for future operations (including planned additions to and retirements from our
remotely operated vehicle ("ROV") fleet, our intent regarding the new multiservice subsea
support vessel scheduled to be placed into service in the second quarter of 2019 and other
capital expenditures);
• our ability and intent to redeem Angolan bonds and repatriate cash;
• our anticipation of a discrete tax item in the first quarter of 2019;
• our expectations regarding shares repurchased under our share repurchase plan;
• our expectations regarding the implementation of new accounting standards and related
policies, procedures and controls;
• our expectations about our ROV fleet utilization in the future; and
• our expectations regarding the effect of inflation in the near future.
These forward-looking statements are subject to various risks, uncertainties and assumptions,
including those we refer to under the headings "Cautionary Statement Concerning Forward-Looking
Statements" and "Risk Factors" in Part I of 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.
Overview
The table that follows sets out our revenue and operating results for 2018, 2017 and 2016.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss) %
Net Income (Loss)
2018
$1,909,482
2017
$1,921,507
2016
$2,271,603
129,226
194,610
279,227
7 %
10%
12%
(145,482)
10,656
70,764
(8)%
1%
3%
(212,327)
166,398
24,586
Our business depends substantially on the level of spending on offshore developments by our
customers in the energy industry. During 2018, we generated approximately 78% of our revenue,
from services and products we provide to the energy industry. The full year of 2018 unfolded as we
expected, with increased levels of energy services and products activity being more than offset by
27
lower pricing for our energy services and products. Overall, our 2018 revenue approximated our
2017 revenue, with increases in our ROV, Subsea Projects, Asset Integrity and Advance Technologies
segments, offset by a substantial decrease in our Subsea Products segment.
In 2018, on a consolidated level, we had a net loss of $212 million, or diluted loss of $2.16 per
share, compared to net income of $166 million, or diluted earnings of $1.68 per share, in 2017. The
$378 million decrease from 2017 net income was primarily attributable to income taxes. In 2018,
we had income tax expense of $26 million, due primarily to discrete tax expense adjustments, and in
2017, we had an income tax benefit of $184 million, due primarily to a $189 million tax benefit
resulting from the December 2017 enactment of U.S. tax reform legislation commonly referred to as
the 2017 Tax Cuts and Jobs Act (the "Tax Act"). Year-over-year, our change in tax expense (benefit)
represented $210 million of the previously mentioned decrease in net income.
Additionally, we had an operating loss of $145 million in 2018 compared to operating income of $11
million in 2017. For 2018, our revenue was essentially flat with 2017 as we experienced increased
levels of offshore energy activities, however, competitive pressures resulted in lower pricing for our
services and products in our energy related segments. Due to lower profit contributions from our
energy services and products businesses, operating results decreased $156 million from 2017. The
declines in profitability were most notably in:
• our Subsea Projects segment, which had a $96 million decrease in the operating results on
$37 million higher revenue, with a pre-tax goodwill impairment of $76 million in 2018, largely
resulting from the protracted downturn in survey and vessel activity;
• our Subsea Products segment, which had a $40 million decrease in operating income on $111
million less revenue; and
• our ROV segment, which had a $21 million decrease in operating income on relatively flat
revenue.
In 2018, we invested in the following capital initiatives:
• $100 million to add capabilities in our Subsea Projects segment, including the acquisition of
Ecosse Subsea Limited ("Ecosse") for $68 million and the continued construction of a new
subsea support vessel, Ocean Evolution, scheduled to be placed into service during the
second quarter of 2019;
• $46 million to upgrade our work-class ROVs; and
• $25 million to add capabilities in our Subsea Products segment.
We expect our 2019 operating results to improve year-over-year based on increased activity across
all of our segments. Apart from seasonality, we view pricing and margins in the current market to
be relatively stable. Operationally, we anticipate all of our segments, with the exception of Asset
Integrity, to generate improved yearly results, with the largest increase in profitability occurring in
Subsea Products and Advanced Technologies, beginning in the second quarter. Our 2019 forecast is
based on the expectation of higher overall activity and stabilized pricing within our energy segments,
modest activity improvement within our government businesses and improved performance in our
commercial businesses.
We use our ROVs to provide drilling support, vessel-based inspection, maintenance and repair,
subsea hardware installation, construction, and pipeline inspection services to customers in the
energy industry. Most of our ROVs have historically been used to provide drill support services.
Therefore, the number of floating drilling rigs on hire is a leading market indicator for this business.
The following table shows average floating rigs under contract and our ROV utilization.
Average number of floating rigs under contract
ROV days on hire (in thousands)
ROV utilization
2018
148
52
51%
2017
150
47
46%
2016
177
60
53%
28
Demand for floating rigs is the primary leading indicator of the strength of the deepwater market.
According to industry data published by IHS Petrodata, excluding rigs under construction, at the end
of 2018 there were 244 floating drilling rigs in operation or available for work throughout the world,
with 146 of those rigs under contract. Of the 146 rigs under contract, 37 have contract terms
expiring during the first six months of 2019. The offshore rig count in 2018 was relatively stable, at
approximately 148 rigs.
In addition to floating rig demand, the number of subsea tree completions is another leading
indicator, and the primary demand driver for our Subsea Products lines. According to industry data
published by Wood MacKenzie in December 2018, there will be 254 subsea tree installations in 2019,
compared to 275 in 2018, 274 in 2017 and 280 in 2016. As many as 25 projects in water depths
greater than 400 meters are expected to reach "final investment decision" in 2019, up from less then
10 in 2018.
Below the operating income line, we expect:
• a loss on our equity investment in Medusa Spar LLC, due to depreciation more than offsetting
•
•
cash earnings;
increased interest expense as a result of a full year of payments on the $300 million of Senior
Notes we issued in February 2018 and higher floating interest rates, and less than a full year
of capitalized interest on the Ocean Evolution; and
lower foreign currency exchange losses as a result of lower cash balances in the Angolan
kwanza.
In 2019, our income tax payments, estimated to total $25 million, are expected to relate to taxes
incurred in countries that impose tax on the basis of in-country revenue, without regard to the
profitability of such operations. At this time, we do not foresee realizing a current-year tax benefit
from our projected consolidated pre-tax loss, so any discussion of an estimated effective tax rate
would not be meaningful.
Critical Accounting Policies and Estimates
We have based the following discussion and analysis of our financial condition and results of
operations on our consolidated financial statements, which we have prepared in conformity with
accounting principles generally accepted in the United States. These principles require us to make
various estimates, judgments and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expense
during the periods we present. We base our estimates on historical experience, available information
and other assumptions we believe to be reasonable under the circumstances. On an ongoing basis,
we evaluate our estimates; however, our actual results may differ from these estimates under
different assumptions or conditions. The following discussion summarizes the accounting policies we
believe (1) require our management's most difficult, subjective or complex judgments and (2) are
the most critical to our reporting of results of operations and financial position.
Revenue Recognition. Effective January 1, 2018, we adopted Accounting Standard Update
("ASU") 2014-09, "Revenue from Contracts with Customers," which implemented Accounting
Standards Codification Topic 606 ("ASC 606"). We have used the modified retrospective method
applied to those contracts that were not completed as of January 1, 2018, and have utilized the
practical expedient to reflect the effect on contract modifications in the aggregate. The cumulative
effect of applying ASC 606 has been recognized as an adjustment to retained earnings as of January
1, 2018. The comparative information with respect to prior periods has not been retrospectively
restated and continues to be reported under the accounting standards in effect for those periods.
All of our revenue is realized through contracts with customers. We recognize our revenue according
to the contract type. On a daily basis, we recognize service revenue over time for contracts that
provide for specific time, material and equipment charges, which we bill periodically, ranging from
weekly to monthly. We use the input method to faithfully depict revenue recognition, because each
day of service provided represents value to the customer. The performance obligations in these
contracts are satisfied, and revenue is recognized, as the work is performed. We have used the
29
expedient available to recognize revenue when the billing corresponds to the value realized by the
customer where appropriate.
We account for significant fixed-price contracts, mainly relating to our Subsea Products segment, and
to a lesser extent in our Subsea Projects and Advanced Technologies segments, by recognizing
revenue over time using an input, cost-to-cost measurement percentage-of-completion method. We
use the input cost-to-cost method to faithfully depict revenue recognition. This commonly used
method allows appropriate calculation of progress on our contracts. A performance obligation is
satisfied as we create a product on behalf of the customer over the life of the contract. The
remainder of our revenue is recognized at the point in time when control transfers to the customer,
thus satisfying the performance obligation.
We have elected to recognize the cost for freight and shipping as an expense when incurred. Taxes
assessed by a governmental authority that are both imposed on and concurrent with a specific
revenue-producing transaction, and that are collected by us from customers, are excluded from
revenue.
In our service-based business lines, which principally charge on a day rate basis for services
provided, there is no significant impact in the pattern of revenue and profit recognition as a result of
implementation of ASC 606. In our product-based business lines, there are impacts on the pattern of
our revenue and profit recognition in our contracts using the percentage-of-completion method, as a
result of the requirement to exclude uninstalled materials and significant inefficiencies from the
measure of progress. This occurs in our Subsea Products segment.
We apply judgment in the determination and allocation of transaction price to performance
obligations, and the subsequent recognition of revenue, based on the facts and circumstances of
each contract. We routinely review estimates related to our contracts and, where required, reflect
revisions to profitability in earnings immediately. If an element of variable consideration has the
potential for a significant future reversal of revenue, we will constrain that variable consideration to a
level intended to remove the potential future reversal. If a current estimate of total contract cost
indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it.
In prior years, we have recorded adjustments to earnings as a result of revisions to contract
estimates. We strive to estimate our contract costs and profitability accurately. However, there
could be significant adjustments to overall contract costs in the future, due to changes in facts and
circumstances.
In general, our payment terms consist of those services billed regularly as provided and those
products delivered at a point in time, which are invoiced after the performance obligation is satisfied.
Our product and service contracts with milestone payments due at agreed progress points during the
contract are invoiced when those milestones are reached, which may differ from the timing of
revenue recognition. Our payment terms generally do not provide financing of contracts to
customers, nor do we receive financing from customers as a result of these terms.
Property and Equipment and Long-lived Intangible Assets. We periodically and upon the
occurrence of a triggering event review the realizability of our property and equipment and long-
lived intangible assets to determine whether any events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used,
we base our evaluation on impairment indicators such as the nature of the assets, the future
economic benefits of the assets, any historical or future profitability measurements and other
external market conditions or factors that may be present. If such impairment indicators are present
or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we
determine whether an impairment has occurred through the use of an undiscounted cash flows
analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has
occurred, we recognize a loss for the difference between the carrying amount and the fair value of
the asset. For assets held for sale or disposal, the fair value of the asset is measured using fair
market value less cost to sell. Assets are classified as held-for-sale when we have a plan for disposal
of certain assets and those assets meet the held for sale criteria.
30
We charge the costs of repair and maintenance of property and equipment to operations as incurred,
while we capitalize the costs of improvements that extend asset lives or functionality.
Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain
triggering events or circumstances that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Events or circumstances that might indicate an interim
evaluation is warranted include, among other things, unexpected adverse business conditions, macro
and reporting unit specific economic factors (for example, interest rate and foreign exchange rate
fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities and acts
by governments and courts.
In our evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the
qualitative approach, if we determine that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, we are required to perform the quantitative analysis to
determine the fair value for the reporting unit. Thereafter, we compare the fair value of the
reporting unit with its carrying amount and recognize an impairment loss for the amount by which
the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not
exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax
effects from any tax deductible goodwill on the carrying amount of the reporting unit when
measuring the goodwill impairment loss, if applicable.
The fair value of all our reporting units in our 2017 quantitative analysis exceeded their respective
carrying amounts by a significant margin with the exception of one reporting unit, Subsea Projects,
the fair value of which only exceeded its carrying value by approximately 20%. Our Subsea Projects
reporting unit had the largest balance of goodwill and newer goodwill that would be subject to
impairment if business conditions deteriorated subsequent to the acquisitions generating the
goodwill.
In our 2018 annual goodwill evaluation, we performed a qualitative assessment for our Subsea
Projects reporting unit. Due to the protracted downturn in survey and vessel activity, we determined
that it was more likely than not that the fair value was less than the carrying value. As a result, we
determined that a quantitative assessment was necessary for our Subsea Projects reporting unit.
In our 2018 quantitative analysis for the Subsea Projects reporting unit, we estimated the fair value
by weighing the results from the income approach and the market approach. These valuation
approaches consider a number of factors that include, but are not limited to, prospective financial
information, growth rates, terminal value, discount rates and comparable multiples of similar
companies in our industry and require us to make certain assumptions and estimates regarding
industry economic factors and future profitability of our business. Based on this quantitative test, we
determined that the fair value for Subsea Projects was less than its carrying value and, as a result,
we recorded a pre-tax goodwill impairment loss of $76 million in the Subsea Project reporting unit.
The goodwill impairment was included as a component of "Income (Loss) From Operations" in our
Consolidated Statement of Operations for the year ended December 31, 2018. For the remaining
reporting units, qualitative assessments were performed and we concluded that it was more likely
than not that the fair value of the reporting unit was more than the carrying value of the reporting
unit.
Income Taxes. Our tax provisions are based on our expected taxable income, statutory rates and
tax-planning opportunities available to us in the various jurisdictions in which we operate. The
determination of taxable income in any jurisdiction requires the interpretation of the related tax
laws. We are at risk that a taxing authority's final determination of our tax liabilities may differ from
our interpretation. Our effective tax rate may fluctuate from year to year, as our operations are
conducted in different taxing jurisdictions, the amount of pre-tax income fluctuates and our
estimates regarding the realizability of items such as foreign tax credits may change.
We account for any applicable interest and penalties on uncertain tax positions as a component of
our provision for income taxes on our financial statements. Current income tax expense represents
either nonresident withholding taxes or the liabilities expected to be reflected on our income tax
returns for the current year, while the net deferred income tax expense or benefit represents the
change in the balance of deferred tax assets or liabilities as reported on our balance sheet.
31
We establish valuation allowances to reduce deferred tax assets when it is more likely than not that
some portion or all of the deferred tax assets will not be realized in the future. Provisions for
valuation allowances impact our income tax provision in the period in which such adjustments are
identified and recorded.
In March 2016, the FASB issued ASU 2016-09, "Compensation – Stock Compensation Improvements
to Employee Share-Based Payment Accounting." This update requires that all excess tax benefits
and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be
recognized as income tax expense or benefit in the statement of operations. The tax effects of
exercised or vested awards should be treated as discrete items in the reporting period in which they
occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces
taxes payable in the current period. Currently, an entity must determine, for each award, whether
the difference between the deduction for tax purposes and the compensation cost recognized for
financial reporting purposes results in either an excess tax benefit or a tax deficiency. The
amendments in this update are effective for us beginning January 1, 2017. Through
December 31, 2016, we recognized excess tax benefits in additional paid-in capital, and tax
deficiencies have been recognized as an offset to accumulated excess tax benefits. In 2017 and
2018, we recorded a tax deficiency in the first quarter and, under this new standard, we recognized
it as a discrete item in our statement of operations rather than in additional paid-in capital. We also
expect a tax deficiency in the first quarter of 2019, which will be recognized as a discrete item in our
statement of operations.
As further discussed in Note 4, "Income Taxes," of our Notes to Consolidated Financial Statements
included in this report, the Tax Act was enacted on December 22, 2017, and significantly affected
how the United States imposes income tax on multinational corporations. The U.S. Department of
the Treasury and other regulatory bodies continue to finalize changes to existing laws and
regulations which may result from the Tax Act. In accordance with SEC Staff Accounting Bulletin No.
118 ("SAB No. 118"), we recorded provisional estimates to reflect the effects of the provisions of the
Tax Act on our income tax assets and liabilities as of December 31, 2017. We have collected
additional information to complete our assessment of the impacts of these changes on our
operations and recorded income tax assets and liabilities as of December 31, 2018.
For a summary of our major accounting policies and a discussion of recently adopted accounting
standards, please see Note 1 of our Notes to Consolidated Financial Statements included in this
report.
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our operations and growth
initiatives. At December 31, 2018, we had working capital of $750 million, including cash and cash
equivalents of $354 million. Additionally, we had $500 million available through our revolving credit
facility under a credit agreement further described below.
In November 2014, we completed the public offering of $500 million aggregate principal amount of
4.650% Senior Notes due 2024 (the "2024 Senior Notes"). We pay interest on the 2024 Senior
Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on
November 15, 2024.
In February 2018, we completed the public offering of $300 million aggregate principal amount of
6.000% Senior Notes due 2028 (the "2028 Senior Notes"). We pay interest on the 2028 Senior
Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on
February 1, 2028.
We may redeem some or all of the 2024 Senior Notes and the 2028 Senior Notes (collectively, the
"Senior Notes") at specified redemption prices. We used the net proceeds from the 2028 Senior
Notes to repay our term loan indebtedness described further below.
