NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF MAJOR ACCOUNTING POLICIES
Basis of Presentation. Oceaneering International, Inc. (“Oceaneering,” “we” or “us”) has prepared these unaudited consolidated financial statements pursuant to instructions for quarterly reports on Form 10-Q, which we are required to file with the United States Securities and Exchange Commission (the “SEC”). These financial statements do not include all information and footnotes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These financial statements reflect all adjustments that we believe are necessary to present fairly our financial position as of June 30, 2021 and our results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, all such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2020. The results for interim periods are not necessarily indicative of annual results.
Principles of Consolidation. The consolidated financial statements include the accounts of Oceaneering and our 50% or more owned and controlled subsidiaries. We also consolidate entities that are determined to be variable interest entities if we determine that we are the primary beneficiary; otherwise, we account for those entities using the equity method of accounting. We use the equity method to account for our investments in unconsolidated affiliated companies of which we own an equity interest of between 20% and 50% and as to which we have significant influence, but not control, over operations. We use the cost method for all other long-term investments. Investments in entities that we do not consolidate are reflected on our balance sheet in other noncurrent assets. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires that our management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Recasting of Certain Prior Period Information. 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, for the three- and six-month periods ended June 30, 2021, 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 now manage our businesses and monitor segment performance as described in Note 3–“Revenue” and Note 10–“Business Segment Information.” We also changed our reporting units to realign with the changes in our operating segments and reassessed impairments for long-lived assets and goodwill as described in Note 4–“Impairments.”
Reclassifications. Certain amounts from prior periods have been reclassified to conform with the current year
presentation.
Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less from the date of investment.
Allowances for Credit Loss—Financial Assets Measured at Amortized Costs. 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 market conditions, as a result of COVID-19, in determining credit loss expense for the three- and six-month periods ended June 30, 2021 and 2020.
As of June 30, 2021, our allowance for credit losses was $1.6 million for accounts receivable and $0.9 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- and six-month periods ended June 30, 2021, we wrote off accounts receivable of $0.7 million and $3.1 million, respectively, that previously had been reserved.
We have elected to apply the practical expedient available under “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as amended, (“ASC 326”) to exclude the accrued interest receivable balance that is included in our held-to-maturity loans receivable. The amount excluded as of June 30, 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 June 30, 2021. We generally do not require collateral from our customers.
Inventory. Inventory is valued at the lower of cost or net realizable value. We determine cost using the weighted-average method. We periodically review the value of items in inventory and record write-downs or write-offs of inventory based on our assessment of market conditions. Write-downs and write-offs are charged to cost of services and products. We did not record any write-downs or write-offs of inventory in the three- and six-month periods ended June 30, 2021 and 2020.
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- and six-month periods ended June 30, 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 six-month period ended June 30, 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- and six-month periods ended June 30, 2021 or the three-month period ended June 30, 2020.
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.
Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
In our annual evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the qualitative approach, if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform the quantitative analysis to determine the fair value for the reporting unit. We then compare the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. For additional information regarding impairments of goodwill during 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 goodwill for the three- and six-month periods ended June 30, 2021 or the three-month period ended June 30, 2020.
Foreign Currency Translation. The functional currency for most of our foreign subsidiaries is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect as of the balance sheet date, and the resulting translation adjustments are recognized, net of tax, in accumulated other comprehensive income (loss) as a component of shareholders' equity. All foreign currency transaction gains and losses are recognized currently in the Consolidated Statements of Operations. We recorded $(1.8) million and $(3.7) million of foreign currency transaction gains (losses) in the three- and six-month periods ended June 30, 2021, respectively. We recorded $(3.9) million and $(11) million of foreign currency transaction gains (losses) in the three- and six-month periods ended June 30, 2020, respectively. Those amounts are included as a component of other income (expense), net in our Consolidated Statement of Operations.
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 an input method to recognize revenue, 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. 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.
