---

---

Item 1.	Business.

---

---

•	various types of subsea umbilicals utilizing steel tubes and thermoplastic hoses, along with termination assemblies;

•	tooling, ROV tooling and subsea work packages;

•	production control equipment;

•	installation and workover control systems ("IWOCS");

•	riserless light well intervention services ("RLWI");

•	clamp connectors;

•	pipeline connector and repair systems;

•	subsea and topside control valves; and

•	subsea chemical injection valves.

---

---

---

---

•	operating from and around offshore drilling, production and marine facilities;

•	national preference for local equipment and personnel;

•	marine vessel safety;

•	protection of the environment;

•	workplace health and safety;

•	data privacy;

•	taxation;

•	license requirements for exportation of our equipment and technology; and

•	currency conversion and repatriation.

---

•	all our Energy Services and Products services and products in the U.K. and Norway;

•	our ROV operations in the U.S. Gulf of Mexico, the U.K., Norway, Angola, Ghana, Brazil, Canada, India, the Middle East, Australia and Asia;

•	our Asset Integrity operations in the Western Hemisphere, Angola, the Middle East, Australia, the United States and Indonesia;

•	our Subsea Projects operations;

•	our Subsea Products segment; and

•	the Oceaneering Space Systems, Oceaneering Technologies, Entertainment and Marine Services units of our Advanced Technologies segment.

---

•	factors affecting the level of activity in the energy industry, including worldwide demand for and prices of oil and natural gas, oil and natural gas production growth and the supply and demand of offshore drilling rigs;

•	decisions about offshore developments to be made by oil and gas exploration, development and production companies;

•	decisions about offshore developments to be made by offshore renewables companies;

•	the use of subsea completions and our ability to capture our share of the associated market;

•	general economic and business conditions and industry trends;

•	the strength of the industry segments in which we are involved;

•	cancellations of contracts, change orders and other contractual modifications and the resulting adjustments to our backlog;

•	collections from our customers;

•	the levels of oil and gas production to be processed by the Medusa field production spar platform;

•	our future financial performance, including as a result of the availability, terms and deployment of capital;

•	the consequences of significant changes in currency exchange rates;

•	the volatility and uncertainties of credit markets;

•	changes in tax laws, regulations and interpretation by taxing authorities;

•	changes in, or our ability to comply with, other laws and governmental regulations, including those relating to the environment;

•	the continued availability of qualified personnel;

•	our ability to obtain raw materials and parts on a timely basis and, in some cases, from limited sources;

•	operating risks normally incident to offshore exploration, development and production operations;

•	hurricanes and other adverse weather and sea conditions;

•	cost and time associated with drydocking of our vessels;

•	the highly competitive nature of our businesses;

•	adverse outcomes from legal or regulatory proceedings;

•	the risks associated with integrating businesses we acquire;

•	the risks associated with the use of complex information technology systems, including cybersecurity risks and the risks associated with failures to protect data privacy in accordance with applicable legal requirements and contractual provisions binding upon us;

•	rapid technological changes; and

•	social, political, military and economic situations in foreign countries where we do business and the possibilities of civil disturbances, war, other armed conflicts or terrorist attacks.

---

---

---

Item 1A.	Risk Factors.

•	worldwide demand for oil and gas;

•	general economic and business conditions and industry trends;

•	the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels;

•	the level of production by non-OPEC countries, including U.S. shale oil;

•	the ability of oil and gas companies to generate funds for capital expenditures;

•	domestic and foreign tax policy;

•	laws and governmental regulations that restrict exploration and development of oil and gas in various offshore jurisdictions;

•	technological changes;

•	the political environment of oil-producing regions;

•	the changing environmental and social landscape;

•	the price and availability of alternative energy; and

•	overall economic conditions.

---

•	regional and global economic downturns;

•	public health threats, such as the coronavirus, Severe Acute Respiratory Syndrome, severe influenza and other highly communicable viruses or diseases, that could limit access to customers', vendors' or our facilities or offices, impose travel restrictions on our personnel or otherwise adversely affect our operations or demand for our services;

•	disturbances or other risks that may limit or disrupt markets;

•	expropriation, confiscation or nationalization of assets;

•	renegotiation or nullification of existing contracts;

•	foreign exchange restrictions;

•	foreign currency fluctuations, particularly in countries highly dependent on oil revenue;

•	foreign taxation, including the application and interpretation of tax laws;

•	the inability to repatriate earnings or capital;

•

uncertainties relating to the United Kingdom's withdrawal from the European Union, including uncertainties about applicable future laws, regulations and treaties regarding tax and free trade agreements, intellectual property rights and supply chain logistics, as well as environmental, health and safety laws and regulations, immigration laws, employment laws, and other rules that could apply to us and our subsidiaries;

•	changing political conditions;

•	changing foreign and domestic monetary policies; and

•	social, political, military and economic situations in foreign areas where we do business and the possibilities of civil disturbances, war, other armed conflict, terrorist attacks or acts of piracy.

---

---

•	difficulties relating to the assimilation of personnel, services and systems of an acquired business and the assimilation of marketing and other operational capabilities;

•	challenges resulting from unanticipated changes in customer and other third-party relationships subsequent to acquisition;

•	additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls;

•	assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition transaction was negotiated;

•	possible liabilities under the FCPA and other anti-corruption laws;

•	diversion of management's attention from day-to-day operations;

•	failure to realize anticipated benefits, such as cost savings and revenue enhancements;

•	potentially substantial transaction costs associated with acquisitions; and

•	potential impairment resulting from the overpayment for an acquisition.

---

---

---

•	provisions relating to the classification, nomination and removal of our directors;

•	provisions regulating the ability of our shareholders to bring matters for action at annual meetings of our shareholders;

•	provisions requiring the approval of the holders of at least 80% of our voting stock for a broad range of business combination transactions with related persons; and

•	the authorization given to our board of directors to issue and set the terms of preferred stock.

Item 1B.	Unresolved Staff Comments.

Item 2.	Properties.

---

Item 3.	Legal Proceedings.

Item 4.	Mine Safety Disclosures.

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

---

---

---

---

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.

•	our business strategy;

•	industry conditions;

•	seasonality;

•	our expectations about 2020 results of operations, items below the operating income line and segment operating results, and the factors underlying those expectations, including our expectations about demand and pricing for our energy services and products as a result of the factors we specify in "Overview" and "Results of Operations" below;

•	our backlog;

•	projections relating to floating rig demand and subsea tree installations;

•	the adequacy of our liquidity, cash flows and capital resources to support our operations and internally generated growth initiatives;

•	our projected capital expenditures for 2020;

•	our plans for future operations (including planned additions to and retirements from our remotely operated vehicle ("ROV") fleet;

•	our ability and intent to redeem Angolan bonds and repatriate cash;

•	our expectations regarding shares repurchased under our share repurchase plan;

•	our expectations regarding the implementation of new accounting standards and related policies, procedures and controls;

•	our expectations about our ROV fleet utilization in the future; and

•	our expectations regarding the effect of inflation in the near future.

---

•	Asset Integrity segment, which had a $62 million decrease in operating results primarily as a result of charges of $49 million. These charges included impairments and write-offs of $34 million and a goodwill impairment of $15 million, both largely based on market competition and lower pricing levels.

•

Subsea Projects segment, which had a $60 million decrease in operating results primarily as a result of charges of $153 million. These charges were principally the result of several vessel impairments in the aggregate amount of $132 million, as market conditions no longer supported the prior valuations for these assets. This is compared with a goodwill impairment of $76 million and long-lived asset write-offs of $5.5 million in 2018.

•	ROV segment, which had relatively flat operating income, including charges of $23 million. These charges were principally asset write-offs and inventory write-downs, largely resulting from impairment and obsolescence.

•	Subsea Products segment, which had a $4.2 million increase in operating income largely resulting from higher revenue from Manufactured Products. 2019 results also included charges of $25 million.

•	Advanced Technologies segment, which had an $8.9 million decrease in operating income, largely resulting from underperformance in our entertainment business due to cost overruns on certain completed projects, postponement in project awards and customer-requested delays in project progression. 2019 results also included charges of $1.6 million.

---

•	$68 million to upgrade our work-class ROVs, including adding 13 ROVs to our fleet;

•	$48 million to add capabilities and maintain current operations in our Subsea Products segment; and

•	$19 million in our Subsea Projects segment, including the completion of the new MSV, Ocean Evolution, which was placed into service during the second quarter of 2019.

---

---

---

---

•	Accounts receivable and contract assets - The decrease in cash related to accounts receivable and contract assets in 2019 and 2018 reflects higher business activity in the fourth quarter of both years due to commencement of new projects, along with timing of project milestones and customer payments. The increase in cash in 2017 was the result of lower revenue and activity in general.

•	Inventory - The decrease in cash related to inventory as of December 31, 2019 and 2018 was primarily due to increases in Manufactured Products' inventory related to increases in backlog. The increase in cash in 2017 was a result of lower revenue and activity in general.

