Increased Profitability and Cash Flow Generation
Driven by Efficient Project Execution and Higher Activity
McDermott International, Inc. (NYSE:MDR) (“McDermott,” the
“Company,” “we” or “us”) today announced financial and operational
results for the second quarter ended June 30, 2017.
|
($ in millions, except per share amounts) |
|
|
Three Months Ended |
|
|
Delta |
|
|
Six Months Ended |
|
|
Delta |
|
|
June 30, 2017 |
|
|
June 30, 2016 |
|
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Yr-over-Yr |
|
|
June 30, 2017 |
|
|
June 30, 2016 |
|
|
Yr-over-Yr |
|
Revenues |
$ |
788.7 |
|
|
$ |
706.6 |
|
|
$ |
82.1 |
|
|
$ |
1,308.1 |
|
|
$ |
1,435.7 |
|
|
$ |
(127.6 |
) |
Operating Income |
|
87.2 |
|
|
|
57.0 |
|
|
|
30.2 |
|
|
|
143.2 |
|
|
|
93.0 |
|
|
|
50.2 |
|
Operating Margin |
|
11.1 |
% |
|
|
8.1 |
% |
|
|
3.0 |
% |
|
|
10.9 |
% |
|
|
6.5 |
% |
|
|
4.4 |
% |
Net Income |
|
36.4 |
|
|
|
20.7 |
|
|
|
15.7 |
|
|
|
58.3 |
|
|
|
18.5 |
|
|
|
39.8 |
|
Diluted EPS |
|
0.13 |
|
|
|
0.07 |
|
|
|
0.06 |
|
|
|
0.21 |
|
|
|
0.07 |
|
|
|
0.14 |
|
Adjusted Operating
Income1 |
|
87.2 |
|
|
|
59.5 |
|
|
|
27.7 |
|
|
|
143.2 |
|
|
|
134.1 |
|
|
|
9.1 |
|
Adjusted Operating
Margin1 |
|
11.1 |
% |
|
|
8.4 |
% |
|
|
2.7 |
% |
|
|
10.9 |
% |
|
|
9.3 |
% |
|
|
1.6 |
% |
Adjusted Net
Income1,2 |
|
36.4 |
|
|
|
22.8 |
|
|
|
13.6 |
|
|
|
58.3 |
|
|
|
59.1 |
|
|
|
(0.8 |
) |
Adjusted Diluted
EPS1,2 |
|
0.13 |
|
|
|
0.08 |
|
|
|
0.05 |
|
|
|
0.21 |
|
|
|
0.21 |
|
|
|
0.00 |
|
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|
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|
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Cash Provided by
Operating Activities |
|
41.7 |
|
|
|
16.5 |
|
|
|
25.2 |
|
|
|
90.2 |
|
|
|
75.8 |
|
|
|
14.4 |
|
1 Adjusted Operating Income, Adjusted Margin and
Adjusted Net Income include the following adjustments to Operating
Income computed in accordance with U.S. generally accepted
accounting principles (“GAAP”):
- $6.4 million and $2.5 million of restructuring charges during
the first and second quarters of 2016, respectively.
- $32.3 million of impairment charges during the first quarter of
2016.
The calculations of total and per share Adjusted
Net Income and Adjusted Operating Income and margins are shown in
the appendix entitled “Reconciliation of Non-GAAP to GAAP Financial
Measures.” The appendix also includes additional information
related to the adjustments mentioned above. 2 The
calculations of Adjusted Net Income and Adjusted Diluted EPS
reflect the tax effects of Non-GAAP adjustments during the
period. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which we currently do not pay
taxes and, therefore, no tax impact is applied to those
items. For the Non-GAAP adjusting items in jurisdictions
where taxes are paid, the tax impacts on those adjustments are
computed, individually, using the statutory tax rate in effect in
each applicable taxable jurisdiction.
“Strong project execution and higher activity
led McDermott to another successful quarter, with increased
profitability and free cash flow generation. During the quarter,
the One McDermott Way drove a number of significant achievements,
including: de-risking execution of the mooring and hook-up of the
Ichthys Explorer Central Processing Facility, the world’s largest
semi-submersible facility; continued fabrication of jackets for
Saudi Aramco in our Batam fabrication facility; relocation of the
DLV 2000 and Amazon to the Middle East, where they are
demonstrating their versatility by working on shallow-water
projects; as well as the successful completion of the topside
hook-up on the RasGas Flow Assurance project ahead of schedule.
Efficient execution, coupled with constant focus on safety through
our Taking the Lead initiative led us to surpass 50-million
man-hours Lost Time Incident free as a company,” said David
Dickson, President and Chief Executive Officer of McDermott.
“Building off successful pre-FEED and FEED work, the BP Angelin
award to design, fabricate and install a jacket, platform and
pipeline is our first pre-FEED and FEED to EPCIC award and is a
direct result of our strategic focus on engineering as a
differentiator. Also during the quarter, we closed on an $810
million credit facility, with a five-year term demonstrating the
confidence shown by our lenders, and providing us with a more
flexible capital structure while allowing for continued growth. As
the extended low oil price environment continues to drive
uncertainty of award timing, our revenue pipeline of around $20
billion remains robust, and we continue to remain focused on
disciplined bidding, efficient project execution and
liquidity.”
Second Quarter 2017 Operating
Results
Second quarter 2017 earnings attributable to
McDermott stockholders, computed in accordance with U.S. generally
accepted accounting principles (“GAAP”), were $36.4 million, or
$0.13 per fully diluted share, compared to $20.7 million, or $0.07
per fully diluted share, for the prior-year second quarter.
