OCEANEERING INTERNATIONAL INC (OII) FY 2021 MD&A

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

Certain statements in this annual report on Form 10-K, including, without limitation, statements regarding the following matters, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995:

•our business strategy;

•industry conditions and commodity pricing;

•seasonality;

•the impacts of the coronavirus (“COVID-19”) pandemic on our business;

•our expectations about 2022 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;

•tax refunds under the U.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other tax refunds;

•our backlog, to the extent backlog may be an indicator of future revenue or productivity;

•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;

•the collectability of accounts receivable and realizability of contract assets at the amounts reflected on our most-recent balance sheet;

•our projected capital expenditures for 2022;

•the condition of debt markets and our possible future debt repurchases;

•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 that may be 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;

•our expectations about growth in the area of energy transition; and

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

These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we refer to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of this report. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.

Impact of the COVID-19 Pandemic on Our Business

The COVID-19 pandemic has negatively impacted our business. Although we experienced improvements in 2021, the long-term implications of the pandemic on our business, financial condition and results of operations remain uncertain. The ultimate extent of the impact of the COVID-19 pandemic will depend largely on future developments, particularly within the geographic areas where we operate, and the related impact on overall economic activity, all of which are currently unknown and cannot be predicted with certainty at this time. However, the adverse impacts of the economic effects from the COVID-19 pandemic on our business have been and may continue to be significant.

Our Engagement in the Energy Transition

Oceaneering currently generates a substantial majority of its revenue from the oil and gas sector. Due to the continuing development of economies in developing countries, substantial projected population growth (particularly in developing countries), and the shortage of other sources of affordable, reliable, scalable and efficient energy, as

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well as rising worldwide demand for a myriad of products made with petrochemicals, we expect that the need for additional oil and gas exploration and development and IMR activities will continue for decades to come. At the same time, due to increasing concerns about climate change, there is growing demand for cleaner hydrocarbon-based and renewables energy sources. We believe that our strategies for continuing to assist our energy-focused customers to reduce their carbon emissions in exploring for, developing and producing oil and natural gas and in addressing the ongoing energy transition, as well as diversifying our business into new strategic growth areas in non-energy markets, will keep us well positioned as a resilient company in a potentially lower-carbon environment.

Today, the impacts of climate-related risks and opportunities and the global focus on energy transition are influencing our strategy in the following ways:

•we are committed to working with our Energy Services customers to help them minimize their carbon footprints in their oil and natural gas operations;

•we are deploying our competencies and capabilities to serve the energy-transition markets, including those utilizing offshore wind and tidal energy technologies, hydrogen and CCS technologies; and

•we are reviewing and assessing new investments to further diversify our businesses into new strategic growth areas outside the energy industry, such as mobility solutions, aerospace and defense and digital asset management.

We are committed to the research and development of products and services intended to help our Energy Services customers to produce energy safely and securely, with decreased risk to humans and sea life and reduced environmental impacts. As an example, we are working to advance remote operations, which allow customers to reduce their carbon footprints by transferring offshore workers to onshore control centers, and allows for less risk to human health and safety, greater collaboration and faster response to real-time events.

We are also committed to reducing our own energy consumption and the greenhouse gas emissions attributable to our operations. With the help of a third-party consultant, we are in the process of conducting a global review of our assets and operations to identify and estimate our scope 1 and scope 2 emissions. Once we have completed that process, we intend to set appropriate ambition levels for both short- and long-term emissions reduction goals. We will then develop action plans to achieve these goals. Our capital investments and expenses required to achieve our goals cannot be estimated at this time, but are expected to be significant over the long term.

Overview of our Results and Guidance

The table that follows sets out our revenue and operating results for 2021, 2020 and 2019.

Our business segments are contained within two businesses—services and products provided primarily to the oil and gas industry and, to a lesser extent, the offshore renewables industry (“Energy Services and Products”) and services and products provided to non-energy industries (“Aerospace and Defense Technologies” or “ADTech”). Our four business segments within the Energy Services and Products business are Subsea Robotics, Manufactured Products, Offshore Projects Group (“OPG”) and Integrity Management & Digital Solutions (“IMDS”). We report our Aerospace and Defense Technologies business as one segment. Unallocated Expenses are expenses not associated with a specific business segment. These consist of expenses related to our incentive and deferred compensation plans, including restricted stock and bonuses, as well as other general expenses, including corporate administrative expenses.

Our business primarily depends on the level of spending on offshore developments and related operating activities by our customers in the energy industry. During 2021, we generated a substantial majority of our revenue from services and products we provided to the energy industry. Our results for 2021 reflect the impact of pre-tax charges

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of $32 million recognized during the first, second and fourth quarters. Activity levels and operating performance within our energy segments improved as compared to 2020 as we continued to adapt to operating during the COVID-19 pandemic. Our ADTech segment continued to perform steadily, delivering improved operating income for the year. Overall, our 2021 revenue increased 2% to $1.9 billion, with revenue increases in three of our four energy segments and in our ADTech segment.