In October 2014, we entered into a credit agreement (as amended, the "Credit Agreement") with a
group of banks. The Credit Agreement initially provided for a $500 million five-year revolving credit
32
facility (the "Revolving Credit Facility"). Subject to certain conditions, the aggregate commitments
under the Revolving Credit Facility may be increased by up to $300 million at any time upon
agreement between us and existing or additional lenders. Borrowings under the Revolving Credit
Facility may be used for general corporate purposes. The Credit Agreement also provided for a $300
million term loan, which we repaid in full in February 2018, using net proceeds from the issuance of
our 2028 Senior Notes referred to above, and cash on hand.
In February 2018, we entered into Agreement and Amendment No. 4 to the Credit Agreement
("Amendment No. 4"). Amendment No. 4 amended the Credit Agreement to, among other things,
extend the maturity of the Revolving Credit Facility to January 25, 2023 with the extending Lenders,
which represent 90% of the existing commitments of the Lenders, such that the total commitments
for the Revolving Credit Facility will be $500 million until October 25, 2021, and thereafter $450
million until January 25, 2023.
Borrowings under the Revolving Credit Facility bear interest at an Adjusted Base Rate or the
Eurodollar Rate (both as defined in the Credit Agreement), at our option, plus an applicable margin
based on our Leverage Ratio (as defined in the Credit Agreement) and, at our election, based on the
ratings of our senior unsecured debt by designated ratings services, thereafter to be based on such
debt ratings. The applicable margin varies: (1) in the case of advances bearing interest at the
Adjusted Base Rate, from 0.125% to 0.750%; and (2) in the case of advances bearing interest at
the Eurodollar Rate, from 1.125% to 1.750%. The Adjusted Base Rate is the highest of (1) the per
annum rate established by the administrative agent as its prime rate, (2) the federal funds rate plus
0.50% and (3) the daily one-month LIBOR plus 1%. We pay a commitment fee ranging from
0.125% to 0.300% on the unused portion of the Revolving Credit Facility, depending on our Leverage
Ratio. The commitment fees are included as interest expense in our consolidated financial
statements.
The Credit Agreement contains various covenants that we believe are customary for agreements of
this nature, including, but not limited to, restrictions on our ability and the ability of each of our
subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or
consolidate, sell assets and enter into certain restrictive agreements. We are also subject to a
maximum adjusted total Capitalization Ratio (as defined in the Credit Agreement) of 55%. The
Credit Agreement includes customary events of default and associated remedies. As of
December 31, 2018, we were in compliance with all the covenants set forth in the Credit Agreement.
We have two interest rate swaps in place on a total of $200 million of the 2024 Senior Notes for the
period to November 2024. See Note 7 of Notes to Consolidated Financial Statements included in this
report for a description of these interest rate swaps.
We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the
2028 Senior Notes, respectively, and $2.6 million of new loan costs, including costs of the
amendments prior to Amendment No. 4, related to the Credit Agreement. The costs, net of
accumulated amortization, are included as a reduction of Long-term debt in our Consolidated
Balance Sheet, as it pertains to the Senior Notes, and in Other non-current assets as it pertains to
the Credit Agreement. We are amortizing these costs to Interest expense through the maturity date
for the Senior Notes and to January 2023 for the Credit Agreement.
Our maximum outstanding indebtedness during 2018 under the Credit Agreement and the Senior
Notes was $800 million, and our total interest costs, including commitment fees, were $45 million.
Our capital expenditures, including business acquisitions, for 2018, 2017 and 2016 were $178
million, $105 million and $143 million, respectively. Our capital expenditures in 2018 included $46
million in our ROV segment, $25 million in our Subsea Products segment and $100 million in our
Subsea Projects segment. Our capital expenditures in 2018 included the acquisition of Ecosse for
approximately $68 million in our Subsea Projects segment. Ecosse builds and operates seabed
preparation, route clearance and trenching tools for submarine cables and pipelines on an integrated
basis that includes vessels, ROVs and survey services. Enabling technologies acquired in the
transaction include Ecosse's modular seabed system, capable of completing the entire trenching
33
work scope (route preparation, boulder clearance, trenching and backfill), and its newly developed
trenching system. These systems primarily serve the shallow water offshore renewables market.
Our capital expenditures in 2017 included $40 million in our ROV segment, $28 million in our Subsea
Products segment and $30 million in our Subsea Projects segment. Our capital expenditures in 2016
included: $50 million in our ROV segment; $57 million in our Subsea Products segment and $26
million in our Subsea Projects segment.
For 2019, we expect our capital expenditures to be in the range of $105 million to $125 million,
exclusive of business acquisitions. This includes approximately $40 million to $50 million of
maintenance capital expenditures and $65 million to $75 million of growth capital expenditures,
including the purchase of equipment needed to support the Brazil drill pipe riser contract awarded in
2018 and the final payments to complete the Jones Act vessel Ocean Evolution in our Subsea
Projects segment. We expect to place the Ocean Evolution into service during the second quarter of
2019.
Our capital expenditures during 2018, 2017 and 2016 included $46 million, $40 million and $50
million, respectively, in our ROV segment, principally for upgrades to our ROV fleet and to replace
certain units we retired and for facilities infrastructure to support our ROV fleet. We currently plan to
add new ROVs only to meet contractual commitments. We added six, seven and six ROVs to our
fleet and retired ten, eight and 41 units during 2018, 2017 and 2016, respectively, resulting in a
total of 275 work-class systems in our fleet at December 31, 2018. Over the past three years, we
retired a greater number of ROVs than we have added due to market conditions and outlook.
We previously had several deepwater vessels under long-term charter. The last of our long-term
charters expired in March 2018. With the current market conditions, our philosophy is to attempt to
charter vessels for specific projects on a back-to-back basis with the vessel owners. This generally
minimizes our contract exposure by closely matching our obligations with our revenue. Unless
indicated otherwise, each of the chartered vessels discussed below is a deepwater multiservice
subsea support vessel outfitted with two of our high-specification work-class ROVs.
In 2012, we moved the chartered vessel Ocean Intervention III to Angola and also chartered the
Bourbon Oceanteam 101 to work on a three-year field support vessel services contract for a unit of
BP plc. We had extended the charter of the Bourbon Oceanteam 101 to January 2017. However, in
early 2016, the customer exercised its right, under the field support vessel services contract, to
terminate its use of the Bourbon Oceanteam 101 at the end of May 2016. Under the terms of the
contract, the costs incurred by us associated with the early release and demobilization of the vessel
were reimbursed by the customer. Following the release of the vessel, we redelivered it to the vessel
supplier. The charter for the Ocean Intervention III expired at the end of July 2017. Under the field
I
support vessel services contract, which was extended through January 2022, we are continuing to
supply project management and engineering services. We also provide ROV tooling and asset
integrity services as requested by the customer. Chartered vessels and barges are provided to the
customer upon request.
In March 2013, we commenced a five-year bareboat charter for a Jones Act-compliant multiservice
support vessel, the Ocean Alliance, we have been using in the U.S. Gulf of Mexico. In January 2015,
we commenced a two-year contract with a customer for the use of the Ocean Alliance, which expired
in January 2017. We returned the Ocean Alliance to the vessel owner in the first quarter of 2018
and continue to market the vessel, now renamed the Cade Candies, for spot market work in the U.S.
Gulf of Mexico on a back-to-back basis with the owner.
In December 2013, we commenced a three-year charter for the Normand Flower, a multiservice
subsea marine support vessel. We made modifications to the vessel and used the vessel in the U.S.
Gulf of Mexico to perform inspection, maintenance and repair projects and hardware installations. In
December 2016, we declined our option to extend the charter and the vessel was released.
In November 2015, we commenced a two-year charter for the use of the Island Pride, a multiservice
subsea marine support vessel. We used the vessel under a two-year contract to provide field
support services off the coast of India for an oil and gas customer based in India. In
34
November 2017, that field services contract expired and we declined our option to extend the vessel
charter.
We also charter or lease vessels on a short-term basis as necessary to augment our fleet.
During the third quarter of 2013, we signed an agreement with a shipyard for the construction of a
subsea support vessel, to be named the Ocean Evolution. We expect to take delivery in the first
quarter and place the vessel into service in the second quarter of 2019. We intend for the vessel to
be U.S. flagged and documented with a coastwise endorsement by the U.S. Coast Guard. The vessel
has an overall length of 353 feet, a Class 2 dynamic positioning system, accommodations for 110
personnel, a helideck, a 250-ton active heave-compensated crane, a working moonpool, and two of
our high specification 4,000 meter work-class ROVs. The vessel is also equipped with a satellite
communications system capable of transmitting streaming video for real-time work observation by
shore personnel. We anticipate the vessel will be used to augment our ability to provide subsea
intervention services in the U.S. Gulf of Mexico. These services are required to perform inspection,
maintenance and repair projects and hardware installations.
Our principal source of cash from operating activities is our net income (loss), adjusted for the non-
cash expenses of depreciation and amortization, deferred income taxes and noncash compensation
under our restricted stock plans. Our $37 million, $136 million and $339 million of cash provided
from operating activities in 2018, 2017 and 2016, respectively, were affected by cash
increases (decreases) of: (1) $(87) million, $13 million and $123 million, respectively, of changes in
accounts receivable; (2) $(12) million, $66 million and $18 million, respectively, of changes in
inventory; and (3) $29 million, $(76) million and $(115) million, respectively, of changes in
accounts payable and accrued liabilities. The decrease in cash related to accounts receivable in 2018
reflected higher business levels in the fourth quarter of 2018, as compared to the fourth quarter of
2017, along with timing of customer payments. The increase in cash related to changes in current
liabilities in 2018 reflected timing of vendor payments. In each of 2017 and 2016, our accounts
receivable, inventory and accounts payable and accrued liabilities all decreased as a result of lower
revenue and activity in general from the immediately preceding year. The 2016 decrease in
inventory was in addition to write-downs totaling $30 million in our ROV and Subsea Products
segments.
In 2018, we used $99 million in net investing activities. We used $109 million to purchase property
and equipment, $68 million for the acquisition of Ecosse and $10 million for the purchase of Angolan
central bank bonds indexed to the U.S. dollar. These outlays were partially offset by $70 million of
proceeds received from maturities and redemptions of Angola bonds and $15 million of proceeds
received from the sale of a cost method investment. In 2017, we used a net of $112 million in
investing activities, with $105 million used to fund the capital expenditures and business acquisitions
and $11 million used to purchase Angolan central bank bonds indexed to the U.S. dollar. In 2016,
we used a net of $169 million in investing activities, with $143 million used to fund the capital
expenditures and business acquisitions, and $39 million used to purchase Angolan central bank
bonds indexed to the U.S. dollar.
In 2018, we used $6 million in financing activities, with $300 million for a repayment of the term
loan facility, substantially offset by $296 million of the proceeds received from the issuance of the
2028 Senior Notes, net of issuance costs. In 2017, we used $46 million in financing activities,
primarily for the $44 million of cash dividends we paid. In 2016, we used $96 million in financing
activities, primarily for the $94 million of cash dividends we paid.
In December 2014, our Board of Directors approved a share repurchase program under which we
may repurchase up to 10 million shares of our common stock on a discretionary basis. The program
calls for the repurchases to be made in the open market, or in privately negotiated transactions from
time to time, in compliance with applicable laws, rules and regulations, including Rule 10b-18 under
the Securities Exchange Act of 1934, as amended, subject to market and business conditions, levels
of available liquidity, cash requirements for other purposes, applicable legal requirements and other
relevant factors. The timing and amount of any repurchases will be determined by management
based on its evaluation of these factors. We expect that any shares repurchased under the new
program will be held as treasury stock for future use. The program does not obligate us to
repurchase any particular number of shares. We account for the shares we hold in treasury under
35
the cost method, at average cost. Through December 31, 2015 under the program, we repurchased
2 million shares of our common stock for $100 million. We have not repurchased any shares under
the program since December 31, 2015.
As of December 31, 2018, we retained 12.3 million of the shares we had repurchased through this
and a prior program. We expect to hold the shares repurchased for future use.
Because of our significant foreign operations, we are exposed to currency fluctuations and exchange
rate risks. We generally minimize these risks primarily through matching, to the extent possible,
revenue and expense in the various currencies in which we operate. Cumulative translation
adjustments as of December 31, 2018 relate primarily to our net investments in, including long-term
loans to, our foreign subsidiaries. A stronger U.S. dollar against the U.K. pound sterling, Norwegian
kroner and Brazilian real would result in lower operating income. See Item 7A – "Quantitative and
Qualitative Disclosures About Market Risk."
Results of Operations
Additional information on our business segments is shown in Note 8 of the Notes to Consolidated
Financial Statements included in this report.
Energy Services and Products. The table that follows sets out revenue and profitability for the
business segments within our Energy Services and Products business. In the ROV section of the
table that follows, "Days available" includes all days from the first day that an ROV is placed in
service until the ROV is retired. All days in this period are considered available days, including
periods when an ROV is undergoing maintenance or repairs. Our ROVs do not have scheduled
maintenance or repair that requires significant time when the ROVs are not available for utilization.
36
(dollars in thousands)
Remotely Operated Vehicles
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Days available
Days utilized
Utilization %
Subsea Products
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Backlog at end of period
Subsea Projects
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss)%
Asset Integrity
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Total Energy Services and Products
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss)%
Year Ended December 31,
2018
2017
2016
$
394,801
$ 393,655
$ 522,121
32,652
50,937
59,038
8 %
13%
11%
1,641
22,366
25,193
— %
6%
5%
101,464
52,084
101,951
47,282
112,588
59,963
51 %
46%
53%
515,000
59,984
625,513
97,086
692,030
140,275
12 %
16%
20%
5,614
45,539
75,938
1 %
7%
11%
332,000
276,000
431,000
329,163
9,596
291,993
25,021
472,979
51,392
3 %
9%
11%
(86,008)
10,279
34,476
(26)%
4%
7%
253,886
34,995
236,778
37,382
275,397
41,458
14 %
16%
15%
8,660
11,231
7,551
3 %
5%
3%
$ 1,492,850
$ 1,547,939
$ 1,962,527
137,227
210,426
292,163
9 %
14%
15%
(70,093)
89,415
143,158
(5)%
6%
7%
Historically, we built new ROVs to increase the size of our fleet in response to demand to support
deepwater drilling and vessel-based inspection, maintenance and repair ("IMR") and installation
work. These vehicles are designed for use around the world in water depths of 10,000 feet or more.
In 2015, as a result of declining market conditions, we began building fewer ROVs, generally limiting
additions to meet contractual commitments. We added six, seven and six ROVs in 2018, 2017 and
2016, respectively, while retiring 59 units over the three-year period. Our ROV fleet size was 275 at
December 31, 2018, 279 at December 31, 2017 and 280 at December 31, 2016. We have
decreased our ROV fleet size over the last four years in response to lower market demand.
37
For the year ended December 31, 2018, our ROV operating income declined on revenue that was
relatively flat compared to 2017, due to lower average dayrates and higher costs, slightly offset by
increased days-on-hire. Lower dayrates resulted from the continued competitive market conditions
for offshore drilling and production driven by lower levels of offshore drilling activity. Higher costs
were due to shorter duration of the contracts and additional costs associated with mobilizations and
work performed to reactivate the systems that had previously been idle.
For the year ended December 31, 2017, our ROV operating income declined slightly compared to
2016, on a revenue decline of 25%. Revenue declined on fewer days-on-hire and lower average
dayrates, both as a result of the continued decline in market conditions for offshore drilling and
production. ROV revenue in 2017 also included a $7.3 million sale of accessory equipment that was
integrated into a customer's rigs. Our 2016 operating results included $41 million of charges, which
consisted of: (1) $25.2 million for a reserve for excess inventory, (2) $10.8 million for the
retirement of 39 ROVs, (3) $3.8 million of restructuring expenses and (4) $1.2 million of bad debt
expenses. These 2016 charges were reflected in our cost of services and products, except for the
charges related to bad debts, which were reflected in general and administrative expenses in our
financial statements.
For ROVs in 2019, we expect improved results based on increased days on hire, minor shifts in
geographic mix and generally stable pricing, while dealing with continued mobilization and make-
ready challenges. We historically have expected to retire, on average, 4% to 5% of our fleet on an
annual basis, although we retired a greater number in 2016 due to market conditions and we retired
a lower number in each of 2018 and 2017 as a result of the reduced existing fleet size. Our overall
ROV fleet utilization is expected to be in the mid 50% range for 2019.
Our Subsea Products segment consists of two business units: (1) manufactured products; and (2)
service and rental. Manufactured products include production control umbilicals and specialty subsea
hardware, while service and rental includes tooling, subsea work systems and installation and
workover control systems. The following table presents revenue from manufactured products and
service and rental, as their respective percentages of total Subsea Products revenue:
Manufactured Products
Service and Rental
Year Ended December 31,
2018
2017
2016
55%
45%
64%
36%
65%
35%
For the year ended December 31, 2018, our Subsea Products operating results decreased from 2017
across both business units, due to lower umbilical-related backlog from the beginning of the year as
a result of lower demand for our manufactured products and reduced activity in our service and
rental business attributable to progress completed on a significant custom-engineered project during
2017, a significant decline in Asia and Australia market activity, start-up costs pertaining to our light
well intervention equipment, as well as the write-offs of certain obsolete equipment.
