OCEANEERING INTERNATIONAL, INC. Certain statements we make in this quarterly report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our expectations about:
• free cash flow, which we define as net cash provided by operating
activities less cash paid for purchases of property and equipment, in 2020
and in future periods;
• future demand, order intake and business activity levels;
• the adequacy of our liquidity, cash flows and capital resources;
• the impacts of COVID-19 on the
our business;
• our expectations regarding tax refunds under the CARES Act;
• our projected capital expenditures, unallocated expenses and cash tax
payments for 2020;
• our expectations regarding shares to be repurchased under our share
repurchase plan;
• the implementation of new accounting standards and related policies,
procedures and controls;
• seasonality; and • industry conditions. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our annual report on Form 10-K for the year endedDecember 31, 2019 . Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our annual report on Form 10-K for the year ended
Recent Developments Affecting Industry Conditions and Our Business The ongoing coronavirus (COVID-19) outbreak, which theWorld Health Organization declared a pandemic and theU.S. Government declared a national emergency inMarch 2020 , has reached more than 200 countries and has continued to be a rapidly evolving situation. The pandemic has resulted in widespread adverse impacts on the global economy and financial markets, and on our employees, customers, suppliers and other parties with whom we have business relations. We have experienced some resulting disruptions to our business operations, as the pandemic has continued to spread through most of our markets. For example, since mid-March, we have had to restrict access to our administrative offices around the world and quarantine personnel and assets as required by various governmental authorities and our own safety protocols. Our first priority in our response to this crisis has been the health and safety of our employees and those of our customers and other business counterparties. We have implemented preventative measures and developed corporate and regional response plans to minimize unnecessary risk of exposure and prevent infection, while supporting our customers' global operations to the best of our ability in the circumstances. Our preventative measures and response plans were developed based on guidance received from theWorld Health Organization ,Centers for Disease Control and Prevention , International SOS and our corporate medical advisor. We have modified certain business and workforce practices (including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences) and implemented new protocols to promote social distancing and enhance sanitary measures in our offices and facilities to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Restrictions of this nature have caused, and may continue to cause, us, our suppliers and other business counterparties to experience operational delays, delays in the delivery of materials and supplies that are sourced from around the globe, and have caused, and may continue to cause, milestones or deadlines relating to various projects to be missed. 23
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We have also received various notices from some of our suppliers and other business counterparties, and provided notices to several customers, regarding performance delays resulting from the pandemic. These actions may result in some disputes and could strain our relations with customers and others. If and to the extent these actions were to result in material modifications or cancellations of the underlying contracts, we could experience reductions in our currently reported backlog and in the anticipated conversion of backlog into revenue in future periods. In addition, worsening economic conditions could result in reductions in backlog over time, which would impact our future financial performance. One of the impacts of the pandemic has been a significant reduction in global demand for oil and natural gas. For example, according to industry reports, global demand for oil dropped precipitously by approximately 14 million barrels per day during the first quarter of 2020. This significant decline in demand was met with a sharp decline in oil prices following the announcement of price reductions and production increases inMarch 2020 by members of theOrganization of Petroleum Exporting Countries ("OPEC"), and other foreign, oil-exporting countries. The resulting supply/demand imbalance has had, and is continuing to have, disruptive impacts on the oil and natural gas exploration and production industry and on other industries that serve exploration and production companies. AlthoughOPEC and other foreign, oil-producing countries implemented production cuts during the second quarter and, as a result, crude oil prices improved somewhat, global crude oil demand during the second quarter of 2020 was 16.4 million barrels per day lower than that of the second quarter of 2019. Recent increases in COVID-19 cases in various regions around the world and the resulting governmental and other restrictions imposed in response to those increases, have resulted in more volatility and less predictability in industry conditions. These conditions have led to significant global economic contraction generally and in our industry in particular. We expect to see continued volatility in oil and natural gas prices for the foreseeable future, which could, over the long term, adversely impact our business. A significant decline in exploration and development activities and related spending by our customers, whether due to decreases in demand or prices for oil and natural gas or otherwise, would have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations. As