HOUSTON, July 31, 2018 /PRNewswire/ -- McDermott
International, Inc. (NYSE: MDR) ("McDermott" or the "Company")
today reported revenue of $1.7
billion and net income of $47
million, or $0.33 per diluted
share, for the second quarter of 2018. Results reflect solid
execution and a tax benefit of $117
million related to an internal transfer of certain
intellectual property rights, offset by $138
million of transaction costs, costs to achieve our
Combination Profitability Initiative (CPI), debt extinguishment
costs, and intangibles amortization.
Excluding the tax benefit and charges identified above,
McDermott's adjusted net income for the second quarter was
$59 million, as detailed in an
accompanying table. Adjusted diluted earnings per share were
$0.29, which includes the
amortization related to acquired intangible assets.
Financial
Highlights Table
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
Jun 30,
2018
|
|
|
Jun 30,
2017
|
|
|
Jun 30,
2018
|
|
|
Jun 30,
2017
|
|
|
(In millions,
except per share amounts)
|
|
Revenues
|
$
|
1,735
|
|
|
$
|
789
|
|
|
$
|
2,343
|
|
|
$
|
1,308
|
|
Operating
Income
|
|
49
|
|
|
|
85
|
|
|
|
113
|
|
|
|
137
|
|
Operating
Margin
|
|
2.8
|
%
|
|
|
10.8
|
%
|
|
|
4.8
|
%
|
|
|
10.5
|
%
|
Net Income
|
|
47
|
|
|
|
36
|
|
|
|
82
|
|
|
|
58
|
|
Diluted
EPS1
|
|
0.33
|
|
|
|
0.38
|
|
|
|
0.68
|
|
|
|
0.62
|
|
Total Intangibles
Amortization2
|
|
22
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income3
|
|
172
|
|
|
|
85
|
|
|
|
250
|
|
|
|
137
|
|
Adjusted Operating
Margin3
|
|
9.9
|
%
|
|
|
10.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
Adjusted Net
Income3,4
|
|
59
|
|
|
|
36
|
|
|
|
108
|
|
|
|
58
|
|
Adjusted Diluted
EPS1,3,4
|
|
0.29
|
|
|
|
0.38
|
|
|
|
0.76
|
|
|
|
0.62
|
|
Adjusted
EBITDA3
|
|
208
|
|
|
|
109
|
|
|
|
311
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by
Operating Activities
|
|
398
|
|
|
|
42
|
|
|
|
435
|
|
|
|
91
|
|
Capital
Expenditures
|
|
24
|
|
|
|
18
|
|
|
|
43
|
|
|
|
81
|
|
Free Cash
Flow3
|
|
374
|
|
|
|
24
|
|
|
|
392
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital5
|
|
(1,444)
|
|
|
|
160
|
|
|
|
(1,444)
|
|
|
|
160
|
|
|
Note: Results for the
second quarter include McDermott for the full period and CB&I
for the period of May 11 to June 30, 2018. 2017 figures are as
originally reported by McDermott and do not reflect a historical
presentation of combined results.
|
1 Diluted
EPS and Adjusted Diluted EPS were calculated using weighted average
diluted shares of 94 million and 144 million for the
three months ended June 30, 2017 and 2018, respectively, and
weighted average diluted shares of 94 million and 120
million for the six months ended June 30, 2017 and 2018,
respectively.
|
2 Total
Intangibles Amortization includes the sum of project-related
intangibles amortization and other intangibles amortization, both
of which are associated with the intangible assets and liabilities
acquired in our combination with CB&I.
|
3 Adjusted
Operating Income, Adjusted Operating Margin, Adjusted Net Income,
Adjusted Diluted Net Income Per Share ("Adjusted EPS") and Adjusted
EBITDA reflect adjustments to Operating Income computed in
accordance with U.S. generally accepted accounting principles
("GAAP") to add back approximately $37 million of transaction
costs, $63 million of costs to achieve CPI, and $22 million of
intangible amortization. Additionally, adjustments to Net Income
computed in accordance with U.S. GAAP include $14 million of debt
extinguishment costs and a $117 million tax benefit from the
internal transfer of certain intellectual property rights. Free
Cash Flow is equal to Cash Provided by Operating Activities less
Capital Expenditures
|
The reconciliations
of Adjusted Operating Income, Adjusted Operating Margin, Adjusted
Net Income, Adjusted EPS, Adjusted EBITDA and Free Cash Flow to the
respective most comparable GAAP measures are provided in the
appendix entitled "Reconciliation of Non-GAAP Financial Measures to
GAAP Financial Measures."
|
4 The
calculations of Adjusted Net Income and Adjusted EPS reflect the
tax effects of Non-GAAP adjustments during the period. In
jurisdictions in which we currently do not pay taxes, no tax impact
is applied to Non-GAAP adjusting items.
|
5 Working
capital is defined as current assets, less cash and cash
equivalents, restricted cash, and project-related intangibles,
minus current liabilities, less current maturities of long-term
debt and project related intangible liabilities.
|
"McDermott's operating performance in the second quarter of 2018
is the first step in our progress toward meeting the Company's
extraordinary potential," said David
Dickson, President and Chief Executive Officer of
McDermott. "We believe McDermott is on track to be a market
leader in key upstream and downstream markets. We have made
enormous progress in integrating the two organizations and our
focus is now on positioning and capitalizing on our combined
strengths to create long-term value for our investors, customers
and employees.
"I am pleased to report there were many highlights in the second
quarter including solid execution across our portfolio, healthy
cash flow from operations of $398
million, a strong available cash position of $814 million, as well as a robust revenue
opportunity pipeline of $78.5 billion
supported by continued recovery in the markets that we serve.
Additionally, our integration is progressing well. Our efforts in
this regard are being actively supported by employees, partners and
customers, and as of the end of the second quarter of 2018, we have
actioned approximately $163 million
of our stated $350 million annual run
rate synergy target, which we are now referring to as the
Combination Profitability Initiative, or CPI."
Update on Estimated Costs on Selected Projects
In accounting for the acquisition of CB&I on May 10, 2018, McDermott recorded the fair value
of the CB&I balance sheet, including identified intangible
assets and updated cost estimates on the acquired backlog. The vast
majority of the acquired portfolio did not require material changes
to cost estimates. However, McDermott did record changes in
estimated costs on three projects, including $165 million on the Cameron LNG project,
$23 million on the Calpine project
and $33 million on the now-completed
IPL gas power project. These changes in cost estimates did
not have a direct impact on the Company's net income for the second
quarter.