During the three- and six-month periods ended June 30, 2021, we recognized a projected loss of $1.5 million for a contract in our Subsea Robotics segment. We did not have any material adjustments during the three- and six-month periods ended June 30, 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 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
Recently Adopted Accounting Standards. On January 1, 2021, we adopted Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification 740 (“ASC 740”), “Income Taxes,” and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. Our adoption of ASU 2019-12 on January 1, 2021, did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards. In March 2020, the Financial Accounting Standards Board issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides temporary optional expedients and exceptions to existing guidance on applying contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Interbank Offered Rate (“LIBOR”), which is scheduled to be phased out in June 2023, to alternate rates such as the Secured Overnight Financing Rate (“SOFR”). This ASU was effective upon issuance and can be applied prospectively through December 31, 2022. We continue to evaluate the impact and do not expect this ASU to have a material impact on our consolidated financial statements.
3. REVENUE
Revenue by Category
The following tables presents revenue disaggregated by business segment, geographical region, and timing of transfer of goods or services.
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Three Months Ended
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Six Months Ended
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(in thousands)
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Jun 30, 2021
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Jun 30, 2020 *
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Mar 31, 2021
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Jun 30, 2021
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Jun 30, 2020 *
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Business Segment:
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Energy Services and Products
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Subsea Robotics
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$
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141,371
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$
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119,234
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$
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119,119
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$
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260,490
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$
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259,004
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Manufactured Products
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79,127
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100,570
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86,825
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165,952
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267,104
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Offshore Projects Group
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107,951
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73,840
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89,234
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197,185
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148,094
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Integrity Management & Digital Solutions
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64,070
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53,969
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54,048
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118,118
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118,698
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Total Energy Services and Products
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392,519
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347,613
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349,226
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741,745
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792,900
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Aerospace and Defense Technologies
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105,680
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79,603
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88,327
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194,007
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170,984
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Total
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$
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498,199
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$
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427,216
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$
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437,553
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$
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935,752
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$
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963,884
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* Recast to reflect segment changes.
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Three Months Ended
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Six Months Ended
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(in thousands)
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Jun 30, 2021
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Jun 30, 2020
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Mar 31, 2021
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Jun 30, 2021
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Jun 30, 2020
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Geographic Operating Areas:
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Foreign:
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Africa
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$
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71,405
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$
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51,649
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$
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62,792
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$
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134,197
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$
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115,066
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Norway
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57,360
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45,423
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52,294
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109,654
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97,607
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United Kingdom
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45,967
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62,426
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43,180
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89,147
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123,213
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Asia and Australia
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42,150
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37,122
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37,547
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79,697
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82,802
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Brazil
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27,520
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19,117
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20,653
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48,173
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45,606
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Other
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25,836
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22,625
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20,435
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46,271
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47,284
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Total Foreign
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270,238
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238,362
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236,901
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507,139
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511,578
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United States
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227,961
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188,854
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200,652
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428,613
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452,306
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Total
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$
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498,199
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$
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427,216
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$
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437,553
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$
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935,752
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$
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963,884
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Timing of Transfer of Goods or Services:
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Revenue recognized over time
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$
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471,474
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$
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396,773
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$
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408,173
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$
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879,647
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$
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895,080
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Revenue recognized at a point in time
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26,725
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30,443
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29,380
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56,105
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68,804
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Total
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$
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498,199
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$
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427,216
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$
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437,553
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$
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935,752
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$
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963,884
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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.
The following table provides information about contract assets and contract liabilities from contracts with customers.