We generated second quarter 2017 net income of $36.4 million, or
$0.13 per fully diluted share, for which there were no adjustments
from GAAP, compared to an adjusted net income of $22.8 million, or
$0.08 per adjusted fully diluted share, excluding restructuring
charges of $2.5 million, in the prior-year second quarter.
During second quarter 2017, we expensed approximately $4.2 million
in debt issuance costs associated with the repayment of the
outstanding term loan under our previous credit agreement.
We reported second quarter 2017 revenues of
$788.7 million, an increase of $82.1 million, compared to revenues
of $706.6 million for the prior-year second quarter. The key
projects driving revenue for the second quarter of 2017 were the
Saudi Aramco LTA II, ONGC Vashishta and Saudi Aramco Marjan power
system replacement projects. The increase from the prior-year
second quarter was primarily due to increased fabrication and
marine activity across the portfolio of projects.
Our operating income for the second quarter of
2017 was $87.2 million, or an operating margin of 11.1%, compared
to $57.0 million, or an operating margin of 8.1%, for the second
quarter of 2016. Our operating income for the second quarter
of 2017 was $87.2 million, or an operating margin of 11.1%, for
which there were no adjustments from GAAP, compared to adjusted
operating income of $59.5 million, or an adjusted operating margin
of 8.4%, for the second quarter of 2016, excluding the
restructuring charges mentioned above. Operating income for
the second quarter of 2017 was primarily driven by engineering,
fabrication and marine activity on Saudi Aramco LTA II, fabrication
and marine activity on Saudi Aramco Marjan power system replacement
and progress on Inpex Ichthys.
Cash provided by operating activities in the
second quarter of 2017 was $41.7 million, an increase compared to
the $16.5 million of cash provided in the second quarter of
2016. The increase was primarily driven by higher operating
results and a lower than anticipated working capital build with
national oil companies through our efficient working capital
management.
First Half 2017 Operating
Results
First half 2017 earnings attributable to
McDermott stockholders, computed in accordance with U.S. generally
accepted accounting principles (“GAAP”), were $58.3 million, or
$0.21 per fully diluted share, compared to earnings of $18.5
million, or $0.07 per fully diluted share, for the prior-year first
half. We generated first half 2017 net income of $58.3
million, or $0.21 per fully diluted share, for which there were no
adjustments from GAAP, compared to an adjusted net income of $59.1
million, or $0.21 per adjusted fully diluted share, excluding
restructuring charges of $8.9 million and impairment charges of
$32.3 million, in the prior-year first half.
We reported first half 2017 revenues of $1,308.1
million, a decrease of $127.6 million, compared to revenues of
$1,435.7 million for the prior-year first half. The key
projects driving revenue for the first half of 2017 were the Saudi
Aramco LTA II, ONGC Vashishta and Inpex Ichthys projects. The
decrease from the prior-year first half was primarily due to
decreased activity on the Ichthys project, as the project
progresses through the installation phase.
Our operating income for the first half of 2017
was $143.2 million, or an operating margin of 10.9%, compared to
$93.0 million, or an operating margin of 6.5%, for the first half
of 2016. Our operating income for the first half of 2017 was
$143.2 million, or an operating margin of 10.9%, for which there
were no adjustments from GAAP, compared to adjusted operating
income of $134.1 million, or an adjusted operating margin of 9.3%,
for the first half of 2016, excluding the restructuring charges and
impairment mentioned above. Operating income for the first
half of 2017 was primarily driven by engineering, fabrication and
marine activity on the Saudi Aramco LTA II project, fabrication
activity and marine activity on the Saudi Aramco Marjan power
system replacement project, progress on the Inpex Ichthys project
and marine activity on ONGC Vashishta project.
Cash provided by operating activities in the
first half of 2017 was $90.2 million, an increase compared to the
$75.8 million of cash provided in the first half of 2016. The
increase was primarily driven by higher operating results and a
lower than anticipated working capital build with national oil
companies through our efficient working capital management.
Operational Review
Revenue
Pipeline |
As of June 30, 2017 |
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AEA |
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MEA |
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ASA |
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Total |
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($ in billions) |
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Backlog |
$ |
0.6 |
|
|
|
|
$ |
2.3 |
|
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$ |
0.4 |
|
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$ |
3.3 |
|
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|
Bids & Change
Orders Outstanding1 |
|
0.8 |
|
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|
|
0.1 |
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0.5 |
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1.4 |
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Targets2 |
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5.7 |
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6.3 |
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3.4 |
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15.4 |
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Total |
|
7.1 |
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|
8.7 |
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|
4.3 |
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|
20.1 |
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Operating
Results |
Three Months Ended June 30, 2017 |
|
|
Six Months Ended June 30, 2017 |
|
|
Segment Operating Results |
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|
CorporateandOther3 |
|
|
Segment Operating Results |
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|
CorporateandOther3 |
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AEA |
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MEA |
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ASA |
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AEA |
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MEA |
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ASA |
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($ in millions) |
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New Orders |
$ |
116.4 |
|
|
|
|
$ |
38.2 |
|
|
$ |
33.2 |
|
|
$ |
- |
|
|
$ |
142.0 |
|
|
$ |
88.6 |
|
|
$ |
53.2 |
|
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$ |
- |
|
Revenue |
|
41.6 |
|
|
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|
|
556.6 |
|
|
|
190.5 |
|
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|
- |
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|
69.7 |
|
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|
866.7 |
|
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|
371.7 |
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|
- |
|
Book-to-Bill |
|
2.8 |
x |
|
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|
|
0.1 |
x |
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|
0.2 |
x |
|
|
- |
|
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|
2.0 |
x |
|
|
0.1 |
x |
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|
0.1 |
x |
|
|
- |
|
Operating Income |
|
(11.3 |
) |
|
|
|
|
117.5 |
|
|
|
32.9 |
|
|
|
(51.9 |
) |
|
|
(11.1 |
) |
|
|
181.9 |
|
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|
62.7 |
|
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|
(90.2 |
) |
Operating Margin |
|
-27.2 |
% |
|
|
|
|
21.1 |
% |
|
|
17.3 |
% |
|
|
- |
|
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|
-15.9 |
% |
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|
21.0 |
% |
|
|
16.9 |
% |
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|
- |
|
Capex |
|
10.1 |
|
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|
4.8 |
|
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2.2 |
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|
1.0 |
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15.3 |
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10.6 |
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5.7 |
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49.2 |
|
1 There is no assurance that bids outstanding
will be awarded to McDermott or that outstanding change orders
ultimately will be approved and paid by the applicable customers in
the full amounts requested or at all. 2 Target projects are those
that McDermott has identified as anticipated to be awarded by
customers in the next five quarters through competitive bidding
processes and capable of being performed by McDermott. There is no
assurance that target projects will be awarded to McDermott. 3
Corporate and Other includes corporate expenses, certain centrally
managed initiatives (such as restructuring charges), impairments,
year-end mark-to-market (“MTM”) pension actuarial gains and losses,
costs not attributable to a particular reportable segment and
unallocated direct operating expenses associated with the
underutilization of vessels, fabrication facilities and engineering
resources.