"We are clearly disappointed with the increased cost estimates
for three of the legacy CB&I projects," said Dickson. "The
increases are within the bounds of the scenarios we contemplated
during our due diligence, and we believe that by applying our
disciplined One McDermott Way to these projects, we can bring them
to successful completion. We have already made significant changes
to personnel, reporting structures, stakeholder relationships and
execution plans on Cameron, for example, since the combination
closed, and there are encouraging signs that these changes have
made a difference. More importantly, we have moved forward to
further strengthen our relationships with stakeholders. Going
forward, we plan to continue to aggressively apply our McDermott
approach to ensure appropriate risk evaluation and mitigation
across the combined Company's portfolio – from bidding to
execution."
Solid Outlook
"Our healthy revenue opportunity pipeline reflects our
competitive differentiation and the breadth of our offering. It is
supported by improving outlooks in the offshore, LNG and
petrochemical markets where we continue to position ourselves for
long-term growth as evidenced by today's announcement of the
planned upgrade to the Amazon vessel, enabling us to execute
ultra-deepwater projects. We remain confident in the fundamental
soundness of the acquired backlog. Our project portfolio as a whole
is being executed efficiently and progressing well, specifically
through implementation of the One McDermott Way, which has been a
proven contributor to our success in recent years. Today we also
announced our initial guidance as a combined Company for the second
half of 2018, which we believe demonstrates the strategic rationale
of the combination," said Dickson.
Second Quarter 2018 Operating Results
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,
2018
|
|
|
Jun 30,
2017
|
|
|
Jun 30,
2018
|
|
|
Jun 30,
2017
|
|
|
(In millions, except
share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
Attributable to MDR
|
$
|
47
|
|
|
$
|
36
|
|
|
$
|
82
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs1
|
|
37
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
Costs to achieve
CPI2
|
|
63
|
|
|
|
-
|
|
|
|
75
|
|
|
|
-
|
|
Intangible
amortization3
|
|
22
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
Debt extinguishment
costs4
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Tax benefit on
intercompany transfer of IP5
|
|
(117)
|
|
|
|
-
|
|
|
|
(117)
|
|
|
|
-
|
|
Total Non-GAAP Adjustments
|
|
21
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
Tax Effect of Non-GAAP
Changes6
|
|
(8)
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
-
|
|
Total Non-GAAP Adjustments (After Tax)
|
|
12
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
Non-GAAP Adjusted
Net Income Attributable to McDermott
|
$
|
59
|
|
|
$
|
36
|
|
|
$
|
108
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating
Income
|
$
|
49
|
|
|
$
|
85
|
|
|
$
|
113
|
|
|
$
|
137
|
|
Non-GAAP
Adjustments7
|
|
123
|
|
|
|
-
|
|
|
|
137
|
|
|
|
-
|
|
Non-GAAP Adjusted
Operating Income
|
$
|
172
|
|
|
$
|
85
|
|
|
$
|
250
|
|
|
$
|
137
|
|
Non-GAAP Adjusted
Operating Margin
|
|
9.9
|
%
|
|
|
10.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
EPS
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
0.68
|
|
|
$
|
0.62
|
|
Non-GAAP
Adjustments8
|
|
(0.04)
|
|
|
|
-
|
|
|
|
0.08
|
|
|
|
-
|
|
Non-GAAP Diluted
EPS
|
$
|
0.29
|
|
|
$
|
0.38
|
|
|
$
|
0.76
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation of income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
87
|
|
Diluted
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to MDR
|
$
|
47
|
|
|
$
|
36
|
|
|
$
|
82
|
|
|
$
|
58
|
|
Depreciation &
Amortization
|
|
57
|
|
|
|
28
|
|
|
|
80
|
|
|
|
50
|
|
Interest Expense,
Net
|
|
72
|
|
|
|
22
|
|
|
|
83
|
|
|
|
39
|
|
Provision for Income
Taxes
|
|
(84)
|
|
|
|
23
|
|
|
|
(63)
|
|
|
|
34
|
|
EBITDA9
|
|
92
|
|
|
|
109
|
|
|
|
182
|
|
|
|
181
|
|
Non-GAAP
Adjustments
|
|
115
|
|
|
|
-
|
|
|
|
129
|
|
|
|
-
|
|
Adjusted
EBITDA9
|
$
|
208
|
|
|
$
|
109
|
|
|
$
|
311
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities
|
$
|
398
|
|
|
$
|
42
|
|
|
$
|
435
|
|
|
$
|
91
|
|
Capital
expenditures
|
|
24
|
|
|
|
18
|
|
|
|
43
|
|
|
|
81
|
|
Free cash
flow
|
$
|
374
|
|
|
$
|
24
|
|
|
$
|
392
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
Revenue
|
$
|
1,735
|
|
|
$
|
789
|
|
|
$
|
2,343
|
|
|
$
|
1,308
|
|
|
Note: All amounts
have been rounded to the nearest million, except per share amounts.
Totals may not foot as a result of rounding.
|
1 We
recognized $37 million and $3 million of transaction costs
associated with our combination with CB&I during the second and
first quarters of 2018, respectively.
|
2 Costs to
achieve our Combination Profitability Initiatives (CPI) include
integration and restructuring costs. We incurred $63 million and
$11 million of costs from CPI in the second and first quarters of
2018, respectively.
|
3
Intangible amortization includes the amortization of all acquired
intangibles from the combination with CB&I, including
project-related intangibles and other intangible assets (including
process technologies, trade names, trade markets, and customer
relationships).
|
4 As part
of the financing of the combination with CB&I and establishment
of our new capital structure during Q2 2018, we recognized expense
associated with the prepayment of our prior credit facility and
senior notes of $14 million, which included a make-whole premium
and the accelerated write-off of debt issuance costs.
|
5 During
Q2 2018, we benefited from the tax benefit of $117 million
resulting from the internal transfer of certain intellectual
property (IP) rights.
|
6 The
adjustments to GAAP Net Income have been income tax effected when
included in net income based upon the respective tax jurisdiction
the adjustments were incurred in.
|
7 Includes
the Non-GAAP adjustments described in footnotes 1, 2 and 3 above.
