McDermott Reports First Quarter 2014 Financial Results

  McDermott Reports First Quarter 2014 Financial Results

Significant Progress on Business Improvement Initiatives and Plan to Stabilize
                                   Company

Completed New Financing to Enhance Financial Flexibility and Support Company’s
                                    Growth

                        Robust Backlog of $4.4 Billion

                 Completed Remaining First-of-a-kind Projects

       Company to Host Conference Call and Webcast Today at 4:00 pm CT

Business Wire

HOUSTON -- May 7, 2014

McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today
announced financial results for the quarter ended March 31, 2014. The Company
reported a first quarter net loss of $50 million or $0.21 per fully diluted
share, and an operating loss of $42 million. The Company reported first
quarter revenues of $604 million, a decrease of 25% percent compared to
revenues of $807 million in the corresponding period of 2013. The Company
reported first quarter 2013 net income of $21 million, or $0.09 per fully
diluted share, and operating income of $53 million.

“While our financial results reflect the impact of our legacy backlog and
reorganization expenses, we made significant progress during the quarter on
our plan to improve operational performance of the Company,” said David
Dickson, President and Chief Executive Officer of McDermott. “With the support
and confidence of our lenders and investors, we completed our new financing
arrangements in April; we improved focus on business accountability and
customer relationships; and we completed our remaining first-of-a-kind
projects in Malaysia and Brazil.”

Dickson added, “We are starting to see tangible improvement in the performance
and execution of many of our legacy projects. We completed installation of the
tension leg platform for the Papa Terra project in Brazil, achieved mechanical
completion of Siakap in Malaysia, and installation of the COP project in
Azerbaijan is complete. As we complete implementation of our new organization,
we look forward to further operational improvements and capitalizing on the
robust offshore EPCI market to drive long-term growth, profitability and
shareholder value creation.”

Contract Backlog Summary

As of March 31, 2014, the Company’s backlog was approximately $4.4 billion,
compared to $4.8 billion at December 31, 2013. Of the March 31, 2014 backlog,
approximately 42% related to offshore operations and approximately 58% related
to subsea operations. As expected, bookings during the first quarter totaled
$166 million and included a charter of the Lay Vessel North Ocean 105 in
Brazil.

At the end of the first quarter, the Company had $3.5 billion in bids and
change orders outstanding. The Company is targeting to bid approximately $17
billion in projects that are expected to be awarded in the next five quarters.
In total, the Company’s revenue pipeline was $25 billion as of March 31, 2014.

Business Improvement Initiative Update

The Company is moving forward with the implementation of the organizational
design announced in March 2014 and expects to complete the transition by the
end of the second quarter 2014. The Company continues to review its portfolio
of assets to ensure optimal capital deployment. In the first quarter, the
Derrick Lay Barge KP1 was sold for $8 million. In April 2014, a property that
was previously used as a fabrication facility was sold for $32 million. Both
of these dispositions were of non-strategic assets.

McDermott continues to take actions to reduce its cost structure, including
the cessation of fabrication activity at the Company’s Morgan City, Louisiana
facility and preparations to close the Company’s Caspian operations upon
conclusion of a project in 2014. At the same time, McDermott continues to
attract strong talent to the organization. Since November 2013, over 125
experienced professionals have joined the Company.

Balance Sheet Summary and Financing Update

As of March 31, 2014, McDermott reported total assets of approximately $3.0
billion. Included in this amount is approximately $317 million in cash and
cash equivalents, restricted cash and investments. At quarter-end the Company
had approximately $308 million in debt outstanding. In addition, total equity
was $1.4 billion, or approximately 47% of total assets.

In April 2014, the Company completed new financing arrangements that are
expected to provide financial flexibility necessary to execute our business
improvement initiatives and liquidity to support the Company’s growth plans.

The new financing arrangements include a $400 million three-year letter of
credit facility, a $300 million five-year term loan, the issuance of $500
million of seven-year senior secured notes, and the issuance of $287.5 million
of tangible equity units. The tangible equity units are composed of three-year
amortizing, senior unsecured notes in an aggregate principal amount of $47.5
million and prepaid common stock purchase contracts, which will settle on or
before April 1, 2017.

Concurrent with the new financing arrangements, the Company cancelled its
former $950 million revolving credit facility and terminated a bridge-loan
commitment.

As of April 30, 2014, the Company had approximately $1.1 billion in cash,
restricted cash and investments and approximately $900 million in debt
outstanding.

