McDermott Reports Second Quarter 2015 Financial and Operational Results

HOUSTON

McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today announced financial and operational results for the quarter ended June 30, 2015. The Company reported second quarter 2015 net income of $11.5 million, or $0.04 per fully diluted share compared to a net loss of $7.4 million, or $0.03 per diluted share, in the prior-year quarter. Net of restructuring charges and one-time losses on the impairment and disposal of assets, the second quarter income would have been increased by $24.1 million or $0.08 per fully diluted share.

“This was another positive quarter for McDermott as we experienced excellent execution on our existing portfolio of projects and all of our areas returned to profitability. While the timing of new order intake remains volatile as commodity prices remain low, we continue to leverage McDermott’s vertically integrated model and win contracts in our key markets, including a new project for Saudi Aramco and two new projects in the Americas. Additionally, we remain disciplined in bidding new projects and continue to actively manage our cost structure,” said David Dickson, President and Chief Executive Officer of McDermott. “The end of the second quarter also marked a significant achievement for the Company in health and safety. With a continued focus on HSE and project execution, we exceeded the key milestone of one year without a loss-time incident in all of McDermott’s global operations.”

Second Quarter 2015 Operating Results

The Company reported second quarter 2015 revenues of $1.05 billion, an increase of $570.5 million, compared to revenues of $476.1 million for the prior-year second quarter. Revenues for the second quarter of 2015 were positively impacted by strong revenue recognition at the INPEX Ichthys project, Brunei Shell Petroleum project and three Middle East projects.

McDermott’s operating income was $41.6 million for the second quarter of 2015 and included $15.4 million of restructuring expenses and $8.7 million of one-time losses on the impairment and disposal of assets. These results compare to the 2014 second quarter operating income of $31.5 million, which included $1.3 million of restructuring expenses and $45.7 million of gains from the disposal of assets and impairments. Net of the asset gains and impairments, the operating income for the second quarter of 2014 would have been negative. Operating income for the second quarter 2015 was positively impacted by revenue improvements, a project close out in Brazil and marine utilization.

Cash used in operating activities in the second quarter 2015 was $7.6 million, compared to a use of cash of $70.6 million for the second quarter 2014.

Operational Update

In Americas, Europe and Africa (“AEA”), the Company’s PB Litoral project is nearing completion with preparations well underway for the conclusion of the construction, offshore installation, hook-up and commissioning. The project remains on track with sail-away of the 7,200-ton structure, from the Company’s Altamira yard, expected near the end of the third quarter. In May, the Altamira fabrication yard reached seven million man hours without a Lost Time Injury (“LTI”). During the quarter, McDermott’s Derrick Barge 50 (“DB 50”) installed a mobile drilling structure on top of the Pemex Ayatsil A platform for Drillmec. In addition, the Company was awarded its fourth contract from Pemex in the Ayatsil field, for the construction of a replacement jacket and associated deck installation. The DB 50 also supported Heerema and Anadarko with the installation of the Heidelberg Spar hull in the U.S. Gulf of Mexico (“GOM”). Recently, McDermott was awarded the LLOG OTIS subsea project, to be executed in the GOM. The pipeline to be installed as part of the OTIS project is expected to be the first subsea rigid pipe reeling scope to be executed at the McDermott spoolbase, currently under development in Gulfport, Mississippi.

In the Middle East (“MEA”), McDermott was awarded a large brownfield contract by Saudi Aramco for the full engineering, procurement, construction and installation (“EPCI”) scope of 12 jackets for various offshore oil and gas fields in Saudi Arabian waters. In addition, Saudi Aramco selected McDermott as one of the companies for its new Long Term Agreement (“LTA”) award. The LTA establishes the terms and conditions by which McDermott can bid on future EPCI opportunities offshore Saudi Arabia. The award is the second LTA between McDermott and Saudi Aramco. Currently, McDermott executes work under the prior LTA with Saudi Aramco, which has been in place since June 2007. At another ongoing project with Saudi Aramco, McDermott was asked to significantly accelerate the schedule of the fabrication and marine installation program to accommodate earlier production from the gas field. McDermott was able to advance the project forward several months. The project accomplishment was directly attributable to the Company’s collaboration with its customer and ability to control the complete vertical EPCI process. Marine Operations in the area also achieved two years without a recordable injury and two years LTI free.

In Asia (“ASA”), the INPEX Ichthys project achieved all the agreed-upon milestones during the quarter, remaining on schedule and profitable. McDermott’s Construction Support Vessel 108 arrived infield at the end of the second quarter and commenced its extensive marine campaign. On the Brunei Shell Petroleum Project, the Derrick Barge 30 and Emerald Sea completed the installation of approximately 50 miles of replacement pipelines and also tied-in 11 flexible pipelines. In Batam, Indonesia, McDermott’s fabrication facility received two significant recognition awards during the quarter. The first recognition was from Chevron Australia for outstanding environmental control on the Gorgon Project for Western Australia. The second was received from Badan Penyelenggara Jaminan Sosial Ketenagakerjaan (Workers’ Social Security Management Agency) for McDermott’s commitment to the health and safety of its employees.

