Company Quick10K Filing
Oceaneering
Price13.92 EPS-1
Shares99 P/E-16
MCap1,377 P/FCF12
Net Debt460 EBIT-33
TEV1,837 TEV/EBIT-56
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-04
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-07-27
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-19
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-29
10-K 2014-12-31 Filed 2015-02-19
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-04-30
10-K 2013-12-31 Filed 2014-02-20
10-Q 2013-09-30 Filed 2013-10-31
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-02-22
10-Q 2012-09-30 Filed 2012-11-01
10-Q 2012-06-30 Filed 2012-08-01
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-03
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-05
10-K 2009-12-31 Filed 2010-02-24
8-K 2020-05-13 Earnings, Exhibits
8-K 2020-05-08 Shareholder Vote
8-K 2020-04-28 Officers
8-K 2020-04-24 Other Events
8-K 2020-03-31 Other Events, Exhibits
8-K 2020-03-25 Amend Bylaw, Exhibits
8-K 2020-03-02 Regulation FD
8-K 2020-02-27 Officers, Exhibits
8-K 2020-02-24 Earnings, Exhibits
8-K 2020-01-17 Officers, Exhibits
8-K 2019-11-19 Regulation FD
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-08-13 Regulation FD
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-05-13 Regulation FD
8-K 2019-05-08 Officers, Shareholder Vote, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-03-19 Regulation FD
8-K 2019-02-28 Officers, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2019-01-07 Regulation FD
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-08-27 Regulation FD
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-16 Regulation FD
8-K 2018-05-04 Shareholder Vote
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-03-26 Regulation FD
8-K 2018-03-01 Officers, Exhibits
8-K 2018-02-22 Earnings, Exhibits
8-K 2018-02-21 Officers, Exhibits
8-K 2018-02-16 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-01 Enter Agreement, Off-BS Arrangement, Exhibits

OII 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.01 oiiexhibit310103302020.htm
EX-31.02 oiiexhibit310203302020.htm
EX-32.01 oiiexhibit320103302020.htm
EX-32.02 oiiexhibit320203302020.htm

Oceaneering Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
3.62.92.21.40.70.02012201420172020
Assets, Equity
1.00.80.60.30.1-0.12012201420172020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2020
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)
oceaneeringlogo1q2020a05.jpg
Delaware
95-2628227
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
11911 FM 529
 
Houston,
Texas
77041
(Address of principal executive offices)
(Zip Code)
(713329-4500
(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
Trading Symbol(s)
Name of exchange on which registered
Common stock, par value $0.25 per share
OII
New York Stock Exchange
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.   þ Yes   ¨  No
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ  Yes   ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
Non-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   þ No
Number of shares of Common Stock outstanding as of May 8, 2020: 99,267,911 



Oceaneering International, Inc.
Form 10-Q
Table of Contents
 


1


PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements

OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
Mar 31, 2020
 
Dec 31, 2019
(in thousands, except share data)
 
 
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
307,460

 
$
373,655

Accounts receivable, net
 
372,966

 
421,360

Contract assets, net
 
237,107

 
221,288

Inventory, net
 
166,360

 
174,744

Other current assets
 
68,013

 
53,389

Total Current Assets
 
1,151,906

 
1,244,436

Property and equipment, at cost
 
2,450,116

 
2,622,185

Less accumulated depreciation
 
1,778,288

 
1,845,653

Net property and equipment
 
671,828

 
776,532

Other Assets:
 
 
 
 
Goodwill
 
73,987

 
405,079

Other noncurrent assets
 
132,263

 
151,378

Right-of-use operating lease assets
 
135,113

 
163,238

Total other assets
 
341,363

 
719,695

Total Assets
 
$
2,165,097

 
$
2,740,663

LIABILITIES AND EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
124,898

 
$
145,933

Accrued liabilities
 
298,906

 
337,681

Contract liabilities
 
61,929

 
117,342

Total current liabilities
 
485,733

 
600,956

Long-term debt
 
806,396

 
796,516

Long-term operating lease liabilities
 
150,839

 
160,988

Other long-term liabilities
 
85,470

 
106,794

Commitments and contingencies
 


 


Equity:
 
 
 
 
Common stock, par value $0.25 per share; 360,000,000 shares authorized; 110,834,088 shares issued
 
27,709

 
27,709

Additional paid-in capital
 
189,322

 
207,130

Treasury stock; 11,567,024 and 11,903,252 shares, at cost
 
(662,386
)
 
(681,640
)
Retained earnings
 
1,480,373

 
1,850,244

Accumulated other comprehensive loss
 
(404,422
)
 
(334,097
)
Oceaneering shareholders' equity
 
630,596

 
1,069,346

       Noncontrolling interest
 
6,063

 
6,063

               Total equity
 
636,659

 
1,075,409

Total Liabilities and Equity
 
$
2,165,097

 
$
2,740,663


The accompanying Notes are an integral part of these Consolidated Financial Statements.


