MDR McDermott International Inc

McDermott International, Inc. (NYSE: MDR) (�McDermott� or the �Company�) today reported net income of $43.0 million, or $0.19 per diluted share, for the 2008 fourth quarter, compared to net income of $160.0 million, or $0.70 per diluted share, for the corresponding period in 2007. Fourth quarter 2008 net income included approximately $57 million, after-tax, of certain previously announced net expenses. Weighted average common shares outstanding on a fully diluted basis were approximately 230.6 million and 229.8 million in the quarters ended December 31, 2008 and December 31, 2007, respectively.

McDermott�s revenues in the fourth quarter of 2008 were $1,664.5 million, an increase of 9.1 percent compared to $1,526.0 million in the corresponding period in 2007. The Company�s $138.5 million growth in revenues was provided by a 15.7% and 13.1% increase in the Offshore Oil & Gas Construction and Government Operations segments, respectively.

The Company�s operating income was $89.7 million in the 2008 fourth quarter, compared to $186.8 million in the 2007 fourth quarter. As previously announced, the 2008 fourth quarter included approximately $50 million of certain net expenses from the Offshore Oil & Gas Construction and Power Generation Systems segments.

�McDermott�s fourth quarter results generally came in at the upper end of the Company�s pre-announced range from early February,� said John A. Fees, Chief Executive Officer of McDermott. �Although we�re not satisfied with our consolidated results for the second half of 2008, we are pleased that McDermott�s backlog remained near record levels, the industries we serve have continued demand for our offerings, our liquidity position at year end provides continued financial flexibility and consolidated bookings and bids remained robust. While we recognize the overall business environment remains in flux, we believe McDermott remains well-positioned in the industries we serve.�

At December 31, 2008, McDermott�s consolidated backlog was $9.8 billion, compared to $9.8 billion and $9.4 billion at December 31, 2007 and September 30, 2008, respectively.

For the year-ended December 31, 2008, the Company reported consolidated revenues of $6.6 billion, producing operating income of $569.9 million and net income of $429.3 million, or $1.86 per diluted share, the second best year for net income in McDermott�s history.

RESULTS OF OPERATIONS

2008 Fourth Quarter Compared to 2007 Fourth Quarter

Offshore Oil & Gas Construction Segment

Revenues in the Offshore Oil & Gas Construction segment were $848.3 million in the 2008 fourth quarter, compared to $733.3 million for the same period a year ago. The year-over-year growth in revenues resulted from increased activities in the Middle East, Asia Pacific and Americas regions, partially offset by reduced activities in the Caspian region.

Segment income for the 2008 fourth quarter was $14.9 million, compared to $100.0 million in the 2007 fourth quarter. As previously disclosed, the 2008 fourth quarter includes approximately $70 million of incurred and expected cost increases recognized during the period on certain Middle East pipeline projects and other procured items, partially offset by a $36 million benefit from the resolution of an outstanding claim.

At December 31, 2008, segment backlog was $4.5 billion, compared to backlog of $4.8 billion and $5.0 billion at December 31, 2007 and September 30, 2008, respectively.

Power Generation Systems Segment

Revenues in the Power Generation Systems segment for the fourth quarter of 2008 were $605.5 million, compared to $608.0 million in the fourth quarter of 2007.

Segment income for the 2008 fourth quarter was $48.7 million, compared to $65.9 million in the 2007 fourth quarter. Major activities contributing to fourth quarter 2008 segment income include the supply and construction of new boilers and environmental equipment, retrofit projects of existing facilities, and related parts and services. In addition, the 2008 fourth quarter included approximately $15 million of the write-down of certain inventories and increased warranty reserves.

At December 31, 2008, segment backlog was $2.5 billion, compared to backlog of $3.3 billion and $2.8 billion at December 31, 2007 and September 30, 2008, respectively.

Government Operations Segment

Revenues in the Government Operations segment were $212.2 million in the 2008 fourth quarter, compared to $187.7 million for the same period a year ago. The improvement was primarily due to increased volumes in the manufacture of nuclear components for certain U.S. Government programs and for a commercial uranium enrichment project.

Segment income for the 2008 fourth quarter was $35.2 million, compared to $33.3 million in the 2007 fourth quarter. Major items contributing to fourth quarter 2008 segment income include the manufacture of nuclear components for certain U.S. Government programs, the manufacture of nuclear components for a commercial uranium enrichment project, and the management and operations of various U.S. Government sites.

