Oceaneering International Inc 10-Q, filed Apr 30, 2021
Oceaneering International Inc (OII)
10-Q
2021-04-30
For: 2021-03-31
View Original
Added on
April 07, 2026
About this 10-Q
Oceaneering International Inc filed this 10-Q on April 30, 2021, covering the quarter ended March 31, 2021.
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $437.55M
- down 18.5% from $536.67M a year earlier
- Net loss
- $9.37M
- compared with a net loss of $367.6M a year earlier
- Diluted EPS
- -$0.09
- compared with -$3.71 a year earlier
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, 2021 | |||||||
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)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (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 | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 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). 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.
| 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).
Number of shares of Common Stock outstanding as of April 23, 2021: 99,752,541
Oceaneering International, Inc.
Form 10-Q
Table of Contents
| Part I | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Part II | |||||||||||
| Item 1. | |||||||||||
| Item 6. | |||||||||||
1
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| Mar 31, 2021 | Dec 31, 2020 | |||||||||||||
| (in thousands, except share data) | ||||||||||||||
| (unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Contract assets, net | ||||||||||||||
| Inventory, net | 141,241 | |||||||||||||
| 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 $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
Treasury stock; | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Oceaneering shareholders' equity | ||||||||||||||
| Noncontrolling interest | ||||||||||||||
| Total equity | ||||||||||||||
| Total Liabilities and Equity | $ | $ | ||||||||||||
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) | 2021 | 2020 | |||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||
| Interest expense, net of amounts capitalized | ( | ( | |||||||||||||||||||||||||||
| Equity in income (losses) of unconsolidated affiliates | |||||||||||||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | ( | ||||||||||||||||||||||||||||
| Net Income (Loss) | $ | ( | $ | ( | |||||||||||||||||||||||||
| Weighted-average shares outstanding | |||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
| Earnings (loss) per share | |||||||||||||||||||||||||||||
| Basic | $ | ( | $ | ( | |||||||||||||||||||||||||
| Diluted | $ | ( | $ | ( | |||||||||||||||||||||||||
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) | 2021 | 2020 | |||||||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ( | |||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||||||||
Change in unrealized gains for available-for-sale debt securities (1) | — | ||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | ( | |||||||||||||||||||||||||
(1) | There is no income tax expense associated with the three months ended March 31, 2021 due to reversal of a valuation allowance. | ||||||||||||||||||||||||||||
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 | |||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||
| Net income (loss) | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net income (loss) 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) | ( | ( | ||||||||||||
| Net loss (gain) on sales of property and equipment | ||||||||||||||
| Noncash compensation | ||||||||||||||
| Noncash impact of lease accounting | ( | |||||||||||||
| Excluding the effects of acquisitions, increase (decrease) in cash from: | ||||||||||||||
| Accounts receivable and contract assets | ( | |||||||||||||
| Inventory | ||||||||||||||
| Proceeds from interest rate swaps | ||||||||||||||
| 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 (Used in) Operating Activities | ( | ( | ||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||
| Proceeds from redemption of investments in Angolan bonds | ||||||||||||||
| Distributions of capital from unconsolidated affiliates | ||||||||||||||
| Proceeds from sale of property and equipment | ||||||||||||||
| Net Cash Provided by (Used in) Investing Activities | ( | ( | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||
| Other financing activities | ( | ( | ||||||||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ( | ||||||||||||
| Effect of exchange rates on cash | ( | ( | ||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ( | ||||||||||||
| Cash and Cash Equivalents—Beginning of Period | ||||||||||||||
| Cash and Cash Equivalents—End of Period | $ | $ | ||||||||||||
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, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit activity | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock activity | — | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of ASC 326 adoption | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit activity | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock activity | — | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF MAJOR ACCOUNTING POLICIES
Allowances for Credit Loss—Financial Assets Measured at Amortized Costs. 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 loans receivable, 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
7
market conditions, as a result of COVID-19, in determining credit loss expense for the three-month periods ended March 31, 2021 and 2020.
As of March 31, 2021, our allowance for credit losses was $1.5 million for accounts receivable and $0.6 million for other receivables.
Financial assets are written off when deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. During the three-month period ended March 31, 2021, we wrote off accounts receivable of $2.4 million that previously had been reserved.
We have elected to apply the practical expedient available under Accounting Series Codification (“ASC”) 326 to exclude the accrued interest receivable balance that is included in our held-to-maturity loans receivable. The amount excluded as of March 31, 2021 was $1.3 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 that we consider uncollectible for our financial assets as of March 31, 2021. We generally do not require collateral from our customers.
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. We charge the costs of repair and maintenance of property and equipment to operations as incurred, and 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.
We capitalize interest on assets where the construction period is anticipated to be more than three months. We did not capitalize interest in the three-month periods ended March 31, 2021 and 2020. We do not allocate general administrative costs to capital projects.
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 respective estimated useful lives.
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 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 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-month period ended March 31, 2020, see Note 4—“Impairments” and Note 10—“Business Segment Information.” We did not identify indicators of impairment for property and equipment, long-lived intangible assets and right-of-use operating lease assets for the three-month period ended March 31, 2021.
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.
For additional information regarding right-of-use operating lease assets, see “Leases” below.
8
Revenue Recognition. All 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. When appropriate, we apply the practical expedient to recognize revenue for the amount invoiced when the invoice corresponds directly to the value of our performance to date.
We account for significant fixed-price contracts, mainly relating to our Manufactured Products segment, and to a lesser extent in our Offshore Projects Group (“OPG”) and Aerospace and Defense Technologies (“ADTech”) 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 Manufactured 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, when 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, 2021 and 2020. 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
9
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. 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 those 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 “Leases” (“ASC 842”), when the lease component is predominant, and (2) under the accounting standard “Revenue from Contracts with Customers” (“ASC 606”), when 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 are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our customer's 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 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 lessee, we utilize the practical 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 future 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.
2. ACCOUNTING STANDARDS UPDATE
10
3. REVENUE
Revenue by Category
The following tables presents revenue disaggregated by business segment, geographical region, and timing of transfer of goods or services.
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 * | ||||||||||||||||||||||||||||||||||||
| Business Segment: | ||||||||||||||||||||||||||||||||||||||
| Energy Services and Products | ||||||||||||||||||||||||||||||||||||||
| Subsea Robotics | $ | $ | ||||||||||||||||||||||||||||||||||||
| Manufactured Products | ||||||||||||||||||||||||||||||||||||||
| Offshore Projects Group | ||||||||||||||||||||||||||||||||||||||
| Integrity Management & Digital Solutions | ||||||||||||||||||||||||||||||||||||||
| Total Energy Services and Products | ||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense Technologies | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||||||||||||
| * | Recast to reflect segment changes. | |||||||||||||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 | ||||||||||||||||||||||||||||||||||||
| Geographic Operating Areas: | ||||||||||||||||||||||||||||||||||||||
| Foreign: | ||||||||||||||||||||||||||||||||||||||
| Africa | $ | $ | ||||||||||||||||||||||||||||||||||||
| Norway | ||||||||||||||||||||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||||||||||||||||||||
| 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
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.