of the date of this report, our efforts to respond to the challenges presented by the conditions described above and minimize the impacts to our business have yielded results as we have largely been able to maintain operational continuity on a worldwide basis. Our manufacturing, services operations, and other operating facilities have remained operational and our vessels have continued to perform. We have moved quickly to reduce costs, increase operational efficiencies and lower our capital spending. In addition, as ofJune 30, 2020 , we had$334 million of cash on our balance sheet and our revolving credit facility was undrawn and remains available to support our operations. We have not required any funding under any COVID-19-related,U.S. federal or other governmental programs to support our operations, and we do not expect to have to utilize any such funding. We have experienced some increased absenteeism in our hourly workforce, but, so far, we have not experienced any resulting problems that we have not been able to manage. We are continuing to address concerns to protect the health and safety of our employees and those of our customers and other business counterparties, and this includes changes to comply with health-related guidelines as they are modified and supplemented. In ourMarch 31, 2020 press release, we announced that we had withdrawn our 2020 financial guidance. We are not providing operating results or EBITDA guidance for the third quarter or second half of 2020, due to the continuing uncertainty impacting the majority of our businesses. Many of the markets we serve are being profoundly affected by the effects of and associated responses to COVID-19, as well as the significant reductions in customer spending as a result of the lower crude oil price environment. We cannot predict the full impact that COVID-19 or the significant disruption and volatility currently being experienced in the oil and natural gas markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties. The ultimate impacts will depend on future developments beyond our control, which are highly uncertain and cannot be predicted, including, among others, the ultimate geographic spread of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by members ofOPEC and other foreign oil-exporting countries, governmental authorities, customers, suppliers and other thirds parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume. 24
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Executive Overview
Our diluted earnings (loss) per share for the three- and six-month periods endedJune 30, 2020 were$(0.25) and$(3.96) , respectively, as compared to$(0.36) and$(0.61) for the corresponding periods of the prior year. Considering the uncertainties surrounding crude oil markets and the COVID-19 pandemic, we were satisfied with our operating results adjusted for asset impairments, write-offs and other charges. These results were partially attributable to our actions to substantially reduce structural costs in light of an expected continuation of lower demand for our services and products. As expected, compared to the first quarter of 2020, the adjusted results of our energy segments, as a whole, declined during the second quarter of 2020. However, this decrease was partially offset by improved performance in our non-energy segment, Advanced Technologies, and lower Unallocated Expenses. We did experience some operational disruptions and delays due to COVID-19 during the second quarter, but the safety protocols we and others in the industry put into place in response to this pandemic limited impacts to our employees and customers. Although we are encouraged by our second quarter 2020 results, uncertainty remains for the rest of 2020. Many of the markets we serve will likely continue to be impacted by the effects of and associated responses to COVID-19, as well as potential reductions in customer spending as a consequence of the volatility in the macro drivers surrounding commodity prices. As a result, we are not providing segment financial guidance for the third quarter or second half of 2020. We affirm our guidance that Unallocated Expenses are forecast to be in the high-$20 million range per quarter for the remainder of 2020 and our annual capital expenditures to be in the range of$45 million to$65 million . OnMarch 27, 2020 , theU.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law in theU.S. In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carryback ourU.S. net operating loss generated in 2019 and intend to file amended 2012 and 2013 income tax returns impacted by the net operating loss carryback. As a result, we expect to receive combined refunds of approximately$33 million . These refunds are classified as income taxes receivable in the consolidated balance sheet as ofJune 30, 2020 . We also realized a non-cash tax benefit of$9.9 million due to the carryback provision of the CARES Act recognized as a reduction in long-term liabilities. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. As a result of these actions and other factors, any discussion of an estimated effective tax rate would not be meaningful. We estimate our 2020 net income tax payments to be in the range of$30 million to$35 million , primarily due to taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations, and our CARES Act refunds to be in the range of$16 million to$34 million . Although we are not able to currently provide operating or EBITDA guidance, we continue to believe that we will generate positive free cash flow during 2020. This belief is based on the following: actions we have taken to achieve cost reductions; reduced capital spending levels; lower cash taxes; our expectation for CARES Act tax refunds; and cash expected to be generated from working capital for the remainder of the year.