In 2021, on a consolidated level, we had a net loss of $49 million, or diluted loss of $0.49 per share, compared to net loss of $497 million, or diluted loss of $5.01 per share, in 2020. The $447 million decrease in net loss as compared to 2020 was primarily attributable to pre-tax charges of $467 million recorded in 2020 for impairments, write-downs and write-offs of certain equipment, intangible assets, goodwill and inventory, and other expenses, most notably in our Subsea Robotics, Manufactured Products, OPG and IMDS segments. This compares to pre-tax charges recorded in 2021 of $32 million, for a net loss on uncollectible accounts, loss on sale of an asset and other expenses, most notably in our Manufactured Products segment.

We had operating income of $40 million, including charges of $32 million, in 2021 and an operating loss of $446 million, including charges of $467 million in 2020. Operating results increased $486 million primarily due to charges of $467 million recorded in 2020 for impairments, write-downs and write-offs of certain equipment, intangible assets, goodwill and inventory, and other expenses described below. The changes in operating results occurred in our:

•Subsea Robotics segment, which had a $143 million increase in operating results, primarily as a result of charges of $122 million in 2020 as compared to charges of $0.4 million in 2021. These charges were principally due to a goodwill impairment in 2020 of $102 million, largely based on market conditions and lower pricing levels. 2020 charges also included asset write-offs and inventory write-downs, largely resulting from impairment and obsolescence.

•Manufactured Products segment, which had a $72 million increase in operating results, primarily as a result of charges of $116 million in 2020 as compared to charges of $30 million in 2021. These charges in 2020 included impairments and write-downs of certain equipment of $61 million and goodwill impairments of $52 million, both largely based on market conditions and lower pricing levels. These charges in 2021 included a net loss of $30 million recorded in connection with the termination in the fourth quarter of 2021 of a number of entertainment ride systems contracts with the financially embattled developer, China Evergrande Group and its affiliated companies (collectively, “Evergrande”).

•OPG segment, which had a $137 million increase in operating results, primarily as a result of charges of $100 million in 2020 as compared to charges of $0.1 million in 2021. The charges in 2020 included a goodwill impairment of $66 million and long-lived asset impairments and write-offs of $25 million.

•IMDS segment, which had a $140 million increase in operating results, primarily as a result of charges of $128 million in 2020 as compared to charges of $0.2 million in 2021. The charges in 2020 included a goodwill impairment of $123 million, largely based on market conditions and lower pricing levels.

•ADTech segment, which had an $5.0 million increase in operating income on higher levels of revenue due to increased activity in defense subsea technologies.

In 2021, 2020 and 2019 we incurred certain charges of $32 million, $467 million and $252 million, respectively. The 2021 charges were primarily due to the net loss of $30 million related to the termination of a number of entertainment ride systems contracts with Evergrande. The 2020 and 2019 charges were primarily due to market conditions that no longer supported the prior valuations. Additionally, we recognized other costs, as we adapted our

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geographic footprint and staffing levels to the conditions of the markets we serve. Charges for 2021, 2020 and 2019 are summarized as follows (in thousands):

Based on our year-end 2021 backlog, projected start dates of new contracts, anticipated 2022 order intake and supportive market fundamentals, we are expecting increased revenue in 2022 for each of our operating segments, led by Manufactured Products, as compared to 2021. We are expecting improved operating results in 2022 as compared to 2021 in each of our energy segments, led by Subsea Robotics and OPG, and in ADTech. We anticipate commodity prices to support growth and free cash flow generation in 2022.

The outlook appears supportive for continued growth in all of our segments over the next several years and the operating efficiencies that have been put into place will position us to benefit from this growth while increasing our profitability. The outlook appears supportive for continued growth in offshore oil and gas markets over the medium term and we anticipate accelerated interest and growth in the offshore renewables market, including offshore wind, over the longer term. We believe that our energy segments are positioned to benefit from the growth in both of these markets. We also believe that our government-focused segment, ADTech, remains well positioned for continued steady growth in the aerospace and defense markets.

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We use our ROVs to provide drill support, vessel-based inspection, maintenance and repair, subsea hardware installation, construction, and pipeline inspection services to customers in the energy industry. Most of our ROVs have historically been used to provide drill support services. Therefore, the contracted number of floating drilling rigs is a leading market indicator for this business. The following table shows average floating rigs under contract and our ROV utilization.