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The following table provides information about contract assets and contract liabilities from contracts with customers.
| Three months ended | ||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 | ||||||||||||
| Total contract assets, beginning of period | $ | $ | ||||||||||||
| Revenue accrued | ||||||||||||||
| Amounts billed | ( | ( | ||||||||||||
| Total contract assets, end of period | $ | $ | ||||||||||||
| Total contract liabilities, beginning of period | $ | $ | ||||||||||||
| Deferrals of milestone payments | ||||||||||||||
| Recognition of revenue for goods and services | ( | ( | ||||||||||||
| Total contract liabilities, end of period | $ | $ | ||||||||||||
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.
Performance Obligations
As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) was $188 million. In arriving at this value, we have used two practical 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 $144 million over the next 12 months, and we expect to recognize substantially all of the remaining balance of $44 million within the next 24 months.
Due to the nature of our service contracts in our Subsea Robotics, OPG, Integrity Management & Digital Solutions (“IMDS”) and ADTech 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 Manufactured Products and ADTech 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, 2021. 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, 2021 that was associated with performance obligations completed or partially completed in prior periods was not significant.
As of March 31, 2021, 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 material rights. 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 practical 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
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4. IMPAIRMENTS
Goodwill
We did not identify any triggering events and, accordingly, no impairments of goodwill were recorded in the three-month period ended March 31, 2021.
During the first quarter of 2020, due to the protracted energy downturn compounded by demand destruction resulting from the adverse impacts of the COVID-19 pandemic and insufficient control of crude oil supply levels during the quarter, as well as our customers' continued focus on cost discipline, we determined that impairment indicators were present 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 exception 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 Remotely Operated Vehicles (“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 each of those reporting units was more than the carrying value of the reporting unit and, therefore, no impairments were recorded for those reporting units.
Our estimates of fair values for our reporting units determined in the first quarter of 2020 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 values. For our cash flow projections for the three-months ended March 31, 2020, we utilized a weighted-average cost of capital ranging from 11 % to 15 % and a terminal value based on the Gordon Growth Model, assuming an expected long-term growth rate of 2 %.
Our third quarter 2020 change in our operating segments resulted in one reporting unit for each of our new segments. The following table reflects goodwill impairments as recorded in the three-month period ended March 31, 2020, and allocated, based on historical cost, to the new reporting segments determined in the third quarter of 2020:
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (in thousands) | As originally recorded | As recast to reflect segment changes | |||||||||||||||||||||||||||||||||||||||
| Segment/Reporting Unit | Goodwill Impairment | Subsea Robotics | Manufactured Products | OPG | IMDS | Total | |||||||||||||||||||||||||||||||||||
| Subsea Products/ST&R | $ | $ | 17,457 | $ | — | $ | 33,845 | $ | — | $ | 51,302 | ||||||||||||||||||||||||||||||
| Subsea Projects/Subsea Projects | 84,661 | — | 32,440 | 12,461 | 129,562 | ||||||||||||||||||||||||||||||||||||
| Asset Integrity/Asset Integrity | — | — | — | 110,753 | 110,753 | ||||||||||||||||||||||||||||||||||||
| Advanced Technologies/Commercial | — | 11,388 | — | — | 11,388 | ||||||||||||||||||||||||||||||||||||
| Total goodwill impairment | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Aside from the goodwill impairments discussed above, the changes in our reporting units' goodwill balances during the periods presented are from currency exchange rate changes.
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For further information regarding goodwill by business segment, see Note 10–“Business Segment Information.”
Property and Equipment and Intangible Assets
We did not identify any triggering events and, accordingly, no impairments of long-lived assets were recorded in the three-month period ended March 31, 2021.
During the first quarter of 2020, due to the protracted energy downturn compounded by demand destruction resulting from the adverse impacts of the COVID-19 pandemic and insufficient control of crude oil supply levels during the quarter, as well as our customers' continued focus on cost discipline, we determined that impairment indicators were present within certain of our asset groups. To measure fair value for these 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 Automated Guided Vehicles (“AGV”) Systems - We utilized a combination of market and cost approaches to measure fair value.
Our estimates of fair value for these asset groups determined in the first quarter of 2020 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. Our cash flow projections utilized a weighted-average cost of capital ranging from 12 % to 15 % and a terminal value based on the Gordon Growth Model, assuming an expected long-term growth rate of 2 %.
As a result, we determined that the carrying values exceeded the estimated fair values and recorded impairments as noted below. Our third quarter 2020 change in operating segments did not result in any changes in our asset groups. The following table reflects long-lived asset impairments as recorded in the three-month period ended March 31, 2020, and assigned to the new reporting segments determined in the third quarter of 2020:
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||
| (in thousands) | As originally recorded | As recast to reflect segment changes | |||||||||||||||||||||||||||||||||
| Segment/Reporting Unit | Long-lived Asset Impairments | Manufactured Products | OPG | IMDS | Total | ||||||||||||||||||||||||||||||
| Subsea Products | |||||||||||||||||||||||||||||||||||
| Subsea Distribution Solutions U.K. | $ | $ | 6,543 | $ | — | $ | — | $ | 6,543 | ||||||||||||||||||||||||||
| Subsea Distribution Solutions Brazil | 9,834 | 9,834 | |||||||||||||||||||||||||||||||||
| Subsea Distribution Solutions Angola | 38,482 | 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 | 5,065 | 5,065 | |||||||||||||||||||||||||||||||||
| Oceaneering AGV Systems | 1,150 | 1,150 | |||||||||||||||||||||||||||||||||
| Total long-lived asset impairments | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
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5. INCOME TAXES
Our 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 geographical mix from the sources of our results. The effective tax rate for the three-month periods ended March 31, 2021 and 2020 was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of operating revenue and results, changes in uncertain tax positions and other discrete items. We do not believe a discussion of the annual effective tax rate is meaningful. 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 or deferred taxes related to balance sheet translation gains or losses.
On March 27, 2020, the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in the United States. In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back our U.S. net operating loss generated in 2019 and amended our 2012 and 2013 federal income tax returns impacted by the net operating loss carryback. Prior to the enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately $33 million, of which we have received $5.6 million as of March 31, 2021. The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as of March 31, 2021. We also realized a non-cash tax benefit of $8.4 million due to the carryback provision of the CARES Act recognized as a reduction in long-term liabilities.
We conduct our international operations in jurisdictions that have varying laws and regulations regarding income and other taxes, some of which are subject to interpretation. We recognize the expense or benefit for an uncertain 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 uncertain tax position is then measured and recognized at the largest amount that we believe is greater than 50 % likely of being realized upon ultimate settlement.
We have accrued a net total of $14 million and $15 million in other long-term liabilities on our balance sheet for worldwide unrecognized tax liabilities as of March 31, 2021 and December 31, 2020, respectively. We account for any applicable interest and penalties related to uncertain tax positions as a component of our provision for income taxes in our consolidated financial statements. Changes in our 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 | ||||||||
| United Kingdom | ||||||||
| Norway | ||||||||
| Angola | ||||||||
| Brazil | ||||||||
| Australia | ||||||||
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.