Conference Call

McDermott has scheduled a conference call and webcast related to its first
quarter 2014 results today at 4:00 p.m. U.S. Central Daylight 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 and change
orders outstanding, and projects McDermott expects to bid and the timing of
award of such, to the extent these may be viewed as indicators of future
revenues or profitability, optimism about further operational improvements and
capitalizing on the robust offshore EPCI market, expectations on the timing
for completion of the transition of the Company’s new organizational design,
continued review of the Company’s portfolio of assets and continued actions to
reduce the Company’s cost structure. 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.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                                                   
                                                   Three Months Ended
                                                   March 31,
                                                   2014            2013
                                                   (In thousands)
                                                                   
Revenues                                           $ 603,811      $ 807,488 
Costs and Expenses:
Cost of operations                                   591,493         712,814
Selling, general and administrative expenses         55,397          52,226
Gain on asset disposals                              (6,439  )       (14,716 )
Restructuring charges                               6,125         -       
                                                                   
Total costs and expenses                            646,576       750,324 
                                                                   
Equity in Earnings (Loss) of Unconsolidated         1,123         (4,131  )
Affiliates
                                                                   
Operating Income (Loss)                             (41,642 )      53,033  
                                                                   
Other Income (Expense):
Interest income                                      61              342
Loss on foreign currency – net                       (4,082  )       (2,526  )
Other income (expense) – net                        (265    )      782     
                                                                   
Total other income (expense)                        (4,286  )      (1,402  )
                                                                   
Income (loss) before provision for income            (45,928 )       51,631
taxes and noncontrolling interests
                                                                   
Provision for Income Taxes                          3,489         27,313  
                                                                   
Net Income (Loss)                                    (49,417 )       24,318
                                                                   
Less: Net Income Attributable to
Noncontrolling
Interests                                           536           3,765   
                                                                   
Net Income (Loss) Attributable to McDermott        $ (49,953 )     $ 20,553  
International, Inc.

                                                         
McDERMOTT INTERNATIONAL, INC.

EARNINGS PER SHARE COMPUTATION
                                                               
                                     Three Months Ended
                                     March 31,
                                     2014                      2013
                                     (In thousands, except share and per share
                                     amounts)
Basic:
                                                               
Income from operations less          $   (49,953      )        $  20,553
noncontrolling interests
Net income attributable to           $   (49,953      )        $  20,553
McDermott International, Inc.
                                                               
Diluted:
                                                               
Weighted average common shares          236,961,158            235,941,185
(basic)
                                                               
Effect of dilutive securities:
Stock options, restricted stock         -                      3,258,696
and restricted stock units
                                                               
Adjusted weighted average common
shares and assumed exercises of
stock options and vesting of            236,961,158            239,199,881
stock awards (diluted)
                                                               
Basic earnings per share:
Income from continuing
operations less noncontrolling           (0.21        )           0.09
interests
Net income attributable to               (0.21        )           0.09
McDermott International, Inc.
                                                               
Diluted earnings per share:
Income from continuing
operations less noncontrolling           (0.21        )           0.09
interests
Net income attributable to               (0.21        )           0.09
McDermott International, Inc.

                                                   
SUPPLEMENTARY DATA
                                                        
                                        Three Months Ended
                                        March 31,
                                        2014            2013
                                        (In thousands)
Drydock amortization                    $ 6,946         $ 5,550
Depreciation & amortization expense     $ 24,602        $ 20,222
Capital expenditures                    $ 37,893        $ 37,649
Backlog                                 $ 4,364,422     $ 4,802,223

                                                            
McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                 
                                           March 31,             December 31,
                                           2014                  2013
                                           (In thousands, except share and per
                                           share amounts)
Assets
Current Assets:
Cash and cash equivalents                  $  268,130            $ 118,702
Restricted cash and cash equivalents          43,286               23,652
Accounts receivable--trade, net               332,062              381,858
Accounts receivable--other                    109,330              89,273
Contracts in progress                         431,893              425,986
Deferred income taxes                         7,092                7,091
Investments                                   3,248                -
Assets held for sale                          1,396                1,396
Other current assets                         61,353             32,242    
                                                                 
Total Current Assets                         1,257,790          1,080,200 
                                                                 
Property, Plant and Equipment                 2,397,254            2,367,686
Less accumulated depreciation                (913,650   )        (889,009  )
                                                                 
Net Property, Plant and Equipment             1,483,604            1,478,677
Investments                                   2,189                13,511
Investments in Unconsolidated                 48,897               50,536
Affiliates
Assets Held for Sale                          10,121               12,243
Other Assets                                 221,328            172,204   
                                                                 