---

•	Current liabilities - The increase in cash related to changes in current liabilities in 2019 reflected higher business activity in the fourth quarter and primarily the timing of vendor payments for related goods and services. The increase in cash in 2018 reflected timing of vendor payments. The decrease in cash in 2017 was the result of lower revenue and activity in general.

---

---

---

---

---

---

---

---

---

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.

---

Item 8.	Financial Statements and Supplementary Data.

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A.	Controls and Procedures.

---

---

Item 10.	Directors, Executive Officers and Corporate Governance.

Item 11.	Executive Compensation.

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13.	Certain Relationships and Related Transactions, and Director Independence.

Item 14.	Principal Accounting Fees and Services.

---

(a)	Documents filed as part of this report.

1.	Financial Statements:

(i)	Report of Independent Registered Public Accounting Firm

(ii)	Consolidated Balance Sheets

(iii)	Consolidated Statements of Operations

(iv)	Consolidated Statements of Comprehensive Income (Loss)

(v)	Consolidated Statements of Cash Flows

(vi)	Consolidated Statements of Equity

(vii)	Notes to Consolidated Financial Statements

2.	Financial Statement Schedules:

---

---

---

---

---

---

---

---

---

---

---

---

---

1.	SUMMARY OF MAJOR ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include the accounts of Oceaneering International, Inc. ("Oceaneering", "we" or "us") and our 50% or more owned and controlled subsidiaries. We also consolidate entities that are determined to be variable interest entities if we determine that we are the primary beneficiary; otherwise, we account for those entities using the equity method of accounting. We use the equity method to account for our investments in unconsolidated affiliated companies of which we own an equity interest of between 20% and 50% and as to which we have significant influence, but not control, over operations. We use the cost method for all other long-term investments. Investments in entities that we do not consolidate are reflected on our balance sheet in other non-current assets. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires that our management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less from the date of investment.

Reclassifications. Certain amounts from prior periods have been reclassified to conform with the current year presentation.

Accounts Receivable – Allowances for Doubtful Accounts. We determine the need for allowances for doubtful accounts using the specific identification method. We generally do not require collateral from our customers.

Inventory. Inventory is valued at the lower of cost or net realizable value. We determine cost using the weighted-average method.

Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets. We provide for depreciation of property and equipment on the straight-line method over estimated useful lives of eight years for Remotely Operated Vehicles ("ROVs"), three to 25 years for marine services equipment (such as vessels and diving equipment) and three to 25 years for buildings, improvements and other equipment.

Long-lived intangible assets, primarily acquired in connection with business combinations, include trade names, intellectual property and customer relationships and are being amortized with a weighted average remaining life of approximately four years.

For information regarding right-of-use operating lease assets, see "Leases" below.

We charge the costs of repair and maintenance of property and equipment to operations as incurred, while we capitalize the costs of improvements that extend asset lives or functionality.

We capitalize interest on assets where the construction period is anticipated to be more than three months. We capitalized $3.4 million, $7.3 million and $4.6 million of interest in 2019, 2018 and 2017, respectively. We do not allocate general administrative costs to capital projects. Upon the disposition of property and equipment, the related cost and accumulated depreciation accounts are relieved and any resulting gain or loss is included as an adjustment to cost of services and products.

Our management periodically, and upon the occurrence of a triggering event, reviews the realizability of our property and equipment, long-lived intangible assets and right-of-use operating lease assets to determine whether any events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefits of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. 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.

Due to the protracted energy downturn and our customers' continued focus on cost discipline, we determined that impairment indicators were present within certain of our asset groups in our Subsea Projects and Asset Integrity segments in the fourth quarter of 2019. For our Subsea Projects segment, impairment indicators were present in our Deepwater and Shallow Water asset groups and in our Ecosse asset group. For the Deepwater and Shallow Water asset groups, we utilized the cost approach and considered historical, current and anticipated dayrates and utilization to measure market value. For our Ecosse asset group, we utilized a combination of income and market approaches, using projected discounted cash flows and the estimated expected realizable value in the market. Our Asset Integrity segment consists of one asset group. We measured the fair value of the Asset Integrity asset group by applying the income approach, using projected discounted cash flows. Our estimates of fair values for the asset groups in our Subsea Projects and Asset Integrity segments required us to use significant unobservable inputs, classified as Level 3 fair value measurements, including assumptions related to future performance, risk-adjusted discount rates, future commodity prices and demand for our services and estimates of expected realizable value. As a result, we determined that the carrying values exceeded the estimated fair values and recorded impairments as noted below:

				Year Ended December 31, 2019
(in thousands)				Property and Equipment, net				Intangible Assets				Right-of-Use Operating Lease Assets				Total
	Subsea Projects
		Deepwater and Shallow Water asset groups		$	131,894			$	—			$	—			$	131,894
		Ecosse asset group		1,242				9,479				—				10,721
	Asset Integrity			10,954				432				5,352				16,738
		Total long-lived assets impairments		$	144,090			$	9,911			$	5,352			$	159,353

In the fourth quarter of 2019, we also recorded $45 million for write-downs and write-offs of certain equipment and intangible assets, including asset write-downs relating to the retirement of 30 ROVs, and some of the IWOCs equipment in our Subsea Products segment. In 2018, we recorded the write-offs of certain equipment and intangible assets associated with exiting the land survey business and equipment obsolescence of $7.6 million.

For additional information regarding write-downs and write-offs of property and equipment and long-lived intangible assets in 2019 and 2018, see Note 10—"Operations by Business Segment and Geographic Area."

For assets held for sale or disposal, the fair value of the asset is measured using fair market value less estimated costs to sell. Assets are classified as held-for-sale when we have a plan for disposal of certain assets and those assets meet the held for sale criteria.

Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In our evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the qualitative approach, if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform the quantitative analysis to determine the fair value for the reporting unit. Thereafter, we compare the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

In our 2019 annual goodwill evaluation, we performed quantitative assessments for (1) our Subsea Projects reporting unit, due to its fair value being less than carrying value in the prior year, and (2) our Asset Integrity reporting unit due to deterioration in its business environment. In our quantitative analyses for the Subsea Projects and Asset Integrity reporting units, we estimated the fair values by weighting the results from the income approach and the market approach. These valuation approaches considered a number of factors that included, but are not limited to, prospective financial information, operating margins, growth rates, terminal values, discount rates and

---

comparable multiples of similar companies in our industry and required us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business. Based on these quantitative tests, we determined that the fair value for our Subsea Projects reporting unit exceeded the carrying amount and there was no impairment. For our Asset Integrity reporting unit, the fair value was less than the carrying value and, as a result, we recorded a pre-tax goodwill impairment loss of $15 million. The goodwill impairment was included as a component of "Income (loss) from operations" in our Consolidated Statement of Operations for the year ended December 31, 2019. For the remaining reporting units, qualitative assessments were performed, and we concluded that it was more likely than not that the fair value of each such reporting unit was more than the carrying value of the reporting unit.

In our 2018 annual goodwill evaluation, we performed a qualitative assessment for our Subsea Projects reporting unit. Due to the protracted downturn in survey and vessel activity, we determined that it was more likely than not the fair value was less than the carrying amount. As a result, we determined that a quantitative assessment was necessary for our Subsea Projects reporting unit. In our 2018 quantitative analysis for the Subsea Projects reporting unit, we estimated the fair value by weighting the results from the income approach and the market approach. These valuation approaches considered a number of factors that included, but are not limited to, prospective financial information, operating margins, growth rates, terminal values, discount rates and comparable multiples of similar companies in our industry and required us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business. Based on this quantitative test, we determined that the fair value for Subsea Projects was less than the carrying value and, as a result, we recorded a pre-tax goodwill impairment loss of $76 million in the Subsea Project reporting unit. The goodwill impairment was included as a component of "Income (loss) from operations" in our Consolidated Statement of Operations for the year ended December 31, 2018. For the remaining reporting units, qualitative assessments were performed, and we concluded that it was more likely than not that the fair value of each such reporting unit was more than the carrying value of the reporting unit.

The fair value of our reporting units in our 2017 quantitative analysis exceeded their respective carrying amounts.

Besides the goodwill impairment discussed above, the changes in our reporting units' goodwill balances during the periods presented are from business acquisitions and currency exchange rate changes. For information regarding goodwill by business segment, see Note 10—"Operations by Business Segment and Geographic Area."

Business Acquisitions. We account for business combinations using the acquisition method of accounting, with acquisition prices being allocated to the assets acquired and liabilities assumed based on their fair values as of the respective dates of acquisition.

In March 2018, we acquired Ecosse Subsea Limited ("Ecosse") for $68 million in cash. Headquartered in Aberdeen, Scotland, Ecosse builds and operates tools for seabed preparation, route clearance and trenching for the installation of submarine cables and pipelines. These services are offered on an integrated basis that includes vessels, ROV's and survey services. We have accounted for this acquisition by allocating the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. We have included Ecosse’s operations in our consolidated financial statements starting from the date of closing, and its operating results are reflected in our Subsea Projects segment.