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6. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
| (in thousands) | Mar 31, 2021 | Dec 31, 2020 | |||||||||||||||
| Inventory: | |||||||||||||||||
| Remotely operated vehicle parts and components | $ | $ | |||||||||||||||
| Other inventory, primarily raw materials | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
| Other current assets: | |||||||||||||||||
| Prepaid expenses | $ | $ | |||||||||||||||
| Angolan bonds | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
| Accrued liabilities: | |||||||||||||||||
| Payroll and related costs | $ | $ | |||||||||||||||
| Accrued job costs | |||||||||||||||||
| Income taxes payable | |||||||||||||||||
| Current operating lease liability | |||||||||||||||||
| Other | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
7. DEBT
Long-term debt consisted of the following:
| (in thousands) | Mar 31, 2021 | Dec 31, 2020 | |||||||||||||||
| 4.650% Senior Notes due 2024 | $ | $ | |||||||||||||||
| 6.000% Senior Notes due 2028 | |||||||||||||||||
| Interest rate swap settlements | 10,870 | ||||||||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||||||||
| Long-term debt | $ | $ | |||||||||||||||
In November 2014, we completed the public offering of $500 million aggregate principal amount of 4.650 % Senior Notes due 2024 (the “2024 Senior Notes”). We pay interest on the 2024 Senior Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on November 15, 2024.
In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000 % Senior Notes due 2028 (the “2028 Senior Notes”). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. We 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 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.
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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, 2021, 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 and which stipulates, that among other items, we exclude any impacts associated with current and prior period impairments) of 55 %. The Credit Agreement includes customary events of default and associated remedies. As of March 31, 2021, we were in compliance with all the covenants set forth in the Credit Agreement.
We had two interest rate swaps in place 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 4.65 % 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 resulted in a $13 million increase to 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. As a result, we amortized $0.6 million to interest expense for the three-month period ended March 31, 2021.
8. 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:
•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
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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 $779 million as of March 31, 2021, 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).
Foreign currency gains (losses) related to the Angolan kwanza of $(1.4 ) million and $(1.9 ) million in the three-month periods ended March 31, 2021 and 2020, respectively, were primarily due to the remeasurement of our Angolan kwanza cash balances to U.S. dollars. Foreign currency gain (losses) related to the Brazilian real of $(0.1 ) million and $(4.0 ) million in the three-month periods ended March 31, 2021 and 2020, respectively, were primarily due to the remeasurement of our U.S. dollar denominated liability balances to the Brazilian real. We recorded foreign currency transaction losses related to the Angolan kwanza and Brazilian real as a component of other income (expense), net in our Consolidated Statements of Operations.
Any conversion of cash balances from kwanza to U.S. dollars is controlled by the central bank in Angola. As of March 31, 2021 and December 31, 2020, we had the equivalent of approximately $3.3 million and $4.7 million, respectively, 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. As of March 31, 2021 and December 31, 2020, we had $9.2 million and $10 million, respectively, 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 in our Consolidated Balance Sheets. During the three-month period ended March 31, 2021, we sold a portion of these bonds for $2.4 million and recognized a gain of $0.3 million as a component of other income (expense), net in our Consolidated Statement of Operations.
We estimated the fair market value of the Angolan bonds to be $9.2 million and $10 million as of March 31, 2021 and December 31, 2020, respectively, 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. As of March 31, 2021, we have $1.1 million in unrealized gains, net of tax, related to these bonds as a component of accumulated other comprehensive loss in our Consolidated Balance Sheets.
Due to the ongoing impact of COVID-19, certain projects that were in process have been delayed in our Manufacturing Products segment. As of March 31, 2021 and December 31, 2020, we had outstanding accounts receivable and contracts assets of approximately $51 million for these projects. We continue to believe these accounts receivable and contract assets are realizable and the projects will resume.
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9. 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 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 2019, 2020 and through March 31, 2021, we granted restricted units of our common stock to certain of our key executives and employees. During 2019, 2020 and through March 31, 2021, 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 2019 through March 31, 2021, 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, 2021 and December 31, 2020, respective totals of 2,747,341 and 1,955,346 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 $20 million as of March 31, 2021. 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 share repurchase program under which we may repurchase up to 10 million shares of our common stock on a discretionary basis. Under the program, we had repurchased 2.0 million shares for $100 million through December 31, 2015. We have not repurchased any shares under this plan since December 31, 2015. We account for the shares we hold in treasury under the cost method, at average cost.
10. 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.
In the third quarter of 2020, we changed our organizational structure as part of the transformation to realign our businesses to achieve greater cost efficiencies and to bring together business units that frequently work together and promote increased synergies in bidding, project management and the use of offshore technicians. As a result, information that our chief operating decision maker regularly reviews changed. Therefore, beginning with results for the three months ended September 30, 2020, we are reporting our financial results consistent with our newly realigned operating segments and have recast certain prior period amounts to conform to the way we internally manage our businesses and monitor segment performance. Our new structure aligns our company around five reportable segments: (1) Subsea Robotics; (2) Manufactured Products; (3) Offshore Projects Group; (4) Integrity Management & Digital Solutions; and (5) Aerospace and Defense Technologies.
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Our Energy Services and Products business leverages our asset base and capabilities for providing services and products predominantly for offshore energy operations, inclusive of the offshore renewable energy market. Our Energy Services and Products segments are:
•Subsea Robotics—Our Subsea Robotics segment consists of our prior ROV segment, plus ROV tooling (previously in our Subsea Products segment) and survey services (previously in our Subsea Projects segment). Our Subsea Robotics segment provides the following:
◦ROVs for drilling support and vessel-based services, including subsea hardware installation, construction, pipeline inspection, survey and facilities inspection, maintenance and repair;
◦ROV tooling; and
◦survey services, including hydrographic survey and positioning services and autonomous underwater vehicles for geoscience.
•Manufactured Products—Our Manufactured Products segment consists of our prior Manufactured Products Business unit (previously in our Subsea Products segment) plus commercial theme park entertainment systems and AGV technology (both previously in our Advanced Technologies segment). Our Manufactured Products segment provides the following:
◦distribution and connection systems including production control umbilicals and field development hardware and pipeline connection and repair systems to the energy industry; and
◦AGV technology and entertainment systems to a variety of industries.
•Offshore Projects Group—Our OPG segment consists of our prior Subsea Projects segment less survey services, maritime shipping and global data solutions (“GDS”) plus our Service and Rental business unit (previously in our Subsea Products segment). Our OPG segment provides the following:
◦subsea installation and intervention, including riserless light well intervention services, inspection, maintenance and repair (“IMR”) services, principally in the U.S. Gulf of Mexico and offshore Angola, utilizing owned and charter vessels;
◦installation and workover control systems and ROV workover control systems;
◦project management and engineering; and
◦seabed preparation, route clearance and trenching services for submarine cables for the renewable energy markets.
•Integrity Management & Digital Solutions—Our IMDS segment consists of our prior Asset Integrity segment plus GDS and maritime shipping (both previously in our Subsea Projects segment). Our IMDS segment provides the following:
◦asset integrity management services;
◦software and analytical solutions for the bulk cargo maritime industry; and
◦software, digital and connectivity solutions for the energy industry.