Results of Operations
We operate in five business segments. The segments are contained within two
businesses - services and products provided primarily to the offshore energy
industry ("Energy Services and Products") and services and products provided to
non-energy industries ("Advanced Technologies"). Our Unallocated Expenses are
those not associated with a specific business segment.
Consolidated revenue and profitability information are as follows:
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Three Months Ended Six Months Ended
(dollars in thousands) Jun 30, 2020 Jun 30, 2019
Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Revenue $ 427,216 $ 495,781 $ 536,668 $ 963,884 $ 989,667
Gross Margin 42,537 41,983 46,752 89,289 69,570
Gross Margin % 10 % 8 % 9 % 9 % 7 %
Operating Income (Loss) (5,182 ) (9,635 ) (380,757 ) (385,939 ) (31,349 )
Operating Income (Loss) % (1 )% (2 )% (71 )% (40 )% (3 )%
We generate a material amount of our consolidated revenue from contracts for
services in the U.S. Gulf of Mexico in our Subsea Projects segment, which is
usually more active in the second and third quarters, as compared to the rest of
the year. The European operations of our Asset Integrity segment are also
seasonally more active in the second and third quarters. Revenue in our ROV
segment is subject to seasonal variations in demand, with our first quarter
generally being the low quarter of the year. The level of our ROV seasonality
depends on the number of ROVs we have engaged in vessel-based subsea
infrastructure inspection, maintenance, repair and installation, which is more
seasonal than drilling support. Revenue in each of our Subsea Products and
Advanced Technologies segments generally has not been seasonal.
We had operating losses of $5.2 million , $9.6 million and $381 million in the
three-month periods ended June 30, 2020 , June 30, 2019 and March 31, 2020 ,
respectively, and $386 million and $31 million in the six-month periods ended
June 30, 2020 and June 30, 2019 , respectively. Included in our operating losses
for the three months ended March 31, 2020 and the six months ended June 30,
2020 , were charges of $386 million , primarily due to market conditions requiring
impairment of certain of our assets along with other costs we recognized as we
adapted our geographic footprint and staffing levels to the conditions of the
markets we serve. Charges for the three months ended March 31, 2020 and six
months ended June 30, 2020 are summarized as follows:
For the three months ended March 31,
2020 and the six months ended
Remotely
Operated Subsea Subsea Asset Advanced Unallocated
(in thousands) Vehicles Products Projects Integrity Tech. Expenses Total
Charges for the effects
of:
Long-lived assets
impairments $ - $ 54,859 $ 7,689 $ - $ 6,215 $ - $ 68,763
Long-lived assets
write-offs - - 7,328 - - - 7,328
Goodwill impairment - 51,302 129,562 110,753 11,388 - 303,005
Other 713 1,668 1,480 1,694 795 280 6,630
Total charges $ 713 $ 107,829 $ 146,059 $ 112,447 $ 18,398 $ 280 $ 385,726
Energy Services and Products
The primary focus of our Energy Services and Products business over the last
several years has been toward leveraging our asset base and capabilities for
providing services and products for offshore energy operations and subsea
completions, inclusive of our customers' operating expenses and the offshore
renewable energy market.
