Attached files
file | filename |
---|---|
EX-12.1 - EX-12.1 - MCDERMOTT INTERNATIONAL INC | mdr-ex121_8.htm |
EX-32.2 - EX-32.2 - MCDERMOTT INTERNATIONAL INC | mdr-ex322_7.htm |
EX-32.1 - EX-32.1 - MCDERMOTT INTERNATIONAL INC | mdr-ex321_6.htm |
EX-31.2 - EX-31.2 - MCDERMOTT INTERNATIONAL INC | mdr-ex312_9.htm |
EX-31.1 - EX-31.1 - MCDERMOTT INTERNATIONAL INC | mdr-ex311_11.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-08430
McDERMOTT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA |
|
72-0593134 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
|
|
|
757 N. ELDRIDGE PKWY |
|
77079 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (281) 870-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
þ |
Accelerated filer |
¨ |
|
|
|
|
Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The number of shares of the registrant’s common stock outstanding at August 6, 2015 was 238,882,610.
INDEX—FORM 10-Q
McDERMOTT INTERNATIONAL, INC. |
|
||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
(Unaudited) |
|
|||||||||||||
|
(In thousands, except share and per share amounts) |
|
|||||||||||||
Revenues |
$ |
1,046,537 |
|
|
$ |
476,083 |
|
|
$ |
1,597,000 |
|
|
$ |
1,079,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
925,522 |
|
|
|
432,298 |
|
|
|
1,400,981 |
|
|
|
1,023,791 |
|
Selling, general and administrative expenses |
|
47,793 |
|
|
|
53,444 |
|
|
|
99,469 |
|
|
|
105,408 |
|
Loss (gain) on disposal of assets |
|
1,910 |
|
|
|
(35,105 |
) |
|
|
1,543 |
|
|
|
(41,544 |
) |
Impairment loss (gain) |
|
6,808 |
|
|
|
(10,664 |
) |
|
|
6,808 |
|
|
|
(10,664 |
) |
Restructuring expenses |
|
15,391 |
|
|
|
1,263 |
|
|
|
25,780 |
|
|
|
7,388 |
|
Total costs and expenses |
|
997,424 |
|
|
|
441,236 |
|
|
|
1,534,581 |
|
|
|
1,084,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Investments in Unconsolidated Affiliates |
|
(7,481 |
) |
|
|
(3,322 |
) |
|
|
(14,222 |
) |
|
|
(2,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
41,632 |
|
|
|
31,525 |
|
|
|
48,197 |
|
|
|
(6,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
(12,985 |
) |
|
|
(38,745 |
) |
|
|
(25,164 |
) |
|
|
(38,684 |
) |
Gain on foreign currency, net |
|
1,943 |
|
|
|
6,622 |
|
|
|
475 |
|
|
|
2,540 |
|
Other expense, net |
|
(359 |
) |
|
|
(312 |
) |
|
|
(456 |
) |
|
|
(577 |
) |
Total other expense |
|
(11,401 |
) |
|
|
(32,435 |
) |
|
|
(25,145 |
) |
|
|
(36,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes and noncontrolling interests |
|
30,231 |
|
|
|
(910 |
) |
|
|
23,052 |
|
|
|
(43,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
16,541 |
|
|
|
4,788 |
|
|
|
21,410 |
|
|
|
8,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
13,690 |
|
|
|
(5,698 |
) |
|
|
1,642 |
|
|
|
(51,682 |
) |
Less: net income attributable to noncontrolling interest |
|
2,164 |
|
|
|
1,699 |
|
|
|
4,623 |
|
|
|
2,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to McDermott International, Inc. |
$ |
11,526 |
|
|
$ |
(7,397 |
) |
|
$ |
(2,981 |
) |
|
$ |
(53,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to McDermott International, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.05 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.23 |
) |
Diluted |
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the computation of income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
238,332,012 |
|
|
|
237,395,580 |
|
|
|
237,918,366 |
|
|
|
237,178,369 |
|
Diluted: |
|
289,689,981 |
|
|
|
237,395,580 |
|
|
|
237,918,366 |
|
|
|
237,178,369 |
|
See accompanying notes to the Consolidated Financial Statements.