For the year ended December 31, 2017, our Subsea Products revenue and operating income
decreased from 2016 across both business units, but most notably due to lower pricing of service
and rental. Our 2016 results included the following charges:
• $8.2 million, predominantly for tools and inventory in our portfolio used to support deepwater
drilling and operations;
• $3.7 of restructuring expenses; and
• $1.9 million of allowances for bad debts.
In our financial statements, the charges incurred in 2016 are reflected in our cost of services and
products, except for the charges related to the allowances for bad debts, which are reflected in
38
general and administrative expenses. The restructuring expenses related to severance costs for
incurred and designated future workforce reductions and costs associated with closing excess
facilities.
We anticipate our Subsea Products segment operating income in 2019 to improve as a result of
securing good order intake in 2018 and anticipated awards in early 2019, driving increased
throughput within our manufactured products business unit, and higher activity levels and
contribution from the services and rental business unit. With increased overall activity and better
absorption of our fixed costs, we anticipate that our operating income margin will be in the mid-
single digit range. Our Subsea Products backlog was $332 million at December 31, 2018,
approximately 20%, higher than it was at December 31, 2017. The backlog increase from 2017 was
largely attributable to an increase in order intake for our service and rental offerings.
Our Subsea Projects operating results for the year ended December 31, 2018 were lower compared
to 2017, due to a goodwill impairment charge largely resulting from the protracted downturn in
survey and vessel activity, reduced project activity and diving work in Angola and the write-offs of
obsolete equipment and intangible assets associated with exiting the land survey business. These
results were partially offset by increased diving and deepwater activity in the U.S. Gulf of Mexico.
For the year ended December 31, 2017, our Subsea Projects revenue and operating income
decreased from 2016, as a result of generally lower vessel demand and pricing, and the release in
May 2016 of the Bourbon Oceanteam 101, which was previously deployed under the field support
vessel services contract offshore Angola.
In 2019, our Subsea Projects segment is expected to generate better results with improvements in
survey and renewables work, modestly offset by reduced international and Gulf of Mexico vessel
activity. Vessel dayrates remain very competitive but appear to have stabilized. We expect to place
the Ocean Evolution into service during the second quarter of 2019.
For the year ended December 31, 2018, compared to 2017, Asset Integrity's operating income
decreased due to lower contract pricing for the purpose of contracts retention.
For the year ended December 31, 2017, Asset Integrity operating income improved from the 2016
on lower revenue, as we benefited from restructuring efforts we made in prior periods. Our 2016
operating results included bad debt expense of $5.0 million, which was reflected in selling, general
and administrative expense, and $1.4 million of restructuring charges, which were reflected in our
cost of services and products.
We anticipate our 2019 operating results for Asset Integrity to be relatively flat compared to 2018,
as contract pricing remains extremely competitive.
Advanced Technologies. The table that follows sets out revenue and profitability for this segment.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Year Ended December 31,
$
2018
416,632
58,959
2017
$ 373,568
$
44,421
2016
309,076
33,784
14%
12%
11%
33,920
22,039
11,809
8%
6%
4%
Our Advanced Technologies segment consists of two business units: (1) government; and (2)
commercial. Government services and products include engineering and related manufacturing in
defense and space exploration activities. Our commercial business unit offers a turnkey solution that
includes program management, engineering design, fabrication/assembly and installation to the
commercial theme park industry and mobile robotics solutions including automated guided vehicle
technology to a variety of industries. The following table presents revenue from government and
commercial, as their respective percentages of total Advanced Technologies revenue:
39
Government
Commercial
Year Ended December 31,
2018
2017
2016
67%
33%
74%
78%
26%
22%
For the year ended December 31, 2018, compared to 2017, our Advanced Technologies segment
achieved record operating income, due to steady growth in our government business and a
significant increase in activity in our commercial business, specifically entertainment.
For the year ended December 31, 2017, compared to 2016, Advanced Technologies operating income
was higher, from improved volume of theme park-related projects in our entertainment business.
We project our Advanced Technologies operating results in 2019 to increase, due to continued high
demand and activity levels in our entertainment business, improvements in our automated guided
vehicle operations, and modest growth in our government-related units.
Unallocated Expenses. Our unallocated expenses, i.e., those not associated with a specific
business segment, within gross margin consist of expenses related to our incentive and deferred
compensation plans, including restricted stock and bonuses, as well as other general expenses. Our
unallocated expenses within operating income consist of those within gross margin plus general and
administrative expenses related to corporate functions.
The table that follows sets out our unallocated expenses.
(dollars in thousands)
Gross margin expenses
% of revenue
Operating expenses
% of revenue
Year Ended December 31,
2018
$ (66,960)
2017
$ (60,237)
2016
$ (46,720)
4%
3%
2%
(109,309)
(100,798)
(84,203)
6%
5%
4%
Our unallocated expenses for the year ended December 31, 2018 increased compared to 2017,
primarily due to higher expenses related to information technology and incentive compensation from
our performance units and bonuses.
Our unallocated expenses for the year ended December 31, 2017 increased compared to 2016,
primarily due to higher 2017 estimated expenses related to incentive compensation from our
performance units and bonuses.
We anticipate Unallocated Expenses in 2019 to increase due to the expectation for higher projected
short- and long-term performance based incentive compensation expense. Our Unallocated
Expenses have been running at decreased levels over the last few years, as our financial results have
not achieved performance targets, primarily due to the prolonged downturn in the offshore oilfield
markets we serve. Based on an expected increase in offshore activities, a more stable pricing
environment, realized benefits from ongoing cost and performance initiatives, and continued growth
in our Advanced Technologies segment, we expect to achieve higher performance targets for 2019,
as well as over the longer-term. Therefore, as we re-establish accruals for our annual and long-term
incentive compensation programs, Unallocated Expenses are expected to be approximately $140
million during 2019.
Other. The table that follows sets forth our financial statement items below the operating income
line.
40
(dollars in thousands)
Interest income
Interest expense, net of amounts capitalized
Equity earnings (loss) of unconsolidated affiliates
Other income (expense), net
Provision (benefit) for income taxes
Year Ended December 31,
2018
2017
2016
$
9,962 $
7,355 $
3,900
(37,742)
(27,817)
(25,318)
(3,783)
(8,788)
(1,983)
(6,055)
26,494
(184,242)
244
(6,244)
18,760
Interest income increased in 2018 from an increase in the short-term interest rates received on our
cash equivalents in the U.S.
In addition to interest on borrowings, interest expense includes amortization of loan costs, fees for
lender commitments under our revolving credit agreement and fees for standby letters of credit and
bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance
requirements.
Interest expense increased in 2018 compared to 2017 due to higher interest rate from the 2028
Senior Notes issued in February 2018 replacing our Term Loan and higher interest rates from our
interest rate swaps, partially offset by an increase in our capitalized interest. We capitalized $7.3
million, $4.6 million and $3.7 million of interest in 2018, 2017 and 2016, respectively, associated
with the new-build vessel, the Ocean Evolution, described under "Liquidity and Capital Resources"
above.
Included in other income (expense), net are foreign currency transaction losses of $18 million, $5.2
million and $4.8 million for 2018, 2017 and 2016, respectively. The losses in 2018 and 2016
primarily related to Angola, which devalued its currency by 46% in 2018 and 18% in 2016. We did
not incur significant currency transaction losses in any one currency in 2017. We could incur further
foreign currency exchange losses in Angola if further currency devaluations occur. However, in 2019,
we expect lower foreign currency exchange losses, due to lower cash balances in Angolan kwanza.
In 2018, Other income (expense), net also included a pre-tax gain of $9.3 million resulting from the
sale of our cost method investment in ASV Global, LLC in September 2018. The total consideration
from the sale was $15 million, which is subject to final working capital adjustments and customary
holdbacks. In 2016, other income (expense), net also includes curtailment costs of $1.1 million
related to a defined benefit plan for employees in Norway.
On December 22, 2017, the Tax Act was enacted, most notably reducing the U.S. corporate income
tax rate from 35% to 21% effective January 1, 2018, and creating a quasi-territorial tax system with
a one-time mandatory transition tax on applicable previously-deferred foreign earnings of foreign
subsidiaries. In 2018, based on regulations issued by the U.S. Department of the Treasury and
additional accounting analysis, we reflected the effects of the Tax Act in our financial statements to
include a tax impact of $8.8 million related to the one-time mandatory transition tax. As regulatory
guidance continues to be issued by the U.S. tax authorities, any difference in the interpretation of
the Tax Act resulting from final or newly issued regulations will be recorded in the period that current
or future proposed regulations become law. In 2017, as a result of the Tax Act, we estimated and
recorded a $189 million non-cash benefit in the fourth quarter of 2017, making the effective tax rate
for 2017 not meaningful. Various components of the Tax Act contributed to the $189 million non-
cash benefit. At December 31, 2017, we remeasured our deferred tax assets and liabilities to reflect
the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a provisional $23
million decrease in income tax expense for the year ended December 31, 2017. Prior to enactment,
we provided deferred taxes liabilities associated with certain unrepatriated earnings that will now be
subject to tax-free repatriation, resulting in a provisional $222 million decrease in income tax
expense for the year ended December 31, 2017. The transition tax and resulting quasi-territorial
type tax regime impacts the utilization of our remaining foreign tax credits, resulting in a provisional
valuation allowance of $56 million against such deferred tax assets and a corresponding increase to
income tax expense for the year ended December 31, 2017.
41
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by SEC rules.
Contractual Obligations
At December 31, 2018, we had payments due under contractual obligations as follows:
(dollars in thousands)
Payments due by period
Long-term Debt
Other Operating Leases
Purchase Obligations
Other Long-term Obligations reflected on
our Balance Sheet under GAAP
TOTAL
Total
2019
2020-2021
2022-2023
After 2023
$ 800,000 $
— $
— $
— $ 800,000
387,751
35,064
299,117
282,646
61,230
15,262
55,296
236,161
402
807
58,419
1,567
2,359
1,601
52,892
$1,545,287 $ 319,277 $
78,851 $
57,299 $1,089,860
At December 31, 2018, we had outstanding purchase order commitments totaling $299 million,
including approximately $10 million for the construction of the new subsea support vessel, the
Ocean Evolution, scheduled to be placed into service during the second quarter of 2019.
We previously had several deepwater vessels under long-term charter. The last of our long-term
charters expired in March 2018. With the current market conditions, our philosophy is to attempt to
charter vessels for specific projects on a back-to-back basis with the vessel owners. This generally
minimizes our contract exposure by closely matching our obligations with our revenue.
In 2001, we entered into an agreement with our Chairman of the Board of Directors (the
"Chairman") who was also then our Chief Executive Officer. That agreement was amended in 2006
and in 2008. Pursuant to the amended agreement, the Chairman relinquished his position as Chief
Executive Officer in May 2006 and began his post-employment service period on
December 31, 2006, which continued through August 15, 2011, during which service period the
Chairman, acting as an independent contractor, agreed to serve as nonexecutive Chairman of our
Board of Directors. The agreement provides the Chairman with post-employment benefits for ten
years following August 15, 2011. The agreement also provides for medical coverage on an after-tax
basis to the Chairman, his spouse and children for their lives. We recognized the net present value
of the post-employment benefits over the expected service period. Our total accrued liabilities,
current and long-term, under this post-employment benefit were $3.2 million and $3.9 million at
December 31, 2018 and 2017, respectively.
Effects of Inflation and Changing Prices
Our financial statements are prepared in accordance with generally accepted accounting principles in
the United States, using historical U.S. dollar accounting, or historical cost. Statements based on
historical cost, however, do not adequately reflect the cumulative effect of increasing costs and
changes in the purchasing power of the dollar, especially during times of significant and continued
inflation.
In order to minimize the negative impact of inflation on our operations, we attempt to cover the
increased cost of anticipated changes in labor, material and service costs, either through an estimate
of those changes, which we reflect in the original price, or through price escalation clauses in our
contracts. Our success in achieving price escalation clauses has become more challenging, due to
the protracted downturn and over-capacity in the energy market in which we compete. Inflation has
not had a material effect on our revenue or income from operations in the past three years, and no
such effect is expected in the near future.
42
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. Except for our exposure in Angola, we do not believe these risks are material. We
have not entered into any market risk sensitive instruments for speculative or trading purposes.
When we have a significant amount of borrowings, we typically manage our exposure to interest rate
changes through the use of a combination of fixed- and floating-rate debt. See Note 7 of Notes to
Consolidated Financial Statements included in this report for a description of our revolving credit
facility and interest rates on our borrowings. We have two interest rate swaps in place on a total of
$200 million of the 2024 Senior Notes for the period to November 2024. See Note 6 of Notes to
Consolidated Financial Statements included in this report for a description of these interest rate
swaps. We believe significant interest rate changes would not have a material near-term impact on
our future earnings or cash flows.
Because we operate in various regions in the world, we conduct a portion of our business in
currencies other than the U.S. dollar. The functional currency for most of our international
operations is the applicable local currency. A stronger U.S. dollar against the U.K. pound sterling,
the Norwegian kroner and the Brazilian real would result in lower operating income. We manage our
exposure to changes in foreign exchange rates principally through arranging compensation in U.S.
dollars or freely convertible currency and, to the extent possible, by limiting compensation received
in other currencies to amounts necessary to meet obligations denominated in those currencies. We
use the exchange rates in effect as of the balance sheet date to translate assets and liabilities as to
which the functional currency is the local currency, resulting in translation adjustments that we
reflect as accumulated other comprehensive income or loss in the equity section of our Consolidated
Balance Sheets. We recorded net adjustments of $(47) million, $11 million and $(6) million to our
equity accounts in 2018, 2017 and 2016, respectively. Negative adjustments reflect the net impact
of the strengthening of the U.S. dollar against various foreign currencies for locations where the
functional currency is not the U.S. dollar. Conversely, positive adjustments reflect the effect of a
weakening U.S. dollar.
We recorded foreign currency transaction losses of $18 million, $5.2 million and $4.8 million for
2018, 2017 and 2016, respectively. Those losses are included in Other income (expense), net in our
Consolidated Statements of Operations in those respective periods. Since the second quarter of
2015, the exchange rate for the Angolan kwanza relative to the U.S. dollar generally has been
declining, with the exception of the exchange rate being relatively stable during 2017. As our
functional currency in Angola is the U.S. dollar, we recorded foreign currency transaction losses
related to the kwanza of $19 million, $0.1 million and $7.3 million in 2018, 2017 and 2016,
respectively. The currency transaction losses in Angola are related primarily to the remeasurement of
our Angolan kwanza cash balances to U.S. dollars. Angola devalued its currency by 46% and 18% in
2018 and 2016, respectively. Any conversion of cash balances from kwanza to U.S. dollars is
controlled by the central bank in Angola, and the central bank slowed this process from mid-2015 to
2017, causing our kwanza cash balances to increase during that period of time. However, beginning
in 2018, the Angolan central bank has allowed us to repatriate cash from Angola. During 2018, we
were able to repatriate $74 million of cash from Angola.
As of December 31, 2018 and December 31, 2017, we had the equivalent of approximately $9.3
million and $27 million of kwanza cash balances, respectively, in Angola, reflected on our balance
sheet. The decrease in kwanza cash balances in 2018 was mainly attributable to the repatriation of
cash from Angola and cash used in our Angolan operations.
To mitigate our currency exposure risk in Angola, we have used kwanza to purchase equivalent
Angolan central bank (Banco Nacional de Angola) bonds. The bonds are denominated as U.S. dollar
equivalents, so that, upon payment of semi-annual interest and principal upon maturity, payment is
made in kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate. In
2018, we received a total of $70 million proceeds from maturities and redemptions of Angola bonds
and reinvested $10 million of the proceeds in similar assets. We previously believed the chance of
selling the bonds before maturity and repatriating cash out of Angola was remote. Our intention was
to hold the bonds to maturity, and to reinvest funds from maturing bonds in similar long-term
43
assets. Because we intend to sell the bonds if we are able to repatriate the proceeds, we changed
our accounting for these bonds from held-to-maturity securities to available-for-sale securities.
We estimated the fair market value of the Angolan bonds to be $10 million at December 31, 2018
using quoted prices. Since the market for the Angolan bonds is not an active market, the fair value
of the Angolan bonds is classified within Level 2 in the fair value hierarchy under U.S. GAAP. As of
December 31, 2018, we have not recorded the difference between the fair market value and carrying
amount of the outstanding bonds through the Consolidated Statement of Comprehensive Income
(Loss) due to the insignificant difference between the fair market value and the carrying amount of
the bonds.
As of December 31, 2018, we classified $10 million of bonds due to mature in 2023 as Other current
assets on our Consolidated Balance Sheet because we intend to sell these bonds to meet the needs
of current operations in Angola.