Our Aerospace and Defense Technologies segment consists of our prior Government business unit (previously in our Advanced Technologies segment). Our ADTech segment provides services and products include engineering and related manufacturing in defense and space exploration activities, principally to U.S. Government agencies and their prime contractors.
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.
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The table that follows presents revenue, income (loss) from operations and depreciation and amortization expense by business segment:
| Three Months Ended | ||||||||||||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 * | Dec 31, 2020 | |||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||
| Energy Services and Products | ||||||||||||||||||||||||||||||||
| Subsea Robotics | $ | $ | $ | |||||||||||||||||||||||||||||
| Manufactured Products | ||||||||||||||||||||||||||||||||
| Offshore Projects Group | ||||||||||||||||||||||||||||||||
| Integrity Management & Digital Solutions | ||||||||||||||||||||||||||||||||
| Total Energy Services and Products | ||||||||||||||||||||||||||||||||
| Aerospace and Defense Technologies | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||
| Income (Loss) from Operations | ||||||||||||||||||||||||||||||||
| Energy Services and Products | ||||||||||||||||||||||||||||||||
| Subsea Robotics | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Manufactured Products | ( | |||||||||||||||||||||||||||||||
| Offshore Projects Group | ( | ( | ||||||||||||||||||||||||||||||
| Integrity Management & Digital Solutions | ( | |||||||||||||||||||||||||||||||
| Total Energy Services and Products | ( | |||||||||||||||||||||||||||||||
| Aerospace and Defense Technologies | ||||||||||||||||||||||||||||||||
| Unallocated Expenses | ( | ( | ( | |||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Depreciation and Amortization, including Goodwill Impairment | ||||||||||||||||||||||||||||||||
| Energy Services and Products | ||||||||||||||||||||||||||||||||
| Subsea Robotics | $ | $ | $ | |||||||||||||||||||||||||||||
| Manufactured Products | ||||||||||||||||||||||||||||||||
| Offshore Projects Group | ||||||||||||||||||||||||||||||||
| Integrity Management & Digital Solutions | ||||||||||||||||||||||||||||||||
| Total Energy Services and Products | ||||||||||||||||||||||||||||||||
| Aerospace and Defense Technologies | ||||||||||||||||||||||||||||||||
| Unallocated Expenses | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||
| * Recast to reflect segment changes. | ||||||||||||||||||||||||||||||||
We determine Income (Loss) 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.
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Income (Loss) from Operations
Three Months Ended March 31, 2021—During the three-month period ended March 31, 2021, we recorded adjustments attributable to each of our reporting segments as follows:
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | OPG | IMDS | ADTech | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Adjustments for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total of adjustments | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020—During the three-month period ended March 31, 2020, we recorded adjustments attributable to each of our reporting segments as follows:
| For the Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | OPG | IMDS | ADTech | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Adjustments for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-lived assets impairments | $ | — | $ | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||
| Long-lived assets write-offs | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total of adjustments | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, 2020—During the three-month period ended December 31, 2020, we recorded adjustments attributable to each of our reporting segments as follows:
| For the Three Months Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | OPG | IMDS | ADTech | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Adjustments for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-lived assets impairments | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||
| Long-lived assets write-offs | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total of adjustments | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and Amortization, including Goodwill Impairment
Depreciation expense on property and equipment, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, was $35 million, $43 million and $46 million in the three-month periods ended March 31, 2021 and 2020 and December 31, 2020, respectively.
Amortization expense on long-lived intangible assets, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, was $1.3 million, $2.6 million and less than $1.0 million in the three-month periods ended March 31, 2021 and 2020 and December 31, 2020, respectively.
Goodwill impairment expense, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, was $303 million in the three-month period ended March 31, 2020. For further information regarding goodwill impairment expense, see Note 4–“Impairments.”
Long-lived asset write-offs, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, were $7.3 million and $9.6 million in the three-month periods ended March 31, 2020 and December 31, 2020, respectively. For further information regarding our long-lived assets write-offs, see Note 4– “Impairments.”
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements we make in this quarterly report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our expectations about:
•the impacts of the coronavirus (“COVID-19”) pandemic on the U.S. and the global economy, as well as on our business;
•our second quarter 2021 operating results and the contributions from our segments to those results, as well as the amount of Unallocated Expenses for the second quarter;
•tax refunds under the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and other tax refunds;
•our cash tax payments and projected capital expenditures for 2021;
•free cash flow, which we define as net cash provided by operating activities less cash paid for purchases of property and equipment, in 2021 and in future periods;
•future demand, order intake and business activity levels;
•the backlog of our Manufactured Products segment, to the extent backlog may be an indicator of future revenue or productivity;
•the adequacy of our liquidity, cash flows and capital resources;
•shares to be repurchased under our share repurchase plan;
•the implementation of new accounting standards and related policies, procedures and controls;
•seasonality; and
•industry conditions.
These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” in Part I of our annual report on Form 10-K for the year ended December 31, 2020. 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.
The following discussion should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2020.
Realignment of Reportable Segments
As described in Note 10—“Business Segment Information” in the Notes to Consolidated Financial Statements included in this report, in the third quarter of 2020, we changed our organizational structure as part of the transformation to realign our businesses to achieve greater cost efficiencies and to bring together business units that frequently work together and promote increased synergies in bidding, project management and the use of offshore technicians. As a result, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Therefore, for the three months ended March 31, 2021 and 2020, we are reporting our financial results consistent with our newly realigned operating segments and have recast certain prior period amounts to conform to the way we internally manage our businesses and monitor segment performance. Our new structure aligns our company around five reportable segments: (1) Subsea Robotics; (2) Manufactured Products; (3) Offshore Projects Group (“OPG”); (4) Integrity Management & Digital Solutions (“IMDS”); and (5) Aerospace and Defense Technologies (“ADTech”).
Overview of our Results and Guidance
Our diluted earnings (loss) per share for the three-month period ended March 31, 2021 were $(0.09), as compared to $(0.25) in the immediately preceding quarter and $(3.71) for the corresponding period of the prior year. We have continued to improve our operating performance by driving operational efficiency, led by focusing on safety, quality
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and value-based solutions for our customers. Each of our operating segments reported positive adjusted operating income in the first quarter of 2021.
During the first quarter of 2021, we utilized $1.7 million of cash in operating activities, as the payment of accrued employee incentive payments related to attainment of specific performance goals in prior periods was mostly offset by good operating performance. In addition, $11 million of cash was used for maintenance and growth capital expenditures. These two items were the largest contributors to our $9.3 million cash reduction during the first quarter of 2021.
Looking forward, we believe our consolidated second quarter 2021 results will improve sequentially on higher revenue. We anticipate higher activity levels and operating results in our Subsea Robotics and OPG segments, higher activity levels and relatively flat operating results in our IMDS and ADTech segments and lower activity levels and lower operating results in our Manufactured Products segment. Unallocated Expenses are expected to average in the low- to mid-$30 million range.
On March 27, 2020, the CARES Act was signed into law in the United States. In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back our U.S. net operating loss generated in 2019 and amended our 2012 and 2013 federal income tax returns impacted by the net operating loss carryback. Prior to the enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately $33 million, of which we have received $5.6 million as of March 31, 2021. The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as of March 31, 2021.
