Annual Report 2019
OCEANEERING AT A GLANCE
Remotely Operated Vehicles
We provide 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. We are
redefining the role of ROVs in today's
industries by introducing new ROV-
based capabilities and improving on
existing technologies.
Our premier fleet of 250 work-class
ROV’s remained a leading provider of
ROV services to the offshore energy
industry for drilling support and
vessel-based ROV services in 2019.
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 work
systems include solutions for well
stimulation, flowline remediation,
and riserless light well intervention.
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 9,000 people.
About the cover:
Center: MSV Ocean EvolutionTM holds
a Green Passport and supports rapid
response with the industry’s most
ecologically friendly and capable U.S.-
flagged subsea construction vessel
available in the Gulf of Mexico. The vessel
was built for reliability with five low-
emission, EPA Tier 4 diesel engines.
Bottom left: The LibertyTM ROV provides
a resident, battery-powered system to
support subsea inspection, maintenance,
and repair activities.
Bottom right: Umbilical cabler in our
world-class umbilical manufacturing
facility in Panama City, Florida.
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.
Oceaneering International, Inc.
Subsea Projects
We provide project management,
survey, data services, 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,
tooling, and communication systems
on board; and shallow water projects
with our manned diving operations,
utilizing diving support vessels,
traditional diving techniques, and
saturation diving systems.
Advanced Technologies
Our Advanced Technologies
segment consists of two business
units: government services and
commercial business projects. 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.
LETTER TO SHAREHOLDERS
2019 marked a year of positive inflection for Oceaneering. For the first year since 2014, we saw increases in revenue,
consolidated adjusted operating results, and adjusted EBITDA. 2019 was also the first year since 2015 in which we generated
a year-over-year improvement in free cash flow. It was encouraging to see higher activity levels and stabilized pricing in our
energy-focused businesses, which support the competitiveness of the global offshore energy markets. Despite the prolonged
downturn in these offshore energy markets over the last five years, Oceaneering has maintained its competitive position by
leading innovative efforts to perform offshore tasks more efficiently and at a lower cost, while enhancing the safety of our
employees and customers. It is also important to emphasize that many of these innovations help to reduce greenhouse gas
emissions, enabling our customers to advance their own sustainability goals.
Coming into the year, many macro industry projections
pointed to offshore activity increasing again in 2020. This
optimism underpinned our expectations for higher activity and
meaningful improvement in our financial results. The early
2020 stock market volatility, brought on by the coronavirus
pandemic and the failure of OPEC and Russia to agree to
crude oil production quotas, will likely impact our operations.
We are monitoring the situation closely and will proactively
manage our businesses in an effort to minimize negative
impacts.
Regardless of market events, we remain sharply focused
on improving our financial position. We are committed to
sustaining positive free cash flow in 2020. We expect not
only to be well positioned to meet our financial obligations
through 2020, but also to have the flexibility to act on market
opportunities. In addition, we are continuing our efforts to
define incremental strategies and actions to better position
our businesses for profitability. We expect to provide specifics
on progress during the second quarter of 2020.
Our management and employees have not lost their
passion to innovate and adapt our businesses to compete
successfully in this environment. It is an honor to be leading
this great group of talented people and I thank them for their
significant contributions to these efforts. I realize we have
much work ahead to adapt and evolve our businesses for
further success. I am excited for the challenge and confident
about our prospects for 2020.
And, to our shareholders, thank you for your continued
support of Oceaneering.
Roderick A. Larson
President and Chief Executive Officer
We are pleased with the following notable achievements
accomplished during 2019:
• We successfully deployed our LibertyTM remotely
operated vehicle (ROV) system to provide a resident,
battery-powered ROV that supports subsea inspection,
maintenance and repair activities;
• We developed and deployed IsurusTM, a work-class ROV
designed to service the offshore renewables market, and
capable of working in high-current conditions, thereby
helping customers to reduce on-site vessel time for their
projects;
• We developed and initiated testing on FreedomTM, our
next-generation hybrid ROV/AUV (automated underwater
vehicle), which is scheduled to have its first commercial
application in 2020;
• We increased ROV days on hire by 12%, with year-over-
year increases in both drill-support and vessel-support
days;
• We successfully performed our first significant multi-well
deepwater, riserless light-well intervention campaign for
a unit of BP in Angola, and secured a contract for a new
multi-well campaign for that customer in 2020;
• We secured a substantial increase in bookings in our
Subsea Products segment, highlighted by the subsea
umbilical and hardware awards for Total’s Mozambique
Project and ONGC’s KG-DWN-98/2 Project, allowing us to
achieve a book-to-bill ratio in the segment of 1.5 for the
year;
• We took delivery of our environmentally efficient,
deepwater, Jones Act-compliant, multi-service vessel
MSV Ocean EvolutionTM during the second quarter, and
experienced good customer acceptance and activity
during the second half of the year;
• We achieved or modestly beat our financial goals, by
generating $165 million of adjusted EBITDA and
$9.9 million of positive free cash flow, and increased our
balance sheet cash position by $19.4 million to
$374 million at December 31, 2019; and
• We enhanced our Environmental, Social and Governance
(ESG) disclosures by adding a “Sustainability” section to
our website, oceaneering.com. I am pleased to report
that since 2017, MSCI’s ESG rating for Oceaneering has
improved from BBB to A.
2019 Annual Report
2019 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, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 1-10945
____________________________________________
OCEANEERING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11911 FM 529
Houston,
(Address of principal executive offices)
Texas
95-2628227
(I.R.S. Employer
Identification No.)
77041
(Zip Code)
(713) 329-4500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed from last report)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.25 per share
Trading
OII
Name of exchange on which registered
New York Stock Exchange
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 Rule 405 of the Securities
Act.
Yes
No
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
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
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
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
$20.39 of the Common Stock on the New York Stock Exchange as of June 28, 2019, the last business day of the registrant's
most recently completed second quarter: $2.0 billion.
Number of shares of Common Stock outstanding at February 21, 2020: 98,933,069.
Documents Incorporated by Reference:
Portions of the proxy statement relating to the registrant's 2020 annual meeting of shareholders, to be filed on or before April 29,
2020 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
Information About Our Executive Officers
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
Directors, Executive Officers and Corporate Governance
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
Exhibits, Financial Statement Schedules
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.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Signatures
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 55% of our
revenue, or $1.1 billion, for the year ended December 31, 2019.
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 leveraging our asset base and capabilities for providing services and products for
offshore energy operations and subsea completions, inclusive of our customers' operating expenses and the
offshore renewable energy market.
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 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, Louisiana. In 2019, we added
13 ROVs to our fleet and retired 38. Our work-class ROV fleet size was 250 as of December 31, 2019, 275 as of
December 31, 2018 and 279 as of December 31, 2017. We have decreased our ROV fleet size in each of the last
three 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 hardware.
Service and Rental includes tooling, subsea work systems and installation and workover control systems, which we
design, build and 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 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, utilizing a fleet consisting of three
owned and three chartered dynamically positioned deepwater vessels with integrated high-specification work-class
ROVs onboard, and three owned shallow water diving support and survey vessels, other spot-chartered vessels
and other assets. Our owned vessels are Jones Act-compliant. The dynamically positioned vessels are equipped
2
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 vessel market conditions, we have entered into some minimum-day, short-term, time
charter party agreements and, for specific projects, we continue to charter 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 March 2018, we acquired Ecosse for approximately $68 million. 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. 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.
In the second quarter of 2019, we placed our new-build, Jones Act-compliant, multiservice vessel ("MSV"), the
Ocean Evolution, into service. The Ocean Evolution is 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-
based personnel. The vessel is being 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.
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. However,
our primary focus continues to be on capital discipline and generating positive free cash flows.
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 turnkey solutions 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. As of December 31, 2019, we owned 250 work-class ROVs. We believe
we operate the largest fleet of work-class ROVs in the world. We also believe we are the industry leader in
3
providing ROV services for drill support, with an estimated 63% market share of the contracted floating drilling rigs
at the end of 2019.
ROV revenue:
2019
2018
2017
Amount
(in thousands)
449,830
$
394,801
393,655
Percent of Total
Revenue
22%
21%
21%
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;
production control equipment;
installation and workover control systems ("IWOCS");
riserless light well intervention services ("RLWI");
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 equipment located on
the sea floor. RLWI, IWOCS and subsea work packages facilitate well and associated equipment intervention for
the purposes of flow remediation and well stimulation.
Subsea Products revenue:
2019
2018
2017
Amount
(in thousands)
602,249
$
515,000
625,513
Percent of Total
Revenue
29%
27%
33%
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 and
offshore Angola 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 three 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 and positioning services, route clearance and trenching services, and digital and
communication services.
4
Subsea Projects revenue:
2019
2018
2017
Amount
(in thousands)
327,556
$
329,163
291,993
Percent of Total
Revenue
16%
17%
15%
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:
2019
2018
2017
Advanced Technologies
Amount
(in thousands)
242,954
$
253,886
236,778
Percent of Total
Revenue
12%
13%
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 turnkey solutions that include 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. 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 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:
2019
2018
2017
MARKETING
Amount
(in thousands)
425,535
$
416,632
373,568
Percent of Total
Revenue
21%
22%
19%
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
5
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 2019, 2018 and 2017 accounted for 32%, 39% and 40%,
respectively, of our consolidated revenue.
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 2019 and 2017, revenue from one customer, BP plc and subsidiaries, accounted for
10% and 12%, respectively, of our total consolidated annual revenue and in 2018, revenue from Royal Dutch Shell,
accounted for 10% of our total consolidated annual revenue.
In 2019, 2018 and 2017, four of our top five customers were oil and gas
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. We believe we have secured a sufficient amount of steel
tubes to satisfy existing backlog and anticipated orders to be produced in 2020. 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.
6
ROVs. We believe we are the world's largest owner/operator of work-class ROVs employed in energy related
operations. As of December 31, 2019, we owned 250 work-class ROVs. 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 significantly decreased
since mid-2014 due to the oil price environment, and, correspondingly, our margins have decreased due to lower
utilization and pricing pressures. The years 2017 and 2018 reached low points for demand.
In 2019, we
experienced increased demand, resulting in higher utilization for our ROVs with slightly improved pricing.
Subsea Products. With our Manufactured Products business, 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. Within our
Service and Rental business, there are many competitors offering specialized services and products both on a
regional and global basis.
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 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.
7
The amounts of backlog orders we believed to be firm as of December 31, 2019 and 2018 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, 2019
As of December 31, 2018
Total
1+ yr*
Total
1+ yr*
$
534
$
630
104
226
1,494
223
$
193
159
24
64
440
50
$
497
332
76
248
1,153
312
$
1,717
$
490
$
1,465
$
219
96
7
87
409
51
460
* 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.
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
8
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.
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 U.K. and Norway;
our ROV operations in the U.S. Gulf of Mexico, the U.K., Norway, Angola, Ghana, Brazil, Canada, India, the
Middle East, Australia and Asia;
our Asset Integrity operations in the Western Hemisphere, Angola, 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, 2019, we had approximately 9,100 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
9
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;
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 our share of the associated market;
general economic and business conditions and industry trends;
the strength of the industry segments in which we are involved;
cancellations of contracts, change orders and other contractual modifications and the 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;
hurricanes and other adverse weather and sea conditions;
cost and time associated with drydocking of our vessels;
the highly competitive nature of our businesses;
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.
10
AVAILABLE INFORMATION
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.
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.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Executive Officers. The following information relates to our executive officers as of February 21, 2020:
NAME
Roderick A. Larson
Charles W. Davison, Jr.
Alan R. Curtis
David K. Lawrence
Stephen P. Barrett
Witland J. LeBlanc, Jr.
Philip G. Beierl
Martin J. McDonald
Eric A. Silva
AGE POSITION
53
President and Chief Executive Officer and Director
51
54
60
62
49
61
56
60
Chief Operating Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Asset Integrity and Business Development
Vice President and Chief Accounting Officer
Senior Vice President, Advanced Technologies
Senior Vice President, Remotely Operated Vehicles
Senior Vice President, Operations Support
EXECUTIVE
OFFICER
SINCE
2012
EMPLOYEE
SINCE
2012
2019
2015
2012
2015
2019
2018
2015
2017
2019
1995
2005
2015
2010
2005
1989
2014
Each executive officer serves at the discretion of 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 they were
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 their 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.
Charles W. Davison, Jr., Chief Operating Officer, joined Oceaneering most recently in June 2019. After leaving
Oceaneering in June 2015, he served as Chief Executive Officer and President of Fairfield Geotechnologies
(Fairfield). He continues to serve as nonexecutive chairman of the board of directors of Magseis Fairfield ASA, a
position he has held since the acquisition by Magseis ASA of Fairfields seismic technologies business in December
2018. He first joined Oceaneering in November 2007 as Vice President, Umbilical Solutions. He was appointed
Senior Vice President, Subsea Products, in January 2014 and served in that position until June 2015. Prior to
November 2007, he spent eight years with General Electric Company, holding various roles in operational and
supply chain management.
11
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 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, Asset Integrity and Business Development, joined Oceaneering in July
2015 as Senior Vice President, Subsea Products. He was appointed as our Senior Vice President, Business
Development in November 2016 and was recently appointed to the additional position of Senior Vice President,
Asset Integrity on an interim basis. Mr. Barrett has informed us of his intention to retire upon the commencement of
employment of successors to his two positions. 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.
Witland J. LeBlanc, Jr., Vice President and Chief Accounting Officer, joined Oceaneering in 2010 as the Vice
President, Tax, and became Vice President, Tax and Treasurer in July 2017. He was appointed to his current
position in March 2019. He began his career in public accounting and transitioned to industry prior to joining
Oceaneering.
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 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.
12
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 changing environmental and social landscape;
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.