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 incorporated into this item by reference.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), we carried out an evaluation, under the supervision and with the participation of
management, including our principal executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our principal executive officer and principal financial officer concluded that our disclosure
controls and procedures were effective as of December 31, 2018 to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the
quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Our internal control over financial reporting is a process designed to provide reasonable, but not
absolute, assurance regarding the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with accounting principles generally accepted
in the United States of America. We developed our internal control over financial reporting through a
process in which our management applied its judgment in assessing the costs and benefits of various
controls and procedures, which, by their nature, can provide only reasonable assurance regarding the
control objectives. You should note that the design of any system of controls is based in part on
various assumptions about the likelihood of future events, and we cannot assure you that any system
of controls will succeed in achieving its stated goals under all potential future conditions, regardless of
how remote. Because of its inherent limitations, internal control over financial reporting may not
44
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies and procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive,
financial and accounting officers, we have conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
This evaluation included a review of the documentation surrounding our financial reporting controls, an
evaluation of the design effectiveness of these controls, testing of the operating effectiveness of these
controls and an evaluation of our overall control environment. Based on that evaluation, our
management has concluded that our internal control over financial reporting was effective as of
December 31, 2018.
Ernst & Young LLP, the independent registered public accounting firm that audited our financial
statements, has audited our internal control over financial reporting, as stated in their report that
follows.
45
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Oceaneering International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Oceaneering International, Inc. and subsidiaries' internal control over financial reporting as
of December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO
criteria"). In our opinion, Oceaneering International, Inc. and subsidiaries (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company
as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive
income (loss), equity and cash flows for each of the three years in the period ended December 31, 2018,
and the related notes and our report dated February 28, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting
and for its assessment for the effectiveness of internal control over financial reporting included in the
accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to
Oceaneering International, Inc. in accordance with the U.S. federal securities laws and applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 28, 2019
46
Item 9B.
Other Information.
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
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, 2019, relating to our 2019 Annual Meeting of Shareholders.
Information concerning our Audit Committee and the audit committee financial experts is
incorporated by reference from the sections entitled "Corporate Governance" and "Committees of the
Board – Audit Committee" in the proxy statement referred to in this Item 10. Information
concerning our Code of Ethics is incorporated by reference from the section entitled "Code of Ethics"
for the Chief Executive Officer and Senior Financial Officers in the proxy statement previously
referred to in this Item 10.
The information with respect to our executive officers is provided under the heading "Executive
Officers of the Registrant" following Item 1 of Part I of this report. There are no family relationships
between any of our directors or executive officers.
The information with respect to the reporting by our directors and executive officers and persons
who own more than 10% of our Common Stock under Section 16 of the Securities Exchange Act of
1934 is incorporated by reference from the section entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" in the proxy statement previously referred to in this Item 10.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference from the sections entitled
"Compensation Committee Interlocks and Insider Participation," "Compensation Discussion and
Analysis," "Report of the Compensation Committee," "Compensation of Executive Officers," and
"Compensation of Nonemployee Directors" in the proxy statement referred to in Item 10 above.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information required by Item 12 is incorporated by reference from (1) the Equity Compensation
Plan Information table appearing in Item 5 – "Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities" in Part II of this report and (2) the
section "Security Ownership of Management and Certain Beneficial Owners" in the proxy statement
referred to in Item 10 above.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated by reference from the sections entitled
"Corporate Governance" and "Certain Relationships and Related Transactions" in the proxy statement
referred to in Item 10 above.
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 is incorporated by reference from the section entitled
"Ratification of Appointment of Independent Auditors – Fees Incurred for Audit and Other Services
provided by Ernst & Young LLP" in the proxy statement referred to in Item 10 above.
47
Part IV
Item 15.
Exhibits, Financial Statement Schedules.
(a) Documents filed as part of this report.
1. Financial Statements:
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations
(iv) Consolidated Statements of Comprehensive Income (Loss)
(v) Consolidated Statements of Cash Flows
(vi) Consolidated Statements of Equity
(vii) Notes to Consolidated Financial Statements
2. Financial Statement 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 not
significant.
3.
Exhibits:
Exhibit Index
Registration
or File
Number
Form of
Report
Report
Date
Exhibit
Number
*
*
*
*
*
*
*
*
*
*
*
3.01 Restated Certificate of Incorporation
3.02 Certificate of Amendment to Restated
Certificate of Incorporation
1-10945
1-10945
10-K
8-K
Dec. 2000
May 2008
3.03 Certificate of Amendment to Restated
1-10945
8-K
May 2014
Certificate of Incorporation
3.04 Amended and Restated Bylaws
4.01 Specimen of Common Stock Certificate
1-10945
1-10945
4.02 Credit Agreement, dated as of October 27,
1-10945
8-K
10-Q
8-K
Aug. 2015
Sep. 2018
Oct. 2014
2014, by and among Oceaneering
International, Inc., Wells Fargo Bank,
National Association, as administrative agent
and swing line lender, and certain lenders
party thereto
4.03 Agreement and Amendment No. 1 to Credit
1-10945
8-K
Nov. 2015
Agreement
4.04 Agreement and Amendment No. 2 to Credit
1-10945
8-K
Nov. 2016
Agreement
4.05 Agreement and Amendment No. 3 to Credit
1-10945
8-K
June 2017
Agreement
4.06 Agreement and Amendment No. 4 to Credit
1-10945
8-K
Feb. 2018
Agreement
4.07 Indenture dated, November 21, 2014,
1-10945
8-K
Nov. 2014
between Oceaneering International, Inc. and
Wells Fargo Bank, National Association, as
Trustee, relating to senior debt securities of
Oceaneering International, Inc.
3.1
3.1
3.1
3.1
4.3
4.1
4.1
4.1
4.1
4.1
4.1
48
*
4.08 First Supplemental Indenture, dated
1-10945
8-K
Nov. 2014
4.2
November 21, 2014, between Oceaneering
International, Inc. and Wells Fargo Bank,
National Association, as Trustee, providing
for the issuance of Oceaneering
International, Inc.’s 4.650% Senior Notes
due 2024 (including Form of Notes)
*
4.09 Second Supplemental Indenture, dated
1-10945
8-K
Feb. 2018
4.2
February 6, 2018, between Oceaneering
International, Inc. and Wells Fargo Bank,
National Association, as Trustee, providing
for the issuance of Oceaneering
International, Inc.'s 6.000% Senior Notes
due 2028 (including Form of Notes)
We and certain of our consolidated subsidiaries are parties to debt instruments under which the total amount
of securities authorized does not exceed 10% of our total consolidated assets. Pursuant to paragraph 4(iii)(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+ Amended and Restated Service Agreement
1-10945
8-K
Dec. 2006
10.1
dated as of December 21, 2006 between
Oceaneering and John R. Huff
*
10.02+ Modification to Service Agreement dated as
1-10945
8-K
Dec. 2008
10.9
of December 21, 2006 between Oceaneering
and John R. Huff
*
10.03+ Trust Agreement dated as of May 12, 2006
1-10945
8-K
May 2006
10.2
between Oceaneering and United Trust
Company, National Association (the "Huff
Trust Agreement")
*
10.04+ First Amendment to Huff Trust Agreement
dated as of May 12, 2006 between
Oceaneering International, Inc. and Bank of
America National Association, as successor
trustee
1-10945
8-K
Dec. 2008
10.10
*
10.05+ Oceaneering International, Inc.
1-10945
8-K
Dec. 2008
10.5
Supplemental Executive Retirement Plan, as
amended and restated effective January 1,
2009
*
10.06+ Amended and Restated Oceaneering
1-10945
8-K
Dec. 2008
10.6
International, Inc. Supplemental Executive
Retirement Plan, as amended and restated
effective January 1, 2000 (for Internal
Revenue Code Section 409A-grandfathered
benefits)
*
*
*
*
*
*
*
*
*
*
*
10.07+ Form of Change-of-Control Agreement and
1-10945
8-K
Aug. 2015
Annex for Roderick A. Larson
10.08+ Form of Change-of-Control Agreement
10.09+ Form of Indemnification Agreement
10.10+ 2010 Incentive Plan
1-10945
1-10945
8-K
8-K
333-166612 S-8
May 2011
May 2011
May 2010
10.3
10.5
10.4
4.6
10.11+ Amended and Restated 2010 Incentive Plan
1-10945
DEF 14A
Apr. 2015
Appendix A
10.12+ Second Amended and Restated 2010
Incentive Plan
1-10945
DEF 14A
Mar. 2017
Appendix A
10.13+ Form of 2016 Restricted Stock Unit
1-10945
Agreement
10.14+ Form of 2016 Performance Unit Agreement
1-10945
10.15+ Form of 2016 Performance Award: Goals
1-10945
and Measures, relating to the form of 2016
Performance Unit Agreement
10.16+ Form of 2016 Nonemployee Director
Restricted Stock Agreement
1-10945
10.17+ 2016 Annual Cash Bonus Award Program
1-10945
Summary
8-K
8-K
8-K
8-K
8-K
Feb. 2016
Feb. 2016
Feb. 2016
Feb. 2016
Feb. 2016
10.1
10.2
10.3
10.4
10.5
49
*
10.18+ Form of 2017 Performance Unit Agreement,
1-10945
8-K
Feb. 2017
10.1
including 2017 Performance Award: Goals
and Measures
10.2
10.3
10.4
10.3
10.5
10.1
10.2
10.6
10.1
10.2
10.3
10.4
*
*
*
*
*
*
*
*
*
*
*
*
10.19+ Form of 2017 Restricted Stock Unit
1-10945
8-K
Feb. 2017
Agreement
10.20+ Form of 2017 Nonemployee Director
Restricted Stock Agreement
1-10945
8-K
Feb. 2017
10.21+ Form of 2017 Nonemployee Director
1-10945
Restricted Stock Agreement for Mr. Hughes
10.22+ 2017 Nonemployee Director Restricted Stock
1-10945
Agreement for Mr. McEvoy
8-K
8-K
Feb. 2017
May 2017
10.23+ 2017 Annual Cash Bonus Award Program
1-10945
8-K
Feb. 2017
Summary
10.24+ Supplemental 2017 Performance Unit
1-10945
Agreement for Mr. Larson
10.25+ Supplemental 2017 Restricted Stock Unit
1-10945
Agreement for Mr. Larson
10.26+ Retention Agreement dated February 24,
1-10945
2017 for Mr. Gerner
10.27+ Form of 2018 Performance Unit Agreement,
1-10945
including 2018 Performance Award: Goals
and Measures
8-K
8-K
8-K
8-K
May 2017
May 2017
Feb. 2017
Mar. 2018
10.28+ Form of 2018 Restricted Stock Unit
1-10945
8-K
Mar. 2018
Agreement
10.29+ Form of 2018 Nonemployee Director
Restricted Stock Agreement
1-10945
10.30+ 2018 Annual Cash Bonus Award Program
1-10945
8-K
8-K
Mar. 2018
Mar. 2018
Summary
10.31+ Oceaneering International, Inc. Retirement Investment Plan, amended and restated
with effective January 1, 2019
10.32+ Change of Control Plan and Form of Participation Agreement
10.33+ Second Amendment to Huff Trust Agreement dated as of May 12, 2006 between
Oceaneering International, Inc. and Evercore Trust Company, National Association,
as successor trustee
10.34+ Third Amendment to Huff Trust Agreement dated as of May 12, 2006 between
Oceaneering International, Inc. and Newport Trust Company, as successor trustee
10.35+ Oceaneering Retirement Investment Plan Trust Agreement with Fidelity
Management Trust Company effective January 1, 2019
21.01 Subsidiaries of Oceaneering
23.01 Consent of Independent Registered Public Accounting Firm
31.01 Rule 13a – 14(a)/15d – 14(a) certification of principal executive officer
31.02 Rule 13a – 14(a)/15d – 14(a) certification of principal financial officer
32.01 Section 1350 certification of principal executive officer
32.02 Section 1350 certification of principal financial officer
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Exhibit previously filed with the Securities and Exchange Commission, as indicated,
and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement.
50
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.
SIGNATURES
OCEANEERING INTERNATIONAL, INC.
Date: February 28, 2019
By:
/S/ RODERICK A.LARSON
Roderick A. Larson
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
g
Title
Date
/S/ RODERICK A. LARSON
Chief Executive Officer and Director
February 28, 2019
Roderick A. Larson
(Principal Executive Officer)
/S/ ALAN R. CURTIS
Senior Vice President and Chief Financial Officer
February 28, 2019
Alan R. Curtis
(Principal Financial Officer)
/S/ W. CARDON GERNER
Senior Vice President and Chief Accounting Officer
February 28, 2019
W. Cardon Gerner
(Principal Accounting Officer)
/S/ JOHN R. HUFF
Chairman of the Board
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
John R. Huff
/S/ WILLIAM B. BERRY
Director
William B. Berry
/S/ T. JAY COLLINS
Director
T. Jay Collins
/S/ DEANNA L. GOODWIN
Director
Deanna L. Goodwin
/S/ M. KEVIN MCEVOY
Director
M. Kevin McEvoy
/S/ PAUL B. MURPHY, JR.
Director
Paul B. Murphy, Jr.
/S/ JON ERIK REINHARDSEN Director
Jon Erik Reinhardsen
/S/ STEVEN A. WEBSTER
Director
Steven A. Webster
51
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Summary of Major Accounting Policies
Revenue
Selected Balance Sheet Information
Income Taxes
Selected Income Statement Information
Debt
Commitments and Contingencies
Operations by Business Segment and Geographic Area
Employee Benefit Plans
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 not significant.
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Oceaneering International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Oceaneering International, Inc.
and subsidiaries (the Company) as of December 31, 2018 and 2017, and the related consolidated
statements of operations, comprehensive income (loss), equity and cash flows for each of the three
years in the period ended December 31, 2018, and the related notes (collectively referred to as the
"consolidated financial statements"). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2018 and
2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company's internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and
our report dated February 28, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company's auditor since 2002.
Houston, Texas
February 28, 2019
53
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current Assets:
December 31,
2018
2017
Cash and cash equivalents
$ 354,259 $
430,316
Accounts receivable, net of allowances for doubtful accounts of $7,116 and
$6,217
Inventory
Other current assets
Total Current Assets
Property and Equipment, at cost
Less accumulated depreciation
Net Property and Equipment
Other Assets:
Goodwill
Other non-current assets
Total Other Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Total Current Liabilities
Long-term Debt
Other Long-term Liabilities
Commitments and Contingencies
Equity:
Common Stock, par value $0.25 per share; 360,000,000 shares authorized;
110,834,088 shares issued
Additional paid-in capital
Treasury stock; 12,294,873 and 12,554,714 shares, at cost
Retained earnings
Accumulated other comprehensive loss
Oceaneering Shareholders' Equity
Noncontrolling Interest
Total Equity
Total Liabilities and Equity
625,086
194,507
71,037
476,903
215,282
64,901
1,244,889
1,187,402
2,837,587
2,815,579
1,872,917
1,751,375
964,670
1,064,204
413,121
202,318
615,439
455,599
316,745
772,344
$ 2,824,998 $ 3,023,950
$ 102,636 $
85,539
392,105
494,741
786,580
128,379
350,258
435,797
792,312
131,323
27,709
220,421
27,709
225,125
(704,066)
(718,946)
2,204,548
2,417,412
(339,377)
(292,136)
1,409,235
1,659,164
6,063
5,354
1,415,298
1,664,518
$ 2,824,998 $ 3,023,950
The accompanying Notes are an integral part of these Consolidated Financial Statements.
54
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue
Cost of services and products
Gross Margin
Selling, general and administrative expense
Goodwill impairment
Income (Loss) From Operations
Interest income
Year Ended December 31,
2017
2018
2016
$ 1,909,482 $ 1,921,507
$ 2,271,603
1,780,256
1,726,897
1,992,376
129,226
198,259
76,449
(145,482)
9,962
194,610
183,954
—
10,656
7,355
279,227
208,463
—
70,764
3,900
Interest expense, net of amounts capitalized
(37,742)
(27,817)
(25,318)
Equity earnings (losses) of unconsolidated affiliates
Other income (expense), net
Income (Loss) Before Income Taxes
Provision (benefit) for income taxes
(3,783)
(8,788)
(1,983)
(6,055)
(185,833)
(17,844)
26,494
(184,242)
244
(6,244)
43,346
18,760
Net Income (Loss)
$ (212,327) $ 166,398 $
24,586
Weighted average shares outstanding
Basic
Diluted
Earnings (loss) per share
Basic
Diluted
Cash dividends declared per share
98,496
98,496
98,238
98,764
98,035
98,424
$
$
$
(2.16) $
(2.16) $
— $
1.69
1.68
0.45
$
$
$
0.25
0.25
0.96
The accompanying Notes are an integral part of these Consolidated Financial Statements.
55
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31,
2017
2016
2018
Net Income (Loss)
$ (212,327) $
166,398 $
24,586
Other comprehensive income (loss), net of tax:
Foreign currency translation
Pension-related adjustments
Other comprehensive income (loss)
Comprehensive Income (Loss)
(47,026)
10,723
(215)
(195)
(47,241)
10,528
(5,559)
3,258
(2,301)
$ (259,568) $
176,926 $
22,285
The accompanying Notes are an integral part of these Consolidated Financial Statements.