Adjustments to operating income exclude the debt extinguishment
costs and tax benefit on the intercompany transfer of IP, as these
items are not included in the computation of operating
income.
|
8 Adjusted
diluted EPS includes the intangible amortization, net of tax,
described in footnote 3 above.
|
9 We
define EBITDA as net income plus depreciation and amortization,
interest expense, net, and provision for income taxes. We
define Adjusted EBITDA as EBITDA less the transaction costs, costs
to achieve CPI, and debt extinguishment costs detailed in the
immediately preceding pages. We have included EBITDA and
Adjusted EBITDA disclosures in this supplemental deck because
EBITDA is widely used by investors for valuation and comparing our
financial performance with the performance of other companies in
our industry and because Adjusted EBITDA provides a consistent
measure of EBITDA relating to our underlying business. Our
management also uses EBITDA and Adjusted EBITDA to monitor and
compare the financial performance of our operations. EBITDA
and Adjusted EBITDA do not give effect to the cash that we must use
to service our debt or pay our income taxes, and thus do not
reflect the funds actually available for capital expenditures,
dividends or various other purposes. In addition, our
presentation of EBITDA and Adjusted EBITDA may not be comparable to
similarly titled measures in other companies' reports. You should
not consider EBITDA or Adjusted EBITDA in isolation from, or as a
substitute for, net income or cash flow measures prepared in
accordance with U.S. GAAP.
|
McDermott's net income of $47
million for the second quarter of 2018 was attributable to
solid execution across the portfolio and a tax benefit of
$117 million related to an internal
transfer of certain intellectual property rights, partially offset
by transaction-related expenses, costs to achieve CPI, intangibles
amortization and debt extinguishment costs, as outlined in an
accompanying table.
McDermott's revenues of $1.7
billion were driven by the Cameron and Freeport LNG
projects, LACC — an ethylene production facility owned
by a joint venture of Axiall Corporation and Lotte Chemical
Corporation — and the offshore projects Saudi
Aramco Safaniya 5 and Woodside Greater Western Flank II.
McDermott's operating income and operating income margin for the
second quarter of 2018 were $49
million and 2.8%, reflecting the net impact of
transaction-related items. Adjusted operating income for the second
quarter of 2018 was $172 million,
primarily driven by offshore and downstream projects. The adjusted
operating income margin was 9.9%, aided by strong margin
performance in the APAC, MENA and Technology segments.
Cash and Liquidity
McDermott generated $398 million
in cash from operating activities during the second quarter,
compared to $42 million in the second
quarter of 2017, with the increase primarily attributable to the
combination with CB&I. Total cash availability was $1.7 billion at the end of the period, composed
of $814 million of unrestricted cash
and $879 million available under the
revolver. Additionally, McDermott had $676
million of availability under its letter of credit facility
and bilateral lines. The Company is not subject to a financial
covenant compliance test until the third quarter of 2018.
Integration and Combination Profitability
Initiative
Integration is progressing well and is focused on four elements:
culture, work process, IT systems and CPI. A Cultural Integration
Team (CIT) composed of employees representing all parts of the
organization was formed and is leading the effort toward a common
and collaborative culture. In relation to work processes, standards
are being defined throughout the organization to follow the One
McDermott Way principle, and the organization is rapidly executing
a global analysis to provide a blueprint for IT systems
alignment.
The Combination Profitability Initiative, previously referred to
as synergies, is progressing well. McDermott
previously announced identified CPI savings of $350 million. McDermott's operating results for
the period ended June 30, 2018,
include $16 million of such
savings. As of period end, McDermott had actioned
$163 million of annualized run rate
savings. Of the $210 million of
estimated costs to achieve CPI savings, $63
million was recognized in the quarter.
Update on Selected Projects
The status of selected projects is summarized below in
accordance with U.S. GAAP. For reference, the percentage of
completion figures below are cumulative and include progress
achieved prior to the combination. Project status as of the end of
the second quarter of 2018 is summarized below.
- Cameron LNG Project — At the end of the second
quarter of 2018, the project was approximately 88% complete, with
substantive progress made during the quarter. As of the end of the
second quarter, piping was over 65% complete and electrical was
over 50% complete. All process and utility powerhouses were
energized and pipe testing is substantially complete for Phase 1.
Substantial completion of Phase 1 pre-commissioning related
activities is expected during the third quarter, which will
position the facility to bring in fuel gas and commence start up
activities in the fourth quarter. Prior to the combination, the
decision was made to increase the workforce on the project. This
resulted in declining productivity and increased costs, and we have
therefore implemented a reduction in workforce to improve
productivity and maintain schedule. The Company is currently
targeting completion dates of Q1 2019 for Phase 1, Q3 2019 for
Train 2 and very early Q1 2020 for Train 3 in accordance with
customer requirements. Considering that the successful
execution of each train is a three-step process involving
mechanical completion, commissioning and commencement of
operations, McDermott believes that all three trains will be
producing gas by the end of 2019. Additionally, as part of the
Company's One McDermott Way, we are working to strengthen our
stakeholder relationships on Cameron LNG and all of the acquired
projects.
- Freeport LNG Project — At the end of the second
quarter of 2018, the project was approximately 83% complete.
Significant progress has been made on the project operationally.
All critical process and utility powerhouses have been energized
and pipe testing is progressing rapidly on Train 1, with strong
progress achieved on construction activities. Pre-commissioning
related activities are anticipated to begin during the third
quarter with plans to begin full commissioning activities in the
fourth quarter of 2018. McDermott expects Train 1 to be complete in
Q3 2019, Train 2 completion in Q1 2020 and Train 3 completion in Q2
2020. A claim to recover associated costs due to Hurricane Harvey
has been filed with the customer and substantially all costs
related to Hurricane Harvey are expected to be recovered under the
contractual provisions, including force majeure.
- Calpine Gas Turbine Power Project — At the end of
the second quarter of 2018, the project was approximately 89%
complete. Construction work progressed during the second quarter
and commissioning activities commenced. First fire is anticipated
later in 2018. As of the end of the second quarter of 2018, the
Company had targeted substantial completion by the end of the
year.
- IPL Gas Turbine Power Project – The project has been completed
and is now in the warranty period.
Revenue Pipeline
McDermott's revenue opportunity pipeline consists of Backlog,
Bids & Change Orders Outstanding and Target Projects, which are
those projects McDermott expects to be awarded in the market in the
next five quarters. McDermott defines Backlog as Remaining
Performance Obligations (RPOs) as defined by GAAP.
