Profitable Quarter Due to Strong Project
Execution and Cost Management Driven by the “One McDermott Way”
Initiative
McDermott International, Inc. (NYSE:MDR) (“McDermott,” the
“Company”, “we” or “us”) today announced financial and operational
results for the three and nine months ended September 30, 2016.
|
|
|
|
($ in millions, except per share amounts) |
|
|
Three Months Ended |
|
|
Delta |
|
|
Nine Months Ended |
|
|
Delta |
|
|
Sept 30, 2016 |
|
|
Sept 30, 2015 |
|
|
Yr-over-Yr |
|
|
Sept 30, 2016 |
|
|
Sept 30, 2015 |
|
|
Yr-over-Yr |
|
Revenues |
$ |
558.5 |
|
|
$ |
805.9 |
|
|
$ |
(247.4 |
) |
|
$ |
1,994.2 |
|
|
$ |
2,402.9 |
|
|
$ |
(408.7 |
) |
Operating Income |
|
43.1 |
|
|
|
34.0 |
|
|
|
9.1 |
|
|
|
136.0 |
|
|
|
96.4 |
|
|
|
39.6 |
|
Operating Margin |
|
7.7 |
% |
|
|
4.2 |
% |
|
|
3.5 |
% |
|
|
6.8 |
% |
|
|
4.0 |
% |
|
|
2.8 |
% |
Net Income |
|
16.1 |
|
|
|
3.7 |
|
|
|
12.4 |
|
|
|
34.6 |
|
|
|
0.7 |
|
|
|
33.9 |
|
Diluted EPS |
|
0.06 |
|
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.12 |
|
|
|
- |
|
|
|
0.12 |
|
Adjusted Operating
Income1 |
|
56.6 |
|
|
|
57.0 |
|
|
|
(0.4 |
) |
|
|
190.8 |
|
|
|
152.0 |
|
|
|
38.8 |
|
Adjusted Operating
Margin1 |
|
10.1 |
% |
|
|
7.1 |
% |
|
|
3.0 |
% |
|
|
9.6 |
% |
|
|
6.3 |
% |
|
|
3.3 |
% |
Adjusted Net
Income2,3 |
|
25.8 |
|
|
|
26.7 |
|
|
|
(0.9 |
) |
|
|
84.9 |
|
|
|
55.9 |
|
|
|
29.0 |
|
Adjusted Diluted
EPS2,3 |
|
0.09 |
|
|
|
0.09 |
|
|
|
(0.00 |
) |
|
|
0.30 |
|
|
|
0.20 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided (Used) by
Operating Activities |
|
49.8 |
|
|
|
20.7 |
|
|
|
29.1 |
|
|
|
125.6 |
|
|
|
(5.3 |
) |
|
|
130.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Adjusted Operating Income includes the following
adjustments to GAAP Operating Income:
- $1.8 million and $6.3 million of restructuring charges during
the quarters ended September 30, 2016 and 2015, respectively, and
$10.7 million and $32.1 million of restructuring charges during the
nine months ended September 30, 2016 and 2015,
respectively.
- $11.8 million and $44.1 million of impairment charges during
the quarter and nine months ended September 30, 2016, respectively,
and $6.8 million of impairment charges during the nine months ended
September 30, 2015.
- $16.7 million legal settlement charge for the quarter and nine
months ended September 30, 2015.
2 Adjusted Net Income includes the adjustments to
GAAP Operating Income mentioned above and the following adjustment
for non-operating activity:
- $5.0 million gain during the quarter and nine months ended
September 30, 2016 for the exit of our joint venture investment in
THHE Fabricators Sdn. Bhd. (“THF”), a subsidiary of TH Heavy
Engineering Berhad (“THHE”).
1,2 The calculations of total and per share
adjusted net income and adjusted operating income and margins are
shown in the appendix entitled “Reconciliation of Non-GAAP to GAAP
Financial Measures.” The appendix also includes additional
information related to the adjustments mentioned above.3 The
adjustments to GAAP Net Income have been income tax effected when
included in net income. Tax effects of Non-GAAP adjustments
represent the tax impacts of the adjustments during the
period. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which the Company, currently,
does not pay taxes and, therefore, no tax impact is applied to
them. For the Non-GAAP adjusting items in jurisdictions where
taxes are paid, the tax impacts on those adjustments are computed,
individually, using the statutory tax rate in effect in each
applicable taxable jurisdiction.
“We are pleased to report another profitable
quarter during this prolonged industry downturn. McDermott’s
excellence in project execution and committed focus on quality,
safety and costs resulting from our “One McDermott Way” initiative
led to overall profitability and key project milestone
completions,” said David Dickson, President and Chief Executive
Officer of McDermott. “As we navigate through the current industry
cycle, McDermott continues to put a strong focus on consistency
across the globe within engineering, project execution, quality and
safety. This has led to increased capabilities and capacity by
leveraging our global assets for our local customers. All three
operating areas achieved on schedule, key milestone deliveries and
accomplishments this quarter, highlighting our ability to provide
locally-executed and vertically-integrated solutions to meet our
customers’ most challenging needs. McDermott’s company-wide
“Taking the Lead” initiative continues to build upon the quality
and safety culture of the Company as confirmed by achieving more
than 40-million man-hours lost time incident free in our Middle
East Area.”
“In addition, we continue to see active bidding
opportunities in the geographies in which we operate. While
we have seen reduced order intake in the third quarter, our revenue
pipeline remains solid and bidding activity remains high. As
this current macro environment remains challenged, we always expect
the pattern of awards to be uneven throughout the year, as a result
of the timing of customer investment decisions. We therefore
focus on the things we can control, such as strong project
execution, cost discipline and asset utilization to manage through
the cycle. We also enter the fourth quarter with a strong
foundation for 2017, with $2.4 billion of expected revenue already
recorded in backlog, and we expect to continue to maintain our
focus on markets where capital is available to invest and further
strengthen our customer relationships.”
Third Quarter 2016 Operating
Results
Third quarter 2016 earnings attributable to
McDermott stockholders on a consolidated basis prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”) were $16.1 million, or $0.06 per fully diluted share,
compared to a net income of $3.7 million, or $0.01 per fully
diluted share, for the prior-year third quarter. The Company
generated third quarter 2016 adjusted net income of $25.8 million,
or $0.09 per adjusted fully diluted share, excluding restructuring
charges of $1.8 million, an impairment loss of $11.8 million and a
gain of $5.0 million on the exit of the joint venture with TH Heavy
Engineering Berhad (“THHE”), compared to an adjusted net income of
$26.7 million, or $0.09 per adjusted fully diluted share, excluding
restructuring charges of $6.3 million and a legal settlement of
$16.7 million, in the prior-year third quarter.