56
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Year Ended December 31,
2017
2016
2018
Net income (loss)
$ (212,327) $
166,398 $
24,586
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, including goodwill impairment
293,590
213,519
250,247
Deferred income tax provision (benefit)
11,912
(235,013)
Inventory write-downs
Net loss (gain) on dispositions of property and equipment and
cost method investment
Noncash compensation
Excluding the effects of acquisitions, increase (decrease) in cash
from:
Accounts receivable
Inventory
Other operating assets
Currency translation effect on working capital, excluding cash
Accounts payable and accrued liabilities
Income taxes payable
Other operating liabilities
Total adjustments to net income (loss)
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
—
(8,215)
11,620
(86,724)
(12,485)
13,587
(4,369)
28,505
(2,537)
4,010
—
216
11,518
13,144
65,502
(38,163)
8,017
(5,499)
13,148
248,894
(29,920)
36,567
136,478
98
30,490
387
14,687
123,036
17,833
53,946
(9,183)
(38,985)
(12,491)
314,853
339,439
(76,309)
(115,212)
Purchases of property and equipment
(109,467)
(93,680)
(112,392)
Business acquisitions, net of cash acquired
(68,571)
(11,278)
(30,121)
Proceeds from maturities and redemption of investments in
Angola bonds
Purchase of Angola bonds
69,789
—
—
(10,236)
(10,777)
(39,130)
Distributions of capital from unconsolidated affiliates
2,372
2,556
6,470
Proceeds from sale of property and equipment and cost method
investment
Other investing activities
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from issuance of 6.000% Senior Notes, net of
issuance costs
Repayment of term loan facility
Cash dividends
Other financing activities
Net Cash Used in Financing Activities
Effect of exchange rates on cash
17,239
32
938
206
3,417
2,285
(98,842)
(112,035)
(169,471)
295,816
(300,000)
—
—
—
—
—
(44,220)
(94,138)
(1,444)
(5,628)
(8,154)
(1,702)
(1,921)
(45,922)
(96,059)
1,602
(8,951)
64,958
Net Increase (Decrease) in Cash and Cash Equivalents
(76,057)
(19,877)
Cash and Cash Equivalents—Beginning of Period
430,316
450,193
385,235
Cash and Cash Equivalents—End of Period
$ 354,259 $
430,316 $
450,193
The accompanying Notes are an integral part of these Consolidated Financial Statements.
57
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Currency
Translation
Adjustments
Pension
Oceaneering
Shareholders'
Equity
Noncontrolling
Interest
Total Equity
Accumulated Other
Comprehensive Income
(Loss)
Balance, December 31, 2015
$ 27,709
$ 230,179
$ (743,577)
$ 2,364,786
$ (297,515)
$ (2,848)
$ 1,578,734
$
Net income
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
Tax benefits from employee benefit
plans
Cash dividends
—
—
—
—
—
—
—
—
2,338
(1,947)
(3,004)
—
—
—
10,428
1,947
—
—
—
—
—
—
(94,138)
24,586
—
—
(5,559)
3,258
Balance, December 31, 2016
27,709
227,566
(731,202)
2,295,234
(303,074)
Net income
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
Cash dividends
Non controlling interest acquired
—
—
—
—
—
—
—
—
480
(2,921)
—
—
—
—
9,335
2,921
—
—
166,398
—
—
—
—
(44,220)
—
10,723
(195)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
410
—
24,586
(2,301)
12,766
—
(3,004)
(94,138)
1,516,643
166,398
10,528
9,815
—
(44,220)
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 1,578,734
24,586
(2,301)
12,766
—
(3,004)
(94,138)
1,516,643
166,398
10,528
9,815
—
(44,220)
—
5,354
5,354
Balance, December 31, 2017
27,709
225,125
(718,946)
2,417,412
(292,351)
215
1,659,164
5,354
1,664,518
Cumulative effect of ASC 606 adoption
Net loss
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
Noncontrolling interest
—
—
—
—
—
—
—
—
—
(753)
(3,951)
—
—
—
—
10,929
3,951
—
(537)
(212,327)
—
—
—
—
(537)
(212,327)
—
—
—
—
(47,026)
(215)
(47,241)
—
—
—
—
—
—
10,176
—
—
—
—
—
—
—
709
(537)
(212,327)
(47,241)
10,176
—
709
Balance, December 31, 2018
$ 27,709
$ 220,421
$(704,066) $2,204,548
$ (339,377) $
— $ 1,409,235
$
6,063
$ 1,415,298
The accompanying Notes are an integral part of these Consolidated Financial Statements.
58
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. ("Oceaneering", "we" or "us") and our 50% or more owned and
controlled subsidiaries. We also consolidate entities that are determined to be variable interest
entities if we determine that we are the primary beneficiary; otherwise, we account for those entities
using the equity method of accounting. We use the equity method to account for our investments in
unconsolidated affiliated companies of which we own an equity interest of between 20% and 50%
and as to which we have significant influence, but not control, over operations. We use the cost
method for all other long-term investments. Investments in entities that we do not consolidate are
reflected on our balance sheet in Other non-current assets. All significant intercompany accounts
and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("U.S. GAAP") requires that our management make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ from those estimates.
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 investment.
Reclassifications. Certain amounts from prior periods have been reclassified to conform with the
current year presentation.
Accounts Receivable – Allowances for Doubtful Accounts. We determine the need for allowances for
doubtful accounts using the specific identification method. We generally do not require collateral
from our customers.
Inventory. Inventory is valued at the lower of cost or net realizable value. We determine cost using
the weighted-average method. During 2016, we recorded inventory write-downs totaling $30.5
million for excess inventory of $25.2 million in our ROV segment and $5.3 million in our Subsea
Products segment.
Property and Equipment and Long-Lived Intangible Assets. We provide for depreciation of property
and equipment on the straight-line method over estimated useful lives of eight years for ROVs, three
to 25 years for marine services equipment (such as vessels and diving equipment) and three to 25
years for buildings, improvements and other equipment.
Long-lived intangible assets, primarily acquired in connection with business combinations, include
trade names, intellectual property and customer relationships and are being amortized with a
weighted average remaining life of approximately eight years. Amortization expense on intangible
assets was $17 million, $10.2 million and $10.2 million in 2018, 2017 and 2016, respectively. 2018
amortization expense included a $3.5 million write-off of intangible assets associated with exiting the
land survey business.
We charge the costs of repair and maintenance of property and equipment to operations as incurred,
while we capitalize the costs of improvements that extend asset lives or functionality.
We capitalize interest on assets where the construction period is anticipated to be more than three
months. We capitalized $7.3 million, $4.6 million and $3.7 million of interest in 2018, 2017 and
2016, respectively. We do not allocate general administrative costs to capital projects. Upon the
disposition of property and equipment, the related cost and accumulated depreciation accounts are
relieved and any resulting gain or loss is included as an adjustment to cost of services and products.
59
Our management periodically, and upon the occurrence of a triggering event, reviews the
realizability of our property and equipment and long-lived intangible assets to determine whether
any events or changes in circumstances indicate that the carrying amounts of the assets may not be
recoverable. For long-lived assets to be held and used, we base our evaluation on impairment
indicators such as the nature of the assets, the future economic benefits of the assets, any historical
or future profitability measurements and other external market conditions or factors that may be
present. If such impairment indicators are present or other factors exist that indicate that the
carrying amount of an asset may not be recoverable, we determine whether an impairment has
occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for
which identifiable cash flows exist. If an impairment has occurred, we recognize a loss for the
difference between the carrying amount and the fair value of the asset. For assets held for sale or
disposal, the fair value of the asset is measured using fair market value less estimated costs to sell.
Assets are classified as held-for-sale when we have a plan for disposal of certain assets and those
assets meet the held for sale criteria.
Business Acquisitions. We account for business combinations using the acquisition method of
accounting, with acquisition prices being allocated to the assets acquired and liabilities assumed
based on their fair values at the respective dates of acquisition.
In March 2018, we acquired Ecosse Subsea Limited ("Ecosse") for $68 million in cash.
Headquartered in Aberdeen, Scotland, Ecosse builds and operates tools for seabed preparation, route
clearance and trenching for the installation of submarine cables and pipelines. These services are
offered on an integrated basis that includes vessels, ROVs and survey services. We have accounted
for this acquisition by allocating the purchase price to the assets acquired and liabilities assumed
based on their estimated fair values as of the date of acquisition. This purchase price allocation is
preliminary and is subject to change upon completion of our valuation procedures. We have included
Ecosse’s operations in our consolidated financial statements starting from the date of closing and its
operating results are reflected in our Subsea Projects segment.
In August 2017, we acquired a 60% controlling ownership interest in Dalgidj LLC ("Dalgidj") for
approximately $12.4 million. In connection with the purchase of the equity interest, we advanced
Dalgidj $6.4 million to pay off certain of its indebtedness. Dalgidj is an Azerbaijan company that
provides office and yard facilities for warehousing, logistics and administration to foreign and local
companies in the Caspian Sea basin. Dalgidj also owns a 49% interest in a joint venture, which
provides remotely operated vehicle solutions, air diving services, and engineering and project
management services. We have accounted for this acquisition by allocating the purchase price to the
assets acquired and liabilities assumed based on their estimated fair values at the date of
acquisition. Dalgidj's operating results are included in our Subsea Projects segment, and its activity
subsequent to the date of acquisition was not significant.
We made several other smaller acquisitions during the periods presented, none of which were
material.
Dispositions. In September 2018, we consummated the sale of our cost method investment in ASV
Global, LLC for $15 million. The total consideration is subject to final working capital adjustments
and customary holdbacks. The sale resulted in a pre-tax gain of $9.3 million, which is reflected in
Other income (expense), net in our Consolidated Statement of Operations for the year ended
December 31, 2018.
Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain
triggering events or circumstances that would more likely than not reduce the fair value of a
reporting unit below its carrying amount.
In our evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the
qualitative approach, if we determine that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, we are required to perform the quantitative analysis to
determine the fair value for the reporting unit. Thereafter, we compare the fair value of the
reporting unit with its carrying amount and recognize an impairment loss for the amount by which
the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not
exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax
60
effects from any tax deductible goodwill on the carrying amount of the reporting unit when
measuring the goodwill impairment loss, if applicable.
The fair value of our reporting units in our 2017 quantitative analysis exceeded their respective
carrying amounts. In our 2018 annual goodwill evaluation, we performed a qualitative assessment
for our Subsea Projects reporting unit. Due to the protracted downturn in survey and vessel activity,
we determined that it was more likely than not the fair value was less than the carrying amount. As
a result, we determined that a quantitative assessment was necessary for our Subsea Projects
reporting unit.
In our 2018 quantitative analysis for the Subsea Projects reporting unit, we estimated the fair value
by weighing the results from the income approach and the market approach. These valuation
approaches consider a number of factors that include, but are not limited to, prospective financial
information, growth rates, terminal value, discount rates and comparable multiples of similar
companies in our industry and require us to make certain assumptions and estimates regarding
industry economic factors and future profitability of our business. Based on this quantitative test, we
determined that the fair value for Subsea Projects was less than the carrying value and, as a result,
we recorded a pre-tax goodwill impairment loss of $76 million in the Subsea Project reporting unit.
The goodwill impairment was included as a component of "Income (Loss) From Operations" in our
Consolidated Statement of Operations for the year ended December 31, 2018. For the remaining
reporting units, qualitative assessments were performed and we concluded that it was more likely
than not that the fair value of the reporting unit was more than the carrying value of the reporting
unit.
Besides the goodwill impairment discussed above, the changes in our reporting units' goodwill
balances during the periods presented are from business acquisitions and currency exchange rate
changes. For information regarding goodwill by business segment, see Note 8.
Revenue Recognition. Effective January 1, 2018, we adopted Accounting Standard Update ("ASU")
2014-09, "Revenue from Contracts with Customers," which implemented Accounting Standards
Codification Topic 606 ("ASC 606"). We have used the modified retrospective method applied to
those contracts that were not completed as of January 1, 2018, and have utilized the practical
expedient available under ASC 606 to reflect the effect on contract modifications in the aggregate.
The cumulative effect of applying ASC 606 has been recognized as an adjustment to retained
earnings as of January 1, 2018. The comparative information with respect to prior periods has not
been retrospectively restated and continues to be reported under the accounting standards in effect
for those periods.
The cumulative effect of the changes made to our Consolidated Balance Sheet as of January 1, 2018
for the adoption of ASC 606 was as follows:
(in thousands)
Assets
Accounts receivable
Contract assets
Total accounts receivable
Inventory
Liabilities
Accrued liabilities
Contract liabilities
Total accrued liabilities
Other long-term liabilities
Equity
Retained earnings
Dec 31, 2017
Adjustments
Due to ASC
606606
Jan 1, 2018
Under ASC
606606
$
476,903
$ (163,963) $
312,940
—
171,956
476,903
215,282
7,993
(34,187)
171,956
484,896
181,095
350,258
(63,045)
287,213
—
350,258
131,323
37,590
(25,455)
(202)
37,590
324,803
131,121
2,417,412
(537)
2,416,875
61
The adoption of ASU 2014-09 did not have a material impact on our consolidated financial position,
results of operations, equity or cash flows as of the adoption date or for the year ended December
31, 2018.
All of our revenue is realized through contracts with customers. We recognize our revenue according
to the contract type. On a daily basis, we recognize service revenue over time for contracts that
provide for specific time, material and equipment charges, which we bill periodically, ranging from
weekly to monthly. We use the input method to faithfully depict revenue recognition, because each
day of service provided represents value to the customer. The performance obligations in these
contracts are satisfied, and revenue is recognized, as the work is performed. We have used the
expedient available to recognize revenue when the billing corresponds to the value realized by the
customer where appropriate.
We account for significant fixed-price contracts, mainly relating to our Subsea Products segment, and
to a lesser extent in our Subsea Projects and Advanced Technologies segments, by recognizing
revenue over time using an input, cost-to-cost measurement percentage-of-completion method. We
use the input cost-to-cost method to faithfully depict revenue recognition. This commonly used
method allows appropriate calculation of progress on our contracts. A performance obligation is
satisfied as we create a product on behalf of the customer over the life of the contract. The
remainder of our revenue is recognized at the point in time when control transfers to the customer,
thus satisfying the performance obligation.
We have elected to recognize the cost for freight and shipping as an expense when incurred. Taxes
assessed by a governmental authority that are both imposed on and concurrent with a specific
revenue-producing transaction, and that are collected by us from customers, are excluded from
revenue.
In our service-based business lines, which principally charge on a day rate basis for services
provided, there is no significant impact in the pattern of revenue and profit recognition as a result of
implementation of ASC 606. In our product-based business lines, we expect impacts on the pattern
of our revenue and profit recognition in our contracts using the percentage-of-completion method, as
a result of the requirement to exclude uninstalled materials and significant inefficiencies from the
measure of progress. This is most likely to occur in our Subsea Products segment.
We apply judgment in the determination and allocation of transaction price to performance
obligations, and the subsequent recognition of revenue, based on the facts and circumstances of
each contract. We routinely review estimates related to our contracts and, where required, reflect
revisions to profitability in earnings immediately. If an element of variable consideration has the
potential for a significant future reversal of revenue, we will constrain that variable consideration to a
level intended to remove the potential future reversal. If a current estimate of total contract cost
indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it.
In prior years, we have recorded adjustments to earnings as a result of revisions to contract
estimates. We strive to estimate our contract costs and profitability accurately. However, there
could be significant adjustments to overall contract costs in the future, due to changes in facts and
circumstances.
In general, our payment terms consist of those services billed regularly as provided and those
products delivered at a point in time, which are invoiced after the performance obligation is satisfied.
Our product and service contracts with milestone payments due at agreed progress points during the
contract are invoiced when those milestones are reached, which may differ from the timing of
revenue recognition. Our payment terms generally do not provide financing of contracts to
customers, nor do we receive financing from customers as a result of these terms.
Please see Note 2 — "Revenue" — for more information on our revenue from contracts with
customers.
Stock-Based Compensation. We recognize all share-based payments to directors, officers and
employees over their vesting periods in the income statement based on their estimated fair values.
For more information on our employee benefit plans, see Note 9.
62
Income Taxes. We provide income taxes at appropriate tax rates in accordance with our
interpretation of the respective tax laws and regulations after review and consultation with our
internal tax department, tax advisors and, in some cases, legal counsel in various jurisdictions. We
provide for deferred income taxes for differences between carrying amounts of assets and liabilities
for financial and tax reporting purposes. We provide a valuation allowance against deferred tax
assets when it is more likely than not that the asset will not be realized.
We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable
upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then
measured and recognized at the largest amount that we believe is greater than 50% likely of being
realized upon ultimate settlement. We account for any applicable interest and penalties on uncertain
tax positions as a component of our provision for income taxes on our financial statements.
For more information on income taxes, please see Note 4.
Foreign Currency Translation. The functional currency for most of our foreign subsidiaries is the
applicable local currency. Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated into U.S. dollars using average exchange rates during the
period. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars using the
exchange rates in effect at the balance sheet date, and the resulting translation adjustments are
recognized, net of tax, in accumulated other comprehensive income (loss) as a component of
shareholders' equity. All foreign currency transaction gains and losses are recognized currently in
the Consolidated Statements of Operations. We recorded $18 million, $5.2 million and $4.8 million
of foreign currency transaction losses in 2018, 2017 and 2016, respectively, and those amounts are
included as a component of Other income (expense), net in our Consolidated Statement of
Operations for the year ended December 31, 2018.
Earnings per Share. For each year presented, the only difference between our annual calculated
weighted average basic and diluted number of shares outstanding is the effect of outstanding
restricted stock units.