Demand for floating rigs is the primary leading indicator of the strength of the deepwater market. According to industry data published by IHS Petrodata, excluding rigs under construction, at the end of 2021 there were 193 floating drilling rigs in operation or available for work throughout the world, with 137 of those rigs under contract. The average contracted offshore floating rig count in 2021 declined to approximately 131 rigs.

In addition to floating rig demand, the number of subsea tree orders and installations is another leading indicator, and the primary demand driver for our Manufactured Products lines. According to data published by Rystad Energy in December 2021, there are projected to be 317 subsea tree installations in 2022, compared to 313 in 2021, 278 in 2020 and 263 in 2019.

Results of Operations and Guidance

Additional information on our business segments is shown in Note 11—“Operations by Business Segment and Geographic Area” in the Notes to Consolidated Financial Statements included in this report.

Energy Services and Products. The table that follows sets out revenue and profitability for the business segments within our Energy Services and Products business. In the Subsea Robotics section of the table that follows, “ROV Days Available” includes all days from the first day that an ROV is placed in service until the ROV is retired. All days in this period are considered available days, including periods when an ROV is undergoing maintenance or repairs. Our ROVs do not have scheduled maintenance or repair that requires significant time when the ROVs are not available for utilization.

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Subsea Robotics. Historically, we built new ROVs to increase the size of our fleet in response to demand to support deepwater drilling and vessel-based IMR and installation work. These vehicles are designed for use around the world in water depths of 10,000 feet or more. In 2015, as a result of declining market conditions, we began building fewer ROVs, generally limiting additions to meet contractual commitments. During the year ended December 31, 2021, we retired 10 of our conventional workclass ROV systems and replaced them with seven upgraded conventional workclass ROV systems and three IsurusTM workclass ROV systems (which are capable of operating in severe conditions and are ideal for renewables projects and high-speed surveys), which are currently engaged in renewables work. We added a total of 10, three and 13 ROVs in 2021, 2020 and 2019, respectively, while retiring 51 units over the three-year period. Our ROV fleet size was 250 as of December 31, 2021, 2020 and 2019.

We believe we are the world's largest provider of ROV services and, generally, this business segment has been the largest contributor to our Energy Services and Products business operating income. Our Subsea Robotics segment

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revenue reflects the utilization percentages, fleet sizes and average pricing in the respective periods. Our survey services business provides survey and positioning, and geoscience services. The following table presents revenue from ROV services as a percentage of total Subsea Robotics revenue:

For the year ended December 31, 2021, our Subsea Robotics operating income increased as compared to 2020, primarily due to charges of $122 million for the year ended December 31, 2020 for goodwill impairment, write-downs and write-offs of certain equipment, intangible assets and inventory, and other expenses. Exclusive of those charges, Subsea Robotics operating income for the year ended December 31, 2021 increased as compared to the corresponding period of the prior year on higher revenue and margins. We had a 2% decrease in days on hire and a year-over-year decrease in drill support days partially offset by an increase in vessel support days. Dayrates and costs per days on hire increased on a slight decrease in utilization.

For the year ended December 31, 2020, our Subsea Robotics operating income decreased as compared to 2019, primarily due to charges of $122 million and $31 million for the years ended December 31, 2020 and 2019, respectively, for goodwill impairment, write-downs and write-offs of certain equipment, intangible assets and inventory, and other expenses. Exclusive of those charges, Subsea Robotics operating income for the year ended December 31, 2020 increased as compared to the corresponding period of the prior year on higher margins and improved cost controls. We had a 7% decrease in days on hire and year-over-year decreases in both drill support and vessel support days. Dayrates and costs per days on hire decreased on a slight increase in utilization.

For our Subsea Robotics in 2022, we expect improved results based on increased ROV days on hire, minor shifts in geographic mix and stable to improving pricing. Results for tooling-based services are expected to improve, with activity levels generally following ROV days on hire. Survey operating results are expected to improve on higher survey and positioning activity. Our overall ROV fleet utilization is expected to be in the mid-60% range for the full year of 2022, with higher seasonal activity during the second and third quarters. Subject to quarterly variances, we continue to expect our drill support market share to generally approximate 55% to 60%.

Manufactured Products. For the year ended December 31, 2021, our Manufactured Products operating results increased, as compared to 2020, primarily due to charges in 2020 of $116 million for asset and goodwill impairments, and other expenses as compared to $30 million of charges in 2021 primarily for the net loss related to the termination of a number of entertainment ride systems contracts with Evergrande. The 2021 Evergrande net loss included a reserve of $49 million in receivables and contract assets partially offset by the reclassification of $20 million of contract assets into salable inventory. Exclusive of those charges, Manufactured Products adjusted operating income for the year ended December 31, 2021 decreased as compared to the corresponding period of the prior year on lower revenue as we worked through backlog orders awarded prior to the COVID-19 pandemic. Our energy-related businesses year over year had decreased volume and operating margins which were partially offset by our mobility solutions businesses which had less volume but higher operating margins as a result of efficiency gains and revision of project cost estimates.