The Company reported third quarter 2016 revenues of
$558.5 million, a decrease of $247.4 million, compared to revenues
of $805.9 million for the prior-year third quarter. The key
projects driving revenue for the third quarter of 2016 were the
INPEX Ichthys, Saudi Aramco Long Term Agreement II (LTA II) and
RasGas Flow Assurance and Looping projects. The decrease from the
prior-year third quarter is primarily due to the completion of
marine activity by our subcontractor Heerema on the INPEX Ichthys
project.
The Company’s operating income for the third
quarter of 2016 was $43.1 million, or an operating margin of 7.7%,
compared to $34.0 million, or an operating margin of 4.2%, for the
third quarter of 2015. The Company’s adjusted operating
income for the third quarter 2016 was $56.6 million, or an adjusted
operating margin of 10.1%, excluding the restructuring charges and
impairment loss mentioned above, compared to $57.0 million, or an
adjusted operating margin of 7.1%, for the third quarter of 2015,
excluding the restructuring charges and legal settlement mentioned
above. Operating income for the third quarter of 2016 was
primarily driven by marine activity on INPEX Ichthys, Saudi Aramco
LTA II and RasGas Flow Assurance and Looping projects. Our
operating margin for the third quarter of 2016 reflected project
execution driven improvements, final closeouts, change orders
driven by strong execution and close customer relationships and the
full impact of our cost restructuring programs.
Cash provided by operating activities in the third
quarter 2016 was $49.8 million, an increase compared to the $20.7
million of cash provided in the third quarter 2015. This was
primarily driven by steady collections in the Middle East.
Nine Months Ended September 2016 Operating
Results
Net income attributable to McDermott stockholders
on a consolidated basis prepared in accordance with GAAP for the
first nine months of 2016 was $34.6 million, or $0.12 per fully
diluted share, compared to a net income of $0.7 million, or $0.00
per fully diluted share, for the first nine months of 2015.
For the first nine months of 2016, adjusted net income was $84.9
million, or $0.30 per fully diluted share, excluding restructuring
charges of $10.7 million, an impairment loss of $44.1 million and a
gain of $5.0 million on the exit of the joint venture with THHE,
compared to adjusted net income of $55.9 million, or $0.20 per
adjusted fully diluted share, excluding restructuring charges of
$32.1 million, an impairment loss of $6.8 million and a legal
settlement of $16.7 million in the first nine months of
2015.
The Company reported revenues of $1,994.2 million
for the first nine months of 2016, a decrease of $408.7 million,
compared to revenues of $2,402.9 million for the prior-year
comparable period. Revenue for the first nine months of 2016
was primarily driven by the INPEX Ichthys, Saudi Aramco’s LTA II,
Marjan power system replacement and 12 Jackets and RasGas Flow
Assurance and Looping projects.
The Company’s operating income for the first nine
months of 2016 was $136.0 million, or an operating margin of 6.8%,
compared to $96.4 million, or an operating margin of 4.0%, for the
comparable period of 2015. The Company’s adjusted operating
income for September 2016 year-to-date was $190.8 million, or an
adjusted operating margin of 9.6%, excluding the restructuring
charges and impairment loss mentioned above, compared to $152.0
million, or an adjusted operating margin of 6.3%, for the first
nine months of 2015, excluding the restructuring charges,
impairment loss and legal settlement mentioned above.
Operating income for the first nine months of 2016 was primarily
driven by marine activity on the INPEX Ichthys, Saudi Aramco’s LTA
II, Marjan power system replacement and 12 Jackets and RasGas Flow
Assurance and Looping projects. Our operating margin for the
first nine months of 2016 was higher due to project execution
driven improvements, final closeouts, change orders driven by
strong execution and customer relationships and the full impact of
our cost restructuring programs.
Cash provided by operating activities in the first
nine months of 2016 was $125.6 million, compared to the $5.3
million of cash used in the 2015 comparable period. Overdue
payments received from Pemex during the first quarter of 2016, as
well as steady collections in the Middle East, positively impacted
cash provided by operating activities for the first nine months of
2016.
Operational Review
|
As of Sept 30, 2016 |
|
|
|
|
|
|
|
|
|
|
AEA |
|
|
MEA |
|
|
ASA |
|
|
Total |
|
|
|
|
|
|
|
|
|
($ in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog |
$ |
0.6 |
|
|
$ |
2.5 |
|
|
$ |
0.8 |
|
|
$ |
3.9 |
|
|
|
|
|
|
|
|
|
Bids & Change
Orders Outstanding |
|
0.8 |
|
|
|
2.3 |
|
|
|
0.9 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
Targets |
|
4.7 |
|
|
|
4.0 |
|
|
|
4.3 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
Total Revenue
Pipeline |
|
6.1 |
|
|
|
8.8 |
|
|
|
6.0 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Sept 30, 2016 |
|
|
Nine Months Ended Sept 30, 2016 |
|
|
AEA |
|
|
MEA |
|
|
ASA |
|
|
AEA |
|
|
MEA |
|
|
ASA |
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders |
$ |
6.4 |
|
|
$ |
26.2 |
|
|
$ |
72.3 |
|
|
$ |
475.0 |
|
|
$ |
796.5 |
|
|
$ |
407.5 |
|
Revenue |
|
69.7 |
|
|
|
334.7 |
|
|
|
154.1 |
|
|
|
219.1 |
|
|
|
922.8 |
|
|
|
852.2 |
|
Book-to-Bill |
|
0.1 |
x |
|
|
0.1 |
x |
|
|
0.5 |
x |
|
|
2.2 |
x |
|
|
0.9 |
x |
|
|
0.5 |
x |
Operating Income
(loss) |
|
(4.9 |
) |
|
|
48.6 |
|
|
|
(0.6 |
) |
|
|
(26.6 |
) |
|
|
129.1 |
|
|
|
36.8 |
|
Operating Margin |
|
-7.0 |
% |
|
|
14.5 |
% |
|
|
-0.4 |
% |
|
|
-12.2 |
% |
|
|
14.0 |
% |
|
|
4.3 |
% |
Adjusted Operating
Income (loss)1 |
|
(4.6 |
) |
|
|
48.6 |
|
|
|
12.6 |
|
|
|
7.9 |
|
|
|
129.1 |
|
|
|
53.9 |
|
Adjusted Operating
Margin1 |
|
-6.5 |
% |
|
|
14.5 |
% |
|
|
8.2 |
% |
|
|
3.6 |
% |
|
|
14.0 |
% |
|
|
6.3 |
% |
Capex |
|
0.3 |
|
|
|
8.3 |
|
|
|
16.6 |
|
|
|
3.8 |
|
|
|
13.0 |
|
|
|
178.2 |
|
1 The calculation of segment adjusted operating
income and margins are shown in the appendix entitled
“Reconciliation of Non-GAAP to GAAP Financial Measures.”
