HOUSTON, Feb. 25, 2019 /PRNewswire/ -- McDermott
International, Inc. (NYSE: MDR) today reported revenues of
$2.1 billion and net loss of
$(2.8) billion, or $(15.33) per diluted share, for the fourth
quarter of 2018.
"Our results for the fourth quarter of 2018 were marked by
several significant non-recurring charges, including those related
to goodwill and deferred tax assets," said David Dickson, President and Chief Executive
Officer. "Additionally, our operating performance was unfavorably
impacted by a change in estimate on the Calpine gas turbine
project, the previously announced change in estimate on the Cameron
LNG project and a number of other discrete operating items as noted
below. We also recorded an unfavorable change in estimate related
to the claim associated with damages sustained from Hurricane
Harvey on the Freeport LNG project as an adjustment to the purchase
price allocation for the combination with CB&I.
"Although the headline numbers distract from the Company's
underlying fundamental strength, McDermott is continuing to
progress toward the realization of its full potential as a premier,
fully integrated provider of technology, engineering and
construction solutions," said Dickson.
"Having closed the book on 2018, we have many reasons for
optimism about the Company's future. In particular, we are pleased
today to introduce robust earnings guidance for 2019, with a sharp
improvement in most of our key metrics, including an expectation
for 2019 EBITDA of approximately $1
billion, which is broadly consistent with the expectations
outlined at the time of the Combination with CB&I. The market
outlook is exceptionally robust for McDermott, and elements of our
playbook are generating substantial results. Customer confidence in
McDermott is as strong as it has ever been, as demonstrated by
robust order intake of approximately $5.5
billion early in the first quarter of 2019 – as well as the
16% sequential-quarter increase in our revenue opportunity pipeline
in the fourth quarter of 2018, to approximately $93 billion – which is a record level for us. The
LNG cycle is here and continuing, our planned sale of the pipe
fabrication and storage tank businesses is progressing well, and
our liquidity was $1.4 billion at the
end of the fourth quarter."
McDermott's net loss for the fourth-quarter of 2018 was
primarily the result of a number of significant non-recurring
charges, including:
- A $2.2 billion goodwill
impairment charge due in part to a change in the Company's cost of
capital and risk premium assumptions included in the discount rates
utilized to derive the present value of our cash flows.
- A $190 million reduction in the
carrying value of the Company's deferred tax assets, due to the
impact of a full valuation allowance against all net deferred tax
assets as a result of the goodwill impairment creating a three-year
cumulative loss position.
- A non-cash impairment charge of $58
million on two of the Company's marine vessels, primarily
related to lower levels of planned future utilization.
- Annual fourth quarter, non-cash, actuarial mark-to-market
adjustment of $47 million related to
the Company's pension obligations.
- Transaction, restructuring and integration costs of
$32 million.
Adjusting for these items, as shown in an accompanying table,
McDermott's net loss for the fourth quarter was $(280) million, or $(1.55) per diluted share.
The Company's operating loss for the fourth quarter of 2018 was
$(2.5) billion. The adjusted
operating loss, as shown in an accompanying table, was $(241) million. The operating results include
$339 million of discrete operating
items, as listed below:
- A $168 million change in
estimated costs on the Company's Cameron LNG project, as previously
disclosed, due to unfavorable labor productivity, and subcontract,
commissioning and construction management costs.
- A $31 million change in estimated
costs on the Company's Calpine project.
- $54 million of expense on the
Abkatun-A2 offshore project in Mexico, caused by a schedule-driven change in
the fabrication plan carrying work offshore, subsequent weather
delays and lack of contractually promised accommodations for
offshore crew.
- $25 million of corporate expense
reported as unallocated direct operating expense for costs incurred
to make alternate arrangements for a third-party vessel charter
because the previously designated vessel was withdrawn from the
market.
- $33 million of increased SG&A
expense associated with information technology costs,
self-insurance programs and other items.
- $28 million of additional
expense, due in part to an unplanned warranty repair, increased bid
expenses and costs associated with commencement of new projects in
APAC.
Separately, a $102 million change
in estimate on the Freeport LNG project, due primarily to a
reduction in the expected recoveries on a claim related to the
impacts of Hurricane Harvey, did not impact the income statement,
as the effects were reflected in purchase accounting
adjustments.
For the full year 2018, the Company reported a net loss of
$(2.7) billion, or $(17.94) per diluted share, due primarily to the
factors that impacted fourth quarter results as described above. As
detailed in an accompanying table, the adjusted net loss for 2018
was $(148) million, or $(0.99) per diluted share. Our business
combination with Chicago Bridge & Iron Company N.V. (the
"Combination") was completed on May 10,
2018. Accordingly, results for the full year include legacy
McDermott from January 1 through May 10,
2018 and the combined McDermott-CB&I organization for
the period from May 11, 2018 through
December 31, 2018.
Financial
Highlights
|
|
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|
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|
|
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Three months
Ended
|
|
|
Delta
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Full Year
Ended
|
|
|
Delta
|
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Dec 31,
2018
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Dec 31,
2017
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Qtr-on-Qtr
|
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Dec 31,
2018
|
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Dec 31,
2017
|
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Year-on-
Year
|
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|
($ in millions,
except per share amounts)
|
|
Revenues
|
$
|
2,073
|
|
|
$
|
718
|
|
|
$
|
1,355
|
|
|
$
|
6,705
|
|
|
$
|
2,985
|
|
|
$
|
3,720
|
|
Operating Income
(Loss)
|
|
(2,499)
|
|
|
|
45
|
|
|
|
(2,544)
|
|
|
|
(2,256)
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|
|
|
307
|
|
|
|
(2,563)
|
|
Operating
Margin
|
|
-120.5
|
%
|
|
|
6.3
|
%
|
|
|
-126.8
|
%
|
|
|
-33.6
|
%
|
|
|
10.3
|
%
|
|
|
-43.9
|
%
|
Net Income
(Loss)
|
|
(2,775)
|
|
|
|
26
|
|
|
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(2,801)
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|
|
|
(2,691)
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|
|
|
179
|
|
|
|
(2,870)
|
|
Diluted
EPS1
|
|
(15.33)
|
|
|
|
0.27
|
|
|
|
(15.60)
|
|
|
|
(17.94)
|
|
|
|
1.88
|
|
|
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(19.82)
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Total Intangibles
Amortization2
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67
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|
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-
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|
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67
|
|
|
|
157
|
|
|
|
-
|
|
|
|
157
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income (Loss)3
|
|
(241)
|
|
|
|
54
|
|
|
|
(295)
|
|
|
|
152
|
|
|
|
316
|
|
|
|
(164)
|
|
Adjusted Operating
Margin3
|
|
-11.6
|
%
|
|
|
7.5
|
%
|
|
|
-19.1
|
%
|
|
|
2.3
|
%
|
|
|
10.6
|
%
|
|
|
-8.3
|
%
|
Adjusted Net Income
(Loss)3,4
|
|
(280)
|
|
|
|
30
|
|
|
|
(310)
|
|
|
|
(148)
|
|
|
|
183
|
|
|
|
(331)
|
|
Adjusted Diluted
EPS1,3,4
|
|
(1.55)
|
|
|
|
0.32
|
|
|
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(1.87)
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|
|
|
(0.99)
|
|
|
|
1.92
|
|
|
|
(2.91)
|
|
Adjusted
EBITDA3
|
|
(162)
|
|
|
|
80
|
|
|
|
(242)
|
|
|
|
424
|
|
|
|
416
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by
Operating Activities
|
|
(285)
|
|
|
|
-
|
|
|
|
(285)
|
|
|
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(71)
|
|
|
|
136
|
|
|
|
(207)
|
|
Capital
Expenditures
|
|
24
|
|
|
|
22
|
|
|
|
2
|
|
|
|
86
|
|
|
|
119
|
|
|
|
(33)
|
|
Free Cash
Flow3
|
|
(309)
|
|
|
|
(22)
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|
|
|
(287)
|
|
|
|
(157)
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|
|
|
17
|
|
|
|
(174)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital5
|
|
(2,062)
|
|
|
|
344
|
|
|
|
(2,406)
|
|
|
|
(2,062)
|
|
|
|
344
|
|
|
|
(2,406)
|
|
|
Note: Results for the
full year ended December 31, 2018 include McDermott for the full
period and CB&I for the period from May 11 to December 31,
2018. 2017 figures are as originally reported by McDermott and do
not reflect a presentation of combined results.