As of June 30, 2017, the Company’s backlog was
$3.3 billion, compared to $3.9 billion at March 31, 2017. Of the
June 30, 2017 backlog, approximately 85% was related to offshore
operations and approximately 15% was related to subsea operations.
Order intake in the second quarter of 2017 totaled $188
million, resulting in a book-to-bill ratio of 0.2x. At June
30, 2017, the Company had bids and change orders outstanding and
identified target projects of approximately $1.4 billion and $15.4
billion, respectively, in its pipeline that we expect will be
awarded in the market through September 30, 2018. In total,
the Company’s potential revenue pipeline, including backlog, was
$20.1 billion as of June 30, 2017.
In the Americas, Europe and Africa (“AEA”) Area,
during the second quarter of 2017, detail design and fabrication of
the compression platform for the Pemex Abkatun-A2 project, the
largest facility McDermott has constructed for Pemex, continued
progressing on schedule. Procured equipment has begun to
arrive, with major lifts of the mezzanine and top deck sections
remaining on schedule and jacket fabrication commencing.
During the quarter, we were awarded the BP Angelin project for a
drilling platform located in Trinidad and Tobago, after
successfully performing the pre-front end engineering design
(pre-FEED) and front-end engineering design (FEED). The
jacket and topside fabrication has commenced in our Altamira yard
and is progressing on schedule. This award validates
McDermott’s engineering as a differentiator strategy, as the
project went from pre-FEED to FEED and then to full EPCIC, while
also demonstrating a key relationship as the super majors begin to
increase spending. The Hess Penn State project, a subsea
tieback contract in 1,500 feet of water in the Gulf of Mexico,
continued to make significant progress. Fabrication of the
rigid pipeline stalks was completed in our Gulfport spoolbase, with
installation expected in the third quarter of 2017.
Engineering for the Atlanta Project in Brazil was completed with
all flexible lines, umbilicals and structures ready to be
installed. Upgrades to our Altamira fabrication yard are
essentially complete. We believe these upgrades position us
well to deliver larger jackets and decks we anticipate customers
will require in this growth market as the energy reform continues
to achieve demonstrated success.
In the Middle East (“MEA”) Area, fabrication
activity continued to operate well above our standard levels while
area marine assets continued to operate at historic high levels,
leading to continued increased profitability, while maintaining
high standards of quality performance and safety. The DLV
2000 and the Amazon joined the area fleet and are now active on
existing, shallow-water campaigns. Fabrication on the Saudi Aramco
LTA II project is progressing on schedule. Additionally, the
three Saudi Aramco projects awarded in 2016 are progressing on
schedule. Engineering and procurement activities associated
with the Safaniya Phase 5 and 4 Jackets and 3 Observation Platforms
projects are progressing well and in-line with the planned
schedules. Moreover, significant progress has been achieved on the
KJO Hout project in relation to both the pipeline related
activities and hook up and pre-commissioning work, with the project
expected to be substantially complete in the second half of
2017. The Area’s exceptional QHSES performance was maintained
through the second quarter, resulting in excess of 61 million man
hours Lost Time Incident (“LTI”) free.
In the Asia (“ASA”) Area, during the second
quarter of 2017, McDermott successfully completed the mooring and
hook-up of the world’s largest semi-submersible facility ever
built, the Ichthys Explorer Central Processing Facility (CPF) off
the coast of Australia. The LV 108 is now utilizing its vertical
lay system to install the flexible risers and umbilicals. The
remediation work for the failure identified in a supplier-provided
subsea-pipe connector component was substantially complete with
diving intervention by July 7, 2017, and the remaining residual
work expected to be completed in the second half of 2017. The
diving intervention on Ichthys was the deepest saturation dive ever
performed off the coast of Australia and was performed without
incident. Engineering, procurement and fabrication for the Woodside
Greater Western Flank Phase 2 pipeline project continues, with the
project progressing on schedule. In India, the ONGC Vashishta
project continues to achieve significant progress, with completion
of the remaining deepwater pipeline sections utilizing the NO
105. Our consortium partner, Larsen & Toubro, is
finalizing the construction of the onshore pipeline sections and
installation of the onshore umbilical. In Batam, we completed
the Yamal LNG project on time, with successful load out and sail
away of the last three modules in April 2017. Also in Batam,
the fabrication of 14 jackets for Saudi Aramco progressed well with
the last 3 jackets completed early in the third quarter and loaded
out for delivery to Ras Tanura, Saudi Arabia. In Brunei, the
Brunei Shell Petroleum offshore pipeline installation is nearing a
successful completion with both pipelines laid by the DB
30.