3
McDERMOTT INTERNATIONAL, INC. |
|
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
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|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
|
(Unaudited) |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
Net income (loss) |
|
$ |
13,690 |
|
|
$ |
(5,698 |
) |
|
$ |
1,642 |
|
|
$ |
(51,682 |
) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments |
|
|
4 |
|
|
|
31 |
|
|
|
16 |
|
|
|
7 |
|
Foreign currency translation adjustment |
|
|
(4,944 |
) |
|
|
(939 |
) |
|
|
(6,986 |
) |
|
|
(1,260 |
) |
Gain on derivatives |
|
|
27,559 |
|
|
|
737 |
|
|
|
10,674 |
|
|
|
15,266 |
|
Other comprehensive income (loss), net of tax |
|
|
22,619 |
|
|
|
(171 |
) |
|
|
3,704 |
|
|
|
14,013 |
|
Total comprehensive income (loss) |
|
|
36,309 |
|
|
|
(5,869 |
) |
|
|
5,346 |
|
|
|
(37,669 |
) |
Less: comprehensive income attributable to non-controlling interests |
|
|
2,117 |
|
|
|
1,701 |
|
|
|
4,543 |
|
|
|
2,204 |
|
Comprehensive income (loss) attributable to McDermott International, Inc. |
|
$ |
34,192 |
|
|
$ |
(7,570 |
) |
|
$ |
803 |
|
|
$ |
(39,873 |
) |
See accompanying notes to the Consolidated Financial Statements.
4
McDERMOTT INTERNATIONAL, INC. |
|
|||||||
CONSOLIDATED BALANCE SHEETS |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
||
|
|
(Unaudited) |
|
|||||
|
|
(In thousands, except shares and par value data) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
576,575 |
|
|
$ |
665,309 |
|
Restricted cash and cash equivalents |
|
|
194,427 |
|
|
|
187,585 |
|
Accounts receivable – trade, net |
|
|
287,264 |
|
|
|
143,370 |
|
Accounts receivable – other |
|
|
67,727 |
|
|
|
79,915 |
|
Contracts in progress |
|
|
400,720 |
|
|
|
357,617 |
|
Deferred income taxes |
|
|
10,398 |
|
|
|
7,514 |
|
Other current assets |
|
|
43,837 |
|
|
|
46,071 |
|
Total Current Assets |
|
|
1,580,948 |
|
|
|
1,487,381 |
|
Property, Plant and Equipment |
|
|
2,455,604 |
|
|
|
2,487,815 |
|
Less Accumulated depreciation |
|
|
(837,739 |
) |
|
|
(830,467 |
) |
Net Property, Plant and Equipment |
|
|
1,617,865 |
|
|
|
1,657,348 |
|
Accounts Receivable – Long-Term Retainages |
|
|
140,867 |
|
|
|
137,468 |
|
Investments in Unconsolidated Affiliates |
|
|
28,849 |
|
|
|
38,186 |
|
Deferred Income Taxes |
|
|
13,713 |
|
|
|
17,313 |
|
Investments |
|
|
1,056 |
|
|
|
2,216 |
|
Other Assets |
|
|
101,241 |
|
|
|
76,967 |
|
Total Assets |
|
$ |
3,484,539 |
|
|
$ |
3,416,879 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Notes payable and current maturities of long-term debt |
|
$ |
27,690 |
|
|
$ |
27,026 |
|
Accounts payable |
|
|
326,765 |
|
|
|
219,384 |
|
Accrued liabilities |
|
|
428,149 |
|
|
|
369,749 |
|
Advance billings on contracts |
|
|
113,086 |
|
|
|
199,865 |
|
Deferred income taxes |
|
|
17,822 |
|
|
|
19,753 |
|
Income taxes payable |
|
|
24,921 |
|
|
|
25,165 |
|
Total Current Liabilities |
|
|
938,433 |
|
|
|
860,942 |
|
Long-Term Debt |
|
|
826,472 |
|
|
|
837,443 |
|
Self-Insurance |
|
|
18,793 |
|
|
|
17,026 |
|
Pension Liability |
|
|
17,253 |
|
|
|
18,403 |
|
Non-current Income Taxes |
|
|
48,602 |
|
|
|
49,229 |
|
Other Liabilities |
|
|
82,180 |
|
|
|
94,722 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per share, authorized |
|
|
|
|
|
|
|
|
400,000,000 shares; issued and outstanding 246,682,747 and 245,209,850 shares, respectively |
|
|
246,683 |
|
|
|
245,210 |
|
Capital in excess of par value (including prepaid common stock purchase contracts) |
|
1,684,395 |
|
|
|
