Profitable Quarter Due to Strong Project Execution and Cost Management Driven by the “One McDermott Way” Initiative
Strong Foundation for 2017, with $2.4 Billion of Expected Revenue in Backlog
Excellence in Project Execution exhibited by Fabrication Completion of Ayatsil-C, First Steel Cut for Abkatun-A2 and Completion of Caesar Tonga II Early in the Fourth Quarter
Company to Host Conference Call and Webcast Today at 4:00 pm CDT
HOUSTON, Oct. 25, 2016 (GLOBE NEWSWIRE) -- McDermott International, Inc. (NYSE:MDR) (“McDermott,” the “Company”, “we” or “us”) today announced financial and operational results for the three and nine months ended September 30, 2016.
| ($ 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) | |||
~ = approximately
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 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.