McDermott Reports Fourth Quarter and Full Year 2013 Financial Results

  McDermott Reports Fourth Quarter and Full Year 2013 Financial Results       Solid Backlog, Business Improvement Initiatives, and Focus on Subsea   Opportunities Expected to Stabilize Business and Position the Company for                                Long-Term Growth         Company to Host Conference Call and Webcast Today at 4:00 pm CT  Business Wire  HOUSTON -- March 3, 2014  McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today announced financial results for the fourth quarter and full year ended December 31, 2013. The Company reported a fourth quarter net loss of $324 million or $1.37 per fully diluted share, and an operating loss of $316 million, of which approximately 80% relates to cash outlays that were made prior to the fourth quarter. The Company reported fourth quarter revenues of $517 million, a decrease of 48% percent compared to $996 million in the corresponding period of 2012. The Company reported fourth quarter 2012 net income of $41 million, or $0.17 per fully diluted share, and operating income of $77 million.  For the year ended December 31, 2013, the Company reported revenues of $2.7 billion, compared to $3.6 billion for the year ended December 31, 2012. The Company reported an operating loss of $465 million in the year ended December 31, 2013 compared to operating income of $319 million in the year ended December 31, 2012.  Of the $316 million fourth quarter operating loss, approximately $134 million was related to commercial issues, approximately $80 million was related to operational matters, approximately $86 million was related to asset impairments and approximately $16 million was related to restructuring charges in the Atlantic Segment and a corporate reorganization.  On December 16, 2013, David Dickson assumed the role of President and Chief Executive Officer and was concurrently appointed to McDermott’s Board of Directors. Mr. Dickson, age 46, joined the Company on October 31, 2013 as Executive Vice President and Chief Operating Officer. He has approximately 24 years of offshore oilfield engineering and construction business experience, including 11 years of experience with Technip S.A. and its subsidiaries. From September 2008 until October 2013, he served as President of Technip USA Inc., with oversight responsibilities for all of Technip’s North American operations.  “During the fourth quarter, we worked through a number of legacy issues, reviewed our backlog in light of new developments and recorded a number of charges, most of which related to prior period cash outlays,” said Mr. Dickson. “Although the Company’s fourth quarter results are disappointing, we are taking the right steps to stabilize the business and drive long-term growth, profitability and shareholder value creation as a leading global offshore and subsea contractor.  McDermott is at a strategic inflection point, and we are making good progress toward improving our internal processes and risk management. We secured a new financing commitment to enhance our financial flexibility and are increasing operational efficiency through a new organizational design, while taking the necessary steps to deliver improved and predictable execution. Driving profitability and cash flow remains our top priority, and we are reevaluating our capital expenditures, reducing our cost structure and exploring the divestiture of non-core assets to achieve that goal.”  Dickson added, “McDermott is a strong company with a dynamic and talented team in place to ensure that our organization is positioned to succeed going forward. We are encouraged by a number of important customer wins during the quarter, along with an attractive pipeline of potential projects. McDermott delivers tremendous value to its customers, and we look forward to capitalizing on the Company’s strategic advantages in the marketplace to create value for our shareholders.”  Fourth Quarter Project Update  Of the approximately $134 million of operating losses related to commercial issues, key drivers included changes to the Company’s recovery estimates on projects with unapproved change orders or claims previously submitted to customers. In most cases, the work was performed and cost was incurred prior to the fourth quarter. Specifically, the Company recorded a $91 million loss related to unapproved claims on two projects in the quarter.  Of the approximately $80 million of operating losses related to operational matters, approximately $50 million was attributable to our typical sales, general and administrative costs. In addition, a key driver was a $28 million loss related to a deepwater pipelay project offshore Malaysia, primarily due to mechanical downtime on one of its vessels. The vessel has since resumed work, and the customer reached first oil last month. The project is expected to be completed in March 2014.  The Company also revised its expectations with respect to the Papa Terra project offshore Brazil, primarily due to weather and operating conditions that prevented the Company from making sufficient progress during the quarter. The Company now expects the project to be approximately breakeven. As of today, the platform is installed and the marine activities are nearly complete. The Company is in the process of demobilizing the equipment and vessels from the field and expects to be substantially complete with the project later this month.  The Ichthys subsea field development project, the largest subsea project in the industry at its time of award, is on schedule. Over the last quarter, the Company has conducted an extensive review of the project with experienced individuals who have joined the Company and has concluded that the project is expected to be completed on time and profitably. Detailed engineering is substantially complete and fabrication is well underway to support the offshore installation program, which is scheduled to commence in the second half of 2014.  