2


OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
 
Three Months Ended March 31,
 
(in thousands, except per share data)
 
2020
 
2019
 
Revenue
 
$
536,668

 
$
493,886

 
Cost of services and products
 
489,916

 
466,299

 
 
Gross margin
 
46,752

 
27,587

 
Selling, general and administrative expense
 
55,741

 
49,301

 
Long-lived assets impairments
 
68,763

 

 
Goodwill impairment
 
303,005

 

 
 
Income (loss) from operations
 
(380,757
)
 
(21,714
)
 
Interest income
 
1,277

 
2,604

 
Interest expense, net of amounts capitalized
 
(12,462
)
 
(9,424
)
 
Equity in income (losses) of unconsolidated affiliates
 
1,197

 
(164
)
 
Other income (expense), net
 
(7,128
)
 
719

 
 
Income (loss) before income taxes
 
(397,873
)
 
(27,979
)
 
Provision (benefit) for income taxes
 
(30,275
)
 
(3,152
)
 
 
Net Income (Loss)
 
$
(367,598
)
 
$
(24,827
)
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
 
 
    Basic
 
99,055

 
98,714

 
    Diluted
 
99,055

 
98,714

 
Earnings (loss) per share
 
 
 
 
 
    Basic
 
$
(3.71
)
 
$
(0.25
)
 
    Diluted
 
$
(3.71
)
 
$
(0.25
)
 

The accompanying Notes are an integral part of these Consolidated Financial Statements.


3



OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)

 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
(in thousands)
 
2020
 
2019
 
Net income (loss)
 
$
(367,598
)
 
$
(24,827
)
 
Other Comprehensive Income (Loss):
 
 
 
 
 
 
Foreign currency translation adjustments
 
(70,325
)
 
6,246

 
Total other comprehensive income (loss)
 
(70,325
)
 
6,246

 
 
Comprehensive income (loss)
 
$
(437,923
)
 
$
(18,581
)
 

The accompanying Notes are an integral part of these Consolidated Financial Statements.


4


OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
 
Three Months Ended March 31,
(in thousands)
 
2020
 
2019
Cash Flows from Operating Activities:
 
 
 
 
Net income (loss)
 
$
(367,598
)
 
$
(24,827
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization, including goodwill impairment
 
356,196

 
52,486

Loss on impairment of long-lived assets
 
68,763

 

Deferred income tax provision (benefit)
 
(8,405
)
 
(2,907
)
Inventory write-downs
 

 

Net loss (gain) on sales of property and equipment and cost method investment
 
16

 
(11
)
Noncash compensation
 
3,116

 
2,980

Noncash impact of lease accounting
 
647

 

Excluding the effects of acquisitions, increase (decrease) in cash from:
 
 
 
 
Accounts receivable and contract assets
 
30,303

 
22,181

Inventory
 
8,384

 
(15,026
)
Proceeds from interest rate swaps
 
12,840

 

Other operating assets
 
(11,504
)
 
1,010

Currency translation effect on working capital, excluding cash
 
(9,302
)
 
371

Current liabilities
 
(102,784
)
 
(15,058
)
Other operating liabilities
 
(12,822
)
 
(2,075
)
Total adjustments to net income (loss)
 
335,448

 
43,951

Net Cash Provided by (Used in) Operating Activities
 
(32,150
)
 
19,124

Cash Flows from Investing Activities:
 
 
 
 
Purchases of property and equipment
 
(27,229
)
 
(29,964
)
Distributions of capital from unconsolidated affiliates
 
405

 

Proceeds from sale of property and equipment
 
118

 
50

Net Cash Provided by (Used in) Investing Activities
 
(26,706
)
 
(29,914
)
Cash Flows from Financing Activities:
 
 
 

Other financing activities
 
(1,668
)
 
(2,338
)
Net Cash Provided by (Used in) Financing Activities
 
(1,668
)
 
(2,338
)
Effect of exchange rates on cash
 
(5,671
)
 
632

Net Increase (Decrease) in Cash and Cash Equivalents
 
(66,195
)
 
(12,496
)
Cash and Cash Equivalents—Beginning of Period
 
373,655

 
354,259

Cash and Cash Equivalents—End of Period
 
$
307,460

 
$
341,763


The accompanying Notes are an integral part of these Consolidated Financial Statements.