In the second quarter of 2017 for Corporate and Other, costs were
mainly attributable to selling, general, and administrative
expenses of $23.5 million and unallocated direct operating expenses
of $27.5 million. Unallocated direct operating expenses were
primarily driven by the ramp-down of activity in the Batam
fabrication yard, upgrade time for the Amazon and drydock time for
the DB
27.
2017 Guidance
($ in millions, except per share amounts or as
indicated for revenues) |
|
Q1'17 Guidance |
|
Q2'17 Guidance |
Revenues |
~$3.2B |
|
~$3.2B |
Operating Income |
~$265 |
|
~$265 |
Operating Margin |
~8.0% |
|
~8.0% |
Net Income1 |
~$120 |
|
~$120 |
Diluted Income Per
Share |
~$0.42 |
|
~$0.42 |
|
|
|
|
Debt
Measures |
|
|
|
Net Interest
Expense2 |
~$70 |
|
~$70 |
Cash Interest / DIC
Amortization Interest |
~$60/~$10 |
|
~$55/~$15 |
Ending Cash, Restricted
Cash and Cash Equivalents |
~$550 |
|
~$315 |
Ending Gross Debt3 |
~$770 |
|
~$550 |
|
|
|
|
Other Financial
Measures |
|
|
|
Income Tax Expense |
~$70 |
|
~$70 |
EBITDA4 |
~$365 |
|
~$365 |
Cash from Operating
Activities |
~$85 |
|
~$85 |
Capex |
~$120 |
|
~$120 |
Free Cash Flow4 |
~$(35) |
|
~$(35) |
Adjusted Free Cash
Flow4 |
~$17 |
|
~$17 |
Corporate and
Other5 |
~$(190) |
|
~$(190) |
~ = approximately1 Our forecasted net income
attributable to McDermott does not include any amount representing
2017 year-end pension actuarial gain or loss, because we have no
basis to estimate pension actuarial gain or loss amounts for the
forecast period and cannot estimate such amount without
unreasonable effort. 2 Net Interest Expense is gross interest
expense less capitalized interest and interest income.3 Ending
Gross Debt excludes debt issuance costs.4 The calculations of
EBITDA, Free Cash Flow and Adjusted Free Cash Flow, which are
Non-GAAP measures, are shown in the appendix entitled
“Reconciliation of Forecast Non-GAAP Financial Measures to GAAP
Financial Measures.”5 Corporate and Other includes corporate
expenses, certain centrally managed initiatives (such as
restructuring charges), impairments, year-end mark-to-market
(“MTM”) pension actuarial gains and losses, costs not attributable
to a particular reportable segment, and unallocated direct
operating expenses associated with the underutilization of vessels,
fabrication facilities and engineering resources.
We are adjusting our guidance for Cash Interest
/ DIC Amortization Interest, Ending Cash, Restricted Cash and Cash
Equivalents and Ending Gross Debt. These measures have been
updated to reflect the impact of our Amended and Restated Credit
Agreement signed in the second quarter, including the repayment of
our previously outstanding term loan, which had an outstanding
principal amount of approximately $217 million, and the related
changes to our interest and debt issuance costs.
Anticipated corporate costs forecasted under
Corporate and Other includes $115 million of unallocated direct
operating expenses resulting from the expected underutilization of
some of our marine and fabrication assets during 2017.
The actual cost to replace the supplier-provided
subsea-pipe connector components on Ichthys was less than our
December 31, 2016 estimated costs and the remediation plan is
substantially complete, with residual work planned for the second
half of 2017.
Other Financial Information
Weighted average common shares outstanding on a
fully diluted basis were approximately 285.0 million and 284.9
million for the quarters ended June 30, 2017 and 2016,
respectively, and 284.1 million and 283.1 million for the six
months ended June 30, 2017 and 2016, respectively. Additional
weighted average shares of 898.8 thousand and 40.9 million related
to the Tangible Equity Units (“TEUs”), as well as other potentially
dilutive shares, were included in the quarterly dilution
calculation for the quarters ended June 30, 2017 and 2016,
respectively, and 19.3 million and 40.9 million for the six
months ended June 30, 2017 and 2016, respectively.
Conference
Call
McDermott has scheduled a conference call and
webcast related to its second quarter 2017 results at 7:30 a.m.,
U.S. Central Time, today. Interested parties may listen over
the Internet through a link posted in the Investor Relations
section of McDermott’s website. A replay of the webcast will be
available for seven days after the call and may be accessed by
dialing (855) 859-2056, Passcode 47050158. In addition, a
presentation will be available on the Investor Relations section of
McDermott’s website that contains supplemental information on
McDermott’s financials, operations and 2017 Guidance.
About the Company
McDermott is a leading provider of integrated
engineering, procurement, construction and installation (“EPCI”),
front-end engineering and design (“FEED”) and module fabrication
services for upstream field developments worldwide. McDermott
delivers fixed and floating production facilities, pipelines,
installations and subsea systems from concept to commissioning for
complex Offshore and Subsea oil and gas projects to help oil
companies safely produce and transport hydrocarbons. Our
customers include national and major energy companies.