13
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 55% of our consolidated revenue in 2019. Risks associated with our operations in foreign areas
include risks of:
regional and global economic downturns;
public health threats, such as the coronavirus, Severe Acute Respiratory Syndrome, severe influenza and
other highly communicable viruses or diseases, that could limit access to customers', vendors' or our
facilities or offices, impose travel restrictions on our personnel or otherwise adversely affect our operations
or demand for our services;
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;
uncertainties relating to the United Kingdom's withdrawal from the European Union, including uncertainties
about applicable future laws, regulations and treaties regarding tax and free trade agreements, intellectual
property rights and supply chain logistics, as well as environmental, health and safety laws and regulations,
immigration laws, employment laws, and other rules that could apply to us and our subsidiaries;
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.
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 2019, we generated
approximately 14% from our operations in Africa, primarily in Angola.
In recent periods, economic
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
14
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.
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.
Changes in the method of determining the London Interbank Offered Rate (LIBOR), or the replacement of
LIBOR with an alternative reference rate, may adversely affect interest rates and increase our cost of capital.
It is unclear whether new methods of calculating LIBOR will be
It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop
doing so after 2021, when their current reporting commitment ends, which could either cause LIBOR to stop
publication immediately or cause LIBORs regulator to determine that its quality has degraded to the degree that it
is no longer representative of its underlying market.
established such that it continues to exist after 2021, or whether different benchmark rates used to price
indebtedness will develop. Revolving credit borrowings under our principal credit agreement, which is described in
Part II of this report in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (the Credit Agreement), bear interest at rates tied to LIBOR.
renegotiate the Credit Agreement or incur indebtedness under other credit arrangements, and the phase-out of
LIBOR may negatively impact the terms of such indebtedness. We have not yet pursued an amendment of the
Credit Agreement or other contractual alternative to address this matter and are currently evaluating the impact of
the potential replacement of LIBOR.
prior to the phase-out of LIBOR, interest on revolving credit borrowings under the Credit Agreement may bear
interest at higher rates based on the prime rate, which could increase our cost of capital in the event we borrow
against the Credit Agreement.
instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective as a
result of the replacement or phasing out of LIBOR, and we may incur losses as a result. Furthermore, the overall
financial market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial
market could have an adverse effect on our business, cash flows, liquidity, financial condition and results of
operations.
If no such amendment or other contractual alternative is established on or
In addition, to the extent we have entered into interest rate swaps or other derivative
In the future, we may need to
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.
15
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.
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.
It is possible that one or more of the financial institutions in which we
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 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;
failure to realize anticipated benefits, such as cost savings and revenue enhancements;
potentially substantial transaction costs associated with acquisitions; and
potential impairment resulting from the overpayment for an acquisition.
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.
Commercial success depends on many factors, including the levels of innovation, the development costs and the
Investments in new technologies involve varying degrees of uncertainties and risk.
16
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 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.
17
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 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
18
It is possible that other developments, such as stricter environmental laws and regulations,
the conduct of or conditions others have caused, or for our acts that complied with all applicable requirements when
we performed them.
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.
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;
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.
In these locations, we typically own or lease office facilities for our administrative and engineering staff,
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.
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.
19
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; Abu Dhabi and Dubai, United Arab Emirates; 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 Energy Services and Products Subsea
Projects."
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 9"Commitments
and Contingencies" in the 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.
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 website address
is www.oceaneering.com
On February 21, 2020, there were 459 holders of record of our common stock. On that date, the closing sales
price, as quoted on the New York Stock Exchange, was $12.97.
per share in the first three quarters. Subsequently, after considering the need to focus our resources on growth and
positioning us for the future, our Board has determined not to declare quarterly dividends. 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 2017, we declared quarterly dividends of $0.15
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
20
(cid:7)(cid:20)(cid:19)(cid:19) 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, 2019:
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
1,741,335
1,741,335
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected
in the first column)
Weighted-average
exercise price of
outstanding options,
warrants and rights
N/A
N/A
N/A
1,385,958
1,385,958
In the table above, the number of securities to be issued upon exercise of outstanding options, warrants and rights
shown as of December 31, 2019 are restricted stock units and shares of restricted stock granted under our 2010
incentive plan, as amended.
As of December 31, 2019, there were: (1) no shares of Oceaneering common stock under equity compensation
plans not approved by security holders available for grant; and (2) 1,385,958 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. 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 caption "Incentive Plan" in Note 11"Employee
Benefit Plans" in the Notes to Consolidated Financial Statements included in this report.
21
PERFORMANCE GRAPH
(cid:55)(cid:75)(cid:72) (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) (cid:74)(cid:85)(cid:68)(cid:83)(cid:75) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:86) (cid:82)(cid:88)(cid:85) (cid:87)(cid:82)(cid:87)(cid:68)(cid:79) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71) (cid:9) (cid:51)(cid:82)(cid:82)(cid:85)(cid:10)(cid:86) (cid:24)(cid:19)(cid:19) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:44)(cid:81)(cid:71)(cid:72)(cid:91) (cid:11)(cid:5)(cid:54)(cid:9)(cid:51) (cid:24)(cid:19)(cid:19)(cid:5)(cid:12)
(cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72) (cid:51)(cid:43)(cid:47)(cid:59) (cid:50)(cid:76)(cid:79) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:54)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85) (cid:44)(cid:81)(cid:71)(cid:72)(cid:91) (cid:73)(cid:85)(cid:82)(cid:80) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:20)(cid:23) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:20)(cid:28)(cid:17) (cid:55)(cid:75)(cid:72) (cid:51)(cid:43)(cid:47)(cid:59) (cid:50)(cid:76)(cid:79)
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(cid:50)(cid:76)(cid:79) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:54)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85) (cid:44)(cid:81)(cid:71)(cid:72)(cid:91) (cid:82)(cid:81) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:20)(cid:23)(cid:30) (cid:68)(cid:81)(cid:71) (cid:11)(cid:21)(cid:12) (cid:68)(cid:81)(cid:92) (cid:50)(cid:70)(cid:72)(cid:68)(cid:81)(cid:72)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74) (cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86) (cid:68)(cid:85)(cid:72) (cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:17) (cid:55)(cid:75)(cid:72)
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81) (cid:86)(cid:75)(cid:82)(cid:90)(cid:81) (cid:76)(cid:86) (cid:81)(cid:82)(cid:87) (cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92) (cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:82)(cid:73) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:76)(cid:86)(cid:82)(cid:81) (cid:82)(cid:73) (cid:38)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)
(cid:7)(cid:21)(cid:19)(cid:19)
(cid:7)(cid:20)(cid:24)(cid:19)
(cid:7)(cid:20)(cid:19)(cid:19)
(cid:7)(cid:24)(cid:19)
(cid:7)(cid:19)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:23)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:24)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:25)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:26)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:27)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:28)
(cid:50)(cid:70)(cid:72)(cid:68)(cid:81)(cid:72)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:15) (cid:44)(cid:81)(cid:70)(cid:17)
(cid:54)(cid:9)(cid:51) (cid:24)(cid:19)(cid:19) (cid:44)(cid:81)(cid:71)(cid:72)(cid:91)
(cid:51)(cid:43)(cid:47)(cid:59) (cid:50)(cid:76)(cid:79) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:54)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85) (cid:44)(cid:81)(cid:71)(cid:72)(cid:91)
(cid:21)(cid:19)(cid:20)(cid:23)
(cid:21)(cid:19)(cid:20)(cid:24)
(cid:21)(cid:19)(cid:20)(cid:25)
(cid:21)(cid:19)(cid:20)(cid:26)
(cid:21)(cid:19)(cid:20)(cid:27)
(cid:21)(cid:19)(cid:20)(cid:28)
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15)
(cid:50)(cid:70)(cid:72)(cid:68)(cid:81)(cid:72)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)
(cid:54)(cid:9)(cid:51) (cid:24)(cid:19)(cid:19)
(cid:51)(cid:43)(cid:47)(cid:59) (cid:50)(cid:76)(cid:79) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:54)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
(cid:20)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19)
(cid:20)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19)
(cid:20)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19)
(cid:25)(cid:24)(cid:17)(cid:22)(cid:22)
(cid:20)(cid:19)(cid:20)(cid:17)(cid:22)(cid:27)
(cid:26)(cid:25)(cid:17)(cid:25)(cid:21)
(cid:24)(cid:19)(cid:17)(cid:27)(cid:19)
(cid:20)(cid:20)(cid:22)(cid:17)(cid:24)(cid:20)
(cid:28)(cid:20)(cid:17)(cid:20)(cid:25)
(cid:22)(cid:27)(cid:17)(cid:26)(cid:24)
(cid:20)(cid:22)(cid:27)(cid:17)(cid:21)(cid:28)
(cid:26)(cid:24)(cid:17)(cid:23)(cid:27)
(cid:21)(cid:21)(cid:17)(cid:20)(cid:27)
(cid:20)(cid:22)(cid:21)(cid:17)(cid:21)(cid:22)
(cid:23)(cid:20)(cid:17)(cid:22)(cid:24)
(cid:21)(cid:26)(cid:17)(cid:22)(cid:22)
(cid:20)(cid:26)(cid:22)(cid:17)(cid:27)(cid:25)
(cid:23)(cid:20)(cid:17)(cid:20)(cid:21)
(cid:21)(cid:21)
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:
Year Ended December 31,
(in thousands, except per share amounts)
2019
2018
2017
2016
2015
Revenue
$
2,048,124
$
1,909,482
$
1,921,507
$
2,271,603
$
3,062,754
Cost of services and products
1,949,880
1,780,256
1,726,897
1,992,376
2,457,325
Gross margin
Selling, general and administrative expense
Long-lived assets impairments
Goodwill impairment
Income (loss) from operations
Net income (loss)
Cash dividends declared per Share
Diluted earnings (loss) per share
Depreciation and amortization, including goodwill
impairment
Capital expenditures, including business acquisitions
98,244
214,891
159,353
14,713
129,226
198,259
76,449
194,610
183,954
(290,713) $
(145,482) $
10,656
(348,444) $
(212,327) $
166,398
$
$
(3.52) $
(2.16) $
0.45
1.68
263,427
147,684
$
$
293,590
178,038
$
$
213,519
104,958
$
$
$
$
$
$
$
$
$
$
$
$
279,227
208,463
70,764
24,586
0.96
0.25
250,247
142,513
$
$
$
$
$
$
605,429
231,619
373,810
231,011
1.08
2.34
241,235
423,988
Other Financial Data:
(dollars in thousands)
Working capital ratio
Working capital
Total assets
Long-term debt
As of December 31,
2019
2018
2017
2016
2015
2.07
2.52
2.72
2.48
2.46
$
643,480
$
750,148
$
751,605
$
754,231
$
901,537
$ 2,740,663
$ 2,824,998
$ 3,023,950
$ 3,130,315
$ 3,429,536
$
796,516
$
786,580
$
792,312
$
793,058
$
795,836
Shareholders' equity
$ 1,069,346
$ 1,409,235
$ 1,659,164
$ 1,516,643
$ 1,578,734
Goodwill as a percentage of Shareholders' equity
38%
29%
27%
29%
27%
23
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 2020 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 2020;
our plans for future operations (including planned additions to and retirements from our remotely operated
vehicle ("ROV") fleet;
our ability and intent to redeem Angolan bonds and repatriate cash;
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 2019, 2018 and 2017.
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss) %
Net Income (Loss)
2019
$ 2,048,124
Year Ended December 31,
2018
$ 1,909,482
2017
$ 1,921,507
98,244
129,226
194,610
5 %
7 %
10%
(290,713)
(145,482)
10,656
(14)%
(8)%
1%
(348,444)
(212,327)
166,398
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.
24
Our business primarily depends on the level of spending on offshore developments and related operating activities
by our customers in the energy industry. During 2019, we generated approximately 79% of our revenue from
services and products we provide to the energy industry. Our results for 2019 reflect the impact of pre-tax charges
of $252 million recognized during the year, most notably in the fourth quarter. Activity levels and operating
performance within our energy segments exceeded our expectations, led by our ROV and Subsea Products
segments. Operating performance by our Advanced Technologies segment fell well short of expectations, primarily
due to execution issues and customer-driven project delays and cancellations within our entertainment business.
Overall, our 2019 revenue increased 7% to $2.0 billion, with revenue increases in our ROV, Subsea Products and
Advanced Technologies segments partially offset by revenue decreases in our Subsea Projects and Asset Integrity
segments.
In 2019, on a consolidated level, we had a net loss of $348 million, or diluted loss of $3.52 per share, compared to
net loss of $212 million, or diluted loss of $2.16 per share, in 2018. The $136 million decrease from 2018 net loss
was primarily attributable to pre-tax charges of $252 million recorded in 2019 for impairments, write-downs and
write-offs of certain equipment, intangible assets, goodwill and inventory, and other expenses, most notably in our
Subsea Projects and Asset Integrity segments. This compares to pre-tax charges recorded in 2018 of $84 million,
primarily relating to pre-tax goodwill impairment of $76 million.
We had operating losses of $291 million and $145 million, including charges of $252 million and $84 million in 2019
and 2018, respectively. More information about these charges is described below. Due to lower profit contributions
for our Energy Services and Products segments and Advanced Technologies segment, operating results decreased
$145 million from 2018. The changes in operating results occurred in our:
Asset Integrity segment, which had a $62 million decrease in operating results primarily as a result of
charges of $49 million. These charges included impairments and write-offs of $34 million and a goodwill
impairment of $15 million, both largely based on market competition and lower pricing levels.
Subsea Projects segment, which had a $60 million decrease in operating results primarily as a result of
charges of $153 million. These charges were principally the result of several vessel impairments in the
aggregate amount of $132 million, as market conditions no longer supported the prior valuations for these
assets. This is compared with a goodwill impairment of $76 million and long-lived asset write-offs of $5.5
million in 2018.
ROV segment, which had relatively flat operating income, including charges of $23 million. These charges
were principally asset write-offs and inventory write-downs, largely resulting from impairment and
obsolescence.
Subsea Products segment, which had a $4.2 million increase in operating income largely resulting from
higher revenue from Manufactured Products. 2019 results also included charges of $25 million.