For the year ended December 31, 2020, our Manufactured Products operating results decreased, on higher revenue as compared to 2019, primarily due to charges in 2020 of $116 million for asset and goodwill impairments, and other expenses as compared to $3.3 million of charges in 2019 for write-offs of certain equipment, intangible assets and inventory, and other expenses. Exclusive of those charges, Manufactured Products adjusted operating income for the year ended December 31, 2020 increased as compared to the corresponding period of the prior year. Our energy-related businesses year over year had increased volume and operating margins due to better execution and improved operating efficiencies. Our mobility solutions businesses had significantly less volume and lower operating margins as a result of declines in activity attributable to the COVID-19 pandemic.

We expect our Manufactured Products segment operating results in 2022 to improve on a significant increase in revenue, primarily as a result of increased order intake in our energy businesses in 2021. We are seeing increasing interest in our mobility solutions businesses and expect marginally higher activity and contribution from these businesses in 2022. Our Manufactured Products backlog was $318 million as of December 31, 2021, a $52 million, or 20%, increase over December 31, 2020.

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Offshore Projects Group. Our OPG operating results for the year ended December 31, 2021 increased as compared to 2020 primarily due to decreased charges in 2021 of $100 million for vessel and other asset impairments and write-offs, goodwill impairment, and other charges. Exclusive of those charges, our OPG operating results were higher for the year ended December 31, 2021, as compared to the prior year, on higher revenue due to increased activity levels in the areas of subsea installation and intervention services.

Our OPG operating results for the year ended December 31, 2020 increased as compared to 2019 primarily due to decreased charges in 2020 of $100 million for vessel and other asset impairments and write-offs, goodwill impairment, and other charges as compared to 2019 charges of $168 million for vessel and intangible impairments, write-downs and write-offs of certain equipment and inventory, and other expenses. Exclusive of those charges, our OPG operating results were lower for the year ended December 31, 2020, as compared to the prior year, on lower revenue due to reduced activity levels in the areas of IMR, decommissioning and intervention services.

In 2022, we expect operating results for our OPG segment to improve on a marginal increase in revenue. This expectation is based on better anticipated pricing, improved vessel utilization and increased diving activities more than offsetting lower year-over-year contribution from our Angola riserless light well intervention campaign.

Integrity Management & Digital Solutions. For the year ended December 31, 2021, compared to 2020, our IMDS operating results were higher primarily due to 2020 charges of $128 million for goodwill impairment, asset impairment and write-offs, and other expenses. Exclusive of those charges, operating results for the year ended December 31, 2021 were higher, as compared to the prior year, due to operating efficiencies implemented since the beginning of 2020.

For the year ended December 31, 2020, compared to 2019, our IMDS operating results were lower primarily due to 2020 charges of $128 million for goodwill impairment, asset impairment and write-offs, and other expenses as compared to 2019 charges of $49 million for goodwill and asset impairments, write-downs and write-offs of certain equipment, intangible assets and inventory, and other expenses. Exclusive of those charges, operating results for the year ended December 31, 2020 were higher, as compared to the prior year, due to improved operating efficiencies instituted in the fourth quarter of 2019 and in the first three quarters of 2020.

We anticipate our 2022 operating results for IMDS to improve on higher revenue, with consistent operating margins. We continue to see global opportunities for renewals and business expansion, particularly in the U.K. and West Africa.

Aerospace and Defense Technologies.

Revenue, gross margin and operating income information for our ADTech segment are as follows:

For the year ended December 31, 2021, compared to 2020, our ADTech segment operating results were higher on higher levels of revenue due to increased activity in defense subsea technologies.

For the year ended December 31, 2020, compared to 2019, our ADTech segment operating results were higher on higher levels of revenue due to increased activity in both defense subsea technologies and space systems.

We project our ADTech 2022 revenue to be higher, producing improved operating results. We anticipate growth in all of our government-focused businesses.

Unallocated Expenses. Our unallocated expenses, (i.e., those not associated with a specific business segment), within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our unallocated

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expenses within operating expenses consist of those expenses within gross margin plus general and administrative expenses related to corporate functions.

The following table sets forth our unallocated expenses for the periods indicated:

Our unallocated expenses for the year ended December 31, 2021 increased compared to 2020, primarily as a result of increased accruals in 2021 for incentive-based compensation combined with increased health care and information technology costs.

Our unallocated expenses for the year ended December 31, 2020 decreased compared to 2019, primarily as a result of reduced accruals in 2020 for incentive-based compensation.