Our cash tax payments for the full year of 2021 are estimated to be in the range of $40 million to $45 million, primarily due to taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations. These cash tax payments do not include the impact of approximately $28 million of CARES Act tax refunds expected to be received in 2021.
We affirm our guidance range of $50 million to $70 million for capital expenditures for the full year of 2021. We remain committed to maintaining strong liquidity for the full year of 2021 and believe that our cash position, undrawn revolving credit facility, and debt maturity profile should provide us ample resources and time
to address potential opportunities to improve our returns.
Results of Operations
We operate in five business segments. The 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 and mobility solutions industries (“Energy Services and Products”) and services and products provided to non-energy industries (“Aerospace and Defense Technologies”). Our Unallocated Expenses are those not associated with a specific business segment.
Consolidated revenue and profitability information are as follows:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Mar 31, 2021 | Mar 31, 2020 | Dec 31, 2020 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 437,553 | $ | 536,668 | $ | 424,262 | |||||||||||||||||||||||||||||
| Gross Margin | 56,657 | 46,752 | 45,001 | ||||||||||||||||||||||||||||||||
| Gross Margin % | 13 | % | 9 | % | 11 | % | |||||||||||||||||||||||||||||
| Operating Income (Loss) | 13,783 | (380,757) | 480 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 3 | % | (71) | % | — | % | |||||||||||||||||||||||||||||
We generate a material amount of our consolidated revenue from contracts for services in the U.S. Gulf of Mexico in our OPG 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 IMDS segment are also seasonally more active in the second and third quarters. Revenue in our Subsea Robotics segment is subject to seasonal variations in demand, with our first quarter generally being the low quarter of the year. The level of our Subsea Robotics seasonality depends on the number of Remotely Operated Vehicles (“ROVs”) we have engaged in vessel-based subsea infrastructure
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inspection, maintenance, repair and installation, which is more seasonal than drilling support. Revenue in each of our Manufactured Products and ADTech segments generally has not been seasonal.
We had operating income (losses) of $14 million, $(381) million and $0.5 million in the three-month periods ended March 31, 2021, March 31, 2020 and December 31, 2020, respectively. Included in our operating income (losses) for the three months ended March 31, 2021, March 31, 2020 and December 31, 2020 were charges of $1.3 million, $386 million and $9.1 million, respectively, primarily due to market conditions requiring impairment of certain of our assets along with other costs we recognized as we adapted our geographic footprint and staffing levels to the conditions of the markets we serve. Charges included in the three months ended March 31, 2021, March 31, 2020 and December 31, 2020 are summarized as follows:
| For the three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | Offshore Projects Group | Integrity Management & Digital Solutions | Aerospace and Defense Technologies | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Charges for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | $ | 395 | $ | 537 | $ | 149 | $ | 217 | $ | 10 | $ | — | $ | 1,308 | ||||||||||||||||||||||||||||||||||||
| Total charges | $ | 395 | $ | 537 | $ | 149 | $ | 217 | $ | 10 | $ | — | $ | 1,308 | ||||||||||||||||||||||||||||||||||||
| For the three months ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | Offshore Projects Group | Integrity Management & Digital Solutions | Aerospace and Defense Technologies | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Charges for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-lived assets impairments | $ | — | $ | 61,074 | $ | 7,522 | $ | 167 | $ | — | $ | — | $ | 68,763 | ||||||||||||||||||||||||||||||||||||
| Long-lived assets write-offs | 7,328 | — | — | — | — | — | 7,328 | |||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | 102,118 | 11,388 | 66,285 | 123,214 | — | — | 303,005 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 919 | 1,984 | 1,216 | 2,231 | — | 280 | 6,630 | |||||||||||||||||||||||||||||||||||||||||||
| Total charges | $ | 110,365 | $ | 74,446 | $ | 75,023 | $ | 125,612 | $ | — | $ | 280 | $ | 385,726 | ||||||||||||||||||||||||||||||||||||
| For the three months ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Subsea Robotics | Manufactured Products | Offshore Projects Group | Integrity Management & Digital Solutions | Aerospace and Defense Technologies | Unallocated Expenses | Total | |||||||||||||||||||||||||||||||||||||||||||
| Charges for the effects of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-lived assets impairments | $ | — | $ | — | $ | 1,304 | $ | 378 | $ | — | $ | — | $ | 1,682 | ||||||||||||||||||||||||||||||||||||
| Long-lived assets write-offs | — | — | 9,401 | 170 | — | — | 9,571 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 221 | (3,489) | 643 | 422 | 27 | — | (2,176) | |||||||||||||||||||||||||||||||||||||||||||
| Total charges | $ | 221 | $ | (3,489) | $ | 11,348 | $ | 970 | $ | 27 | $ | — | $ | 9,077 | ||||||||||||||||||||||||||||||||||||
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 predominantly for offshore energy
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operations and subsea completions, inclusive of our customers’ operating expenses and the offshore renewable energy market.
The table that follows sets out the revenue and profitability for the business segments within our Energy Services and Products business. In the Subsea Robotics section of the table that follows, “ROV days available” includes all days from the first day that an ROV is placed into 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.
| Three Months Ended | |||||||||||||||||||||||||||||||||||
(dollars in thousands) | Mar 31, 2021 | Mar 31, 2020 * | Dec 31, 2020 | ||||||||||||||||||||||||||||||||
| Subsea Robotics | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 119,119 | $ | 139,770 | $ | 114,711 | |||||||||||||||||||||||||||||
| Gross Margin | 24,078 | 19,473 | 24,777 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 14,619 | (94,083) | 14,477 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 12 | % | (67) | % | 13 | % | |||||||||||||||||||||||||||||
| ROV Days Available | 22,469 | 22,750 | 22,999 | ||||||||||||||||||||||||||||||||
| ROV Days Utilized | 11,887 | 14,853 | 12,456 | ||||||||||||||||||||||||||||||||
| ROV Utilization | 53 | % | 65 | % | 54 | % | |||||||||||||||||||||||||||||
| Manufactured Products | |||||||||||||||||||||||||||||||||||
| Revenue | 86,825 | 166,534 | 99,899 | ||||||||||||||||||||||||||||||||
| Gross Margin | 10,004 | 17,949 | 20,092 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 2,753 | (66,138) | 12,218 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 3 | % | (40) | % | 12 | % | |||||||||||||||||||||||||||||
| Backlog at End of Period | 248,000 | 419,000 | 266,000 | ||||||||||||||||||||||||||||||||
| Offshore Projects Group | |||||||||||||||||||||||||||||||||||
| Revenue | 89,234 | 74,254 | 67,821 | ||||||||||||||||||||||||||||||||
| Gross Margin | 15,111 | 2,095 | (2,367) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 8,813 | (79,323) | (9,940) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 10 | % | (107) | % | (15) | % | |||||||||||||||||||||||||||||
| Integrity Management & Digital Solutions | |||||||||||||||||||||||||||||||||||
| Revenue | 54,048 | 64,729 | 54,307 | ||||||||||||||||||||||||||||||||
| Gross Margin | 8,209 | 9,792 | 7,396 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 2,474 | (121,535) | 892 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 5 | % | (188) | % | 2 | % | |||||||||||||||||||||||||||||
| Total Energy Services and Products | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 349,226 | $ | 445,287 | $ | 336,738 | |||||||||||||||||||||||||||||
| Gross Margin | 57,402 | 49,309 | 49,898 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 28,659 | (361,079) | 17,647 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 8 | % | (81) | % | 5 | % | |||||||||||||||||||||||||||||
| * Recast to reflect segment changes. | |||||||||||||||||||||||||||||||||||
In general, our Energy Services and Products business focuses on supplying services and products to the oil and gas industry, and to a lesser extent, the offshore renewables and mobility solutions industries. The adverse impacts of the COVID-19 pandemic and the associated supply and demand imbalance along with lower crude oil prices
26
have resulted in lower levels of activity and profitability. As we expect a recovery will take time to restore profitability and generate satisfactory returns, we have been reviewing our cost structure and aggressively implementing cost improvement initiatives.