Repurchase Plan. In December 2014, our Board of Directors approved a share repurchase program
under which we may repurchase up to 10 million shares of our common stock on a discretionary
basis. The program calls for the repurchases to be made in the open market, or in privately
negotiated transactions from time to time, in compliance with applicable laws, rules and regulations,
including Rule 10b-18 under the Securities Exchange Act of 1934, as amended, subject to market
and business conditions, levels of available liquidity, cash requirements for other purposes,
applicable legal requirements and other relevant factors. The timing and amount of any repurchases
will be determined by management based on its evaluation of these factors. We expect that any
shares repurchased under the program will be held as treasury stock for future use. The program
does not obligate us to repurchase any particular number of shares. We account for the shares we
hold in treasury under the cost method, at average cost. Under the program, we had repurchased 2
million shares of our common stock for $100 million through December 31, 2015. We have not
repurchased any shares under the program since December 31, 2015.
Financial Instruments. We recognize all derivative instruments as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Subsequent changes in fair value are
reflected in current earnings, other comprehensive income (loss) or changes in assets or liabilities,
depending on whether a derivative instrument is designated as part of a hedge relationship and, if it
is, the type of hedge relationship. See Note 7 for information relative to the interest rate swaps we
have in effect.
New Accounting Standards. In January 2016, the Financial Accounting Standards Board ("FASB")
issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10) Recognition and
Measurement of Financial Assets and Financial Liabilities." This update:
•
requires equity investments (except those accounted for under the equity method of
accounting or those that result in consolidation of the investee) to be measured at fair value,
with changes in fair value recognized in net income; and
63
• provides an expedient for the valuation and impairment assessment of equity investments
without readily determinable fair values by requiring a qualitative assessment to identify
value and impairment - when a qualitative assessment indicates that an impairment exists,
an entity is required to measure the investment at fair value.
ASU No. 2016-01 was effective for us beginning on January 1, 2018, and we have utilized the
expedient for valuing equity investments without readily determinable fair values. This update has
not had a material impact on our consolidated financial statements.
"
Effective January 1, 2019, we will adopt ASU 2018-011, an amendment to ASU 2016-02
"Leases" (collectively, the "New Leases Standard") that (1) requires lessees to recognize a right to
use asset and a lease liability for virtually all leases, and (2) updates previous accounting standards
for lessors to align certain requirements with the updates to lessee accounting standards and the
revenue recognition accounting standards. In a recent update, targeted improvements were made
that provide for (1) an optional new transition method for adoption that results in initial recognition
of a cumulative effect adjustment to retained earnings in the year of adoption and (2) a practical
expedient for lessors, under certain circumstances, to combine the lease and non-lease components
of revenue for presentation purposes. We expect to elect the new optional transition method of
adoption. For some of our contracts that could contain a lease component, we expect to apply the
practical expedient and recognize revenue based on the service component, which we have
determined is the predominant component of our contracts.
We are finalizing our evaluation of the impacts that the adoption of this accounting guidance will
have on the consolidated financial statements, and expect a material impact on our Consolidated
Balance Sheet as additional right of use assets and lease liabilities will be recognized upon adoption.
We do not expect a material impact on our Consolidated Statement of Operations, Equity and Cash
Flows from the adoption of the New Leases Standard.
"
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740) - Intra-Entity Transfers
of Assets Other than Inventory." Previously, U.S. GAAP generally prohibited the recognition of
current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an
outside party. The amendments in this update eliminate the exception for an intra-entity transfer of
an asset other than inventory. Two common examples of assets included within the scope of this
update are intellectual property and property, plant and equipment. The exception for an intra-entity
transfer of inventory will remain in place. The amendments in this update were effective for us
beginning January 1, 2018. This ASU has not had a material effect on our consolidated financial
statements.
"
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive
Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income." The amendments in this update allow a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the December
2017 enactment of U.S. tax reform legislation commonly referred to as the Tax Cuts and Jobs Act
(the "Tax Act"). However, because the amendments only relate to the reclassification of the income
tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax
laws or rates be included in income from continuing operations is not affected. The amendments in
this update also require certain disclosures about stranded tax effects. The amendments in this
update will become effective for us beginning January 1, 2019, and early adoption is permitted. We
do not anticipate that this ASU will have a material effect on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718)
Improvements to Nonemployee Share-Based Payment Accounting." This ASU expands the scope of
Topic 718 to include share-based payment transactions for acquiring goods and services from non-
employees. The amendments in this ASU will become effective for us beginning January 1, 2019,
and early adoption is permitted. We do not anticipate that this ASU will have a material effect on our
consolidated financial statements.
64
2. Revenue
Revenue By Category
The following table presents Revenue disaggregated by business segment, geographical region, and
timing of transfer of goods or services.
(in thousands)
Business Segment:
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Total
Geographic Operating Areas:
Foreign:
Africa
United Kingdom
Norway
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Timing of Transfer of Goods or Services:
Revenue recognized over time
Revenue recognized at a point in time
Total
Contract Balances
Year Ended December 31,
2018
2017
2016
$
394,801
$
393,655
$
522,121
515,000
329,163
253,886
625,513
291,993
236,778
692,030
472,979
275,397
1,492,850
1,547,939
1,962,527
416,632
373,568
309,076
$ 1,909,482
$ 1,921,507
$ 2,271,603
$ 239,959
$ 256,198
$
486,615
203,391
185,552
163,843
64,004
103,548
960,297
949,185
236,177
178,712
193,865
42,607
81,364
304,635
166,180
196,679
73,280
66,870
988,923
1,294,259
932,584
977,344
$ 1,909,482
$ 1,921,507
$ 2,271,603
Dec 31, 2018
$ 1,762,103
147,379
$ 1,909,482
Our contracts with milestone payments have, in the aggregate, a significant impact on the Contract
asset and the Contract liability balances. Milestones are contractually agreed with customers and
relate to significant events across the contract lives. Some milestones are achieved before revenue is
recognized, resulting in a Contract liability, other milestones are achieved after revenue is recognized
resulting in a Contract asset.
The following table provides information about Contract assets, and Contract liabilities from contracts
with customers.
(in thousands)
Contract assets
Contract liabilities
Dec 31, 2018
Jan 1, 2018
$
256,201 $
171,956
85,172
37,590
65
Our payment terms consist of those services billed regularly as provided and those products
delivered at a point in time, which are invoiced after the performance obligation is satisfied. Our
product and service contracts with milestone payments due at agreed progress points during the
contract are invoiced when those milestones are reached, which may differ from the timing of
revenue recognition.
During the year ended December 31, 2018, Contract assets increased by $84 million from its
opening balance due to the revenue recognition of $1.9 billion exceeding amounts billed of $1.8
billion. Contract liabilities increased $48 million from its opening balance, due to deferrals of
milestone payments and billings totaling $77 million less revenue recognition of $29 million. There
were no cancellations, impairments or other significant impacts in the period that relate to other
categories of explanation.
Performance Obligations
As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining
performance obligations was $292 million. We expect to recognize revenue of $229 million over the
next twelve months.
The aggregate amount of transaction price allocated to remaining performance obligations that were
unsatisfied (or partially unsatisfied) as of December 31, 2018 are noted above. In arriving at this
value, we have used two expedients available to us and are not disclosing amounts in relation to
performance obligations: (1) that are part of contracts with an original expected duration of one year
or less; or (2) on contracts where we recognize revenue in line with the billing.
Due to the nature of our service contracts in our Remotely Operated Vehicle, Subsea Projects, Asset
Integrity and Advanced Technologies segments, the majority of our contracts either have initial
contract terms of one year or less or have customer option cancellation clauses that lead us to
consider the original expected duration of one year or less.
In our Subsea Products and Advanced Technologies segments, we have long-term contracts that
extend beyond one year, and these make up the majority of the balance reported. We also have
shorter-term product contracts with an expected original duration of one year or less that have been
excluded.
Where appropriate, we have made estimates within the transaction price of elements of variable
consideration within the contracts and constrained those amounts to a level where we consider that
it is probable that a significant reversal in the amount of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is subsequently resolved. The
amount of revenue recognized in the year ended December 31, 2018, which was associated with
performance obligations completed or partially completed in prior periods was not significant.
As of December 31, 2018, there was no outstanding liability balance for refunds or returns due to
the nature of our contracts and the services and products we provide. Our warranties are limited to
assurance warranties that are of a standard length and are not considered to be a material right. The
majority of our contracts consist of a single performance obligation. When there are multiple
obligations, we look for observable evidence of stand-alone selling prices on which to base the
allocation. This involves judgment as to the appropriateness of the observable evidence relating to
the facts and circumstances of the contract. If we do not have observable evidence, we estimate
stand-alone selling prices by taking a cost plus margin approach, using typical margins from the type
of service or product, customer and regional geography involved.
Costs to Obtain or Fulfill a Contract
In line with the available expedient, we capitalize costs to obtain a contract when those amounts are
significant and the contract is expected at inception to exceed one year in duration; otherwise, the
costs are expensed in the period when incurred. Costs to obtain a contract primarily consist of bid
66
and proposal costs, which are incremental to our fixed costs. There was no balance or amortization
of Costs to obtain a contract in the current reporting period.
Costs to fulfill a contract primarily consist of certain mobilization costs incurred to provide services or
products to our customers. These costs are deferred and amortized over the period of contract
performance. The closing balance of Costs to fulfill a contract as of December 31, 2018 was $13
million, with $6.5 million of amortization for the year ended December 31, 2018. No impairment
costs were recognized.
3. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
(in thousands)
Inventory:
Remotely operated vehicle parts and components
Other inventory, primarily raw materials
Total
Other current assets:
Prepaid expenses
Angola bonds
Total
Other Non-Current Assets:
Intangible assets, net
Angola bonds
Cash surrender value of life insurance policies
Investment in unconsolidated affiliates
Deferred income taxes
Other
Total
Accrued Liabilities:
Payroll and related costs
Accrued job costs
Deferred revenue
Income taxes payable
Other
Total
Other Long-Term Liabilities:
Deferred income taxes
Supplemental Executive Retirement Plan
Long-Term Incentive Plan
Accrued post-employment benefit obligations
Uncertain tax positions
Tax Act transition tax due after one year
Other
Total
67
2018
2017
$ 108,939 $ 97,313
85,568
117,969
$ 194,507 $ 215,282
60,858
10,179
71,037
64,901
—
64,901
$ 79,995 $ 85,293
—
51,131
39,333
—
31,859
68,280
54,987
49,094
24,633
34,458
$ 202,318 $ 316,745
$ 114,676 $ 101,989
62,281
85,172
34,954
95,022
58,823
63,040
30,589
95,817
$ 392,105 $ 350,258
$ 18,243 $ 42,040
42,992
45,037
8,076
3,239
17,903
7,813
30,113
4,348
3,352
5,566
—
30,980
$ 128,379 $ 131,323
4. INCOME TAXES
In December 2017, the United States enacted the Tax Act, which included a number of changes to
existing U.S. tax laws that have an impact on our income tax provision, most notably a reduction of
the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31,
2017, and the creation of a quasi-territorial tax system with a one time mandatory transition tax on
applicable previously deferred earnings of foreign subsidiaries. The Tax Act also makes prospective
changes beginning in 2018, including a base erosion and anti abuse tax ("BEAT"), a global intangible
low taxed income ("GILTI") tax, additional limitations on the deductibility of interest expense and
repeal of the domestic manufacturing deduction. In the period ended December 31, 2017, we
recorded a provisional net tax benefit associated with the Tax Act and related matters of $189
million.
The provisional amounts recorded in 2017 related to the transition tax, remeasurement of deferred
taxes, our reassessment of permanently reinvested earnings, valuation allowances, and actions
taken in anticipation of the Tax Act were finalized and a net expense of $23 million was recorded
during 2018. Although we have completed our accounting on the effect of the Tax Act in our
financial statements, regulatory guidance continues to be issued by the tax authorities. Any changes
in the interpretation of the Tax Act as a result of such future regulatory guidance, which could
materially affect our tax obligations and effective tax rate, will be recorded in the period that current
or future proposed regulations become law.
Our provisions (benefit) for income taxes and our cash taxes paid are as follows:
(in thousands)
Current:
Domestic
Foreign
Total current
Deferred:
Domestic
Foreign
Total deferred
Total provision (benefit) for income taxes
Cash taxes paid
Year Ended December 31,
2017
2016
2018
$
(1,564) $
13,390 $
(6,899)
16,146
14,582
37,381
50,771
(22,905)
(213,200)
34,817
11,912
(21,813)
(235,013)
$
$
26,494 $ (184,242) $
29,737 $
43,347 $
25,561
18,662
(8,617)
8,715
98
18,760
75,819
The components of income (loss) before income taxes are as follows:
(in thousands)
Domestic
Foreign
Income (loss) before income taxes
2018
Year Ended December 31,
2017
(93,053) $ (180,132)
2016
$ (132,138) $
(53,695)
75,209
223,478
$ (185,833) $
(17,844) $
43,346
As of December 31, 2018 and 2017, our worldwide deferred tax assets, liabilities and net deferred
tax liabilities were as follows:
68
(in thousands)
Deferred tax assets:
Deferred compensation
Deferred income
Accrued expenses
Net operating loss and other carryforwards
Other
Gross deferred tax assets
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Basis difference in equity investments
Total deferred tax liabilities
Net deferred income tax liability
December 31,
2018
2017
$
13,684 $
22,325
2,381
13,683
2,015
11,652
189,644
222,065
4,601
2,203
223,993
260,260
(203,040)
(206,586)
20,953 $
53,674
36,850 $
65,366
2,346
39,196 $
18,243 $
5,715
71,081
17,407
$
$
$
$
Our net deferred tax liability is reflected within our balance sheet as follows:
(in thousands)
Deferred tax liabilities
Long-term deferred tax assets
Net deferred income tax liability
December 31,
2018
2017
$
$
18,243 $
42,040
—
(24,633)
18,243 $
17,407
At December 31, 2018, we had approximately $781 million of net operating and other loss
carryforwards that were generated in various worldwide jurisdictions. We have no U.S. net operating
losses available to reduce future payments of U.S. federal income taxes. The carryforwards include
$711 million that do not expire and $70 million that will expire from 2019 through 2028. We have
recorded a total valuation allowance of $203 million on foreign operating losses and tax credit
carryforwards as well as other deferred tax assets as our management believes that it is more likely
than not that these deferred tax assets will not be realized.
A reconciliation of our beginning and ending amounts of valuation allowances is as follows:
(in thousands)
Balance at beginning of year
Year Ended December 31,
2018
2017
2016
$ (206,586) $
(4,200) $
—
Increase due principally to foreign net operating losses
(38,415)
(146,360)
(4,200)
Increase due to tax credit carryforwards generated in foreign
operations
Reduction due to utilization of foreign tax credits generated in
prior year
Balance at end of year
(14,065)
(56,026)
56,026
—
—
—
$ (203,040) $
(206,586) $
(4,200)
The utilization of the foreign tax credits generated in the prior year was as a result of the mandatory
repatriation requirements of the Tax Act.
Reconciliations between the actual provision for income taxes (benefit) on continuing operations and
that computed by applying the U.S. statutory rate of 21% for 2018 and 35% for 2017 and 2016 to
income before income taxes were as follows:
69
(in thousands)
Year Ended December 31,
2018
2017
2016
Income tax provision (benefit) at the U.S. statutory rate
$
(39,025) $
(6,245) $
15,171
Tax Act - earnings subject to tax-free repatriation
Tax Act - net mandatory repatriation tax
Tax Act - remeasure of net U.S. deferred tax liabilities
Valuation allowances
Foreign tax rate differential
Stock compensation
Uncertain tax positions
Other items, net
—
(222,019)
8,790
—
—
(23,124)
38,415
475
2,135
12,644
3,060
89,217
(21,163)
3,112
(836)
(3,184)
—
—
—
4,200
(1,766)
—
680
475
Total provision (benefit) for income taxes
$
26,494 $ (184,242) $
18,760
We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable
upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then
measured and recognized at the largest amount that we believe is greater than 50% likely of being
realized upon ultimate settlement.
We account for any applicable interest and penalties on uncertain tax positions as a component of
our provision for income taxes on our financial statements. We increased/(decreased) income tax
expense by $1.7 million and $0.6 million in 2018 and 2017, respectively, for penalties and interest
on uncertain tax positions, which brought our total liabilities for penalties and interest on uncertain
tax positions to $4.3 million and $2.6 million on our balance sheets at December 31, 2018 and 2017,
respectively. All additions or reductions to those liabilities would affect our effective income tax rate
in the periods of change.
A reconciliation of the beginning and ending amount of gross uncertain tax positions, not including
associated foreign tax credits and penalties and interest, is as follows:
(in thousands)
Balance at beginning of year
Additions based on tax positions related to the current year
Reductions for expiration of statutes of limitations
Additions (reductions) based on tax positions related to prior
years
Reductions based on tax positions related to prior years
Settlements
Balance at end of year
Year Ended December 31,
2017
2018
2016
$
5,339 $
6,330
$
445
(260)
10,540
—
(1,093)
1,213
(650)
314
(962)
(906)
5,245
1,999
(1,028)
114
—
—
$
14,971 $
5,339
$
6,330
We believe approximately $8.3 million of gross uncertain tax positions will be resolved within the
next 12 months. Including associated foreign tax credits and penalties and interest, we have
accrued a net total of $18 million and $5.6 million in the caption "other long-term liabilities" on our
balance sheet at December 31, 2018 and 2017, respectively, for uncertain tax positions.