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1 Diluted
EPS and adjusted diluted EPS were calculated using weighted average
diluted shares of 181 million and 95 million for the three months
ended December 31, 2018 and 2017, respectively, and weighted
average diluted shares of 150 million and 95 million for the full
year ended December 31, 2018 and 2017, respectively.
|
2 Total
intangibles amortization includes the sum of project-related
intangibles amortization, other intangibles amortization and
amortization of intangible assets resulting from investments in
unconsolidated affiliates, all of which are associated with the
intangible assets and liabilities acquired in the
Combination.
|
3 Adjusted
operating income (loss), adjusted operating margin, adjusted net
income (loss), adjusted diluted net income (loss) per share
("adjusted diluted EPS") and adjusted EBITDA reflect adjustments to
Operating Income and Net Income computed in accordance with U.S.
generally accepted accounting principles ("GAAP"). The
reconciliations of these non-GAAP measures, as well as free cash
flow, to the respective most comparable GAAP measures are provided
in the appendix entitled "Reconciliation of Non-GAAP to GAAP
Financing Measures".
|
4 The
calculations of adjusted net income and adjusted diluted EPS
reflect the tax effects of non-GAAP adjustments during each
applicable 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, current portion of long-term lease obligations and
project-related intangible liabilities.
|
Update on Estimated Costs on Selected Projects
For the fourth quarter of 2018, McDermott recorded a total of
$199 million of changes in estimates
on the Cameron LNG and Calpine Gas Turbine Power projects. The
changes directly impacted McDermott's income statement for the
fourth quarter. Expected completion dates for the projects are
unchanged.
- Cameron LNG Project – Operationally, the project continues to
progress well and in line with the schedule presented in the third
quarter of 2018. The gas turbine solo run was completed ahead of
schedule, cold circulation of hot oil in Train 1 was completed
during the fourth quarter and flare ignition testing was
successfully completed on all flares. All of these events are
crucial steps in the commissioning of Train 1, and we expect to
achieve a major milestone with feed gas into the facility in the
first quarter of 2019. As of the end of the fourth quarter of 2018,
the project was 85% complete and had approximately $445 million of McDermott's portion of expected
revenues remaining until expected completion. During the quarter,
the project contributed $116 million
to revenues and used $39 million of
cash flows from operations. Phase 1 of the Cameron LNG project is
scheduled for completion in Q2 2019; Trains 2 and 3 are expected to
be completed in Q4 2019 and Q1 2020, respectively. The $168 million change in estimate resulted from
unfavorable labor productivity and subcontract, commissioning and
construction management costs.
- Calpine Gas Turbine Power Project – First fire was achieved in
December 2018, the steam blows have
been completed successfully and systems have been turned over to
commissioning. During the fourth quarter of 2018, the project
contributed $3 million to revenues
and used $28 million of cash flows
from operations. As of the end of the fourth quarter of 2018, the
project was 95% complete, and substantial completion is expected in
March 2019. The $31 million change in estimate resulted from
increased labor construction costs associated with achieving first
fire and substantial completion.
Separately, McDermott recorded a change in estimate of
$102 million on the Freeport LNG
project in the fourth quarter of 2018. The change in estimate
related primarily to McDermott's view of a reduction in the assumed
recovery of the claim and liquidated damages estimates that were
filed with the customer relating to damages sustained as a result
of Hurricane Harvey. That claim was outstanding at the time of the
Combination and, as a result, the reduction in the claim has been
recorded under the provisions of purchase accounting as a change in
intangible assets. As such, the change in estimate did not directly
impact McDermott's statements of operations. Expected completion
dates for the project are unchanged.
Operationally, the project continues to perform well, with the
completion of lube oil flushing of the propane compressors on Train
1 and beginning of the lube oil flushing on Train 2. As of
December 31, 2018, Freeport LNG was
approximately 88% complete and had approximately $411 million of McDermott's portion of expected
revenues remaining until completion. During the fourth quarter of
2018, the project contributed $175
million to revenues and used $186
million of cash flows from operations. Trains 1, 2 and 3 are
expected to be completed in Q3 2019, Q1 2020 and Q2 2020,
respectively.
Cash and Liquidity
McDermott's cash from operating activities during the fourth
quarter of 2018 was $(285) million,
due largely to the continued funding of previously announced cost
increases on the Cameron,
Freeport and Calpine projects.
Total cash availability was $1.4
billion at December 31, 2018,
consisting of $520 million of
unrestricted cash and $889 million of
availability under McDermott's revolving credit facility. McDermott
had $2.0 billion of combined
availability under its principal letter of credit facilities,
uncommitted bilateral credit facilities and surety arrangements.
McDermott's cash and liquidity position reflects the receipt of
proceeds from the fourth quarter 2018 private placement of
$300 million of redeemable preferred
stock and warrants to purchase common stock and reflects a
$230 million increase in its primary
letter-of-credit facilities. The Company was in compliance with all
financial covenants under its financing arrangements as of
December 31, 2018.
Pipe and Tank Sale
The sale processes for each of the pipe fabrication and tank
businesses is going well and as planned. The official sale process
has launched for both businesses and there has been a high level of
interest for both, and the Company expects proceeds in excess of
$1 billion for the two businesses.
The Company expects to use a majority of the proceeds for debt
reduction. The sale of the pipe fabrication business is expected to
close in Q2 2019 and the sale of the tank business is expected to
close in Q3 2019.