The following table sets forth the revenue, gross margin and operating income
(loss) for our Energy Services and Products business segments for the periods
indicated. In the ROV section of the table that follows, "Days available"
includes all days from the first day that an ROV is placed into service until
the ROV is retired. All days during 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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Three Months Ended Six Months Ended
(dollars in thousands) Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Remotely Operated Vehicles
Revenue $ 98,778 $ 120,363 $ 111,780 $ 210,558 $ 220,709
Gross Margin 13,788 17,360 18,112 31,900 26,781
Operating Income (Loss) 5,975 8,688 9,066 15,041 10,106
Operating Income (Loss) % 6 % 7 % 8 % 7 % 5 %
Days Available 22,750 25,006 22,750 45,500 49,512
Days Utilized 13,501 15,423 14,853 28,354 28,365
Utilization 59 % 62 % 65 % 62 % 57 %
Subsea Products
Revenue 130,655 138,910 194,838 325,493 267,754
Gross Margin 21,578 21,029 28,639 50,217 33,344
Operating Income (Loss) 9,068 7,413 (91,858 ) (82,790 ) 6,937
Operating Income (Loss) % 7 % 5 % (47 )% (25 )% 3 %
Backlog at End of Period 486,000 596,000 528,000 486,000 596,000
Subsea Projects
Revenue 56,326 75,104 61,455 117,781 164,832
Gross Margin 6,331 5,472 (2,114 ) 4,217 14,505
Operating Income (Loss) 845 87 (145,290 ) (144,445 ) 2,979
Operating Income (Loss) % 2 % - % (236 )% (123 )% 2 %
Asset Integrity
Revenue 48,077 61,156 59,132 107,209 121,845
Gross Margin 4,155 6,423 8,729 12,884 12,695
Operating Income (Loss) (2,598 ) (1,302 ) (109,441 ) (112,039 ) (2,015 )
Operating Income (Loss) % (5 )% (2 )% (185 )% (105 )% (2 )%
Total Energy Services and Products
Revenue $ 333,836 $ 395,533
Gross Margin 45,852 50,284 53,366 99,218 87,325
Operating Income (Loss) 13,290 14,886 (337,523 ) (324,233 ) 18,007
Operating Income (Loss) % 4 % 4 % (79 )% (43 )% 2 %
In general, our energy-related business focuses on supplying services and
products to the offshore energy industry. Since the downturn in oil prices in
mid-2014, we have experienced lower activity levels and reduced pricing. In
2019, oil prices stabilized, resulting in increased demand and higher
utilization for our energy-related businesses, with slightly improved pricing
through the first quarter of 2020. The adverse impacts of COVID-19 and the
resulting supply and demand imbalance along with lower crude oil prices are
resulting in lower levels of activity and profitability. As we expect a recovery
will take time to restore profitability and generate satisfactory returns, we
have been reviewing our operating model's cost structure and aggressively
implementing cost reductions.
ROV. 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 ROV segment revenue
reflects the utilization percentages, fleet sizes and average pricing in the
respective periods.