In August 2017, we acquired a 60% controlling ownership interest in Dalgidj LLC ("Dalgidj") for approximately $12.4 million. In connection with the purchase of the equity interest, we advanced Dalgidj $6.4 million to pay off certain of its indebtedness. Dalgidj is an Azerbaijan company that provides office and yard facilities for warehousing, logistics and administration to foreign and local companies in the Caspian Sea basin.  Dalgidj also owns a 49% interest in a joint venture, which provides remotely operated vehicle solutions, air diving services, and engineering and project management services. We have accounted for this acquisition by allocating the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Dalgidj's operating results are included in our Subsea Projects segment, and its activity subsequent to the date of acquisition was not significant.

Dispositions. In September 2018, we consummated the sale of our cost method investment in ASV Global, LLC for $15 million. The sale resulted in a pre-tax gain of $9.3 million, which is reflected in other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2018.

Revenue Recognition. Effective January 1, 2018, we adopted Accounting Standard Update ("ASU") 2014-09, "Revenue from Contracts with Customers," which implemented Accounting Standards Codification Topic 606 ("ASC

---

606"). We applied the modified retrospective method to those contracts that were not completed as of January 1, 2018, and utilized the practical expedient to reflect the effect on contract modifications in the aggregate. The adoption of this ASU resulted in an after-tax cumulative effect adjustment of $0.5 million recorded to retained earnings as of January 1, 2018. The comparative information with respect to prior periods has not been retrospectively restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of the changes made to our Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASC 606 was as follows:

(in thousands)			Dec 31, 2017				Adjustments Due to ASC 606				Jan 1, 2018 Under ASC 606
Assets
	Accounts receivable		$	476,903			$	(163,963	)		$	312,940
	Contract assets		—				171,956				171,956
	Total accounts receivable		476,903				7,993				484,896
	Inventory		215,282				(34,187		)		181,095
Liabilities
	Accrued liabilities		350,258				(63,045		)		287,213
	Contract liabilities		—				37,590				37,590
	Total accrued liabilities		350,258				(25,455		)		324,803
	Other long-term liabilities		131,323				(202		)		131,121
Equity
	Retained earnings		2,417,412				(537		)		2,416,875

The adoption of ASU 2014-09 did not have a material impact on our consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the year ended December 31, 2018.

All of our revenue is realized through contracts with customers. We recognize our revenue according to the contract type. On a daily basis, we recognize service revenue over time for contracts that provide for specific time, material and equipment charges, which we bill periodically, ranging from weekly to monthly. We use the input method to faithfully depict revenue recognition, because each day of service provided represents value to the customer. The performance obligations in these contracts are satisfied, and revenue is recognized, as the work is performed. We have used the expedient available to recognize revenue when the billing corresponds to the value realized by the customer where appropriate.

We account for significant fixed-price contracts, mainly relating to our Subsea Products segment, and to a lesser extent in our Subsea Projects and Advanced Technologies segments, by recognizing revenue over time using an input, cost-to-cost measurement percentage-of-completion method. In 2019, we accounted for 21% of our revenue using the input, cost-to-cost measurement percentage-of-completion method. We use the input cost-to-cost method to faithfully depict revenue recognition. This commonly used method allows appropriate calculation of progress on our contracts. A performance obligation is satisfied as we create a product on behalf of the customer over the life of the contract. The remainder of our revenue is recognized at the point in time when control transfers to the customer, thus satisfying the performance obligation.

We have elected to recognize the cost for freight and shipping as an expense when incurred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by us from customers, are excluded from revenue.

In our service-based business lines, which principally charge on a dayrate basis for services provided, there is no significant impact in the pattern of revenue and profit recognition as a result of implementation of ASC 606. In our product-based business lines, we have seen impacts on the pattern of our revenue and profit recognition in our contracts using the percentage-of-completion method, as a result of the requirement to exclude uninstalled materials and significant inefficiencies from the measure of progress. This occurs predominantly in our Subsea Products segment.

---

We apply judgment in the determination and allocation of transaction price to performance obligations, and the subsequent recognition of revenue, based on the facts and circumstances of each contract. We routinely review estimates related to our contracts and, where required, reflect revisions to profitability in earnings immediately. If an element of variable consideration has the potential for a significant future reversal of revenue, we will constrain that variable consideration to a level intended to remove the potential future reversal. If a current estimate of total contract cost indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it. In prior years, we have recorded adjustments to earnings as a result of revisions to contract estimates; however, we did not have any material adjustments during the years ended December 31, 2019 and 2018. However, there could be significant adjustments to overall contract costs in the future, due to changes in facts and circumstances.

In general, our payment terms consist of those services billed regularly as provided and those products delivered at a point in time, which are invoiced after the performance obligation is satisfied. Our product and service contracts with milestone payments due at agreed progress points during the contract are invoiced when those milestones are reached, which may differ from the timing of revenue recognition. Our payment terms generally do not provide financing of contracts to customers, nor do we receive financing from customers as a result of these terms.

See Note 3—"Revenue" for more information on our revenue from contracts with customers.

Leases. As a lessee, we utilize the expedients to not recognize leases with an initial lease term of 12 months or less on the balance sheet and to combine lease and non-lease components together and account for the combined component as a lease for all asset classes, except real estate.

As a lessor, we lease certain types of equipment along with the provision of services and utilize the expedient allowing us to combine the lease and non-lease components into a combined component that is accounted for under ASC 842 where the lease component is predominant and under ASC 606 where the service component is predominant. In general, wherever we have a service component, this is typically the predominant element and leads to accounting under ASC 606.

We determine whether a contract is or contains a lease at inception, whether as a lessee or a lessor. We take into consideration the elements of an identified asset, right to control and the receipt of economic benefit in making these determinations.

As a lessee, we lease land, buildings, vessels and equipment for the operation of our business and to support some of our service line revenue streams. These generally carry lease terms that range from days for operational and support equipment to 15 years for land and buildings. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our discretion. When the exercise of those options is reasonably certain, we include them in the lease assessment. Our leases do not contain material restrictions or covenants that impact our accounting for them, nor do we provide residual value guarantees.

As a lessor, we lease certain types of equipment, often providing services at the same time. These leases can be priced on a dayrate or lump-sum basis for periods ranging from a few days to multi-year contracts. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our customers sole discretion. These leases generally do not contain options to purchase, material restrictions or covenants that impact our accounting for leases.

ROU operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement or modification date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, based on the information available at commencement or modification date in determining the present value of future payments. In determining the incremental borrowing rate, we considered our external credit ratings, bond yields for us and our identified peers, the risk-free rate in geographic regions where we operate and the impact associated with providing collateral over a similar term as the lease for an amount equal to the lease payments. Our ROU operating lease assets also include any lease prepayments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

See "Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets" above for more information on determination of impairment indicators for our right-of-use assets.

---

See Note 4—"Leases" for more information on our operating leases.

Stock-Based Compensation. We recognize all share-based payments to directors, officers and employees over their vesting periods in the income statement based on their estimated fair values. For more information on our employee benefit plans, see Note 11—"Employee Benefit Plans."

Income Taxes. We provide income taxes at appropriate tax rates in accordance with our interpretation of the respective tax laws and regulations after review and consultation with our internal tax department, tax advisors and, in some cases, legal counsel in various jurisdictions. We provide for deferred income taxes for differences between carrying amounts of assets and liabilities for financial and tax reporting purposes. We provide a valuation allowance against deferred tax assets when it is more likely than not that the asset will not be realized.

We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement. We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements.

For more information on income taxes, see Note 6—"Income Taxes."

Foreign Currency Translation. The functional currency for most of our foreign subsidiaries is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, and the resulting translation adjustments are recognized, net of tax, in accumulated other comprehensive income (loss) as a component of shareholders' equity. All foreign currency transaction gains and losses are recognized currently in the Consolidated Statements of Operations. We recorded $6.3 million, $18 million and $5.2 million of foreign currency transaction losses in 2019, 2018 and 2017, respectively, and those amounts are included as a component of other income (expense), net in our Consolidated Statement of Operations for the year ended December 31, 2019.

Earnings per Share. For each year presented, the only difference between our annual calculated weighted average basic and diluted number of shares outstanding is the effect of outstanding restricted stock units.

Repurchase Plan. In December 2014, our Board of Directors approved a share repurchase program under which we may repurchase up to 10 million shares of our common stock on a discretionary basis. The program calls for the repurchases to be made in the open market, or in privately negotiated transactions from time to time, in compliance with applicable laws, rules and regulations, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended, subject to market and business conditions, levels of available liquidity, cash requirements for other purposes, applicable legal requirements and other relevant factors. The timing and amount of any repurchases will be determined by management based on its evaluation of these factors. We expect that any shares repurchased under the program will be held as treasury stock for future use. The program does not obligate us to repurchase any particular number of shares. We account for the shares we hold in treasury under the cost method, at average cost. Under the program, we had repurchased 2.0 million shares of our common stock for $100 million through December 31, 2015. We have not repurchased any shares under the program since December 31, 2015.

