McDermott’s Revenues Lower Than Year Before

McDermott International, Inc. 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.

“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 David Dickson, President and Chief Executive Officer. “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 the 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.

Press Release, March 04, 2014