BUSINESS COMBINATION (Tables)

6 Months Ended

Jun. 30, 2018

Purchase Consideration―We completed the Combination for a gross purchase price of approximately $4.6 billion ($4.1 billion net of cash acquired), detailed as follows (in millions, except per share amounts):

CB&I shares for Combination consideration		103
Conversion Ratio: 1 CB&I share = 0.82407 McDermott shares		85
McDermott stock price on May 10, 2018		$19.92
Equity Combination consideration transferred		$1,684
Fair value of converted awards earned prior to the Combination		9
Total equity Combination consideration transferred		1,693
Cash consideration transferred		2,872
Total Combination consideration transferred		4,565
Less: Cash acquired		(498)
Total Combination consideration transferred, net of cash acquired		$4,067

Summary of Preliminary Purchase Price Allocation

The following summarizes our preliminary purchase price allocation at the Combination Date (in millions):

	May 10, 2018
Net tangible assets:
Cash	$	498
Accounts receivable		905
Inventory		62
Contracts in progress		341
Assets held for sale ⁽¹⁾		66
Other current assets		153
Deferred tax assets		45
Investments in unconsolidated affiliates		403
Property, plant and equipment		409
Deferred tax liabilities		(17	)
Other non-current assets		145
Accounts payable		(498	)
Advance billings on contracts ⁽²⁾		(1,400	)
Other current liabilities		(1,189	)
Other non-current liabilities		(445	)
Total net tangible assets		(522	)
Project related intangible assets/liabilities, net ⁽³⁾		112
Other intangible assets ⁽⁴⁾		1,049
Net identifiable assets		639
Goodwill ⁽⁵⁾		3,926
Total Combination consideration transferred		4,565
Less: Cash acquired		(498	)
Total Combination consideration transferred, net of cash acquired	$	4,067

⁽¹⁾	Assets held for sale includes CB&I’s former administrative headquarters within Corporate and various fabrication facilities within NCSA.

⁽²⁾	Advance billings on contracts includes provisions for estimated losses on projects of $112 million.

⁽³⁾

Project related intangible assets/liabilities, net includes intangible asset and liabilities of $145 million and $33 million, respectively. The balances represent the fair value of acquired RPOs and normalized profit margin fair value associated with acquired long-term contracts that were deemed to be lower than fair value (excluding amounts recorded in Advance billings on contracts and Contracts in progress) as of the Combination Date. The project related intangible assets and liabilities will be amortized as the applicable projects progress over a range of 2 to 4 years within Project intangibles amortization in our Statements of Operations.

⁽⁴⁾

Other Intangible assets are reflected in the table below and recorded at estimated fair value, as determined by our management, based on available information which includes a preliminary valuation from outside experts. The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.


	May 10, 2018 Fair value		Useful Life Range		Weighted Average Life
	(In millions)
Process technologies	$	515	10-30			27
Trade names		420	10-20			12
Customer relationships		87		3-10		9
Trademarks		27		10		10
Total	$	1,049

⁽⁵⁾

Goodwill resulted from the acquired established workforce, which does not qualify for separate recognition, as well as expected future cost savings and revenue synergies associated with the combined operations. Of the $3.9 billion of estimated goodwill recorded in conjunction with the Combination, $1.7 billion is deductible for tax purposes. Given the proximity of the Combination Date to the reporting date of June 30, 2018, the allocation of goodwill for each of our operating groups is in process, and therefore has not been presented. We have not finalized our assessment of the fair values of purchased receivables, intangible assets and liabilities, inventory, property and equipment, joint venture and consortium arrangements, tax balances, contingent liabilities, long-term leases or acquired contracts. The purchase price allocation is based on preliminary information and is subject to change when additional information is obtained. The final purchase price allocation will result in adjustments to various assets and liabilities, including the residual amount allocated to goodwill during the measurement period.

Schedule of Other Intangible Assets

⁽¹⁾


	May 10, 2018 Fair value		Useful Life Range		Weighted Average Life
	(In millions)
Process technologies	$	515	10-30			27
Trade names		420	10-20			12
Customer relationships		87		3-10		9
Trademarks		27		10		10
Total	$	1,049

Summary of Pro Forma Financial Information

Further, the pro forma financial information does not purport to project the future operating results of the combined business operations following the Combination.

	Three Months Ended June 30,		Six Months Ended June 30,
	2018 ⁽¹⁾	2017	2018 ⁽¹⁾	2017
	(In millions)
Pro forma revenue	$2,492	$2,072	$4,845	$4,419
Pro forma net income (loss) attributable to McDermott	63	(315)	112	(334)
Pro forma net income (loss) per share attributable to McDermott:
Basic	0.44	(2.19)	0.78	(2.32)
Diluted	0.44	(2.19)	0.78	(2.32)

Basic ⁽²⁾	144	144	144	144
Diluted	144	144	144	144

⁽¹⁾

Adjustments, net of tax, included in the pro forma net income above were of a non-recurring nature and totaled $94 million and $109 million for the three and six months ended June 30, 2018, respectively. The adjustments reflect the elimination of restructuring and integration costs ($54 million and $62 million), transaction costs ($29 million and $36 million) and debt extinguishment costs ($11 million and $11 million) that were included in McDermott and CB&I’s historical results for the three and six months ended June 30, 2018, respectively. These pro forma results exclude the effect of adjustments to the opening balance sheet associated with fair value purchase accounting judgments.

⁽²⁾

Pro forma net income (loss) per share was calculated using basic and diluted shares outstanding as of June 30, 2018.