5


OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
Treasury
Stock
 
Retained
Earnings
 
Accumulated Other Comprehensive Income
(Loss)
 
Oceaneering Shareholders' Equity
 
Non-controlling Interest
 
Total Equity
(in thousands)
 
 
 
 
 
Balance, December 31, 2019
 
$
27,709

 
$
207,130

 
$
(681,640
)
 
$
1,850,244

 
$
(334,097
)
 
$
1,069,346

 
$
6,063

 
$
1,075,409

Cumulative effect of ASC 326 adoption
 

 

 

 
(2,273
)
 

 
(2,273
)
 

 
(2,273
)
Net income (loss)
 

 

 

 
(367,598
)
 

 
(367,598
)
 

 
(367,598
)
Other comprehensive income (loss) currency translation adjustments
 

 

 

 

 
(70,325
)
 
(70,325
)
 

 
(70,325
)
Restricted stock unit activity
 

 
(11,816
)
 
13,262

 

 

 
1,446

 

 
1,446

Restricted stock activity
 

 
(5,992
)
 
5,992

 

 

 

 

 

Balance, March 31, 2020
 
$
27,709

 
$
189,322

 
$
(662,386
)
 
$
1,480,373

 
$
(404,422
)
 
$
630,596

 
$
6,063

 
$
636,659

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated Other Comprehensive Income
(Loss)
 
Oceaneering Shareholders' Equity
 
Non-controlling Interest
 
Total Equity
(in thousands)
 
 
 
 
 
Balance, December 31, 2018
 
$
27,709

 
$
220,421

 
$
(704,066
)
 
$
2,204,548

 
$
(339,377
)
 
$
1,409,235

 
$
6,063

 
$
1,415,298

Cumulative effect of ASC 842 adoption
 

 

 

 
(5,860
)
 

 
(5,860
)
 

 
(5,860
)
Net income (loss)
 

 

 

 
(24,827
)
 

 
(24,827
)
 

 
(24,827
)
Other comprehensive income (loss) currency translation adjustments
 

 

 

 

 
6,246

 
6,246

 

 
6,246

Restricted stock unit activity
 

 
(16,494
)
 
17,137

 

 

 
643

 

 
643

Restricted stock activity
 

 
(5,143
)
 
5,143

 

 

 

 

 

Balance, March 31, 2019
 
$
27,709

 
$
198,784

 
$
(681,786
)
 
$
2,173,861

 
$
(333,131
)
 
$
1,385,437

 
$
6,063

 
$
1,391,500


The accompanying Notes are an integral part of these Consolidated Financial Statements.


6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF MAJOR ACCOUNTING POLICIES

Basis of Presentation. Oceaneering International, Inc. ("Oceaneering," "we" or "us") has prepared these unaudited consolidated financial statements pursuant to instructions for quarterly reports on Form 10-Q, which we are required to file with the United States Securities and Exchange Commission (the "SEC"). These financial statements do not include all information and footnotes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). These financial statements reflect all adjustments that we believe are necessary to present fairly our financial position as of March 31, 2020 and our results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, all such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2019. The results for interim periods are not necessarily indicative of annual results.
Principles of Consolidation. The consolidated financial statements include the accounts of Oceaneering and our 50% or more owned and controlled subsidiaries. We also consolidate entities that are determined to be variable interest entities if we determine that we are the primary beneficiary; otherwise, we account for those entities using the equity method of accounting. We use the equity method to account for our investments in unconsolidated affiliated companies of which we own an equity interest of between 20% and 50% and as to which we have significant influence, but not control, over operations. We use the cost method for all other long-term investments. Investments in entities that we do not consolidate are reflected on our balance sheet in other noncurrent assets. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with 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.
Allowances for Credit Loss—Financial Assets Measured at Amortized Costs. On January 1, 2020, we adopted Accounting Standard Update ("ASU") No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," as amended ("ASC 326"), which introduces a new credit reserving methodology known as the Current Expected Credit Loss ("CECL") model. The CECL model applies to financial assets measured at amortized costs, including accounts receivable, contract assets and held-to-maturity loan receivables. Under the CECL model, we identify allowances for credit loss based on future expected losses when accounts receivable, contract assets or held-to-maturity loan receivables are created rather than when losses are probable.
We use the loss-rate method in developing the allowance for credit losses, which involves identifying pools of assets with similar risk characteristics, reviewing historical losses within the last five years and consideration of reasonable supportable forecasts of economic indicators. Changes in estimates, developing trends and other new information could have material effects on future evaluations.
We monitor the credit quality of our accounts receivable and other financing receivable amounts by frequent customer interaction, following economic and industry trends and reviewing specific customer data. Our other receivable amounts include contract assets and held-to-maturity loan receivables which we consider to have a low risk of loss.
We are monitoring the impacts from the coronavirus (COVID-19) outbreak and volatility in the oil and natural gas markets on our customers and various counterparties. We have considered the current and expected economic and market conditions as a result of COVID-19 in determining credit loss expense for the period ended March 31, 2020.
As a result of the adoption of ASC 326, we recorded a cumulative-effect adjustment of $2.3 million that decreased retained earnings and increased the allowance for credit losses. As of March 31, 2020, our allowance for credit losses was $8.5 million for accounts receivable and $0.4 million for other receivables. We adopted ASC 326 using the modified retrospective method. Prior periods were not restated and reflect allowance for doubtful accounts of