Other Financial Information

As of June 30, 2015, McDermott reported total assets of $3.5 billion. Included in this amount was $771.0 million in cash and cash equivalents and restricted cash. At quarter end, the Company had $854.2 million in debt outstanding, inclusive of $24 million of debt issuance costs, and total equity of $1.6 billion, or 45% of total assets.

Weighted average common shares outstanding on a fully diluted basis were approximately 289.7 million and 237.4 million for the quarters ended June 30, 2015 and June 30, 2014, respectively. Common shares for the settlement of the common stock purchase contracts related to the Tangible Equity Units (“TEUs”) representing 40.9 million additional shares, as well as other potentially dilutive shares, were included in the calculation of diluted weighted average shares for the quarter ended June 30, 2015, due to the Company’s positive Net Income position. For the quarter ended June 30, 2014, the TEUs and other dilutive shares were not considered in the fully diluted share count, due to their anti-dilutive effect.

Contract Backlog Summary

As of June 30, 2015, the Company’s backlog was $3.1 billion, compared to $3.75 billion at March 31, 2015. Of the June 30, 2015 backlog, approximately 52% related to offshore operations and approximately 48% related to subsea operations. Order intake in the second quarter 2015 totaled $428.5 million and included new awards for Saudi Aramco in the MEA area, as well as PEMEX and LLOG in the AEA area.

At June 30, 2015, the Company had $7.5 billion in bids and change orders outstanding, compared to $8.8 billion at March 31, 2015. At June 30, 2015, the Company was targeting to bid approximately $13.5 billion in projects that it expects to be awarded to the market through September 30, 2016. In total, the Company’s potential revenue pipeline was $24.1 billion as of June 30, 2015. A key change in the total quarter-over-quarter revenue pipeline was the shift of Chevron’s Gendalo Gehem mega project in Indonesia beyond the five quarters represented in the pipeline.

2015 Full Year Guidance Update

Revenues for the year are anticipated to be slightly lower than original 2015 guidance because of the delays at Ichthys during the first quarter and customer initiated project schedule changes. Full-year operating income, including restructuring costs and one-time losses on the impairment and disposal of assets, is expected to be higher as a result of improved execution and focus on cost management. Capex, excluding $23 million of capitalized interest, decreased substantially for the year, as the final spend for the delivery of the DLV 2000 has shifted into first quarter 2016 due to a slight construction delay on the vessel. Annual maintenance and project capital expenditures will be in the range of $30 million – $40 million for 2015. As a result of the delay in the DLV 2000, year-end cash is anticipated to be higher than originally forecasted. Costs associated with the Company’s restructuring efforts have increased due to severance costs, external consulting support and the final decommissioning costs on the DB 101 vessel during the second quarter. The foregoing guidance does not include amounts for unplanned and unreserved contingencies.

Additional updates to the Company’s 2015 guidance are available in the Supplemental Slide Deck which can be found on the Investor Relations section of McDermott’s website at www.mcdermott.com.

Cost Structure Update

The McDermott Profitability Initiative continues to progress and remains on target for expected full year 2015 annual cash savings of $50 million. During the first quarter of the year, a majority of the rightsizing of the organization was completed and centralization of several of the Company’s support groups has commenced. Within the marine assets and operations and the supply-chain groups, McDermott has launched several supplier cost reduction initiatives. The Company plans to transition to a balanced outsourced model for some of the non-technical crews on its vessels, allowing the Company to restructure some of its fixed costs to be more variable with award activity. Restructuring costs for the quarter were $15.4 million.

Conference Call

McDermott has scheduled a conference call and webcast related to its second quarter 2015 results today at 4:00 p.m. U.S. Central Daylight Savings Time. Interested parties may listen over the Internet through a link posted in the Investor Relations section of the Company’s Web site. A replay of the webcast will be available for seven days after the call and may be accessed by dialing (855) 859-2056, Passcode #97080471. In addition, a presentation will be available on the Investor Relations section of the Company’s Web site that contains supplemental information on our operations and our business outlook.

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 approximately 20 countries across the world, our locally focused and globally integrated resources include approximately 11,700 employees and contractors, 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, projects McDermott expects to bid and the expected timing of award of such, and revenue pipeline, to the extent to which these may be viewed as indicators of future revenues or profitability; the expected scope, execution and timing associated with certain projects discussed herein; expected earnings and other financial guidance provided for the full year of 2015; expectations regarding improvements and savings related to McDermott’s profitability initiative and the timing of such; and the Company’s plan with respect to certain marine operations. 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 terms, scope or timing of contracts, contract cancellations, change orders and other modifications and actions by our customers and business partners; changes in industry norms and adverse outcomes in legal or other dispute resolution proceedings. 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, 2014 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150810006248/en/

McDermott International, Inc.
Investors & Financial Media
Darcey Matthews, 281.870.5147
Vice President, Investor Relations
dmatthews@mcdermott.com