Advanced Technologies segment, which had an $8.9 million decrease in operating income, largely resulting
from underperformance in our entertainment business due to cost overruns on certain completed projects,
postponement in project awards and customer-requested delays in project progression. 2019 results also
included charges of $1.6 million.
25
In 2019 and 2018, we incurred charges of $252 million and $84 million, respectively, primarily due to market
conditions that no longer support the prior valuations. Additionally, we recognized other costs as we adapted our
geographic footprint and staffing levels to the conditions of the markets we serve, along with asset write-downs
relating to the retirement of 30 ROVs from our fleet. Charges for 2019 and 2018 are summarized as follows:
(in thousands)
Charges for the effects of:
Long-lived assets impairments
Year Ended December 31, 2019
Remotely
Operated
Vehicles
Subsea
Products
Subsea
Projects
Asset
Integrity
Advanced
Tech.
Unallocated
Expenses
Total
$
$
$ 142,615
$
16,738
$
$
$
159,353
Long-lived assets write-offs
5,697
18,757
Inventory write-downs
15,343
3,567
6,091
1,586
14,108
Goodwill impairment
14,713
Other
2,297
2,650
2,851
3,082
789
815
Total charges
$ 23,337
$
24,974
$ 153,143
$
48,641
$
1,604
$
56
56
44,653
21,285
14,713
11,751
$
251,755
Year Ended December 31, 2018
Remotely
Operated
Vehicles
Subsea
Products
Subsea
Projects
Asset
Integrity
Advanced
Tech.
Unallocated
Expenses
Total
Charges for the effects of:
Goodwill impairment
Long-lived assets write-offs
Total charges
$
$
$
$
76,449
$
$
$
$
76,449
617
1,531
5,543
7,691
617
$
1,531
$
81,992
$
$
$
$
84,140
In 2019, we invested in the following capital initiatives:
$68 million to upgrade our work-class ROVs, including adding 13 ROVs to our fleet;
$48 million to add capabilities and maintain current operations in our Subsea Products segment; and
$19 million in our Subsea Projects segment, including the completion of the new MSV, Ocean Evolution,
which was placed into service during the second quarter of 2019.
We expect our 2020 operating results to improve from 2019, due to our expectations for higher activity and
operating margins in each of our segments. Apart from seasonality, we view pricing and margins in the current
market to be stable, with increasing opportunities for improvement. We anticipate all our segments will generate
improved annual operating results, with the largest increases in profitability occurring in our ROV, Subsea Products
and Advanced Technologies segments, in the absence of any need to further write-off our long-lived assets.
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 contracted number of floating drilling
rigs 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
2019
154
58
58%
2018
148
52
51%
2017
150
47
46%
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 2019 there were 235
floating drilling rigs in operation or available for work throughout the world, with 156 of those rigs under contract.
The average contracted offshore floating rig count in 2019 increased slightly to approximately 154 rigs.
26
In addition to floating rig demand, the number of subsea tree orders and installations is another leading indicator,
and the primary demand driver for our Subsea Products lines. According to data published by Rystad Energy in
December 2019, there are projected to be 359 subsea tree installations in 2020, compared to 300 in 2019, 274 in
2018 and 242 in 2017.
In 2020, we expect interest expense, net of interest income, to be approximately $40 million. We do not anticipate
capitalizing interest on any long-lived assets in 2020.
In 2020, our income tax payments, estimated to total $40 million, are expected to relate primarily 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 applied the modified retrospective method to those contracts that were not completed as of January 1,
2018, and utilized the practical expedient to reflect the effect on contract modifications in the aggregate. The
adoption of this ASU resulted in an after-tax cumulative effect adjustment of $0.5 million recorded 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 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 dayrate 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 have seen 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
27
materials and significant inefficiencies from the measure of progress. This occurs predominantly 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; however, we
did not have any material adjustments during the twelve months ended December 31, 2019 or 2018. 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, Long-lived Intangible Assets and Right-of-Use Operating Lease Assets. We
periodically and upon the occurrence of a triggering event review the realizability of our property and equipment,
long-lived intangible assets and right-of-use operating lease 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.
Due to market conditions that no longer support the prior valuations, in the fourth quarter of 2019, we determined
impairment indicators were present for certain of our long-lived assets, including right-of-use operating lease
assets, and that the carrying amounts were not recoverable. As a result, we recorded total pre-tax losses on
impairments, write-downs and write-offs of $204 million made up of (1) $143 million impairment for several vessels
and Ecosse long-lived assets within our Subsea Projects segment, (2) $17 million impairment for long-lived assets,
including right-of-use operating lease assets, in our Asset Integrity segment and (3) $45 million for write-downs and
write-offs of certain equipment and intangible assets including asset write-downs relating to the retirement of 30
ROVs, and some of the IWOCs equipment in our Subsea Products segment.
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.
28
In our 2019 annual goodwill evaluation, we performed quantitative assessments for (1) our Subsea Projects
reporting unit, due to its fair value being less than carrying value in the prior year, and (2) our Asset Integrity
reporting unit, due to deterioration in its business environment. In our quantitative analyses for the Subsea Projects
and Asset Integrity reporting units, we estimated the fair values by weighting the results from the income approach
and the market approach. These valuation approaches considered a number of factors that included, but are not
limited to, prospective financial information, operating margins, growth rates, terminal values, discount rates and
comparable multiples of similar companies in our industry and required us to make certain assumptions and
estimates regarding industry economic factors and future profitability of our business. Based on these quantitative
tests, we determined that the fair value for our Subsea Projects reporting unit exceeded the carrying amount and
there was no goodwill impairment. For our Asset Integrity reporting unit, the fair value was less than the carrying
value and, as a result, we recorded a pre-tax goodwill impairment loss of $15 million. 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, 2019. For the remaining reporting units, qualitative assessments were performed, and
we concluded that it was more likely than not that the fair value of each such reporting unit was more than the
carrying value of the reporting unit.
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 quantitative analysis for the Subsea Projects reporting unit,
we estimated the fair value by weighting the results from the income approach and the market approach. These
valuation approaches considered a number of factors that included, but are not limited to, prospective financial
information, operating margins, growth rates, terminal values, discount rates and comparable multiples of similar
companies in our industry and required 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 each such 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.
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.
As further discussed in Note 6"Income Taxes," in the Notes to Consolidated Financial Statements included in this
report, the 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 how the United States imposes income tax on
multinational corporations. 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, 2019.
For a summary of our major accounting policies and a discussion of recently adopted accounting standards, please
see Note 1"Summary of Major Accounting Policies" in the Notes to Consolidated Financial Statements included in
this report.
29
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our operations and growth initiatives. As of
December 31, 2019, we had working capital of $643 million, including cash and cash equivalents of $374 million.
Additionally, we had $500 million available through our revolving credit facility under a credit agreement further
described below.
Cash flows for the years ended December 31, 2019, 2018 and 2017 are summarized as follows:
(in thousands)
Changes in Cash:
Year ended December 31,
2019
2018
2017
Net Cash Provided by Operating Activities
$
157,569
$
36,567
$
136,478
Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
Effect of exchange rates on cash
(134,787)
(98,842)
(112,035)
(2,299)
(1,087)
(5,628)
(8,154)
(45,922)
1,602
Net Increase (Decrease) in Cash and Cash Equivalents
$
19,396
$
(76,057) $
(19,877)
Operating activities
Our principal source of cash from operating activities is our net income (loss), adjusted for noncash items. Our
primary sources and uses of cash flows from operating activities for the years ended December 31, 2019, 2018 and
2017 are as follows:
(in thousands)
Cash Flows from Operating Activities:
Net income (loss)
Noncash adjustments:
Depreciation and amortization, including goodwill impairment
Loss on impairment of long-lived assets
Deferred income tax provision (benefit)
Other noncash
Total noncash adjustments
Accounts receivable and contract assets
Inventory
Current liabilities
Other changes
Year ended December 31,
2019
2018
2017
$
(348,444) $
(212,327) $
166,398
263,427
159,353
(12,268)
28,704
439,216
(17,561)
(11,777)
76,552
19,583
293,590
213,519
11,912
3,405
308,907
(86,724)
(12,485)
25,968
13,228
(235,013)
11,734
(9,760)
13,144
65,502
(81,808)
(16,998)
Net Cash Provided by Operating Activities
$
157,569
$
36,567
$
136,478
Net cash provided by operating activities for the years ended December 31, 2019, 2018 and 2017 was $158 million,
$37 million and $136 million, respectively, was affected by the following:
Accounts receivable and contract assets - The decrease in cash related to accounts receivable and
contract assets in 2019 and 2018 reflects higher business activity in the fourth quarter of both years due to
commencement of new projects, along with timing of project milestones and customer payments. The
increase in cash in 2017 was the result of lower revenue and activity in general.
Inventory - The decrease in cash related to inventory as of December 31, 2019 and 2018 was primarily due
to increases in Manufactured Products' inventory related to increases in backlog. The increase in cash in
2017 was a result of lower revenue and activity in general.
30
Current liabilities - The increase in cash related to changes in current liabilities in 2019 reflected higher
business activity in the fourth quarter and primarily the timing of vendor payments for related goods and
services. The increase in cash in 2018 reflected timing of vendor payments. The decrease in cash in 2017
was the result of lower revenue and activity in general.
Investing activities
In 2019, we used $135 million in net investing activities, primarily for capital expenditures of $148 million. Our 2019
capital expenditures included $68 million in our ROV segment to upgrade our fleet of work-class ROVs, adding 13
ROVs to our fleet, $48 million in our Subsea Products segment to add capabilities and maintain current operations
and $19 million in our Subsea Projects segment, which included completion of the MSV Ocean Evolution, which
was placed in service in the second quarter of 2019.
In 2018, we used $99 million in net investing activities. We used $109 million for capital expenditures and $69
million for business acquisitions, totaling $178 million in investments. These investments included $46 million in our
ROV segment, $25 million in our Subsea Products segment and $100 million in our Subsea Projects segment,
including the acquisition of 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. We also received $70 million of proceeds from maturities and redemptions of Angolan
bonds and $15 million of proceeds from the sale of a cost method investment, partially offset by the use of $10
million for the purchase of Angolan central bank bonds indexed to the U.S. dollar.
In 2017, we used a net of $112 million in investing activities, primarily for capital expenditures of $105 million
including $40 million in our ROV segment, $28 million in our Subsea Products segment and $30 million in our
Subsea Projects segment. Additionally, we used $11 million to purchase Angolan central bank bonds indexed to the
U.S. dollar.
For 2020, we expect our capital expenditures to be in the range of $75 million to $105 million, exclusive of business
acquisitions. This includes approximately $40 million to $50 million of maintenance capital expenditures and $35
million to $55 million of growth capital expenditures. We have significantly reduced our planned capital
expenditures for 2020, as compared to 2019, and expect this reduction to be a major contributor to our ability to
generate significant free cash flow in 2020.
Our capital expenditures during 2019, 2018 and 2017 included $68 million, $46 million and $40 million, respectively,
in our ROV segment, principally for upgrades to our ROV fleet and to replace certain units we retired. We currently
plan to add new ROVs only to meet contractual commitments. We added 13, six and seven ROVs to our fleet and
retired 38, 10 and eight units during 2019, 2018 and 2017, respectively, resulting in a total of 250 work-class
systems in our fleet as of December 31, 2019. 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 or short-term time charter party arrangements with the vessel owners. This generally
minimizes our contract exposure by closely matching our obligations with our revenue.
We placed our new-build, Jones Act-compliant, MSV Ocean Evolution into service during the second quarter of
2019. The Ocean Evolution is 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-based personnel. The vessel is
being 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. Due to
market conditions that no longer support the prior valuation for this asset, in the fourth quarter of 2019, we
determined that the carrying amount of the Ocean Evolution exceeded the fair value and recorded impairment
expense of $101 million.
31
In 2010, we acquired a vessel, which we renamed the Ocean Patriot, and 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. Due to market conditions that
no longer support the prior valuation for this asset, in the fourth quarter of 2019, we determined that the carrying
amount of the Ocean Patriot exceeded the fair value and recorded impairment expense of $31 million.
Financing activities
In 2019, we used $2.3 million in financing activities.
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.
primarily for the $44 million of cash dividends we paid.
In 2018, we used $5.6 million in financing activities, with $300
In 2017, we used $46 million in financing activities,
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 used the net proceeds
from the 2028 Senior Notes to repay our term loan indebtedness described further 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.
We may redeem some or all of the 2024 Senior Notes and 2028 Senior Notes (collectively, the "Senior Notes") at
specified redemption prices.
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, 2019, we were in compliance with all the covenants set forth in the Credit Agreement.
32
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 9"Commitments and Contingencies" in the 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 $3.0 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 2019 under the Credit Agreement and the Senior Notes was $800
million, and our total interest costs, including commitment fees, were $46 million.
We have not guaranteed any debt not reflected on our Consolidated Balance Sheets as of December 31, 2019 and
2018, and we do not have any off-balance-sheet arrangements, as defined by SEC rules.
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 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, 2019, we retained 11.9 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, 2019 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 could 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 10"Operations by Business Segment and
Geographic Area" in 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.
33
(dollars in thousands)
Remotely Operated Vehicles
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss)%
Days available
Days utilized
Utilization %
Subsea Products
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss)%
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 (Loss)
Operating Income (Loss)%
Total Energy Services and Products
Revenue
Gross Margin
Gross Margin %
Operating Income (Loss)
Operating Income (Loss)%
Year ended December 31,
2019
2018
2017
$ 449,830
$ 394,801
$
393,655
37,961
32,652
50,937
8 %
8 %
13%
1,591
1,641
22,366
%
%
6%
100,480
58,347
101,464
52,084
101,951
47,282
58 %
51 %
46%
602,249
65,901
515,000
59,984
625,513
97,086
11 %
12 %
16%
9,831
5,614
45,539
2 %
1 %
7%
630,000
332,000
276,000
327,556
21,264
329,163
9,596
291,993
25,021
6 %
3 %
9%
(145,712)
(86,008)
10,279
(44)%
(26)%
4%
242,954
11,101
253,886
34,995
236,778
37,382
5 %
14 %
16%
(53,387)
8,660
11,231
(22)%
3 %
5%
$ 1,622,589
$ 1,492,850
$ 1,547,939
136,227
137,227
210,426
8 %
9 %
14%
(187,677)
(70,093)
89,415
(12)%
(5)%
6%
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 13, six
and seven ROVs in 2019, 2018 and 2017, respectively, while retiring 56 units over the three-year period. Our ROV
fleet size was 250 as of December 31, 2019, 275 as of December 31, 2018 and 279 as of December 31, 2017. We
have decreased our ROV fleet size since 2015 in response to lower market demand.