We consider the earnings of our foreign subsidiaries to be indefinitely reinvested. As of December
31, 2018, we did not provide for deferred taxes on earnings of our foreign subsidiaries that are
indefinitely reinvested. If we were to make a distribution from the unremitted earnings of these
subsidiaries, we would be subject to taxes payable to various jurisdictions, however, it is not practical
to estimate the amount of tax that would ultimately be due if remitted. If our expectations were to
change regarding future tax consequences, we may be required to record additional deferred taxes
that could have a material effect on our Consolidated Balance Sheets, Consolidated Statements of
Operations or Consolidated Statements of Cash Flows.
70
Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often
take years to complete and settle. The following lists the earliest tax years open to examination by
tax authorities where we have significant operations:
Jurisdiction
United States
United Kingdom
Norway
Angola
Brazil
Australia
Periods
2014
2015
2007
2013
2012
2013
5. SELECTED INCOME STATEMENT INFORMATION
The following schedule shows our revenue, costs and gross margins by services and products:
(in thousands)
Revenue:
Services
Products
Total revenue
Cost of Services and Products:
Services
Products
Unallocated expenses
Total cost of services and products
Gross margin:
Services
Products
Unallocated expenses
Total gross margin
6. DEBT
Long-term Debt consisted of the following:
(in thousands)
4.650% Senior Notes due 2024:
6.000% Senior Notes due 2028:
Term Loan Facility
Fair value of interest rate swaps on $200 million of principal
Unamortized debt issuance costs
Revolving Credit Facility
Long-term Debt
Year Ended December 31,
2017
2016
2018
$ 1,245,927 $ 1,181,229 $ 1,509,786
663,555
740,278
761,817
1,909,482
1,921,507
2,271,603
1,135,084
1,040,817
1,330,218
578,212
66,960
625,843
60,237
615,438
46,720
1,780,256
1,726,897
1,992,376
110,843
85,343
140,412
114,435
179,568
146,379
(66,960)
(60,237)
(46,720)
$
129,226 $
194,610 $
279,227
2018
2017
$ 500,000 $ 500,000
300,000
—
—
300,000
(5,600)
(7,820)
—
(2,990)
(4,698)
—
$ 786,580 $ 792,312
In November 2014, we completed the public offering of $500 million aggregate principal amount of
4.650% Senior Notes due 2024 (the "2024 Senior Notes"). We pay interest on the 2024 Senior
Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on
November 15, 2024.
In February 2018, we completed the public offering of $300 million aggregate principal amount of
6.000% Senior Notes due 2028 (the "2028 Senior Notes"). We pay interest on the 2028 Senior
71
Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on
February 1, 2028.
We may redeem some or all of the 2024 Senior Notes and the 2028 Senior Notes (collectively, the
"Senior Notes") at specified redemption prices. We used the net proceeds from the 2028 Senior
Notes to repay our term loan indebtedness described further below.
In October 2014, we entered into a credit agreement (as amended, the "Credit Agreement") with a
group of banks. The Credit Agreement initially provided for a $500 million five-year revolving credit
facility (the "Revolving Credit Facility"). Subject to certain conditions, the aggregate commitments
under the Revolving Credit Facility may be increased by up to $300 million at any time upon
agreement between us and existing or additional lenders. Borrowings under the Revolving Credit
Facility may be used for general corporate purposes. The Credit Agreement also provided for a $300
million term loan, which we repaid in full in February 2018, using net proceeds from the issuance of
our 2028 Senior Notes referred to above, and cash on hand.
In February 2018, we entered into Agreement and Amendment No. 4 to the Credit Agreement
("Amendment No. 4"). Amendment No. 4 amended the Credit Agreement to, among other things,
extend the maturity of the Revolving Credit Facility to January 25, 2023 with the extending Lenders,
which represent 90% of the existing commitments of the Lenders, such that the total commitments
for the Revolving Credit Facility will be $500 million until October 25, 2021, and thereafter $450
million until January 25, 2023.
Borrowings under the Revolving Credit Facility bear interest at an Adjusted Base Rate or the
Eurodollar Rate (both as defined in the Credit Agreement), at our option, plus an applicable margin
based on our Leverage Ratio (as defined in the Credit Agreement) and, at our election, based on the
ratings of our senior unsecured debt by designated ratings services, thereafter to be based on such
debt ratings. The applicable margin varies: (1) in the case of advances bearing interest at the
Adjusted Base Rate, from 0.125% to 0.750%; and (2) in the case of advances bearing interest at
the Eurodollar Rate, from 1.125% to 1.750%. The Adjusted Base Rate is the highest of (1) the per
annum rate established by the administrative agent as its prime rate, (2) the federal funds rate plus
0.50% and (3) the daily one-month LIBOR plus 1%. We pay a commitment fee ranging from
0.125% to 0.300% on the unused portion of the Revolving Credit Facility, depending on our Leverage
Ratio. The commitment fees are included as interest expense in our consolidated financial
statements.
The Credit Agreement contains various covenants that we believe are customary for agreements of
this nature, including, but not limited to, restrictions on our ability and the ability of each of our
subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or
consolidate, sell assets and enter into certain restrictive agreements. We are also subject to a
maximum adjusted total Capitalization Ratio (as defined in the Credit Agreement) of 55%. The
Credit Agreement includes customary events of default and associated remedies. As of
December 31, 2018, we were in compliance with all the covenants set forth in the Credit Agreement.
We have two interest rate swaps in place on a total of $200 million of the 2024 Senior Notes for the
period to November 2024. See Note 7 for a description of these interest rate swaps.
We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the
2028 Senior Notes, respectively, and $2.6 million of new loan costs, including costs of the
amendments prior to Amendment No. 4, related to the Credit Agreement. The costs, net of
accumulated amortization, are included, as a reduction of Long-term debt in our Consolidated
Balance Sheet, as it pertains to the Senior Notes, and in Other non-current assets as it pertains to
the Credit Agreement. We are amortizing these costs to Interest expense through the maturity date
for the Senior Notes and to January 2023 for the Credit Agreement.
We made cash interest payments of $37 million, $32 million and $29 million in 2018, 2017 and
2016, respectively.
72
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2018, we occupied several facilities under noncancellable operating leases expiring
at various dates through 2035. Future minimum rentals under all of our operating leases, including
vessel rentals, are as follows:
(in thousands)
2019
2020
2021
2022
2023
$
35,064
32,216
29,014
28,213
27,083
Thereafter
Total Lease Commitments
236,161
$
387,751
Rental expense, which includes hire of vessels, specialized equipment and real estate rental, was
approximately $101 million, $97 million and $205 million in 2018, 2017 and 2016, respectively.
Insurance
The workers' compensation, maritime employer's liability and comprehensive general liability
insurance policies that we purchase each include a deductible layer, for which we would be
responsible, that we consider financially prudent. Insurance above the deductible layers can be by
occurrence or in the aggregate. We determine the level of accruals for claims exposure by reviewing
our historical experience and current year claim activity. We do not record accruals on a present-
value basis. We review larger claims with insurance adjusters and establish specific reserves for
known liabilities. We establish an additional reserve for incidents incurred but not reported to us for
each year using our estimates and based on prior experience. We believe we have established
adequate accruals for expected liabilities arising from those obligations. However, it is possible that
future earnings could be affected by changes in our estimates relating to these matters.
Litigation
In the ordinary course of business, we are, from time to time, involved in litigation or subject to
disputes, governmental investigations or claims related to our business activities, including, among
other things:
• performance or warranty-related matters under our customer and supplier contracts and other
business arrangements; and
• workers’ compensation claims, Jones Act claims, occupational hazard claims, premises liability
claims and other claims.
Although we cannot predict the ultimate outcome of these matters, we believe that our ultimate
liability, if any, that may result from these other actions and claims will not have a material adverse
effect on our consolidated financial condition, results of operations or cash flows. However, because
of the inherent uncertainty of litigation and other dispute resolution proceedings and, in some cases,
the availability and amount of potentially available insurance, we can provide no assurance that the
resolution of any particular claim or proceeding to which we are a party will not have a material
effect on our consolidated financial condition, results of operations or cash flows for the fiscal period
in which that resolution occurs.
Letters of Credit
We had $55 million and $67 million in letters of credit outstanding as of December 31, 2018 and
2017, respectively, as guarantees in force for self-insurance requirements and various bid and
performance bonds, which are usually for the duration of the applicable contract.
1
73
Financial Instruments and Risk Concentration
In the normal course of business, we manage risks associated with foreign exchange rates and
interest rates through a variety of strategies, including the use of hedging transactions. As a matter
of policy, we do not use derivative instruments unless we have an underlying exposure. Other
financial instruments that potentially subject us to concentrations of credit risk are principally cash
and cash equivalents and accounts receivable.
The carrying values of cash and cash equivalents approximate their fair values due to the short-term
maturity of the underlying instruments. Accounts receivable are generated from a broad group of
customers, primarily from within the energy industry, which is our major source of revenue. Due to
their short-term nature, carrying values of our accounts receivable and accounts payable
approximate fair market values.
We estimated the aggregate fair market value of the Senior Notes to be $625 million as of
December 31, 2018 based on quoted prices. Since the market for the Senior Notes is not an active
market, the fair value of the Senior Notes is classified within Level 2 in the fair value hierarchy
under U.S. GAAP (inputs other than quoted prices in active markets for similar assets and liabilities
that are observable or can be corroborated by observable market data for substantially the full terms
for the assets or liabilities).
We have two interest rate swaps in place on a total of $200 million of the 2024 Senior Notes for the
period to November 2024. The agreements swap the fixed interest rate of 4.650% on $100 million
of the 2024 Senior Notes to the floating rate of one month LIBOR plus 2.426% and on another $100
million to one month LIBOR plus 2.823%. We estimate the combined fair value of the interest rate
swaps to be a net liability of $5.6 million at December 31, 2018, which is included on our balance
sheet in our Other Long-term Liabilities These values were arrived at using a discounted cash flow
model using Level 2 inputs.
Since the second quarter of 2015, the exchange rate for the Angolan kwanza relative to the U.S.
dollar generally has been declining, with the exception that the exchange rate was relatively stable
during 2017. As our functional currency in Angola is the U.S. dollar, we recorded foreign currency
transaction losses related to the kwanza of $19 million, $0.1 million and $7.3 million in 2018, 2017
and 2016, as a component of Other income (expense), net in our Consolidated Statements of
Operations for those respective periods. Our foreign currency transaction losses are related
primarily to the remeasurement of our Angolan kwanza cash balances to U.S. dollars. Any
conversion of cash balances from kwanza to U.S. dollars is controlled by the central bank in Angola,
and the central bank slowed this process from mid-2015 to 2017, causing our kwanza cash balances
to increase during that period of time. However, beginning in 2018, the Angolan central bank has
allowed us to repatriate cash from Angola. During 2018, we were able to repatriate $74 million of
cash from Angola.
As of December 31, 2018 and December 31, 2017, we had the equivalent of approximately $9.3
million and $27 million of kwanza cash balances, respectively, in Angola reflected on our balance
sheet. The decrease in kwanza cash balances in 2018 was mainly attributable to the repatriation of
cash from Angola and cash used in our Angolan operations.
To mitigate our currency exposure risk in Angola, we have used kwanza to purchase equivalent
Angolan central bank (Banco Nacional de Angola) bonds. The bonds are denominated as U.S. dollar
equivalents, so that, upon payment of semi-annual interest and principal upon maturity, payment is
made in kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate. In
2018, we received a total of $70 million proceeds from maturities and redemptions of Angola bonds
and reinvested $10 million of the proceeds in similar assets. We previously believed the chance of
selling the bonds before maturity and repatriating cash out of Angola was remote. Our intention was
to hold the bonds to maturity, and to reinvest funds from maturing bonds in similar long-term
assets. Because we intend to sell the bonds if we are able to repatriate the proceeds, we changed
our accounting for these bonds from held-to-maturity securities to available-for-sale securities.
We estimated the fair market value of the Angolan bonds to be $10 million at December 31, 2018
using quoted prices. Since the market for the Angolan bonds is not an active market, the fair value
of the Angolan bonds is classified within Level 2 in the fair value hierarchy under U.S. GAAP. As of
2
74
December 31, 2018, we have not recorded the difference between the fair market value and carrying
amount of the outstanding bonds through the Consolidated Statement of Comprehensive Income
(Loss) due to the insignificant difference between the fair market value and the carrying amount of
the bonds.
As of December 31, 2018, we classified $10 million of bonds due to mature in 2023 as Other current
assets on our Consolidated Balance Sheet because we intend to sell these bonds to meet the needs
of current operations in Angola.
8. OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
.
Business Segment Information
.
We are a global provider of engineered services and products, primarily to the offshore energy
industry. Through the use of our applied technology expertise, we also serve the defense, aerospace
and commercial theme park industries. Our Energy Services and Products business consists of
Remotely Operated Vehicles ("ROVs"), Subsea Products, Subsea Projects and Asset Integrity.
Our ROV segment provides submersible vehicles operated from the surface to support offshore
energy exploration, development and production activities. Our Subsea Products segment supplies a
variety of specialty subsea hardware and related services. Our Subsea Projects segment provides
multiservice subsea support vessels and offshore diving and support vessel operations, primarily for
inspection, maintenance and repair and installation activities. We also provide survey, autonomous
underwater vehicle ("AUV") and satellite-positioning services. Our Asset Integrity segment provides
asset integrity management and assessment services, nondestructive testing and inspection. Our
Advanced Technologies business provides project management, engineering services and equipment
for applications in non-energy industries. Unallocated Expenses are those not associated with a
specific business segment. These consist of expenses related to our incentive and deferred
compensation plans, including restricted stock and bonuses, as well as other general expenses,
including corporate administrative expenses.
.
There are no differences in the basis of segmentation or in the basis of measurement of segment
profit or loss in the year ended December 31, 2018 from those used in our consolidated financial
statements for the years ended December 31, 2017 and 2016.
3
75
The table that follows presents Revenue, Income from Operations and Depreciation and Amortization
Expense by business segment:
(in thousands)
Revenue
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Total
Income (Loss) from Operations
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Unallocated Expenses
Total
Depreciation and Amortization Expense
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Unallocated Expenses
Total
Year Ended December 31,
2017
2016
2018
$
394,801 $
393,655 $
522,121
515,000
329,163
253,886
625,513
291,993
236,778
692,030
472,979
275,397
1,492,850
1,547,939
1,962,527
416,632
373,568
309,076
$ 1,909,482 $ 1,921,507 $ 2,271,603
$
1,641 $
22,366 $
5,614
(86,008)
8,660
(70,093)
33,920
45,539
10,279
11,231
89,415
22,039
25,193
75,938
34,476
7,551
143,158
11,809
(109,309)
(100,798)
(84,203)
$ (145,482) $
10,656 $
70,764
$
111,311 $
113,979 $
140,967
53,085
114,481
6,904
52,561
31,869
7,715
53,759
34,042
14,336
285,781
206,124
243,104
3,081
4,728
3,171
4,224
3,120
4,023
$
293,590 $
213,519 $
250,247
We determine income from operations for each business segment before interest income or expense,
other income (expense) and provision for income taxes. We do not consider an allocation of these
items to be practical.
During 2018, we recorded a pre-tax goodwill impairment of $76 million in our Subsea Projects
segment, as a component of Depreciation and Amortization Expense. We also recorded the write-
offs of certain equipment and intangible assets associated with exiting the land survey business and
equipment obsolescence of $7.6 million, attributable to each reporting segment as follows:
• Remotely Operated Vehicles - $0.6 million;
• Subsea Products - $1.5 million; and
• Subsea Projects - $5.5 million;
During 2016, we recognized restructuring expenses related to severance costs of $11.6 million,
attributable to each reporting segment as follows:
• Remotely Operated Vehicles - $3.8 million;
• Subsea Products - $3.7 million;
• Subsea Projects - $2.1 million;
• Asset Integrity - $1.4 million;
• Advanced Technologies - $0.5 million; and
76
• Unallocated Expenses - $0.1 million.
Revenue from one customer, Royal Dutch Shell, accounted for 10% of our 2018 total consolidated
annual revenue, and, revenue from another customer, BP plc and subsidiaries, accounted for 12% in
2017 and 18% in 2016 of our total consolidated annual revenue.
The following table presents Assets, Property and Equipment and Goodwill by business segment as of
the dates indicated:
(in thousands)
Assets
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Corporate and Other
Total
Property and Equipment, net
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Corporate and Other
Total
Goodwill
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Total
December 31,
2018
2017
$
612,983 $
650,832
723,774
611,476
241,693
788,586
626,791
268,055
2,189,926
2,334,264
168,302
466,770
129,185
560,501
$ 2,824,998 $ 3,023,950
$
353,139 $
420,088
295,297
274,518
20,556
329,486
272,649
19,445
943,510
1,041,668
11,229
9,931
10,850
11,686
$
964,670 $ 1,064,204
$
24,396 $
24,777
99,744
123,624
143,515
391,279
21,842
103,128
155,292
150,560
433,757
21,842
$
413,121 $
455,599
All assets specifically identified with a particular business segment have been segregated. Cash and
cash equivalents, certain other current assets, certain investments and certain other assets have not
been allocated to particular business segments and are included in Corporate and Other.
