XML 58 R35.htm IDEA: XBRL DOCUMENT

BUSINESS COMBINATION (Tables)

12 Months Ended

Dec. 31, 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):

		(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		879
Inventory		111
Contracts in progress		273
Assets held for sale ⁽¹⁾		70
Other current assets		273
Deferred tax assets		-
Investments in unconsolidated affiliates⁽²⁾		428
Property, plant and equipment		401
Other non-current assets		127
Accounts payable		(472	)
Advance billings on contracts ⁽³⁾		(2,410	)
Deferred tax liabilities		(16	)
Other current liabilities		(1,200	)
Other non-current liabilities		(454	)
Noncontrolling interest		14
Total net tangible liabilities		(1,478	)
Project-related intangible assets/liabilities, net ⁽⁴⁾		150
Other intangible assets ⁽⁵⁾		1,071
Net identifiable liabilities		(257	)
Goodwill ⁽⁶⁾		4,822
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. During the third quarter of 2018, we completed the sale of CB&I’s former administrative headquarters for proceeds of $52 million.}

⁽²⁾

^{Investments in unconsolidated affiliates includes a fair value adjustment of $217 million associated with the Combination. Approximately $148 million of the fair value adjustment is attributable to the basis difference between McDermott’s investment and the underlying equity in identifiable assets of unconsolidated affiliates and will be amortized to Investment in unconsolidated affiliate related amortization over a range of two to 30 years based on the life of assets to which the basis difference is attributed.}

⁽³⁾

^{Advance billings on contracts includes accrued provisions for estimated losses on projects of $374 million. See the discussions below and in Note 4, Revenue Recognition, for information concerning our acquired significant loss projects, including changes since our initial preliminary estimates reported for the second quarter of 2018.}

⁽⁴⁾

^{Project-related intangible assets/liabilities, net includes intangible asset and liabilities of $259 million and $109 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 two to six years within Project intangibles amortization in our Statements of Operations.}

⁽⁵⁾

^{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 external 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	$	514	10-30		27
Trade names		401	10-20		12
Customer relationships		129	4-11		10
Trademarks		27	10		10
Total	$	1,071

⁽⁶⁾

^{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 $4.8 billion of estimated goodwill recorded in conjunction with the Combination, $1.7 billion is deductible for tax purposes. See Note 9, Goodwill and Other Intangible Assets, for our allocation of goodwill by reporting segment and discussion of impairment charges recorded during the fourth quarter of 2018.}

Schedule of Other Intangible Assets

⁽⁵⁾

	May 10, 2018
	Fair value		Useful Life Range	Weighted Average Life
	(In millions)
Process technologies	$	514	10-30		27
Trade names		401	10-20		12
Customer relationships		129	4-11		10
Trademarks		27	10		10
Total	$	1,071

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.

	Year ended December 31,
	2018 ⁽¹⁾			2017 ⁽¹⁾			2016 ⁽¹⁾
	(In millions, except per share amounts)
Pro forma revenue	$	9,208		$	9,658		$	11,236
Net (loss) income attributable to common stockholders		(2,523	)		(1,189	)		55
Pro forma net (loss) income per share attributable to common stockholders
Basic	$	(13.94	)	$	(6.57	)	$	0.31
Diluted	$	(13.94	)	$	(6.57	)	$	0.29

Basic ⁽²⁾		181			181			181
Diluted		181			181			188

⁽¹⁾	Adjustments, net of tax, included in the pro forma net income above that were of a non-recurring nature include:

•

2018—elimination of (1) restructuring and integration costs ($112 million); (2) transaction costs ($37 million); and (3) debt extinguishment costs ($11 million);

•

2017—elimination of restructuring costs ($81 million); and

•

2016—elimination of restructuring costs ($7 million).

These pro forma results exclude the effect of adjustments to the opening balance sheet associated with fair value purchase accounting estimates.

⁽²⁾

^{Pro forma net (loss) income per share was calculated using weighted average basic and diluted shares outstanding during the fourth quarter of 2018. The effects of restricted stock, warrants and redeemable preferred stock were not included in the calculation of diluted earnings per share for 2018 and 2017, due to the net losses in those periods. 2016 diluted shares include restricted stock units and warrants; the impact of the redeemable preferred stock is antidilutive.}