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Six Months Ended
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(in thousands)
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Jun 30, 2021
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Jun 30, 2020
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Total contract assets, beginning of period
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$
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221,997
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$
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221,288
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Revenue accrued
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898,853
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867,613
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Amounts billed
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(873,688)
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(865,496)
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Total contract assets, end of period
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$
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247,162
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$
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223,405
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Total contract liabilities, beginning of period
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$
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50,046
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$
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117,342
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Deferrals of milestone payments
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47,430
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15,317
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Recognition of revenue for goods and services
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(35,488)
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(80,896)
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Total contract liabilities, end of period
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$
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61,988
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$
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51,763
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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 June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) was $205 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 $132 million over the next 12 months, and we expect to recognize substantially all of the remaining balance of $73 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 June 30, 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 six months ended June 30, 2021 that was associated with performance obligations completed or partially completed in prior periods was not significant.
As of June 30, 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 are incremental to our fixed costs. There were no balances or amortization of costs to obtain a contract in the current reporting periods.
Costs to fulfill a contract primarily consist of certain mobilization costs incurred to provide services or products to our customers. These costs are deferred and amortized over the period of contract performance. The closing balance of costs to fulfill a contract was $8.6 million and $8.3 million as of June 30, 2021 and December 31, 2020, respectively. For the three- and six-month periods ended June 30, 2021, we recorded amortization expense of $1.3 million and $2.3 million, respectively. For the three- and six-month periods ended June 30, 2020, we recorded amortization expense of $1.9 million and $3.8 million, respectively. No impairment costs were recognized.
4. IMPAIRMENTS
Goodwill
We did not identify any triggering events and, accordingly, no impairments of goodwill were recorded in the three- and six-month periods ended June 30, 2021 or in the three-month period ended June 30, 2020.
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 12% 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
|
|
$
|
51,302
|
|
|
$
|
17,457
|
|
|
$
|
—
|
|
|
$
|
33,845
|
|
|
$
|
—
|
|
|
$
|
51,302
|
|
Subsea Projects/Subsea Projects
|
|
129,562
|
|
|
84,661
|
|
|
—
|
|
|
32,440
|
|
|
12,461
|
|
|
129,562
|
|
Asset Integrity/Asset Integrity
|
|
110,753
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110,753
|
|
|
110,753
|
|
Advanced Technologies/Commercial
|
|
11,388
|
|
|
—
|
|
|
11,388
|
|
|
—
|
|
|
—
|
|
|
11,388
|
|
|
Total goodwill impairment
|
|
$
|
303,005
|
|
|
$
|
102,118
|
|
|
$
|
11,388
|
|
|
$
|
66,285
|
|
|
$
|
123,214
|
|
|
$
|
303,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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- and six-month periods ended June 30, 2021 or in the three-month period ended June 30, 2020.
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
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,543
|
|
|
Subsea Distribution Solutions Brazil
|
|
9,834
|
|
|
9,834
|
|
|
|
|
|
|
9,834
|
|
|
Subsea Distribution Solutions Angola
|
|
38,482
|
|
|
38,482
|
|
|
|
|
|
|
38,482
|
|
Subsea Projects
|
|
|
|
|
|
|
|
|
|
|
|
Shallow Water vessels
|
|
3,894
|
|
|
|
|
3,894
|
|
|
|
|
3,894
|
|
|
Renewables and Special Projects Group
|
|
3,628
|
|
|
|
|
3,628
|
|
|
|
|
3,628
|
|
|
Global Data Solutions
|
|
167
|
|
|
|
|
|
|
167
|
|
|
167
|
|
Advanced Technologies
|
|
|
|
|
|
|
|
|
|
|
|
Oceaneering Entertainment Systems
|
|
5,065
|
|
|
5,065
|
|
|
|
|
|
|
5,065
|
|
|
Oceaneering AGV Systems
|
|
1,150
|
|
|
1,150
|
|
|
|
|
|
|
1,150
|
|
|
Total long-lived asset impairments
|
|
$
|
68,763
|
|
|
$
|
61,074
|
|
|
$
|
7,522
|
|
|
$
|
167
|
|
|
$
|
68,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six-month periods ended June 30, 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 valuation allowances and 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 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 June 30, 2021. The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as of June 30, 2021. In 2020, 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 $12 million and $15 million in other long-term liabilities on our balance sheet for worldwide unrecognized tax liabilities as of June 30, 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
|
|
2014
|
United Kingdom
|
|
2019
|
Norway
|
|
2016
|
Angola
|
|
2013
|
Brazil
|
|
2016
|
Australia
|
|
2015
|
We have ongoing tax audits in various jurisdictions. The outcome of these audits may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.
6. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Jun 30, 2021
|
|
Dec 31, 2020
|
Inventory:
|
|
|
|
|
|
Remotely operated vehicle parts and components
|
|
$
|
62,746
|
|
|
$
|
62,788
|
|
|
Other inventory, primarily raw materials
|
|
66,387
|
|
|
78,453
|
|
|
Total
|
|
$
|
129,133
|
|
|
$
|
141,241
|
|
|
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
55,458
|
|
|
$
|
48,616
|
|
|
Angolan bonds
|
|
6,914
|
|
|
10,179
|
|
|
Total
|
|
$
|
62,372
|
|
|
$
|
58,795
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
Payroll and related costs
|
|
$
|
131,269
|
|
|
$
|
135,042
|
|
|
Accrued job costs
|
|
59,893
|
|
|
47,721
|
|
|
Income taxes payable
|
|
42,983
|
|
|
35,929
|
|
|
Current operating lease liability
|
|
20,695
|
|
|
18,798
|
|
|
Other
|
|
55,917
|
|
|
55,373
|
|
|
Total
|
|
$
|
310,757
|
|
|
$
|
292,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Jun 30, 2021
|
|
Dec 31, 2020
|
4.650% Senior Notes due 2024
|
|
$
|
469,500
|
|
|
$
|
500,000
|
|
6.000% Senior Notes due 2028
|
|
300,000
|
|
|
300,000
|
|
|
|
|
|
|
Interest rate swap settlements
|
|
8,982
|
|
|
10,870
|
|
Unamortized debt issuance costs
|
|
(5,059)
|
|
|
(5,619)
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
773,423
|
|
|
$
|
805,251
|
|
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 the 2028 Senior Notes (collectively, the “Senior Notes”) at specified redemption prices. In the three months ended June 30, 2021, we repurchased approximately $31 million in aggregate principal amount of the 2024 Senior Notes at par in open market transactions. The aggregate purchase price included accrued and unpaid interest to the repurchase date of $0.3 million. We recorded loss on extinguishment of debt of less than $0.1 million for fees associated with the repurchases.
In October 2014, we entered into a credit agreement (as amended, the “Credit Agreement”) with a group of banks. The Credit Agreement initially provided for a $500 million five-year revolving credit facility (the “Revolving Credit Facility”). Subject to certain conditions, the aggregate commitments under the Revolving Credit Facility may be increased by up to $300 million at any time upon agreement between us and existing or additional lenders. Borrowings under the Revolving Credit Facility may be used for general corporate purposes. The Credit Agreement also provided for a $300 million term loan, which we repaid in full in February 2018, using net proceeds from the issuance of our 2028 Senior Notes referred to above, and cash on hand.
In February 2018, we entered into Agreement and Amendment No. 4 to the Credit Agreement (“Amendment No. 4”). Amendment No. 4 amended the Credit Agreement to, among other things, extend the maturity of the Revolving Credit Facility to January 25, 2023 with the extending lenders, which represent 90% of the existing commitments of the lenders, such that the total commitments for the Revolving Credit Facility will be $500 million until October 25, 2021, and thereafter $450 million until January 25, 2023. As of June 30, 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 June 30, 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 $1.3 million and $1.9 million to interest expense for the three- and six-month periods ended June 30, 2021, respectively, and $0.7 million to interest expense for the three- and six-month periods ended June 30, 2020. The three- and six-month periods ended June 30, 2021 include $0.6 million for the pro-rata write-off of interest rate swap settlement gains associated with the 2024 Senior Notes repurchases discussed above.