As of September 30, 2016, the Company’s backlog was
$3.9 billion, compared to $4.4 billion at June 30, 2016. Of the
September 30, 2016 backlog, approximately 79% is related to
offshore operations and approximately 21% is related to subsea
operations. Order intake in the third quarter of 2016 totaled
$104.9 million, resulting in a book-to-bill ratio of 0.2x with a
nine months ended book-to-bill ratio of 0.8x. At September
30, 2016, the Company had bids outstanding and target projects of
approximately $4.0 billion and $13.0 billion, respectively, in its
pipeline that it expects will be awarded in the market through
December 31, 2017. In total, the Company’s potential revenue
pipeline, including backlog, was $20.9 billion as of September 30,
2016.
In the Americas, Europe and Africa (“AEA”) Area,
during the third quarter we completed fabrication of the
Ayatsil-C 7,500-ton jacket for Pemex ahead of schedule at our
Altamira Fabrication Yard in Mexico, with offshore installation of
the jacket expected by the end of October. Also taking place
in Altamira this quarter, we cut the first steel on schedule for
the Abkatun-A2 project. In September, the North Ocean 102 and the
North Ocean 105 were engaged in the offshore execution of the
Caesar Tonga Phase II project for Anadarko, consisting of two PLET
to PLET Pipe-in-Pipe flowlines and an associated umbilical.
The North Ocean 102 installed the 67,000-foot umbilical while the
North Ocean 105 utilized our Gulfport Spoolbase to reel 15,000 feet
of Pipe-in-Pipe and subsequently laid the flowlines to extend
the field. The completion of the Caesar Tonga Phase II
project early in the fourth quarter represents the extremely
successful conclusion of our first season of deepwater pipelay
activity in the AEA region. The DB50 remained active with
installation of a jacket and deck in 300 feet of water, 39 miles
off the east coast of Trinidad and Tobago. The DB50 was joined by
the North Ocean 105 to lay nearly 13,000 feet of 14 inch export
flowline. Later in the quarter, the DB50 completed the
Anadarko I-Hub Riser Abandonment project.
Middle East (“MEA”) Area fabrication activity
remained high throughout the third quarter of 2016 following the
award of three new EPCI projects for Saudi Aramco in the second
quarter. Execution of the Lump Sum project awarded under the
Saudi Aramco LTA II generated the majority of fabrication activity,
with KJO Hout, Marjan power system replacement project and the Bul
Hanine jackets progressing well. The first ever steel was cut
at our new Dammam yard during a customer attended ceremony in Saudi
Arabia. The Dammam yard is expected to work in conjunction
with our Jebel Ali yard to execute the LTA II Lump Sum project
fabrication scope, with Dammam being supported by McDermott’s
Engineering and Project Management office in Al Khobar, Saudi
Arabia. This is part of a number of initiatives we are
implementing to deliver on our In-Kingdom Total Value Add (IKTVA)
plan. Installation of the last of the 12 Aramco Jackets was
also completed and installed offshore with only minor project
closeout work remaining. All of our offshore Qatar
projects continue to achieve on schedule progress, with primary
fabrication focus on the completion of the Bul Hanine jackets,
which are expected to be installed in the fourth quarter of
2016. The Area also reached an impressive 40-million
man-hours lost time incident (LTI) free.
In the Asia (“ASA”) Area, the INPEX Ichthys project
continues to progress in line with the agreed customer schedule off
the northern coast of Australia with McDermott’s flagship vessel,
the DLV 2000, completing her first campaign alongside the CSV
108. This included lifting and placing one of the world’s
largest subsea spools of 42”, with a lift weight of 550 tons.
The DLV 2000 has also successfully completed pipelay trials and
will mobilize back to the INPEX Ichthys project for her second
campaign where she will install spools and subsea structures and
lay infield umbilicals. Also in Australia, the Woodside
Greater Western Flank Phase 2 pipeline project continues with the
engineering and procurement phase and the successful completion of
double joint pipelay trials on board the DLV 2000. The
Vashishta and S1 project for Oil and Natural Gas Corporation of
India continues to achieve significant progress in design
engineering and procurement, with the procured items now beginning
to arrive at the fabrication yard in Kattupalli, India, which is
owned and operated by our consortium partner, Larsen & Toubro
Hydrocarbon Engineering Limited. Progress continues on the
fabrication of the subsea structures and installation engineering
and preparations are progressing well for commencement of offshore
operations expected at the end of the fourth quarter 2016. On
the Brunei Shell Petroleum (BSP) three year transportation and
installation contract, offshore activity has begun at the Ampa and
Fairley fields with the completion of the jacket face survey work
this quarter. Additionally, a pre-installation survey is expected
to be performed for the project in the fourth quarter of 2016,
followed by the main pipeline transportation and installation work
in the second quarter of 2017. The Yamal LNG Project is
progressing well, with the sail-away of the last batch of three LNG
fractionation modules from QMW, our joint venture yard in China;
and the first Electrical Sub Station (ESS) modules were
successfully completed on time and sailed away from our Batam yard.
Five additional ESS modules and preassembled units (PAUs) are
expected to be complete and ready for sail-away on schedule in the
fourth quarter of 2016. Also in the Batam yard, the
fabrication of subsea modules for the FMC Jangkrik project were
completed with load-out scheduled for the end of October.
Cost Structure Progress
All remaining activities for the McDermott
Profitability Initiative (“MPI”) have been completed. We
still expect MPI to result in cash savings of $150 million
annually, which remains incorporated into our 2016 guidance.
Our Additional Overhead Reduction (“AOR”) program,
which was initiated in the fourth quarter of 2015, has been
substantially completed in the third quarter of 2016. We
still anticipate in-year cash savings of $45 million resulting from
the program.
The Company’s restructuring costs for third quarter
of 2016 were $1.8 million and are now expected to be approximately
$11 million for the full-year of 2016.