Combination Profitability Initiative (CPI)
McDermott's integration is largely complete, with primarily IT
systems updates remaining. CPI is nearing full implementation with
$444 million of the targeted
$475 million of annualized cost
synergies actioned as of December 31,
2018. McDermott's operating results for the three months
ended December 31, 2018 include
approximately $62 million of such
savings. The CPI target annualized run rate is expected to be
fully actioned by the end of 2019. Associated costs of $29 million were recognized in the fourth quarter
of 2018 and were $134 million,
cumulatively for the year ended December 31,
2018.
Reporting Segment Update
McDermott's segment reporting is presented as: North, Central
and South America, or NCSA;
Europe, Africa, Russia and Caspian, or EARC; Middle East and North Africa, or MENA; Asia Pacific, or APAC; and Technology, or
TECH. The Company also reports results for Corporate. Segment and
Corporate results are summarized below.
Segment Financial
Highlights
|
Three Months Ended
Dec 31, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Corporate
|
|
|
Total
|
|
|
($ in
millions)
|
|
New Orders
|
$
|
404
|
|
|
$
|
(34)
|
|
|
$
|
118
|
|
|
$
|
786
|
|
|
$
|
159
|
|
|
$
|
-
|
|
|
$
|
1,433
|
|
Backlog1
|
|
5,646
|
|
|
|
1,378
|
|
|
|
1,834
|
|
|
|
1,420
|
|
|
|
632
|
|
|
|
-
|
|
|
|
10,910
|
|
Revenue
|
|
1,319
|
|
|
|
120
|
|
|
|
417
|
|
|
|
80
|
|
|
|
137
|
|
|
-
|
|
|
|
2,073
|
|
Book-to-Bill
|
|
0.3
|
x
|
|
|
-0.3
|
x
|
|
|
0.3
|
x
|
|
|
9.8
|
x
|
|
|
1.2
|
x
|
|
|
-
|
|
|
|
0.7
|
x
|
Operating Income
(Loss)
|
|
(1,686)
|
|
|
|
(49)
|
|
|
|
72
|
|
|
|
(69)
|
|
|
|
(564)
|
|
|
|
(203)
|
|
|
|
(2,499)
|
|
Operating
Margin
|
|
-127.8
|
%
|
|
|
-40.8
|
%
|
|
|
17.3
|
%
|
|
|
-86.3
|
%
|
|
|
-411.7
|
%
|
|
|
-
|
|
|
|
-120.5
|
%
|
Goodwill & Asset
Impairment
|
|
1,485
|
|
|
|
40
|
|
|
|
(0)
|
|
|
|
52
|
|
|
|
591
|
|
|
|
58
|
|
|
|
2,226
|
|
Intangibles
Amortization
|
|
18
|
|
|
|
5
|
|
|
|
10
|
|
|
|
-
|
|
|
|
32
|
|
|
-
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income (Loss)2
|
|
(201)
|
|
|
|
(10)
|
|
|
|
72
|
|
|
|
(17)
|
|
|
|
27
|
|
|
|
(112)
|
|
|
|
(241)
|
|
Adjusted Operating
Margin2
|
|
-15.2
|
%
|
|
|
-8.3
|
%
|
|
|
17.3
|
%
|
|
|
-21.3
|
%
|
|
|
19.7
|
%
|
|
|
-
|
|
|
|
-11.6
|
%
|
Capex
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
4
|
|
|
-
|
|
|
|
12
|
|
|
|
24
|
|
Product Offering
Financial Highlights
|
Three Months Ended
Dec 31, 2018
|
|
|
Offshore
&
Subsea
|
|
|
LNG
|
|
|
Downstream
|
|
|
Power
|
|
|
Total
|
|
|
(In
millions)
|
|
New Orders
|
$
|
940
|
|
|
$
|
(13)
|
|
|
$
|
625
|
|
|
$
|
(119)
|
|
|
$
|
1,433
|
|
Backlog
|
|
3,353
|
|
|
|
1,184
|
|
|
|
5,208
|
|
|
|
1,165
|
|
|
|
10,910
|
|
Revenue
|
|
480
|
|
|
|
375
|
|
|
|
870
|
|
|
|
348
|
|
|
|
2,073
|
|
|
Note: All amounts
have been rounded to the nearest million. Individual line items may
not sum to totals as a result of rounding.
|
|
1 Our
backlog is equal to our Remaining Performance Obligations (RPOs) as
determined in accordance with 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 to
GAAP Financial Measures."
|
North, Central and South
America (NCSA)
Revenues of $1.3 billion in NCSA
were primarily driven by the Cameron LNG, Freeport LNG, LACC and
Total Ethane Cracker projects. Additional contributors were the MOX
project, the Entergy power projects and the Shintech petrochemical
project. The operating loss of $(1.7)
billion during the quarter was unfavorably impacted by the
$1.5 billion impairment charge, the
$199 million in change in estimates
on the Cameron and Calpine
projects, $54 million of expense
driven by weather downtime and related issues on the Abkatun-A2
project in Mexico and the timing
of revenue recognition on several other projects. Excluding the
impact of goodwill impairment of $1.5
billion, adjusted operating loss for the fourth quarter of
2018 was $(201) million.
Key operational achievements in the quarter included
successfully achieving first fire on the Calpine project. Freeport
LNG completed lube oil flushing of the propane compressors on Train
1 and began the lube oil flushing on Train 2. The gas turbine solo
run was completed ahead of schedule on the Cameron LNG project.
LACC continues to work towards achieving mechanical completion.
Despite weather delays, the platform float over on Abkatun-2 was
successfully achieved during the quarter. Engineering, procurement
and construction are ahead of plan on the Montgomery Power Station,
and the St. Charles Power Station achieved systems turn over.
Europe, Africa, Russia and Caspian (EARC)
Revenues of $120 million in EARC
were primarily driven by progress on the offshore Total Tyra
project and continuing activities on two downstream projects in
Russia. The operating loss of
$(49) million was impacted by the
$40 million impairment charge and the
impact of fixed costs. Excluding the impact of the impairment
charge of $40 million, the adjusted
operating loss for the fourth quarter of 2018 was $(10) million.
The Total Tyra project continued to progress on schedule with
procurement activities continuing and with material deliveries to
our Batam fabrication yard supporting the commencement of
fabrication during the fourth quarter. Commencement of engineering
and procurement activities on the Lukoil DCU project in
Russia took place in the quarter.
The segment is executing multiple FEEDs that have the potential to
convert to full EPC/I awards, including BP Tortue, Anadarko LNG
Mozambique, Rovuma LNG Mozambique and the GALP new reformer
unit.
Middle East and North Africa (MENA)
Revenues of $417 million in MENA
were primarily driven by procurement, fabrication and hook-up
activity on several offshore projects and engineering and
procurement activities on various onshore projects. Key offshore
contributors were Saudi Aramco Safaniya Phases 5 and 6, LTA II, 13
Jackets and QP Bul Hanine. Key Onshore projects were the ADNOC
Crude Flexibility project, Liwa petrochemical EPC lump sum and the
DUQM storage tank project. Operating income was $72 million, with an operating income margin of
17.3%, primarily driven by activities on offshore projects.
