MDR McDermott International Inc

McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today reported income from continuing operations of $9.3 million, or $0.04 per diluted share, for the 2011 fourth quarter. The results of the 2011 fourth quarter compare to income from continuing operations of $45.5 million, or $0.19 per diluted share, in the corresponding period of 2010. Classified as discontinued operations, the results of McDermott’s charter fleet business are excluded from all periods presented, and The Babcock & Wilcox Company, which was spun-off to McDermott shareholders on July 30, 2010, is excluded from the 2010 and 2009 full-year results. Weighted average common shares outstanding on a fully diluted basis were approximately 236.9 million and 237.0 million in the quarters ended December 31, 2011 and December 31, 2010, respectively.

McDermott’s revenues were $816.2 million for the 2011 fourth quarter, an increase of over 51 percent compared to $539.6 million in the corresponding period of 2010. The year-over-year increase was primarily due to a 134 percent increase in revenues in the Asia Pacific segment as a result of expanded scope and marine activity on a large engineering, procurement, construction and installation project, coupled with increased revenues in the Middle East and Atlantic segments.

The Company’s operating income in the 2011 fourth quarter was $31.4 million, compared to $59.3 million in the 2010 fourth quarter. Operating income in the 2011 fourth quarter was negatively affected by an aggregate of approximately $66 million (pretax and after-tax) from additional project losses and increased contingency on certain projects, primarily the nearly-complete Mexican pipelay project and the 5-year charter contract in Brazil, partially offset by one-time benefits associated with the Company’s captive insurance program, a partial recovery of exit costs on a discontinued fabrication facility and the reversal of previously accrued compensation expenses. In the Asia Pacific segment, operating income increased $70 million as compared to the 2010 fourth quarter.

“Clearly, we were disappointed to incur additional charges on the two Atlantic projects, including the need to add contingency to the Brazilian project,” said Steve M. Johnson, Chairman of the Board, President and Chief Executive Officer of McDermott. “However, we are pleased that our work with the Agile vessel in Brazil has now begun after much delay, and we expect to be complete with the Mexican pipelay project in just a matter of weeks – so the outlook has improved. Absent these issues, our execution on other projects in the fourth quarter was solid and our expectations for 2012 are higher than 2011.”

The Company’s other income for the fourth quarter of 2011 was $3.9 million, an improvement of $9.3 million compared to the other expense of $5.4 million in the fourth quarter of 2010, primarily due to higher foreign currency gains.

At December 31, 2011, the Company’s backlog was $3.9 billion, compared to $5.0 billion and $4.3 billion at December 31, 2010 and September 30, 2011, respectively. Of the December 31, 2011 backlog, approximately $347 million is from projects currently in a loss position, primarily the Brazilian charter, whereby future revenues are expected to equal costs when recognized. As previously announced, McDermott has received in excess of $2 billion in new awards thus far in the first quarter of 2012.

Balance Sheet Summary

As of December 31, 2011, McDermott reported total assets of approximately $3.0 billion. Included in this amount was $731.8 million of cash and cash equivalents, restricted cash and investments. Net working capital, calculated as current assets less current liabilities, was $515.4 million. Additionally, total equity was $1.7 billion, or approximately 58% of total assets, with total debt of $93.7 million.

Discontinued Operations

For the fourth quarter of 2011, McDermott recorded a net loss from discontinued operations of $19.3 million, or $0.08 per diluted share, primarily due to a write-down on the assets held for sale based upon recent discussions with interested parties and external advisors. Including the results of discontinued operations, total net loss attributable to McDermott was approximately $10 million, or $0.04 per diluted share, for the 2011 fourth quarter.

Full-year 2011 Overview

For the year ended December 31, 2011, McDermott reported revenues of $3.4 billion, a record annual level for the Company, with operating income of $250.7 million and net income from continuing operations of $151.5 million, or $0.64 per fully diluted share. Included in the full year results are approximately $127 million of net charges from project losses and increased contingency, partially offset by captive insurance income, partial recovery of facility exit costs and a gain on asset sale.

Comments and outlook for 2012

“While McDermott’s results for 2011 were negatively impacted in total by certain project losses as discussed previously and herein, our outlook for 2012 reflects expected improvement in many areas,” Johnson continued. “The Company has begun the year with its largest single booking at the time of award with the Inpex Ichthys project, and we continue to see a number of new award opportunities on the horizon. We believe that McDermott has fully reflected the expected costs to complete the two challenging Atlantic projects with sufficient contingency for the future. Although we expect at this time that the first quarter of 2012 will be the trough period of the year, we do view the current range of analyst estimates for the full year ($0.70-$1.01) as reasonable bookends at this time, based on our current 2012 forecast and expected business conditions.”