We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the 2028 Senior Notes, respectively, and $3.0 million of new loan costs, including costs of the amendments prior to Amendment No. 4, related to the Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-term debt on our Consolidated Balance Sheets, as they pertain to the Senior Notes, and in other noncurrent assets, as they pertain to the Credit Agreement. We are amortizing these costs to interest expense through the
respective maturity dates for the Senior Notes and to January 2023 for the Credit Agreement using the straight-line method, which approximates the effective interest rate method.
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 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 $777 million as of June 30, 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 $(0.5) million and $(0.2) million in the three-month periods ended June 30, 2021 and 2020, respectively, and $(1.9) million and $(2.2) million in the six-month periods ended June 30, 2021 and 2020, respectively, were primarily due to the remeasurement of our Angolan kwanza cash balances to U.S. dollars. Foreign currency gains (losses) related to the Brazilian real of less than $0.1 million and $(3.7) million in the three-month periods ended June 30, 2021 and 2020, respectively, and less than $0.1 million and $(7.7) million in the six-month periods ended June 30, 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 June 30, 2021 and December 31, 2020, we had the equivalent of approximately $6.6 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 June 30, 2021 and December 31, 2020, we had $6.9 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 on our Consolidated Balance Sheets. During the
three- and six-month periods ended June 30, 2021, we sold a portion of these bonds for $1.9 million and $4.5 million and recognized a gain of $0.2 million and $0.5 million, respectively, as a component of interest income in our Consolidated Statement of Operations.
We estimated the fair market value of the Angolan bonds to be $6.9 million and $10 million as of June 30, 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 June 30, 2021, we have $0.7 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 Manufactured Products segment. As of June 30, 2021 and December 31, 2020, we had outstanding accounts receivable and contract 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.
In the three-month period ended June 30, 2021, we were notified by a customer in our Manufactured Products segment that it was suspending a contract that is substantially complete. As of June 30, 2021, we had outstanding contract assets of approximately $73 million. We are in discussions with the customer concerning the timing of remaining payments. We continue to believe these contract assets are realizable and the project will resume.
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 June 30, 2021, we granted restricted units of our common stock to certain of our key executives and employees. During 2019, 2020 and through June 30, 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 grants of restricted stock to our nonemployee directors were scheduled to vest in full on the first anniversary of the award date conditional upon continued service as a director, except for the 2021 grant to one director who retired from our board of directors as of the date of our annual meeting of shareholders in May 2021, which vested on that date. 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 2020 through June 30, 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 June 30, 2021 and December 31, 2020, respective totals of 2,493,742 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 $17 million as of June 30, 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, which has no expiration date, we had repurchased 2.0 million shares for $100 million through December
31, 2015. We have not repurchased any shares under this plan since 2015, and we are not obligated to make any future repurchases. 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.
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 chartered 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.