During the fourth quarter, offshore work on Safaniya Phase 5 was
completed with only a few close-out items remaining. Fabrication on
the Safaniya Phase 6 project is proceeding as per schedule and
dredging of the necessary channel is scheduled to start in the
first quarter of 2019. Fabrication on the Bul Hanine project is
underway in the Batam fabrication yard and the NKOM fabrication
yard in Doha and is currently
proceeding as per the project plan. All 13 Jackets on the Saudi
Aramco 13 Jackets project have been installed, and all related
offshore work has been completed. The ADNOC Crude Flexibility
project is progressing well, and engineering, procurement and
manufacturing activities on the critical equipment remain on
schedule. The SASREF refinery upgrade project is progressing well,
reaching over 95% completion on the engineering and procurement
scopes.
Asia Pacific (APAC)
Revenues of $80 million in APAC
were driven by continuing activities on the Reliance KG-D6 project
and activities on the JG Summit storage tank project in
the Philippines. The operating
loss of $(69) million was impacted by
the goodwill impairment of $52
million, reduced close-out opportunities, an unplanned
warranty repair, increased bid expenses and costs associated with
commencement of work on new projects. Excluding the impact of the
goodwill impairment, the adjusted operating loss for the fourth
quarter of 2018 was $(17)
million.
Key operational achievements in the quarter included the
commencement of engineering on the KG-DWN 98/2 SURF project and
early procurement of critical items. The DLV 2000 and support
vessels were mobilized on the Reliance KG-D6 project to commence
the first pipelay campaign and installation activities. The Posco
Daewoo Shwe project continues to progress well and the JG Summit
Storage tank project continues to achieve good progress with a
strong safety record in the
Philippines.
Technology (TECH)
Revenues of $137 million were
primarily driven by licensing, heater and catalyst sales in the
petrochemical and refining markets. The operating loss of
$(564) million was due largely to the
goodwill impairment of $591 million
and intangibles amortization of $32
million. Excluding the impact of the goodwill impairment,
adjusted operating income for the fourth quarter of 2018 was
$27 million, representing an adjusted
operating income margin of 19.7%. Adjusted operating income was
positively impacted by strong execution progress, earned fees and
process performance.
Highlights from the quarter include successful start-up of
CDAlky (gasoline alkylate) projects in Korea and China and several new awards, including
ethylene heaters for Irkutsk Oil and two petrochemical license
contracts in China.
Corporate
Corporate expenses include various corporate and other
non-operating activities. Corporate expense in the fourth quarter
of 2018 was $203 million, mainly
attributable to selling, general, administrative and other expenses
of $47 million; impairment of two
marine vessels of $58 million due to
lower levels of planned future utilization; $62 million of certain unallocated operating
costs, including expenses related to unplanned vessel substitution;
and $32 million of costs for
restructuring, integration and transaction-related costs from the
Combination.
Revenue Opportunity 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 determined in accordance with
GAAP.
At the end of the fourth quarter of 2018, McDermott's revenue
opportunity pipeline was approximately $93
billion, primarily driven by NCSA and MENA with anticipated
market inflection in the offshore/subsea, downstream and LNG
markets.
Revenue
Opportunity Pipeline
|
As
of
|
|
|
|
|
|
|
Dec 31,
2018
|
|
|
Sep 30,
2018
|
|
|
Jun 30,
2018
|
|
|
Mar 31,
2018
|
|
|
Dec 31,
2017
|
|
|
|
|
|
|
($ in
billions)
|
|
|
|
|
|
Backlog
|
$
|
10.9
|
|
|
$
|
11.5
|
|
|
$
|
10.2
|
|
|
$
|
3.4
|
|
|
$
|
3.9
|
|
|
|
|
|
Bids & Change
Orders Outstanding1
|
|
20.3
|
|
|
|
20.7
|
|
|
|
19.0
|
|
|
|
7.5
|
|
|
|
4.4
|
|
|
|
|
|
Targets2
|
|
61.9
|
|
|
|
48.1
|
|
|
|
49.3
|
|
|
|
14.1
|
|
|
|
16.2
|
|
|
|
|
|
Total
|
|
93.1
|
|
|
|
80.3
|
|
|
|
78.5
|
|
|
|
25.0
|
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Pipeline
by Segment
|
As of Dec 31,
2018
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Total
|
|
|
($ in
billions)
|
|
Backlog
|
$
|
5.6
|
|
|
$
|
1.4
|
|
|
$
|
1.8
|
|
|
$
|
1.4
|
|
|
$
|
0.6
|
|
|
$
|
10.9
|
|
Bids & Change
Orders Outstanding1
|
|
8.3
|
|
|
|
6.1
|
|
|
|
3.5
|
|
|
|
2.4
|
|
|
|
-
|
|
|
|
20.3
|
|
Targets2
|
|
23.6
|
|
|
|
11.1
|
|
|
|
20.2
|
|
|
|
5.4
|
|
|
|
1.6
|
|
|
|
61.9
|
|
Total
|
|
37.5
|
|
|
|
18.6
|
|
|
|
25.5
|
|
|
|
9.2
|
|
|
|
2.2
|
|
|
|
93.1
|
|
|
Note: All amounts
have been rounded to the nearest tenth of a billion. Individual
line items may not sum to totals 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 or at all.
|
2019 Guidance
McDermott is introducing guidance for 2019, based on its current
portfolio of businesses. The Company expects that its first
quarter of 2019 is likely to be the softest quarter of the year and
that operating performance in the second half of 2019 is likely to
be stronger than the first half, reflecting the cumulative benefit
of the execution of newly booked backlog, cost synergies under the
Combination Profitability Initiative and an expected reduction in
the negative cash flow associated with the three focus
projects.
Full Year 2019
Guidance
|
|
|
|
|
Full Year 2019
Guidance
|
|
|
($ in millions,
except per share
amounts or as indicated)
|
Revenues
|
|
$9.5 -
10.5B
|
Operating
Income
|
|
$725 -
$775
|
Operating
Margin
|
|
7.0 -
8.0%
|
Net Interest
Expense1
|
|
~$380
|
Income Tax
Expense
|
|
~$65
|
Accretion of
Redeemable Preferred Stock
|
|
~$15
|
Dividends on
Redeemable Preferred Stock
|
|
~$36
|
Net Income
|
|
$250 -
$275
|
Diluted Net Income,
Per Share
|
|
$1.40 -
$1.50
|
Diluted Share
Count
|
|
~187
|
EBITDA2
|
|
$1.0 -
$1.05B
|
|
|
|
Adjustment
|
|
|
Costs to Achieve
CPI3
|
|
$40 - $50
|
|
|
|
Adjusted Earnings
Metrics
|
|
|
Adjusted Operating
Income2
|
|
$765 -
$825
|
Adjusted Operating
Margin2
|
|
7.5 -
8.5%
|
Adjusted Net
Income2
|
|
$290 -
$325
|
Adjusted Diluted
EPS2
|
|
$1.65 -
$1.75
|
Adjusted
EBITDA2
|
|
$1.04 -
$1.1B
|
|
|
|
Cash Flow &
Other Metrics
|
|
|
Cash from Operating
Activities
|
|
$(100) -
$(50)
|
Capex
|
|
~$165
|
Free Cash
Flow2
|
|
$(265) -
$(215)
|
Cash Interest / DIC
Amortization Interest
|
|
~$345 /
~$40
|
Cash Taxes
|
|
~$65
|
Corporate and Other
Operating Income4
|
|
$(370) -
$(400)
|
Cash, Restricted Cash
and Cash Equivalents
|
|
$510 -
$560
|
Gross
Debt5
|
|
~$3,530
|
Net Working
Capital
|
|
~$(1.3B)
|
|
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 EPS,
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.