Revenue Pipeline 5
Quarter Look-Back
|
As
of
|
|
|
|
|
|
|
Jun 30,
2018
|
|
|
Mar 31,
2018
|
|
|
Dec 31,
2017
|
|
|
Sep 30,
2017
|
|
|
Jun 30,
2017
|
|
|
|
|
|
|
(In
billions)
|
|
|
|
|
|
Backlog
|
$
|
10.2
|
|
|
$
|
3.4
|
|
|
$
|
3.9
|
|
|
$
|
2.4
|
|
|
$
|
3.3
|
|
|
|
|
|
Bids & Change
Orders Outstanding1
|
|
19.0
|
|
|
|
7.5
|
|
|
|
4.4
|
|
|
|
5.4
|
|
|
|
1.4
|
|
|
|
|
|
Targets2
|
|
49.3
|
|
|
|
14.1
|
|
|
|
16.2
|
|
|
|
12.6
|
|
|
|
15.4
|
|
|
|
|
|
Total
|
|
78.5
|
|
|
|
25.0
|
|
|
|
24.5
|
|
|
|
20.4
|
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Pipeline
by Segment
|
As of Jun 30,
2018
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Total
|
|
|
(In
billions)
|
|
Backlog
|
$
|
5.2
|
|
|
$
|
1.3
|
|
|
$
|
2.6
|
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
10.2
|
|
Bids & Change
Orders Outstanding1
|
|
9.2
|
|
|
|
4.8
|
|
|
|
1.6
|
|
|
|
3.0
|
|
|
|
0.5
|
|
|
|
19.0
|
|
Targets2
|
|
26.5
|
|
|
|
3.1
|
|
|
|
14.8
|
|
|
|
3.5
|
|
|
|
1.3
|
|
|
|
49.3
|
|
Total
|
|
40.9
|
|
|
|
9.1
|
|
|
|
19.0
|
|
|
|
7.2
|
|
|
|
2.3
|
|
|
|
78.5
|
|
|
Note: All amounts
have been rounded to the nearest tenth of a billion. Totals may not
foot as a result of rounding.
|
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 or prospective 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.
|
At the end of the second quarter of 2018, McDermott's revenue
opportunity pipeline was $78.5
billion, primarily driven by NCSA and MENA. The revenue
pipeline is comprised of backlog of $10.2
billion, bids and change orders outstanding of $19.0 billion and target projects of $49.3 billion.
Reporting Segment Update
Effective with the period ending June 30,
2018, McDermott's segment reporting is presented as North,
Central and South America (NCSA);
Europe, Africa, Russia and Caspian (EARC); Middle East and North Africa (MENA); Asia Pacific (APAC); and Technology (TECH).
The Company also reports results for Corporate. Segment and
Corporate results are shown below.
Segment Financial
Highlights
|
Three Months Ended
Jun 30, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
New Orders
|
$
|
462
|
|
|
$
|
(4)
|
|
|
$
|
69
|
|
|
$
|
245
|
|
|
$
|
71
|
|
|
|
|
$
|
-
|
|
|
$
|
842
|
|
Backlog1
|
|
5,182
|
|
|
|
1,250
|
|
|
|
2,630
|
|
|
|
637
|
|
|
|
487
|
|
|
|
|
|
-
|
|
|
|
10,186
|
|
Revenue
|
|
995
|
|
|
|
58
|
|
|
|
469
|
|
|
|
108
|
|
|
|
105
|
|
|
|
|
|
-
|
|
|
|
1,735
|
|
Operating
Income
|
|
49
|
|
|
|
(8)
|
|
|
|
97
|
|
|
|
43
|
|
|
|
25
|
|
|
|
|
|
(157)
|
|
|
|
49
|
|
Operating
Margin
|
|
4.9
|
%
|
|
|
-13.8
|
%
|
|
|
20.7
|
%
|
|
|
39.8
|
%
|
|
|
23.8
|
%
|
|
|
|
|
-
|
|
|
|
2.8
|
%
|
Intangibles
Amortization
|
|
7
|
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
|
13
|
|
|
|
|
|
-
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income2
|
|
56
|
|
|
|
(6)
|
|
|
|
97
|
|
|
|
43
|
|
|
|
38
|
|
|
|
|
|
(56)
|
|
|
|
172
|
|
Adjusted Operating
Margin2
|
|
5.6
|
%
|
|
|
-9.8
|
%
|
|
|
20.7
|
%
|
|
|
39.8
|
%
|
|
|
36.4
|
%
|
|
|
|
|
-
|
|
|
|
9.9
|
%
|
Capex
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
2
|
|
|
|
-
|
|
|
|
|
|
18
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Offering
Financial Highlights
|
Three Months Ended
Jun 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
&
Subsea
|
|
|
LNG
|
|
|
Downstream
|
|
|
Power
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
New Orders
|
$
|
356
|
|
|
$
|
18
|
|
|
$
|
458
|
|
|
$
|
10
|
|
|
$
|
842
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
3,086
|
|
|
|
1,513
|
|
|
|
4,191
|
|
|
|
1,396
|
|
|
|
10,186
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
653
|
|
|
|
382
|
|
|
|
496
|
|
|
|
204
|
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: All amounts
have been rounded to the nearest million. Totals may not foot as a
result of rounding.
|
1 Our
backlog is equal to our remaining performance obligations (RPOs) as
defined by U.S. GAAP.
|
2 Adjusted
Operating Income and Margin, by segment, are non-GAAP measures.
Reconciliations to the most comparable GAAP measures are provided
in the appendix entitled "Reconciliation of Segment Non-GAAP
Financial Measures to GAAP Financial Measures."
|
North, Central and South
America (NCSA)
Revenues of $995 million in NCSA
were primarily driven by LNG projects including our share of the
Cameron LNG and Freeport LNG projects. Additional contributors were
downstream projects Total Ethane Cracker, LACC and Shintech, an
integrated ethylene/polyvinyl chloride (PVC) manufacturing facility
in Louisiana, as well as the
offshore project Abkatun A-2 and the Entergy power projects.
Operating income was $49 million,
with a margin of 4.9% during the quarter.
Key operational achievements in the quarter included successful
completion of the first offshore campaign on Abkatun A-2,
mechanical completion and onshore commissioning on Angelin,
completion of key intermediate mechanical milestones on LACC (and
the related monoethylene glycol facility), all process and utility
powerhouses energized and substantial completion of pipe testing on
Cameron LNG and energization of all critical process and utility
powerhouses and pipe testing on Train 1 of Freeport LNG.