We anticipate unallocated expenses in 2022 to average in the mid-$30 million range per quarter, due primarily to higher information technology costs and higher costs due to inflation as compared to 2021.

Other. The following table sets forth our significant financial statement items below the income (loss) from operations line:

Interest income for the years ended December 31, 2021 and 2020 as compared to prior years, decreased primarily due to lower interest rates and reduction of interest income related to dollar-denominated Angolan bonds that have been redeemed.

Interest expense decreased for the year ended December 31, 2021 compared to 2020, primarily due to repurchases of $100 million in aggregate principal amount of the 2024 Senior Notes. Interest expense increased for the year ended December 31, 2020 compared to 2019, primarily due to capitalized interest of $3.4 million in 2019 associated with the new-build vessel, the Ocean Evolution, described under “Liquidity and Capital Resources” below that was not replicated in 2020. We have not capitalized interest since 2019.

In addition to interest on borrowings, interest expense, net of amounts capitalized, includes amortization of loan costs and interest rate swap gains, fees for lender commitments under our revolving credit agreement and fees for standby letters of credit and bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance requirements.

In 2022, we expect interest expense, net of interest income, to be approximately $38 million. We do not anticipate capitalizing interest on any long-lived assets in 2022.

Included in other income (expense), net are foreign currency transaction losses of $8.4 million, $14 million, and $6.3 million for 2021, 2020 and 2019, respectively. Foreign currency losses in 2021 primarily related to the Angolan kwanza and were principally due to declining exchange rates for the Angolan kwanza, which devalued its currency by 13%. The currency losses in 2020 primarily related to the Angolan kwanza and Brazilian real. Foreign currency losses in 2020 related to the Angolan kwanza were primarily due to declining exchange rates for the Angolan kwanza, which devalued its currency by 36%. Foreign currency losses in 2020 related to the Brazilian real were primarily due to the remeasurement of our U.S. dollar denominated liability balances to the Brazilian real. The currency losses in 2019 primarily related to declining exchange rates for the Angolan kwanza, which devalued its

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currency by 55% in 2019. We could incur further foreign currency exchange losses in Angolan kwanza, the Brazilian real and other currencies, if currency devaluations occur.

Our tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographical mix of our results. The effective tax rate for the 12-month periods ended December 31, 2021, 2020 and 2019 was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items; therefore, we do not believe a discussion of the effective tax rate is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings.

On March 27, 2020, the CARES Act was signed into law in the United States. In accordance with the rules and procedures under the CARES Act, we filed certain refund claims to carry back a portion of our U.S. net operating loss. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately $33 million, of which we have received $10 million as of December 31, 2021. The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as of December 31, 2021.

We continue to believe it is more likely than not that we would not be able to utilize all of our deferred tax assets. In accordance with applicable accounting standards, we recorded an additional valuation allowance of $87 million and $315 million in 2021 and 2020, respectively.

In 2022, our income tax payments, estimated to total between $40 million and $45 million, which include taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations. These cash tax payments do not include expected refunds of approximately $23 million under the CARES Act.

Liquidity and Capital Resources

We consider our liquidity and capital resources adequate to support our operations, capital commitments and growth initiatives. As of December 31, 2021, we had working capital of $687 million, including cash and cash equivalents of $538 million. Additionally, we had $450 million available through our revolving credit facility under a credit agreement further described below.

Amendment No. 4 to the Credit Agreement (as defined below) provided for a $500 million revolving credit facility until October 25, 2021 and thereafter provides for $450 million until January 25, 2023 with a group of banks. Our revolving credit facility provided under the Credit Agreement was undrawn as of December 31, 2021, and remains undrawn as of the date of this report, and our nearest maturity of indebtedness is $400 million of our 4.650% Senior Notes due in November 2024 (the “2024 Senior Notes”). In 2021, we repurchased $100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions. We may, from time to time, complete additional limited repurchases of the 2024 Notes, via open-market or privately negotiated repurchase transactions or otherwise, prior to their maturity date. We can provide no assurances as to the timing of any such additional repurchases or whether we will complete any such repurchases at all. We do not intend to disclose further information regarding any such repurchase transactions, except to the extent required in our subsequent periodic filings on Forms 10-K or 10-Q, or unless otherwise required by applicable law.