For the year ended December 31, 2019, our ROV operating income was relatively flat compared to 2018. We
generated higher revenue, due to a 12% increase in days-on-hire and year-over-year increases in both drill support
34
and vessel support days. Both dayrates and costs per days-on-hire increased slightly on increased utilization. The
operational benefits of this increased activity were offset by $23 million of charges for write-downs and write-offs of
certain equipment, intangible assets, inventory, and other expenses.
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 ROVs in 2020, we expect improved results based on increased days-on-hire in both drill support and vessel-
based services, minor shifts in geographic mix and generally stable pricing. We project fewer installations and
demobilizations in 2020, which should result in lower operating costs as compared to 2019. Our overall ROV fleet
utilization is expected to be in the high 60% to low 70% range for the full year 2020. We expect to generally sustain
our ROV market share in the 60% range for drill support.
Our Subsea Products segment consists of two business units: (1) Manufactured Products; and (2) Service and
Rental. Manufactured Products includes 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,
2019
2018
2017
62%
38%
55%
45%
64%
36%
For the year ended December 31, 2019, our Subsea Products operating results increased, due to higher revenue
primarily from our Manufactured Products business unit as compared to 2018, as a result of an increase in subsea
umbilical and hardware awards and related throughput. Operating income also benefited from significantly better
execution from our Service and Rental business unit. These improvements were partially offset by $25 million of
charges for write-downs and write-offs of certain equipment, intangible assets and inventory, and other expenses
primarily for the Service and Rental business unit.
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.
We anticipate our Subsea Products segment operating income in 2020 to improve as a result of securing good
order intake in 2019 and anticipated awards in early 2020, which is expected to drive 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 fixed costs, we anticipate that our operating
income margin will improve slightly and average in the mid-single digit range for the year. Our Subsea Products
backlog was $630 million as of December 31, 2019, a $298 million, or 90%, increase over December 31, 2018.
Our Subsea Projects operating results for the year ended December 31, 2019 decreased on slightly lower revenue
as compared to 2018. 2019 results included charges of $153 million for vessel and intangible impairments, write-
downs and write-offs of certain equipment and inventory, and other expenses. This segment's 2018 results
included charges of $82 million related to goodwill impairment and write-offs of obsolete equipment and intangible
assets associated with exiting the land survey business.
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
35
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.
In 2020, operating results for our Subsea Projects segment are expected to improve slightly, primarily due to lower
depreciation as compared to 2019. Vessel dayrates remain competitive but stable and we expect to see
opportunities for pricing improvements during periods of higher activity. This segment has the highest amount of
speculative work contained within our guidance. The MSV Ocean Evolution has experienced reasonable levels of
demand given the current market conditions, since it was added to our fleet in the second quarter of 2019.
Currently, it has a good amount of project backlog through the first quarter of 2020, albeit at much lower dayrates
than we originally expected. We continue to complement our fleet with charters of third-party vessels, which give us
the ability to react to changing market conditions.
For the year ended December 31, 2019, compared to 2018, Asset Integrity's operating income was lower, due to
reduced revenue, lower pricing for inspection services and charges of $49 million for asset impairments, write-
downs and write-offs of certain equipment, intangible assets and inventory, and other expenses.
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.
We anticipate our 2020 operating results for Asset Integrity to improve on relatively flat revenues as compared to
2019, as contract pricing remains extremely competitive. We expect the benefits from cost control measures
implemented in late 2019 and early 2020 should be realized beginning in the second quarter of 2020.
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. Our commercial business unit offers turnkey solutions that include 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.
Revenue, gross margin and operating income information for our Advanced Technologies segment are as follows:
(dollars in thousands)
Revenue
Gross Margin
Gross Margin %
Operating Income
Operating Income %
Year ended December 31,
2018
$ 416,632
2017
$ 373,568
2019
$ 425,535
50,401
58,959
44,421
12%
14%
12%
25,068
33,920
22,039
6%
8%
6%
The following table presents revenue from government and commercial, as their respective percentages of total
Advanced Technologies revenue:
Government
Commercial
Year ended December 31,
2019
2018
2017
75%
25%
67%
33%
74%
26%
For the year ended December 31, 2019, compared to 2018, our Advanced Technologies segment operating income
decreased on higher revenue. Commercial revenue and operating income results were lower, primarily due to
execution issues, and customer driven project delays and cancellations within our entertainment business. The
Government business unit operating results were relatively flat on higher revenue.
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.
36
We project our Advanced Technologies operating results in 2020 to increase on higher revenues, with operating
margins expected to be in the high-single-digit range for the year. We expect a modest improvement in operating
results within our government-related units and operating improvement within our commercial units on improved
execution and expected project awards and progression. However, as evidenced over the past several years, the
impacts from timing of project awards and customer delays can lead to variability in quarterly results. We are
currently monitoring the impact to ongoing and anticipated projects in China, due to the coronavirus situation.
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 units, performance units and bonuses, as well as other general expenses. Our Unallocated
Expenses within operating expenses consist of those expenses within gross margin plus general and administrative
expenses related to corporate functions.
The following table sets forth our Unallocated Expenses for the periods indicated:
(dollars in thousands)
Gross margin expenses
% of revenue
Operating expenses
% of revenue
Year ended December 31,
2018
$ (66,960)
2017
$ (60,237)
2019
$ (88,384)
4%
4%
3%
(128,104)
(109,309)
(100,798)
6%
6%
5%
Our unallocated expenses for the year ended December 31, 2019 increased compared to 2018, primarily due to
higher 2019 expenses related to both short- and long-term performance based incentive compensation expense.
Our unallocated expenses for the year ended December 31, 2018 increased compared to 2017, primarily due to
higher expenses related to information technology and both short- and long-term performance based incentive
compensation expense.
We anticipate Unallocated Expenses in 2020 to increase to an average of $35 million per quarter, as we expect full
accrual rates for projected short- and long-term performance-based incentive compensation expense, as compared
to 2019.
Other. The following table sets forth our significant financial statement items below the income (loss) from
operations line:
(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
2019
$
7,893
$
9,962
$
7,355
(42,711)
(37,742)
(27,817)
1,331
(6,621)
17,623
(3,783)
(8,788)
(1,983)
(6,055)
26,494
(184,242)
Interest income for the year ended December 31, 2019 decreased as compared to 2018, primarily due to lower
amounts held in Angolan bonds in 2019. Interest income for the year ended December 31, 2018 increased as
compared to 2017, due to an increase in the short-term interest rates received on our cash equivalents in the
United States.
Interest expense increased for the year ended December 31, 2019 compared to 2018, due to a decrease in our
capitalized interest. Interest expense increased for the year ended December 31, 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
$3.4 million, $7.3 million and $4.6 million of interest in 2019, 2018 and 2017, respectively, associated with the new-
build vessel, the Ocean Evolution, described under "Liquidity and Capital Resources" above.
37
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.
In 2020, we expect interest expense, net of interest income, to be approximately $40 million. We do not anticipate
capitalizing interest on any long-lived assets in 2020.
Included in other income (expense), net are foreign currency transaction losses of $6.3 million, $18.0 million and
$5.2 million for 2019, 2018 and 2017, respectively. The losses in 2019 and 2018 primarily related to Angola, which
devalued its currency by 55% and 46% in 2019 and 2018, respectively. We did not incur significant currency
transaction losses in any one currency in 2017. We could incur further foreign currency exchange losses in
Angolan kwanza and other currencies, if currency devaluations occur.
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.
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 earnings of foreign subsidiaries. In 2017, as a result of the Tax Act,
we estimated and recorded a $189 million noncash 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 noncash benefit.
As of 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 tax liabilities associated with
certain unrepatriated earnings that will now be subject to tax-free repatriation.
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 the tax impact of $8.8 million related to the one-time mandatory transition tax.
In
2019, we identified additional available business credits, which are reflected in our 2018 income tax return as filed,
thereby reducing the effects of the Tax Act in our financial statements by $8.2 million, for a total liability of $0.6
million. 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. The transition tax and resulting quasi-territorial type tax regime
impacts the utilization of our remaining foreign tax credits, resulting in a valuation allowance of $27 million against
such deferred tax assets.
During 2019, we determined it was more likely than not that we would not be able to utilize our remaining unvalued
deferred tax assets. In accordance with applicable accounting standards, we recorded an increase in income tax
expense of $74 million related to the establishment of a valuation allowance on those deferred tax assets.
In 2020, our income tax payments, estimated to total $40 million, are expected to relate primarily 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.
38
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by SEC rules.
Contractual Obligations
As of December 31, 2019, we had payments due under contractual obligations as follows:
(dollars in thousands)
Long-term Debt
Operating Lease Liabilities
Purchase Obligations
Total
Payments due by period
2021-2022
2020
2023-2024
After 2024
$
800,000
$
$
$
500,000
$
300,000
251,412
328,882
30,573
324,662
54,678
4,186
40,971
125,190
1
33
Other Long-term Obligations reflected on our
Balance Sheet under U.S. GAAP
TOTAL
49,778
872
173
219
48,514
$ 1,430,072 $
356,107
$
59,037
$
541,191
$
473,737
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 $2.5 million and $3.2 million as of December 31, 2019 and 2018, 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.
39
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 9"Commitments and Contingencies" in the 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 8"Debt" in the 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 could 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
when 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 $5.3 million, $(47) million and $11 million to our equity accounts in 2019, 2018 and
2017, 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 $6.3 million, $18 million and $5.2 million for 2019, 2018 and
2017, 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 $4.8 million, $19 million and $0.1 million in 2019, 2018 and 2017,
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 55% and 46% in 2019 and 2018,
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 2019 and 2018, we were able to repatriate $5.5 million and $74 million,
respectively, of cash from Angola.
As of December 31, 2019 and December 31, 2018, we had the equivalent of approximately $6.2 million and $9.3
million of kwanza cash balances, respectively, in Angola, reflected on our Consolidated Balance Sheets.
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 Angolan 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 as of December 31, 2019 using quoted
market 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.
40
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.
None.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
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, 2019 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, 2019 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 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 ControlIntegrated 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, 2019.
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.
41
Report of Independent Registered Public Accounting Firm
To the Shareholders and the 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, 2019, based on
criteria established in Internal ControlIntegrated 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, 2019, 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
consolidated balance sheets of the Company as of December 31, 2019 and 2018, 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, 2019, and the related notes
and our report dated February 27, 2020, expressed an unqualified opinion thereon.
Basis for Opinion
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Companys 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 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 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 companys 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
companys 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 companys 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 27, 2020
42
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 29,
2020, relating to our 2020 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.
43
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
*
*
*
*
*
*
*
*
*
*
*
3.01 Restated Certificate of Incorporation
3.02 Certificate of Amendment to Restated Certificate of
Incorporation
3.03 Certificate of Amendment to Restated Certificate of
Incorporation
3.04 Amended and Restated Bylaws
4.01 Description of Common Stock
4.02 Specimen of Common Stock Certificate
1-10945
1-10945
1-10945
1-10945
1-10945
4.03 Credit Agreement, dated as of October 27, 2014,
1-10945
by and among Oceaneering International, Inc.,
Wells Fargo Bank, National Association, as
administrative agent and swing line lender, and
certain lenders party thereto
4.04 Agreement and Amendment No. 1 to Credit
1-10945
Agreement
4.05 Agreement and Amendment No. 2 to Credit
Agreement
4.06 Agreement and Amendment No. 3 to Credit
Agreement
4.07 Agreement and Amendment No. 4 to Credit
Agreement
4.08 Indenture dated, November 21, 2014, between
Oceaneering International, Inc. and Wells Fargo
Bank, National Association, as Trustee, relating to
senior debt securities of Oceaneering International,
Inc.