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During the second quarter of 2020, ROV operating income decreased as compared to the immediately preceding quarter, primarily due to the lower number of working drilling rigs. This led to fewer days on hire for drill support services that were slightly offset by a marginal increase in days on hire for vessel-based services. ROV operating income for the second quarter of 2020 decreased, as compared to the corresponding period of the prior year, as a result of fewer days on hire and lower average revenue per day on hire, partially offset by lower costs per day on hire. ROV operating income for the six-month period endedJune 30, 2020 increased as compared to the corresponding period of the prior year as a result of reduced costs per day, which were partially offset by lower average revenue per day. Days on hire, as compared to the corresponding period of the prior year, were relatively flat. Fleet utilization was 59% for the three months endedJune 30, 2020 as compared to 62% for the corresponding period of the prior year. Fleet utilization increased to 62% from 57% for the six-month periods endedJune 30, 2020 andJune 30, 2019 , respectively. We added one new ROV to our fleet during the six months endedJune 30, 2020 and retired one, resulting in a total of 250 ROVs in our ROV fleet as ofJune 30, 2020 , as compared to 276 ROVs in our ROV fleet as ofJune 30, 2019 . Subsea Products. Our Subsea Products segment consists of two business units: (1) Manufactured Products; and (2) Service and Rental. Manufactured Products includes production control umbilicals and specialty subsea hardware, while Service and Rental includes tooling, subsea work systems and installation and workover control systems. The following table presents revenue from Manufactured Products and Service and Rental, as their respective percentages of total Subsea Products revenue: Three Months Ended Six Months Ended Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019 Manufactured Products 65 % 63 % 74 % 71 % 57 % Service and Rental 35 % 37 % 26 % 29 % 43 % Our Subsea Products operating results in the second quarter of 2020 were higher than those of the immediately preceding quarter, as a result of charges for the impairment and write-offs of goodwill, certain equipment, intangibles and other expenses of$108 million in the first quarter of 2020. Exclusive of such charges, operating results declined during the second quarter of 2020, as compared to the immediately preceding quarter, due to significantly lower revenue. Revenue in our Manufactured Products business was impacted by the delayed receipt of materials, customer-driven project delays, and reduced working hours due to COVID-19. Revenue was also lower in our Service and Rental business due to overall lower activity levels. Our Subsea Products operating results increased in the second quarter of 2020, as compared to the corresponding period of the prior year, primarily as a result of increased earnings from our Manufactured Products business based on improved pricing and cost reduction initiatives. Subsea Products operating results were lower for the six-month period endedJune 30, 2020 , when compared to the corresponding period of the prior year, as a result of the charges in the first quarter of 2020. Exclusive of charges, operating results increased when compared to the corresponding six-month period of the prior year, primarily due to increased activity in subsea umbilical and hardware throughput, as well as improved margins in our Service and Rental business. Our Subsea Products backlog was$486 million as ofJune 30, 2020 , compared to$630 million as ofDecember 31, 2019 . The backlog decrease was attributable to low levels of bookings during the second quarter, as many of our customers delayed investment decisions due to the uncertainties regarding oil prices and potential COVID-19-related operating risks. The higher throughput and lower order intake resulted in a 67% revenue replacement in the second quarter of 2020. Our book-to-bill ratio for the trailing 12 months was 0.8. Subsea Projects. Our Subsea Projects operating results were higher in the second quarter of 2020, as compared to the immediately preceding quarter, primarily as a result of charges in the first quarter of 2020 of$146 million for goodwill impairment, vessel and intangible impairments, and write-downs and write-offs of certain equipment. Exclusive of charges, operating results improved on lower revenue in the second quarter of 2020, as compared to the immediately preceding quarter, due to better project execution and ongoing cost reduction activity. Our Subsea Projects operating results increased slightly in the three months endedJune 30, 2020 , compared to the corresponding period of the prior year, on significantly lower revenue due to reduced amounts ofGulf of Mexico diving and international inspection, maintenance and repair ("IMR") work. Our Subsea Projects revenue and operating results were lower in the six-month period endedJune 30, 2020 , as compared to the corresponding 28
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period of the prior year, as a result of charges in the first quarter of 2020 along with reduced IMR work both in theGulf of Mexico and internationally along with a significant decrease inGulf of Mexico diving work. Asset Integrity. Asset Integrity's operating results for the second quarter of 2020 were higher than the immediately preceding quarter, as a result of charges related to goodwill impairment, asset impairments, write-downs and write-offs of certain equipment and intangible assets, and other expenses of$112 million in the first quarter of 2020. Exclusive of charges, operating results declined in the second quarter of 2020, as compared to the immediately preceding quarter, on lower revenue and as a result of non-recurring costs on certain completed projects. Asset Integrity's operating results for the three-month period endedJune 30, 2020 , as compared to the corresponding period of the prior year, were lower due to significantly lower revenue, partially offset by cost reduction activities. Asset Integrity's operating results for the six-month period endedJune 30, 2020 , as compared to the corresponding period of the prior year, were lower due to charges in the first quarter of 2020. Exclusive of those charges, operating results for the six-month period endedJune 30, 2020 were higher, as compared to the corresponding period of the prior year, due to cost reductions instituted in the fourth quarter of 2019 and in the first half of 2020. Advanced Technologies Our Advanced Technologies segment consists of two business units: (1) government; and (2) commercial. Government services and products include engineering and related manufacturing in defense and space exploration activities. Our commercial business unit offers turnkey solutions that include program management, engineering design, fabrication/assembly and installation to the commercial theme park industry and mobile robotics solutions, including automated guided vehicle technology to a variety of industries.