Subsea Robotics. We believe we are the world's largest provider of ROV services and, generally, this business segment has been the largest contributor to our Energy Services and Products business operating income. Our Subsea Robotics segment revenue reflects the utilization percentages, fleet sizes and average pricing in the respective periods. Our survey services business provides survey and positioning, and geoscience services. The following table presents revenue from ROV as a percentage of total Subsea Robotics revenue:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Mar 31, 2021 | Mar 31, 2020 * | Dec 31, 2020 | |||||||||||||||||||||||||||||||||
| ROV | 78 | % | 80 | % | 80 | % | |||||||||||||||||||||||||||||
| Other | 22 | % | 20 | % | 20 | % | |||||||||||||||||||||||||||||
| * Recast to reflect segment changes. | |||||||||||||||||||||||||||||||||||
During the first quarter of 2021, Subsea Robotics operating income was flat on slightly higher revenue as compared to the immediately preceding quarter, primarily due to higher ROV drill support days and survey activity. Pricing for the various Subsea Robotics services remained stable during the first quarter of 2021. Subsea Robotics operating income for the first quarter of 2021 increased as compared to the corresponding period of the prior year, due to charges of $110 million in the first quarter of 2020 for goodwill impairment, write-offs of certain equipment, and other expenses. Exclusive of those charges, Subsea Robotics operating income for the first quarter of 2021 decreased as compared to the corresponding period of the prior year as a result of fewer ROV days on hire.
Fleet utilization decreased to 53% in the three-month period ended March 31, 2021 from 54% and 65% for the three-month periods ended December 31, 2020 and March 31, 2020, respectively. We added three new ROVs to our fleet during the three months ended March 31, 2021 and retired three, resulting in a total of 250 ROVs in our ROV fleet as of both March 31, 2021 and March 31, 2020.
Manufactured Products. Our Manufactured Products segment provides distribution systems such as production control umbilicals and connection systems made up of specialty subsea hardware, and provides 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 (“AGV”) technology to a variety of industries.
Our Manufactured Products operating results in the first quarter of 2021 were lower than those of the immediately preceding quarter, on lower revenue. First quarter of 2021 operating results did not benefit from favorable contract close-outs and negotiated supply chain savings that occurred in the fourth quarter of 2020. Activity in our mobility solutions businesses remained weak during the first quarter of 2021. Manufactured Products operating income for the first quarter of 2021 increased as compared to the corresponding period of the prior year, due to charges of $74 million in the first quarter of 2020 for long-lived asset and goodwill impairments, and other expenses. Exclusive of those charges, Manufactured Products operating income decreased as compared to the corresponding period of the prior year as a result of increased activity in subsea umbilical and hardware throughput in the first quarter of 2020 that did not occur in the first quarter of 2021.
Our Manufactured Products backlog was $248 million as of March 31, 2021 compared to $266 million as of December 31, 2020. The backlog decrease was attributable to reduced levels of bookings in 2021 in both our energy-related and non-energy related operations. Many of our energy-related Manufactured Products customers have delayed investment decisions due to low oil demand and pricing through much of 2020, while many of our non-energy-related customers have delayed investment decisions due to uncertainties regarding COVID-19 and the related potential operating risks. Our book-to-bill ratio was 0.6 for the trailing 12 months, as compared with a book-to-bill ratio of 0.4 for the year ended December 31, 2020.
Offshore Projects Group. Our OPG segment provides a broad portfolio of integrated subsea project capabilities and solutions, including subsea installation and intervention, installation and workover control systems (“IWOCS”)
27
and ROV workover control systems (“RWOCS”), project management and engineering, and seabed preparation, route clearance and trenching services.
Our OPG operating results improved in the first quarter of 2021 as compared to the immediately preceding quarter, due to fourth quarter charges of $11 million for asset impairments and write-offs and other expenses. Exclusive of those charges, our OPG operating results increased in the first quarter of 2021 as compared to the immediately preceding quarter, on higher revenue, primarily due to the start-up of field activities on the riserless light well intervention project in Angola. Our OPG operating results improved in the three months ended March 31, 2021 compared to the corresponding period of the prior year, due to first quarter 2020 charges of $75 million for goodwill and asset impairments and other expenses. Exclusive of those charges, our OPG operating results were higher in the three-month period ended March 31, 2021 as compared to the corresponding period of the prior year, primarily due to the year-over-year contribution from our Angola riserless light well intervention campaign discussed above.
Integrity Management & Digital Solutions. Through our IMDS segment we provide asset integrity management, corrosion management, inspection and nondestructive 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. We also provide software, digital and connectivity solution for the energy industry and software and analytical solutions for the bulk cargo maritime industry.
Our IMDS operating results for the first quarter of 2021 improved, as compared to the immediately preceding quarter, on flat revenue, primarily due to improved execution. IMDS operating results for the three-month period ended March 31, 2021 as compared to the corresponding period of the prior year, improved primarily due to charges in the first quarter of 2020 of $126 million for goodwill and asset impairments and other expenses. Exclusive of those charges, operating results for the three-month period ended March 31, 2021 were lower as compared to the corresponding period of the prior year, due to higher pre-COVID activity levels in the first quarter of 2020.
Aerospace and Defense Technologies. Our ADTech segment provides government services and products, including engineering and related manufacturing in defense and space exploration activities, principally to U.S. government agencies and their prime contractors.
Revenue, gross margin and operating income (loss) information for our ADTech segment are as follows:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Mar 31, 2021 | Mar 31, 2020 * | Dec 31, 2020 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 88,327 | $ | 91,381 | $ | 87,524 | |||||||||||||||||||||||||||||
| Gross Margin | 22,110 | 17,485 | 20,328 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 16,839 | 12,971 | 16,525 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) % | 19 | % | 14 | % | 19 | % | |||||||||||||||||||||||||||||
* Recast to reflect segment changes. | |||||||||||||||||||||||||||||||||||
Our ADTech segment operating results for the first quarter of 2021 were marginally higher as compared to the immediately preceding quarter, on flat revenue. ADTech operating results for the three-month period ended March 31, 2021 were slightly higher when compared to the corresponding period of the prior year, on slightly lower revenue due to increased activity in both defense subsea technologies and space systems.
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 expense consist of those expenses within gross margin plus general and administrative expenses related to corporate functions.