1-10945
1-10945
1-10945
1-10945
10-K
8-K
8-K
8-K
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
44
Report Date
Dec. 2000
May 2008
May 2014
Aug. 2015
Sep. 2018
Oct. 2014
Nov. 2015
Nov. 2016
June 2017
Feb. 2018
Nov. 2014
Exhibit
Number
3.01
3.1
3.1
3.1
4.3
4.1
4.1
4.1
4.1
4.1
4.1
*
*
4.09 First Supplemental Indenture, dated 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)
4.10 Second Supplemental Indenture, dated 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)
1-10945
8-K
Nov. 2014
4.2
1-10945
8-K
Feb. 2018
4.2
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 dated
as of December 21, 2006 between Oceaneering
and John R. Huff
10.02+ Modification to Service Agreement dated as of
December 21, 2006 between Oceaneering and
John R. Huff
10.03+ Trust Agreement dated as of May 12, 2006
between Oceaneering and United Trust Company,
National Association (the "Huff Trust Agreement")
1-10945
8-K
Dec. 2006
1-10945
8-K
Dec. 2008
1-10945
8-K
May 2006
10.1
10.9
10.2
10.04+ First Amendment to Huff Trust Agreement dated as
1-10945
8-K
Dec. 2008
10.10
of May 12, 2006 between Oceaneering
International, Inc. and Bank of America National
Association, as successor trustee
10.05+ 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
10.06+ Third Amendment to Huff Trust Agreement dated
as of May 12, 2006 between Oceaneering
International, Inc. and Newport Trust Company, as
successor trustee
10.07+ Oceaneering International, Inc. Supplemental
Executive Retirement Plan, as amended and
restated effective January 1, 2009
10.08+ Amended and Restated Oceaneering International,
Inc. Supplemental Executive Retirement Plan, as
amended and restated effective January 1, 2000
(for Internal Revenue Code Section 409A-
grandfathered benefits)
10.09+ Form of Change-of-Control Agreement and Annex
for Roderick A. Larson
10.10+ Form of Change-of-Control Agreement
10.11+ Form of Indemnification Agreement
10.12+ Second Amended and Restated 2010 Incentive
Plan
10.13+ Form of 2017 Performance Unit Agreement,
including 2017 Performance Award: Goals and
Measures
10.14+ Supplemental 2017 Performance Unit Agreement
for Mr. Larson
10.15+ Form of 2018 Performance Unit Agreement,
including 2018 Performance Award: Goals and
Measures
45
1-10945
10-K
Dec. 2018
10.33
1-10945
10-K
Dec. 2018
10.34
1-10945
8-K
Dec. 2008
10.5
1-10945
8-K
Dec. 2008
10.6
1-10945
1-10945
1-10945
1-10945
8-K
8-K
8-K
Aug. 2015
May 2011
May 2011
10.3
10.5
10.4
DEF 14A
Mar. 2017
Appendix A
1-10945
8-K
Feb. 2017
1-10945
1-10945
8-K
8-K
May 2017
Mar. 2018
10.1
10.1
10.1
1-10945
10-K
Dec. 2018
10.31
1-10945
10-K
Dec. 2018
10.35
1-10945
10-K
Dec. 2018
10.32
8-K
8-K
8-K
8-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
Mar. 2019
Mar. 2019
Mar. 2019
Mar. 2019
Jun. 2019
Jun. 2019
Jun. 2019
Jun. 2019
Jun. 2019
Sep. 2019
10.1
10.2
10.3
10.4
10.1
10.2
10.3
10.4
10.5
10.6
*
*
*
*
*
*
*
*
*
*
*
*
*
10.16+ Oceaneering International, Inc. Retirement
Investment Plan, amended and restated with
effective January 1, 2019
10.17+ Oceaneering Retirement Investment Plan Trust
Agreement with Fidelity Management Trust
Company effective January 1, 2019
10.18+ Change of Control Plan and Form of Participation
Agreement
10.19+ Form of 2019 Performance Unit Agreement
10.20+ Form of 2019 Restricted Stock Unit Agreement
10.21+ Form of 2019 Nonemployee Director Restricted
Stock Agreement
10.22+ 2019 Annual Cash Bonus Award Program
Summary
10.23+ Employment Agreement for Mr. Davison
1-10945
1-10945
1-10945
1-10945
1-10945
10.24+ 2019 Performance Unit Agreement for Mr. Davison
1-10945
10.25+ 2019 Restricted Stock Unit Agreement for Mr.
Davison
10.26+ Special Restricted Stock Unit Agreement for Mr.
Davison
10.27+ Retention and Severance Payments Agreement for
Mr. Davison
10.28+ Amended and Restated 2019 Annual Cash Bonus
Award Program Summary
1-10945
1-10945
1-10945
1-10945
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 Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Exhibit previously filed with the Securities and Exchange Commission, as indicated, and
incorporated herein by reference.
+ Management contract or compensatory plan or arrangement.
46
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 27, 2020
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
Title
/S/ RODERICK A. LARSON
Roderick A. Larson
Chief Executive Officer and Director
(Principal Executive Officer)
Date
February 27, 2020
/S/ ALAN R. CURTIS
Senior Vice President and Chief Financial Officer
February 27, 2020
Alan R. Curtis
(Principal Financial Officer)
/S/ WITLAND J. LEBLANC, JR.
Vice President and Chief Accounting Officer
February 27, 2020
Witland J. LeBlanc, Jr.
(Principal Accounting Officer)
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
/S/ JOHN R. HUFF
John R. Huff
/S/ WILLIAM B. BERRY
William B. Berry
/S/ T. JAY COLLINS
T. Jay Collins
/S/ DEANNA L. GOODWIN
Deanna L. Goodwin
/S/ M. KEVIN MCEVOY
M. Kevin McEvoy
Chairman of the Board
Director
Director
Director
Director
/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
47
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
Accounting Standards Update
Revenue
Leases
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.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the 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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2019, 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, 2019, 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 27, 2020, 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
Companys 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
49
Valuation of Goodwill of the Asset Integrity Reporting Unit
Description of the
Matter
At December 31, 2019, the Companys goodwill was $405 million of which $128 million related to the Asset
Integrity reporting unit. As discussed in Note 1 and 10, the Company recorded an impairment loss of $15 million on
the goodwill related to the Asset Integrity reporting unit as part of their annual assessment process. The
Companys goodwill is initially assigned to its reporting units as of the acquisition date.
Auditing managements annual goodwill impairment test was complex and highly judgmental due to the significant
estimation required in determining the fair value of the reporting units. In particular, the fair value estimate of the
Asset Integrity reporting unit was sensitive to significant assumptions such as the weighted average cost of capital,
revenue growth rate, operating margin, and terminal value, many of which are affected by expectations about
future market or economic conditions.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the
Companys goodwill impairment review process, including controls over managements review of the significant
assumptions described above.
To test the estimated fair value of the Companys Asset Integrity reporting unit, we performed audit procedures that
included, among others, assessing the appropriateness of the valuation methodologies utilized and testing key
assumptions discussed above and the underlying data used by the Company in its analysis. We involved a
valuation specialist to assist in our evaluation of the Company's model, valuation methodology and significant
assumptions. We compared the significant assumptions used by management to current industry and economic
trends, including offshore activity, historical results and other relevant factors. We assessed the historical accuracy
of managements estimates and performed sensitivity analyses of significant assumptions to evaluate the changes
in the fair value of the Asset Integrity reporting unit that would result from changes in the assumptions.
In addition, we tested managements reconciliation of the fair value of all reporting units to the market capitalization
of the Company.
Valuation of the long-lived assets of the Deepwater and Shallow-water asset groups
Description of the
Matter
As discussed in Note 1 and 10 to the consolidated financial statements, the Company recorded an impairment loss
on certain long-lived assets of its Deepwater and Shallow-water asset groups. The Company identified impairment
indicators related to these asset groups due to the overall and expected performance of these assets during the
period. As a result, at December 31, 2019, the Company evaluated its long-lived assets in its Deepwater and
Shallow-water asset groups for recoverability and determined that the assets were not recoverable and were
impaired. As a result, the Company recognized a $132 million impairment loss, which is the amount by which the
carrying value exceeded the estimated fair value of these assets.
Auditing the Company's impairment measurement involved a high degree of subjectivity as estimates underlying
the determination of fair value were based in part on assumptions of economic obsolescence and replacement
costs of the assets.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the
Company's processes to determine the fair value of the asset groups and measure the long-lived asset
impairment. This included controls over management's review of the significant assumptions underlying the fair
value determination.
To test the estimated fair value of the Companys Deepwater and Shallow-water asset groups, we performed audit
procedures that included, among others, assessing the appropriateness of the valuation methodologies utilized
and testing the key assumptions discussed above and the underlying data used by the Company in its analysis.
We involved a valuation specialist to assist in our evaluation of the Company's model, valuation methodology and
significant assumptions. We reviewed for contrary evidence related to the determination of the fair value of the
asset groups, including reviewing relevant market data and internal Company forecasts.
50
Revenues recognized over-time utilizing cost to cost inputs
Description of the
Matter
For the year ended December 31, 2019, the Company recognized 21% of its revenues utilizing the cost to cost
input method. As discussed in Note 1 of the financial statements, the Company generally recognizes estimated
contract revenue on fixed-price projects based on costs incurred to date as a percentage of total estimated costs.
Auditing managements calculation of revenues recognized under the cost to cost method was complex and highly
judgmental due to the significant estimation required in determining the estimated costs remaining on the project.
In particular, the estimates of remaining costs associated with materials and labor are sensitive and may be
impacted by factors outside of the Companys control.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the
Companys process for revenues utilizing the cost to cost input method, including managements review of the
estimated costs to complete and associated revenues.
To test the estimated costs to complete, we performed audit procedures that included, among others, assessing
the appropriate application of the revenue recognition method utilized and testing the significant assumptions
discussed above and the underlying data used by the Company in its estimation process. We compared the
significant assumptions used by management to external and internal information, such as vendor quotes and
invoices, manufacturing schedules, material purchase orders, engineering design requirements, manufacturing
bills of lading, and other similar support. Additionally, we assessed the historical accuracy of managements
estimates through a lookback analysis of prior estimates of costs to complete compared to actual results.
/s/ Ernst & Young LLP
We have served as the Companys auditor since 2002.
Houston, Texas
February 27, 2020
51
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of $7,499 and $7,116
Contract assets
Inventory, net
Other current assets
Total Current Assets
Property and equipment, at cost
Less accumulated depreciation
Net property and equipment
Other Assets:
Goodwill
Other noncurrent assets
Right-of-use operating lease assets
Total other assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Contract liabilities
Total current liabilities
Long-term debt
Long-term operating lease liabilities
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; 11,903,252 and 12,294,873 shares, at cost
Retained earnings
Accumulated other comprehensive loss
Oceaneering shareholders' equity
Noncontrolling interest
Total equity
Total Liabilities and Equity
December 31,
2019
2018
$
373,655
$ 354,259
421,360
221,288
174,744
53,389
368,885
256,201
194,507
71,037
1,244,436
1,244,889
2,622,185
2,837,587
1,845,653
1,872,917
776,532
964,670
405,079
151,378
163,238
719,695
413,121
202,318
615,439
$ 2,740,663
$ 2,824,998
$
145,933
$ 102,636
337,681
117,342
600,956
796,516
160,988
106,794
306,933
85,172
494,741
786,580
128,379
27,709
27,709
207,130
220,421
(681,640)
(704,066)
1,850,244
2,204,548
(334,097)
(339,377)
1,069,346
1,409,235
6,063
6,063
1,075,409
1,415,298
$ 2,740,663 $ 2,824,998
The accompanying Notes are an integral part of these Consolidated Financial Statements.
52
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
Long-lived assets impairments
Goodwill impairment
Income (loss) from operations
Interest income
Year Ended December 31,
2018
2019
2017
$ 2,048,124
$ 1,909,482 $ 1,921,507
1,949,880
1,780,256
1,726,897
98,244
214,891
159,353
14,713
129,226
198,259
76,449
(290,713)
(145,482)
7,893
9,962
194,610
183,954
10,656
7,355
Interest expense, net of amounts capitalized
(42,711)
(37,742)
(27,817)
Equity earnings (losses) of unconsolidated affiliates
Other income (expense), net
1,331
(6,621)
(3,783)
(8,788)
(1,983)
(6,055)
Income (loss) before income taxes
(330,821)
(185,833)
(17,844)
Provision (benefit) for income taxes
17,623
26,494
(184,242)
Net Income (Loss)
$ (348,444) $ (212,327) $ 166,398
Weighted average shares outstanding
Basic
Diluted
Earnings (loss) per share
Basic
Diluted
Cash dividends declared per share
98,876
98,876
98,496
98,496
98,238
98,764
$
$
$
(3.52) $
(2.16) $
(3.52) $
(2.16) $
$
$
1.69
1.68
0.45
The accompanying Notes are an integral part of these Consolidated Financial Statements.
53
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31,
2018
2017
2019
Net income (loss)
$ (348,444) $ (212,327) $ 166,398
Other comprehensive income (loss), net of tax:
Foreign currency translation
Pension-related adjustments
5,280
(47,026)
10,723
(215)
(195)
Total other comprehensive income (loss)
5,280
(47,241)
10,528
Comprehensive income (loss)
$ (343,164) $ (259,568) $ 176,926
The accompanying Notes are an integral part of these Consolidated Financial Statements.
54
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including goodwill impairment
Loss on impairment of long-lived assets
Deferred income tax provision (benefit)
Inventory write-downs
Net loss (gain) on sales of property and equipment and cost method investment
Noncash compensation
Noncash impact of lease accounting
Excluding the effects of acquisitions, increase (decrease) in cash from:
Accounts receivable and contract assets
Inventory
Other operating assets
Currency translation effect on working capital, excluding cash
Current liabilities
Other operating liabilities
Total adjustments to net income (loss)
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of property and equipment
Business acquisitions, net of cash acquired
Proceeds from redemption of investments
Purchase of Angolan bonds
Distributions of capital from unconsolidated affiliates
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
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash EquivalentsBeginning of Period
Cash and Cash EquivalentsEnd of Period
Year Ended December 31,
2018
2017
2019
$ (348,444) $ (212,327) $ 166,398
263,427
159,353
293,590
213,519
(12,268)
11,912
(235,013)
21,285
(7,664)
11,432
3,651
(17,561)
(11,777)
16,246
5,533
76,552
(2,196)
506,013
157,569
(8,215)
11,620
(86,724)
(12,485)
13,587
(4,369)
25,968
4,010
216
11,518
13,144
65,502
(38,163)
8,017
(81,808)
13,148
248,894
(29,920)
36,567
136,478
(147,684)
(109,467)
3,388
9,509
(68,571)
69,789
(93,680)
(11,278)
(10,236)
(10,777)
2,372
17,239
32
2,556
938
206
(134,787)
(98,842)
(112,035)
(2,299)
(2,299)
(1,087)
295,816
(300,000)
(44,220)
(1,444)
(5,628)
(8,154)
(1,702)
(45,922)
1,602
19,396
(76,057)
(19,877)
354,259
430,316
450,193
$ 373,655
$ 354,259
$ 430,316
The accompanying Notes are an integral part of these Consolidated Financial Statements.