Contract Backlog Summary  As of December 31, 2013, the Company’s backlog was approximately $4.8 billion, compared to $4.6 billion at September 30, 2013. Of the December 31, 2013 backlog, approximately 59% related to offshore operations and approximately 41% related to subsea operations. Bookings during the fourth quarter totaled $737 million and included EPCI work in the Middle East, a transportation and installation contract in Brunei and a charter of the North Ocean 102 vessel in Brazil.  At the end of the fourth quarter, the Company had $3.6 billion in bids and change orders outstanding. The Company is targeting to bid over $16 billion in new projects over the next five quarters. In total, the Company’s revenue pipeline was $24 billion as of December 31, 2013.  Business Improvement Initiatives  The Company is implementing a new organizational design and will focus on: strengthening the balance sheet and instilling financial discipline; aligning with customers and building strong customer relationships; improving its cost structure and increasing competitiveness; and building a performance-oriented and highly accountable culture.  The new organizational design will orient the Company around its offshore and subsea operations. Scott Cummins, who has more than 25 years of experience at McDermott in various operational and management roles, will lead the offshore business. Tony Duncan, who joined McDermott last year with nearly 30 years of industry experience, including 15 years of management experience with tier-one marine contractors, will lead the Company’s subsea business.  These business leaders will be responsible for the strategic direction of the business lines and for aligning the Company with customer needs. They will also provide oversight and project execution support for the Company’s regional operations. The business leaders will be accountable for their operating and financial results and for efficiently allocating assets among the regional operations. This new global structure is designed to leverage McDermott’s strengths as a worldwide contractor to improve consistency and allow more efficient flow across the organization.  The offshore and subsea businesses will be supported by teams from four regions: Americas, North Sea and Africa, Asia Pacific and the Middle East. The regions will have P&L responsibility and will be accountable for business acquisition process, execution and cost management. They will also manage the Company’s shared services of operating and administrative functions required by both business lines.  The Company is also reevaluating and deferring capital expenditures to improve strategic alignment, to reduce its cost structure, while it also plans to divest non-core assets.  Balance Sheet Summary  As of December 31, 2013, McDermott reported total assets of approximately $2.8 billion. Included in this amount is approximately $150 million in cash and cash equivalents, restricted cash and investments. As of Friday, February 28, 2014, the Company has approximately $335 million in cash and cash equivalents, restricted cash and investments.  The Company’s $950 million credit facility had no funded borrowings as of December 31, 2013. Since year-end, the Company has drawn approximately $250 million on the facility and has repaid $32 million to retire maturing debt related to the North Ocean 102 vessel.  The Company also announced today that it has entered into a commitment letter with Goldman Sachs that provides for $950 million aggregate principal amount of new senior secured financing, which is expected to be available while it negotiates an amendment to its existing credit facility. The financing contemplated in the commitment letter would have a term of five years and the proceeds would provide funded capacity for letters of credit, as well as funding for working capital and general corporate purposes.  Upon completion of an amendment to the existing credit facility, the Company expects to terminate the new financing commitment. If the existing credit facility is not amended as contemplated, the Company believes that the new financing commitment, taken together with projected cash flows from operations, would be sufficient to fund the Company’s liquidity and letter of credit requirements for more than a year.  During the fourth quarter, the Company’s total debt position decreased to $89 million, due to a quarterly principal payment on its North Ocean 102 loan facility. In addition, total equity was $1.4 billion, or approximately 50% of total assets.  Outlook  The Company is withdrawing prior financial guidance, and suspending guidance for the foreseeable future, while the Company is implementing its organizational changes and closing out legacy projects.  Conference Call  McDermott has scheduled a conference call and webcast related to its fourth quarter 2013 results today at 4:00 p.m. U.S. Central Standard Time. Interested parties may listen over the Internet through a link posted in the Investor Relations section of the Company’s Web site. The replay will also be available on the Company’s Web site following the end of the call.  About the Company  McDermott is a leading provider of integrated engineering, procurement, construction and installation (EPCI) services for upstream field developments worldwide. The Company delivers fixed and floating production facilities, pipelines 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 clients include national and major energy companies.Operating in more than 20 countries across the world,our locally focused and globally integrated resources include approximately 14,000 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 is listed on the New York Stock Exchange.  To learn more, please visit our website at www.mcdermott.com  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, and projects McDermott expects to bid, to the extent such may be viewed as indicators of future revenues or profitability, optimism about the future of McDermott and its foundation for the subsea market, expectations on the timing of the execution and completion of existing projects, the Company’s steps to stabilize the business and drive long-term growth, profitability and shareholder value creation, improvement to internal process and risk management and the Company’s plans with respect to its business improvement initiatives. 