OTHER INFORMATION

About the Company

McDermott is a leading engineering, procurement, construction and installation (“EPCI”) company focused on executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services for upstream field developments, the Company delivers fixed and floating production facilities, pipelines and subsea systems from concept to commissioning. McDermott’s customers include national and major energy companies. Operating in approximately 20 countries across the Atlantic, Middle East and Asia Pacific, the Company’s integrated resources include approximately 13,500 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. McDermott has served the energy industry since 1923. To learn more, please visit McDermott’s website on the Internet 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 and uncertainties that may impact McDermott's actual results of operations. These forward-looking statements include statements about backlog, to the extent backlog may be viewed as an indicator of future revenues, the expected timing of the completion of the Mexico pipelay project and McDermott's expectations for its operating and financial results for the year ending December 31, 2012. 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 uncertainties and risks, including 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, changes in the scope or timing of contracts, additional project losses and the potential submission of and recovery on change orders and claims. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected. 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, 2011. 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 EndedDecember 31,         Year EndedDecember 31, 2011     2010 2011     2010 (In thousands)   Revenues $ 816,175   $ 539,622   $ 3,445,110   $ 2,403,743   Costs and Expenses: Cost of operations 726,409 421,220 2,980,390 1,842,261 Selling, general and administrative expenses 48,175 56,852 212,002 216,763 (Gain) loss on asset disposals and impairments   5,117     190     (2,990 )   22,220   Total costs and expenses   779,701     478,262     3,189,402     2,081,244     Equity in Loss of Unconsolidated Affiliates   (5,044 )   (2,087 )   (4,985 )   (7,594 )   Operating Income   31,430     59,273     250,723     314,905   Other Income (Expense): Interest income (expense) – net 674 443 1,319 (1,089 ) Other income (expense) – net   3,191     (5,834 )   (751 )   (10,022 ) Total other income (expense)   3,865     (5,391 )   568     (11,111 )   Income from continuing operations before provision for income taxes, discontinued operations and noncontrolling interest 35,295 53,882 251,291 303,794 Provision for Income Taxes   26,773     5,953     87,124     41,182   Income from continuing operations before discontinued operations and noncontrolling interest   8,522     47,929     164,167     262,612   loss from discontinued operations, net of tax   (19,271 )   (592 )   (12,812 )   (34,900 ) Net Income (Loss) (10,749 ) 47,337 151,355 227,712 Less: Net Income (Loss) Attributable to Noncontrolling Interests   (780 )   (2,449 )   12,625     26,046   Net Income Attributable to McDermott International, Inc. $ (9,969 ) $ 44,888   $ 138,730   $ 201,666      

McDERMOTT INTERNATIONAL, INC.

EARNINGS PER SHARE COMPUTATION

          Three Months EndedDecember 31,       Year Ended

December 31,

2011     2010 2011     2010 (In thousands, except share and per share amounts)   Income from continuing operations less noncontrolling interests $ 9,302 $ 45,480 $ 151,542 $ 236,566 Loss from discontinued operations, net of tax   (19,271 )   (592 )   (12,812 )   (34,900 ) Net income (loss) attributable to McDermott International, Inc. $ (9,969 ) $ 44,888   $ 138,730   $ 201,666     Weighted average common shares 235,041,313 233,351,424 234,598,901 232,173,362 Effect of dilutive securities: Stock options, restricted stock and restricted stock units   1,882,795     3,688,702     2,441,606     3,448,667     Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards   236,924,108     237,040,126     237,040,507     235,622,029     Basic earnings per share : Income from continuing operations less noncontrolling interests 0.04 0.20 0.65 1.02 Income (loss) from discontinued operations, net of tax (0.08 ) — (0.05 ) (0.15 ) Net income attributable to McDermott International, Inc. (0.04 ) 0.19 0.59 0.87   Diluted earnings per share: Income from continuing operations less noncontrolling interests 0.04 0.19 0.64 1.00 Income (loss) from discontinued operations, net of tax (0.08 ) — (0.05 ) (0.15 )

Net income attributable to McDermott International, Inc.

(0.04 ) 0.19 0.59 0.85    

SUPPLEMENTARY DATA

        Three Months EndedDecember 31,         Year Ended

December 31,

2011         2010 2011         2010 (In thousands) Pension expense $   4,125 $   5,532 $   19,492 $   21,814 Depreciation & amortization expense $ 22,491 $ 19,035 $ 82,391 $ 76,452 Capital expenditures $ 50,749 $ 59,321 $ 282,621 $ 186,862 Backlog $ 3,881,063 $ 5,038,988 $ 3,881,063 $ 5,038,988  