1,676,815 |
|
|
Accumulated Deficit |
|
|
(242,553 |
) |
|
|
(239,572 |
) |
Treasury stock, at cost: 7,802,013 and 7,400,027 shares, respectively |
|
|
(97,076 |
) |
|
|
(96,441 |
) |
Accumulated other comprehensive loss |
|
|
(94,024 |
) |
|
|
(97,808 |
) |
Stockholders' Equity - McDermott International, Inc. |
|
|
1,497,425 |
|
|
|
1,488,204 |
|
Noncontrolling interest |
|
|
55,381 |
|
|
|
50,910 |
|
Total Equity |
|
|
1,552,806 |
|
|
|
1,539,114 |
|
Total Liabilities and Equity |
|
$ |
3,484,539 |
|
|
$ |
3,416,879 |
|
See accompanying notes to the Consolidated Financial Statements.
5
McDERMOTT INTERNATIONAL, INC. |
|
|||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Six Month Ended June 30, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
(Unaudited) |
|
|||||
|
|
(In thousands) |
|
|||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,642 |
|
|
$ |
(51,682 |
) |
Non-cash items included in net income (loss): |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
51,371 |
|
|
|
46,247 |
|
Drydock amortization |
|
|
9,658 |
|
|
|
9,966 |
|
Stock-based compensation charges |
|
|
9,891 |
|
|
|
10,352 |
|
Loss from investments in unconsolidated affiliates |
|
|
14,222 |
|
|
|
2,199 |
|
Loss (gain) on asset disposals |
|
|
1,543 |
|
|
|
(41,544 |
) |
Impairment loss (gain) |
|
|
6,808 |
|
|
|
(10,664 |
) |
Restructuring expense (gain) |
|
|
9,153 |
|
|
|
(982 |
) |
Deferred taxes |
|
|
(1,215 |
) |
|
|
(4,375 |
) |
Other non-cash items |
|
|
(495 |
) |
|
|
(2,868 |
) |
Changes in assets and liabilities, net of effects from acquisitions and dispositions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(147,293 |
) |
|
|
86,305 |
|
Net contracts in progress and advance billings on contracts |
|
|
(129,932 |
) |
|
|
(88,771 |
) |
Accounts payable |
|
|
120,586 |
|
|
|
(31,756 |
) |
Accrued and other current liabilities |
|
|
48,380 |
|
|
|
(9,706 |
) |
Pension liability and accrued postretirement and employee benefits |
|
|
(942 |
) |
|
|
9,563 |
|
Other assets and liabilities |
|
|
(19,443 |
) |
|
|
(15,195 |
) |
TOTAL CASH USED IN OPERATING ACTIVITIES |
|
|
(26,066 |
) |
|
|
(92,911 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(47,985 |
) |
|
|
(154,957 |
) |
Increase in restricted cash and cash equivalents |
|
|
(6,842 |
) |
|
|
(166,219 |
) |
Purchases of available-for-sale securities |
|
|
- |
|
|
|
(1,997 |
) |
Sales and maturities of available-for-sale securities |
|
|
2,875 |
|
|
|
11,303 |
|
Investments in unconsolidated affiliates |
|
|
(4,783 |
) |
|
|
(2,370 |
) |
Proceeds from asset dispositions |
|
|
10,510 |
|
|
|
53,704 |
|
Other |
|
|
(232 |
) |
|
|
(2,706 |
) |
TOTAL CASH USED IN INVESTING ACTIVITIES |
|
|
(46,457 |
) |
|
|
(263,242 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
- |
|
|
|
1,337,500 |
|
Repayment of debt |
|
|
(13,402 |
) |
|
|
(285,705 |
) |
Debt issuance cost |
|
|
- |
|
|
|
(45,521 |
) |
Distribution to noncontrolling interest |
|
|
(24 |
) |
|
|
(3,754 |
) |
Other |
|
|
(1,437 |
) |
|
|
(1,244 |
) |
TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
(14,863 |
) |
|
|
1,001,276 |
|
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE CHANGES ON CASH |
|
|
(1,348 |
) |
|
|
209 |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(88,734 |
) |
|
|
645,332 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
665,309 |
|
|
|
118,702 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
576,575 |
|
|
$ |
764,034 |
|
See accompanying notes to the Consolidated Financial Statements.