The table that follows presents revenue, income (loss) from operations and depreciation and amortization expense by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
|
Jun 30, 2021
|
|
Jun 30, 2020 *
|
|
Mar 31, 2021
|
|
Jun 30, 2021
|
|
Jun 30, 2020 *
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Energy Services and Products
|
|
|
|
|
|
|
|
|
|
|
Subsea Robotics
|
|
$
|
141,371
|
|
|
$
|
119,234
|
|
|
$
|
119,119
|
|
|
$
|
260,490
|
|
|
$
|
259,004
|
|
Manufactured Products
|
|
79,127
|
|
|
100,570
|
|
|
86,825
|
|
|
165,952
|
|
|
267,104
|
|
Offshore Projects Group
|
|
107,951
|
|
|
73,840
|
|
|
89,234
|
|
|
197,185
|
|
|
148,094
|
|
Integrity Management & Digital Solutions
|
|
64,070
|
|
|
53,969
|
|
|
54,048
|
|
|
118,118
|
|
|
118,698
|
|
Total Energy Services and Products
|
|
392,519
|
|
|
347,613
|
|
|
349,226
|
|
|
741,745
|
|
|
792,900
|
|
Aerospace and Defense Technologies
|
|
105,680
|
|
|
79,603
|
|
|
88,327
|
|
|
194,007
|
|
|
170,984
|
|
Total
|
|
$
|
498,199
|
|
|
$
|
427,216
|
|
|
$
|
437,553
|
|
|
$
|
935,752
|
|
|
$
|
963,884
|
|
Income (Loss) from Operations
|
|
|
|
|
|
|
|
|
|
|
Energy Services and Products
|
|
|
|
|
|
|
|
|
|
|
Subsea Robotics
|
|
$
|
21,710
|
|
|
$
|
11,662
|
|
|
$
|
14,619
|
|
|
$
|
36,329
|
|
|
$
|
(82,421)
|
|
Manufactured Products
|
|
790
|
|
|
3,865
|
|
|
2,753
|
|
|
3,543
|
|
|
(62,273)
|
|
Offshore Projects Group
|
|
7,996
|
|
|
(4,135)
|
|
|
8,813
|
|
|
16,809
|
|
|
(83,458)
|
|
Integrity Management & Digital Solutions
|
|
4,721
|
|
|
(1,825)
|
|
|
2,474
|
|
|
7,195
|
|
|
(123,360)
|
|
Total Energy Services and Products
|
|
35,217
|
|
|
9,567
|
|
|
28,659
|
|
|
63,876
|
|
|
(351,512)
|
|
Aerospace and Defense Technologies
|
|
19,340
|
|
|
13,430
|
|
|
16,839
|
|
|
36,179
|
|
|
26,401
|
|
Unallocated Expenses
|
|
(31,738)
|
|
|
(28,179)
|
|
|
(31,715)
|
|
|
(63,453)
|
|
|
(60,828)
|
|
Total
|
|
$
|
22,819
|
|
|
$
|
(5,182)
|
|
|
$
|
13,783
|
|
|
$
|
36,602
|
|
|
$
|
(385,939)
|
|
Depreciation and Amortization, including Goodwill Impairment
|
|
|
|
|
|
|
|
|
|
|
Energy Services and Products
|
|
|
|
|
|
|
|
|
|
|
Subsea Robotics
|
|
$
|
22,436
|
|
|
$
|
25,080
|
|
|
$
|
22,952
|
|
|
$
|
45,388
|
|
|
$
|
164,267
|
|
Manufactured Products
|
|
3,248
|
|
|
3,587
|
|
|
3,227
|
|
|
6,475
|
|
|
19,551
|
|
Offshore Projects Group
|
|
6,862
|
|
|
8,255
|
|
|
7,125
|
|
|
13,987
|
|
|
83,162
|
|
Integrity Management & Digital Solutions
|
|
1,091
|
|
|
757
|
|
|
1,124
|
|
|
2,215
|
|
|
125,100
|
|
Total Energy Services and Products
|
|
33,637
|
|
|
37,679
|
|
|
34,428
|
|
|
68,065
|
|
|
392,080
|
|
Aerospace and Defense Technologies
|
|
1,404
|
|
|
658
|
|
|
1,276
|
|
|
2,680
|
|
|
1,345
|
|
Unallocated Expenses
|
|
184
|
|
|
361
|
|
|
767
|
|
|
951
|
|
|
1,469
|
|
Total
|
|
$
|
35,225
|
|
|
$
|
38,698
|
|
|
$
|
36,471
|
|
|
$
|
71,696
|
|
|
$
|
394,894
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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.