Outlook
($ in
millions, except per share amounts, or as indicated) |
|
Full Year 2016 |
|
Full Year 2016 |
|
Guidance as of Q2’16 |
|
Guidance as of Q3’16 |
Revenues |
~$2.7B |
|
~$2.6B |
Operating Income |
~$126 |
|
~$159 |
Operating Margin |
~5% |
|
~6% |
Net Income/(Loss)1 |
~$(8) |
|
~$28 |
Diluted Income/(Loss)
Per Share |
~$(0.03) |
|
~$0.10 |
Net Interest
Expense2 |
~$60 |
|
~$60 |
Income Tax Expense |
~$60 |
|
~$62 |
|
|
|
|
Adjusted Operating
Income3,4 |
~$170 |
|
~$215 |
Adjusted Net
Income3,4,6 |
~$35 |
|
~$78 |
Adjusted Diluted
EPS3,4,6 |
~$0.12 |
|
~$0.28 |
Adjusted EBITDA3,4 |
~$256 |
|
~$300 |
Adjusted EBITDA Margin
3 |
~9% |
|
~12% |
|
|
|
|
Restructuring
Expense |
~$12 |
|
~$11 |
Cash Interest / DIC
Amortization Interest |
~$60 / ~$14 |
|
~$60 /
~$14 |
Capex |
~$250 |
|
~$246 |
Ending Cash and
Restricted Cash |
~$505 |
|
~$535 |
Ending Gross Debt5 |
~$765 |
|
~$765 |
Cash from Operating
Activities |
~$105 |
|
~$135 |
Free Cash Flow4 |
~$(145) |
|
~$(111) |
~ = approximately1 Our forecasted U.S. GAAP net
income (loss) attributable to the Company does not include any
amount representing forecasted pension actuarial gain or loss
because we have no basis to estimate pension actuarial gain or loss
amounts for the forecast period and cannot estimate such amount
without unreasonable effort. 2 Net Interest Expense is gross
interest expense less capitalized interest and interest income.3
Adjustments to the outlook GAAP financial measures include
restructuring costs of $11 million and $12 million in Q3’16
guidance and Q2’16 guidance, respectively, and $12 million and $32
million for asset impairments in the third and first quarter of
2016. A $5 million gain for the exit of the THHE joint
venture is included in the calculation of adjusted net income, but
is excluded from the calculation of adjusted operating income as
the gain was reflected in Other Income in our Consolidated
Statement of Operations.4 The calculations of forecasted total and
per share adjusted net income, adjusted operating income, adjusted
EBITDA, adjusted EBITDA margin and free cash flow are shown in the
appendices entitled “Reconciliation of Forecast Non-GAAP Financial
Measures to GAAP Financial Measures.”5 Ending Gross Debt does not
include any reduction related to debt issuance costs.6 The
adjustments to GAAP Net Income have been income tax effected when
included in net income. Tax effects of Non-GAAP adjustments
represent the tax impacts of the adjustments during the
period. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which the Company, currently,
does not pay taxes and, therefore, no tax impact is applied to
them. For the Non-GAAP adjusting items in jurisdictions where
taxes are paid, the tax impacts on those adjustments are computed,
individually, using the statutory tax rate in effect in each
applicable taxable jurisdiction.
Updates to our full-year 2016 guidance are driven
by strong execution and our strong customer relationships resulting
in final change orders on completed projects, sizable customer
requested changes in work scope, cost savings associated with
project completion and closeouts that took place in the third
quarter. While we expect change orders, close-outs and
settlements to continue as part of our normal business activities,
the period in which they are recognized is largely driven by the
finalization of agreements with customers and suppliers and, as a
result, is difficult to predict. It is unlikely that such
improvements will be repeated in the fourth quarter given that no
major project closeouts are expected in the fourth quarter and a
substantial part of the backlog portfolio is in the early stages of
execution.
|
|
|
Initial Outlook 2017 ($ in millions, except per share
amounts, or as indicated) |
Revenues |
$2.7B - $3.0B |
|
Operating Income |
$170 - $190 |
|
EPS |
$0.16 - $0.19 |
|
Capex |
$50 - $70 |
|
EBITDA |
$260 - $290 |
|
|
|
|
In our current view of 2017, we expect higher
revenue but lower margins due to market pricing impacts and lower
utilization of subsea vessels. Further, 2016 included project
improvements relating to change order approvals from work performed
in previous years. While we expect change orders, closeouts
and settlements to continue as part of our normal business
activities, the period in which they are recognized is largely
driven by the finalization of agreements with customers and
suppliers and, as a result, is difficult to predict.
Therefore, we would not expect 2017 activity to be similar to 2016
activity for change orders, closeouts and settlements.
Other Financial Information
Weighted average common shares outstanding on a
fully diluted basis were approximately 283.9 million and 280.8
million for the quarters ended September 30, 2016 and 2015,
respectively, and 283.1 million and 279.0 million for the nine
months ended September 30, 2016 and 2015, respectively.
Common shares for the settlement of the common stock purchase
contracts related to the Tangible Equity Units (“TEUs”)
representing 40.9 million additional shares, as well as other
potentially dilutive shares, were included on an adjusted and
unadjusted basis for the quarters and nine months ended September
30, 2016 and 2015.
Conference Call
McDermott has scheduled a conference call and
webcast related to its third quarter results today at 4:00 p.m.
U.S. Central Time. Interested parties may listen over the
Internet through a link posted in the Investor Relations section of
the Company’s web site. A replay of the webcast will be available
for seven days after the call and may be accessed by dialing (855)
859-2056, Passcode 96574989. In addition, a presentation will be
available on the Investor Relations section of the Company’s web
site that contains supplemental information on the Company’s
financials, operations and business outlook.
About the Company
McDermott is a leading provider of integrated
engineering, procurement, construction and installation (EPCI) and
module fabrication services for upstream field developments
worldwide. The Company delivers fixed and floating production
facilities, pipelines, installations and subsea systems from
concept to commissioning for complex Offshore and Subsea oil and
gas projects to help oil companies safely produce and transport
hydrocarbons. Our customers include national and major energy
companies. Operating in approximately 20 countries across the
world, our locally focused and globally integrated resources
include approximately 12,400 employees, a diversified fleet of
specialty marine construction vessels, fabrication facilities and
engineering offices. We are renowned for our extensive knowledge
and experience, technological advancements, performance records,
superior safety and commitment to deliver. McDermott has
served the energy industry since 1923, and shares of its common
stock are listed on the New York Stock Exchange.
To learn more, please visit our website at
www.mcdermott.com
NON-GAAP Measures
This press release includes several “non-GAAP”
financial measures as defined under Regulation G of the U.S.
Securities Exchange Act of 1934, as amended. We report our
financial results in accordance with U.S. generally accepted
accounting principles, 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 non-GAAP measures we have presented in this
press release include the total and diluted per share amounts of
adjusted net income (loss) attributable to the Company and adjusted
operating income and operating margin for the Company as a whole
and for each of its segments, in each case excluding the impact of
certain identified items. We believe that total and per share
adjusted net income (loss) and adjusted operating income and
operating margin are useful measures for investors to review
because they provide consistent measures of the underlying results
of our ongoing business. Furthermore, our management uses adjusted
net income (loss) and adjusted operating income as measures of the
performance of our operations. 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 the Company’s reported results
prepared in accordance with GAAP.
The Forecast non-GAAP measures we have presented in
this press release include the total and diluted per share amounts
of adjusted net income (loss) attributable to the Company and
adjusted operating income, free cash flow, EBITDA, Adjusted EBITDA
and Adjusted EBITDA margin, in each case excluding the impact of
certain identified items. We believe these forward-looking
financial measures are within reasonable measure. We define
“free cash flow” as cash flows from operations less capital
expenditures. We believe investors consider free cash flow as
an important measure, because it generally represents funds
available to pursue opportunities that may enhance shareholder
value, such as making acquisitions or other investments. Our
management uses free cash flow for that reason. 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 adjustments relating to
restructuring charges and impairment loss detailed on the second
immediately preceding page. 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 presentations 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.