6
|
|||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF EQUITY |
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Common Stock |
|
|
in Excess |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Treasury |
|
|
Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||||
|
Shares |
|
|
Par Value |
|
|
of Par Value |
|
|
Deficit |
|
|
Loss ("AOCI") |
|
|
Stock |
|
|
Equity |
|
|
Interest ("NCI") |
|
|
Equity |
|
|||||||||
|
(Unaudited) |
|
|||||||||||||||||||||||||||||||||
|
(In thousands, except shares) |
|
|||||||||||||||||||||||||||||||||
Balance at December 31, 2014 |
|
245,209,850 |
|
|
$ |
245,210 |
|
|
$ |
1,676,815 |
|
|
$ |
(239,572 |
) |
|
$ |
(97,808 |
) |
|
$ |
(96,441 |
) |
|
$ |
1,488,204 |
|
|
$ |
50,910 |
|
|
$ |
1,539,114 |
|
Net income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,981 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,981 |
) |
|
|
4,623 |
|
|
|
1,642 |
|
Other comprehensive income (loss), net of tax |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,784 |
|
|
|
- |
|
|
|
3,784 |
|
|
|
(80 |
) |
|
|
3,704 |
|
Exercise of stock options |
|
196,340 |
|
|
|
196 |
|
|
|
484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680 |
|
|
|
|
|
|
|
680 |
|
Share vesting |
|
1,282,118 |
|
|
|
1,282 |
|
|
|
(1,282 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation charges |
|
- |
|
|
|
- |
|
|
|
8,330 |
|
|
|
- |
|
|
|
- |
|
|
|
813 |
|
|
|
9,143 |
|
|
|
- |
|
|
|
9,143 |
|
Acquisition of noncontrolling interest |
|
- |
|
|
|
- |
|
|
|
48 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48 |
|
|
|
(72 |
) |
|
|
(24 |
) |
Purchase of treasury shares |
|
(5,561 |
) |
|
|
(5 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,448 |
) |
|
|
(1,453 |
) |
|
|
- |
|
|
|
(1,453 |
) |
Balance at June 30, 2015 |
|
246,682,747 |
|
|
$ |
246,683 |
|
|
$ |
1,684,395 |
|
|
$ |
(242,553 |
) |
|
$ |
(94,024 |
) |
|
$ |
(97,076 |
) |
|
$ |
1,497,425 |
|
|
$ |
55,381 |
|
|
$ |
1,552,806 |
|
See accompanying notes to the Consolidated Financial Statements.