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The following table sets forth our Unallocated Expenses for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
(dollars in thousands) | Mar 31, 2021 | Mar 31, 2020 | Dec 31, 2020 | ||||||||||||||||||||||||||||||||
| Gross margin expenses | $ | (22,855) | $ | (20,042) | (25,225) | ||||||||||||||||||||||||||||||
| % of revenue | 5 | % | 4 | % | 6 | % | |||||||||||||||||||||||||||||
| Operating expenses | (31,715) | (32,649) | (33,692) | ||||||||||||||||||||||||||||||||
| Operating expenses % of revenue | 7 | % | 6 | % | 8 | % | |||||||||||||||||||||||||||||
Our Unallocated operating expenses for the first quarter of 2021 were lower as compared to the immediately preceding quarter due to lower expenses for information technology-related projects resulting from timing delays. Our Unallocated operating expenses for the first quarter of 2021 were relatively flat as compared to the corresponding period of the prior year.
Other
The following table sets forth our significant financial statement items below the income (loss) from operations line.
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 | Dec 31, 2020 | ||||||||||||||||||||||||||||||||
| Interest income | $ | 519 | $ | 1,277 | $ | 881 | |||||||||||||||||||||||||||||
| Interest expense, net of amounts capitalized | (10,407) | (12,462) | (10,577) | ||||||||||||||||||||||||||||||||
| Equity in income (losses) of unconsolidated affiliates | 534 | 1,197 | 266 | ||||||||||||||||||||||||||||||||
| Other income (expense), net | (1,453) | (7,128) | (645) | ||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 12,341 | (30,275) | 15,405 | ||||||||||||||||||||||||||||||||
In addition to interest on borrowings, interest expense, net of amounts capitalized, includes amortization of loan costs and hedge accounting adjustments, 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.
Foreign currency transaction gains and losses are the principal component of other income (expense), net. In the three-month periods ended March 31, 2021 and 2020, we incurred foreign currency transaction gains (losses) of $(1.9) million and $(7.1) million, respectively. The currency losses in the 2021 and 2020 periods were primarily related to declining exchange rates for the Angolan kwanza and the Brazilian real relative to the U.S. dollar. We could incur further foreign currency exchange losses in Angola and Brazil if further currency devaluations occur.
Our 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 geographical mix of our results. The effective tax rate for the three-month periods ended March 31, 2021 and 2020 was different than the federal statutory rate of 21%, primarily due to the geographical mix of operating revenue and results, changes in uncertain tax positions and other discrete items. Therefore, we do not believe a discussion of the annual effective tax rate is meaningful. 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.
On March 27, 2020, the CARES Act was signed into law in the United States. In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back our U.S. net operating loss generated in 2019 and amended our 2012 and 2013 federal income tax returns impacted by the net
operating loss carryback. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately $33 million, of which we have received $5.6 million as of March 31, 2021. The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as of March 31, 2021.
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Liquidity and Capital Resources
We consider our liquidity, cash flows and capital resources adequate to support our operations, capital commitments and growth initiatives. As of March 31, 2021, we had working capital of $745 million, including $443 million of cash and cash equivalents. Additionally, we had $500 million available through our revolving credit facility under a credit agreement further described below.
Amendment No. 4 to the Credit Agreement (as defined below) provides for a $500 million revolving credit facility until October 25, 2021 and thereafter $450 million until January 25, 2023 with a group of banks. Our revolving credit facility provided under the Credit Agreement was undrawn as of March 31, 2021, and remains undrawn as of the date of this report, and our nearest maturity of indebtedness is our $500 million of 2024 Notes (as defined below) due in November 2024. Given that the 2024 Notes are currently trading at market discount to principal amount, we may, from time to time, complete limited repurchases of the 2024 Notes, via open-market or privately negotiated repurchase transactions or otherwise, prior to their maturity date. We can provide no assurances as to the timing of any such repurchases or whether we will complete any such repurchases at all. We do not intend to disclose further information regarding any such repurchase transactions, except to the extent required in our subsequent periodic filings on Forms 10-K or 10-Q, or unless otherwise required by applicable law.
Cash flows for the three months ended March 31, 2021 and 2020 are summarized as follows:
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 | |||||||||||||||||||||
| Changes in Cash: | |||||||||||||||||||||||
| Net Cash Used in Operating Activities | $ | (1,723) | $ | (32,150) | |||||||||||||||||||
| Net Cash Used in Investing Activities | (5,007) | (26,706) | |||||||||||||||||||||
| Net Cash Used in Financing Activities | (1,806) | (1,668) | |||||||||||||||||||||
| Effect of exchange rates on cash | (737) | (5,671) | |||||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | $ | (9,273) | $ | (66,195) | |||||||||||||||||||
Operating activities
Our primary sources and uses of cash flows from operating activities for the three months ended March 31, 2021 and 2020 are as follows:
| Three Months Ended | ||||||||||||||||||||||||||
| (in thousands) | Mar 31, 2021 | Mar 31, 2020 | ||||||||||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||||||||
| Net income (loss) | $ | (9,365) | $ | (367,598) | ||||||||||||||||||||||
| Non-cash items, net | 36,106 | 420,333 | ||||||||||||||||||||||||
| Accounts receivable and contract assets | (11,616) | 30,303 | ||||||||||||||||||||||||
| Inventory | 10,628 | 8,384 | ||||||||||||||||||||||||
| Current liabilities | (20,373) | (102,784) | ||||||||||||||||||||||||
| Other changes | (7,103) | (20,788) | ||||||||||||||||||||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (1,723) | $ | (32,150) | ||||||||||||||||||||||
The decrease in cash related to accounts receivable and contract assets in the three months ended March 31, 2021 reflects the timing of project milestones and customer payments. The increase in cash related to inventory in the three months ended March 31, 2021 corresponds with a decrease in our backlog. The decrease in cash related to current liabilities in the three months ended March 31, 2021 reflects the timing of vendor payments and the annual employee incentive payments related to attainment of specific performance goals in prior periods.
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Investing activities
Our capital expenditures of $11 million were lower during the first three months of 2021, as compared to $27 million in the first three months of 2020, as a result of actions we have taken in 2021 and 2020 to reduce costs and preserve liquidity.
For 2021, we expect our organic capital expenditures to be in the range of $50 million to $70 million. This includes approximately $35 million to $40 million of maintenance capital expenditures and $15 million to $30 million of growth capital expenditures.
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.
Financing activities
In the three months ended March 31, 2021, we used $1.8 million of cash in financing activities. In the three months ended March 31, 2020, we used $1.7 million in financing activities.
As of March 31, 2021, we had long-term debt in the principal amount of $800 million outstanding and $500 million available under our revolving credit facility provided under the Credit Agreement.
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 (as defined and discussed below), 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 and which stipulates, that among other items, we exclude any impacts associated with current and prior period impairments) of 55%. The Credit Agreement includes customary events of default and associated remedies.
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.
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In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the “2028 Senior Notes”). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028.
We may redeem some or all of the 2024 Senior Notes and 2028 Senior Notes at specified redemption prices.