Reconciliations of these non-GAAP financial
measures and forecast non-GAAP financial measures to the most
comparable GAAP measures are provided in the tables set forth at
the end of this press release.
Forward-Looking
Statements
In accordance with the Safe Harbor provisions of
the Private Securities Litigation Reform Act of 1995, McDermott
cautions that statements in this press release which are
forward-looking, and provide other than historical information,
involve risks, contingencies and uncertainties that may impact
McDermott's actual results of operations. These forward-looking
statements include, but are not limited to, statements about
backlog, bids outstanding, target projects and revenue pipeline, to
the extent these may be viewed as indicators of future revenues or
profitability, the expected value, scope, execution and timing of
projects discussed, the expected pattern of awards in the market,
expected focus areas in the current macro environment, future
savings and costs related to the McDermott Profitability Initiative
and the Additional Overhead Reduction program, and McDermott’s
earnings and other guidance for the full year of 2016 and initial
2017 outlook and expectations related thereto. Although we
believe that the expectations reflected in those forward-looking
statements are reasonable, we can give no assurance that those
expectations will prove to have been correct. Those
statements are made by using various underlying assumptions and are
subject to numerous risks, contingencies and uncertainties,
including, among others: adverse changes in the markets in which we
operate or credit markets, our inability to successfully execute on
contracts in backlog, changes in project design or schedules, the
availability of qualified personnel, changes in the terms, scope or
timing of contracts, contract cancellations, change orders and
other modifications and actions by our customers and other business
counterparties, changes in industry norms and adverse outcomes in
legal or other dispute resolution proceedings. If one or more
of these risks materialize, or if underlying assumptions prove
incorrect, actual results may vary materially from those
expected. You should not place undue reliance on
forward-looking statements. For a more complete discussion of these
and other risk factors, please see McDermott's annual and quarterly
filings with the Securities and Exchange Commission, including its
annual report on Form 10-K for the year ended December 31, 2015 and
subsequent quarterly reports on Form 10-Q. This press release
reflects management's views as of the date hereof. Except to the
extent required by applicable law, McDermott undertakes no
obligation to update or revise any forward-looking statement.
McDERMOTT INTERNATIONAL, INC. |
|
CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(Unaudited) |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share
amounts) |
|
|
|
|
|
Revenues |
|
$ |
558,543 |
|
|
$ |
805,857 |
|
|
$ |
1,994,202 |
|
|
$ |
2,402,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
|
455,499 |
|
|
|
720,961 |
|
|
|
1,666,974 |
|
|
|
2,121,942 |
|
Selling, general and administrative
expenses |
|
|
46,983 |
|
|
|
44,664 |
|
|
|
137,386 |
|
|
|
144,133 |
|
Impairment loss |
|
|
11,758 |
|
|
|
- |
|
|
|
44,069 |
|
|
|
6,808 |
|
Loss (gain) on asset disposals |
|
|
(588 |
) |
|
|
(100 |
) |
|
|
(950 |
) |
|
|
1,443 |
|
Restructuring expenses |
|
|
1,836 |
|
|
|
6,346 |
|
|
|
10,687 |
|
|
|
32,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
515,488 |
|
|
|
771,871 |
|
|
|
1,858,166 |
|
|
|
2,306,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
43,055 |
|
|
|
33,986 |
|
|
|
136,036 |
|
|
|
96,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(17,431 |
) |
|
|
(13,015 |
) |
|
|
(41,324 |
) |
|
|
(38,179 |
) |
Gain (loss) on foreign currency,
net |
|
|
376 |
|
|
|
(1,373 |
) |
|
|
(4,781 |
) |
|
|
(898 |
) |
Other income, net |
|
|
4,861 |
|
|
|
1,556 |
|
|
|
3,776 |
|
|
|
1,100 |
|
Total other expense |
|
|
(12,194 |
) |
|
|
(12,832 |
) |
|
|
(42,329 |
) |
|
|
(37,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
|
30,861 |
|
|
|
21,154 |
|
|
|
93,707 |
|
|
|
58,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
|
15,976 |
|
|
|
9,094 |
|
|
|
55,110 |
|
|
|
30,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
(loss) from Investments in Unconsolidated Affiliates |
|
|
14,885 |
|
|
|
12,060 |
|
|
|
38,597 |
|
|
|
27,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
Investments in Unconsolidated Affiliates |
|
|
1,507 |
|
|
|
(4,526 |
) |
|
|
(2,844 |
) |
|
|
(18,748 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
16,392 |
|
|
|
7,534 |
|
|
|
35,753 |
|
|
|
9,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to
noncontrolling interest |
|
|
284 |
|
|
|
3,868 |
|
|
|
1,160 |
|
|
|
8,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
|
$ |
16,108 |
|
|
$ |
3,666 |
|
|
$ |
34,593 |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.14 |
|
|
$ |
- |
|
Diluted: |
|
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
0.12 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
computation of net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
240,899,888 |
|
|
|
238,594,178 |
|
|
|
240,093,169 |
|
|
|
238,128,962 |
|
Diluted: |
|
|
283,907,353 |
|
|
|
280,797,155 |
|
|
|
283,132,920 |
|
|
|
279,025,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McDERMOTT INTERNATIONAL, INC. |
|
EARNINGS PER SHARE COMPUTATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
September 30, |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
$ |
16,108 |
|
|
$ |
3,666 |
|
|
$ |
34,593 |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares (basic) |
|
240,899,888 |
|
|
|
238,594,178 |
|
|
|
240,093,169 |
|
|
|
238,128,962 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity units |
|
40,896,300 |
|
|
|
40,896,300 |
|
|
|
40,896,300 |