At December 31, 2008, segment backlog was $2.9 billion, compared to backlog of $1.8 billion and $1.6 billion at December 31, 2007 and September 30, 2008, respectively.

Corporate & Other Income and Expense

Unallocated corporate expenses were $9.2 million in the 2008 fourth quarter, compared to $12.4 million in the 2007 fourth quarter. The Company�s other expense for the fourth quarter of 2008 was $7.1 million, compared to other income of $7.3 million in the fourth quarter of 2007, due to a year-over-year decline in interest income and an approximate $10 million non-cash foreign currency translation expense.

Balance Sheet Items

At December 31, 2008, total assets were approximately $4.6 billion, a 4.3% increase from year-end 2007. McDermott had approximately $1.1 billion in cash, restricted cash, cash equivalents and investments at year-end 2008, approximately $440 million below year-end 2007 levels as a result of approximately $450 million spent on capital expenditures and acquisitions as well as an almost $500 million reduction in current liabilities during the 2008 year. Long-term debt, notes payable and current maturities ended 2008 at approximately $15 million, with over $750 million of credit capacity also available at December 31, 2008. McDermott�s pension liability increased approximately $380 million from year-end 2007, primarily resulting from a nearly 20% full-year decline in the market value of pension assets, which will result in approximately $135 million of pension expense expected for 2009, a $90 million increase from 2008. Shareholder�s equity increased approximately $150 million during 2008, to end the year at $1.3 billion.

OTHER INFORMATION

About the Company

McDermott is an engineering and construction company, with specialty manufacturing and service capabilities, focused on energy infrastructure. McDermott�s customers are predominantly utilities and other power generators, major and national oil companies, and the United States Government. With its global operations, McDermott operates in over 20 countries with more than 25,000 employees.

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 the Company�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, our expected 2009 pension expense and our belief that we are well positioned in the industries we serve. 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 and changes in the scope or timing of contracts in backlog. 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.

Conference Call to Discuss Fourth Quarter 2008 Earnings Release

�

Date:

� Tuesday, March 3, 2009, at 10:00 a.m. EDT (9:00 a.m. CDT)

Live Webcast:

Investor Relations section of Web site at www.mcdermott.com

Replay:

Available for two weeks in the investor relations section of www.mcdermott.com

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

� Three Months Ended

December 31,

Twelve Months Ended December 31,

2008

2007

2008

2007

(Unaudited) (In thousands, except shares and per share amounts) Revenues � $ 1,664,500 � $ 1,526,016 � $ 6,572,423 � $ 5,631,610 � Costs and Expenses: Cost of operations 1,452,646 1,222,842 5,519,827 4,500,897

(Gains) losses on asset disposals and impairments � net

(880 ) (5,991 ) (12,202 ) (8,371 ) Selling, general and administrative expenses � � 138,749 � � 137,086 � � 543,047 � � 464,611 � � � � 1,590,515 � � 1,353,937 � � 6,050,672 � � 4,957,137 � � Equity in Income of Investees � � 15,688 � � 14,698 � � 48,131 � � 41,724 � � Operating Income � � 89,673 � � 186,777 � � 569,882 � � 716,197 � � Other Income (Expense): Interest income 4,812 16,569 34,353 61,980 Interest expense (1,631 ) (4,089 ) (7,380 ) (22,520 ) Other expense � net � � (10,293 ) � (5,142 ) � (9,741 ) � (10,192 ) � � � (7,112 ) � 7,338 � � 17,232 � � 29,268 � � Income from Continuing Operations before Provision for Income Taxes 82,561 194,115 587,114 745,465 � Provision for Income Taxes � � 39,559 � � 34,130 � � 157,812 � � 137,637 � � Net Income � $ 43,002 � $ 159,985 � $ 429,302 � $ 607,828 � � Earnings per Common Share: Basic: Income from Continuing Operations $ 0.19 $ 0.71 $ 1.89 $ 2.72 Net Income $ 0.19 $ 0.71 $ 1.89 $ 2.72 Diluted: Income from Continuing Operations $ 0.19 $ 0.70 $ 1.86 $ 2.66 Net Income � $ 0.19 � $ 0.70 � $ 1.86 � $ 2.66 � � Shares used in the computation of earnings per share: Basic 227,739,578 225,213,119 226,918,776 223,511,880 Diluted � � 230,589,855 � � 229,762,318 � � 230,393,782 � � 228,742,522 �

McDERMOTT INTERNATIONAL, INC.