Operating in approximately 20 countries across the world, our
locally focused and globally integrated resources include
approximately 12,400 employees, a diversified fleet of specialty
marine construction vessels, fabrication facilities and engineering
offices. We are renowned for our extensive knowledge and
experience, technological advancements, performance records,
superior safety and commitment to deliver. McDermott has
served the energy industry since 1923, and shares of its common
stock are listed on the New York Stock Exchange.
To learn more, please visit our website at
www.mcdermott.com
Non-GAAP Measures
This press release includes several “non-GAAP”
financial measures as defined under Regulation G of the U.S.
Securities Exchange Act of 1934, as amended. We report our
financial results in accordance with GAAP, but believe that certain
non-GAAP financial measures provide useful supplemental information
to investors regarding the underlying business trends and
performance of our ongoing operations and are useful for
period-over-period comparisons of those operations.
Non-GAAP measures are comprised of the total and
diluted per share amounts of adjusted net income attributable to
McDermott and adjusted operating income and operating income margin
for McDermott, in each case excluding the impact of certain
identified items. The excluded items represent items that our
management does not consider to be representative of our normal
operations. We believe that total and diluted per share
adjusted net income and adjusted operating income and operating
margin are useful measures for investors to review because they
provide a consistent measure of the underlying financial results of
our ongoing business and, in our management’s view, allows for a
supplemental comparison against historical results and expectations
for future performance. Furthermore, our management uses adjusted
net income and adjusted operating income as a measure of the
performance of our operations for budgeting and forecasting, as
well as employee incentive compensation. However, Non-GAAP measures
should not be considered as substitutes for operating income, net
income or other data prepared and reported in accordance with GAAP
and should be viewed in addition to our reported results prepared
in accordance with GAAP.
The forecast non-GAAP measures we have presented
in this press release include forecast free cash flow, adjusted
free cash flow and EBITDA, in each case excluding the impact of
certain identified items. We believe these forward-looking
financial measures are within reasonable measure. We define
“free cash flow” as cash flows from operations less capital
expenditures. We believe investors consider free cash flow as
an important measure, because it generally represents funds
available to pursue opportunities that may enhance shareholder
value, such as making acquisitions or other investments. Our
management uses free cash flow for that reason. Additionally,
adjusted free cash flow represents free cash flow plus cash
received as a result of the sale leaseback arrangement for the
acquisition of the Amazon vessel. We define EBITDA as net
income plus depreciation and amortization, interest expense, net,
and provision for income taxes. We have included EBITDA
disclosures in this press release because EBITDA is widely used by
investors for valuation and comparing our financial performance
with the performance of other companies in our industry. Our
management also uses EBITDA to monitor and compare the financial
performance of our operations. EBITDA does not give effect to
the cash that we must use to service our debt or pay our income
taxes, and thus does reflect the funds actually available for
capital expenditures, dividends or various other purposes.
Our presentations of free cash flow and EBITDA may not be
comparable to similarly titled measures in other companies’
reports. You should not consider free cash flow and EBITDA
in isolation from, or as a substitute for, net income or cash flow
measures prepared in accordance with U.S. GAAP.
Reconciliations of these non-GAAP financial
measures and forecast non-GAAP financial measures to the most
comparable GAAP measures are provided in the tables set forth at
the end of this press release.
Forward-Looking Statements
In accordance with the Safe Harbor provisions of
the Private Securities Litigation Reform Act of 1995, McDermott
cautions that statements in this press release which are
forward-looking, and provide other than historical information,
involve risks, contingencies and uncertainties that may impact
McDermott's actual results of operations. These forward-looking
statements include, among other things, statements about backlog,
bids and change orders outstanding, target projects and revenue
pipeline, to the extent these may be viewed as indicators of future
revenues or profitability, our beliefs with respect to the expected
benefits to be derived from recent strategic activities, the
expected scope, execution and timing associated with the projects
discussed, the expected timing of and benefits to be provided by
upgrades to our Altamira fabrication yard, McDermott’s earnings and
other guidance for 2017 and expectations related to the guidance,
expectations with respect to change orders, close-outs and
settlements, our expectations with respect to the range of
additional costs on the Ichthys project related to the subsea-pipe
connector component issue identified in January 2017 and the timing
of completion of the remaining residual work and the expected
underutilization of our marine assets in 2017. Although we believe
that the expectations reflected in those forward-looking statements
are reasonable, we can give no assurance that those expectations
will prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous risks,
contingencies and uncertainties, including, among others: adverse
changes in the markets in which we operate or credit markets, our
inability to successfully execute on contracts in backlog, changes
in project design or schedules, the availability of qualified
personnel, changes in the terms, scope or timing of contracts,
contract cancellations, change orders and other modifications and
actions by our customers and other business counterparties, changes
in industry norms and adverse outcomes in legal or other dispute
resolution proceedings. If one or more of these risks
materialize, or if underlying assumptions prove incorrect, actual
results may vary materially from those expected. You should
not place undue reliance on forward looking statements. For a
more complete discussion of these and other risk factors, please
see McDermott's annual and quarterly filings with the Securities
and Exchange Commission, including its annual report on Form 10-K
for the year ended December 31, 2016 and subsequent quarterly
reports on Form 10-Q. This press release reflects management's
views as of the date hereof. Except to the extent required by
applicable law, McDermott undertakes no obligation to update or
revise any forward-looking statement.