Europe, Africa, Russia and Caspian (EARC)
Revenues of $58 million in EARC
were primarily driven by the offshore Maersk Tyra project and two
downstream projects in Russia.
Operating loss of $8 million and
margin of (13.8%) were due in part to the impact of fixed costs in
the segment and partially offset by the Maersk Tyra project.
The Maersk Tyra project continues to progress on schedule with
preparations underway for the commencement of fabrication. The
Amazon vessel was utilized to perform a safe and successful
saturation dive campaign on the Sapref project off the coast of
Durban, South Africa. FEED
work for the Total Tilenga project in Uganda was successfully completed on schedule
and the value engineering work continued following the FEED for an
Anadarko LNG project in Mozambique.
Middle East and North Africa (MENA)
Revenues of $469 million in MENA
were primarily driven by the Saudi Aramco offshore projects
Safaniya Phase 5, Header 9, 13 Jackets and the Total pipeline
replacement project. Operating income was $97 million and margin of 20.7%.
During the second quarter, work on Saudi Aramco Safaniya Phase 5
progressed with six of the ten platforms now installed and pipeline
installation and hook-up complete on two of the ten. Fabrication on
Saudi Aramco Safaniya Phase 6 progressed on schedule, with
preparations underway for the offshore dredging scope. Mechanical
completion was achieved on all Saudi Aramco LTA II Lump Sum
offshore facilities and engineering and procurement on Bul Hanine is progressing as planned. A FEED for
the Qatar Gas NFPS project was also successfully completed during
the quarter.
Asia Pacific (APAC)
Revenues of $108 million in APAC
were driven by the offshore project Woodside Greater Western Flank
II. Operating income of $43 million
and margin of 39.8% were primarily attributable to project
closeouts on Inpex Ichthys and Woodside Greater Western Flank
II.
Pipelay and Subsea installation work was completed on the
Woodside Greater Western Flank II project during the quarter
utilizing the DLV 2000 and the LV 108. The DLV 2000 successfully
installed corrosion resistant alloy (CRA) pipeline using double
joints fabricated at McDermott's Batam facility; optimizing lay
speed and minimizing critical path repair rates. Closeout
activities on Inpex Ichthys were performed utilizing the LV 108 and
the remaining work is expected to be complete in early 2019. The
Reliance KG-D6 project remains on track with the first offshore
campaign scheduled to commence in late 2018. Also during the
quarter, APAC secured an award for phase two of POSCO DAEWOO
Corporation's Myanmar Shwe gas field development in collaboration
with Baker Hughes, a GE company.
Technology (TECH)
Revenue of $105 million and
operating income and margin of $25
million and 23.8%, respectively, in the Technology segment
for the second quarter of 2018 were driven by balanced activity
across the portfolio of refining and petrochemical licensing and
heat transfer equipment, aided by several large catalyst
shipments.
Corporate
Corporate includes certain corporate and other non-operating
activities, including the expense of certain unallocated operating
costs. Corporate expense in the second quarter of 2018 was
mainly attributable to selling, general and administrative expenses
of $34 million, unallocated direct
operating expenses of $20 million,
transaction-related costs of $37
million and costs to achieve CPI of $63 million. Unallocated direct operating
expenses were primarily driven by lower than standard utilization
of certain marine assets.
Second Half 2018 Guidance
McDermott is introducing guidance for the combined Company for
the second half of 2018, which we believe reaffirms the strategic
rationale of the combination.
Second Half 2018
Guidance
|
Second
Half
2018
Guidance
|
|
(In millions,
except per share amounts or as indicated)
|
Revenues
|
$4.8B -
5.1B
|
Operating
Income
|
$235 - 265
|
Operating
Margin
|
4.9% -
5.2%
|
Net Interest
Expense1
|
~$170
|
Income Tax
Expense
|
~$20
|
Net Income
|
$60 - 70
|
Diluted Net Income,
Per Share
|
$0.33 -
0.39
|
Diluted Share
Count
|
~180
|
EBITDA2
|
$350 - 390
|
|
|
Adjustments
|
|
Costs to Achieve
CPI3
|
~$85
|
Intangibles
Amortization4
|
~$85
|
|
|
Adjusted Earnings
Metrics
|
|
Adjusted Operating
Income2
|
$405 - 435
|
Adjusted Operating
Margin2
|
8.0% -
8.5%
|
Adjusted Net
Income2
|
$200 - 210
|
Adjusted Diluted Net
Income, Per Share2
|
$0.74 -
0.80
|
Adjusted
EBITDA2
|
$435 - 475
|
|
|
Cash Flow &
Other Metrics
|
|
Cash from Operating
Activities
|
$(350) -
(370)
|
Capex
|
~$80
|
Free Cash
Flow2
|
$(430) -
(450)
|
Cash Interest / DIC
Amortization Interest
|
~$150 /
~$20
|
Cash Taxes
|
~$85
|
Corporate and Other
Operating Income5
|
$(200) -
(225)
|
Cash, Restricted Cash
and Cash Equivalents
|
$550 - 600
|
Gross
Debt6
|
~$3.6B
|
Net Working
Capital
|
~$(900)
|
|
1 Net
Interest Expense is gross interest expense less capitalized
interest and interest income.
|
2 The
calculations of EBITDA, Adjusted Operating Income, Adjusted
Operating Margin, Adjusted Net Income, Adjusted Diluted Net Income
Per Share, Adjusted EBITDA and Free Cash Flow, which are Non-GAAP
measures, are shown in the appendix entitled "Reconciliation of
Forecast Non-GAAP Financial Measures to Forecast GAAP Financial
Measures."
|
3 Costs to
achieve CPI include restructuring and integration costs. The
forecasted tax impact of these costs is approximately $12
million.
|
4
Intangibles amortization represents the amortization of
project-related and other intangibles. The forecasted tax impact of
the amortization is approximately $18 million.
|
5
Corporate and Other represents the operating income (loss) from
corporate and non-operating activities, including corporate
expenses, certain centrally managed initiatives, impairments,
year-end mark-to-market ("MTM") pension actuarial gains and losses,
costs not attributable to a particular reporting segment, and
unallocated direct operating expenses associated with the
underutilization of vessels, fabrication facilities and engineering
resources.
|
6 Ending
Gross Debt excludes debt issuance costs and capital lease
obligations.
|
Conference
Call
McDermott has scheduled a conference call and webcast related to
its second quarter 2018 results at 4:00
p.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 www.mcdermott.com. A
replay of the webcast will be available on the Company's website
for seven days after the call. In addition, a presentation will be
available on the Investor Relations section of McDermott's website
that contains supplemental information on McDermott's financial
results, operations and Second Half 2018 Guidance.