55
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Accumulated Other
Comprehensive Income
(Loss)
(in thousands)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Currency
Translation
Adjustments
Oceaneering
Shareholders'
Equity
Pension
Noncontrolling
Interest
Total Equity
Balance, December 31, 2016
$
27,709
$
227,566
$
(731,202) $ 2,295,234
$
(303,074)
$
410
$
1,516,643
$
$
1,516,643
Net income (loss)
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
Cash dividends
Noncontrolling interest acquired
480
(2,921)
9,335
2,921
166,398
(44,220)
10,723
Balance, December 31, 2017
27,709
225,125
(718,946)
2,417,412
(292,351)
Cumulative effect of ASC 606 adoption
Net income (loss)
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
Noncontrolling interest
(753)
(3,951)
10,929
3,951
(537)
(212,327)
Balance, December 31, 2018
27,709
220,421
(704,066)
2,204,548
Cumulative effect of ASC 842 adoption
Net income (loss)
Other comprehensive income (loss)
Restricted stock unit activity
Restricted stock activity
(8,148)
(5,143)
17,283
5,143
(5,860)
(348,444)
(47,026)
(339,377)
5,280
(195)
215
(215)
166,398
10,528
9,815
(44,220)
1,659,164
(537)
(212,327)
(47,241)
10,176
5,354
5,354
709
166,398
10,528
9,815
(44,220)
5,354
1,664,518
(537)
(212,327)
(47,241)
10,176
709
1,409,235
6,063
1,415,298
(5,860)
(348,444)
5,280
9,135
(5,860)
(348,444)
5,280
9,135
Balance, December 31, 2019
$
27,709
$
207,130
$
(681,640) $ 1,850,244
$
(334,097)
$
$
1,069,346
$
6,063
$
1,075,409
The accompanying Notes are an integral part of these Consolidated Financial Statements.
56
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
Investments in entities that we do not consolidate are reflected on
cost method for all other long-term investments.
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 as of 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.
Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets. We
provide for depreciation of property and equipment on the straight-line method over estimated useful lives of eight
years for Remotely Operated Vehicles ("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 four years.
For information regarding right-of-use operating lease assets, see "Leases" below.
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 $3.4 million, $7.3 million and $4.6 million of interest in 2019, 2018 and 2017, 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.
Our management periodically, and upon the occurrence of a triggering event, reviews the realizability of our
property and equipment, long-lived intangible assets and right-of-use operating lease 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.
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
If such impairment indicators are present or other factors
57
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.
Due to the protracted energy downturn and our customers' continued focus on cost discipline, we determined that
impairment indicators were present within certain of our asset groups in our Subsea Projects and Asset Integrity
segments in the fourth quarter of 2019. For our Subsea Projects segment, impairment indicators were present in
our Deepwater and Shallow Water asset groups and in our Ecosse asset group. For the Deepwater and Shallow
Water asset groups, we utilized the cost approach and considered historical, current and anticipated dayrates and
utilization to measure market value. For our Ecosse asset group, we utilized a combination of income and market
approaches, using projected discounted cash flows and the estimated expected realizable value in the market. Our
Asset Integrity segment consists of one asset group. We measured the fair value of the Asset Integrity asset group
by applying the income approach, using projected discounted cash flows. Our estimates of fair values for the asset
groups in our Subsea Projects and Asset Integrity segments required us to use significant unobservable inputs,
classified as Level 3 fair value measurements, including assumptions related to future performance, risk-adjusted
discount rates, future commodity prices and demand for our services and estimates of expected realizable value.
As a result, we determined that the carrying values exceeded the estimated fair values and recorded impairments
as noted below:
(in thousands)
Subsea Projects
Year Ended December 31, 2019
Property and
Equipment, net
Intangible
Assets
Right-of-Use
Operating
Lease Assets
Total
Deepwater and Shallow Water asset groups
$
131,894
$
$
$
131,894
Ecosse asset group
Asset Integrity
1,242
10,954
9,479
432
5,352
10,721
16,738
Total long-lived assets impairments
$
144,090
$
9,911
$
5,352
$
159,353
In the fourth quarter of 2019, we also recorded $45 million for write-downs and write-offs of certain equipment and
intangible assets, including asset write-downs relating to the retirement of 30 ROVs, and some of the IWOCs
equipment in our Subsea Products segment. In 2018, we recorded the write-offs of certain equipment and
intangible assets associated with exiting the land survey business and equipment obsolescence of $7.6 million.
For additional information regarding write-downs and write-offs of property and equipment and long-lived intangible
assets in 2019 and 2018, see Note 10"Operations by Business Segment and Geographic Area."
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.
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 effects
from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill
impairment loss, if applicable.
In our 2019 annual goodwill evaluation, we performed quantitative assessments for (1) our Subsea Projects
reporting unit, due to its fair value being less than carrying value in the prior year, and (2) our Asset Integrity
reporting unit due to deterioration in its business environment. In our quantitative analyses for the Subsea Projects
and Asset Integrity reporting units, we estimated the fair values by weighting the results from the income approach
and the market approach. These valuation approaches considered a number of factors that included, but are not
limited to, prospective financial information, operating margins, growth rates, terminal values, discount rates and
58
comparable multiples of similar companies in our industry and required us to make certain assumptions and
estimates regarding industry economic factors and future profitability of our business. Based on these quantitative
tests, we determined that the fair value for our Subsea Projects reporting unit exceeded the carrying amount and
there was no impairment. For our Asset Integrity reporting unit, the fair value was less than the carrying value and,
as a result, we recorded a pre-tax goodwill impairment loss of $15 million. 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, 2019. For the remaining reporting units, qualitative assessments were performed, and we concluded
that it was more likely than not that the fair value of each such reporting unit was more than the carrying value of
the reporting unit.
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 weighting the results from the income approach and the market
approach. These valuation approaches considered a number of factors that included, but are not limited to,
prospective financial information, operating margins, growth rates, terminal values, discount rates and comparable
multiples of similar companies in our industry and required 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 each such reporting unit was more than the carrying value of
the reporting unit.
The fair value of our reporting units in our 2017 quantitative analysis exceeded their respective carrying amounts.
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 10"Operations by Business Segment and Geographic Area."
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 as of 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, ROV's 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. We have
included Ecosses 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
In connection with the purchase of the equity interest, we advanced Dalgidj $6.4 million to pay off certain of
million.
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.
Dispositions. In September 2018, we consummated the sale of our cost method investment in ASV Global, LLC
for $15 million. 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.
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
59
(cid:11)(cid:5)(cid:36)(cid:54)(cid:38) 606"). We applied the modified retrospective method to those contracts that were not completed as of
January 1, 2018, and utilized the practical expedient to reflect the effect on contract modifications in the
aggregate. The adoption of this ASU resulted in an after-tax cumulative effect adjustment of $0.5 million recorded
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
606
Jan 1, 2018
Under ASC
606
$
476,903
$
(163,963) $
476,903
215,282
350,258
350,258
131,323
171,956
7,993
(34,187)
(63,045)
37,590
(25,455)
(202)
312,940
171,956
484,896
181,095
287,213
37,590
324,803
131,121
2,417,412
(537)
2,416,875
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. In 2019, we accounted for 21% of our revenue
using the 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 dayrate 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 have seen 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 predominantly in our Subsea
Products segment.
60
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; however, we
did not have any material adjustments during the years ended December 31, 2019 and 2018. 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.
See Note 3"Revenue" for more information on our revenue from contracts with customers.
Leases. As a lessee, we utilize the expedients to not recognize leases with an initial lease term of 12 months or
less on the balance sheet and to combine lease and non-lease components together and account for the combined
component as a lease for all asset classes, except real estate.
As a lessor, we lease certain types of equipment along with the provision of services and utilize the expedient
allowing us to combine the lease and non-lease components into a combined component that is accounted for
under ASC 842 where the lease component is predominant and under ASC 606 where the service component is
predominant.
In general, wherever we have a service component, this is typically the predominant element and
leads to accounting under ASC 606.
We determine whether a contract is or contains a lease at inception, whether as a lessee or a lessor. We take into
consideration the elements of an identified asset, right to control and the receipt of economic benefit in making
these determinations.
As a lessee, we lease land, buildings, vessels and equipment for the operation of our business and to support some
of our service line revenue streams. These generally carry lease terms that range from days for operational and
support equipment to 15 years for land and buildings. These leases are negotiated on commercial terms at market
rates and many carry standard options to extend or terminate at our discretion. When the exercise of those options
is reasonably certain, we include them in the lease assessment. Our leases do not contain material restrictions or
covenants that impact our accounting for them, nor do we provide residual value guarantees.
As a lessor, we lease certain types of equipment, often providing services at the same time. These leases can be
priced on a dayrate or lump-sum basis for periods ranging from a few days to multi-year contracts. These leases
are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our
customers sole discretion. These leases generally do not contain options to purchase, material restrictions or
covenants that impact our accounting for leases.
ROU operating lease assets and operating lease liabilities are recognized based on the present value of the future
minimum lease payments over the lease term at commencement or modification date. As most of our leases do not
provide an implicit rate, we use our incremental borrowing rate, based on the information available at
commencement or modification date in determining the present value of future payments.
incremental borrowing rate, we considered our external credit ratings, bond yields for us and our identified peers,
the risk-free rate in geographic regions where we operate and the impact associated with providing collateral over a
similar term as the lease for an amount equal to the lease payments. Our ROU operating lease assets also include
any lease prepayments made and exclude lease incentives and initial direct costs incurred. Our lease terms may
include options to extend or terminate the lease. These options are included in the lease term when it is reasonably
certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-
line basis over the lease term.
In determining the
See "Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets" above for
more information on determination of impairment indicators for our right-of-use assets.
61
See Note 4"Leases" for more information on our operating leases.
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 11"Employee Benefit Plans."
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, see Note 6"Income Taxes."
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 $6.3 million, $18 million and $5.2 million of foreign currency
transaction losses in 2019, 2018 and 2017, 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, 2019.
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.
In December 2014, our Board of Directors approved a share repurchase program under which
Repurchase Plan.
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 2.0 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.
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 or
other comprehensive income (loss), 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 9"Commitments and Contingencies" for
information relative to the interest rate swaps we have in effect.
2. ACCOUNTING STANDARDS UPDATE
Recently Adopted Accounting Standards. Effective January 1, 2019, we adopted ASU 2016-02, "Leases (Topic
842)" ("Topic 842"), which requires lessees to recognize right-of-use assets ("ROU assets") and lease liabilities for
virtually all leases and updates previous accounting standards for lessors to align certain requirements of the new
leases standard and the revenue recognition accounting standard. We elected to apply the transition method that
allowed us to apply this update as of the adoption date and adopted the package of practical expedients that
permitted us to retain the identification and classification of leases made under the previously applicable accounting
62
standards. The adoption of this ASU as of January 1, 2019 resulted in a cumulative effect adjustment of $5.9
million recorded to retained earnings, with corresponding adjustments to increase ROU assets and lease liabilities
by $185 million and $191 million, respectively. The adoption of this ASU did not materially affect our net earnings
and had no impact on cash flows. 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.
See Note 4"Leases" for more information on our operating leases.
In February 2018, the Financial Accounting Standards Board (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 were effective for us beginning January 1, 2019. This ASU has not had 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 nonemployees. The amendments in this ASU
became effective for us beginning January 1, 2019. This ASU has not had a material effect on our consolidated
financial statements.
In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging (Topic 815): Targeted improvements
to Accounting for Hedging Activities," which simplified the application of hedge accounting guidance in current U.S.
GAAP and improved the reporting of hedging relationships to better portray the economic results of our risk
management activities in our consolidated financial statements. Our adoption of this ASU on January 1, 2019 did
not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards. In June 2016, the FASB issued ASU No. 2016-13, "Financial
InstrumentsCredit Losses: Measurement of Credit Losses on Financial Instruments," as modified by
subsequently issued ASU 2018-19, ASU 2019-04 and ASU 2019-05. The guidance introduces a new credit
reserving model known as the Current Expected Credit Loss ("CECL") model, which is based on expected losses,
and differs significantly from the incurred loss approach used today. The CECL model requires estimating all
expected credit losses for certain types of financial instruments, including trade receivables and contract assets,
held at the reporting date based on historical experience, current conditions and reasonable and supportable
forecasts. These ASUs affect an entity to varying degrees depending on the credit quality for the assets held by the
entity, their duration and how the entity applies current U.S. GAAP. These ASUs became effective for us beginning
January 1, 2020. We formed a project team to ensure that we met the implementation requirements. We pooled
our customers by their associated risk factors and evaluated our historical experience associated with credit losses.
We have evaluated the impact and do not expect this guidance to have a material impact on our consolidated
financial statements.
63
3. 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
Year Ended December 31,
2019
2018
2017
$
449,830 $
394,801
$
393,655
602,249
327,556
242,954
515,000
329,163
253,886
625,513
291,993
236,778
Total Energy Services and Products
1,622,589
1,492,850
1,547,939
Advanced Technologies
Total
(in thousands)
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
425,535
416,632
373,568
$ 2,048,124
$ 1,909,482
$ 1,921,507
Year Ended December 31,
2019
2018
2017
$
292,818
$
239,959
$
256,198
256,348
217,762
174,769
93,511
91,591
1,126,799
921,325
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
$ 2,048,124
$ 1,909,482
$ 1,921,507
Dec 31, 2019 Dec 31, 2018
$ 1,900,729 $ 1,762,103
147,395
147,379
$ 2,048,124 $ 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, while other milestones are achieved after revenue is recognized resulting in a contract asset.
64
The following table provides information about contract assets, and contract liabilities from contracts with
customers.
(in thousands)
Contract assets
Contract liabilities
Dec 31, 2019 Dec 31, 2018
$
221,288
$
256,201
117,342
85,172
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, 2019, contract assets decreased by $35 million from its opening balance, due
to the amounts billed of $2.1 billion exceeding revenue recognition of $2.0 billion. Contract liabilities increased $32
million from its opening balance, due to deferrals of milestone payments and billings totaling $64 million less
revenue recognition of $32 million.
Performance Obligations
The aggregate amount of transaction price allocated to remaining performance obligations that were unsatisfied (or
partially unsatisfied) as of December 31, 2019 are noted above.
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.