2. ACCOUNTING STANDARDS UPDATE

Recently Adopted Accounting Standards. Effective January 1, 2019, we adopted ASU 2016-02, "Leases (Topic 842)" ("Topic 842"), which requires lessees to recognize right-of-use assets ("ROU assets") and lease liabilities for virtually all leases and updates previous accounting standards for lessors to align certain requirements of the new leases standard and the revenue recognition accounting standard. We elected to apply the transition method that allowed us to apply this update as of the adoption date and adopted the package of practical expedients that permitted us to retain the identification and classification of leases made under the previously applicable accounting

---

standards. The adoption of this ASU as of January 1, 2019 resulted in a cumulative effect adjustment of $5.9 million recorded to retained earnings, with corresponding adjustments to increase ROU assets and lease liabilities by $185 million and $191 million, respectively. The adoption of this ASU did not materially affect our net earnings and had no impact on cash flows. Comparative information with respect to prior periods has not been retrospectively restated and continues to be reported under the accounting standards in effect for those periods. See Note 4—"Leases" for more information on our operating leases.

In February 2018, the Financial Accounting Standards Board (the "FASB") issued ASU 2018-02, "Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the December 2017 enactment of U.S. tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update also require certain disclosures about stranded tax effects. The amendments in this update were effective for us beginning January 1, 2019. This ASU has not had a material effect on our consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting."  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this ASU became effective for us beginning January 1, 2019. This ASU has not had a material effect on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities," which simplified the application of hedge accounting guidance in current U.S. GAAP and improved the reporting of hedging relationships to better portray the economic results of our risk management activities in our consolidated financial statements. Our adoption of this ASU on January 1, 2019 did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards. In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments," as modified by subsequently issued ASU 2018-19, ASU 2019-04 and ASU 2019-05. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss ("CECL") model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires estimating all expected credit losses for certain types of financial instruments, including trade receivables and contract assets, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. These ASUs affect an entity to varying degrees depending on the credit quality for the assets held by the entity, their duration and how the entity applies current U.S. GAAP. These ASUs became effective for us beginning January 1, 2020. We formed a project team to ensure that we met the implementation requirements. We pooled our customers by their associated risk factors and evaluated our historical experience associated with credit losses. We have evaluated the impact and do not expect this guidance to have a material impact on our consolidated financial statements.

---

Revenue by Category

The following table presents Revenue disaggregated by business segment, geographical region, and timing of transfer of goods or services.

				Year Ended December 31,
(in thousands)				2019				2018				2017
Business Segment:
	Energy Services and Products
		Remotely Operated Vehicles		$	449,830			$	394,801			$	393,655
		Subsea Products		602,249				515,000				625,513
		Subsea Projects		327,556				329,163				291,993
		Asset Integrity		242,954				253,886				236,778
	Total Energy Services and Products			1,622,589				1,492,850				1,547,939
	Advanced Technologies			425,535				416,632				373,568
		Total		$	2,048,124			$	1,909,482			$	1,921,507

				Year Ended December 31,
(in thousands)				2019				2018				2017
Geographic Operating Areas:
	Foreign:
		Africa		$	292,818			$	239,959			$	256,198
		United Kingdom		256,348				203,391				236,177
		Norway		217,762				185,552				178,712
		Asia and Australia		174,769				163,843				193,865
		Brazil		93,511				64,004				42,607
		Other		91,591				103,548				81,364
	Total Foreign			1,126,799				960,297				988,923
	United States			921,325				949,185				932,584
Total				$	2,048,124			$	1,909,482			$	1,921,507

				Dec 31, 2019				Dec 31, 2018
Timing of Transfer of Goods or Services:
	Revenue recognized over time			$	1,900,729			$	1,762,103
	Revenue recognized at a point in time			147,395				147,379
Total				$	2,048,124			$	1,909,482

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.

(in thousands)			Dec 31, 2019				Dec 31, 2018
Contract assets			$	221,288			$	256,201
Contract liabilities			117,342				85,172

Our payment terms consist of those services billed regularly as provided and those products delivered at a point in time, which are invoiced after the performance obligation is satisfied. Our product and service contracts with milestone payments due at agreed progress points during the contract are invoiced when those milestones are reached, which may differ from the timing of revenue recognition.

During the year ended December 31, 2019, contract assets decreased by $35 million from its opening balance, due to the amounts billed of $2.1 billion exceeding revenue recognition of $2.0 billion. Contract liabilities increased $32 million from its opening balance, due to deferrals of milestone payments and billings totaling $64 million less revenue recognition of $32 million.

Performance Obligations

The aggregate amount of transaction price allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) as of December 31, 2019 are noted above. In arriving at this value, we have used two expedients available to us and are not disclosing amounts in relation to performance obligations: (1) that are part of contracts with an original expected duration of one year or less; or (2) on contracts where we recognize revenue in line with the billing.

Due to the nature of our service contracts in our Remotely Operated Vehicle, Subsea Projects, Asset Integrity and Advanced Technologies segments, the majority of our contracts either have initial contract terms of one year or less or have customer option cancellation clauses that lead us to consider the original expected duration of one year or less.

In our Subsea Products and Advanced Technologies segments, we have long-term contracts that extend beyond one year, and these make up the majority of the performance obligations balance reported as of December 31, 2019. We also have shorter-term product contracts with an expected original duration of one year or less that have been excluded.

As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $382 million. In arriving at this value, we have used two expedients available to us and are not disclosing amounts in relation to performance obligations: (1) that are part of contracts with an original expected duration of one year or less; or (2) on contracts where we recognize revenue in line with the billing. Of this amount, we expect to recognize revenue of $296 million over the next 12 months and substantially all of the remaining balance of $86 million will be recognized within the next 24 months.

Where appropriate, we have made estimates within the transaction price of elements of variable consideration within the contracts and constrained those amounts to a level where we consider it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The amount of revenue recognized in the years ended December 31, 2019 and 2018 that was associated with performance obligations completed or partially completed in prior periods was not significant.

As of December 31, 2019, there were no significant outstanding liability balances for refunds or returns due to the nature of our contracts and the services and products we provide. Our warranties are limited to assurance warranties that are of a standard length and are not considered to be a material right. The majority of our contracts consist of a single performance obligation. When there are multiple obligations, we look for observable evidence of stand-alone selling prices on which to base the allocation. This involves judgment as to the appropriateness of the observable evidence relating to the facts and circumstances of the contract. If we do not have observable evidence, we estimate stand-alone selling prices by taking a cost-plus-margin approach, using typical margins from the type of product or service, customer and regional geography involved.

---

Costs to Obtain or Fulfill a Contract

In line with the available expedient, we capitalize costs to obtain a contract when those amounts are significant and the contract is expected at inception to exceed one year in duration; otherwise, the costs are expensed in the period when incurred. Costs to obtain a contract primarily consist of bid and proposal costs, which are incremental to our fixed costs. There were no balances or amortization of costs to obtain a contract in the current reporting periods.

Costs to fulfill a contract primarily consist of certain mobilization costs incurred to provide services or products to our customers. These costs are deferred and amortized over the period of contract performance. The closing balance of costs to fulfill a contract was $15 million and $13 million as of December 31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, we recorded amortization expense of $8.5 million and $6.5 million, respectively. No impairment costs were recognized.

4. Leases

We adopted the new lease standard, Topic 842, on January 1, 2019. Prior period amounts have not been adjusted and continue to be reported under the historical lease standard, "Leases (Topic 840)" ("Topic 840"). See Note 2—"Accounting Standards Update" for more information on our adoption of this standard.

Supplemental information about our operating leases follows:

(in thousands)				Dec 31, 2019				Jan 1, 2019
Assets:
	Right-of-use operating lease assets			$	163,238			$	184,648
Liabilities:
Operating	Current operating			$	19,863			$	20,318
Operating	Noncurrent operating			160,988				170,190
Lease liabilities				$	180,851			$	190,508

				Dec 31, 2019			Jan 1, 2019
Lease Term and Discount Rate:
Weighted-average remaining lease terms (years)	Weighted-average remaining lease term (years)			10.0			11.0
Weighted-average discount rate	Weighted-average discount rate			6.2	%		7.1	%

In the year ended December 31, 2019, we determined there were impairment indicators present for our Asset Integrity reporting unit and, as a result, we recorded a pre-tax right-of-use operating lease asset impairment of $5.4 million. The right-of-use operating lease impairment was included as a component of "Income (loss) from operations" in our Consolidated Statement of Operations for the year ended December 31, 2019.