|
4 Corporate and Other Operating
Income represents the operating income (loss) from corporate and
non-operating activities, including corporate expenses, certain
centrally managed initiatives, impairments, year-end actuarial
mark-to-market pension adjustment, costs not attributable to a
particular reporting segment, and unallocated direct operating
expenses associated with the underutilization of marine
vessels.
|
5 Ending gross debt excludes debt
issuance costs and finance lease obligations.
|
Conference
Call
McDermott has scheduled a conference call and webcast related to
its fourth quarter 2018 results at 7:30
a.m., U.S. Central time, today. Shareholders and other
interested parties are invited to listen to the call by
visiting www.mcdermott-investors.com or by calling
1-706-634-2259 (Conference ID: 5780117). A presentation of
supplemental financial information will be available on McDermott's
Investor Relations site at that time. A replay of the webcast
will be available on McDermott's website for seven days after the
call.
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 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 32,000
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. The forecast non-GAAP measures we
have presented in this communication include forecast EBITDA,
adjusted operating income, adjusted operating income margin,
adjusted net income, adjusted diluted EPS, free cash flow and
adjusted EBITDA. We believe these forward-looking financial
measures are within reasonable measure.
Non-GAAP measures include adjusted operating income, adjusted
operating income margin, adjusted net income, adjusted diluted EPS,
free cash flow, EBITDA 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 these
metrics are useful for investors to review, because they provide
more consistent measures 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 metrics 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.
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 define adjusted EBITDA as
EBITDA adjusted to exclude significant, non-recurring transactions
to our operating income, both gains and charges. We have included
EBITDA and adjusted 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 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. Our
presentations of free cash flow, EBITDA and adjusted EBITDA may not
be comparable to similarly titled measures in other companies'
reports. You should not consider free cash flow, EBITDA and
adjusted EBITDA in isolation from, or as substitutes 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 included in 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 2019 guidance, project
milestones and percentage of completion and expected timetables,
cost estimates on identified projects, cost recoveries and
schedule-based incentives on projects, assessments and beliefs with
respect to legacy CB&I projects (including the three Focus
projects), the market outlook, 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 potential for FEEDs to convert to full EPCI
awards, the contemplated sale of the U.S. pipe fabrication and tank
storage businesses and the anticipated timing and total proceeds,
and the use of proceeds, from those transactions, targeted savings
from cost synergies and the other expected impacts of the CPI,
including anticipated CPI implementation costs, the expected timing
for completion of the CPI, 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 will not be realized, or
will not be realized within the expected time period; 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, including
McDermott's annual report on Form 10-K for the year ended
December 31, 2018. 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
+1 832 513 1068
Scott.Lamb@mcdermott.com
Global Media Relations
Gentry Brann
Global Vice President, Communications
+1 281 870 5269
Gentry.Brann@mcdermott.com
START OF APPENDIX
McDERMOTT
INTERNATIONAL, INC.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months
Ended Dec
31
|
|
|
Full Year
Ended Dec
31
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
($ in millions,
except per share amounts)
|
|
Revenues
|
$
|
2,073
|
|
|
$
|
718
|
|
|
$
|
6,705
|
|
|
$
|
2,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
operations
|
|
2,156
|
|
|
|
597
|
|
|
|
6,104
|
|
|
|
2,449
|
|
Project related
intangibles amortization
|
|
41
|
|
|
|
-
|
|
|
|
83
|
|
|
|
-
|
|
Total
cost of operations
|
|
2,197
|
|
|
|
597
|
|
|
|
6,187
|
|
|
|
2,449
|
|
Research and
development expenses
|
|
7
|
|
|
|
2
|
|
|
|
20
|
|
|
|
5
|
|
Selling, general and
administrative expenses
|
|
94
|
|
|
|
62
|
|
|
|
282
|
|
|
|
204
|
|
Other intangibles
amortization
|
|
27
|
|
|
|
-
|
|
|
|
62
|
|
|
|
-
|
|
Transaction
costs
|
|
3
|
|
|
|
9
|
|
|
|
48
|
|
|
|
9
|
|
Restructuring and
integration costs
|
|
29
|
|
|
|
-
|
|
|
|
134
|
|
|
|
-
|
|
Goodwill
impairment
|
|
2,168
|
|
|
|
-
|
|
|
|
2,168
|
|
|
|
-
|
|
Impairment
loss
|
|
58
|
|
|
|
1
|
|
|
|
58
|
|
|
|
1
|
|
Other operating
expenses (income), net
|
|
1
|
|
|
|
-
|
|
|
|
3
|
|
|
|
(2)
|
|
Total
expenses
|
|
4,584
|
|
|
|
671
|
|
|
|
8,962
|
|
|
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
investments in unconsolidated affiliates
|
|
11
|
|
|
|
(2)
|
|
|
|
13
|
|
|
|
(12)
|
|
Investment in
unconsolidated affiliates-related amortization
|
|
1
|
|
|
|
-
|
|
|
|
(12)
|
|
|
|
-
|
|