McDERMOTT INTERNATIONAL, INC. |
|
CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(Unaudited) |
|
|
|
Three months Ended June 30, |
|
|
Six months Ended June 30, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
(In thousands, except share and per share
amounts) |
|
Revenues |
|
$ |
788,673 |
|
|
$ |
706,627 |
|
|
$ |
1,308,104 |
|
|
$ |
1,435,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
operations |
|
|
650,449 |
|
|
|
595,343 |
|
|
|
1,079,039 |
|
|
|
1,211,345 |
|
Research
and development expenses |
|
|
821 |
|
|
|
99 |
|
|
|
1,301 |
|
|
|
130 |
|
Selling,
general and administrative expenses |
|
|
50,022 |
|
|
|
52,075 |
|
|
|
86,609 |
|
|
|
90,403 |
|
Other
operating (income) expenses, net |
|
|
182 |
|
|
|
2,122 |
|
|
|
(2,029 |
) |
|
|
40,800 |
|
Total
costs and expenses |
|
|
701,474 |
|
|
|
649,639 |
|
|
|
1,164,920 |
|
|
|
1,342,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
87,199 |
|
|
|
56,988 |
|
|
|
143,184 |
|
|
|
92,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
|
(21,204 |
) |
|
|
(12,655 |
) |
|
|
(38,910 |
) |
|
|
(23,893 |
) |
Other
non-operating expense, net |
|
|
(2,491 |
) |
|
|
(2,851 |
) |
|
|
(1,877 |
) |
|
|
(6,242 |
) |
Total
other expense, net |
|
|
(23,695 |
) |
|
|
(15,506 |
) |
|
|
(40,787 |
) |
|
|
(30,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
|
63,504 |
|
|
|
41,482 |
|
|
|
102,397 |
|
|
|
62,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
|
22,918 |
|
|
|
19,804 |
|
|
|
33,689 |
|
|
|
39,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
(loss) from Investments in Unconsolidated Affiliates |
|
|
40,586 |
|
|
|
21,678 |
|
|
|
68,708 |
|
|
|
23,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
Investments in Unconsolidated Affiliates |
|
|
(4,127 |
) |
|
|
127 |
|
|
|
(8,054 |
) |
|
|
(4,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
36,459 |
|
|
|
21,805 |
|
|
|
60,654 |
|
|
|
19,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
income attributable to noncontrolling interest |
|
|
46 |
|
|
|
1,148 |
|
|
|
2,325 |
|
|
|
876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
|
$ |
36,413 |
|
|
$ |
20,657 |
|
|
$ |
58,329 |
|
|
$ |
18,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
attributable to McDermott International, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.13 |
|
|
$ |
0.09 |
|
|
$ |
0.22 |
|
|
$ |
0.08 |
|
Diluted |
|
$ |
0.13 |
|
|
$ |
0.07 |
|
|
$ |
0.21 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
computation of net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
282,660,314 |
|
|
|
240,338,540 |
|
|
|
262,438,822 |
|
|
|
239,739,204 |
|
Diluted |
|
|
284,982,270 |
|
|
|
284,909,414 |
|
|
|
284,122,560 |
|
|
|
283,132,238 |
|
McDERMOTT INTERNATIONAL, INC. |
|
EARNINGS PER SHARE COMPUTATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
(In thousands, except share and per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
$ |
36,413 |
|
|
$ |
20,657 |
|
|
$ |
58,329 |
|
|
$ |
18,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares (basic) |
|
282,660,314 |
|
|
|
240,338,540 |
|
|
|
262,438,822 |
|
|
|
239,739,204 |
|
Effect of
dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
equity units |
|
898,820 |
|
|
|
40,896,300 |
|
|
|
19,347,386 |
|
|
|
40,896,300 |
|
Stock
options, restricted stock and restricted stock units |
|
1,423,136 |
|
|
|
3,674,574 |
|
|
|
2,336,352 |
|
|
|
2,496,734 |
|
Adjusted weighted
average common shares and assumed exercises of stock options and
vesting of stock awards (diluted) |
|
284,982,270 |
|
|
|
284,909,414 |
|
|
|
284,122,560 |
|
|
|
283,132,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
$ |
0.13 |
|
|
$ |
0.09 |
|
|
$ |
0.22 |
|
|
$ |
0.08 |
|
Diluted: |
$ |
0.13 |
|
|
$ |
0.07 |
|
|
$ |
0.21 |
|
|
$ |
0.07 |
|
SUPPLEMENTARY DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
(In thousands) |
|
|
(In thousands) |
|
Depreciation &
amortization
|
$ |
28,304 |
|
|
$ |
24,387 |
|
|
$ |
49,685 |
|
|
$ |
48,929 |
|
Capital
expenditures |
|
18,073 |
|
|
|
138,774 |
|
|
|
80,922 |
|
|
|
170,674 |
|
Backlog |
|
3,297,591 |
|
|
|
4,369,844 |
|
|
|
3,297,591 |
|
|
|
4,369,844 |
|
McDERMOTT INTERNATIONAL, INC. |
|
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017 |
|
|
December 31, 2016 |
|
|
|
(In thousands, except share and per share
amounts) |
|
Assets |
|
(Unaudited) |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
393,726 |
|
|
$ |
595,921 |
|
Restricted cash and cash equivalents
|
|
|
15,154 |
|
|
|
16,412 |
|
Accounts receivable—trade, net |