Operating lease cost reflects the lease expense resulting from amortization over the respective lease terms of our operating leases with initial lease terms greater than 12 months. Our short-term lease cost consists of expense for our operating leases with initial lease terms of 12 months or less that are not recorded on our balance sheet. The components of lease cost are as follows:

				Year ended
(in thousands)				Dec 31, 2019
Lease Cost:
Operating lease cost	Operating lease cost			$	40,310
Short-term lease cost	Short-term lease cost			73,005
Total Lease Cost				$	113,315

---

As of December 31, 2019, under Topic 842, future maturities of lease liabilities for our operating leases with an initial lease term of more than 12 months were as follows:

Maturities of Lease Liabilities
(in thousands)
For the year ended December 31,
2020		$	30,573
2021		28,793
2022		25,885
2023		21,764
2024		19,207
Thereafter		125,190
Total lease payments		251,412
Less: Interest		(70,561		)
Present Value of Lease Liabilities		$	180,851

---

The following is information regarding selected balance sheet accounts:

 

			December 31,
(in thousands)			2019				2018
Inventory, net:
	Remotely operated vehicle parts and components		$	76,120			$	108,939
	Other inventory, primarily raw materials		98,624				85,568
	Total		$	174,744			$	194,507
Other current assets:
	Prepaid expenses		$	43,210			$	60,858
	Angolan bonds		10,179				10,179
	Total		$	53,389			$	71,037
Other noncurrent assets:
	Intangible assets, net		$	25,774			$	79,995
	Cash surrender value of life insurance policies		50,097				51,131
	Investment in unconsolidated affiliates		37,896				39,333
	Other		37,611				31,859
	Total		$	151,378			$	202,318
Accrued liabilities:
	Payroll and related costs		$	137,001			$	114,676
	Accrued job costs		54,387				62,281
	Income taxes payable		36,996				34,954
	Current operating lease liability		19,863				—
	Other		89,434				95,022
	Total		$	337,681			$	306,933
Other long-term liabilities:
	Deferred income taxes		$	1,126			$	18,243
	Supplemental Executive Retirement Plan		46,244				42,992
	Long-Term Incentive Plan		10,381				8,076
	Uncertain tax positions		20,949				17,903
	Tax Act transition tax due after one year		519				7,813
	Other		27,575				33,352
	Total		$	106,794			$	128,379

---

In December 2017, the United States enacted the Tax Act, which included a number of changes to existing U.S. tax laws that have an impact on our income tax provision, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, and the creation of a quasi-territorial tax system with a one‑time mandatory transition tax on applicable previously deferred earnings of foreign subsidiaries. The Tax Act also made prospective changes beginning in 2018, including a base erosion and anti‑abuse tax ("BEAT"), a global intangible low‑taxed income ("GILTI") tax, additional limitations on the deductibility of interest expense and repeal of the domestic manufacturing deduction. In the period ended December 31, 2017, we recorded a provisional net tax benefit associated with the Tax Act and related matters of $189 million.

In 2018, based on regulations issued by the U.S. Department of the Treasury and additional accounting analysis, we completed our accounting on the effect of the Tax Act and reflected the effects in our financial statements to include the tax impact of $8.8 million related to the one-time mandatory transition tax. In 2019, we identified additional available business credits, which are reflected in our 2018 income tax return as filed, thereby reducing the effects of the Tax Act in our financial statements by $8.2 million, for a total liability of $0.6 million. As regulatory guidance continues to be issued by the U.S. tax authorities, any difference in the interpretation of the Tax Act resulting from final or newly issued regulations will be recorded in the period that current or future proposed regulations become law. The transition tax and resulting quasi-territorial type tax regime impacts the utilization of our remaining foreign tax credits, resulting in a valuation allowance of $27 million against such deferred tax assets.

Our provisions (benefit) for income taxes and our cash taxes paid are as follows:

 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Current:
Domestic		$	(7,571	)		$	(1,564	)		$	13,390
Foreign		37,462				16,146				37,381
Total current		29,891				14,582				50,771
Deferred:
Domestic		(10,860		)		(22,905		)		(213,200		)
Foreign		(1,408		)		34,817				(21,813		)
Total deferred		(12,268		)		11,912				(235,013		)
Total provision (benefit) for income taxes		$	17,623			$	26,494			$	(184,242	)
Cash taxes paid, net		$	29,806			$	29,737			$	43,347

The components of income (loss) before income taxes are as follows:

 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Domestic		$	(271,515	)		$	(132,138	)		$	(93,053	)
Foreign		(59,306		)		(53,695		)		75,209
Income (loss) before income taxes		$	(330,821	)		$	(185,833	)		$	(17,844	)

---

As of December 31, 2019 and 2018, our worldwide deferred tax assets, liabilities and net deferred tax liabilities were as follows: 

		December 31,
(in thousands)		2019				2018
Deferred tax assets:
Deferred compensation		$	15,227			$	13,684
Deferred income		4,835				2,381
Accrued expenses		45,740				13,683
Net operating loss and other carryforwards		199,410				189,644
Long-term operating lease liabilities		50,256				—
Other		16,569				4,601
Gross deferred tax assets		332,037				223,993
Valuation allowances		(277,258		)		(203,040		)
Total deferred tax assets		$	54,779			$	20,953
Deferred tax liabilities:
Property and equipment		$	6,237			$	36,850
Basis difference in equity investments		2,156				2,346
Right-of-use operating lease assets		43,734				—
Other		3,778				—
Total deferred tax liabilities		$	55,905			$	39,196
Net deferred income tax liability		$	1,126			$	18,243

Our net deferred tax liability is reflected within our balance sheet as follows: 

		December 31,
(in thousands)		2019				2018
Deferred tax liabilities		$	1,126			$	18,243
Net deferred income tax liability		$	1,126			$	18,243

As of December 31, 2019, we had approximately $199 million of net operating and other loss carryforwards that were generated in various worldwide jurisdictions. The carryforwards include $148 million that do not expire and $51 million that will expire from 2021 through 2039. We have recorded a total valuation allowance of $277 million on operating losses and tax credit carryforwards, as well as other deferred tax assets, as our management believes that it is more likely than not that these deferred tax assets will not be realized.

The following is a reconciliation of the beginning and ending amounts of our valuation allowances:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Balance at beginning of year		$	(203,040	)		$	(206,586	)		$	(4,200	)
Increase due principally to net operating losses		(59,596		)		(38,415		)		(146,360		)
Increase due to foreign tax and business credit carryforwards		(14,622		)		(14,065		)		(56,026		)
Reduction due to utilization of foreign tax credits generated in prior years		—				56,026				—
Balance at end of year		$	(277,258	)		$	(203,040	)		$	(206,586	)

The utilization of the foreign tax credits generated in prior years was a result of the mandatory repatriation requirements of the Tax Act.

---

Following is a reconciliation of income tax expense (benefit) computed by applying the U.S. statutory rate of 21% for 2019 and 2018 and 35% for 2017 to income (loss) before income taxes and our reported provision (benefit) for income taxes:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Income tax provision (benefit) at the U.S. statutory rate		$	(69,472	)		$	(39,025	)		$	(6,245	)
Tax Act - earnings subject to tax-free repatriation		—				—				(222,019		)
Tax Act - net mandatory repatriation tax		(8,220		)		8,790				—
Tax Act - remeasure of net U.S. deferred tax liabilities		—				—				(23,124		)
Valuation allowances		74,553				38,415				89,217
Foreign tax rate differential		18,439				475				(21,163		)
Stock compensation		989				2,135				3,112
Uncertain tax positions		3,046				12,644				(836		)
Other items, net		(1,712		)		3,060				(3,184		)
Total provision (benefit) for income taxes		$	17,623			$	26,494			$	(184,242	)

We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross uncertain tax positions, not including associated foreign tax credits and penalties and interest, is as follows:

 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Balance at beginning of year		$	14,971			$	5,339			$	6,330
Additions based on tax positions related to the current year		3,662				445				1,213
Reductions for expiration of statutes of limitations		(2,835		)		(260		)		(650		)
Additions (reductions) based on tax positions related to prior years		2,060				10,540				314
Reductions based on tax positions related to prior years		(563		)		—				(962		)
Settlements		(384		)		(1,093		)		(906		)
Balance at end of year		$	16,911			$	14,971			$	5,339

We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements. We increased/(decreased) income tax expense by $1.4 million and $1.7 million in 2019 and 2018, respectively, for penalties and interest on uncertain tax positions, which brought our total liabilities for penalties and interest on uncertain tax positions to $5.7 million and $4.3 million on our balance sheets as of December 31, 2019 and 2018, respectively. All additions or reductions to those liabilities would affect our effective income tax rate in the periods of change.

We believe approximately $0.9 million of gross uncertain tax positions will be resolved within the next 12 months. Including associated foreign tax credits and penalties and interest, we have accrued a net total of $21 million and $18 million in the caption "other long-term liabilities" on our balance sheet as of December 31, 2019 and 2018, respectively, for uncertain tax positions.