In December 2014, our Board of Directors approved a plan to repurchase up to 10 million shares of our common stock. In 2015, we repurchased 2.0 million shares under this plan. 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. The timing and amount of any future repurchases will be determined by our management. We expect that any additional shares repurchased under the plan will be held as treasury stock for possible future use. The plan does not obligate us to repurchase any particular number of shares.
Off-Balance Sheet Arrangements
We have not guaranteed any debt not reflected on our Consolidated Balance Sheets as of March 31, 2021, and we do not have any off-balance sheet arrangements, as defined by SEC rules.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been 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 in our financial statements and accompanying notes. We disclose our significant accounting policies in Notes to Consolidated Financial Statements—Note 1—“Summary of Major Accounting Policies” in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2020, in Part II. Item 7. “Financial Statements and Supplementary Data—Note 1—Summary of Major Accounting Policies.”
For information about our critical accounting policies and estimates, see Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our annual report on Form 10-K for the year ended December 31, 2020. As of March 31, 2021, there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting policies and estimates are based.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are currently exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks relate to interest rate changes and fluctuations in foreign exchange rates. Except for our exposure in Angola, we do not believe these risks are material. We have not entered into any market-risk-sensitive instruments for speculative or trading purposes. When we have a significant amount of borrowings, we typically manage our exposure to interest rate changes through the use of a combination of fixed- and floating-rate debt. See Note 7—“Debt” in the Notes to Consolidated Financial Statements in this quarterly report for a description of our revolving credit facility and interest rates on our borrowings. We had two interest rate swaps in place relating to a total of $200 million of the 2024 Senior Notes. These 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 terminated 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 United Kingdom 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 to our equity accounts of $(2.9) million and $(70) million in the three-month periods ended March 31, 2021 and 2020, 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 gains (losses) of $(1.9) million and $(7.1) million in the three-month periods ended March 31, 2021 and 2020, respectively. We recorded foreign currency transaction losses related to the Angolan kwanza and Brazilian real as a component of other income (expense), net in our Consolidated Statements of Operations in those respective periods. Foreign currency gains (losses) related to the Brazilian real of $(0.1) million and $(4.0) million in the three-month periods ended March 31, 2021 and 2020, respectively, were primarily due to the remeasurement of our U.S. dollar denominated liability balances to the Brazilian real. Foreign currency transaction gains (losses) related to the Angolan kwanza of $(1.4) million and $(1.9) million in three-month periods ended March 31, 2021 and 2020, respectively, were primarily due 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. During 2020, we were able to repatriate $11 million of cash from Angola.
As of March 31, 2021 and December 31, 2020, we had the equivalent of approximately $3.3 million and $4.7 million, respectively, of kwanza cash balances in Angola reflected in 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. As of March 31, 2021 and December 31, 2020, we had $9.2 million and $10 million, respectively, of Angolan bonds on our Consolidated Balance Sheets. During the three-month period ended March 31, 2021, we sold a portion of these bonds for $2.4 million. 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 in our Consolidated Balance Sheets.
We estimated the fair market value of the Angolan bonds to be $9.2 million and $10 million as of March 31, 2021 and December 31, 2020, respectively, 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. As of March 31, 2021, we have $1.1 million in unrealized gains, net of tax, related to these bonds as a component of accumulated other comprehensive loss in our Consolidated Balance Sheets.
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Item 4. 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 March 31, 2021 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.
There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.Legal Proceedings†
For information regarding legal proceedings, see the discussion under the caption “Litigation” in Note 8—“Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this report, which discussion we incorporate by reference into this Item.
Item 6. Exhibits
| Index to Exhibits | |||||||||||||||||||||||||||||||||||
| Registration or File Number | Form of Report | Report Date | Exhibit Number | ||||||||||||||||||||||||||||||||
| * | 3.01 | 1-10945 | 10-K | Dec. 2000 | 3.01 | ||||||||||||||||||||||||||||||
| * | 3.02 | 1-10945 | 8-K | May 2008 | 3.1 | ||||||||||||||||||||||||||||||
| * | 3.03 | 1-10945 | 8-K | May 2014 | 3.1 | ||||||||||||||||||||||||||||||
| * | 3.04 | 1-10945 | 8-K | Aug. 2020 | 3.01 | ||||||||||||||||||||||||||||||
| * | 10.01† | 1-10945 | 8-K | Feb. 2021 | 10.1 | ||||||||||||||||||||||||||||||
| * | 10.02† | 1-10945 | 8-K | Feb. 2021 | 10.2 | ||||||||||||||||||||||||||||||
| * | 10.03† | 1-10945 | 8-K | Feb. 2021 | 10.3 | ||||||||||||||||||||||||||||||
| * | 10.04† | 1-10945 | 8-K | Feb. 2021 | 10.4 | ||||||||||||||||||||||||||||||
| * | 10.05† | 1-10945 | 8-K | Feb. 2021 | 10.5 | ||||||||||||||||||||||||||||||
| 31.01 | |||||||||||||||||||||||||||||||||||
| 31.02 | |||||||||||||||||||||||||||||||||||
| 32.01 | |||||||||||||||||||||||||||||||||||
| 32.02 | |||||||||||||||||||||||||||||||||||
| 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 | XBRL Taxonomy Extension Schema Document | ||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||||||||||||||||||||
| 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. | ||||||||||||||||||||||||||||||||||
35
SIGNATURES
Pursuant to the requirements 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.
| April 30, 2021 | /S/ RODERICK A. LARSON | |||||||
Date | Roderick A. Larson | |||||||
President and Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
| April 30, 2021 | /S/ ALAN R. CURTIS | |||||||
Date | Alan R. Curtis | |||||||
Senior Vice President and Chief Financial Officer | ||||||||
(Principal Financial Officer) | ||||||||
| April 30, 2021 | /S/ WITLAND J. LEBLANC, JR. | |||||||
Date | Witland J. LeBlanc, Jr. | |||||||
Vice President and Chief Accounting Officer | ||||||||
(Principal Accounting Officer) | ||||||||
36
Exhibit 31.01
CERTIFICATION
I, Roderick A. Larson, principal executive officer of Oceaneering International, Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Oceaneering International, Inc. for the quarter ended March 31, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| April 30, 2021 | /S/ RODERICK A. LARSON | |||||||
Date | Roderick A. Larson | |||||||
President and Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
Exhibit 31.02
CERTIFICATION
I, Alan R. Curtis, principal financial officer of Oceaneering International, Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Oceaneering International, Inc. for the quarter ended March 31, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| April 30, 2021 | /S/ ALAN R. CURTIS | |||||||
Date | Alan R. Curtis | |||||||
Senior Vice President and Chief Financial Officer | ||||||||
(Principal Financial Officer) | ||||||||
Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Oceaneering International, Inc. ("Oceaneering") on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Roderick A. Larson, principal executive officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oceaneering.
| April 30, 2021 | /S/ RODERICK A. LARSON | |||||||
Date | Roderick A. Larson | |||||||
President and Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
Exhibit 32.02
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Oceaneering International, Inc. ("Oceaneering") on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alan R. Curtis, principal financial officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oceaneering.
| April 30, 2021 | /S/ ALAN R. CURTIS | |||||||
Date | Alan R. Curtis | |||||||
Senior Vice President and Chief Financial Officer | ||||||||
(Principal Financial Officer) | ||||||||