|
|
331,327 |
|
|
|
334,384 |
|
Accounts receivable—other |
|
|
40,239 |
|
|
|
36,929 |
|
Contracts in progress |
|
|
619,164 |
|
|
|
319,138 |
|
Other current assets |
|
|
38,047 |
|
|
|
29,599 |
|
Total current assets |
|
|
1,437,657 |
|
|
|
1,332,383 |
|
Property, plant
and equipment |
|
|
2,617,382 |
|
|
|
2,586,179 |
|
Less accumulated depreciation |
|
|
(939,651 |
) |
|
|
(898,878 |
) |
Property, plant and equipment, net |
|
|
1,677,731 |
|
|
|
1,687,301 |
|
Accounts
receivable—long-term retainages |
|
|
92,797 |
|
|
|
127,193 |
|
Investments in
Unconsolidated Affiliates |
|
|
12,138 |
|
|
|
17,023 |
|
Deferred income
taxes |
|
|
18,748 |
|
|
|
21,116 |
|
Other assets |
|
|
52,377 |
|
|
|
37,214 |
|
Total assets |
|
$ |
3,291,448 |
|
|
$ |
3,222,230 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Notes payable and current maturities of long-term debt |
|
$ |
13,807 |
|
|
$ |
48,125 |
|
Accounts payable |
|
|
434,954 |
|
|
|
173,203 |
|
Accrued liabilities |
|
|
340,613 |
|
|
|
277,584 |
|
Advance billings on contracts |
|
|
66,148 |
|
|
|
192,486 |
|
Income taxes payable |
|
|
26,786 |
|
|
|
17,945 |
|
Total current liabilities |
|
|
882,308 |
|
|
|
709,343 |
|
Long-term
debt |
|
|
526,692 |
|
|
|
704,395 |
|
Self-insurance |
|
|
17,734 |
|
|
|
16,980 |
|
Pension
liabilities |
|
|
19,043 |
|
|
|
19,471 |
|
Non-current
income taxes |
|
|
60,341 |
|
|
|
60,870 |
|
Other
liabilities |
|
|
124,834 |
|
|
|
115,703 |
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per share, authorized
400,000,000 shares; |
|
|
|
|
|
|
|
|
issued 292,469,416 and 249,690,281 shares, respectively |
|
|
292,469 |
|
|
|
249,690 |
|
Capital in excess of par value |
|
1,656,231 |
|
|
|
1,695,119 |
|
Accumulated deficit |
|
|
(168,438 |
) |
|
|
(226,767 |
) |
Accumulated other comprehensive loss |
|
|
(56,191 |
) |
|
|
(66,895 |
) |
Treasury stock, at cost: 8,494,018 and 8,302,004 shares,
respectively |
|
|
(96,244 |
) |
|
|
(94,957 |
) |
Stockholders' Equity—McDermott International, Inc. |
|
|
1,627,827 |
|
|
|
1,556,190 |
|
Noncontrolling interest |
|
|
32,669 |
|
|
|
39,278 |
|
Total equity |
|
|
1,660,496 |
|
|
|
1,595,468 |
|
Total liabilities and equity |
|
$ |
3,291,448 |
|
|
$ |
3,222,230 |
|
McDERMOTT INTERNATIONAL, INC. |
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
(Unaudited) |
|
|
|
Six Months Ended June 30, |
|
|
|
2017 |
|
|
2016 |
|
|
|
(In thousands) |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
60,654 |
|
|
$ |
19,361 |
|
Non-cash items included
in net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
49,685 |
|
|
|
48,929 |
|
Impairment loss |
|
|
- |
|
|
|
32,311 |
|
Stock-based compensation charges |
|
|
11,838 |
|
|
|
9,242 |
|
Loss from
investments in Unconsolidated Affiliates |
|
|
8,054 |
|
|
|
4,351 |
|
Other
non-cash items |
|
|
12,375 |
|
|
|
4,948 |
|
Changes in operating
assets and liabilities that provided (used) cash:
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
37,453 |
|
|
|
(30,835 |
) |
Contracts
in progress, net of Advance billings on contracts |
|
|
(410,678 |
) |
|
|
67,698 |
|
Accounts
payable |
|
|
260,091 |
|
|
|
(65,212 |
) |
Accrued
and other current liabilities |
|
|
68,722 |
|
|
|
(45,523 |
) |
Other
assets and liabilities, net |
|
|
(8,011 |
) |
|
|
30,520 |
|
Total cash provided by operating activities |
|
|
90,183 |
|
|
|
75,790 |
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Purchases of property,
plant and equipment |
|
|
(80,922 |
) |
|
|
(170,674 |
) |
Proceeds from asset
dispositions |
|
|
55,391 |
|
|
|
388 |
|
Investments in
Unconsolidated Affiliates |
|
|
(1,300 |
) |
|
|
(4,105 |
) |
Total cash used in investing activities |
|
|
(26,831 |
) |
|
|
(174,391 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Repayment of debt |
|
|
(230,509 |
) |
|
|
(88,845 |
) |
Payment of debt and
letter of credit issuance cost |
|
|
(18,784 |
) |
|
|
(8,211 |
) |
Acquisition of NCI |
|
|
(10,652 |
) |
|
|
- |
|
Repurchase of common
stock |
|
|
(7,020 |
) |
|
|
(2,572 |
) |
Total cash used in financing activities |
|
|
(266,965 |
) |
|
|
(99,628 |
) |
|
|
|
|
|
|
|
|
|
Effects of
exchange rate changes on cash, cash equivalents and restricted
cash |
|
|
160 |
|
|
|
(601 |
) |
Net decrease in
cash, cash equivalents and restricted cash |
|
|
(203,453 |
) |
|
|
(198,830 |
) |
Cash, cash
equivalents and restricted cash at beginning of
period |
|
|
612,333 |
|
|
|
781,645 |
|
Cash, cash
equivalents and restricted cash at end of period |
|
$ |
408,880 |
|
|
$ |
582,815 |