|
|
|
40,896,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock,
and restricted stock units |
|
2,111,165 |
|
|
|
1,306,677 |
|
|
|
2,143,451 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted
average common shares and assumed exercises of stock options and
vesting of stock awards (diluted) |
|
283,907,353 |
|
|
|
280,797,155 |
|
|
|
283,132,920 |
|
|
|
279,025,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to McDermott International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.14 |
|
|
$ |
- |
|
Diluted: |
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
0.12 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Sept 30, |
|
|
Nine Months Ended Sept 30, |
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Depreciation &
amortization expense |
$ |
24,895 |
|
|
$ |
24,611 |
|
|
$ |
66,892 |
|
|
$ |
75,982 |
|
Drydock
amortization |
|
2,931 |
|
|
|
4,252 |
|
|
|
9,863 |
|
|
|
13,910 |
|
Capital
expenditures |
|
26,719 |
|
|
|
18,133 |
|
|
|
197,393 |
|
|
|
66,118 |
|
Backlog |
|
3,916,240 |
|
|
|
4,420,579 |
|
|
|
3,916,240 |
|
|
|
4,420,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McDERMOTT INTERNATIONAL, INC. |
|
|
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,2016 |
|
|
December 31,2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share
amounts) |
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
500,456 |
|
|
$ |
664,844 |
|
Restricted cash and cash
equivalents |
|
|
99,632 |
|
|
|
116,801 |
|
Accounts receivable—trade, net |
|
|
274,700 |
|
|
|
208,474 |
|
Accounts receivable—other |
|
|
43,140 |
|
|
|
66,689 |
|
Contracts in progress |
|
|
301,736 |
|
|
|
435,829 |
|
Other current assets |
|
|
37,253 |
|
|
|
34,641 |
|
Total current assets |
|
|
1,256,917 |
|
|
|
1,527,278 |
|
Property, plant and
equipment |
|
|
2,566,534 |
|
|
|
2,467,352 |
|
Less accumulated depreciation |
|
|
(876,010 |
) |
|
|
(856,493 |
) |
Property, plant and equipment,
net |
|
|
1,690,524 |
|
|
|
1,610,859 |
|
Accounts
receivable—long-term retainages |
|
|
125,941 |
|
|
|
155,061 |
|
Investments in
Unconsolidated Affiliates |
|
|
17,123 |
|
|
|
26,551 |
|
Deferred income
taxes |
|
|
6,932 |
|
|
|
18,822 |
|
Other assets |
|
|
40,935 |
|
|
|
48,505 |
|
Total assets |
|
$ |
3,138,372 |
|
|
$ |
3,387,076 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Notes payable and current
maturities of long-term debt |
|
$ |
50,046 |
|
|
$ |
24,882 |
|
Accounts payable |
|
|
169,108 |
|
|
|
279,821 |
|
Accrued liabilities |
|
|
297,745 |
|
|
|
330,943 |
|
Advance billings on contracts |
|
|
84,280 |
|
|
|
164,773 |
|
Income taxes payable |
|
|
26,359 |
|
|
|
23,787 |
|
Total current liabilities |
|
|
627,538 |
|
|
|
824,206 |
|
Long-term debt |
|
|
704,346 |
|
|
|
819,001 |
|
Self-insurance |
|
|
16,284 |
|
|
|
18,653 |
|
Pension liability |
|
|
23,774 |
|
|
|
24,066 |
|
Non-current income
taxes |
|
|
60,440 |
|
|
|
52,559 |
|
Other liabilities |
|
|
109,687 |
|
|
|
101,870 |
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
Stockholders'
Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per
share, authorized 400,000,000 shares; |
|
|
|
|
|
|
|
|
issued 249,628,949 and 246,841,128
shares, respectively |
|
|
249,629 |
|
|
|
246,841 |
|
Capital in excess of par value
(including prepaid common stock purchase contracts) |
|
|
1,691,918 |
|
|
|
|
1,687,059 |
|
|
Accumulated deficit |
|
|
(226,291 |
) |
|
|
(260,884 |
) |
Accumulated other comprehensive
loss |
|
|
(67,332 |
) |
|
|
(93,955 |
) |
Treasury stock, at cost: 8,289,375
and 7,824,204 shares, respectively |
|
|
(94,892 |
) |
|
|
(92,262 |
) |
Stockholders' Equity—McDermott
International, Inc. |
|
|
1,553,032 |
|
|
|
1,486,799 |
|
Noncontrolling interest |
|
|
43,271 |
|
|
|
59,922 |
|
Total Equity |
|
|
1,596,303 |
|
|
|
1,546,721 |
|
Total Liabilities and Equity |
|
$ |
3,138,372 |
|
|
$ |
3,387,076 |
|
|
|
|
|
|
|
|
|
|
McDERMOTT INTERNATIONAL, INC. |
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
(Unaudited) |
|
|
|
Nine Months Ended September 30, |
|
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,753 |
|
|
$ |
9,176 |
|
Non-cash items included
in net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
66,892 |
|
|
|
75,982 |
|
Drydock amortization |
|
|
9,863 |
|
|
|
13,910 |
|
Impairment loss |
|
|
44,069 |
|
|
|
6,808 |
|
Stock-based compensation
charges |
|
|
14,011 |
|
|
|
12,991 |
|
Loss from investments in
unconsolidated affiliates |
|
|
2,844 |
|
|
|
18,748 |
|
Loss (gain) on asset disposals |
|
|
(950 |
) |
|
|
1,443 |
|
Restructuring (gain) expense |
|
|
(1,500 |
) |
|
|
11,954 |
|
Deferred income taxes |
|
|
11,889 |
|
|
|
2,315 |
|
Other non-cash items |
|
|
(1,657 |
) |
|
|
3,164 |
|
Changes in operating
assets and liabilities that provided (used) cash: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(29,661 |
) |
|
|
11,294 |
|
Contracts in progress, net of
advance billings on contracts |
|
|
53,608 |
|
|
|
(260,317 |
) |
Accounts payable |
|
|
(110,196 |
) |
|
|
98,552 |
|
Accrued and other current
liabilities |
|
|
(13,426 |
) |
|
|
(7,269 |
) |
Pension liability |
|
|
(1,209 |
) |
|
|
(1,319 |
) |
Income taxes |
|
|
10,453 |
|
|
|
(10,360 |
) |
Other assets and liabilities,
net |
|
|
34,816 |
|
|
|
7,582 |
|
Total cash provided by
(used in) operating activities |
|
|
125,599 |
|
|
|
(5,346 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Purchases of property,
plant and equipment |
|
|
(197,393 |
) |
|
|
(66,118 |
) |
Decrease in restricted
cash and cash equivalents |
|
|
17,169 |
|
|
|
51,769 |
|
Investments in
unconsolidated affiliates |
|
|
(4,105 |
) |
|
|
(6,960 |
) |
Proceeds from asset
dispositions |
|
|
1,123 |
|
|
|
10,669 |
|
Sales and maturities of
available-for-sale securities |
|
|
- |
|
|
|
3,175 |
|
Other, net |
|
|
- |
|
|
|
417 |
|
Total cash used in
investing activities |
|
|
(183,206 |
) |
|
|
(7,048 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Repayment of debt |