Operating income
(loss)
|
|
(2,499)
|
|
|
|
45
|
|
|
|
(2,256)
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
(89)
|
|
|
|
(11)
|
|
|
|
(259)
|
|
|
|
(63)
|
|
Other non-operating
income (expense), net
|
|
(43)
|
|
|
|
7
|
|
|
|
(56)
|
|
|
|
5
|
|
Total
other expense, net
|
|
(132)
|
|
|
|
(4)
|
|
|
|
(315)
|
|
|
|
(58)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes
|
|
(2,631)
|
|
|
|
41
|
|
|
|
(2,571)
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
(benefit)
|
|
123
|
|
|
|
16
|
|
|
|
104
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
from investments in unconsolidated affiliates
|
|
(3)
|
|
|
|
(3)
|
|
|
|
(3)
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
(2,757)
|
|
|
|
28
|
|
|
|
(2,678)
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
(loss) income attributable to noncontrolling interests
|
|
14
|
|
|
|
(2)
|
|
|
|
9
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to McDermott
|
|
(2,771)
|
|
|
|
26
|
|
|
|
(2,687)
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on
redeemable preferred stock
|
|
(3)
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
Accretion of
redeemable preferred stock
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
$
|
(2,775)
|
|
|
$
|
26
|
|
|
$
|
(2,691)
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(15.33)
|
|
|
$
|
0.28
|
|
|
$
|
(17.94)
|
|
|
$
|
1.97
|
|
Diluted
|
$
|
(15.33)
|
|
|
$
|
0.27
|
|
|
$
|
(17.94)
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
computation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
181
|
|
|
|
91
|
|
|
|
150
|
|
|
|
91
|
|
Diluted
|
|
181
|
|
|
|
95
|
|
|
|
150
|
|
|
|
95
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
EARNINGS PER SHARE
COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months
Ended Dec
31
|
|
|
Full
Year
Ended Dec
31
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
($ in millions,
except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
$
|
(2,775)
|
|
|
$
|
26
|
|
|
$
|
(2,691)
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares (basic)
|
|
181
|
|
|
|
91
|
|
|
|
150
|
|
|
|
91
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity
units
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Stock options,
restricted stock and restricted stock units
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Adjusted weighted
average common shares and assumed exercises of stock options and
vesting of stock awards (diluted)
|
|
181
|
|
|
|
95
|
|
|
|
150
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(15.33)
|
|
|
$
|
0.28
|
|
|
$
|
(17.94)
|
|
|
$
|
1.97
|
|
Diluted
|
$
|
(15.33)
|
|
|
$
|
0.27
|
|
|
$
|
(17.94)
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months
Ended Dec
31
|
|
|
Full
Year
Ended Dec
31
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
($ in
millions)
|
|
Depreciation &
amortization
|
$
|
92
|
|
|
$
|
23
|
|
|
$
|
279
|
|
|
$
|
101
|
|
Capital
expenditures
|
|
24
|
|
|
|
22
|
|
|
|
86
|
|
|
|
119
|
|
Backlog
|
|
10,910
|
|
|
|
3,901
|
|
|
|
10,910
|
|
|
|
3,901
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In millions,
except per share amounts)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents ($146 and $0 related to variable interest entities
("VIEs"))
|
|
$
|
520
|
|
|
$
|
390
|
|
Restricted cash
and cash equivalents
|
|
|
325
|
|
|
|
18
|
|
Accounts
receivable—trade, net ($29 and $0 related to VIEs)
|
|
|
932
|
|
|
|
328
|
|
Accounts
receivable—other ($57 and $0 related to VIEs)
|
|
|
175
|
|
|
|
42
|
|
Contracts in
progress ($144 and $0 related to VIEs)
|
|
|
704
|
|
|
|
621
|
|
Project-related
intangible assets, net
|
|
|
137
|
|
|
|
-
|
|
Inventory
|
|
|
101
|
|
|
|
-
|
|
Other current
assets ($24 and $0 related to VIEs)
|
|
|
139
|
|
|
|
36
|
|
Total current
assets
|
|
|
3,033
|
|
|
|
1,435
|
|
Property, plant
and equipment, net
|
|
|
2,067
|
|
|
|
1,666
|
|
Accounts
receivable—long-term retainages
|
|
|
62
|
|
|
|
39
|
|
Investments in
unconsolidated affiliates
|
|
|
452
|
|
|
|
8
|
|
Goodwill
|
|
|
2,654
|
|
|
|
-
|
|
Other
intangibles, net
|
|
|
1,009
|
|
|
|
-
|
|
Deferred income
taxes
|
|
|
-
|
|
|
|
18
|
|
Other
non-current assets
|
|
|
163
|
|
|
|
57
|
|
Total
assets
|
|
$
|
9,440
|
|
|
$
|
3,223
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
Mezzanine Equity and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
30
|
|
|
$
|
24
|
|
Current portion
of long-term lease obligations
|
|
|
8
|
|
|
|
-
|
|
Accounts payable
($277 and $0 related to VIEs)
|
|
|
595
|
|
|
|
279
|
|
Advance billings
on contracts ($717 and $0 related to VIEs)
|
|
|
1,954
|
|
|
|
32
|
|
Project-related
intangible liabilities, net
|
|
|
66
|
|
|
|
-
|
|
Accrued
liabilities ($136 and $0 related to VIEs)
|
|
|
1,564
|
|
|
|
372
|
|
Total current
liabilities
|
|
|
4,217
|
|
|
|
707
|
|
Long-term
debt
|
|
|
3,393
|
|
|
|
512
|
|
Long-term lease
obligations
|
|
|
66
|
|
|
|
1
|
|
Deferred income
taxes
|
|
|
47
|
|
|
|
28
|
|
Other
non-current liabilities
|
|
|
664
|
|
|
|
186
|
|
Total
liabilities
|
|
|
8,387
|
|
|
|
1,434
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Mezzanine
equity:
|
|
|
|
|
|
|
|
|
Redeemable
preferred stock
|
|
|
230
|
|
|
|
-
|
|
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
|
|
|
3,539
|
|
|
|
1,858
|
|
Accumulated
deficit
|
|
|
(2,719)
|
|
|
|
(48)
|
|
Accumulated
other comprehensive loss
|
|
|
(107)
|
|
|
|
(51)
|
|
Treasury stock,