About the Company
McDermott is a premier, fully integrated provider of technology,
engineering and construction solutions to the energy industry. For
more than a century, customers have trusted McDermott to design and
build end-to-end infrastructure and technology solutions—from the
wellhead to the storage tank—to transport and transform oil and gas
into the products the world needs today. Our proprietary
technologies, integrated expertise and comprehensive solutions
deliver certainty, innovation and added value to energy projects
around the world. Customers rely on McDermott to deliver certainty
to the most complex projects, from concept to commissioning. It is
called the "One McDermott Way." Operating in over 54 countries,
McDermott's locally focused and globally-integrated resources
include approximately 40,000 employees and engineers, a diversified
fleet of specialty marine construction vessels and fabrication
facilities around the world. To learn more, visit
www.mcdermott.com.
Non-GAAP Measures
This communication 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 include adjusted diluted net income per share,
adjusted net income, adjusted operating income, adjusted operating
income margin and adjusted EBITDA, in each case excluding the
impacts 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 adjusted diluted net income
per share, adjusted net income, adjusted operating income, adjusted
operating income margin and adjusted EBITDA 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, allow for a supplemental comparison against
historical results and expectations for future performance.
Furthermore, our management uses each of these measures as measures
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
communication include forecast free cash flow and EBITDA. 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
stockholder value, such as making acquisitions or other
investments. Our management uses free cash flow for that reason. 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 communication 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
communication.
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 communication which are forward-looking, and
provide other than historical information, involve risks,
contingencies and uncertainties that may impact actual results of
operations of McDermott. These forward-looking statements include,
among other things, statements about second half 2018 guidance,
project milestones and percentage of completion and expected
timetables, cost recoveries on projects, expected results from
the application of the One McDermott Way to legacy CB&I
projects, increased opportunities in the market, backlog, bids and
change orders outstanding, target projects and revenue opportunity
pipeline, to the extent these may be viewed as indicators of future
revenues or profitability, the expected impacts of CPI and progress
toward achieving anticipated CPI targets, the Company's potential
and our beliefs with respect to the combination with CB&I.
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: the possibility that the expected CPI
savings from the recently completed combination will not be
realized, or will not be realized within the expected time period;
difficulties related to the integration of the two companies;
disruption from the combination making it more difficult to
maintain relationships with customers, employees, regulators or
suppliers; the diversion of management time and attention to
integration matters; adverse changes in the markets in which
McDermott operates or credit markets; the inability of McDermott to
execute on contracts in backlog successfully; 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
customers and other business counterparties of McDermott; 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 each of
McDermott's annual and quarterly filings with the U.S. Securities
and Exchange Commission (the "SEC"), including its annual report on
Form 10-K for the year ended December 31,
2017 and subsequent quarterly reports on Form 10-Q. This
communication reflects the views of McDermott's management 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.
Contact:
Investors & Financial
Media
Scott Lamb
Vice President, Investor
Relations
832.513.1068
scott.lamb@mcdermott.com
McDERMOTT
INTERNATIONAL, INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(In millions,
except per share amounts)
|
|
Revenues
|
|
$
|
1,735
|
|
|
$
|
789
|
|
|
$
|
2,343
|
|
|
$
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
operations
|
|
|
1,486
|
|
|
|
650
|
|
|
|
1,962
|
|
|
|
1,079
|
|
Project related
intangibles amortization
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
Total
cost of operations
|
|
|
1,498
|
|
|
|
650
|
|
|
|
1,974
|
|
|
|
1,079
|
|
Research and
development expenses
|
|
|
5
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1
|
|
Selling, general and
administrative expenses
|
|
|
75
|
|
|
|
50
|
|
|
|
124
|
|
|
|
87
|
|
Other intangibles
amortization
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
Transaction
costs
|
|
|
37
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
Restructuring and
integration costs
|
|
|
63
|
|
|
|
-
|
|
|
|
75
|
|
|
|
-
|
|
Other operating
expenses (income), net
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(2)
|
|
Total
expenses
|
|
|
1,689
|
|
|
|
701
|
|
|
|
2,229
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
investments in unconsolidated affiliates
|
|
|
3
|
|
|
|
(3)
|
|
|
|
(1)
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
49
|
|
|
|
85
|
|
|
|
113
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
|
(72)
|
|
|
|
(22)
|
|
|
|
(83)
|
|
|
|
(39)
|
|
Other non-operating
expense, net
|
|
|
(16)
|
|
|
|
(3)
|
|
|
|
(14)
|
|
|
|
(2)
|
|
Total other expense, net
|
|
|
(88)
|
|
|
|
(25)
|
|
|
|
(97)
|
|
|
|
(41)
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
(Loss) income before
provision for income taxes
|
|
|
(39)
|
|
|
|
60
|
|
|
|
16
|
|
|
|
96
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
expense
|
|
|
(84)
|
|
|
|
23
|
|
|
|
(63)
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
from investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(2)
|
|
Net income
|
|
|
45
|
|
|
|
36
|
|
|
|
79
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net (loss)
income attributable to noncontrolling interests
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to McDermott
|
|
$
|
47
|
|
|
$
|
36
|
|
|
$
|
82
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
attributable to McDermott
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
0.68
|
|
|
$
|
0.67
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
0.68
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
computation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
87
|
|
Diluted
|
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
94
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
EARNINGS PER SHARE
COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
Jun 30,
|
|
|
Six Months Ended
Jun 30,
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
(In thousands,
except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to McDermott International, Inc.