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 scope or timing of contracts, and contract cancellations, change orders and other modifications. 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, 2013 and subsequent quarterly reports on Form 10-Q. This news 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 INCOME                                                                                       Three Months Ended           Year Ended                     December 31,                 December 31,                     2013           2012          2013            2012                     (In thousands)                                                                   Revenues            $ 517,338     $ 995,953    $ 2,658,932    $ 3,641,624                                                                    Costs and Expenses: Cost of               678,938        853,047       2,801,426       3,100,009 operations Selling, general and                   49,885         60,047        201,171         205,974 administrative expenses Loss on asset         84,482         -             84,482          - impairments (Gain) loss on        292            (123    )     (15,200   )     (405      ) asset disposals Restructuring        16,225       -           35,727        -          charges                                                                   Total costs and      829,822      912,971     3,107,606     3,305,578  expenses                                                                   Equity in Loss of Unconsolidated       (3,149   )    (5,693  )    (16,116   )    (16,719   ) Affiliates                                                                                                                                     Operating Income     (315,633 )    77,289      (464,790  )    319,327    (Loss)                                                                   Other Income (Expense): Interest income –     220            441           1,353           4,656 net Gain on foreign       6,034          8,956         16,872          20,142 currency – net Other expense –      (4,152   )    (707    )    (2,339    )    (995      ) net                                                                   Total Other          2,102        8,690       15,886        23,803     Income                                                                                                                                     Income (loss) from continuing operations before provision for income taxes,         (313,531 )     85,979        (448,904  )     343,130 discontinued operations and noncontrolling interest Provision for        3,558        42,200      49,051        129,204    Income Taxes                                                                   Income (loss) from continuing operations before discontinued         (317,089 )    43,779      (497,955  )    213,926    operations and noncontrolling interest                                                                   Gain (loss) on disposal of           -              -             -               257 discontinued operations Income from discontinued         -            -           -             3,240      operations, net of tax                                                                   Total income from discontinued         -            -           -             3,497      operations, net of tax                                                                   Net Income (Loss)    (317,089 )    43,779      (497,955  )    217,423                                                                      Less: net income attributable to      6,884        3,235       18,958        10,770     noncontrolling interests                                                                                                                                                                                                       Net Income (Loss) Attributable to McDermott           $ (323,973 )   $ 40,544     $ (516,913  )   $ 206,653    International, Inc.                                                                   McDERMOTT INTERNATIONAL, INC.  EARNINGS PER SHARE COMPUTATION                                                                                        Three Months Ended                Year Ended                  December 31,                      December 31,                  2013              2012            2013              2012                                                                                        (In thousands, except share and per share amounts)                                                                       Income (loss) from continuing operations       $ (323,973    )   $ 40,544        $ (516,913    )   $ 203,156 less noncontrolling interests Loss from discontinued      -               -              -               3,497 operations, net of tax                                                                       Net income (loss) attributable     $ (323,973    )   $ 40,544        $ (516,913    )   $ 206,653 to McDermott International, Inc.                                                                                                                                             Weighted average common     236,952,496       235,847,019     236,514,584       235,638,422 shares Effect of dilutive securities: Stock options, restricted stock and         -               1,971,339      -               1,981,266 restricted stock units                                                                       Adjusted weighted average common shares and assumed           236,952,496     237,818,358    236,514,584     237,619,688 exercises of stock options and vesting of stock awards                                                                                                                                             Basic earnings per share : Income (loss) from continuing operations         (1.37       )     0.17            (2.19       )     0.86 less noncontrolling interests Income (loss) from discontinued       -                 -               -                 0.01 operations, net of tax Net Income.        (1.37       )     0.17            (2.19       )     0.88                                                                       Diluted earnings per share: Income (loss) from continuing operations,        (1.37       )     0.17            (2.19       )     0.86 less noncontrolling interests Income (loss) from discontinued       -                 -               -                 0.01 operations, net of tax Net income         (1.37       )     0.17            (2.19       )     0.87 (Loss).                                                              SUPPLEMENTARY DATA                                                                        Three Months Ended              Year Ended                    December 31,                    December 31,                    2013            2012            2013            2012                                                                                        (In thousands) Drydock            $ 4,288         $ 3,939         $ 18,467        $ 25,545 amortization Depreciation & amortization       $ 24,466        $ 20,404        $ 84,580        $ 86,440 expense Capital            $ 58,565        $ 107,026       $ 283,962       $ 286,310 expenditures Backlog            $ 4,802,223     $ 5,067,164     $ 4,802,223     $ 5,067,164  McDERMOTT INTERNATIONAL, INC.  CONSOLIDATED BALANCE SHEETS                                                                                                             December 31,                                                2013              2012                                                (In thousands, except                                                share and per share                                                amounts) Assets Current Assets: Cash and cash equivalents                      $ 118,702         $ 640,147 Restricted cash and cash equivalents             23,652            18,116 Investments                                      -                 19,242 Accounts receivable--trade, net                  381,858           428,800 Accounts receivable--other                       89,273            75,461 Contracts in progress                            425,986           560,154 Deferred income taxes                            7,091             9,765 Assets held for sale                             1,396             2,679 Other current assets                            32,242          35,425                                                                       Total Current Assets                            1,080,200       1,789,789                                                                    Property, Plant and Equipment                    2,367,686         2,115,176 Less accumulated depreciation                   (889,009  )      (833,385  )                                                                   Net Property, Plant and Equipment                1,478,677         1,281,791 Assets Held for Sale                             12,243            26,758 Investments                                      13,511            26,750 Goodwill                                         -                 41,202 Investments in Unconsolidated Affiliates         50,536            37,435 Other Assets                                    172,204         129,902                                                                      Total Assets                                   $ 2,807,371      $ 3,333,627                                                                    Liabilities and Equity Current Liabilities: Notes payable and current maturities of        $ 39,543          $ 14,146 long-term debt Accounts payable                                 398,739           400,007 Accrued liabilities                              138,482           108,963 Accrued employee-related benefits                36,933            57,391 Accrued contract costs                           189,809           203,064 Advance billings on contracts                    278,929           241,696 Deferred income taxes                            17,892            10,758 Income taxes payable                            20,657          76,986                                                                       Total Current Liabilities                       1,120,984       1,113,011                                                                    Long-Term Debt                                   49,019            88,562 Self-Insurance                                   20,531            22,641 Pension Liability                                15,681            25,069 Income taxes payable                             56,042            55,857 Other Liabilities                                104,770           76,382 Commitments and Contingencies Stockholders’ Equity: Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued and outstanding 244,271,365 and 243,442,156          244,271           243,442 shares at December 31, 2013 and December 31, 2012, respectively Capital in excess of par value                   1,414,457         1,391,271 Retained earnings                                (71,157   )       445,756 Treasury stock, at cost, 7,130,294 and 7,574,903 shares at December 31, 2013 and        (97,926   )       (98,725   ) December 31, 2012, respectively Accumulated other comprehensive loss            (140,131  )      (94,413   )                                                                   Stockholders’ Equity--McDermott                  1,349,514         1,887,331 International, Inc. Noncontrolling Interests                        90,830          64,774                                                                       Total Equity                                    1,440,344       1,952,105                                                                    Total Liabilities and Equity                   $ 2,807,371      $ 3,333,627    McDERMOTT INTERNATIONAL, INC.    CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                             Year Ended December 31,                                 2013             2012             2011                                 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)               $ (497,955 )     $ 217,423        $ 151,355 (Income) loss from discontinued operations,         -              (3,497   )      12,812    net of tax                                                                    Income (loss) from                (497,955 )       213,926          164,167 continuing operations Non-cash items included in net income: Depreciation and                  84,580           86,440           82,391 amortization Drydock amortization              18,467           25,545           24,567 Equity in loss of                 16,116           16,719           4,985 unconsolidated affiliates Gains on asset disposals          (15,200  )       (405     )       (8,478   ) Loss on asset impairments         84,482           -                5,488 Provision for deferred            (5,359   )       3,847            1,650 taxes Stock-based compensation          21,100           15,369           17,825 charges Restructuring charges             18,044           -                - Other non-cash items              (3,463   )       8,367            18,096 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable               30,156           (5,920   )       (152,840 ) Net contracts in progress and advance billings on           171,397          (351,604 )       (151,157 ) contracts Accounts payable                  (17,493  )       84,430           71,291 Accrued and other current         (22,155  )       36,922           56,049 liabilities Income taxes                      (54,431  )       22,832           17,138 Pension liability and accrued postretirement and        (30,828  )       36,897           (83,263  ) employee benefits Other                            (54,069  )      16,419         29,537                                                                       NET CASH PROVIDED BY (USED IN) OPERATING                     (256,611 )       209,784          97,446 ACTIVITIES--CONTINUING OPERATIONS NET CASH USED IN OPERATING ACTIVITIES--DISCONTINUED         -              -              (1,426   ) OPERATIONS                                                                    TOTAL CASH PROVIDED BY           (256,611 )      209,784        96,020    OPERATING ACTIVITIES                                                                    CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property,            (283,962 )       (286,310 )       (282,621 ) plant and equipment (Increase) decrease in restricted cash and cash          (5,536   )       3,846            175,899 equivalents Purchases of available-for-sale                (10,535  )       (95,964  )       (546,822 ) securities Sales and maturities of available-for-sale                43,959           191,298          693,424 securities Investments in                    (9,354   )       (5,084   )       (1,058   ) unconsolidated affiliates Proceeds from asset dispositions and other           34,273         3,291          9,943     investing activities                                                                    NET CASH PROVIDED BY (USED IN) INVESTING                     (231,155 )       (188,923 )       48,765 ACTIVITIES--CONTINUING OPERATIONS NET CASH PROVIDED BY INVESTING                        -              60,671         -         ACTIVITIES--DISCONTINUED OPERATIONS                                                                    TOTAL CASH PROVIDED BY (USED IN) INVESTING              (231,155 )      (128,252 )      48,765    ACTIVITIES                                                                    CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt                296,000          19,034           46,987 Payment of debt                   (310,146 )       (10,061  )       (8,606   ) Purchase of treasury shares       (1,106   )       (2,898   )       (10,092  ) Distributions to                  (13,743  )       (20,135  )       (2,524   ) noncontrolling interests Debt issuance costs and          (4,837   )      267            (4,476   ) other financing activities                                                                    NET CASH PROVIDED BY (USED IN) FINANCING                     (33,832  )       (13,793  )       21,289 ACTIVITIES--CONTINUING OPERATIONS NET CASH PROVIDED BY FINANCING                        -              -              1,426     ACTIVITIES--DISCONTINUED OPERATIONS                                                                    TOTAL CASH PROVIDED BY (USED IN) FINANCING              (33,832  )      (13,793  )      22,715    ACTIVITIES                                                                    EFFECTS OF EXCHANGE RATE         153            1,554          (109     ) CHANGES ON CASH                                                                    NET INCREASE (DECREASE) IN        (521,445 )       69,293           167,391 CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS        640,147        570,854        403,463   AT BEGINNING OF PERIOD                                                                    CASH AND CASH EQUIVALENTS       $ 118,702       $ 640,147       $ 570,854   AT END OF PERIOD                                                                    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Income taxes (net of            $ 105,444        $ 89,451         $ 67,970 refunds)  Contact:  McDermott International, Inc. Investors & Financial Media Steve Oldham, +1.281.870.5147 soldham@mcdermott.com or Trade, General & Local Media Louise Denly, +1.281.870.5025 ldenly@mcdermott.com