7
McDERMOTT INTERNATIONAL, INC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) TABLE OF CONTENTS
|
PAGE |
Note 1—Basis of Presentation and Significant Accounting Policies |
9 |
10 |
|
11 |
|
13 |
|
Note 5—Contracts in Progress and Advance Billings on Contracts |
14 |
14 |
|
16 |
|
17 |
|
17 |
|
18 |
|
20 |
|
21 |
|
21 |
|
23 |
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
McDermott International, Inc. (“MII”), a corporation incorporated under the laws of the Republic of Panama in 1959, is an engineering, procurement, construction and installation (“EPCI”) company focused on designing and executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services, we deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning. Operating in approximately 20 countries across the Americas, Europe, Africa, the Middle East and Asia, our integrated resources include a diversified fleet of marine vessels, fabrication facilities and engineering offices. We report our financial results under three reporting segments, consisting of the Americas, Europe and Africa (“AEA”) segment, the Middle East (“MEA”) segment and the Asia (“ASA”) segment. We support our activities with comprehensive project management and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include national, major integrated and other oil and gas companies, and we operate in most major offshore oil and gas producing regions throughout the world. We execute our contracts through a variety of methods, principally fixed-price, but also including cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those methods. In these notes to our accompanying unaudited Consolidated Financial Statements, unless the context otherwise indicates, “we,” “us” and “our” mean MII and its consolidated subsidiaries.
Basis of Presentation
The accompanying Consolidated Financial Statements are unaudited and have been prepared from our books and records in accordance with Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of our management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of results of operations for a full year. These Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and notes thereto included in MII’s Current Report on Form 8-K filed with the SEC on May 11, 2015.
Classification
During the quarter ended September 30, 2014, we committed to a plan to sell certain vessel equipment, including dynamic positioning thrusters and a deepwater pipelay winch system. These assets were classified as held for sale in subsequent quarterly and annual financial statements. In June 2015, we reclassified these assets as held for use in Property, Plant and Equipment in our Consolidated Balance Sheet. The decision to reclassify these assets was based on our determination not to proceed with a sale and to explore alternative uses for these assets within our vessel fleet instead, which we expect to be economically advantageous compared to a sale in the current environment.
Our Consolidated Financial Statements classify current derivative financial instrument assets as a component of Other current assets and current derivative financial instrument liabilities as a component of Accrued liabilities. In 2014, $1.2 million of current derivative financial instrument assets and $32.4 million of derivative financial instrument liabilities were reported in Accounts receivable–other and Accounts payable, respectively.
Recently Issued and Adopted Accounting Guidance
In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The new guidance does not affect the recognition and measurement of debt issuance costs. Therefore, the amortization of debt issuance costs will be calculated using the interest method and be reported as interest expense. Retrospective application of this ASU is required for public entities for annual and interim periods beginning on or after December 15, 2015, and early adoption is permitted. We adopted this ASU in the first quarter of 2015. As a result, our accompanying Consolidated Financial Statements reflect debt issuance costs related to long-term debt as components of Long-term debt. These costs were previously reported by us as Other Assets (see Note 7). All comparable periods presented have been revised to reflect this change.
9
McDERMOTT INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates the concept of extraordinary items. Under this new guidance, entities will no longer be required to separately classify, present and disclose extraordinary events and transactions. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. We adopted this ASU in the second quarter of 2015. Our adoption of this ASU did not have any impact on the accompanying Consolidated Financial Statements.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the definition of a discontinued operation by raising the threshold for a disposal to qualify as discontinued operations. ASU 2014-08 also requires entities to provide additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The pronouncement is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014. The application of this ASU did not have any impact on the accompanying Consolidated Financial Statements.
Accounting Guidance Issued But Not Adopted as of June 30, 2015
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which amends and changes the consolidation analysis currently required under U.S. GAAP. This ASU modifies the process used to evaluate whether limited partnerships and similar entities are variable interest entities or voting interest entities; affects the analysis performed by reporting entities regarding variable interest entities, particularly those with fee arrangements and related party relationships; and provides a scope exception for certain investment funds. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. We are currently assessing the impact of these amendments on our future Consolidated Financial Statements and related disclosures.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Currently, there is no guidance in effect under U.S. GAAP regarding management’s responsibility to assess whether there is substantial doubt about an entity’s ability to continue as a going concern. Under ASU 2014-15, we will be required to assess our ability to continue as a going concern each interim and annual reporting period and provide certain disclosures if there is substantial doubt about our ability to continue as a going concern, including management’s plan to alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter with early adoption permitted. We are currently assessing the impact of the adoption of ASU 2014-15 on our future Consolidated Financial Statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 will be effective for us for annual and interim reporting periods beginning after December 15, 2016, with early application not permitted. Retrospective and modified retrospective application is allowed. In July 2015, the FASB approved the proposal to defer the original effective date for one year until December 15, 2017. We are currently evaluating the requirements of this ASU and have not yet determined its impact on our future Consolidated Financial Statements and related disclosures.