Income (Loss) from Operations
Three Months Ended June 30, 2021, June 30, 2020 and March 31, 2021—During the three-month periods ended June 30, 2021, June 30, 2020 and March 31, 2021, we recorded adjustments attributable to each of our reporting segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2021
|
(in thousands)
|
|
Subsea Robotics
|
|
Manufactured Products
|
|
OPG
|
|
IMDS
|
|
ADTech
|
|
Unallocated Expenses
|
|
Total
|
Adjustments for the effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,415
|
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments for the three months ended June 30, 2021
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,415
|
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2020 *
|
(in thousands)
|
|
Subsea Robotics
|
|
Manufactured Products
|
|
OPG
|
|
IMDS
|
|
ADTech
|
|
Unallocated Expenses
|
|
Total
|
Adjustments for the effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
1,380
|
|
|
$
|
1,212
|
|
|
$
|
1,405
|
|
|
$
|
1,536
|
|
|
$
|
—
|
|
|
$
|
175
|
|
|
$
|
5,708
|
|
|
Total adjustments for the three months ended June 30, 2020
|
$
|
1,380
|
|
|
$
|
1,212
|
|
|
$
|
1,405
|
|
|
$
|
1,536
|
|
|
$
|
—
|
|
|
$
|
175
|
|
|
$
|
5,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Recast to reflect segment changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021
|
(in thousands)
|
|
Subsea Robotics
|
|
Manufactured Products
|
|
OPG
|
|
IMDS
|
|
ADTech
|
|
Unallocated Expenses
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
395
|
|
|
$
|
537
|
|
|
$
|
149
|
|
|
$
|
217
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
1,308
|
|
|
Total adjustments for the three months ended March 31, 2021
|
$
|
395
|
|
|
$
|
537
|
|
|
$
|
149
|
|
|
$
|
217
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 and June 30, 2020—During the six-month periods ended June 30, 2021 and 2020, we recorded adjustments attributable to each of our reporting segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2021
|
(in thousands)
|
|
Subsea Robotics
|
|
Manufactured Products
|
|
OPG
|
|
IMDS
|
|
ADTech
|
|
Unallocated Expenses
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,415
|
|
|
$
|
1,415
|
|
|
Other
|
|
395
|
|
|
537
|
|
|
149
|
|
|
217
|
|
|
10
|
|
|
—
|
|
|
1,308
|
|
|
Total adjustments for the six months ended June 30, 2021
|
$
|
395
|
|
|
$
|
537
|
|
|
$
|
149
|
|
|
$
|
217
|
|
|
$
|
10
|
|
|
$
|
1,415
|
|
|
$
|
2,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2020 *
|
(in thousands)
|
|
Subsea Robotics
|
|
Manufactured Products
|
|
OPG
|
|
IMDS
|
|
ADTech
|
|
Unallocated Expenses
|
|
Total
|
Adjustments 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
|
|
2,299
|
|
|
3,196
|
|
|
2,621
|
|
|
3,767
|
|
|
—
|
|
|
455
|
|
|
12,338
|
|
|
Total adjustments for the six months ended June 30, 2020
|
$
|
111,745
|
|
|
$
|
75,658
|
|
|
$
|
76,428
|
|
|
$
|
127,148
|
|
|
$
|
—
|
|
|
$
|
455
|
|
|
$
|
391,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Recast to reflect segment changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
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, $38 million and $35 million in the three-month periods ended June 30, 2021 and 2020 and March 31, 2021, respectively, and $70 million and $81 million in the six-month periods ended June 30, 2021 and 2020, respectively.
Amortization expense on long-lived intangible assets, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, was $0.8 million, $0.8 million and $1.3 million in the three-month periods ended June 30, 2021 and 2020 and March 31, 2021, respectively, and $2.1 million and $3.4 million in the six-month periods ended June 30, 2021 and 2020, respectively.
Goodwill impairment expense, reflected in Depreciation and Amortization, including Goodwill Impairment in the table above, was $303 million in the six-month period ended June 30, 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 in the six-month period ended June 30, 2020. For further information regarding our long-lived asset write-offs, see Note 4—“Impairments.”