7


$7.5 million at December 31, 2019, which we determined were needed using the specific identification method, in accordance with previously applicable GAAP.
We have elected to apply the practical expedient available under ASC 326 to exclude the accrued interest receivable balance that is included in our held-to-maturity loan receivables. The amount excluded as of March 31, 2020 was $1.5 million.
Accounts receivable are considered to be past-due after the end of the contractual terms agreed to with the customer. There were no material past-due amounts for our financial assets as of March 31, 2020. We generally do not require collateral from our customers.
See Note 2—"Accounting Standards Update"—for more information on our adoption of our adoption of ASU 326.
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 assets included in property and equipment on the straight-line method over their estimated useful lives. 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. 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.
Long-lived intangible assets, primarily acquired in connection with business combinations, include trade names, intellectual property and customer relationships and are being amortized over their estimated useful lives.
Right-of-use operating lease assets 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. In determining the incremental borrowing rate, we considered our external credit ratings, bond yields for us and peer companies, 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 right-of-use 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.
We capitalize interest on assets where the construction period is anticipated to be more than three months. We capitalized no interest and $2.0 million of interest in the three-month periods ended March 31, 2020 and 2019, respectively. We do not allocate general administrative costs to capital projects.
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. 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 by utilization 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.
Due to the protracted energy downturn compounded with demand destruction and insufficient control of supply levels, our customers' continued focus on cost discipline, and adverse impacts of COVID-19, we determined that impairment indicators were present within certain of our asset groups in our Subsea Products, Subsea Projects and Advanced Technologies segments in the first quarter of 2020. For our Subsea Products segments, impairment indicators were present in our Subsea Distributions Solutions asset group. For our Subsea Projects segment, impairment indicators were present in our Shallow Water vessels, Renewables and Special Projects and Global Data Solutions asset groups. For our Advanced Technologies segment, impairment indicators were present in our

8


Oceaneering Entertainment Systems and Oceaneering AGV Systems asset groups. To measure market value for our asset groups, we used the following approaches:
Subsea Distribution Solutions U.K. - We utilized the cost approach and considered economic obsolescence under the income approach to determine fair value of the property and equipment.
Subsea Distribution Solutions Brazil and Angola - We utilized a combination of market and cost approaches to measure fair values.
Shallow Water vessels - We utilized the cost approach and considered historical, current and anticipated dayrates and utilization to measure market value.
Renewables and Special Projects - We utilized a combination of market and cost approaches to measure fair values.
Oceaneering Entertainment Systems and Oceaneering AGV Systems - We utilized a combination of market and cost approaches to measure fair value.
Our estimates of fair values for the asset groups in our Subsea Products, Subsea Projects and Advanced Technologies 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. For our cash flow projections, we utilized a weighted average cost of capital ranging between 12% and 15% and a terminal value based on the Gordon Growth Model assuming an expected long-term growth rate of 2%.
We determined that the carrying values exceeded the estimated fair values and, as a result, recorded impairments as noted below:
 
 
 
Three Months Ended March 31, 2020
(in thousands)
 
Property and Equipment, Net
 
Intangible Assets
 
Right-of-Use Operating Lease Assets
 
Total
Subsea Products
 
 
 
 
 
 
 
 
 
Subsea Distribution Solutions U.K.
 