SELECTED SEGMENT INFORMATION

� � � � Three Months Ended Twelve Months Ended December 31, December 31,

2008

2007

2008

2007

(Unaudited) (In thousands)

REVENUES

Offshore Oil and Gas Construction $ 848,320 $ 733,261 $ 3,181,238 $ 2,445,675 Government Operations 212,227 187,684 851,019 694,024 Power Generation Systems 605,530 608,047 2,550,854 2,504,225 Adjustments and Eliminations � � (1,577 ) � � (2,976 ) � � (10,688 ) � � (12,314 ) TOTAL � $ 1,664,500 � � $ 1,526,016 � � $ 6,572,423 � � $ 5,631,610 � � SEGMENT INCOME Offshore Oil and Gas Construction $ 14,932 $ 100,000 $ 146,180 $ 400,402 Government Operations 35,228 33,306 150,232 122,941 Power Generation Systems � � 48,670 � � � 65,864 � � � 315,362 � � � 234,068 � � � � 98,830 � � � 199,170 � � � 611,774 � � � 757,411 � Unallocated Corporate � � (9,157 ) � � (12,393 ) � � (41,892 ) � � (41,214 ) OPERATING INCOME � $ 89,673 � � $ 186,777 � � $ 569,882 � � $ 716,197 � � EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and Gas Construction $ (990 ) $ (985 ) $ (3,661 ) $ (3,923 ) Government Operations 13,868 11,681 41,381 31,288 Power Generation Systems � � 2,810 � � � 4,002 � � � 10,411 � � � 14,359 � TOTAL � $ 15,688 � � $ 14,698 � � $ 48,131 � � $ 41,724 � � DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $ 19,379 $ 17,262 $ 80,148 $ 54,318 Government Operations 5,634 5,636 22,445 19,269 Power Generation Systems 5,513 5,702 22,080 21,266 Corporate � � 548 � � � 281 � � � 1,460 � � � 1,136 � TOTAL � $ 31,074 � � $ 28,881 � � $ 126,133 � � $ 95,989 � � CAPITAL EXPENDITURES Offshore Oil and Gas Construction $ 44,208 $ 35,651 $ 193,736 $ 172,580 Government Operations 7,864 6,385 16,348 14,117 Power Generation Systems 13,191 8,949 33,896 40,218 Corporate � � 1,044 � � � 501 � � � 11,711 � � � 6,374 � TOTAL � $ 66,307 � � $ 51,486 � � $ 255,691 � � $ 233,289 � � BACKLOG Offshore Oil and Gas Construction $ 4,456,951 $ 4,752,794 $ 4,456,951 $ 4,752,794 Government Operations 2,882,895 1,790,686 2,882,895 1,790,686 Power Generation Systems � � 2,476,435 � � � 3,276,129 � � � 2,476,435 � � � 3,276,129 � TOTAL � $ 9,816,281 � � $ 9,819,609 � � $ 9,816,281 � � $ 9,819,609 � � (1) Included in Segment Income Above

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

� � � December 31, 2008 2007 (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 586,649 $ 1,001,394 Restricted cash and cash equivalents 50,536 64,786 Investments 131,515 300,092 Accounts receivable � trade, net 712,055 770,024 Accounts and notes receivable � unconsolidated affiliates 1,504 2,303 Accounts receivable � other 139,062 116,744 Contracts in progress 311,713 194,292 Inventories 128,383 95,208 Deferred income taxes 97,069 160,783 Other current assets � � 58,499 � � � 51,874 � Total Current Assets � � 2,216,985 � � � 2,757,500 � Property, Plant and Equipment 2,234,050 2,004,138 Less accumulated depreciation � � 1,155,191 � � � 1,090,400 � Net Property, Plant and Equipment � � 1,078,859 � � � 913,738 � Investments � � 319,170 � � � 162,069 � Goodwill � � 298,265 � � � 158,533 � Deferred Income Taxes � � 335,877 � � � 134,292 � Investments in Unconsolidated Affiliates � � 70,304 � � � 62,241 � Other Assets � � 282,233 � � � 223,113 � TOTAL � $ 4,601,693 � � $ 4,411,486