Unapproved Change Orders
As of June 30, 2015, total unapproved change orders included in our estimates at completion aggregated $158.7 million, of which approximately $37.6 million was included in backlog. As of June 30, 2014, total unapproved change orders included in our estimates at completion aggregated $297 million, of which approximately $44 million was included in backlog.
Claims Revenue
The amount of revenues and costs included in our estimates at completion (i.e., contract values) associated with claims, all of which related to our MEA segment, was $6.5 million as of June 30, 2015 and 2014. In the accompanying Consolidated Financial Statements, for the three and six months ended June 30, 2015 and 2014, no material claims were included in revenues or costs. None of the pending claims reflected in our estimates at completion as of June 30, 2015 were the subject of any litigation proceedings.
10
McDERMOTT INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended June 30, 2015 and 2014, we did not account for any projects under our deferred profit recognition policy.
Completed Contract Method
For the three and six months ended June 30, 2015 and 2014, we did not account for any contracts under the completed contract method.
Loss Recognition
As of June 30, 2015, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when determined.
Of the June 30, 2015 backlog, approximately $364.8 million primarily related to three active projects that were in loss positions, as a result of which future revenues are expected to equal costs when recognized. Included in this amount was $117.4 million of backlog associated with an EPCI project, PB Litoral, in Mexico, which is expected to be completed in the fourth quarter of 2015, and $76.5 million of backlog pertaining to the five-year Agile vessel charter in Brazil, which is expected to be completed in the first quarter of 2017, both of which are managed by our AEA segment. The June 30, 2015 backlog amount also included $170.7 million relating to an EPCI project, KJO Hout, in our MEA segment, which is also in a loss position and is expected to be completed in the second quarter of 2017. It is possible that our estimates of gross profit could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and claims with the customers.
We use estimates and assumptions to prepare our financial statements in conformity with U.S. GAAP. Those estimates and assumptions affect the amounts we report in our consolidated financial statements and accompanying notes. Our actual results could differ from those estimates, and variances could materially affect our financial condition and results of operations in future periods. Changes in project estimates generally exclude change orders and changes in scope, but may include, without limitation, changes in cost recovery estimates, unexpected changes in weather conditions, changes in productivity, unidentified required vessel repairs, customer and vendor delays and other costs. We generally expect to experience a reasonable amount of unanticipated events, and some of those events can result in significant cost increases above cost amounts we previously estimated. As of June 30, 2015, we have provided for our estimated costs to complete on all our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when determined.
The following is a discussion of our most significant changes in estimates that impacted operating income for the three and six months ended June 30, 2015 and 2014.
Three months ended June 30, 2015
Operating income for the three months ended June 30, 2015 was positively impacted by net favorable changes in cost estimates totaling approximately $7.3 million across all segments.
The AEA segment was positively impacted by net favorable changes in estimates aggregating approximately $3.4 million, primarily due to reduced cost estimates attributable to the contract close-out process associated with the Papa Terra EPCI project in Brazil.
The MEA segment had net favorable changes in estimates aggregating approximately $0.6 million. A project in Saudi Arabia was positively impacted by $7 million due to productivity improvements and associated cost savings on the Intermac 406 vessel, which is working on a cable lay project. These favorable changes were partially offset by a $4.9 million increase in pipelay cost estimates on a U.A.E. project, primarily due to changes in execution plan, and $1.5 million of unfavorable change in estimates for multiple projects.