$
6,543

 
$

 
$

 
$
6,543

 
Subsea Distribution Solutions Brazil
 
9,834

 

 

 
9,834

 
Subsea Distribution Solutions Angola
 
25,941

 

 
12,541

 
38,482

Subsea Projects
 
 
 
 
 
 
 
 
 
Shallow Water vessels
 
3,894

 

 

 
3,894

 
Renewables and Special Projects group
 
3,628

 

 

 
3,628

 
Global Data Solutions
 

 
167

 

 
167

Advanced Technologies
 
 
 
 
 
 
 
 
 
Oceaneering Entertainment Systems
 
1,593

 
 
 
3,472

 
5,065

 
Oceaneering AGV Systems
 
145

 
310

 
695

 
1,150

 
Total long-lived assets impairments
 
$
51,578

 
$
477

 
$
16,708

 
$
68,763

 
 
 
 
 
 
 
 
 
 
For additional information regarding write-downs and write-offs of property and equipment, long-lived intangible assets and right-of-use operating lease assets in the three months ended March 31, 2020 and December 31, 2019, see Note 9—"Business Segment Information." We did not record any impairments of long-lived assets in the three months ended March 31, 2019.
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.

9


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.
Our estimates of fair values for our reporting units 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. For our cash flow projections for the three-months ended March 31, 2020, we utilized a weighted average cost of capital ranging between 12% and 15% and a terminal value based on the Gordon Growth Model assuming an expected long-term growth rate of 2%.
Due to the protracted energy downturn compounded with demand destruction and insufficient control of supply levels, our customers' continued focus on cost discipline, and adverse impacts of COVID-19, we determined that impairment indicators were present in the first quarter of 2020 and we were required to perform a quantitative analysis for our Subsea Products-Service, Technology and Rentals ("ST&R"), Subsea Products-Manufactured Products, Subsea Projects, Asset Integrity and Advanced Technologies-Commercial reporting units. Based on these quantitative analyses, the fair value was determined to be less than the carrying value for each of those reporting units with the exclusion of Subsea Products-Manufactured Products. As a result, for our Subsea Products-ST&R, Subsea Projects, Asset Integrity and Advanced Technologies-Commercial reporting units, we recorded pre-tax goodwill impairment losses of $51 million, $130 million, $111 million and $11 million, respectively. For our ROV and Advanced Technologies-Government reporting units, qualitative assessments were performed; and we concluded that it was more likely than not the fair value of the reporting units were more than the carrying value of the reporting unit and, therefore, no impairment was required.
In the fourth quarter of 2019, we were required to perform a quantitative analysis for our Subsea Projects and Asset Integrity reporting units. 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. For the remaining reporting units, qualitative assessments were performed; and we concluded that it was more likely than not the fair value of the reporting unit was more than the carrying value of the reporting unit and, therefore, no impairment was required.

Besides the goodwill impairments discussed above, the changes in our reporting units' goodwill balances during the periods presented are from currency exchange rate changes. For information regarding goodwill by business segment, see Note 9-"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.
Foreign Currency Translation. The functional currency for several 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 as of 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.

Revenue Recognition. 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.

10



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, we principally charge on a dayrate basis for services provided. In our product-based business lines, predominantly in our Subsea Products segment, we recognize revenue and profit using the percentage-of-completion method and exclude uninstalled materials and significant inefficiencies from the measure of progress.

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 three months ended March 31, 2020 and 2019. 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. On January 1, 2019 we adopted ASU 2016-02, "Leases (Topic 842"), ("ASC 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 at 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 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.
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 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 (1) under ASC 842, when the lease component is predominant, and (2) under the accounting standard "Revenue from Contracts with Customers" ("ASC 606"), where the service component is predominant. In general, when we have a service component, it is typically the predominant element and leads to accounting under ASC 606.
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

11


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.
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 fifteen 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 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.
Right-of-use 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. In determining the 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 right-of-use 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.
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.

2.    ACCOUNTING STANDARDS UPDATE

Recently Adopted Accounting Standards. On January 1, 2020, we adopted ASC 326, which introduces a new credit reserving model known as the CECL model. The adoption of ASC 326 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.

In August 2018, the Financial Accounting Standards Board (the "FASB") issued ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement” ("ASU 2018-13"). This standard eliminated the prior requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard added disclosure requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in other comprehensive income during the period and the disclosure of other relevant quantitative information for certain unobservable inputs. The adoption of ASU 2018-13 on January 1, 2020, did not have a material impact on our disclosures.