Cash flows for the years ended December 31, 2021, 2020 and 2019 are summarized as follows:

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Operating activities

Our principal source of cash from operating activities is our net income (loss), adjusted for noncash items. Our primary sources and uses of cash flows from operating activities for the years ended December 31, 2021, 2020 and 2019 are as follows:

Net cash provided by operating activities for the years ended December 31, 2021, 2020 and 2019 of $225 million, $137 million and $158 million, respectively, was affected by the following:

•Accounts receivable and contract assets - The increase in cash related to accounts receivable and contract assets in 2021 and 2020 reflects the timing of project milestones and customer payments. The decrease in cash related to accounts receivable and contract assets in 2019 reflects higher business activity in the fourth quarter due to commencement of new projects, along with timing of project milestones and customer payments.

•Inventory - The increase in cash related to inventory in 2021 was primarily due to higher project activity in the fourth quarter of 2021 as we worked through backlog orders awarded prior to the COVID-19 pandemic in our Manufactured Products segment. The increase in cash related to inventory as of December 31, 2020 corresponds with a decrease in our backlog. The decrease in cash related to inventory as of December 31, 2019 was primarily due to increases in Manufactured Products inventory related to increases in backlog.

•Current liabilities - The increase in cash in 2021 reflects the timing of vendor payments and increased contract liabilities due to an increase in deferred customer prepayments. The decrease in cash related to changes in current liabilities in 2020 reflected the timing of vendor payments, lower contract liabilities due to a decrease in deferred customer prepayments, and the annual employee incentive payments related to attainment of specific performance goals in prior periods. 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.

Investing activities

In 2021, we used $34 million in net investing activities, primarily for capital expenditures of $50 million. Our 2021 capital expenditures included $28 million in our Subsea Robotics segment to upgrade our fleet of work-class ROVs and $8.0 million in our OPG segment to add capabilities and maintain current operations. These outlays were partially offset by $4.5 million of proceeds received from the sale of a portion of our Angolan bonds and $7.1 million of proceeds received from the sale of various assets.

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In 2020, we used $53 million in net investing activities, primarily for capital expenditures of $61 million. Our 2020 capital expenditures included $34 million in our OPG segment to add capabilities and maintain current operations and $15 million in our Subsea Robotics segment to upgrade our fleet of work-class ROVs.

In 2019, we used $135 million in net investing activities, primarily for capital expenditures of $148 million. Our 2019 capital expenditures included $73 million in our Subsea Robotics segment to upgrade 13 of our work-class ROVs, $18 million in our Manufactured Products segment to add capabilities and maintain current operations and $42 million in our Offshore Projects Group segment, which included completion of the multiservice vessel (“MSV”) Ocean Evolution, which was placed in service in the second quarter of 2019.

Our priority continues to be generating cash. In 2022, we expect our organic capital expenditures to total between $70 million and $90 million, exclusive of business acquisitions. This includes approximately $40 million to $45 million of maintenance capital expenditures and $30 million to $45 million of growth capital expenditures. We remain committed to maintaining strong liquidity and believe that our cash position, undrawn revolving credit facility, and debt maturity profile should provide us ample resources and time to address potential future growth opportunities and to improve our returns.

Our capital expenditures during 2021, 2020 and 2019 included $28 million, $15 million and $73 million, respectively, in our Subsea Robotics segment, principally for upgrades to our ROV fleet and to replace certain units we retired. We currently plan to add new ROVs only to meet contractual commitments. In 2021, we retired ten of our conventional workclass ROV systems and replaced them with seven upgraded conventional workclass ROV systems and three IsurusTM workclass ROV systems (which are capable of operating in severe conditions and are ideal for renewables projects and high-speed surveys). We added three and 13 ROVs to our fleet and retired three and 38 units during 2020 and 2019, respectively. Our ROV fleet size was 250 as of December 31, 2021, 2020 and 2019.

We previously had several deepwater vessels under long-term charter. The last of our long-term charters expired in March 2018. We now have a mix of short-term charters where we can see firm workload and spot charters as market opportunities arise.

We placed our new-build, Jones Act-compliant, MSV Ocean Evolution into service during the second quarter of 2019. The Ocean Evolution is U.S.-flagged and documented with a coastwise endorsement by the U.S. Coast Guard. The vessel has an overall length of 353 feet, a Class 2 dynamic positioning system, accommodations for 110 personnel, a helideck, a 250-ton active heave-compensated crane, a working moonpool, and two of our high specification 4,000 meter work-class ROVs. The vessel has five low-emission Environmental Protection Agency (“EPA”) Tier 4 diesel engines. The Tier 4 rating is the EPA’s strictest emission requirements for non-road diesel engines. The vessel is also equipped with a satellite communications system capable of transmitting streaming video for real-time work observation by shore-based personnel. The vessel is being used to augment our ability to provide subsea intervention services in the U.S. Gulf of Mexico. These services are required to perform IMR projects and hardware installations. Due to market conditions that no longer support the prior valuation for this asset, in the fourth quarter of 2019, we determined that the carrying amount of the Ocean Evolution exceeded the fair value and recorded impairment expense of $101 million.