|
$
|
47
|
|
|
$
|
36
|
|
|
$
|
82
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares (basic)
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
87
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
equity units
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
Stock
options, restricted stock and restricted stock units
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Adjusted weighted
average common shares and assumed exercises of stock options and
vesting of stock awards (diluted)
|
|
144
|
|
|
|
94
|
|
|
|
120
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to McDermott International, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
0.68
|
|
|
$
|
0.67
|
|
Diluted:
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
0.68
|
|
|
$
|
0.62
|
|
|
|
SUPPLEMENTARY
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
Jun 30,
|
|
|
Six Months Ended
Jun 30,
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
(In
millions)
|
|
Depreciation &
amortization
|
$
|
57
|
|
|
$
|
28
|
|
|
$
|
80
|
|
|
$
|
50
|
|
Capital
expenditures
|
|
24
|
|
|
|
18
|
|
|
|
43
|
|
|
|
81
|
|
Backlog
|
|
10,186
|
|
|
|
3,298
|
|
|
|
10,186
|
|
|
|
3,298
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
(In millions,
except per share amounts)
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents ($140 and $0 related to variable interest
entities ("VIEs"))
|
|
$
|
814
|
|
|
$
|
390
|
|
Restricted cash
and cash equivalents
|
|
|
324
|
|
|
|
18
|
|
Accounts
receivable—trade, net ($29 and $0 related to VIEs)
|
|
|
968
|
|
|
|
328
|
|
Accounts
receivable—other ($52 and $0 related to VIEs)
|
|
|
130
|
|
|
|
42
|
|
Contracts in
progress ($213 and $0 related to VIEs)
|
|
|
918
|
|
|
|
621
|
|
Project related
intangible assets, net
|
|
|
129
|
|
|
|
-
|
|
Inventory
|
|
|
48
|
|
|
|
-
|
|
Other current
assets ($22 and $0 related to VIEs)
|
|
|
190
|
|
|
|
36
|
|
Total current
assets
|
|
|
3,521
|
|
|
|
1,435
|
|
Property, plant
and equipment, net
|
|
|
2,090
|
|
|
|
1,666
|
|
Accounts
receivable—long-term retainages
|
|
|
61
|
|
|
|
39
|
|
Investments in
unconsolidated affiliates
|
|
|
423
|
|
|
|
8
|
|
Goodwill
|
|
|
3,926
|
|
|
|
-
|
|
Other
intangibles, net
|
|
|
1,039
|
|
|
|
-
|
|
Deferred income
taxes
|
|
|
178
|
|
|
|
18
|
|
Other
non-current assets
|
|
|
190
|
|
|
|
57
|
|
Total
assets
|
|
$
|
11,428
|
|
|
$
|
3,223
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
42
|
|
|
$
|
24
|
|
Accounts payable
($354 and $0 related to VIEs)
|
|
|
906
|
|
|
|
279
|
|
Advance billings
on contracts ($66 and $0 related to VIEs)
|
|
|
1,227
|
|
|
|
32
|
|
Project related
intangible liabilities, net
|
|
|
29
|
|
|
|
-
|
|
Accrued
liabilities ($94 and $0 related to VIEs)
|
|
|
1,442
|
|
|
|
337
|
|
Income taxes
payable
|
|
|
123
|
|
|
|
35
|
|
Total current
liabilities
|
|
|
3,769
|
|
|
|
707
|
|
Long-term
debt
|
|
|
3,418
|
|
|
|
513
|
|
Non-current other
taxes
|
|
|
96
|
|
|
|
63
|
|
Other
non-current liabilities
|
|
|
579
|
|
|
|
151
|
|
Total
liabilities
|
|
|
7,862
|
|
|
|
1,434
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common stock,
par value $1.00 per share, authorized 255 shares;
issued 183 and 98 shares,
respectively
|
|
|
183
|
|
|
|
98
|
|
Capital in
excess of par value
|
|
3,480
|
|
|
|
1,858
|
|
Retained
earnings/ (accumulated deficit)
|
|
|
54
|
|
|
|
(48)
|
|
Accumulated
other comprehensive loss
|
|
|
(75)
|
|
|
|
(51)
|
|
Treasury stock,
at cost: 3 and 3 shares, respectively
|
|
|
(96)
|
|
|
|
(96)
|
|
Total McDermott
Stockholders' Equity
|
|
|
3,546
|
|
|
|
1,761
|
|
Noncontrolling
interest
|
|
|
20
|
|
|
|
28
|
|
Total
stockholders' equity
|
|
|
3,566
|
|
|
|
1,789
|
|
Total
liabilities and stockholders' equity
|
|
$
|
11,428
|
|
|
$
|
3,223
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
(Unaudited)
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In
millions)
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
79
|
|
|
$
|
60
|
|
Non-cash items
included in net income:
|
|
|
|
|
|
|
|
|
Depreciation and
intangible amortization
|
|
|
80
|
|
|
|
50
|
|
Debt issuance cost
amortization
|
|
|
17
|
|
|
|
10
|
|
Stock-based
compensation charges
|
|
|
28
|
|
|
|
12
|
|
Deferred
taxes
|
|
|
(100)
|
|
|
|
4
|
|
Other non-cash
items
|
|
|
-
|
|
|
|
(2)
|
|
Changes in operating
assets and liabilities, net of effects of businesses
acquired:
|
|
|
|
|
|
|
-
|
|
Accounts
receivable
|
|
|
278
|
|
|
|
37
|
|
Contracts in progress,
net of Advance billings on contracts
|
|
|
(141)
|
|
|
|
(411)
|
|
Inventory
|
|
|
14
|
|
|
|
-
|
|
Accounts
payable
|
|
|
129
|
|
|
|
260
|
|
Other current and
non-current assets
|
|
|
(2)
|
|
|
|
(13)
|
|
Investments in
unconsolidated affiliates
|
|
|
1
|
|
|
|
8
|
|
Other current and
non-current liabilities
|
|
|
52
|
|
|
|
76
|
|
Total cash provided
by operating activities
|
|
|
435
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
CB&I combination
consideration, net of cash of $498 acquired
|
|
|
(2,374)
|
|
|
|
-
|
|
Purchases of
property, plant and equipment
|
|
|
(43)
|
|
|
|
(81)
|
|
Advances with third party
participants of proportionately consolidated consortiums,
net
|
|
|
(45)
|
|
|
|
-
|
|
Proceeds from asset
dispositions
|
|
|
2
|
|
|
|
55
|
|
Investments in
unconsolidated affiliates