The ASA segment was positively impacted by net favorable changes in estimates and productivity bonuses earned totaling approximately $3.3 million, driven by multiple projects, none of the individual results of which were material.
11
McDERMOTT INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
Six months ended June 30, 2015
Operating income for the six months ended June 30, 2015 was positively impacted by net favorable changes in cost estimates totaling approximately $28.9 million across all segments.
The AEA segment was positively impacted by net favorable changes in estimates aggregating approximately $10.0 million. Improvements primarily related to reduced cost estimates of approximately $3.4 million attributable to the Papa Terra project, $3.8 million due to productivity improvements on the Agile charter and reduced cost estimates of $3.6 million attributable to a revised demobilization plan for one of our vessels, the North Ocean 105 (the “NO 105”), which is working on a subsea project in Brazil, partially offset by unfavorable impact of $0.8 million driven by multiple projects.
The MEA segment was positively impacted by net favorable changes in estimates aggregating approximately $9.7 million. One EPCI project in Saudi Arabia was positively impacted by $6.9 million due to changes in revenue recovery and cost savings based on agreement with a customer on design optimization. . Another project in the U.A.E. improved by $4.8 million as a result of an agreement with the customer on compensation for vessel downtime due to weather and standby delays. A project in Saudi Arabia was positively impacted by $7.4 million of changes mostly due to productivity improvements and associated cost savings on the Intermac 406, which is working on a cable lay project. We also had favorable changes of $1.3 million from multiple projects, none of the individual results of which were material. These favorable changes were partially offset by a $5.8 million negative impact on another EPCI project in Saudi Arabia, primarily due to increase in cost estimates, as a result of a change in marine execution plans, and a $4.9 million increase in pipelay cost estimates on a U.A.E. project, as a result of changes in execution plan.
The ASA segment experienced an improvement of approximately $9.2 million, driven by multiple projects, none of the individual results of which were material, primarily due to favorable changes in estimates.
Three months ended June 30, 2014
Operating income for the three months ended June 30, 2014 was positively impacted by $24.4 million of net favorable changes in cost estimates.
The AEA segment deteriorated by a net $13.4 million from changes in estimates on three projects. On the PB Litoral project, we increased our estimated costs to complete by approximately $20 million, primarily due to projected fabrication cost increases, reflecting reduced productivity and execution plan changes to mitigate further project delays, as well as procurement and marine installation cost increases. This project is in a loss position and is estimated to be completed in the fourth quarter of 2015. On Jack & St. Malo, a subsea project in the Gulf of Mexico, we increased our estimated costs to complete by approximately $23.3 million, primarily due to equipment downtime issues on the North Ocean 102 (the “NO102”), our primary vessel working on the project. This project was completed in the third quarter of 2014. These negative impacts were partially offset by approximately $30 million of project close-out improvements on the Papa Terra project, which was completed in 2014, from marine cost reductions and increased recoveries due to successful developments from an approval process for additional weather-related compensation.
The MEA segment experienced net favorable changes in estimates aggregating approximately $22 million, primarily due to increased cost recovery estimates of approximately $29.2 million on a pipelay project in the Caspian, which was completed in 2014. The increased cost recovery estimates were based on positive developments during the three months ended June 30, 2014 from a project close-out process with the customer. This improvement was partially offset by $7.2 million of increased estimated costs to complete an EPCI project in Saudi Arabia, mainly for the onshore scope of the project.
The ASA segment was positively impacted by net favorable changes in estimates aggregating approximately $15.8 million, mostly due to reduced cost estimates on the Siakap Subsea Development (“Siakap”), a subsea project in Malaysia, which was completed in 2014, of approximately $10.2 million during the three months ended June 30, 2014. Those reduced cost estimates were primarily related to project close-out savings on marine spread and procurement costs. In addition, completion of three smaller projects resulted in project close-out savings of approximately $5.6 million.
Six months ended June 30, 2014
Operating income for the six months ended June 30, 2014 was negatively impacted by $21.2 million of net unfavorable changes in cost estimates.