In 2010, we acquired a vessel, which we renamed the Ocean Patriot, and converted it to a dynamically positioned saturation diving and ROV service vessel. We installed a 12-man saturation (“SAT”) diving system and one work-class ROV on the vessel, and we placed the vessel into service in December 2011. Due to market conditions that no longer support the prior valuation for this asset, in the fourth quarter of 2019 and the 1st quarter of 2020, we determined that the carrying amount of the Ocean Patriot exceeded the fair value and recorded impairment expense of $31 million and $3.9 million, respectively.

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Financing activities

In 2021 we used $102 million of cash in financing activities primarily due to repurchases of $100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions. In 2020 and 2019, we used $1.7 million and $2.3 million, respectively, in financing activities.

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

In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the “2028 Senior Notes”). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. We used the net proceeds from the 2028 Senior Notes to repay our term loan indebtedness described further below.

We may redeem some or all of the 2024 Senior Notes and 2028 Senior Notes (collectively, the “Senior Notes”) at specified redemption prices. In 2021, we repurchased $100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions. The aggregate purchase price in the year ended December 31, 2021 included accrued and unpaid interest to the repurchase date of $0.7 million and we recorded loss on extinguishment of debt of $1.1 million (including premiums and fees associated with the repurchases).

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

In February 2018, we entered into Agreement and Amendment No. 4 to the Credit Agreement (“Amendment No. 4”). Amendment No. 4 amended the Credit Agreement to, among other things, extend the maturity of the Revolving Credit Facility to January 25, 2023 with the extending lenders, which represent 90% of the existing commitments of the lenders, such that the total commitments for the Revolving Credit Facility was $500 million until October 25, 2021, and thereafter $450 million until January 25, 2023.

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

The Credit Agreement contains various covenants that we believe are customary for agreements of this nature, including, but not limited to, restrictions on our ability and the ability of each of our subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or consolidate, sell assets and enter into certain restrictive agreements. We are also subject to a maximum adjusted total Capitalization Ratio (as defined in the Credit Agreement and which stipulates that, among other items, we exclude any impacts associated with current and prior-period impairments) of 55%. The Credit Agreement includes customary events of default and associated remedies. As of December 31, 2021, we were in compliance with all the covenants set forth in the Credit Agreement.

We had two interest rate swaps in place relating to a total of $200 million of the 2024 Senior Notes for the period to November 2024. The agreements swapped the fixed interest rate of 4.65% on $100 million of the 2024 Senior Notes to the floating rate of one-month LIBOR plus 2.426% and on another $100 million to one-month LIBOR plus 2.823%. In March 2020, we settled both interest rate swaps with the counterparty for cash proceeds of $13 million. The settlement resulted in a $13 million increase to our long-term debt balance that will be amortized to interest expense prospectively through the maturity date for the 2024 Senior Notes using the effective interest method. As a

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result, we amortized $4.3 million to interest expense, including $1.8 million for the pro-rata write-off of interest rate swap settlement gains associated with the 2024 Senior Notes repurchases discussed above, for the year ended December 31, 2021. We amortized $2.0 million to interest expense for the year ended December 31, 2020. See Note 9—”Debt” in the Notes to Consolidated Financial Statements included in this report for a description of these interest rate swaps.

We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the 2028 Senior Notes, respectively, and $3.0 million of new loan costs, including costs of the amendments prior to Amendment No. 4, related to the Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-term debt in our Consolidated Balance Sheet, as they pertain to the Senior Notes, and in other noncurrent assets as they pertain to the Credit Agreement. We are amortizing these costs to interest expense through the respective maturity dates for the Senior Notes and to January 2023 for the Credit Agreement using the straight-line method, which approximates the effective interest rate method.

Our maximum outstanding indebtedness during 2021 under the Credit Agreement and the Senior Notes was $800 million, and our total interest costs, including commitment fees, were $39 million.

We have not guaranteed any debt not reflected on our Consolidated Balance Sheets as of December 31, 2021 and 2020, and we do not have any off-balance-sheet arrangements, as defined by SEC rules.

In December 2014, our Board of Directors approved a plan to repurchase up to 10 million shares of our common stock on a discretionary basis. The program calls for any 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. Under this program, in 2015, we repurchased 2.0 million shares of our common stock for $100 million. We have not repurchased any shares under the program since December 2015. As of December 31, 2021, we retained 11 million of the shares we had repurchased through this and a prior repurchase program. We account for the shares we hold in treasury under the cost method, at average cost. The timing and amount of any future repurchases will be determined by our management. We expect that any additional shares repurchased under the plan will be held as treasury stock for possible future use. The plan does not obligate us to repurchase any particular number of shares.

