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
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 EndedDecember 31, Year
EndedDecember 31, 2013 2012 2013
2012 (In thousands) Revenues $ 517,338
$ 995,953 $ 2,658,932 $ 3,641,624 Costs
and Expenses: Cost of operations 678,938 853,047 2,801,426
3,100,009 Selling, general and administrative expenses 49,885
60,047 201,171 205,974 Loss on asset impairments 84,482
-
84,482
-
(Gain) loss on asset disposals 292 (123 ) (15,200 ) (405 )
Restructuring charges 16,225
-
35,727
-
Total costs and expenses 829,822
912,971 3,107,606 3,305,578
Equity in Loss of Unconsolidated Affiliates (3,149 )
(5,693 ) (16,116 ) (16,719 )
Operating Income (Loss) (315,633 ) 77,289
(464,790 ) 319,327 Other Income
(Expense): Interest income – net 220 441 1,353 4,656 Gain on
foreign currency – net 6,034 8,956 16,872 20,142 Other expense –
net (4,152 ) (707 ) (2,339 ) (995 )
Total Other Income 2,102 8,690
15,886 23,803 Income
(loss) from continuing operations before provision for income
taxes, discontinued operations and noncontrolling interest (313,531
) 85,979 (448,904 ) 343,130 Provision for Income Taxes 3,558
42,200 49,051 129,204
Income (loss) from continuing operations
before discontinued operations and noncontrolling interest
(317,089 ) 43,779 (497,955 )
213,926 Gain (loss) on disposal of discontinued
operations
-
-
-
257
Income from discontinued operations, net
of tax
-
-
-
3,240 Total income from discontinued
operations, net of tax
-
-
-
3,497 Net Income (Loss) (317,089
) 43,779 (497,955 ) 217,423
Less: net income attributable to
noncontrolling interests
6,884 3,235 18,958
10,770 Net Income (Loss) Attributable
to McDermott International, Inc. $ (323,973 ) $ 40,544 $
(516,913 ) $ 206,653
McDERMOTT INTERNATIONAL, INC.
EARNINGS PER SHARE COMPUTATION
Three Months EndedDecember 31,
Year EndedDecember 31,
2013 2012 2013 2012 (In
thousands, except share and per share amounts) Income
(loss) from continuing operations less noncontrolling interests $
(323,973 ) $ 40,544 $ (516,913 ) $ 203,156 Loss from discontinued
operations, net of tax
-
-
-
3,497 Net income (loss) attributable to
McDermott International, Inc. $ (323,973 ) $ 40,544 $ (516,913 ) $
206,653 Weighted average common shares 236,952,496
235,847,019 236,514,584 235,638,422 Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
-
1,971,339
-
1,981,266 Adjusted weighted average common
shares and assumed exercises of stock options and vesting of stock
awards 236,952,496 237,818,358
236,514,584 237,619,688
Basic
earnings per share : Income (loss) from continuing operations
less noncontrolling interests (1.37 ) 0.17 (2.19 ) 0.86 Income
(loss) from discontinued operations, net of tax
-
-
-
0.01 Net Income. (1.37 ) 0.17 (2.19 ) 0.88
Diluted
earnings per share: Income (loss) from continuing operations,
less noncontrolling interests (1.37 ) 0.17 (2.19 ) 0.86 Income
(loss) from discontinued operations, net of tax
-
-
-
0.01 Net income (Loss). (1.37 ) 0.17 (2.19 ) 0.87
SUPPLEMENTARY DATA
Three Months EndedDecember 31,
Year EndedDecember 31,
2013 2012 2013 2012 (In
thousands) Drydock amortization $ 4,288 $ 3,939 $ 18,467 $
25,545 Depreciation & amortization expense $ 24,466 $ 20,404 $
84,580 $ 86,440 Capital expenditures $ 58,565 $ 107,026 $ 283,962 $
286,310 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, exceptshare and per
shareamounts) 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 long-term debt $ 39,543 $ 14,146 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 shares
at December 31, 2013 and December 31, 2012, respectively 244,271
243,442 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 December 31, 2012,
respectively (97,926 ) (98,725 ) Accumulated other comprehensive
loss (140,131 ) (94,413 )
Stockholders’ Equity--McDermott
International, Inc.
1,349,514 1,887,331 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, net of tax
-
(3,497 ) 12,812 Income (loss)
from continuing operations (497,955 ) 213,926 164,167 Non-cash
items included in net income: Depreciation and amortization 84,580
86,440 82,391 Drydock amortization 18,467 25,545 24,567 Equity in
loss of unconsolidated affiliates 16,116 16,719 4,985 Gains on
asset disposals (15,200 ) (405 ) (8,478 ) Loss on asset impairments
84,482
-
5,488 Provision for deferred taxes (5,359 ) 3,847 1,650 Stock-based
compensation charges 21,100 15,369 17,825 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 contracts 171,397 (351,604 ) (151,157 ) Accounts
payable (17,493 ) 84,430 71,291 Accrued and other current
liabilities (22,155 ) 36,922 56,049 Income taxes (54,431 ) 22,832
17,138 Pension liability and accrued postretirement and employee
benefits (30,828 ) 36,897 (83,263 ) Other (54,069 )
16,419 29,537
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES--CONTINUING OPERATIONS
(256,611 ) 209,784 97,446
NET CASH USED IN OPERATING
ACTIVITIES--DISCONTINUED OPERATIONS
-
-
(1,426 )
TOTAL CASH PROVIDED BY OPERATING
ACTIVITIES (256,611 )
209,784 96,020 CASH
FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant
and equipment (283,962 ) (286,310 ) (282,621 ) (Increase) decrease
in restricted cash and cash equivalents (5,536 ) 3,846 175,899
Purchases of available-for-sale securities (10,535 ) (95,964 )
(546,822 ) Sales and maturities of available-for-sale securities
43,959 191,298 693,424 Investments in unconsolidated affiliates
(9,354 ) (5,084 ) (1,058 ) Proceeds from asset dispositions and
other investing activities 34,273 3,291
9,943
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES--CONTINUING OPERATIONS
(231,155 ) (188,923 ) 48,765
NET CASH PROVIDED BY INVESTING
ACTIVITIES--DISCONTINUED OPERATIONS
-
60,671
-
TOTAL CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (231,155 )
(128,252 ) 48,765 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 noncontrolling interests (13,743 ) (20,135 )
(2,524 ) Debt issuance costs and other financing activities
(4,837 ) 267 (4,476 )
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES--CONTINUING OPERATIONS
(33,832 ) (13,793 ) 21,289
NET CASH PROVIDED BY FINANCING
ACTIVITIES--DISCONTINUED OPERATIONS
-
-
1,426
TOTAL CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES (33,832 )
(13,793 ) 22,715 EFFECTS
OF EXCHANGE RATE CHANGES ON CASH 153 1,554
(109 )
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (521,445 ) 69,293
167,391 CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 640,147 570,854
403,463 CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 118,702
$ 640,147 $ 570,854
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for: Income taxes (net of
refunds) $ 105,444 $ 89,451 $ 67,970
McDermott International, Inc.Investors & Financial
MediaSteve Oldham,
+1.281.870.5147soldham@mcdermott.comorTrade, General & Local
MediaLouise Denly, +1.281.870.5025ldenly@mcdermott.com
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