|
|
(93,755 |
) |
|
|
(18,004 |
) |
Repurchase of common
stock |
|
|
(3,909 |
) |
|
|
- |
|
Payment of debt
issuance costs |
|
|
(8,256 |
) |
|
|
- |
|
Distribution to
noncontrolling interest |
|
|
- |
|
|
|
(24 |
) |
Other, net |
|
|
- |
|
|
|
(928 |
) |
Total cash used in
financing activities |
|
|
(105,920 |
) |
|
|
(18,956 |
) |
|
|
|
|
|
|
|
|
|
Effects of
exchange rate changes on cash and cash equivalents |
|
|
(861 |
) |
|
|
(2,574 |
) |
Net decrease in
cash and cash equivalents |
|
|
(164,388 |
) |
|
|
(33,924 |
) |
Cash and cash
equivalents at beginning of period |
|
|
664,844 |
|
|
|
665,309 |
|
Cash and cash
equivalents at end of period |
|
$ |
500,456 |
|
|
$ |
631,385 |
|
|
|
|
|
|
|
|
|
|
McDERMOTT INTERNATIONAL,
INC.RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL
MEASURES
McDermott reports its financial results in
accordance with the 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 |
|
|
Nine Months Ended |
|
|
Sept 30, 2016 |
|
|
Sept 30, 2015 |
|
|
Sept 30, 2016 |
|
|
Sept 30, 2015 |
|
(In thousands,
except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
Attributable to MDR |
$ |
16,108 |
|
|
$ |
3,666 |
|
|
$ |
34,593 |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges1 |
|
1,836 |
|
|
|
6,346 |
|
|
|
10,687 |
|
|
|
32,126 |
|
Impairment loss2 |
|
11,758 |
|
|
|
- |
|
|
|
44,069 |
|
|
|
6,808 |
|
Gain on JV Exit3 |
|
(5,003 |
) |
|
|
- |
|
|
|
(5,003 |
) |
|
|
- |
|
Legal Settlement4 |
|
- |
|
|
|
16,682 |
|
|
|
- |
|
|
|
16,682 |
|
Total Non-GAAP Adjustments |
|
8,591 |
|
|
|
23,028 |
|
|
|
49,753 |
|
|
|
55,616 |
|
Tax Effect of Non-GAAP
Changes7 |
|
1,094 |
|
|
|
(34 |
) |
|
|
594 |
|
|
|
(388 |
) |
Total Non-GAAP Adjustments (After
Tax) |
|
9,685 |
|
|
|
22,994 |
|
|
|
50,347 |
|
|
|
55,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
Net Income Attributable to MDR |
$ |
25,793 |
|
|
$ |
26,660 |
|
|
$ |
84,940 |
|
|
$ |
55,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating
Income |
$ |
43,055 |
|
|
$ |
33,986 |
|
|
$ |
136,036 |
|
|
$ |
96,405 |
|
Non-GAAP Adjustments5 |
|
13,594 |
|
|
|
23,028 |
|
|
|
54,756 |
|
|
|
55,616 |
|
Non-GAAP Adjusted
Operating Income |
$ |
56,649 |
|
|
$ |
57,014 |
|
|
$ |
190,792 |
|
|
$ |
152,021 |
|
Non-GAAP Adjusted
Operating Margin |
|
10.1 |
% |
|
|
7.1 |
% |
|
|
9.6 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
EPS |
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
0.12 |
|
|
$ |
- |
|
Non-GAAP Adjustments |
|
0.03 |
|
|
|
0.08 |
|
|
|
0.18 |
|
|
|
0.20 |
|
Non-GAAP Diluted
EPS6 |
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.30 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation of income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
240,899,888 |
|
|
|
238,594,178 |
|
|
|
240,093,169 |
|
|
|
238,128,962 |
|
Diluted |
|
283,907,353 |
|
|
|
280,797,155 |
|
|
|
283,132,920 |
|
|
|
279,025,262 |
|
1 Restructuring charges were primarily
associated with workforce reductions, facility closures, consultant
fees, lease terminations and asset impairments.2 $11.8 million and
$44.1 million of impairment charges during the quarter and nine
months ended September 30, 2016. The $11.8 million of
impairment was recognized in the third quarter of 2016 as we
determined that the carrying values of certain marine assets were
not recoverable and exceeded their respective fair values, and the
remaining $32.3 million, which was recognized during the first
quarter of 2016, is related to the impairment of our Agile vessel
following the customer’s termination of the vessel charter in May
2016 and given the lack of opportunities for this vessel. The
Agile was decommissioned and disposed of in the third quarter of
2016. The $6.8 million of impairment was recognized during
the nine months ended September 30, 2015 for the abandonment of a
marine pipelay welding system project.3 $5.0 million gain for the
exit of our joint venture investment in THHE Fabricators Sdn. Bhd.
(“THF”), a subsidiary of TH Heavy Engineering Berhad (“THHE”), in
the third quarter of 2016. The joint venture, which began in
2013, was mutually and amicably terminated as low oil prices and
persistent supply overhang has softened the current market dynamics
in Malaysia, resulting in THHE and McDermott deciding to pursue
different paths. The Company is not in the business of buying
and selling joint ventures for a profit. Accordingly, the
gain realized from the sale of the investment was not in the normal
course of business, and is not expected to reoccur in the
future. 4 Costs for a legal settlement of $16.7 million were
recorded during the third quarter of 2015 related to the settlement
of claims against one of our subsidiaries, J. Ray McDermott de
Mexico S.A. de C.V., by Atlantic Tiburon 1 Pte. Ltd.5 Includes the
Non-GAAP adjustments described in footnotes 1, 2 and 4 above.
The $5.0 million adjustment described in footnote 3 is excluded as
the gain was reflected in Other Income in our Consolidated
Statement of Operations and thus is excluded from operating
income.6 Diluted EPS is calculated using a share count
determined by whether the period has a net income or a net
loss. In the event of net income, Diluted EPS uses the fully
diluted share count; however, in the event of a net loss, the
potentially dilutive shares are excluded from the share count. 7
The adjustments to GAAP Net Income have been income tax effected
when included in net income. Tax effects of Non-GAAP
adjustments represent the tax impacts of the adjustments during the
period. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which the Company, currently,
does not pay taxes and, therefore, no tax impact is applied to
them. For the Non-GAAP adjusting items in jurisdictions where
taxes are paid, the tax impacts on those adjustments are computed,
individually, using the statutory tax rate in effect in each
applicable taxable jurisdiction.