We consider the earnings of our foreign subsidiaries to be indefinitely reinvested. As of December 31, 2019, we did not provide for deferred taxes on earnings of our foreign subsidiaries that are indefinitely reinvested. If we were to make a distribution from the unremitted earnings of these subsidiaries, we would be subject to taxes in various jurisdictions. However, it is not practical to estimate the amount of tax that would ultimately be due if remitted. If our expectations were to change regarding future tax consequences, we may be required to record additional

---

deferred taxes that could have a material effect on our Consolidated Balance Sheets, Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following table lists the earliest tax years open to examination by tax authorities where we have significant operations:

 

Jurisdiction		Periods
United States		2014
United Kingdom		2017
Norway		2014
Angola		2013
Brazil		2015
Australia		2014

 

The following schedule shows our revenue, costs and gross margins by services and products: 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Revenue:
Services		$	1,333,787			$	1,245,927			$	1,181,229
Products		714,337				663,555				740,278
Total revenue		2,048,124				1,909,482				1,921,507
Cost of Services and Products:
Services		1,242,006				1,135,084				1,040,817
Products		619,490				578,212				625,843
Unallocated expenses		88,384				66,960				60,237
Total cost of services and products		1,949,880				1,780,256				1,726,897
Gross margin:
Services		91,781				110,843				140,412
Products		94,847				85,343				114,435
Unallocated expenses		(88,384		)		(66,960		)		(60,237		)
Total gross margin		$	98,244			$	129,226			$	194,610

Long-term debt consisted of the following: 

				December 31,
	(in thousands)			2019				2018
4.650% Senior Notes due 2024				$	500,000			$	500,000
6.000% Senior Notes due 2028		300,000,000		300,000				300,000
Fair value of interest rate swaps on $200 million of principal				3,235				(5,600		)
Unamortized debt issuance costs				(6,719		)		(7,820		)
Long-term Debt				$	796,516			$	786,580

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

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

---

of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. We used the net proceeds from the 2028 Senior Notes to repay our term loan indebtedness described further below.

We may redeem some or all of the 2024 Senior Notes and the 2028 Senior Notes (collectively, the "Senior Notes") at specified redemption prices.

In October 2014, we entered into a credit agreement (as amended, the "Credit Agreement") with a group of banks. The Credit Agreement initially provided for a $500 million five-year revolving credit facility (the "Revolving Credit Facility"). Subject to certain conditions, the aggregate commitments under the Revolving Credit Facility may be increased by up to $300 million at any time upon agreement between us and existing or additional lenders. Borrowings under the Revolving Credit Facility may be used for general corporate purposes. The Credit Agreement also provided for a $300 million term loan, which we repaid in full in February 2018, using net proceeds from the issuance of our 2028 Senior Notes referred to above, and cash on hand.

In February 2018, we entered into Agreement and Amendment No. 4 to the Credit Agreement ("Amendment No. 4"). Amendment No. 4 amended the Credit Agreement to, among other things, extend the maturity of the Revolving Credit Facility to January 25, 2023 with the extending lenders, which represent 90% of the existing commitments of the lenders, such that the total commitments for the Revolving Credit Facility will be $500 million until October 25, 2021, and thereafter $450 million until January 25, 2023. As of December 31, 2019, we had no borrowings outstanding under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility bear interest at an Adjusted Base Rate or the Eurodollar Rate (both as defined in the Credit Agreement), at our option, plus an applicable margin based on our Leverage Ratio (as defined in the Credit Agreement) and, at our election, based on the ratings of our senior unsecured debt by designated ratings services, thereafter to be based on such debt ratings. The applicable margin varies: (1) in the case of advances bearing interest at the Adjusted Base Rate, from 0.125% to 0.750%; and (2) in the case of advances bearing interest at the Eurodollar Rate, from 1.125% to 1.750%. The Adjusted Base Rate is the highest of (1) the per annum rate established by the administrative agent as its prime rate, (2) the federal funds rate plus 0.50% and (3) the daily one-month LIBOR plus 1%. We pay a commitment fee ranging from 0.125% to 0.300% on the unused portion of the Revolving Credit Facility, depending on our Leverage Ratio. The commitment fees are included as interest expense in our consolidated financial statements.

The Credit Agreement contains various covenants that we believe are customary for agreements of this nature, including, but not limited to, restrictions on our ability and the ability of each of our subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or consolidate, sell assets and enter into certain restrictive agreements. We are also subject to a maximum adjusted total Capitalization Ratio (as defined in the Credit Agreement) of 55%. The Credit Agreement includes customary events of default and associated remedies. As of December 31, 2019, we were in compliance with all the covenants set forth in the Credit Agreement.

We have two interest rate swaps in place on a total of $200 million of the 2024 Senior Notes for the period to November 2024. See Note 9—"Commitments and Contingencies" for more information on our interest rate swaps.

We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the 2028 Senior Notes, respectively, and $3 million of new loan costs, including costs of the amendments prior to Amendment No. 4, related to the Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-term debt in our Consolidated Balance Sheets, as they pertain to the Senior Notes, and in other noncurrent assets, as they pertain to the Credit Agreement. We are amortizing these costs to interest expense through the maturity dates for the Senior Notes and to January 2023 for the Credit Agreement using the straight-line method, which approximates the effective interest rate method.

We made cash interest payments of $46 million, $37 million and $32 million in 2019, 2018 and 2017, respectively.

9. COMMITMENTS AND CONTINGENCIES

Lease Commitments

---

As of December 31, 2019, we occupied several facilities under noncancellable operating leases expiring at various dates through 2033. See Note 4—"Leases" for more information on our operating leases.

Insurance

The workers' compensation, maritime employer's liability and comprehensive general liability insurance policies that we purchase each include a deductible layer, for which we would be responsible, that we consider financially prudent. Insurance above the deductible layers can be by occurrence or in the aggregate. We determine the level of accruals for claims exposure by reviewing our historical experience and current year claim activity. We do not record accruals on a present-value basis. We review larger claims with insurance adjusters and establish specific reserves for known liabilities. We establish an additional reserve for incidents incurred but not reported to us for each year using our estimates and based on prior experience. We believe we have established adequate accruals for expected liabilities arising from those obligations. However, it is possible that future earnings could be affected by changes in our estimates relating to these matters.

Litigation

In the ordinary course of business, we are, from time to time, involved in litigation or subject to disputes, governmental investigations or claims related to our business activities, including, among other things:

•	performance- or warranty-related matters under our customer and supplier contracts and other business arrangements; and

•	workers’ compensation claims, Jones Act claims, occupational hazard claims, premises liability claims and other claims.

Although we cannot predict the ultimate outcome of these matters, we believe that our ultimate liability, if any, that may result from these other actions and claims will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, because of the inherent uncertainty of litigation and other dispute resolution proceedings and, in some cases, the availability and amount of potentially available insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations or cash flows for the fiscal period in which that resolution occurs.

Letters of Credit

We had $49 million and $55 million in letters of credit outstanding as of December 31, 2019 and 2018, respectively, which related to self-insurance requirements and various bid and performance bonds, which are usually for the duration of the applicable contract.

Financial Instruments and Risk Concentration

In the normal course of business, we manage risks associated with foreign exchange rates and interest rates through a variety of strategies, including the use of hedging transactions. As a matter of policy, we do not use derivative instruments unless we have an underlying exposure. Other financial instruments that potentially subject us to concentrations of credit risk are principally cash and cash equivalents and accounts receivable.

The carrying values of cash and cash equivalents approximate their fair values due to the short-term maturity of the underlying instruments. Accounts receivable are generated from a broad group of customers, primarily from within the energy industry, which is our major source of revenue. Due to their short-term nature, carrying values of our accounts receivable and accounts payable approximate fair market values.

We estimated the aggregate fair market value of the Senior Notes to be $787 million as of December 31, 2019 based on quoted prices. Since the market for the Senior Notes is not an active market, the fair value of the Senior Notes is classified within Level 2 in the fair value hierarchy under U.S. GAAP (inputs other than quoted prices in active markets for similar assets and liabilities that are observable or can be corroborated by observable market data for substantially the full terms for the assets or liabilities).

We have two interest rate swaps in place on a total of $200 million of the 2024 Senior Notes for the period to November 2024. The agreements swap the fixed interest rate of 4.650% on $100 million of the 2024 Senior Notes to the floating rate of one-month LIBOR plus 2.426% and on another $100 million to one-month LIBOR plus 2.823%. We estimate the combined fair value of the interest rate swaps to be a net asset of $3.2 million as of December 31, 2019, which is included on our balance sheet in other long-term assets, and a net liability of

---

$5.6 million as of December 31, 2018, which is included in our balance sheet in other long-term liabilities. These values can be corroborated by unobservable market data, classified as Level 2 inputs.

Since the second quarter of 2015, the exchange rate for the Angolan kwanza relative to the U.S. dollar generally has been declining, with the exception that the exchange rate was relatively stable during 2017. As our functional currency in Angola is the U.S. dollar, we recorded foreign currency transaction losses related to the kwanza of $4.8 million, $19 million and $0.1 million in 2019, 2018 and 2017, as a component of other income (expense), net in our Consolidated Statements of Operations for those respective periods. Our foreign currency transaction losses related primarily to the remeasurement of our Angolan kwanza cash balances to U.S. dollars. Any conversion of cash balances from kwanza to U.S. dollars is controlled by the central bank in Angola, and the central bank slowed this process from mid-2015 to 2017, causing our kwanza cash balances to increase during that period of time. However, beginning in 2018, the Angolan central bank has allowed us to repatriate cash from Angola. As of December 31, 2019 and 2018, we had the equivalent of approximately $6.2 million and $9.3 million of kwanza cash balances, respectively, in Angola reflected on our Consolidated Balance Sheets.