In arriving at this value, we have used two
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 performance obligations balance reported as of December 31,
2019. We also have shorter-term product contracts with an expected original duration of one year or less that have
been excluded.
As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance
obligations was $382 million. 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. Of this amount,
we expect to recognize revenue of $296 million over the next 12 months and substantially all of the remaining
balance of $86 million will be recognized within the next 24 months.
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 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 years ended
December 31, 2019 and 2018 that was associated with performance obligations completed or partially completed in
prior periods was not significant.
As of December 31, 2019, there were no significant outstanding liability balances 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 product or service, customer and regional geography involved.
65
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 and proposal costs, which are incremental to our
fixed costs. There were no balances or amortization of costs to obtain a contract in the current reporting periods.
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 was $15 million and $13 million as of December 31, 2019 and 2018,
respectively. For the years ended December 31, 2019 and 2018, we recorded amortization expense of $8.5 million
and $6.5 million, respectively. No impairment costs were recognized.
4. Leases
We adopted the new lease standard, Topic 842, on January 1, 2019. Prior period amounts have not been
adjusted and continue to be reported under the historical lease standard, "Leases (Topic 840)" ("Topic 840"). See
Note 2"Accounting Standards Update" for more information on our adoption of this standard.
Supplemental information about our operating leases follows:
(in thousands)
Assets:
Right-of-use operating lease assets
Liabilities:
Current operating
Noncurrent operating
Lease liabilities
Lease Term and Discount Rate:
Weighted-average remaining lease term (years)
Weighted-average discount rate
$
$
$
Dec 31, 2019
Jan 1, 2019
163,238
$
184,648
19,863
$
160,988
180,851
$
20,318
170,190
190,508
Dec 31, 2019
Jan 1, 2019
10.0
6.2%
11.0
7.1%
In the year ended December 31, 2019, we determined there were impairment indicators present for our Asset
Integrity reporting unit and, as a result, we recorded a pre-tax right-of-use operating lease asset impairment of $5.4
million. The right-of-use operating lease impairment was included as a component of "Income (loss) from
operations" in our Consolidated Statement of Operations for the year ended December 31, 2019.
Operating lease cost reflects the lease expense resulting from amortization over the respective lease terms of our
operating leases with initial lease terms greater than 12 months. Our short-term lease cost consists of expense for
our operating leases with initial lease terms of 12 months or less that are not recorded on our balance sheet. The
components of lease cost are as follows:
(in thousands)
Lease Cost:
Operating lease cost
Short-term lease cost
Total Lease Cost
66
Year ended
Dec 31, 2019
$
$
40,310
73,005
113,315
As of December 31, 2019, under Topic 842, future maturities of lease liabilities for our operating leases with an
initial lease term of more than 12 months were as follows:
Maturities of Lease Liabilities
(in thousands)
For the year ended December 31,
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Interest
Present Value of Lease Liabilities
$
$
30,573
28,793
25,885
21,764
19,207
125,190
251,412
(70,561)
180,851
67
December 31,
2019
2018
$ 76,120
$ 108,939
98,624
85,568
$ 174,744
$ 194,507
$ 43,210
$ 60,858
10,179
10,179
$ 53,389
$ 71,037
$ 25,774
$ 79,995
50,097
37,896
37,611
51,131
39,333
31,859
$ 151,378
$ 202,318
$ 137,001
$ 114,676
54,387
36,996
19,863
89,434
62,281
34,954
95,022
$ 337,681
$ 306,933
$
1,126
$ 18,243
46,244
10,381
20,949
519
27,575
42,992
8,076
17,903
7,813
33,352
$ 106,794
$ 128,379
5. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
(in thousands)
Inventory, net:
Remotely operated vehicle parts and components
Other inventory, primarily raw materials
Total
Other current assets:
Prepaid expenses
Angolan bonds
Total
Other noncurrent assets:
Intangible assets, net
Cash surrender value of life insurance policies
Investment in unconsolidated affiliates
Other
Total
Accrued liabilities:
Payroll and related costs
Accrued job costs
Income taxes payable
Current operating lease liability
Other
Total
Other long-term liabilities:
Deferred income taxes
Supplemental Executive Retirement Plan
Long-Term Incentive Plan
Uncertain tax positions
Tax Act transition tax due after one year
Other
Total
68
6.
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 made 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.
In 2018, based on regulations issued by the U.S. Department of the Treasury and additional accounting analysis,
we completed our accounting on the effect of the Tax Act and reflected the effects in our financial statements to
include the tax impact of $8.8 million related to the one-time mandatory transition tax.
additional available business credits, which are reflected in our 2018 income tax return as filed, thereby reducing
the effects of the Tax Act in our financial statements by $8.2 million, for a total liability of $0.6 million. 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. The transition tax and resulting quasi-territorial type tax regime impacts the utilization of
our remaining foreign tax credits, resulting in a valuation allowance of $27 million against such deferred tax assets.
In 2019, we identified
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, net
Year Ended December 31,
2018
2017
2019
$
(7,571) $
(1,564) $
13,390
37,462
29,891
16,146
14,582
37,381
50,771
(10,860)
(22,905)
(213,200)
(1,408)
(12,268)
34,817
11,912
(21,813)
(235,013)
$
$
17,623
29,806
$
$
26,494
$ (184,242)
29,737
$
43,347
The components of income (loss) before income taxes are as follows:
(in thousands)
Domestic
Foreign
Income (loss) before income taxes
Year Ended December 31,
2018
2019
$ (271,515) $ (132,138) $
2017
(93,053)
(59,306)
(53,695)
75,209
$ (330,821) $ (185,833) $
(17,844)
69
As of December 31, 2019 and 2018, our worldwide deferred tax assets, liabilities and net deferred tax liabilities
were as follows:
(in thousands)
Deferred tax assets:
Deferred compensation
Deferred income
Accrued expenses
Net operating loss and other carryforwards
Long-term operating lease liabilities
Other
Gross deferred tax assets
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Basis difference in equity investments
Right-of-use operating lease assets
Other
Total deferred tax liabilities
Net deferred income tax liability
Our net deferred tax liability is reflected within our balance sheet as follows:
(in thousands)
Deferred tax liabilities
Net deferred income tax liability
December 31,
2019
2018
$
15,227
$
13,684
4,835
45,740
2,381
13,683
199,410
189,644
50,256
16,569
4,601
332,037
223,993
(277,258)
(203,040)
$
$
$
$
$
$
54,779
6,237
2,156
43,734
3,778
55,905
1,126
$
$
$
$
20,953
36,850
2,346
39,196
18,243
December 31,
2019
2018
1,126
1,126
$
$
18,243
18,243
As of December 31, 2019, we had approximately $199 million of net operating and other loss carryforwards that
were generated in various worldwide jurisdictions. The carryforwards include $148 million that do not expire and
$51 million that will expire from 2021 through 2039. We have recorded a total valuation allowance of $277 million
on 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.
The following is a reconciliation of the beginning and ending amounts of our valuation allowances:
(in thousands)
Balance at beginning of year
Increase due principally to net operating losses
Increase due to foreign tax and business credit
carryforwards
Reduction due to utilization of
generated in prior years
foreign tax credits
Balance at end of year
Year Ended December 31,
2019
2018
2017
$ (203,040) $ (206,586) $
(4,200)
(59,596)
(38,415)
(146,360)
(14,622)
(14,065)
(56,026)
56,026
$ (277,258) $ (203,040) $ (206,586)
The utilization of the foreign tax credits generated in prior years was a result of the mandatory repatriation
requirements of the Tax Act.
70
Following is a reconciliation of income tax expense (benefit) computed by applying the U.S. statutory rate of 21%
for 2019 and 2018 and 35% for 2017 to income (loss) before income taxes and our reported provision (benefit) for
income taxes:
(in thousands)
Year Ended December 31,
2019
2018
2017
Income tax provision (benefit) at the U.S. statutory rate
$ (69,472) $
(39,025) $
(6,245)
Tax Act - earnings subject to tax-free repatriation
(222,019)
Tax Act - net mandatory repatriation tax
(8,220)
8,790
Tax Act - remeasure of net U.S. deferred tax liabilities
Valuation allowances
Foreign tax rate differential
Stock compensation
Uncertain tax positions
Other items, net
74,553
18,439
989
3,046
(1,712)
(23,124)
38,415
475
2,135
12,644
3,060
89,217
(21,163)
3,112
(836)
(3,184)
Total provision (benefit) for income taxes
$
17,623
$
26,494
$ (184,242)
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.
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,
2018
2019
2017
$
14,971
$
5,339
$
6,330
3,662
(2,835)
2,060
(563)
(384)
445
(260)
10,540
(1,093)
1,213
(650)
314
(962)
(906)
$
16,911
$
14,971
$
5,339
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 $1.4 million and $1.7
million in 2019 and 2018, respectively, for penalties and interest on uncertain tax positions, which brought our total
liabilities for penalties and interest on uncertain tax positions to $5.7 million and $4.3 million on our balance sheets
as of December 31, 2019 and 2018, respectively. All additions or reductions to those liabilities would affect our
effective income tax rate in the periods of change.
We believe approximately $0.9 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 $21 million and
$18 million in the caption "other long-term liabilities" on our balance sheet as of December 31, 2019 and 2018,
respectively, for uncertain tax positions.
We consider the earnings of our foreign subsidiaries to be indefinitely reinvested. As of December 31, 2019, 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 in 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
71
deferred taxes that could have a material effect on our Consolidated Balance Sheets, Consolidated Statements of
Operations or Consolidated Statements of Cash Flows.
Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to
complete and settle. The following table 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
2017
2014
2013
2015
2014
7. 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
Year Ended December 31,
2018
2017
2019
$ 1,333,787 $ 1,245,927 $ 1,181,229
714,337
663,555
740,278
2,048,124
1,909,482
1,921,507
1,242,006
1,135,084
1,040,817
619,490
88,384
578,212
66,960
625,843
60,237
1,949,880
1,780,256
1,726,897
91,781
94,847
110,843
85,343
140,412
114,435
(88,384)
(66,960)
(60,237)
$
98,244
$ 129,226
$ 194,610
8. DEBT
Long-term debt consisted of the following:
(in thousands)
4.650% Senior Notes due 2024
6.000% Senior Notes due 2028
Fair value of interest rate swaps on $200 million of principal
Unamortized debt issuance costs
Long-term Debt
December 31,
2019
$ 500,000
2018
$ 500,000
300,000
300,000
3,235
(6,719)
(5,600)
(7,820)
$ 796,516
$ 786,580
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
72
of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. We used the net proceeds
from the 2028 Senior Notes to repay our term loan indebtedness described further below.
We may redeem some or all of the 2024 Senior Notes and the 2028 Senior Notes (collectively, the "Senior Notes")
at specified redemption prices.
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. As of December 31, 2019, we had no
borrowings outstanding under the Revolving Credit Facility.
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, 2019, 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 9"Commitments and Contingencies" for more information on our 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 $3 million of new loan costs, including costs of the amendments prior to Amendment No. 4,
related to the Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-
term debt in our Consolidated Balance Sheets, as they pertain to the Senior Notes, and in other noncurrent assets,
as they pertain to the Credit Agreement. We are amortizing these costs to interest expense through the maturity
dates for the Senior Notes and to January 2023 for the Credit Agreement using the straight-line method, which
approximates the effective interest rate method.
We made cash interest payments of $46 million, $37 million and $32 million in 2019, 2018 and 2017, respectively.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of December 31, 2019, we occupied several facilities under noncancellable operating leases expiring at various
dates through 2033. See Note 4"Leases" for more information on our operating leases.
73
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 $49 million and $55 million in letters of credit outstanding as of December 31, 2019 and 2018, respectively,
which related to self-insurance requirements and various bid and performance bonds, which are usually for the
duration of the applicable contract.
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 $787 million as of December 31, 2019
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 asset of $3.2 million as of
December 31, 2019, which is included on our balance sheet in other long-term assets, and a net liability of
$5.6 million as of December 31, 2018, which is included in our balance sheet in other long-term liabilities. These
values can be corroborated by unobservable market data, classified as Level 2 inputs.
74
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 $4.8
million, $19 million and $0.1 million in 2019, 2018 and 2017, as a component of other income (expense), net in our
Consolidated Statements of Operations for those respective periods. Our foreign currency transaction losses
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. As of
December 31, 2019 and 2018, we had the equivalent of approximately $6.2 million and $9.3 million of kwanza cash
balances, respectively, in Angola reflected on our Consolidated Balance Sheets.
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. During 2018, we received a total of $70 million in
proceeds from maturities and redemptions of Angolan bonds and reinvested $10 million of the proceeds in similar
assets. As of December 31, 2019 and 2018, we had $10 million of Angolan bonds on our Consolidated Balance
Sheets. Because we intend to sell the bonds if we are able to repatriate the proceeds, we have classified these
bonds as available-for-sale securities, and they are recorded in other current assets on our Consolidated Balance
Sheets.
We estimated the fair market value of the Angolan bonds to be $10 million as of December 31, 2019 and 2018
using quoted market 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.
10. 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 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 shallow and deepwater vessels and offshore diving and support vessel operations, primarily for inspection,
maintenance and repair and installation activities. We also provide survey, autonomous underwater vehicle and
satellite-positioning services. For the renewable energy markets, we provide seabed preparation, route clearance
and trenching services for submarine cables. 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, 2019 from those used in our consolidated financial statements for the years ended
December 31, 2018 and 2017.
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
Year Ended December 31,
2018
2017
2019
$ 449,830
$ 394,801
$ 393,655
602,249
327,556
242,954
515,000
329,163
253,886
625,513
291,993
236,778
1,622,589
1,492,850
1,547,939
425,535
416,632
373,568
$ 2,048,124 $ 1,909,482 $ 1,921,507
Remotely Operated Vehicles
$
1,591
$
1,641
$
22,366
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
9,831
5,614
(145,712)
(86,008)
(53,387)
8,660
(187,677)
(70,093)
25,068
33,920
45,539
10,279
11,231
89,415
22,039
(128,104)
(109,309)
(100,798)
$ (290,713) $ (145,482) $
10,656
$ 113,671
$ 111,311
$ 113,979
68,404
38,103
35,367
53,085
114,481
6,904
52,561
31,869
7,715
255,545
285,781
206,124
3,122
4,760
3,081
4,728
3,171
4,224
$ 263,427
$ 293,590
$ 213,519
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.