Revenue, gross margin and operating income (loss) information for our Advanced Technologies segment are as follows:
Three Months Ended Six Months Ended
(dollars in thousands) Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Revenue $ 93,380 $ 100,248 $ 109,463 $ 202,843 $ 214,527
Gross Margin 15,089 13,386 13,428 28,517 28,634Operating Income (Loss) 9,707 7,241 (10,585 ) (878 ) 16,840 Operating Income (Loss) % 10 % 7 % (10 )% - % 8 % Our Advanced Technologies segment operating results for the second quarter of 2020 were higher, as compared to the immediately preceding quarter, as a result of charges of$18 million for our commercial business unit in the first quarter of 2020 for goodwill impairment, asset impairments, write-downs of certain equipment and other expenses. Exclusive of charges, operating results were higher based on improved performance from our government business unit. Even though COVID-19 continues to adversely affect our commercial business unit, operating results exclusive of charges improved in the second quarter, as compared to the immediately preceding quarter, as a result of cost reduction measures implemented during the first quarter of 2020. Advanced Technologies operating results for the three-month period endedJune 30, 2020 were higher, when compared to the corresponding period of the prior year, as a result of improved margins from our government business unit as well as improved execution with our AGV business. Advanced Technologies operating results for the six-month period endedJune 30, 2020 were lower, when compared to the corresponding period of the prior year, primarily as a result of charges in the first quarter of 2020. Exclusive of charges, operating results increased slightly on lower levels of revenue in the first six months of 2020, when compared to the corresponding period of the prior year, due to increased activity for our government business unit mostly offset by customer operational project delays and the adverse impacts of COVID-19, combined with higher costs on certain projects within our entertainment business.
The following table presents revenue from government and commercial, as their respective percentages of total Advanced Technologies revenue:
Three Months Ended Six Months Ended
Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Government 85 % 75 % 83 % 84 % 73 %
Commercial 15 % 25 % 17 % 16 % 27 %
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Unallocated Expenses Our Unallocated Expenses, (i.e., those not associated with a specific business segment), within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our Unallocated Expenses within operating expense consist of those expenses within gross margin plus general and administrative expenses related to corporate functions.
The following table sets forth our Unallocated Expenses for the periods indicated:
Three Months Ended Six Months Ended
(dollars in thousands) Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Gross margin expenses $ (18,404 ) $ (21,687 ) (20,042 ) $ (38,446 ) $ (46,389 )
% of revenue 4 % 4 % 4 % 4 % 5 %
Operating expenses (28,179 ) (31,762) (32,649 ) (60,828 ) (66,196 ) Operating expenses % of revenue
7 % 6 % 6 % 6 % 7 %
Our Unallocated Expenses for the second quarter of 2020 were lower, as compared
to the immediately preceding quarter, as the return on market-based assets held
in a trust for the benefit of certain post-retirement obligations improved, as
compared to a first quarter 2020 loss. Additionally, we had reduced information
technology costs during the second quarter of 2020. Our Unallocated Expenses for
the three- and six-month periods ended June 30, 2020 were lower, as compared to
the corresponding periods of the prior year, primarily as a result of lower
accruals for incentive-based compensation, along with reduced information
technology costs in the second quarter of 2020.