To mitigate our currency exposure risk in Angola, we have used kwanza to purchase equivalent Angolan central bank (Banco Nacional de Angola) bonds. The bonds are denominated as U.S. dollar equivalents, so that, upon payment of semi-annual interest and principal upon maturity, payment is made in kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate. During 2018, we received a total of $70 million in proceeds from maturities and redemptions of Angolan bonds and reinvested $10 million of the proceeds in similar assets. As of December 31, 2019 and 2018, we had $10 million of Angolan bonds on our Consolidated Balance Sheets. Because we intend to sell the bonds if we are able to repatriate the proceeds, we have classified these bonds as available-for-sale securities, and they are recorded in other current assets on our Consolidated Balance Sheets.

We estimated the fair market value of the Angolan bonds to be $10 million as of December 31, 2019 and 2018 using quoted market prices. Since the market for the Angolan bonds is not an active market, the fair value of the Angolan bonds is classified within Level 2 in the fair value hierarchy under U.S. GAAP.

Business Segment Information

We are a global provider of engineered services and products, primarily to the offshore energy industry. Through the use of our applied technology expertise, we also serve the defense, aerospace and commercial theme park industries. Our Energy Services and Products business consists of ROVs, Subsea Products, Subsea Projects and Asset Integrity. Our ROV segment provides submersible vehicles operated from the surface to support offshore energy exploration, development and production activities. Our Subsea Products segment supplies a variety of specialty subsea hardware and related services. Our Subsea Projects segment provides multiservice subsea support shallow and deepwater vessels and offshore diving and support vessel operations, primarily for inspection, maintenance and repair and installation activities. We also provide survey, autonomous underwater vehicle and satellite-positioning services. For the renewable energy markets, we provide seabed preparation, route clearance and trenching services for submarine cables. Our Asset Integrity segment provides asset integrity management and assessment services, nondestructive testing and inspection. Our Advanced Technologies business provides project management, engineering services and equipment for applications in non-energy industries. Unallocated Expenses are those not associated with a specific business segment. These consist of expenses related to our incentive and deferred compensation plans, including restricted stock and bonuses, as well as other general expenses, including corporate administrative expenses.

There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss in the year ended December 31, 2019 from those used in our consolidated financial statements for the years ended December 31, 2018 and 2017.

---

The table that follows presents Revenue, Income from Operations and Depreciation and Amortization Expense by business segment:

 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Revenue
Energy Services and Products
Remotely Operated Vehicles		$	449,830			$	394,801			$	393,655
Subsea Products		602,249				515,000				625,513
Subsea Projects		327,556				329,163				291,993
Asset Integrity		242,954				253,886				236,778
Total Energy Services and Products		1,622,589				1,492,850				1,547,939
Advanced Technologies		425,535				416,632				373,568
Total		$	2,048,124			$	1,909,482			$	1,921,507
Income (Loss) from Operations
Energy Services and Products
Remotely Operated Vehicles		$	1,591			$	1,641			$	22,366
Subsea Products		9,831				5,614				45,539
Subsea Projects		(145,712		)		(86,008		)		10,279
Asset Integrity		(53,387		)		8,660				11,231
Total Energy Services and Products		(187,677		)		(70,093		)		89,415
Advanced Technologies		25,068				33,920				22,039
Unallocated Expenses		(128,104		)		(109,309		)		(100,798		)
Total		$	(290,713	)		$	(145,482	)		$	10,656
Depreciation and Amortization Expense
Energy Services and Products
Remotely Operated Vehicles		$	113,671			$	111,311			$	113,979
Subsea Products		68,404				53,085				52,561
Subsea Projects		38,103				114,481				31,869
Asset Integrity		35,367				6,904				7,715
Total Energy Services and Products		255,545				285,781				206,124
Advanced Technologies		3,122				3,081				3,171
Unallocated Expenses		4,760				4,728				4,224
Total		$	263,427			$	293,590			$	213,519

We determine income from operations for each business segment before interest income or expense, other income (expense) and provision for income taxes. We do not consider an allocation of these items to be practical.

Revenue

Revenue from one customer, BP plc and subsidiaries, accounted for 10% in 2019 and 12% in 2017 of our total consolidated annual revenue. Revenue from Royal Dutch Shell, accounted for 10% of our 2018 total consolidated annual revenue.

Income (Loss) from Operations

During 2019, we recorded total adjustments of $252 million for:

•	loss on impairment of $143 million in our Subsea Projects segment for deepwater and shallow water vessels and Ecosse long-lived assets;

•	write-downs and write-offs of certain equipment and intangible assets as discussed below in "Depreciation and Amortization Expense" of $45 million;

•	inventory write-downs of $21 million;

•	impairment of long-lived assets of $17 million in our Asset Integrity segment;

---

•	pre-tax goodwill impairment of $15 million in our Asset Integrity segment; and

•	other expenses of $12 million.

These total adjustments of $252 million, attributable to each of our reporting segments, are summarized as follows:

•	Remotely Operated Vehicles - $23 million;

•	Subsea Products - $25 million;

•	Subsea Projects - $153 million;

•	Asset Integrity - $49 million; and

•	Advanced Technologies - $1.6 million.

Depreciation and Amortization Expense

Depreciation expense on property and equipment, reflected in the Depreciation and Amortization Expense table above, was $212 million, $200 million and $204 million in 2019, 2018 and 2017, respectively.

Amortization expense on long-lived intangible assets, reflected in the Depreciation and Amortization Expense table above, was $36 million, $18 million and $10 million in 2019, 2018 and 2017, respectively.

Goodwill impairment expense, reflected in the Depreciation and Amortization Expense table above, was $15 million in our Asset integrity segment and $76 million in our Subsea Projects segment in 2019 and 2018, respectively.

We also recorded the write-downs and write-offs of certain equipment and intangible assets of $45 million, which is included in our 2019 depreciation expense of $212 million, attributable to each reporting segment as follows:

•	Remotely Operated Vehicles - $5.7 million;

•	Subsea Products - $19 million;

•	Subsea Projects - $6.1 million; and

•	Asset Integrity - $14 million.

We also recorded the write-offs of certain equipment associated with exiting the land survey business of $4.2 million, which is included in our 2018 depreciation expense of $200 million, and intangible asset write-offs of $3.4 million, which is included in our 2018 amortization expense of $18 million, attributable to each reporting segment as follows:

•	Remotely Operated Vehicles - $0.6 million;

•	Subsea Products - $1.5 million; and

•	Subsea Projects - $5.5 million.

---

The following table presents Assets, Property and Equipment, net and Goodwill by business segment: 

		December 31,
(in thousands)		2019				2018
Assets
Energy Services and Products
Remotely Operated Vehicles		$	555,053			$	612,983
Subsea Products		812,176				723,774
Subsea Projects		445,904				611,476
Asset Integrity		208,756				241,693
Total Energy Services and Products		2,021,889				2,189,926
Advanced Technologies		229,817				168,302
Corporate and Other		488,957				466,770
Total		$	2,740,663			$	2,824,998
Property and Equipment, Net
Energy Services and Products
Remotely Operated Vehicles		$	305,159			$	353,139
Subsea Products		304,589				295,297
Subsea Projects		134,307				274,518
Asset Integrity		10,201				20,556
Total Energy Services and Products		754,256				943,510
Advanced Technologies		11,443				11,229
Corporate and Other		10,833				9,931
Total		$	776,532			$	964,670
Goodwill
Energy Services and Products
Remotely Operated Vehicles		$	24,423			$	24,396
Subsea Products		99,409				99,744
Subsea Projects		131,768				123,624
Asset Integrity		127,637				143,515
Total Energy Services and Products		383,237				391,279
Advanced Technologies		21,842				21,842
Total		$	405,079			$	413,121

All assets specifically identified with a particular business segment have been segregated. Cash and cash equivalents, certain other current assets, certain investments and certain other assets have not been allocated to particular business segments and are included in Corporate and Other.

The following table presents Capital Expenditures, including business acquisitions, by business segment:

 

		Year Ended December 31,
(in thousands)		2019				2018				2017
Capital Expenditures
Energy Services and Products
Remotely Operated Vehicles		$	67,730			$	45,732			$	40,425
Subsea Products		48,334				25,149				27,711
Subsea Projects		19,489				99,701				29,544
Asset Integrity		4,548				2,874				3,651
Total Energy Services and Products		140,101				173,456				101,331
Advanced Technologies		3,256				3,550				2,063
Corporate and Other		4,327				1,033				1,564
Total		$	147,684			$	178,038			$	104,958

---

Geographic Operating Areas

Revenue is based on location where services are performed and products are manufactured as summarized in the following table:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Revenue
Foreign:
Africa		$	292,818			$	239,959			$	256,198
United Kingdom		256,348				203,391				236,177
Norway		217,762				185,552				178,712
Asia and Australia		174,769				163,843				193,865
Brazil		93,511				64,004				42,607
Other		91,591				103,548				81,364
Total Foreign		1,126,799				960,297				988,923
United States		921,325				949,185				932,584
Total		$	2,048,124			$	1,909,482			$	1,921,507

On January 1, 2019 we adopted the lease standard, Topic 842, which requires lessees to recognize right-of-use assets. For 2019, $163 million of right-of-use operating lease assets are included in the following table which summarizes Property and Equipment, Net and Right-of-Use Operating Lease Assets by geographic area:

		December 31,
(in thousands)		2019				2018
Property and Equipment, Net and Right-of-Use Operating Lease Assets
Foreign:
Norway		$	90,956			$	58,042
Africa		124,400				117,877
United Kingdom		100,807				106,330
Asia and Australia		54,915				48,837
Brazil		86,254				51,282
Other		18,646				21,374
Total Foreign		475,978				403,742
United States		463,792				560,928
Total		$	939,770			$	964,670

Retirement Investment Plans

We have several employee retirement investment plans that, taken together, cover most of our full-time employees. The Oceaneering Retirement Investment Plan is a 401(k) plan in which U.S. employees may participate by deferring a portion of their gross monthly salary and directing us to contribute the deferred amount to the plan. We match a portion of the employees' deferred compensation. Our contributions to the 401(k) plan were $19 million, $18 million and $17 million for the plan years ended December 31, 2019, 2018 and 2017, respectively.