|
McDERMOTT INTERNATIONAL,
INC.RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL
MEASURES
McDermott reports its financial results in
accordance with U.S. generally accepted accounting principles
(“GAAP”). This press release also includes several Non-GAAP
financial measures as defined under the SEC’s Regulation G. The
following tables reconcile Non-GAAP financial measures to
comparable GAAP financial measures:
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Jun 30, 2017 |
|
|
Jun 30, 2016 |
|
|
Jun 30, 2017 |
|
|
Jun 30, 2016 |
|
(In thousands,
except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
Attributable to MDR |
$ |
36,413 |
|
|
$ |
20,657 |
|
|
$ |
58,329 |
|
|
$ |
18,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges1 |
|
- |
|
|
|
2,484 |
|
|
|
- |
|
|
|
8,851 |
|
Impairment loss2 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,311 |
|
Total Non-GAAP Adjustments |
|
- |
|
|
|
2,484 |
|
|
|
- |
|
|
|
41,162 |
|
Tax
Effect of Non-GAAP Changes3 |
|
- |
|
|
|
(327 |
) |
|
|
- |
|
|
|
(497 |
) |
Total
Non-GAAP Adjustments (After Tax) |
|
- |
|
|
|
2,157 |
|
|
|
- |
|
|
|
40,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjusted Net Income Attributable to McDermott |
$ |
36,413 |
|
|
$ |
22,814 |
|
|
$ |
58,329 |
|
|
$ |
59,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating
Income |
$ |
87,199 |
|
|
$ |
56,988 |
|
|
$ |
143,184 |
|
|
$ |
92,981 |
|
Non-GAAP
Adjustments4 |
|
- |
|
|
|
2,484 |
|
|
|
- |
|
|
|
41,162 |
|
Non-GAAP
Adjusted Operating Income |
$ |
87,199 |
|
|
$ |
59,472 |
|
|
$ |
143,184 |
|
|
$ |
134,143 |
|
Non-GAAP
Adjusted Operating Margin |
|
11.1 |
% |
|
|
8.4 |
% |
|
|
10.9 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
EPS |
$ |
0.13 |
|
|
$ |
0.07 |
|
|
$ |
0.21 |
|
|
$ |
0.07 |
|
Non-GAAP
Adjustments |
|
- |
|
|
|
0.01 |
|
|
|
- |
|
|
|
0.14 |
|
Non-GAAP
Diluted EPS |
$ |
0.13 |
|
|
$ |
0.08 |
|
|
$ |
0.21 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation of income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
282,660,314 |
|
|
|
240,338,540 |
|
|
|
262,438,822 |
|
|
|
239,739,204 |
|
Diluted |
|
284,982,270 |
|
|
|
284,909,414 |
|
|
|
284,122,560 |
|
|
|
283,132,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities |
$ |
41,731 |
|
|
$ |
16,510 |
|
|
$ |
90,183 |
|
|
$ |
75,790 |
|
Capital
expenditures |
|
(18,073 |
) |
|
|
(138,774 |
) |
|
|
(80,922 |
) |
|
|
(170,674 |
) |
Free cash
flow |
$ |
23,658 |
|
|
$ |
(122,264 |
) |
|
$ |
9,261 |
|
|
$ |
(94,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
Revenue |
$ |
788,673 |
|
|
$ |
706,627 |
|
|
$ |
1,308,104 |
|
|
$ |
1,435,659 |
|
1 Restructuring charges were primarily
associated with personnel reductions, facility closures, consultant
fees, lease terminations and asset impairments.2 During the first
quarter of 2016, we recognized a $32.3 million impairment charge
related to our Agile vessel following the customer’s termination of
the vessel charter in May 2016 and given the lack of opportunities
for the vessel. The Agile was decommissioned and disposed of in the
third quarter of 2016.3 Represents tax effects of Non-GAAP
adjustments. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which we currently do not pay
taxes and, therefore, no tax impact is applied to those
items. For the Non-GAAP adjusting items in jurisdictions
where taxes are paid, the tax impacts on those adjustments are
computed, individually, using the statutory tax rate in effect in
each applicable taxable jurisdiction.4 Includes the Non-GAAP
adjustments described in footnotes 1 and 2 above for each
applicable period.
McDERMOTT INTERNATIONAL,
INC.RECONCILIATION OF FORECAST NON-GAAP FINANCIAL
MEASURES TO GAAP FINANCIAL MEASURES |
|
|
|
|
|
|
|
Q1'17 Guidance |
|
|
Q2'17 Guidance |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities |
~$85 |
|
|
~$85 |
|
Capital
expenditures |
~120 |
|
|
~120 |
|
Free cash
flow |
~$(35) |
|
|
~$(35) |
|
Cash
received from Amazon sale leaseback arrangement |
|
52 |
|
|
|
52 |
|
Adjusted free
cash flow |
~$17 |
|
|
~$17 |
|
|
|
|
|
|
|
|
|
GAAP Net Income
(Loss) Attributable to McDermott |
~$120 |
|
|
~$120 |
|
Add: |
|
|
|
|
|
|
|
Depreciation and amortization |
~105 |
|
|
~105 |
|
Interest
expense, net |
~70 |
|
|
~70 |
|
Provision
for taxes |
~70 |
|
|
~70 |
|
EBITDA |
~$365 |
|
|
~$365 |
|
CONTACT:
Investors & Financial Media
Ty Lawrence
Vice President, Treasurer and Investor Relations
281.870.5147
TPLawrence@mcdermott.com
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