The AEA segment was negatively impacted by net unfavorable changes in estimates aggregating approximately $39.3 million associated with four projects. On the PB Litoral project, we increased our estimated costs to complete by approximately $55.4 million
12
McDERMOTT INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
due to liquidated damages and extended project management costs arising from project delays, projected fabrication cost increases reflecting reduced productivity and execution plan changes to mitigate further project delays, as well as procurement and marine installation cost increases. This project is in a loss position and is estimated to be completed in the fourth quarter of 2015. On the Jack & St. Malo project, we increased our estimated costs to complete by approximately $22.5 million, primarily due to equipment downtime issues on the NO102, our primary vessel working on the project. This project was completed in the third quarter of 2014. These negative impacts were partially offset by $33.7 million of project close out improvements on the Papa Terra project, from marine cost reductions upon completion of activities and increased recoveries due to successful developments from an approval process for additional weather-related compensation. We also recognized $4.9 million of cost reductions, mainly due to project close-out improvements on Tubular Bells Gulfstar, a marine installation project in the Gulf of Mexico.
The MEA segment was negatively impacted by net unfavorable changes aggregating approximately $12.7 million, due to changes in five projects in the region. On three EPCI projects in Saudi Arabia, we increased our estimated cost at completion by approximately $35.3 million, primarily as a result of vessel downtime due to weather and standby delays, reduced productivity levels and increased cost estimates to complete the onshore scope of one of the projects. On another EPCI project in Saudi Arabia, we increased our overall estimated costs to complete by approximately $6.6 million related to (1) the onshore work which was substantially completed in July 2014 and (2) delays in completing the offshore work, due to limited access to the project site, which was caused by schedule conflicts with another contractor. These negative changes were partially offset by approximately $29.1 million of increased cost recovery estimates on a pipelay project in the Caspian, based on positive developments during the six months ended June 30, 2014 from the project close-out process with the customer.
The ASA segment experienced net favorable changes in estimates aggregating approximately $30.8 million, mostly due to changes in estimates on the Siakap project, during the six months ended June 30, 2014. Those changes were primarily related to productivity improvements on our marine vessels and offshore support activities, as well as project close-out savings.
Accounts Receivable—Trade, Net
A summary of contract receivables is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
||
|
|
(in thousands) |
|
|||||
Contract receivables: |
|
|
|
|
|
|
|
|
Contracts in progress |
|
$ |
277,871 |
|
|
$ |
106,174 |
|
Completed contracts |
|
|
15,934 |
|
|
|
34,698 |
|
Retainages |
|
|
14,954 |
|
|
|
28,586 |
|
Unbilled |
|
|
4,303 |
|
|
|
4,303 |
|
Less allowances |
|
|
(25,798 |
) |
|
|
(30,391 |
) |
Accounts receivable-trade, net |
|
$ |
287,264 |
|
|
$ |
143,370 |
|
Contract retainages generally represent amounts withheld by our customers until project completion, in accordance with the terms of the applicable contracts. The following is a summary of retainages on our contracts:
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
||
|
|
(in thousands) |
|
|||||
Retainages expected to be collected within one year |
|
$ |
14,954 |
|
|
$ |
28,586 |
|
Retainages expected to be collected after one year |
|
|
140,867 |
|
|
|
137,468 |
|
Total retainages |
|
$ |
155,821 |
|
|
$ |
166,054 |
|
13
McDERMOTT INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
NOTE 5—CONTRACTS IN PROGRESS AND ADVANCE BILLINGS ON CONTRACTS
Components of contracts in progress and advance billings on contracts are as follows:
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
||
|
|
(In thousands) |
|
|||||
Costs incurred less costs of revenue recognized |
|
$ |
107,199 |
|
|
$ |
90,191 |
|
Revenues recognized less billings to customers |
|
|
293,521 |
|
|
|
267,426 |
|
Contracts in Progress |
|
$ |
400,720 |
|
|
$ |
357,617 |
|
|
|
|
|
|
|