|
McDERMOTT INTERNATIONAL, INC. |
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL
MEASURES |
|
|
Three Months Ended Sept 30, 2016 |
|
|
Nine Months Ended Sept 30, 2016 |
|
(In
thousands) |
AEA |
|
|
MEA |
|
|
ASA |
|
|
AEA |
|
|
MEA |
|
|
ASA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
69,699 |
|
|
$ |
334,731 |
|
|
$ |
154,113 |
|
|
$ |
219,134 |
|
|
$ |
922,820 |
|
|
$ |
852,248 |
|
GAAP Operating
Income (Loss) |
|
(4,884 |
) |
|
|
48,629 |
|
|
|
(575 |
) |
|
|
(26,637 |
) |
|
|
129,055 |
|
|
|
36,832 |
|
GAAP Operating
Margin |
|
-7.0 |
% |
|
|
14.5 |
% |
|
|
-0.4 |
% |
|
|
-12.2 |
% |
|
|
14.0 |
% |
|
|
4.3 |
% |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring1 |
|
321 |
|
|
|
- |
|
|
|
1,400 |
|
|
|
2,195 |
|
|
|
17 |
|
|
|
5,261 |
|
Impairment2 |
|
- |
|
|
|
- |
|
|
|
11,758 |
|
|
|
32,311 |
|
|
|
- |
|
|
|
11,758 |
|
Total Non-GAAP Adjustments |
|
321 |
|
|
|
- |
|
|
|
13,158 |
|
|
|
34,506 |
|
|
|
17 |
|
|
|
17,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Operating Income (Loss) |
$ |
(4,563 |
) |
|
$ |
48,629 |
|
|
$ |
12,583 |
|
|
$ |
7,869 |
|
|
$ |
129,072 |
|
|
$ |
53,851 |
|
Non-GAAP Adjusted
Operating Margin |
|
-6.5 |
% |
|
|
14.5 |
% |
|
|
8.2 |
% |
|
|
3.6 |
% |
|
|
14.0 |
% |
|
|
6.3 |
% |
1 Restructuring charges were primarily
associated with workforce reductions, facility closures, consultant
fees, lease terminations and asset impairments.2 $11.8 million
of impairment was recognized in the third quarter of 2016 as we
determined that the carrying values of certain marine assets in our
ASA segment were not recoverable and exceeded their respective fair
values, and the remaining $32.3 million, which was recognized
during the first quarter of 2016, is related to the impairment of
our Agile vessel following the customer’s termination of the vessel
charter in May 2016 and given the lack of opportunities for this
vessel. The Agile vessel was decommissioned and disposed of
in the third quarter of 2016.
|
McDERMOTT INTERNATIONAL, INC. |
RECONCILIATION OF FORECAST NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES |
|
|
Full Year 2016 Guidance as of
Q2’16* |
|
|
Full Year 2016 Guidance as of
Q3’16* |
|
(In millions, except
per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income (Loss)
Attributable to MDR1 |
$ |
(8 |
) |
|
$ |
28 |
|
|
|
|
|
|
|
|
|
Less: Adjustments |
|
|
|
|
|
|
|
Restructuring charges2 |
|
12 |
|
|
|
11 |
|
Impairment Loss3 |
|
32 |
|
|
|
44 |
|
Gain on JV Exit4 |
|
- |
|
|
|
(5 |
) |
Total Non-GAAP Adjustments |
|
44 |
|
|
|
50 |
|
Tax Effect of Non-GAAP
changes7 |
|
(1 |
) |
|
|
1 |
|
Total Non-GAAP Adjustments (Net of
Tax) |
|
43 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted Net
Income Attributable to MDR |
$ |
35 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
GAAP Operating Income |
$ |
126 |
|
|
$ |
159 |
|
Non-GAAP Adjustments5 |
|
44 |
|
|
|
55 |
|
Non-GAAP Adjusted
Operating Income |
$ |
170 |
|
|
$ |
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS |
$ |
(0.03 |
) |
|
$ |
0.10 |
|
Non-GAAP Adjustments |
|
0.15 |
|
|
|
0.18 |
|
Non-GAAP Diluted EPS6 |
$ |
0.12 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities |
$ |
105 |
|
|
$ |
135 |
|
Capital expenditures |
|
(250 |
) |
|
|
(246 |
) |
Free cash flow |
$ |
(145 |
) |
|
$ |
(111 |
) |
|
|
|
|
|
|
|
|
GAAP Net Income (Loss)
Attributable to the Company |
$ |
(8 |
) |
|
$ |
28 |
|
Add: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
100 |
|
|
|
100 |
|
Interest Expense, Net |
|
60 |
|
|
|
60 |
|
Provision for Taxes |
|
60 |
|
|
|
62 |
|
EBITDA |
$ |
212 |
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
EBITDA |
$ |
212 |
|
|
$ |
250 |
|
Adjustments |
|
44 |
|
|
|
50 |
|
Adjusted EBITDA |
$ |
256 |
|
|
$ |
300 |
|
*Sum of components may not tie due to rounding.1
Our forecasted U.S. GAAP net income (loss) attributable to the
Company does not include any amount representing forecasted pension
actuarial gain or loss because we have no basis to estimate pension
actuarial gain or loss amounts for the forecast period and cannot
estimate such amount without unreasonable effort. 2
Restructuring charges are primarily associated with workforce
reductions, facility closures, consultant fees, lease terminations
and asset impairments.3 Q2 2016 guidance includes an impairment
loss of $32 million which was recognized in Q1 2016 on our Agile
Vessel upon termination of its charter in May 2016 and given the
lack of opportunities for this vessel. Q3 2016 guidance
includes the $32 million impairment loss on our Agile Vessel as
well as an additional $12 million of impairment loss recognized in
Q3 2016 as we determined that the carrying values of certain marine
assets were not recoverable and exceeded their respective fair
values.4 $5 million gain for the exit of our joint venture
investment in THHE Fabricators Sdn. Bhd. (“THF”), a subsidiary of
TH Heavy Engineering Berhad (“THHE”), in the third quarter of
2016. The joint venture, which began in 2013, was mutually
and amicably terminated as low oil prices and persistent supply
overhang has softened the current market dynamics in Malaysia,
resulting in THHE and McDermott deciding to pursue different
paths. The Company is not in the business of buying and
selling joint ventures for a profit. Accordingly, the gain
realized from the sale of the investment was not in the normal
course of business, and is not expected to reoccur in the
future. 5 Includes the Non-GAAP adjustments described in
footnotes 2 and 3 above. The $5 million adjustment described
in footnote 4 is excluded as the gain was reflected in Other Income
in our Consolidated Statement of Operations and thus is excluded
from operating income.6 Diluted EPS is calculated using a
share count determined by whether the period has a net income or a
net loss. In the event of net income, Diluted EPS uses the
fully diluted share count; however, in the event of a net loss the
potentially dilutive shares are excluded from the share count.7 The
adjustments to GAAP Net Income have been income tax effected when
included in net income. Tax effects of Non-GAAP adjustments
represents the tax impacts of the adjustments during the
period. The Non-GAAP adjusting items are primarily
attributable to tax jurisdictions in which the Company, currently,
does not pay taxes and, therefore, no tax impact is applied to
them. For the Non-GAAP adjusting items in jurisdictions where
taxes are paid, the tax impacts on those adjustments are computed,
individually, using the statutory tax rate in effect in each
applicable taxable jurisdiction.
CONTACT:
Investors & Financial Media
Kathy Murray
Vice President, Treasurer and Investor Relations
281.870.5147
kamurray@mcdermott.com
McDermott (NYSE:MDR)
Historical Stock Chart
From Aug 2024 to Sep 2024
McDermott (NYSE:MDR)
Historical Stock Chart
From Sep 2023 to Sep 2024