MDR McDermott International Inc

McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today reported a net loss of $64.1 million, or $0.27 per fully diluted share, for the quarter ended September 30, 2013. These results compared to income of $50.6 million, or $0.21 per fully diluted share, in the corresponding period of 2012. Weighted average common shares outstanding on a fully diluted basis were approximately 236.3 million and 237.9 million in the quarters ended September 30, 2013 and 2012, respectively.

McDermott’s revenues were $686.9 million for the 2013 third quarter compared to $1,028.7 million in the corresponding period of 2012. The year-over-year decrease was primarily due to the completion of several significant projects that were active in the 2012 third quarter. The Company’s operating loss in the 2013 third quarter was $52.7 million compared to operating income of $82.5 million in the 2012 third quarter.

“I am pleased to see our Middle East segment return to profitability this quarter as we demonstrated improved consistency in performance,” said Stephen M. Johnson, Chairman of the Board, President and Chief Executive Officer of McDermott. “Despite our recent challenges, I am optimistic about the future of the Company and the foundation that we have built to address the subsea market.”

Operational Update

In the third quarter, all projects in the Middle East segment contributed to gross profit and were in a profitable position. In October, the Company reached a significant milestone on a previously discussed project in Saudi Arabia and demobilized the major workboats used for the hookup campaign, with the remaining commissioning scheduled for completion in the second quarter of 2014.

On a deepwater Malaysian project in the Asia Pacific segment, the Company experienced vessel mechanical downtime that contributed to $66.0 million of additional project costs. The Company reached a commercial agreement with its customer totaling $33.0 million, partially offsetting the charge, which mitigates weather risk and late delivery penalties. As a result, the Company intends to maintain continuous operations through the monsoon season to install production-critical aspects of the project in 2013. The first of the four installation campaigns was completed in October and project completion is expected in the first half of 2014.

In the Atlantic segment, a loss project at the Company’s Morgan City yard performed ahead of prior quarter estimates and is expected to be completed in the fourth quarter. A fabrication project in Mexico experienced estimated cost increases related to scope growth and schedule extensions during the quarter, resulting in a project loss of $9.0 million.

The third quarter results include approximately $4.0 million of restructuring costs, for a cumulative total of $19.5 million. The Company expects to incur the majority of the remaining $35.5 to $45.5 million in planned restructuring and management charges in the next two quarters.

Contract Backlog Summary

At September 30, 2013, the Company’s backlog was approximately $4.6 billion, compared to $5.1 billion at June 30, 2013. Of the September 30, 2013 backlog, approximately $564.6 million was derived from four projects that are currently in a loss position. In addition, the backlog includes approximately $151.3 million for one project under deferred profit recognition.

At the end of the third quarter, the Company had $9.0 billion in bids outstanding and is targeting approximately $8.9 billion in projects that the Company expects to bid within the next five quarters.

Balance Sheet Summary

As of September 30, 2013, McDermott reported total assets of approximately $3.2 billion. Included in this amount was $318.1 million of cash and cash equivalents, restricted cash and investments. Net working capital, calculated as current assets less current liabilities, was $226.6 million. In addition, total equity was $1.7 billion, or approximately 55% of total assets, with total debt of $94.1 million.

OTHER INFORMATION

Conference Call

McDermott has scheduled a conference call and webcast related to its third quarter 2013 results on Tuesday, November 5, 2013, at 9:00 a.m. U.S. Central Standard Time. Interested parties may listen over the Internet and download supplemental slides through a link posted in the Investor Relations section of the Company's website. The replay will also be available on the Company's website following the end of the live call.

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, major integrated and other energy companies. Operating in approximately 20 countries across the Atlantic, Middle East and Asia Pacific, the Company’s integrated resources include approximately 14,000 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, bids outstanding, and projects McDermott expects to bid, to the extent such may be viewed as indicators of future revenues, 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, and the expected range of costs and timing for the recognition of costs related to the Atlantic restructuring and management charges. 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, 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. 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, 2012 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 (LOSS)

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2013 2012 2013 2012 (In thousands) Revenues $ 686,856   $ 1,028,745   $ 2,141,594   $ 2,645,671     Costs and Expenses: Cost of operations 686,415 889,823 2,122,488 2,246,961 Selling, general and administrative expenses 46,443 51,834 151,286 145,927 Gain on asset disposals (763 ) (85 ) (15,492 ) (282 ) Restructuring charges   4,040    