Recently Issued Accounting Standards. In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes" (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, "Income Taxes," and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are evaluating the impact and do not expect this ASU to have a material impact on our consolidated financial statements.
 
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides temporary optional expedients and exceptions to existing guidance on applying contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Interbank Offered Rate (“LIBOR”), which is scheduled to be phased out in 2021, to alternate rates such as the Secured Overnight Financing Rate ("SOFR"). Entities may elect to apply the provisions of this new standard as early as March 12, 2020 until December 31, 2022, when the reference rate replacement activity is expected to be complete. We have not yet elected an adoption date. We continue to evaluate the impact and do not expect this ASU to have a material impact on our consolidated financial statements.


12


3.    REVENUE

Revenue by Category

We recognized revenue, disaggregated by business segment, geographical region, and timing of transfer of goods or services, as follows:
 
 
 
 
Three Months Ended
(in thousands)
 
Mar 31, 2020
 
Mar 31, 2019
 
Dec 31, 2019
Business Segment:
 
 
 
 
 
 
 
Energy Services and Products
 
 
 
 
 
 
 
 
Remotely Operated Vehicles
 
$
111,780

 
$
100,346

 
$
116,020

 
 
Subsea Products
 
194,838

 
128,844

 
183,659

 
 
Subsea Projects
 
61,455

 
89,728

 
86,728

 
 
Asset Integrity
 
59,132

 
60,689

 
61,835

 
Total Energy Services and Products
 
427,205

 
379,607

 
448,242

 
Advanced Technologies
 
109,463

 
114,279

 
112,568

 
 
Total
 
$
536,668

 
$
493,886

 
$
560,810


 
 
 
 
Three Months Ended
(in thousands)
 
Mar 31, 2020
 
Mar 31, 2019
 
Dec 31, 2019
Geographic Operating Areas:
 
 
 
Foreign:
 
 
 
 
 
 
 
 
Africa
 
$
63,417

 
$
87,106

 
$
70,421

 
 
United Kingdom
 
60,787

 
53,298

 
76,078

 
 
Norway
 
52,184

 
42,466

 
55,169

 
 
Asia and Australia
 
45,680

 
41,426

 
47,558

 
 
Brazil
 
26,489

 
17,763

 
26,686

 
 
Other
 
24,659

 
21,222

 
27,857

 
Total Foreign
 
273,216

 
263,281

 
303,769

 
United States
 
263,452

 
230,605

 
257,041

Total
 
$
536,668

 
$
493,886

 
$
560,810


Timing of Transfer of Goods or Services:
 
 
 
 
 
Revenue recognized over time
 
$
498,307

 
$
461,245

 
$
523,518

 
Revenue recognized at a point in time
 
38,361

 
32,641

 
37,292

Total
 
$
536,668

 
$
493,886

 
$
560,810



Contract Balances

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.


13


The following table provides information about contract assets, and contract liabilities from contracts with customers:
(in thousands)
 
Mar 31, 2020
 
Dec 31, 2019
Contract assets
 
$
237,107

 
$
221,288

Contract liabilities
 
61,929

 
117,342



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 three months ended March 31, 2020, contract assets increased by $16 million from the balance at December 31, 2019, due to revenue earned of $456 million, which exceeded the timing of billings of approximately $440 million. Contract liabilities decreased $55 million from the balance at December 31, 2019, due to revenue recognition of $66 million in excess of deferrals of milestone payments that totaled $11 million. There were no cancellations, impairments or other significant impacts in the period that relate to other categories of explanation.

Performance Obligations

As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $325 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 $232 million over the next 12 months and substantially all of the remaining balance of $93 million will be recognized within the next 24 months.

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 March 31, 2020. We also have shorter-term product contracts with an expected original duration of one year or less that have been excluded.

Where appropriate, we have made estimates within the transaction price of elements of variable consideration within the contracts and constrained those amounts to a level where we consider 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 three months ended March 31, 2020 that was associated with performance obligations completed or partially completed in prior periods was not significant.

As of March 31, 2020, 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.

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

14


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 $13 million and $15 million as of March 31, 2020 and December 31, 2019, respectively. For the three-month periods ended March 31, 2020 and 2019, we recorded amortization expense of $1.9 million and $2.6 million, respectively. No impairment costs were recognized.