We also make matching contributions to foreign employee savings plans similar in nature to a 401(k) plan. In 2019, 2018 and 2017, these contributions, principally related to plans associated with U.K. and Norwegian subsidiaries, were $12 million, $11 million and $9.1 million, respectively.

---

The Oceaneering International, Inc. Supplemental Executive Retirement Plan covers selected key management employees and executives, as approved by the Compensation Committee of our Board of Directors (the "Compensation Committee"). Under this plan, we accrue an amount determined as a percentage of the participant's gross monthly salary and the amounts accrued are treated as if they are invested in one or more investment vehicles pursuant to this plan. Expenses related to this plan during 2019, 2018 and 2017 were $3.0 million, $2.8 million and $3.2 million, respectively.

We had a defined benefit plan covering some of our employees in the U.K. The assets of the U.K. plan were invested in individual pensioners' annuities in anticipation of the plan settlement, which occurred in the fourth quarter of 2018. There were no plan assets or obligations for the U.K plan as of December 31, 2019 or 2018.

Incentive Plan

Under our Second Amended and Restated 2010 Incentive Plan (the "Incentive Plan"), shares of our common stock are made available for awards to employees and nonemployee members of our Board of Directors.

The Incentive Plan is administered primarily by the Compensation Committee; however, the full Board of Directors makes determinations regarding awards to nonemployee directors under the Incentive Plan. The Compensation Committee or our Board of Directors, as applicable, determines the type(s) of award(s) to be made to each participant and sets forth in the related award agreement the terms, conditions and limitations applicable to each award. Stock options, stock appreciation rights and stock and cash awards may be made under the Incentive Plan. There has been no stock option activity after December 31, 2010 and there are no options outstanding under the Incentive Plan. We have not granted any stock options since 2005 and the Compensation Committee has expressed its intention to refrain from using stock options as a component of employee compensation for our executive officers and other employees for the foreseeable future. Additionally, the Board of Directors has expressed its intention to refrain from using stock options as a component of nonemployee director compensation for the foreseeable future.

In 2019, 2018 and 2017, the Compensation Committee granted awards of performance units to certain of our key executives and employees. The performance units awarded are scheduled to vest in full on the third anniversary of the award date, or pro rata over three years if the participant meets certain age and years of service requirements. The Compensation Committee and the Board of Directors approved specific financial goals and measures (as defined), for each of the three-year periods ending December 31, 2021, 2020 and 2019 to be used as the basis for the final value of the performance units. The final value of the performance unit granted may range from $0 to $200 in each of 2019, 2018 and 2017. Upon vesting and determination of value, the value of the performance units will be payable in cash. Compensation expense related to the performance units was $9.7 million, $3.9 million and $4.2 million in 2019, 2018 and 2017, respectively. As of December 31, 2019, there were 319,263 performance units outstanding.

During 2019, 2018 and 2017, the Compensation Committee granted restricted units of our common stock to certain of our key executives and employees. During 2019, 2018 and 2017, our Board of Directors granted restricted common stock to our nonemployee directors. Over 80%, 85%, and 80% of the grants made to our employees in 2019, 2018 and 2017, respectively, vest in full on the third anniversary of the award date, conditional upon continued employment. The remainder of the grants made to employees vest pro rata over three years, as these participants meet certain age and years-of-service requirements. For the grants of restricted stock units to each of the participant employees, the participant will be issued a share of our common stock for the participant's vested restricted stock units at the earlier of three years or, if the participant vested earlier after meeting the age and service requirements, following termination of employment or service. The grants of restricted stock to our nonemployee directors were scheduled to vest in full on the first anniversary of the award date conditional upon continued service as a director, with one exception.  In February 2017, we granted shares of restricted common stock to a director who had given written notice of his intention to retire from our board of directors. Those shares were to vest if the director's service continued until the election of directors at our subsequent annual meeting of shareholders in May 2017.  The director fulfilled that requirement by resigning concurrent with that election and the shares of restricted stock became vested.

The Compensation Committee has a policy that Oceaneering will not provide U.S. federal income tax gross-up payments to any of its directors or executive officers in connection with future awards of restricted stock or stock units. This policy had no effect on the existing service agreement with our Chairman, which provides for tax gross-up payments that could become applicable to such future awards in limited circumstances, such as following a change in control of Oceaneering.

---

The additional tax charge realized from tax deductions less than the financial statement expense of our restricted stock grants was $1.0 million, $2.1 million and $3.1 million in 2019, 2018 and 2017, respectively. The 2019, 2018 and 2017 charges were recognized in our Consolidated Statements of Operations.

The following is a summary of our restricted stock and restricted stock unit activity for 2019, 2018 and 2017:

 

	Number			Weighted Average Fair Value			Aggregate Intrinsic Value
Balance as of December 31, 2016	1,052,007			43.48
Granted	489,514			26.70
Issued	(277,968	)		61.90			$	7,038,000
Forfeited	(81,748	)		34.15
Balance as of December 31, 2017	1,181,805			32.84
Granted	653,286			18.05
Issued	(320,147	)		47.62			$	5,993,000
Forfeited	(71,047	)		24.87
Balance as of December 31, 2018	1,443,897			23.27
Granted	957,734			18.12
Issued	(495,527	)		48.65			$	8,154,000
Forfeited	(164,769	)		22.86
Balance as of December 31, 2019	1,741,335			22.62

The restricted stock units granted in 2019, 2018 and 2017 carry no voting rights and no dividend rights. Each grantee of shares of restricted common stock is deemed to be the record owner of those shares during the restriction period, with the right to vote and receive any dividends on those shares.

Grants of restricted stock units are valued at their estimated fair values as of their respective grant dates. The grants in 2019, 2018 and 2017 were subject only to vesting conditioned on continued employment or service as a nonemployee director; therefore, these grants were valued at the grant date fair market value using the closing price of our stock on the New York Stock Exchange.

Compensation expense under the restricted stock plans was $10 million, $10 million and $11 million for 2019, 2018 and 2017, respectively. As of December 31, 2019, we had $11 million of future expense to be recognized related to our restricted stock unit plans over a weighted average remaining life of 1.7 years.

Post-Employment Benefit

In 2001, we entered into an agreement with our Chairman who was also then our Chief Executive Officer. That agreement was amended in 2006 and in 2008. Pursuant to the amended agreement, the Chairman relinquished his position as Chief Executive Officer in May 2006 and began his post-employment service period on December 31, 2006, which continued through August 15, 2011, during which service period the Chairman, acting as an independent contractor, agreed to serve as nonexecutive Chairman of our Board of Directors. The agreement provides the Chairman with post-employment benefits for ten years following August 15, 2011. The agreement also provides for medical coverage on an after-tax basis to the Chairman, his spouse and children for their lives. We recognized the net present value of the post-employment benefits over the expected service period. Our total accrued liabilities, current and long-term, under this post-employment benefit were $2.5 million and $3.2 million as of December 31, 2019 and 2018, respectively.

As part of the arrangements relating to the Chairman's post-employment benefits, we established an irrevocable grantor trust, commonly known as a "rabbi trust," to provide the Chairman greater assurance that we will set aside an adequate source of funds to fund payment of the post-retirement benefits under this agreement, including the medical coverage benefits payable to the Chairman, his spouse and their children for their lives. In connection with establishment of the rabbi trust, we contributed to the trust a life insurance policy on the life of the Chairman, which we had previously obtained, and we agreed to continue to pay the premiums due on that policy. When the life insurance policy matures, the proceeds of the policy will become assets of the trust. If the value of the trust

---

exceeds $4 million, as adjusted by the consumer price index, at any time after January 1, 2012, the excess may be paid to us. However, because the trust is irrevocable, the assets of the trust are generally not available to fund our future operations until the trust terminates, which is not expected to be during the lives of the Chairman, his spouse or their children. Furthermore, no tax deduction will be available for our contributions to the trust; however, we may benefit from future tax deductions for benefits actually paid from the trust (although benefit payments from the trust are not expected to occur in the near term, because we expect to make direct payments of those benefits for the foreseeable future).

---