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    19,502    

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    Total costs and expenses   736,135     941,572     2,277,784     2,392,606     Equity in Loss of Unconsolidated Affiliates   (3,375 )   (4,692 )   (12,967 )   (11,026 )   Operating Income (Loss)   (52,654 )   82,481     (149,157 )   242,039     Other Income: Interest income, net 363 996 1,133 4,215

Gain on foreign currency-net

4,460 488 10,838 11,185

Other income (expense)-net

  1,062     242     1,813     (288 )   Total other income   5,885     1,726     13,784     15,112     Income (loss) from continuing operations before provision for income taxes and noncontrolling interests   (46,769 )   84,207     (135,373 )   257,151     Provision for Income Taxes   12,278     29,916     45,493     87,004     Income (loss) from continuing operations before noncontrolling interests   (59,047 )   54,291     (180,866 )   170,147     Total income from discontinued operations, net of tax  

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    3,497     Net Income (Loss)   (59,047 )   54,291     (180,866 )   173,644     Less: Net Income Attributable to Noncontrolling Interests   5,023     3,679     12,074     7,535     Net Income (Loss) Attributable to McDermott International, Inc. $ (64,070 ) $ 50,612   $ (192,940 ) $ 166,109          

McDERMOTT INTERNATIONAL, INC.

EARNINGS PER SHARE COMPUTATION

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2013 2012 2013 2012 (In thousands, except share and per share amounts)   Income (loss) from continuing operations less noncontrolling interests $ (64,070 ) $ 50,612 $ (192,940 ) $ 162,612 Total income from discontinued operations, net of tax  

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    3,497   Net income (loss)

attributable to McDermott International, Inc.

$ (64,070 ) $ 50,612 $ (192,940 ) $ 166,109     Weighted average common shares (basic) 236,257,920 235,817,203 236,132,847 235,568,889 Effect of dilutive securities: Stock options, restricted stock and restricted stock units  

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    2,049,797  

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    1,984,574   Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)   236,257,920     237,867,000   236,132,847     237,553,463     Basic earnings per share: Income (loss) from continuing operations less noncontrolling interests (0.27 ) 0.21 (0.82 ) 0.69 Income from discontinued operations, net of tax

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0.01 Net income (loss) attributable to McDermott International, Inc. (0.27 ) 0.21 (0.82 ) 0.70   Diluted earnings per share: Income (loss) from continuing operations less noncontrolling interests (0.27 ) 0.21 (0.82 ) 0.68 Income from discontinued operations, net of tax

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0.01 Net income (loss) attributable to McDermott International, Inc. (0.27 ) 0.21 (0.82 ) 0.69  

SUPPLEMENTARY DATA

      Three Months EndedSeptember 30,     Nine Months EndedSeptember 30, 2013     2012 2013     2012 (In thousands) Depreciation & amortization expense $ 20,796 $ 20,082 $ 60,114 $ 65,956 Drydock amortization $ 4,248 $ 7,999 $ 14,179 $ 21,606 Capital expenditures $ 80,922 $ 47,623 $ 225,397 $ 179,284 Backlog $ 4,610,675 $ 5,339,755 $ 4,610,675 $ 5,339,755    

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 

September 30,2013

December 31, 2012

(In thousands, except share and per share amounts) Assets Current Assets: Cash and cash equivalents $ 282,370 $ 640,147 Restricted cash and cash equivalents 18,488 18,116