Other
The following table sets forth our significant financial statement items below the income (loss) from operations line.
Three Months Ended Six Months Ended
(in thousands) Jun 30, 2020 Jun 30, 2019 Mar 31, 2020 Jun 30, 2020 Jun 30, 2019
Interest income $ 511 $ 1,848 $ 1,277 $ 1,788 $ 4,452
Interest expense, net of amounts
capitalized (11,611 ) (10,199 ) (12,462 ) (24,073 ) (19,623 ) Equity in income (losses) of unconsolidated affiliates
674 - 1,197 1,871 (164 )
Other income (expense), net (3,660 ) 7 (7,128 ) (10,788 ) 726
Provision (benefit) for income taxes 5,520 17,203 (30,275 ) (24,755 ) 14,051
In addition to interest on borrowings, interest expense includes amortization of loan costs and hedge accounting adjustments, fees for lender commitments under our revolving credit agreement and fees for standby letters of credit and bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance requirements. Foreign currency transaction gains and losses are the principal component of other income (expense), net. In the three- and six-month periods endedJune 30, 2020 , we incurred foreign currency transaction gains (losses) of$(3.9) million and$(11) million , respectively. In the three- and six-month periods endedJune 30, 2019 , we incurred foreign currency transaction gains of less than$0.1 million and$0.7 million , respectively. The currency losses in 2020 primarily related to declining exchange rates for the Angolan kwanza and the Brazilian real relative to theU.S. dollar. We did not incur any significant currency transaction losses in any one currency in 2019. We could incur further foreign currency exchange losses inAngola andBrazil if further currency devaluations occur. In the six-month period endedJune 30, 2020 , we provided for income taxes based on our earnings for the period using: (1) earnings and other factors that would affect the tax provision for the period; and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographic mix in the sources of our results. The effective tax rate for the six months endedJune 30, 2020 was different than the federal statutory rate of 21%, primarily due to 30
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the enactment of the CARES Act, the geographic mix of operating revenue and results, and changes in uncertain tax positions and other discrete items. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings. Therefore, we do not believe a discussion of the effective tax rate is meaningful. In the six-month period endedJune 30, 2020 , we recognized a tax benefit of$42 million from discrete items, primarily related to a$33 million benefit related to the CARES Act and$9.9 million of uncertain tax positions. In the six-month period endedJune 30, 2019 , we recognized additional tax expense of$5.1 million from discrete items, primarily related to uncertain tax positions, valuation allowances and share-based compensation. We estimate our 2020 net income tax payments to be in the range of$30 million to$35 million , primarily due to taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations, and our CARES Act refunds to be in the range of$16 million to$34 million .
Liquidity and Capital Resources
As ofJune 30, 2020 , we had working capital of$679 million , including$334 million of cash and cash equivalents. Additionally, Amendment No. 4 to the Credit Agreement (as defined below) provides for a$500 million revolving credit facility untilOctober 25, 2021 and thereafter$450 million untilJanuary 25, 2023 with a group of banks. We consider our liquidity, cash flows and capital resources to be adequate to support our existing operations and capital commitments. However, given the uncertainty in the rapidly changing market and economic conditions related to the COVID-19 outbreak, we will continue to evaluate the nature and extent of the impact to our business and financial position. Cash flows for the six months endedJune 30, 2020 and 2019 are summarized as follows: Six Months Ended (in thousands) Jun 30, 2020 Jun 30, 2019 Changes in Cash:
Net Cash Provided by Operating Activities$ 5,368 $ 72,709 Net Cash Used in Investing Activities (35,317 ) (68,119 ) Net Cash Used in Financing Activities (1,947 ) (2,682 ) Effect of exchange rates on cash (8,250 ) (329 ) Net Increase (Decrease) in Cash and Cash Equivalents$ (40,146 ) $ 1,579 Operating activities
Our primary sources and uses of cash flows from operating activities for the six
months ended
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