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

          December 31,       December 31, 2011 2010 (In thousands, except share and per share amounts) Assets Current Assets: Cash and cash equivalents $ 570,854 $ 403,463 Restricted cash and cash equivalents 21,962 197,861 Investments 109,522 209,463 Accounts receivable—trade, net 445,808 323,497 Accounts receivable—other 53,386 28,447 Contracts in progress 287,390 65,853 Deferred income taxes 11,931 10,323 Assets held for sale 3,197 10,161 Other current assets   33,135     36,570   Total Current Assets   1,537,185     1,285,638   Property, Plant and Equipment 1,958,877 1,720,040 Less accumulated depreciation   (857,012 )   (804,471 ) Net Property, Plant and Equipment 1,101,865 915,569 Assets Held for Sale 55,571 77,150 Investments 29,484 75,742 Goodwill 41,202 41,202 Investments in Unconsolidated Affiliates 42,659 45,016 Other Assets   184,848     158,371   Total Assets $ 2,992,814   $ 2,598,688     Liabilities and Equity Current Liabilities: Notes payable and current maturities of long-term debt $ 8,941 $ 8,547 Accounts payable 315,514 252,974 Accrued liabilities 309,515 286,831 Advance billings on contracts 320,438 250,053 Deferred income taxes 13,187 12,849 Income taxes payable 54,181 32,851 Liabilities associated with assets held for sale  

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    20,902   Total Current Liabilities   1,021,776     865,007   Long-Term Debt 84,794 46,748 Self-Insurance 23,585 35,655 Pension Liability 21,295 52,831 Other Liabilities 107,652 86,180 Commitments and Contingencies Stockholders’ Equity: Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 242,416,424 and 240,791,473 shares at December 31, 2011 and December 31, 2010, respectively 242,416 240,791 Capital in excess of par value 1,375,976 1,357,316 Retained earnings 239,103 100,373 Treasury stock, at cost, 7,359,983 and 6,906,262 shares at December 31, 2011 and December 31, 2010, respectively (95,827 ) (85,735 ) Accumulated other comprehensive loss   (102,030 )   (163,717 ) Stockholders’ Equity—McDermott International, Inc. 1,659,638 1,449,028 Noncontrolling Interests   74,074     63,239   Total Equity   1,733,712     1,512,267   Total Liabilities and Equity $ 2,992,814   $ 2,598,688    

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

          Year Ended December 31, 2011     2010     2009 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 151,355 $ 227,712 $ 390,450 (Income) loss from discontinued operations, net of tax   12,812     34,900     (180,898 ) Income from continuing operations 164,617 262,612 209,552 Non-cash items included in net income: Depreciation and amortization 82,391 76,452 79,867 Equity in loss of unconsolidated affiliates 4,985 7,594 3,557 Gains on asset disposals (8,478 ) (2,440 ) (1,699 ) Loss on asset disposals and impairments 5,488 24,660 785 Provision for deferred taxes 1,650 1,830 5,252 Amortization of pension and postretirement costs 19,492 21,814 27,352 Stock-based compensation charges 17,825 16,458 12,987 Other non-cash items (1,396 ) (8,507 ) 32,151 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (152,840 ) (6,457 ) 25,871 Net contracts in progress and advance billings on contracts (151,157 ) 182,472 (295,110 ) Accounts payable 71,291 (38,536 ) (8,054 ) Accrued and other current liabilities 56,049 40,110 (57,311 ) Income taxes 17,138 84,269 5,882 Pension liability and accrued postretirement and employee benefits (83,263 ) (106,338 ) 41,101 Other   54,104     (171,666 )   103,450   NET CASH PROVIDED BY OPERATING ACTIVITIES   97,446     384,327     185,633   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (282,621 ) (186,862 ) (186,518 ) (Increase) decrease in restricted cash and cash equivalents 175,899 (142,853 ) (10,718 ) Purchases of available-for-sale securities (546,822 ) (1,491,329 ) (154,337 ) Sales and maturities of available-for-sale securities 693,424 1,363,803 331,474 Proceeds from asset dispositions 9,943 4,824 2,761 Investments in unconsolidated affiliates (1,058 ) (32,550 ) (13,484 ) Other investing activities   —     (1,954 )   (28,427 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   48,765     (486,921 )   (59,249 ) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in debt 46,987 3,423 — Payment of debt (8,606 ) (8,540 ) (4,106 ) Debt issuance costs (4,944 ) (17,881 ) (105 ) Purchase of treasury shares (10,092 ) (15,715 ) (6,531 ) Cash contribution from The Babcock & Wilcox Company — 100,000 — Other financing activities   (2,056 )   14,805     6,534   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   21,289     76,092     (4,208 ) EFFECTS OF EXCHANGE RATE CHANGES ON CASH   (109 )   498     1,096   NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   167,391     (26,004 )   123,272   CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   403,463     429,467     306,195   CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 570,854   $ 403,463   $ 429,467