Total Assets                               $  3,023,929         $ 2,807,371 
                                                                 
Liabilities and Equity
Current Liabilities:
Notes payable and current maturities       $  258,417            $ 39,543
of long-term debt
Accounts payable                              423,166              398,739
Accrued liabilities                           383,401              365,224
Advance billings on contracts                 278,881              278,929
Deferred income taxes                         20,257               17,892
Income taxes payable                         16,656             20,657    
                                                                 
Total Current Liabilities                    1,380,778          1,120,984 
                                                                 
Long-Term Debt                                49,761               49,019
Self-Insurance                                21,715               20,531
Pension Liability                             15,516               15,681
Other Liabilities                             55,455               56,042
Commitments and Contingencies                 89,019               104,770
Stockholders’ Equity:
Common stock, par value $1.00 per
share, authorized 400,000,000 shares;
issued 244,739,400 and
244,271,365 shares at March 31, 2014          244,739              244,271
and December 31, 2013, respectively
Capital in excess of par value                1,417,374            1,414,457
Retained earnings                             (121,110   )         (71,157   )
Treasury stock, at cost, 7,231,536 and
7,130,294 shares at March 31, 2014 and
December 31, 2013,
respectively                                  (97,407    )         (97,926   )
Accumulated other comprehensive loss         (122,742   )        (140,131  )
                                                                 
Stockholders’ Equity--McDermott               1,320,854            1,349,514
International, Inc.
Noncontrolling Interests                     90,831             90,830    
                                                                 
Total Equity                                 1,411,685          1,440,344 
                                                                 
Total Liabilities and Equity               $  3,023,929         $ 2,807,371 

                                                             
McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  
                                                  Three Months Ended

                                                  March 31,
                                                  2014            2013
                                                  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                 $ (49,417 )     $ 24,318
Non-cash items included in net income:
Depreciation and amortization                       24,602          20,222
Drydock amortization                                6,946           5,550
Restructuring charges                               675             -
Equity in (earnings) loss of unconsolidated         (1,123  )       4,131
affiliates
Gain on asset disposals                             (6,439  )       (14,716  )
Benefit for deferred taxes                          (2,628  )       5,332
Stock-based compensation charges                    4,387           3,923
Net periodic pension benefit cost                   2,854           642
Other non-cash items                                2,331           1,749
Changes in assets and liabilities, net of
effects from dispositions:
Accounts receivable                                 26,365          (6,573   )
Net contracts in progress and advance               (5,974  )       (19,935  )
billings on contracts
Accounts payable                                    32,727          (125,234 )
Accrued and other current liabilities               15,046          (20,774  )
Pension liability and accrued postretirement        5,880           (19,657  )
and employee benefits
Other assets and liabilities                       (78,560 )      (46,093  )
                                                                  
TOTAL CASH USED IN OPERATING ACTIVITIES            (22,328 )      (187,115 )
                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment          (37,893 )       (37,649  )
Increase in restricted cash and cash                (19,634 )       (3,826   )
equivalents
Purchases of available-for-sale securities          (1,997  )       (3,744   )
Sales and maturities of available-for-sale          10,055          31,193
securities
Proceeds from the sale and disposal of assets       8,370           35,621
Other investing activities                         (1,950  )      (4,596   )
                                                                  
NET CASH (USED IN) PROVIDED BY INVESTING           (43,049 )      16,999   
ACTIVITIES
                                                                  
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term debt                       250,000         -
Payment of debt                                     (31,373 )       (1,494   )
Distributions to noncontrolling interests           (502    )       (6,200   )
Debt issuance costs and other financing            (3,356  )      (1,015   )
activities
                                                                  
NET CASH PROVIDED BY (USED IN) FINANCING           214,769       (8,709   )
ACTIVITIES
                                                                  
EFFECTS OF EXCHANGE RATE CHANGES ON CASH           36            213      
                                                                  
NET INCREASE (DECREASE) IN CASH AND CASH           149,428       (178,612 )
EQUIVALENTS
                                                                  
CASH AND CASH EQUIVALENTS AT BEGINNING OF          118,702       640,147  
PERIOD
                                                                  
CASH AND CASH EQUIVALENTS AT END OF PERIOD        $ 268,130      $ 461,535  
                                                                  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes (net of refunds)                     $ 11,668        $ 25,916

Contact:

McDermott International, Inc.
Investors & Financial Media
Steve Oldham, +1.281.870.5147
or
Trade, General & Local Media
Louise Denly, +1.281.870.5025
ldenly@mcdermott.com
 
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