|
|
|
(3)
|
|
|
|
(1)
|
|
Other
|
|
|
2
|
|
|
|
-
|
|
Total cash used in
investing activities
|
|
|
(2,461)
|
|
|
|
(27)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
|
|
3,560
|
|
|
|
-
|
|
Repayment of
debt
|
|
|
(515)
|
|
|
|
(230)
|
|
Advances with joint ventures,
proportionately consolidated consortiums and third party
participants
|
|
|
(42)
|
|
|
|
-
|
|
Debt and letter of
credit issuance costs
|
|
|
(208)
|
|
|
|
(19)
|
|
Debt extinguishment
costs
|
|
|
(10)
|
|
|
|
-
|
|
Acquisition of
NCI
|
|
|
-
|
|
|
|
(11)
|
|
Repurchase of common
stock
|
|
|
(14)
|
|
|
|
(7)
|
|
Total cash provided
by (used in) financing activities
|
|
|
2,771
|
|
|
|
(267)
|
|
|
|
|
|
|
|
|
|
|
Effects of
exchange rate changes on cash, cash equivalents and restricted
cash
|
|
|
(15)
|
|
|
|
-
|
|
Net increase
(decrease) in cash, cash equivalents and restricted
cash
|
|
|
730
|
|
|
|
(203)
|
|
Cash, cash
equivalents and restricted cash at beginning of
period
|
|
|
408
|
|
|
|
612
|
|
Cash, cash
equivalents and restricted cash at end of period
|
|
$
|
1,138
|
|
|
$
|
409
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
2017 SEGMENT
REVENUE AND OPERATING INCOME RECAST
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Dec 31,
2017
|
|
|
Sep 30,
2017
|
|
|
Jun 30,
2017
|
|
|
Mar 31,
2017
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
$
|
116
|
|
|
$
|
61
|
|
|
$
|
42
|
|
|
$
|
28
|
|
EARC
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
16
|
|
MENA
|
|
516
|
|
|
|
736
|
|
|
|
557
|
|
|
|
310
|
|
APAC
|
|
85
|
|
|
|
161
|
|
|
|
188
|
|
|
|
165
|
|
Technology
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
revenues
|
|
718
|
|
|
|
959
|
|
|
|
789
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
$
|
5
|
|
|
$
|
(4)
|
|
|
$
|
(7)
|
|
|
$
|
2
|
|
EARC
|
|
(5)
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
2
|
|
MENA
|
|
105
|
|
|
|
164
|
|
|
|
118
|
|
|
|
64
|
|
APAC
|
|
19
|
|
|
|
21
|
|
|
|
30
|
|
|
|
22
|
|
Technology
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total segment
operating income
|
|
123
|
|
|
|
177
|
|
|
|
136
|
|
|
|
91
|
|
Corporate
|
|
(77)
|
|
|
|
(53)
|
|
|
|
(52)
|
|
|
|
(38)
|
|
Total operating
income
|
|
46
|
|
|
|
124
|
|
|
|
85
|
|
|
|
53
|
|
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
SEGMENT NON-GAAP TO GAAP FINANCIAL MEASURES
|
|
|
Three Months Ended
Jun 30, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
$
|
995
|
|
|
$
|
58
|
|
|
$
|
469
|
|
|
$
|
108
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
1,735
|
|
GAAP Operating
Income (Loss)
|
|
49
|
|
|
|
(8)
|
|
|
|
97
|
|
|
|
43
|
|
|
|
25
|
|
|
|
(157)
|
|
|
|
49
|
|
GAAP Operating
Margin
|
|
4.9
|
%
|
|
|
-13.8
|
%
|
|
|
20.7
|
%
|
|
|
39.8
|
%
|
|
|
23.8
|
%
|
|
|
-
|
|
|
|
2.8
|
%
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
Costs1
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
|
|
37
|
|
Costs to Achieve
CPI2
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
63
|
|
Intangibles
Amortization3
|
|
7
|
|
|
|
2
|
|
|
|
(0)
|
|
|
|
0
|
|
|
|
13
|
|
|
|
-
|
|
|
|
22
|
|
Total Non-GAAP Adjustments
|
|
7
|
|
|
|
2
|
|
|
|
(0)
|
|
|
|
0
|
|
|
|
13
|
|
|
|
101
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Operating
Income (Loss)
|
$
|
56
|
|
|
$
|
(6)
|
|
|
$
|
97
|
|
|
$
|
43
|
|
|
$
|
38
|
|
|
$
|
(56)
|
|
|
$
|
172
|
|
Non-GAAP Adjusted
Operating Margin
|
|
5.6
|
%
|
|
|
-9.8
|
%
|
|
|
20.7
|
%
|
|
|
39.8
|
%
|
|
|
36.4
|
%
|
|
|
-
|
|
|
|
9.9
|
%
|
|
1 We
recognized $37 million of transaction costs associated with our
combination with CB&I during the second quarter of
2018.
|
2 Costs to
achieve our Combination Profitability Initiatives (CPI) include
integration and restructuring costs. We incurred $63 million of
costs from CPI in the second quarter of 2018.
|
3
Intangibles amortization includes the amortization of all acquired
intangibles from the combination with CB&I, including
project-related intangibles and other intangible assets (process
technologies, trade names, trade markets, and customer
relationships).
|
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
FORECAST NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL
MEASURES
|
|
|
Full
Year
2018
Guidance
|
|
(In
millions)
|
Revenues
|
$4.8B -
5.1B
|
|
|
Operating
Income
|
$235 - 265
|
Operating
Margin
|
4.9% -
5.2%
|
Costs to Achieve
CPI
|
~85
|
Intangibles
Amortization
|
~85
|
Total
Adjustments
|
~170
|
Adjusted Operating
Income
|
$405 - 435
|
Adjusted
Operating Margin
|
8.0% -
8.5%
|
|
|
Net
Income
|
$60 - 70
|
Total
Adjustments
|
~170
|
Tax Impact of
Adjustments
|
~(30)
|
Adjusted Net
Income
|
$200 - 210
|
Less: Intangibles
Amortization
|
~(85)
|
Plus: Tax
Impact
|
~18
|
Subtotal
|
$133 - 143
|
Diluted Share
Count
|
~180
|
Adjusted
EPS
|
$0.74 -
0.80
|
|
|
Cash Flows from
Operating Activities
|
$(350) -
(370)
|
Capital
Expenditures
|
~80
|
Free Cash
Flow
|
$(430) -
(450)
|
|
|
GAAP Net Income
(Loss) Attributable to McDermott
|
$60 - 70
|
Add:
|
|
Depreciation and
amortization
|
100 - 130
|
Interest expense,
net
|
~170
|
Provision for
taxes
|
~20
|
EBITDA
|
$350 - 390
|
Costs to Achieve
CPI
|
~85
|
Adjusted
EBITDA
|
$435 -
475
|
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SOURCE McDermott International, Inc.