4.    SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
 
(in thousands)
 
Mar 31, 2020
 
Dec 31, 2019
Inventory:
 
 
 
 
 
Remotely operated vehicle parts and components
 
$
72,590

 
$
76,120

 
Other inventory, primarily raw materials
 
93,770

 
98,624

 
Total
 
$
166,360

 
$
174,744

 
 
 
 
 
 
Other current assets:
 
 
 
 
 
Prepaid expenses
 
$
57,834

 
$
43,210

 
Angolan bonds
 
10,179

 
10,179

 
Total
 
$
68,013


$
53,389

 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
Payroll and related costs
 
$
105,956

 
$
137,001

 
Accrued job costs
 
56,982

 
54,387

 
Income taxes payable
 
36,024

 
36,996

 
Current operating lease liability
 
18,793

 
19,863

 
Other
 
81,151

 
89,434

 
Total
 
$
298,906

 
$
337,681



5.    INCOME TAXES

Due to the economic uncertainty presented by COVID-19 and the current volatility in the oil and natural gas markets, we believe using a discrete tax provision method for the period ended March 31, 2020, based on actual earnings for the quarter, is a more reliable method for providing for income taxes because our annual effective tax rate as calculated under ASC 740-270 is highly sensitive to changes in estimates of total ordinary income (loss). The tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographic mix in the sources of our results. The effective tax rate for the three months ended March 31, 2020 and March 31, 2019 was different than the federal statutory rate of 21%, primarily due to the 2020 enactment of the U.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the geographic mix of operating revenue and results, and changes in uncertain tax positions and other discrete items. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings. Therefore, we do not believe a discussion of the effective tax rate is meaningful.

In the three-month period ended March 31, 2020, we recognized tax benefit of $42.2 million from discrete items, primarily related to an $33.8 million benefit related to the CARES Act and $9.7 million of uncertain tax positions, partially offset by $1.0 million related to share-based compensation and $0.3 million associated with various other matters. Under the CARES Act, we expect to file a carryback claim for the U.S. net operating loss generated in 2019 to tax year 2014. We also intend to file an amended 2013 income tax return utilizing foreign tax credits

15


released from the 2014 income tax return. As a result, we expect to receive refunds of approximately $16 million and $18 million related to the 2014 and 2013 tax years, respectively. These refunds are classified as income taxes receivable in the consolidated balance sheet as of March 31, 2020. We also realized a non-cash tax benefit of $9.9 million due to the carryback provision of the CARES Act. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. In the three-month period ended March 31, 2019, we recognized additional tax expense of $1.4 million from discrete items, primarily related to share-based compensation and valuation allowances.
We conduct our international operations in jurisdictions that have varying laws and regulations with regard to income and other taxes, some of which are subject to interpretation. We recognize the expense or benefit for a tax position if it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax expense or 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. Including associated foreign tax credits, penalties and interest, we have accrued a net total of $11 million and $21 million in other long-term liabilities on our balance sheet for unrecognized tax liabilities as of March 31, 2020 and December 31, 2019, respectively. Changes in management's judgment related to those liabilities would affect our effective income tax rate in the periods of change.
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  
 
Periods
United States
 
2014
United Kingdom
 
2018
Norway
 
2015
Angola
 
2013
Brazil
 
2015


We have ongoing tax audits in various jurisdictions.  The outcome of these audits may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.  

6.    DEBT
Long-term debt consisted of the following: 
 
(in thousands)
 
Mar 31, 2020
 
Dec 31, 2019
 
 
 
 
 
4.650% Senior Notes due 2024
 
$
500,000

 
$
500,000

6.000% Senior Notes due 2028
 
300,000

 
300,000

Fair value of interest rate swaps on $200 million of principal
 

 
3,235

Unamortized hedge accounting adjustments
 
12,840

 

Unamortized debt issuance costs
 
(6,444
)
 
(6,719
)
Long-term debt
 
$
806,396

 
$
796,516



In November 2014, we completed the public offering of $500 million aggregate principal amount of 4.650% Senior Notes due 2024 (the "2024 Senior Notes"). We pay interest on the 2024 Senior Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on November 15, 2024.

In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the "2028 Senior Notes"). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028.


16


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 March 31, 2020, 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 March 31, 2020, we were in compliance with all the covenants set forth in the Credit Agreement.

We had two interest rate swaps relating to a total of $200 million of the 2024 Senior Notes for the period to November 2024. The agreements swapped 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%. In March 2020, we settled both interest rate swaps with the counterparty for cash proceeds of $13 million. The settlement had no impact on our earnings for the three months ended March 31, 2020 and resulted in a $13 million adjustment to increase our long-term debt balance that will be amortized to interest expense prospectively through the maturity date for the 2024 Senior Notes using the effective interest method. See Note 7—"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 $3.0 million of 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 on 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 respective maturity dates for the Senior Notes and to January 2023 for the Credit Agreement.