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

� December 31, 2008 2007 (In thousands) LIABILITIES AND STOCKHOLDERS� EQUITY Current Liabilities: Notes payable and current maturities of long-term debt $ 9,021 $ 6,599 Accounts payable 551,435 455,659 Accrued employee benefits 159,541 184,211 Accrued pension liability � current portion 45,980 159,601 Accrued contract cost 97,041 93,281 Advance billings on contracts 951,895 1,463,223 Accrued warranty expense 120,237 101,330 Income taxes payable 55,709 57,071 Accrued liabilities � other � 217,486 � � � 175,557 � � Total Current Liabilities � 2,208,345 � � � 2,696,532 � � Long-Term Debt � 6,109 � � � 10,609 � � Accumulated Postretirement Benefit Obligation � 107,567 � � � 96,253 � � Self-Insurance � 88,312 � � � 82,525 � � Pension Liability � 682,624 � � � 188,748 � � Other Liabilities � 192,564 � � � 169,814 � � Commitments and Contingencies � Stockholders� Equity: Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 234,174,088 and 231,722,659 at December 31, 2008 and 2007, respectively 234,174 231,723 Capital in excess of par value 1,252,848 1,145,829 Retained earnings 564,591 135,289 Treasury stock at cost, 5,840,314 and 5,852,248 at December 31, 2008 and 2007, respectively (63,026 ) (63,903 ) Accumulated other comprehensive loss � (672,415 ) � � (281,933 ) � Total Stockholders� Equity � 1,316,172 � � � 1,167,005 � � TOTAL $ 4,601,693 � � $ 4,411,486 �

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

� � Year Ended December 31,

2008

2007

(In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 429,302 $ 607,828 Non-cash items included in net income: Depreciation and amortization 126,133 95,989 (Income) loss of investees, net of dividends 1,545 120 (Gains) losses on asset disposals and impairments � net (12,202 ) (8,371 ) Gain on sale of business - - Premium on early retirement of debt - - Provision for deferred taxes 35,063 89,624 Amortization of pension and postretirement costs 38,131 50,957 Excess tax benefits from FAS 123(R) stock-based compensation (60,901 ) (877 ) Other, net 38,372 21,726 Changes in assets and liabilities, net of effects from acquisition and divestitures: Accounts receivable 71,142 (82,105 ) Income taxes receivable (11,476 ) 255,165 Accounts payable 86,069 40,384 Net contracts in progress and advance billings (630,481 ) 382,184 Income taxes 13,046 (13,216 ) Accrued and other current liabilities 18,142 (14,305 ) Pension liability and accrued postretirement and employee benefits (205,345 ) (74,365 ) Payment of the B&W PGG bankruptcy settlement - - Other, net � � 14,493 � � � (33,790 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES � � (48,967 ) � � 1,316,948 � CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 14,250 41,888 Purchases of property, plant and equipment (255,691 ) (233,289 ) Acquisition of businesses, net of cash acquired (191,940 ) (334,457 ) Net (increase) decrease in available-for-sale securities 2,009 (159,350 ) Proceeds from asset disposals 13,996 11,223 Cash acquired from the reconsolidation of B&W PGG - - Other, net � � (2,996 ) � � (4,696 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES � � (420,372 ) � � (678,681 ) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - - Payment of long-term debt (4,768 ) (255,749 ) Payment of debt issuance costs (1,756 ) (3,625 ) Increase in short-term borrowing 1,460 - Issuance of common stock 9,624 15,219 Excess tax benefits from FAS 123(R) stock-based compensation 60,901 877 Other, net � � (2 ) � � 4 � NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES � � 65,459 � � � (243,274 ) EFFECTS OF EXCHANGE RATE CHANGES ON CASH � � (10,865 ) � � 5,558 � NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS � � (414,745 ) � � 400,551 � CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD � � 1,001,394 � � � 600,843 � CASH AND CASH EQUIVALENTS AT END OF PERIOD � $ 586,649 � � $ 1,001,394 � � SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest (net of amount capitalized) $ 11,978 $ 28,066 Income taxes (net of refunds) � $ 68,637 � � $ (208,194 )