at cost: 3 and 3 shares, respectively
|
|
|
(96)
|
|
|
|
(96)
|
|
Total McDermott
Stockholders' Equity
|
|
|
800
|
|
|
|
1,761
|
|
Noncontrolling
interest
|
|
|
23
|
|
|
|
28
|
|
Total
stockholders' equity
|
|
|
823
|
|
|
|
1,789
|
|
Total
liabilities and stockholders' equity
|
|
$
|
9,440
|
|
|
$
|
3,223
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In
millions)
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(2,678)
|
|
|
$
|
178
|
|
Non-cash items
included in net income:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
279
|
|
|
|
101
|
|
Debt issuance cost
amortization
|
|
|
36
|
|
|
|
13
|
|
Stock-based
compensation charges
|
|
|
44
|
|
|
|
23
|
|
Deferred
taxes
|
|
|
21
|
|
|
|
7
|
|
Goodwill
impairment
|
|
|
2,168
|
|
|
|
-
|
|
Other asset
impairments
|
|
|
58
|
|
|
|
1
|
|
Actuarial pension
(loss) gain
|
|
|
47
|
|
|
|
(5)
|
|
Other non-cash
items
|
|
|
-
|
|
|
|
(6)
|
|
Changes in operating
assets and liabilities, net of effects of businesses
acquired:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
300
|
|
|
|
91
|
|
Contracts in progress,
net of Advance billings on contracts
|
|
|
(278)
|
|
|
|
(450)
|
|
Accounts
payable
|
|
|
(156)
|
|
|
|
105
|
|
Other current and
non-current assets
|
|
|
63
|
|
|
|
(22)
|
|
Investments in
unconsolidated affiliates
|
|
|
(9)
|
|
|
|
14
|
|
Other current and
non-current liabilities
|
|
|
34
|
|
|
|
86
|
|
Total cash (used
in) provided by operating activities
|
|
|
(71)
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
CB&I combination
consideration, net of cash acquired of $498
|
|
|
(2,374)
|
|
|
|
-
|
|
Purchases of
property, plant and equipment
|
|
|
(86)
|
|
|
|
(119)
|
|
Advances related to
proportionately consolidated consortiums
|
|
|
(241)
|
|
|
|
-
|
|
Proceeds from asset
dispositions
|
|
|
69
|
|
|
|
56
|
|
Investments in
unconsolidated affiliates
|
|
|
(16)
|
|
|
|
(2)
|
|
Total cash used in
investing activities
|
|
|
(2,648)
|
|
|
|
(65)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
|
|
3,560
|
|
|
|
-
|
|
Repayment of debt and
capital lease obligations
|
|
|
(545)
|
|
|
|
(235)
|
|
Debt and letter of
credit issuance costs
|
|
|
(217)
|
|
|
|
(21)
|
|
Proceeds from
issuance of redeemable preferred stock
|
|
|
290
|
|
|
|
-
|
|
Dividends paid to
holders of redeemable preferred stock
|
|
|
(3)
|
|
|
|
-
|
|
Redeemable preferred
stock issuance costs
|
|
|
(18)
|
|
|
|
-
|
|
Advances related to
equity method joint ventures and proportionately consolidated
consortiums
|
|
|
158
|
|
|
|
-
|
|
Debt extinguishment
costs
|
|
|
(10)
|
|
|
|
-
|
|
Repurchase of common
stock
|
|
|
(14)
|
|
|
|
(7)
|
|
Acquisition of
NCI
|
|
|
-
|
|
|
|
(11)
|
|
Dividends paid to
NCI
|
|
|
-
|
|
|
|
(1)
|
|
Total cash provided
by (used in) financing activities
|
|
|
3,201
|
|
|
|
(275)
|
|
|
|
|
|
|
|
|
|
|
Effects of
exchange rate changes on cash, cash equivalents and restricted
cash
|
|
|
(45)
|
|
|
|
-
|
|
Net increase
(decrease) in cash, cash equivalents and restricted
cash
|
|
|
437
|
|
|
|
(204)
|
|
Cash, cash
equivalents and restricted cash at beginning of
period
|
|
|
408
|
|
|
|
612
|
|
Cash, cash
equivalents and restricted cash at end of period
|
|
$
|
845
|
|
|
$
|
408
|
|
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 certain Non-GAAP financial measures used in this press
release to comparable GAAP financial measures. Additional
reconciliations are provided in the accompanying tables.
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
SEGMENT NON-GAAP TO GAAP FINANCIAL MEASURES
|
|
|
Three Months Ended
Dec 31, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Corporate
|
|
|
Total
|
|
|
($ in
millions)
|
|
Revenues
|
$
|
1,319
|
|
|
$
|
120
|
|
|
$
|
417
|
|
|
$
|
80
|
|
|
$
|
137
|
|
|
-
|
|
|
$
|
2,073
|
|
GAAP Operating
Income (Loss)
|
|
(1,686)
|
|
|
|
(49)
|
|
|
|
72
|
|
|
|
(69)
|
|
|
|
(564)
|
|
|
|
(203)
|
|
|
|
(2,499)
|
|
GAAP Operating
Margin
|
|
-127.8
|
%
|
|
|
-40.8
|
%
|
|
|
17.3
|
%
|
|
|
-86.3
|
%
|
|
|
-411.7
|
%
|
|
|
-
|
|
|
|
-120.5
|
%
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment1
|
|
1,485
|
|
|
|
40
|
|
|
|
-
|
|
|
|
52
|
|
|
|
591
|
|
|
|
-
|
|
|
|
2,168
|
|
Marine assets
impairment2
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
|
|
58
|
|
Restructuring,
Transaction & Integration Costs3
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32
|
|
|
|
32
|
|
Total Non-GAAP Adjustments
|
|
1,485
|
|
|
|
40
|
|
|
|
-
|
|
|
|
52
|
|
|
|
591
|
|
|
|
90
|
|
|
|
2,258
|
|
Non-GAAP Operating
Income (Loss)
|
$
|
(201)
|
|
|
$
|
(10)
|
|
|
$
|
72
|
|
|
$
|
(17)
|
|
|
$
|
27
|
|
|
$
|
(112)
|
|
|
$
|
(241)
|
|
Non-GAAP Adjusted
Operating Margin
|
|
-15.2
|
%
|
|
|
-8.3
|
%
|
|
|
17.3
|
%
|
|
|
-21.3
|
%
|
|
|
19.7
|
%
|
|
|
-
|
|
|
|
-11.6
|
%
|
|
Note: Individual line
items may not sum to totals as a result of rounding.
|
|
1 Goodwill
impairment is due in part to a change in our cost of capital and
risk premium assumptions included in the discount rates utilized to
derive the present value of our cash flows. The goodwill impairment
was allocated to the segments based on the amount by which the
carrying value of that segment exceeded its fair value.
|
2 Marine
assets impairment on two vessels related to lower levels of planned
future utilization.
|
3 Restructuring, transaction and
integration costs associated with the Combination during the three
months ended December 31, 2018.