7.    COMMITMENTS AND CONTINGENCIES

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:


17


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.

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 $325 million as of March 31, 2020, 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).

As our functional currency in Angola is the U.S. dollar, we recorded foreign currency transaction losses related to the kwanza of $1.9 million and less than $0.1 million in the three-month periods ended March 31, 2020 and 2019, respectively, 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. As of March 31, 2020 and December 31, 2019, we had the equivalent of approximately $6.2 million of kwanza cash balances 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 March 31, 2020 and December 31, 2019, 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 March 31, 2020 and 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.

8.    EARNINGS (LOSS) PER SHARE, SHARE-BASED COMPENSATION AND SHARE REPURCHASE PLAN
Earnings (Loss) per Share. For each period presented, the only difference between our calculated weighted-average basic and diluted number of shares outstanding is the effect of outstanding restricted stock units. In periods

18


where we have a net loss, the effect of our outstanding restricted stock units is anti-dilutive, and therefore does not increase our diluted shares outstanding.
For each period presented, our net income (loss) allocable to both common shareholders and diluted common shareholders is the same as our net income (loss) in our consolidated statements of operations.
Share-Based Compensation. We have no outstanding stock options and, therefore, no share-based compensation to be recognized pursuant to stock option grants.
During 2018, 2019 and through March 31, 2020, we granted restricted units of our common stock to certain of our key executives and employees. During 2018, 2019 and 2020, our Board of Directors granted restricted common stock to our nonemployee directors. The restricted stock units granted to our key executives and key employees generally vest in full on the third anniversary of the award date, conditional on continued employment. The restricted stock unit grants can vest pro rata over three years, provided the individual meets certain age and years-of-service requirements. The shares of restricted stock we grant to our nonemployee directors vest in full on the first anniversary of the award date, conditional on continued service as a director. Each grantee of shares of restricted 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. The restricted stock units outstanding have no voting or dividend rights.
For each of the restricted stock units granted in 2018 through March 31, 2020, at the earlier of three years after grant or at termination of employment or service, the grantee will be issued one share of our common stock for each unit vested. As of March 31, 2020 and December 31, 2019, respective totals of 2,195,304 and 1,741,335 shares of restricted stock and restricted stock units were outstanding.
We estimate that share-based compensation cost not yet recognized related to shares of restricted stock or restricted stock units, based on their grant-date fair values, was $18 million as of March 31, 2020. This expense is being recognized on a graded-vesting basis over three years for awards attributable to individuals meeting certain age and years-of-service requirements, and on a straight-line basis over the applicable vesting period of one or three years for the other awards.
Share Repurchase Plan. In December 2014, our Board of Directors approved a plan to repurchase up to 10 million shares of our common stock. Under this plan, in 2015, we repurchased 2.0 million shares. We have not repurchased any shares under this plan since December 2015. We account for the shares we hold in treasury under the cost method, at average cost.

9.
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 from those used in our consolidated financial statements for the year ended December 31, 2019.


19


The following table presents revenue, income (loss) from operations and depreciation and amortization expense by business segment for each of the periods indicated.
 
 
 
Three Months Ended
(in thousands)
 
Mar 31, 2020
 
Mar 31, 2019
 
Dec 31, 2019
Revenue
 
 
 
 
 
 
Energy Services and Products
 
 
 
 
 
 
Remotely Operated Vehicles
 
$
111,780

 
$
100,346

 
$
116,020

Subsea Products
 
194,838

 
128,844

 
183,659

Subsea Projects
 
61,455

 
89,728

 
86,728

Asset Integrity
 
59,132

 
60,689

 
61,835

Total Energy Services and Products
 
427,205

 
379,607

 
448,242

Advanced Technologies
 
109,463

 
114,279

 
112,568

Total
 
$
536,668

 
$
493,886

 
$
560,810

Income (Loss) from Operations
 
 
 
 
 
 
Energy Services and Products
 
 
 
 
 
 
Remotely Operated Vehicles
 
$
9,066

 
$
1,418

 
$
(18,660
)
Subsea Products
 
(91,858
)
 
(476
)
 
(10,325
)
Subsea Projects
 
(145,290
)
 
2,892

 
(148,075
)
Asset Integrity
 
(109,441
)
 
(713
)
 
(48,919
)
Total Energy Services and Products
 
(