Because of our significant foreign operations, we are exposed to currency fluctuations and exchange rate risks. A stronger U.S. dollar against any of the foreign currencies where we conduct business could result in lower operating income. We generally minimize these risks primarily through matching, to the extent possible, revenue and expense in the various currencies in which we operate. Cumulative translation adjustments as of December 31, 2021 relate primarily to our net investments in, including long-term loans to, our foreign subsidiaries. See Item 7A—“Quantitative and Qualitative Disclosures About Market Risk.”

Critical Accounting Policies and Estimates

We have based the following discussion and analysis of our financial condition and results of operations on our consolidated financial statements, which we have prepared in conformity with accounting principles generally accepted in the United States. These principles require us to make various estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the periods we present. We base our estimates on historical experience, available information and other assumptions we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates; however, our actual results may differ from these estimates under different assumptions or conditions. The following discussion summarizes the accounting policies we believe (1) require our management's most difficult, subjective or complex judgments and (2) are the most critical to our reporting of results of operations and financial position. See Note 1—“Summary of Major Accounting Policies” in the Notes To Consolidated Financial Statements included in this report for discussion of our significant accounting policies.

Revenue Recognition. We account for significant fixed-price contracts, mainly relating to our Manufactured Products segment, and to a lesser extent in our Offshore Projects Group and Aerospace and Defense Technologies segments, by recognizing revenue over time using an input, cost-to-cost measurement percentage-of-completion method. We use the input cost-to-cost method to measure progress toward satisfaction of an over-time performance obligation. This commonly used method is based on the premise that costs incurred are proportionate to progress towards satisfaction of the performance obligation and is measured by comparing project costs-to-date to total estimated costs. The performance obligation is satisfied as we create a product on behalf of the customer over the

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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 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. We did not have any material adjustments during the years ended December 31, 2021, 2020 or 2019.

Property and Equipment, Long-lived Intangible Assets and Right-of-Use Operating Lease Assets. We periodically, and upon the occurrence of a triggering event, review the realizability of our property and equipment, long-lived intangible assets and right-of-use operating lease assets to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefits of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we determine whether an impairment has occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, we recognize a loss for the difference between the carrying amount and the fair value of the asset.

Our estimates of fair values for our asset groups require 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.

We did not identify any triggering events and, accordingly, no impairments of long-lived assets were recorded in the year ended December 31, 2021. In the years ending December 31, 2020 and 2019, we recognized long-lived asset impairment losses of $70 million and $159 million, respectively. See Note 5—“Impairments” and Note 11—“Operations by Business Segment and Geographic Area” in the Notes To Consolidated Financial Statements included in this report for further discussion of these impairments.

Income Taxes. Our tax provisions are based on our expected taxable income, statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate. The determination of taxable income in any jurisdiction requires the interpretation of the related tax laws. We are at risk that a taxing authority's final determination of our tax liabilities may differ from our interpretation.

We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements. Current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year, while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet.

We establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future. Provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded.

Allowance for Credit Loss—Financial Assets Measured at Amortized Costs. We use the loss-rate method in developing the allowance for credit losses which involves identifying pools of assets with similar risk characteristics, reviewing historical loss experiences for the last three years and considering the economic environment of our customers, both from a marketplace and geographic perspective, in evaluating the need for an allowance. Based on our review of these factors, we establish or adjust allowances for our customers. Our results of operations could be affected by adjustments to the allowance for credit loss due to actual write-offs that differ from estimated amounts. During the years ended December 31, 2021 and 2020, we recognized credit losses of $53 million and $11 million, respectively for receivables and contract assets.

Contractual Obligations

As of December 31, 2021, we had payments due under contractual obligations as follows:

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Pursuant to a service agreement we entered into with our Chairman of the Board of Directors, we are obligated to provide for medical coverage on an after-tax basis to him, his spouse and two adult children for their lives. Our total accrued liabilities, current and long-term, under this post-employment benefit were $1.8 million as of both December 31, 2021 and 2020.

Effects of Inflation and Changing Prices

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, using historical U.S. dollar accounting, or historical cost. Statements based on historical cost, however, do not adequately reflect the cumulative effect of increasing costs and changes in the purchasing power of the dollar, especially during times of significant and continued inflation.

In order to minimize the negative impact of inflation on our operations, we attempt to cover the increased cost of anticipated changes in labor, material and service costs, either through an estimate of those changes, which we reflect in the original price, or through price escalation clauses in our contracts. Due to the protracted downturn and over-capacity in the energy market in which we compete, pricing has been challenging; however, our success in achieving price escalation clauses has improved. Inflation has not had a material effect on our revenue or income from operations in the past three years, but could have a material impact on our results in the future.

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