|
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
NON-GAAP TO GAAP FINANCIAL MEASURES
|
|
|
Three months
Ended
|
|
|
Full Year
Ended
|
|
|
Dec 31,
2018
|
|
|
Dec 31,
2017
|
|
|
Dec 31,
2018
|
|
|
Dec 31,
2017
|
|
|
($ in millions,
except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
Attributable to Common Stockholders
|
$
|
(2,775)
|
|
|
$
|
26
|
|
|
$
|
(2,691)
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment1
|
|
2,168
|
|
|
|
-
|
|
|
|
2,168
|
|
|
|
-
|
|
Marine asset
impairment2
|
|
58
|
|
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
Transaction
costs3
|
|
3
|
|
|
|
9
|
|
|
|
48
|
|
|
|
9
|
|
Costs to achieve
CPI4
|
|
29
|
|
|
|
-
|
|
|
|
134
|
|
|
|
-
|
|
Non-cash actuarial
loss (gain) on benefit plans5
|
|
47
|
|
|
|
(5)
|
|
|
|
47
|
|
|
|
(5)
|
|
Deferred tax asset
adjustment for three-year cumulative loss6
|
|
190
|
|
|
|
-
|
|
|
|
190
|
|
|
|
-
|
|
Tax benefit on
intercompany transfer of IP7
|
|
-
|
|
|
|
-
|
|
|
|
(111)
|
|
|
|
-
|
|
Debt extinguishment
costs8
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Total Non-GAAP Adjustments
|
|
2,495
|
|
|
|
4
|
|
|
|
2,548
|
|
|
|
4
|
|
Tax Effect of Non-GAAP
Changes9
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
Total Non-GAAP
Adjustments (After Tax)
|
|
2,495
|
|
|
|
4
|
|
|
|
2,543
|
|
|
|
4
|
|
Non-GAAP Adjusted
Net Income Attributable to Common Stockholders
|
$
|
(280)
|
|
|
$
|
30
|
|
|
$
|
(148)
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating
Income (Loss)
|
$
|
(2,499)
|
|
|
$
|
45
|
|
|
$
|
(2,256)
|
|
|
$
|
307
|
|
Non-GAAP
Adjustments10
|
|
2,258
|
|
|
|
9
|
|
|
|
2,408
|
|
|
|
9
|
|
Non-GAAP Adjusted
Operating Income
|
$
|
(241)
|
|
|
$
|
54
|
|
|
$
|
152
|
|
|
$
|
316
|
|
Non-GAAP Adjusted
Operating Margin
|
|
-11.6
|
%
|
|
|
7.5
|
%
|
|
|
2.3
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
EPS
|
$
|
(15.33)
|
|
|
$
|
0.27
|
|
|
$
|
(17.94)
|
|
|
$
|
1.88
|
|
Non-GAAP
Adjustments
|
|
13.78
|
|
|
|
0.05
|
|
|
|
16.95
|
|
|
|
0.04
|
|
Non-GAAP Adjusted
Diluted EPS
|
$
|
(1.55)
|
|
|
$
|
0.32
|
|
|
$
|
(0.99)
|
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation of income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
181
|
|
|
|
91
|
|
|
|
150
|
|
|
|
91
|
|
Diluted
|
|
181
|
|
|
|
95
|
|
|
|
150
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to Common Stockholders
|
$
|
(2,775)
|
|
|
$
|
26
|
|
|
$
|
(2,691)
|
|
|
$
|
179
|
|
Depreciation &
Amortization
|
|
92
|
|
|
|
23
|
|
|
|
279
|
|
|
|
101
|
|
Interest Expense,
Net
|
|
89
|
|
|
|
11
|
|
|
|
259
|
|
|
|
63
|
|
Provision for Income
Taxes
|
|
123
|
|
|
|
16
|
|
|
|
104
|
|
|
|
69
|
|
Accretion and
Dividends on redeemable preferred stock
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
EBITDA11
|
|
(2,467)
|
|
|
|
76
|
|
|
|
(2,045)
|
|
|
|
412
|
|
Non-GAAP
Adjustments
|
|
2,305
|
|
|
|
4
|
|
|
|
2,469
|
|
|
|
4
|
|
Adjusted
EBITDA11
|
$
|
(162)
|
|
|
$
|
80
|
|
|
$
|
424
|
|
|
$
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities
|
$
|
(285)
|
|
|
$
|
-
|
|
|
$
|
(71)
|
|
|
$
|
136
|
|
Capital
expenditures
|
|
(24)
|
|
|
|
(22)
|
|
|
|
(86)
|
|
|
|
(119)
|
|
Free cash
flow
|
$
|
(309)
|
|
|
$
|
(22)
|
|
|
$
|
(157)
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
Revenues
|
$
|
2,073
|
|
|
$
|
718
|
|
|
$
|
6,705
|
|
|
$
|
2,985
|
|
|
Note: Individual line
items may not sum to totals as a result of rounding.
|
|
1 Goodwill
impairment is due in part to a change in our cost of capital and
risk premium assumptions included in the discount rates utilized to
derive the present value of our cash flows. The goodwill impairment
was allocated to each of the segments based on the amount by which
the carrying value of that segment exceeded its fair
value.
|
2 Marine
asset impairment on two vessels related to lower levels of planned
future utilization.
|
3Transaction costs associated with the
private placement of preferred stock and warrants to purchase
common stock during the three months ended December 31, 2018 and
the Combination for the full year ended December 31,
2018.
|
4 Costs to
achieve CPI include integration and restructuring costs.
|
5 Non-cash
actuarial mark-to-market pension plan adjustment. Actuarial gains
and losses are primarily driven by changes in the actuarial
assumptions, discount rates and actual return on pension
assets.
|
6 Adjustment relates to the impact of
a full valuation allowance against net deferred tax assets as a
result of the goodwill impairment, creating a three-year cumulative
loss position.
|
7 Tax
benefit resulting from the internal transfer of certain
intellectual property rights during the second quarter of 2018 in
conjunction with the Combination.
|
8 As part
of financing of the Combination and establishment of new capital
structure, expense recognized during the second quarter of 2018 for
prepayment of our prior credit facility and senior secured notes,
including a make-whole premium and the accelerated write-off of
debt issuance costs.
|
9 The
adjustments to GAAP Net Income have been income tax effected when
included in net income based upon the respective tax jurisdictions
the adjustments were incurred in.
|
10
Includes the non-GAAP adjustments described in footnotes 1 through
4 above. Adjustments to operating income do not include non-GAAP
adjustments described in footnotes 5 through 9 above, as those
items are not included in the computation of operating
income.
|
11 We
define EBITDA as net income plus depreciation and amortization,
interest expense, net, and provision for income taxes. We define
adjusted EBITDA as EBITDA adjusted to exclude significant,
non-recurring transactions, both gains and charges, to our
operating income as described in footnotes 1 through 4 above. We
have included EBITDA and adjusted 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 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
INTERNATIONAL, INC.
|
RECONCILIATION OF
FORECAST NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL
MEASURES
|
|
|
|
Full Year 2019
Guidance
|
|
|
($ in millions,
except per share
amounts or as indicated)
|
Revenues
|
|
$9.5 -
10.5B
|
|
|
|
Operating
Income
|
|
$725 -
$775
|
Operating
Margin
|
|
7.0 - 8.0%
|
Costs to Achieve
CPI
|
|
$40 - $50
|
Total Non-GAAP
Adjustments
|
|
$40 - $50
|
Adjusted Operating
Income
|
|
$765 -
$825
|
Adjusted
Operating Margin
|
|
7.5 -
8.5%
|
|
|
|
Net
Income
|
|
$250 -
$275
|
Total Non-GAAP
Adjustments
|
|
$40 - $50
|
Tax Impact of
Adjustments
|
|
~$ -
|
Adjusted Net
Income
|
|
$290 -
$325
|
Diluted Share
Count
|
|
~187
|
Adjusted Diluted
EPS
|
|
$1.65 -
$1.75
|
|
|
|
Cash Flows from
Operating Activities
|
|
$(100) -
$(50)
|
Capital
Expenditures
|
|
~$165
|
Free Cash
Flow
|
|
$(265) -
$(215)
|
|
|
|
GAAP Net Income
(Loss) Attributable to Common Stockholders
|
|
$250 -
$275
|
Add:
|
|
|
Depreciation and
amortization
|
|
$250 -
$280
|
Interest expense,
net
|
|
~$380
|
Provision for
taxes
|
|
~$65
|
Accretion of
Redeemable Preferred Stock
|
|
~$15
|
Dividends on
Redeemable Preferred Stock
|
|
~$36
|
EBITDA
|
|
$1.0 -
$1.05B
|
Costs to Achieve
CPI
|
|
$40 - $50
|
Adjusted
EBITDA
|
|
$1.04 -
$1.1B
|
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