Revenue
Revenue from one customer, BP plc and subsidiaries, accounted for 10% in 2019 and 12% in 2017 of our total
consolidated annual revenue. Revenue from Royal Dutch Shell, accounted for 10% of our 2018 total consolidated
annual revenue.
Income (Loss) from Operations
During 2019, we recorded total adjustments of $252 million for:
loss on impairment of $143 million in our Subsea Projects segment for deepwater and shallow water
vessels and Ecosse long-lived assets;
write-downs and write-offs of certain equipment and intangible assets as discussed below in "Depreciation
and Amortization Expense" of $45 million;
inventory write-downs of $21 million;
impairment of long-lived assets of $17 million in our Asset Integrity segment;
76
pre-tax goodwill impairment of $15 million in our Asset Integrity segment; and
other expenses of $12 million.
These total adjustments of $252 million, attributable to each of our reporting segments, are summarized as follows:
Remotely Operated Vehicles - $23 million;
Subsea Products - $25 million;
Subsea Projects - $153 million;
Asset Integrity - $49 million; and
Advanced Technologies - $1.6 million.
Depreciation and Amortization Expense
Depreciation expense on property and equipment, reflected in the Depreciation and Amortization Expense table
above, was $212 million, $200 million and $204 million in 2019, 2018 and 2017, respectively.
Amortization expense on long-lived intangible assets, reflected in the Depreciation and Amortization Expense table
above, was $36 million, $18 million and $10 million in 2019, 2018 and 2017, respectively.
Goodwill impairment expense, reflected in the Depreciation and Amortization Expense table above, was $15 million
in our Asset integrity segment and $76 million in our Subsea Projects segment in 2019 and 2018, respectively.
We also recorded the write-downs and write-offs of certain equipment and intangible assets of $45 million, which is
included in our 2019 depreciation expense of $212 million, attributable to each reporting segment as follows:
Remotely Operated Vehicles - $5.7 million;
Subsea Products - $19 million;
Subsea Projects - $6.1 million; and
Asset Integrity - $14 million.
We also recorded the write-offs of certain equipment associated with exiting the land survey business of $4.2
million, which is included in our 2018 depreciation expense of $200 million, and intangible asset write-offs of $3.4
million, which is included in our 2018 amortization expense of $18 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.
77
The following table presents Assets, Property and Equipment, net and Goodwill by business segment:
(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,
2019
2018
$ 555,053
$ 612,983
812,176
445,904
208,756
723,774
611,476
241,693
2,021,889
2,189,926
229,817
488,957
168,302
466,770
$ 2,740,663 $ 2,824,998
$ 305,159
$ 353,139
304,589
134,307
10,201
754,256
11,443
10,833
295,297
274,518
20,556
943,510
11,229
9,931
$ 776,532
$ 964,670
$
24,423
$
24,396
99,409
131,768
127,637
383,237
21,842
99,744
123,624
143,515
391,279
21,842
$ 405,079
$ 413,121
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.
The following table presents Capital Expenditures, including business acquisitions, by business segment:
(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
Year Ended December 31,
2018
2017
2019
$
67,730
$
45,732
$
40,425
48,334
19,489
4,548
25,149
99,701
2,874
27,711
29,544
3,651
140,101
173,456
101,331
3,256
4,327
3,550
1,033
2,063
1,564
$ 147,684
$ 178,038
$ 104,958
78
Geographic Operating Areas
Revenue is based on location where services are performed and products are manufactured as summarized in the
following table:
(in thousands)
Revenue
Foreign:
Africa
United Kingdom
Norway
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
Year Ended December 31,
2018
2017
2019
$ 292,818
$ 239,959
$ 256,198
256,348
217,762
174,769
93,511
91,591
1,126,799
921,325
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
$ 2,048,124 $ 1,909,482 $ 1,921,507
On January 1, 2019 we adopted the lease standard, Topic 842, which requires lessees to recognize right-of-use
assets. For 2019, $163 million of right-of-use operating lease assets are included in the following table which
summarizes Property and Equipment, Net and Right-of-Use Operating Lease Assets by geographic area:
(in thousands)
Property and Equipment, Net and Right-of-Use Operating Lease
Assets
Foreign:
Norway
Africa
United Kingdom
Asia and Australia
Brazil
Other
Total Foreign
United States
Total
11. EMPLOYEE BENEFIT PLANS
Retirement Investment Plans
December 31,
2019
2018
$
90,956
$
124,400
100,807
54,915
86,254
18,646
475,978
463,792
$
939,770
$
58,042
117,877
106,330
48,837
51,282
21,374
403,742
560,928
964,670
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 $19 million,
$18 million and $17 million for the plan years ended December 31, 2019, 2018 and 2017, respectively.
We also make matching contributions to foreign employee savings plans similar in nature to a 401(k) plan. In 2019,
2018 and 2017, these contributions, principally related to plans associated with U.K. and Norwegian subsidiaries,
were $12 million, $11 million and $9.1 million, respectively.
79
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 2019, 2018 and 2017 were $3.0
million, $2.8 million and $3.2 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 as of December 31, 2019 or 2018.
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 2019, 2018 and 2017, 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, 2021, 2020 and 2019 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 2019, 2018 and 2017. Upon vesting and determination of value, the value of the performance units will
be payable in cash. Compensation expense related to the performance units was $9.7 million, $3.9 million and
$4.2 million in 2019, 2018 and 2017, respectively. As of December 31, 2019, there were 319,263 performance units
outstanding.
During 2019, 2018 and 2017, the Compensation Committee granted restricted units of our common stock to certain
of our key executives and employees. During 2019, 2018 and 2017, our Board of Directors granted restricted
common stock to our nonemployee directors. Over 80%, 85%, and 80% of the grants made to our employees in
2019, 2018 and 2017, 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.
The Compensation Committee has 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.
80
The additional tax charge realized from tax deductions less than the financial statement expense of our restricted
stock grants was $1.0 million, $2.1 million and $3.1 million in 2019, 2018 and 2017, respectively. The 2019, 2018
and 2017 charges were recognized in our Consolidated Statements of Operations.
The following is a summary of our restricted stock and restricted stock unit activity for 2019, 2018 and 2017:
Balance as of December 31, 2016
Granted
Issued
Forfeited
Balance as of December 31, 2017
Granted
Issued
Forfeited
Balance as of December 31, 2018
Granted
Issued
Forfeited
Balance as of December 31, 2019
Number
1,052,007
489,514
(277,968)
(81,748)
1,181,805
653,286
(320,147)
(71,047)
1,443,897
957,734
(495,527)
(164,769)
1,741,335
Weighted
Average
Fair Value
Aggregate
Intrinsic Value
43.48
26.70
61.90
$
7,038,000
34.15
32.84
18.05
47.62
$
5,993,000
24.87
23.27
18.12
48.65
22.86
22.62
$
8,154,000
The restricted stock units granted in 2019, 2018 and 2017 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 2019, 2018 and 2017 were subject only to vesting conditioned on continued 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, $10 million and $11 million for 2019, 2018
and 2017, respectively. As of December 31, 2019, we had $11 million of future expense to be recognized related to
our restricted stock unit plans over a weighted average remaining life of 1.7 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 $2.5 million and $3.2 million as
of December 31, 2019 and 2018, 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
81
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).
82
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
Quarter Ended
Revenue
Gross margin
Income (loss) from operations
Net income (loss)
Diluted earnings (loss) per share
Weighted average number of diluted
shares outstanding
Quarter Ended
Revenue
Gross margin
Income (loss) from operations
Net income (loss)
Diluted earnings (loss) per share
Weighted average number of diluted
shares outstanding
March 31
June 30
2019
Sept. 30
Dec. 31
Total
$
493,886
$
495,781
$
497,647 $
560,810
$
2,048,124
27,587
(21,714)
(24,827)
41,983
(9,635)
(35,182)
49,061
(5,194)
(25,523)
(20,387)
(254,170)
(262,912)
98,244
(290,713)
(348,444)
$
(0.25) $
(0.36) $
(0.26) $
(2.66) $
(3.52)
98,714
98,929
98,930
98,930
98,876
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
(1,552)
(65,979)
33,035
(97,144)
(64,139)
129,226
(145,482)
(212,327)
$
(0.50) $
(0.34) $
(0.67) $
(0.65) $
(2.16)
98,383
98,531
98,533
98,534
98,496
83
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Environmental,
Social and
Governance
•
•
•
•
•
Our engineering services support a diverse range of
applications, including installation and maintenance
of renewable offshore wind, tidal, and wave power
projects.
Our ISO 14001 certifications at key facilities around
the world demonstrate that our environmental
management system meets international and
industry-specific environmental standards.
Our research and development focus is introducing
technologies that improve work activities and
efficiency while reducing environmental impact.
Our objective is to engineer the low-carbon future of
the offshore energy industry by developing advanced
remote operations resulting in reduced carbon
emissions and impact to the ocean environment.
Our effort to reduce the environmental impact of
our operations means collaborating with industry
organizations, including the Petroleum Equipment &
Services Association and Ocean Exchange, to lend aid
and resources, increase public awareness, and assist
with educational, research and leadership programs.
• We are committed, where possible, to supporting
the United Nations Sustainable Development Goals,
particularly in the environments in which we work
and in the fields of gender equality, human rights and
quality education.
•
Our Employee Resource Groups, such as the
Oceaneering Women’s Network, share networking
opportunities and career enrichment events for all
employees, sponsoring more than ten professional
development events annually.
• We offer our employees two days annually of paid
volunteer time to ensure that we build strong
communities where we live and work.
• We are committed to building a strong and diverse
workforce at all levels.
•
Our Board of Directors and Senior Management are
committed to responsible business practices through
our Core Values and Code of Business Conduct and
Ethics.
As of 2019, OCEANEERING INTERNATIONAL, INC.
received an MSCI ESG Rating of A.
Financial Highlights
Days on Hire
Fleet Utilization Rate
ROV Days on Hire
75%
60%
45%
30%
15%
0%
75,000
60,000
45,000
30,000
15,000
0
2016
2017
2018
2019
Days on Hire
Utilization Rate
Subsea Products Backlog
$ in Millions
$750
$600
$450
$300
$150
$0
2016
2017
2018
2019
Advanced Technologies Revenue
$ in Millions
$500
$400
$300
$200
$100
$0
2016
2017
2018
2019
Commercial
Government
2019 Annual Report
Directors
John R. Huff
Chairman
Senior Management
Roderick A. Larson
President and Chief Executive Officer
William B. Berry
Chief Executive Officer and Director of Continental
Resources, Inc. and Director of Frank’s International N.V.
Charles W. Davison, Jr.
Chief Operating Officer
T. Jay Collins
Director of Murphy Oil Corporation and Pason Systems Inc.
Deanna L. Goodwin
Director of Arcadis NV and Kosmos Energy Ltd.
Earl F. Childress
Senior Vice President, Business Development
Alan R. Curtis
Senior Vice President and Chief Financial Officer
Roderick A. Larson
Director of Newpark Resources, Inc.
M. Kevin McEvoy
Director of EMCOR Group, Inc.
Paul B. Murphy, Jr.
Chief Executive Officer and Chairman of Cadence
Bancorporation; Chief Executive Officer of Cadence
Bancorp LLC; and Director of Hines Real Estate
Investment Trust, Inc. and GP Natural Resource
Partners LLC
Jon Erik Reinhardsen
Chairman of Equinor ASA and Director of Telenor ASA
Steven A. Webster
Managing Partner of AEC Partners L.P.; Trust Manager of
Camden Property Trust; and Director of Era Group, Inc.
and Callon Petroleum Company
Holly D. Kriendler
Senior Vice President and Chief Human Resources Officer
David K. Lawrence
Senior Vice President, General Counsel and Secretary
Eric A. Silva
Senior Vice President, Operations Support
Philip G. Beierl
Senior Vice President, Advanced Technologies
Benjamin M. Laura
Senior Vice President, Service and Rental
Witland J. LeBlanc, Jr.
Vice President and Chief Accounting Officer
Martin J. McDonald
Senior Vice President, Remotely Operated Vehicles
Marvin J. Migura
Senior Vice President
Shaun R. Roedel
Senior Vice President, Manufactured Products
Kishore Sundararajan
Senior Vice President, Asset Integrity
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: scheduled
first commercial application of our FreedomTM ROV; macro
industry projections for 2020 offshore activity underpinning
expectations for our 2020 financial results; the likely impact
of stock market volatility to our operations, and managing
our businesses to minimize negative impacts; sustaining
positive free cash flow in 2020; expecting our financial position
to be sufficient to meet 2020 financial obligations and having
the flexibility to act on market opportunities; providing
specifics, in the second quarter 2020, toward strategies and
actions to better position our businesses for profitability;
and the work ahead to adapt and evolve our businesses for
success. 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. The factors that
could cause actual results to differ materially include, among
others: 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; actions by OPEC; fluctuations in currency markets
worldwide; future global economic conditions; the loss of
major contracts or alliances; future performance under our
customer contracts; the effects of competition; and public
health threats that could limit access to customers', vendors'
or our facilities or offices, impose travel restrictions on our
personnel, or otherwise adversely affect our operations or
demand for our services. 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, 2019 and other periodic filings with the Securities and
Exchange Commission.
Form 10-K
Corporate Office
Oceaneering International, Inc.
11911 FM 529
Houston, TX 77041-3000
Telephone: 713.329.4500
www.oceaneering.com
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
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, 2019, 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
2019 Annual Report
Oceaneering International, Inc.
11911 FM 529 I Houston, Texas I 77041-3000
713.329.4500 | oceaneering.com