77
The following table presents Capital Expenditures, including business acquisitions, by business
segment for the periods indicated:
(in thousands)
Capital Expenditures
Energy Services and Products
Remotely Operated Vehicles
Subsea Products
Subsea Projects
Asset Integrity
Total Energy Services and Products
Advanced Technologies
Corporate and Other
Total
Geographic Operating Areas
Year Ended December 31,
2017
2016
2018
$
45,732 $
40,425 $
25,149
99,701
2,874
27,711
29,544
3,651
50,339
56,669
25,602
3,910
173,456
101,331
136,520
3,550
1,033
2,063
1,564
2,742
3,251
$
178,038 $
104,958 $
142,513
The following tables summarize certain financial data by geographic area:
(in thousands)
Revenue
Foreign:
Africa
United Kingdom
Norway
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
(in thousands)
Property and equipment, net
Foreign:
Norway
Africa
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Year Ended December 31,
2017
2016
2018
$
239,959 $
256,198 $
486,615
203,391
185,552
163,843
64,004
103,548
960,297
949,185
236,177
178,712
193,865
42,607
81,364
988,923
932,584
304,635
166,180
196,679
73,280
66,870
1,294,259
977,344
$ 1,909,482 $ 1,921,507 $ 2,271,603
December 31,
2018
2017
$
58,042 $
78,279
117,877
106,330
48,837
51,282
21,374
403,742
560,928
135,345
87,601
50,057
50,842
25,346
427,470
636,734
$
964,670 $ 1,064,204
Revenue is based on location where services are performed and products are manufactured.
78
9. EMPLOYEE BENEFIT PLANS
Retirement Investment Plans
We have several employee retirement investment plans that, taken together, cover most of our full-
time employees. The Oceaneering Retirement Investment Plan is a 401(k) plan in which U.S.
employees may participate by deferring a portion of their gross monthly salary and directing us to
contribute the deferred amount to the plan. We match a portion of the employees' deferred
compensation. Our contributions to the 401(k) plan were $18 million, $17 million and $20 million
for the plan years ended December 31, 2018, 2017 and 2016, respectively.
We also make matching contributions to foreign employee savings plans similar in nature to a 401(k)
plan. In 2018, 2017 and 2016, these contributions, principally related to plans associated with U.K.
and Norwegian subsidiaries, were $11 million, $9.1 million and $12 million, respectively.
The Oceaneering International, Inc. Supplemental Executive Retirement Plan covers selected key
management employees and executives, as approved by the Compensation Committee of our Board
of Directors (the "Compensation Committee"). Under this plan, we accrue an amount determined as
a percentage of the participant's gross monthly salary and the amounts accrued are treated as if
they are invested in one or more investment vehicles pursuant to this plan. Expenses related to this
plan during 2018, 2017 and 2016 were $2.8 million, $3.2 million and $3.3 million, respectively.
We had a defined benefit plan covering some of our employees in the U.K. The assets of the U.K.
plan were invested in individual pensioners' annuities in anticipation of the plan settlement, which
occurred in the fourth quarter of 2018. There were no plan assets or obligations for the U.K plan at
December 31, 2018. The projected benefit obligations for the U.K. plan were $21 million at
December 31, 2017 and the fair values of the plan assets (using Level 2 inputs) for the U.K. plan
were $22 million at December 31, 2017.
Incentive Plan
Under our Second Amended and Restated 2010 Incentive Plan (the "Incentive Plan"), shares of our
common stock are made available for awards to employees and nonemployee members of our Board
of Directors.
The Incentive Plan is administered primarily by the Compensation Committee; however, the full
Board of Directors makes determinations regarding awards to nonemployee directors under the
Incentive Plan. The Compensation Committee or our Board of Directors, as applicable, determines
the type(s) of award(s) to be made to each participant and sets forth in the related award
agreement the terms, conditions and limitations applicable to each award. Stock options, stock
appreciation rights and stock and cash awards may be made under the Incentive Plan. There has
been no stock option activity after December 31, 2010 and there are no options outstanding under
the Incentive Plan. We have not granted any stock options since 2005 and the Compensation
Committee has expressed its intention to refrain from using stock options as a component of
employee compensation for our executive officers and other employees for the foreseeable future.
Additionally, the Board of Directors has expressed its intention to refrain from using stock options as
a component of nonemployee director compensation for the foreseeable future.
In 2018, 2017 and 2016, the Compensation Committee granted awards of performance units to
certain of our key executives and employees. The performance units awarded are scheduled to vest
in full on the third anniversary of the award date, or pro rata over three years if the participant
meets certain age and years of service requirements. The Compensation Committee and the Board
of Directors approved specific financial goals and measures (as defined), for each of the three-year
periods ending December 31, 2020, 2019 and 2018 to be used as the basis for the final value of the
performance units. The final value of the performance unit granted may range from $0 to $200 in
each of 2018 and 2017 and from $0 to $150 in 2016. Upon vesting and determination of value, the
value of the performance units will be payable in cash. Compensation expense (benefit) related to
the performance units was $3.9 million, $4.2 million and $(4.2) million in 2018, 2017 and 2016,
respectively. As of December 31, 2018, there were 332,756 performance units outstanding.
During 2018, 2017 and 2016, the Compensation Committee granted restricted units of our common
stock to certain of our key executives and employees. During 2018, 2017 and 2016, our Board of
79
Directors granted restricted common stock to our nonemployee directors. Over 85%, 80%, and
65% of the grants made to our employees in 2018, 2017 and 2016, respectively, vest in full on the
third anniversary of the award date, conditional upon continued employment. The remainder of the
grants made to employees vest pro rata over three years, as these participants meet certain age and
years-of-service requirements. For the grants of restricted stock units to each of the participant
employees, the participant will be issued a share of our common stock for the participant's vested
restricted stock units at the earlier of three years or, if the participant vested earlier after meeting
the age and service requirements, following termination of employment or service. The grants of
restricted stock to our nonemployee directors were scheduled to vest in full on the first anniversary
of the award date conditional upon continued service as a director, with one exception. In February
2017, we granted shares of restricted common stock to a director who had given written notice of his
intention to retire from our board of directors. Those shares were to vest if the director's service
continued until the election of directors at our subsequent annual meeting of shareholders in May
2017. The director fulfilled that requirement by resigning concurrent with that election and the
shares of restricted stock became vested.
In April 2009, the Compensation Committee adopted a policy that Oceaneering will not provide U.S.
federal income tax gross-up payments to any of its directors or executive officers in connection with
future awards of restricted stock or stock units. This policy had no effect on the existing service
agreement with our Chairman, which provides for tax gross-up payments that could become
applicable to such future awards in limited circumstances, such as following a change in control of
Oceaneering. Since August 2010, there have been no outstanding awards that provide for tax gross-
up payments.
The additional tax charge realized from tax deductions less than the financial statement expense of
our restricted stock grants was $2.1 million, $3.1 million and $3.0 million in 2018, 2017 and 2016,
respectively. The 2018 and 2017 charges were recognized in our Consolidated Statements of
Operations and the 2016 charge was recognized in our Consolidated Statements of Equity.
The following is a summary of our restricted stock and restricted stock unit activity for 2018, 2017
and 2016:
Balance at December 31, 2015
Granted
Issued
Forfeited
Balance at December 31, 2016
Granted
Issued
Forfeited
Balance at December 31, 2017
Granted
Issued
Forfeited
Balance at December 31, 2018
Number
831,291
587,953
(278,572)
(88,665)
1,052,007
489,514
(277,968)
(81,748)
1,181,805
653,286
(320,147)
(71,047)
1,443,897
Weighted
Average
Fair Value
Aggregate
Intrinsic
Value
60.49
27.90
61.48
$ 7,866,000
43.03
43.48
26.70
61.90
$ 7,038,000
34.15
32.84
18.05
47.62
24.87
23.27
$ 5,993,000
The restricted stock units granted in 2018, 2017 and 2016 carry no voting rights and no dividend
rights. Each grantee of shares of restricted common stock is deemed to be the record owner of
those shares during the restriction period, with the right to vote and receive any dividends on those
shares.
Grants of restricted stock units are valued at their estimated fair values as of their respective grant
dates. The grants in 2018, 2017 and 2016 were subject only to vesting conditioned on continued
80
employment or service as a nonemployee director; therefore, these grants were valued at the grant
date fair market value using the closing price of our stock on the New York Stock Exchange.
Compensation expense under the restricted stock plans was $10 million, $11 million and $14 million
for 2018, 2017 and 2016, respectively. As of December 31, 2018, we had $10.0 million of future
expense to be recognized related to our restricted stock unit plans over a weighted average
remaining life of 1.6 years.
Post-Employment Benefit
In 2001, we entered into an agreement with our Chairman who was also then our Chief Executive
Officer. That agreement was amended in 2006 and in 2008. Pursuant to the amended agreement,
the Chairman relinquished his position as Chief Executive Officer in May 2006 and began his post-
employment service period on December 31, 2006, which continued through August 15, 2011,
during which service period the Chairman, acting as an independent contractor, agreed to serve as
nonexecutive Chairman of our Board of Directors. The agreement provides the Chairman with post-
employment benefits for ten years following August 15, 2011. The agreement also provides for
medical coverage on an after-tax basis to the Chairman, his spouse and children for their lives. We
recognized the net present value of the post-employment benefits over the expected service period.
Our total accrued liabilities, current and long-term, under this post-employment benefit were $3.2
million and $3.9 million at December 31, 2018 and 2017, respectively.
As part of the arrangements relating to the Chairman's post-employment benefits, we established an
irrevocable grantor trust, commonly known as a "rabbi trust," to provide the Chairman greater
assurance that we will set aside an adequate source of funds to fund payment of the post-retirement
benefits under this agreement, including the medical coverage benefits payable to the Chairman, his
spouse and their children for their lives. In connection with establishment of the rabbi trust, we
contributed to the trust a life insurance policy on the life of the Chairman, which we had previously
obtained, and we agreed to continue to pay the premiums due on that policy. When the life
insurance policy matures, the proceeds of the policy will become assets of the trust. If the value of
the trust exceeds $4 million, as adjusted by the consumer price index, at any time after January 1,
2012, the excess may be paid to us. However, because the trust is irrevocable, the assets of the
trust are generally not available to fund our future operations until the trust terminates, which is not
expected to be during the lives of the Chairman, his spouse or their children. Furthermore, no tax
deduction will be available for our contributions to the trust; however, we may benefit from future
tax deductions for benefits actually paid from the trust (although benefit payments from the trust
are not expected to occur in the near term, because we expect to make direct payments of those
benefits for the foreseeable future).
81
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
Quarter Ended
Revenue
Gross margin
Income (loss) from operations
Net income (loss)
Diluted loss per share
Weighted average number of
diluted shares outstanding
Quarter Ended
Revenue
Gross margin
Income (loss) from operations
Net income (loss)
March 31
June 30
2018
Sept. 30
Dec. 31
Total
$
416,413 $
478,674 $
519,300 $
495,095 $ 1,909,482
18,828
(27,149)
(49,133)
29,728
(19,637)
(33,076)
47,635
33,035
129,226
(1,552)
(97,144)
(145,482)
(65,979)
(64,139)
(212,327)
$
(0.50) $
(0.34) $
(0.67) $
(0.65) $
(2.16)
98,383
98,531
98,533
98,534
98,496
March 31
June 30
2017
Sept. 30
Dec. 31
Total
$
446,176 $
515,036 $
476,120 $
484,175 $ 1,921,507
44,855
(150)
(7,534)
53,571
9,390
2,132
54,885
10,531
41,299
(9,115)
(1,768)
173,568
194,610
10,656
166,398
Diluted earnings (loss) per share
$
(0.08) $
0.02 $
(0.02) $
1.76 $
1.68
Weighted average number of
diluted shares outstanding
98,138
98,751
98,270
98,852
98,764
82
FREEDOM ROV
Providing a new level of operating
efficiency and reliability, the resident
Freedom vehicle delivers long range
autonomous and ROV inspection and
intervention capabilities. Utilizing
our remote piloting and automated
control technology, the system is
highly flexible in both untethered
and tethered configurations.
E-ROV
A resident, battery-powered
work class ROV controlled
from our Mission Support
Centers via a surface
communication buoy. The
system reduces cost, risk, and
carbon footprint by eliminating
the need for a surface vessel.
2018 Annual Report
Directors
John R. Huff
Chairman
M. Kevin McEvoy
Director of EMCOR Group, Inc.
William B. Berry
Director of Continental Resources, Inc. and
Frank’s International N.V.
Paul B. Murphy, Jr.
Chief Executive Officer, Director, and
Chairman of Cadence Bancorporation;
Chief Executive Officer of Cadence Bancorp LLC
T. Jay Collins
Director of Murphy Oil Corporation and
Pason Systems Inc.
Deanna L. Goodwin
Director of Arcadis NV and Kosmos Energy Ltd.
Roderick A. Larson
Director of Newpark Resources, Inc.
Jon Erik Reinhardsen
Chairman of Equinor ASA; and
Director of Telenor ASA
Steven A. Webster
Managing Partner of AEC Partners L.P.;
Director and Chairman of Carrizo Oil & Gas, Inc.;
Trust Manager of Camden Property Trust; and
Director of Era Group, Inc.
Senior Management
Roderick A. Larson
President and
Chief Executive Officer
Clyde W. Hewlett
Chief Operating Officer
Stephen P. Barrett
Senior Vice President,
Business Development
Martin J. McDonald
Senior Vice President,
Remotely Operated Vehicles
Eric A. Silva
Senior Vice President,
Operations Support
Marvin J. Migura
Senior Vice President
Alan R. Curtis
Senior Vice President and
Chief Financial Officer
Philip G. Beierl
Senior Vice President,
Advanced Technologies
Holly D. Kriendler
Vice President and
Chief Human Resources Officer
David K. Lawrence
Senior Vice President,
General Counsel and Secretary
William J. Boyle
Senior Vice President,
Asset Integrity
Witland J. LeBlanc, Jr.
Vice President and
Chief Accounting Officer
Oceaneering International, Inc.
Forward-Looking Statements
General Information
All statements in this report that express a belief,
expectation, or intention, as well as those that are
not historical fact, are forward-looking statements
made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The
forward-looking statements in this report include
the statements in the Letter to Shareholders about:
forecasted increased offshore activity and the related
projection information about major projects; expectations
of increases in offshore spending, floating rig count
and tree awards; expectations regarding Brent crude
pricing; expectations regarding 2019 financial results
and the anticipated improvements in our segments;
expectation of generating positive free cash flow in 2019
and strengthening our liquidity; focus on controlling
costs and expenditures and driving enhanced levels
of efficiency and performance; expectation of ample
resources and flexibility to address future opportunities
to improve returns; and remaining well positioned to
prosper in evolving markets. These forward-looking
statements are based on current information at the time
this report was written, and are subject to certain risks,
assumptions, 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:
factors affecting the level of activity in the oil and gas
industry; supply and demand of floating drilling rigs; oil
and natural gas demand and production growth; oil and
natural gas prices; fluctuations in currency markets
worldwide; future global economic conditions; the loss of
major contracts or alliances; future performance under
our customer contracts; and the effects of competition.
Should one or more of these risks or uncertainties
materialize, or should the assumptions underlying
the forward-looking statements prove incorrect,
actual outcomes could vary materially from those
indicated. These and other risks are fully described in
Oceaneering’s annual report on Form 10-K for the year
ended December 31, 2018 and other periodic filings with
the Securities and Exchange Commission.
Form 10-K
Annual Shareholders’ Meeting
Date: May 9, 2019
Time: 8:30 a.m. CDT
Location:
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
Stock Symbol: OII
Stock traded on NYSE
CUSIP Number: 675232102
Please direct communications
concerning stock transfer requirements
or lost certificates to our transfer agent.
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight Deliveries:
462 South 4th Street, Suite 1600
Louisville, KY 40202
OII Account Information
www.computershare.com/investor
Telephone: (781) 575-2879 or
(877) 373-6374
Fax: (781) 575-3605
Hearing Impaired/TDD:
(800) 952-9245
Independent Registered
Public Accounting Firm
Ernst & Young LLP
5 Houston Center
1401 McKinney Street
Houston, TX 77010-4034
Counsel
Baker Botts L.L.P.
910 Louisiana Street
Houston, TX 77002-4995
The entire Form 10-K for the year ended
December 31, 2018, as filed with the Securities and
Exchange Commission, is incorporated herein by
reference. The report also is available through the
“SEC Filings” link on the Investor Relations page of
the Oceaneering website, oceaneering.com, or upon
written request to:
David K. Lawrence
Secretary
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
2018 Annual Report
Oceaneering International, Inc.
11911 FM 529 I Houston, Texas I 77041-3000
713.329.4500 | oceaneering.com