Accounts receivable-trade, net

341,458 428,800

Accounts receivable-other

110,252 75,461 Contracts in progress 586,120 560,154 Deferred income taxes 11,184 9,765 Assets held for sale 1,396 2,679 Other current assets   40,959     54,667     Total Current Assets   1,392,227     1,789,789     Property, Plant and Equipment 2,337,706 2,115,176 Less accumulated depreciation   (865,897 )   (833,385 )   Net Property, Plant and Equipment 1,471,809 1,281,791 Investments 17,282 26,750 Goodwill 41,202 41,202 Investments in Unconsolidated Affiliates 26,753 37,435 Assets Held for Sale 12,243 26,758 Other Assets   195,765     129,902     Total Assets $ 3,157,281   $ 3,333,627     Liabilities and Equity Current Liabilities: Notes payable and current maturities of long-term debt $ 41,037 $ 14,146 Accounts payable 371,674 400,007 Accrued liabilities 393,024 369,418 Advance billings on contracts 312,268 241,696 Deferred income taxes 18,119 10,758 Income taxes payable   29,530     76,986     Total Current Liabilities   1,165,652     1,113,011     Long-Term Debt 53,104 88,562 Self-Insurance 26,696 22,641 Pension Liability 24,057 25,069 Other Liabilities 149,320 132,239 Commitments and Contingencies Stockholders’ Equity:

Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 243,941,008 and243,442,156 shares at September 30, 2013 and December 31, 2012, respectively

243,941 243,442 Capital in excess of par value 1,405,289 1,391,271 Retained earnings 252,816 445,756

Treasury stock, at cost, 7,665,632 and 7,574,903 shares at September 30, 2013 and December 31,2012, respectively

(98,690 ) (98,725 ) Accumulated other comprehensive loss   (129,235 )   (94,413 )   Stockholders’ Equity—McDermott International, Inc. 1,674,121 1,887,331 Noncontrolling Interests   64,331     64,774     Total Equity   1,738,452     1,952,105     Total Liabilities and Equity $ 3,157,281   $ 3,333,627    

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

    Nine Months EndedSeptember 30, 2013 2012 (In thousands) Cash Flows From Operating Activities: Net income (loss) $ (180,866 ) $ 173,644 Less: Income from discontinued operations, net of tax  

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    3,497     Income (loss) from continuing operations $ (180,866 ) $ 170,147 Non-cash items included in net income: Depreciation and amortization 60,114 65,956 Drydock amortization 14,179 21,606 Equity in loss of unconsolidated affiliates 12,967 11,026

Gain on asset disposals and impairments-net

(15,492 ) (282 ) Restructuring charges 12,940

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Provision (benefit) from deferred taxes (3,761 ) 3,929 Other non-cash items 14,817 17,779 Changes in assets and liabilities, net of effects from dispositions: Accounts receivable 50,206 (113,460 ) Net contracts in progress and advance billings on contracts 44,601 (225,340 ) Accounts payable (27,953 ) 58,675 Accrued and other current liabilities 3,038 66,125 Pension liability and accrued postretirement and employee benefits (29,196 ) 17,322 Derivative instruments and hedging activities (46,270 ) (4,880 ) Other assets and liabilities   (77,434 )   21,046    

Net Cash Provided By (Used In) Operating Activities-Continuing Operations

  (168,110 )   109,649     Cash Flows From Investing Activities: Purchases of property, plant and equipment (225,397 ) (179,284 ) Increase in restricted cash and cash equivalents (372 ) (1,112 ) Purchases of available-for-sale securities (9,886 ) (82,735 ) Sales and maturities of available-for-sale securities 39,210 164,807 Proceeds from the sale and disposal of assets 37,189 405 Other investing activities, net   (8,503 )   (2,305 )  

Net Cash Used In Investing Activities-Continuing Operations

(167,759 ) (100,224 )

Net Cash Provided By Investing Activities-Discontinued Operations

 

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    60,671     Total Cash Used In Investing Activities   (167,759 )   (39,553 )   Cash Flows From Financing Activities: Increase in debt 80,000 19,033 Payment of debt (88,567 ) (4,482 ) Noncontrolling interests distributions and other (12,493 ) (15,728 ) Other financing activities, net   (1,033 )   (2,642 )  

Net Cash Used In Financing Activities-Continuing Operations

  (22,093 )   (3,819 )   Effects of exchange rate changes on cash and cash equivalents   185     1,663     Net increase (decrease) in cash and cash equivalents (357,777 ) 67,940 Cash and cash equivalents at beginning of period   640,147     570,854    

Cash and cash equivalents at end of period-Continuing Operations

$ 282,370   $ 638,794  

McDermott International, Inc.Investors, Analysts and Financial Media:Steven D. Oldham, (281) 870-5147Vice President, Treasurer and Investor Relationssoldham@mcdermott.comorTrade and General Media:Louise Denly, (281) 870-5025Director, Corporate Communicationsldenly@mcdermott.com